Glossary

A

Abstract of Title
A history of ownership of a property and any documentation that affect the title during that ownership.

Acceleration Clause
A provision of a mortgage or note that gives the lender the right to demand that the entire outstanding balance is due if there is a breach of the terms or provisions of the loan documents.

Acceptance of Sale (Sales Contract)
An offer to purchase that has been signed by both the buyer and the seller. A firm contract that outlines all details of the property transaction.

Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that floats up or down, depending on the current market, which may cause the monthly payment to adjust up or down accordingly.

Amortization
The paying off of a debt such as a mortgage in periodic installments for the term of the loan.

Annual Percentage Rate (APR)
Actual cost of credit to the borrower, including interest and certain other charges, expressed as a yearly rate and calculated over the life of the loan.

Appraisal
A written analysis of the estimated value of a property.

Appraisal Fee
A fee generally paid by the buyer to determine the estimated value of the property.

Appreciation
The increase in value of a home.

Assessments
Local improvements on a property for sewer or water generally paid in full on all cash or new loan transactions.

B

Balloon Mortgage
A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of the term.

Bankruptcy
A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts.

Billing Cycle
The period or number of days shown on a billing statement in which interest is billed.

Bi-Weekly Mortgage
A mortgage with payments due every two weeks, totaling 26 payments per year.

Bond Program
A state sponsored method of assisting borrowers and first-time buyers in the purchase of a home at a reduced interest rate.

Broker
An individual who brings buyers and sellers together and assists in negotiating contracts for a client

Buy Down
A method of lowering the interest rate on a mortgage, either temporarily or for the entire term of the loan. Often points are paid up front to make up the difference between the rate actually charged on the mortgage and the rate at which the buyer pays.

Buyer's Market
Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.

C

Call Option
A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

Cap
To safeguard against excessively high payment increases, adjustable rate mortgage programs place a cap on the amount by which either the interest rate or payment may rise at any single adjustment, over the life of the loan, or both. Look at the cap as “the worst case scenario” to determine if the ARM suits your financial capabilities.

Cash Out
Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already built up in the house. The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan.

For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in points), you would be left with $18,000 cash out. Cash-out loans may not be available for all types of property

Ceiling
The maximum allowable interest rate of an adjustable rate mortgage.

Certificate of Title
Written opinion, given by an attorney or title company, that the title to real estate is legally held by the current owner.

Chain of Title
The chronological order of transfer of title to a property from the original owner to the present owner.

Closed-End Loan
A credit arrangement in which the borrower and lender agree on the total amount loaned and the number, amount and due dates of each payment; all proceeds are advanced at time of closing.

Closing (Settlement)
The meeting between the seller and buyer when the property legally changes hands.

Closing Costs (Settlement Fees)
Fees paid to effect the closing of a mortgage (e.g., origination fee, discount points, title insurance fees, survey fees, and attorney's fees).

Collateral
The security offered by the borrower to secure his promise to pay a debt; the security may become the property of the lender, if the borrower fails to repay the funds.

Collection
The servicing procedure followed to bring a delinquent mortgage loan current and to file the required notices to begin foreclosure if necessary.

Commission
Money paid to a real estate agent or broker for negotiating a real estate or loan transaction.

Commitment
A promise to lend and a statement by the lender of the terms and conditions under which a loan is made.

Comparables
An abbreviation for "comparable properties;" used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Combined Loan-to-Value (“CLTV”)
The relationship of the outstanding balances of a first and second mortgage to the appraised value of the security used to determine the maximum lendable amount on real estate.

Commitment
A lender's offer to grant a mortgage loan outlining the terms, the amount of the loan, the interest rate and other conditions. It can also serve as a communication of the lender's decision on the borrower's application.

Condominium
A form of property ownership in which the homeowner holds title to an individual dwelling unit and an undivided interest in common areas and facilities of a multi-unit project.

Conforming Loan
A loan, which meets all requirements to be eligible for sale to Fannie Mae or Freddie Mac.

Conventional Mortgage
A mortgage loan which is not insured or guaranteed by a government agency such as FHA or VA.

Construction Loan
A short-term, interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as work progresses.

Contract of Sale
The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Conversion Clause
A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, at a specific time after origination. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.

Convertible ARMs
A type of ARM loan with the option to convert to a fixed-rate loan under certain conditions.

Cost of Funds Index (COFI)
An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.

Credit Pre-Approval
A process in which an individual can apply for a credit pre-approval decision before he/she actually finds a home and enters into a sales agreement.

Credit Report
A report on the credit standing of a prospective borrower, used to aid in the determination of credit worthiness.

Credit Score
A score based upon present financial condition, experience, and past credit history, used to determine the credit standing and creditworthiness of a prospective borrower.

Current Debt
The amount of money owed on a property, or other secured or unsecured loan balance, such as credit cards or car loans.

Call Option
A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

D

Debt-to-Income Ratio
A measure of creditworthiness computed by dividing the dollar amount of monthly debts by total gross monthly income, then converting the result to a percentage.

Deed
The legal document that is used to transfer the title from one owner to another.

Deed-in-Lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

Deed of Trust
A legal document used in some states instead of a mortgage. It conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full

Delinquent
The state of being one or more months behind the loan payment schedule.

Discount Points
Amount paid to the lender by the borrower to decrease the interest rate. One point is equal to one percent of the loan amount.

Down Payment
A portion of the sales price paid by a buyer to a seller to close a sales transaction, with the understanding that the balance will be paid later.

E

Earnest Money
Deposit made by a buyer towards the down payment to show that he or she is serious about buying the house.

Economic Indicator
A variety of indicators, such as the Consumer Price Index or the Gross Domestic Product (GDP), that predict where the interest rates may be heading in the coming months.

Equity
The difference between the current market value of a property and the total amount of outstanding liens against the property.

Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Escrow Account
Lenders often establish an account called escrow or impound account, to pay the tax and insurance and other additional charges of your monthly mortgage payment.

Escrow Analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due

Escrow Payment
The portion of the mortgage payment used to pay taxes and insurance premiums by the lender or designated loan servicer. May also be called impounds or reserves.

F

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Federal Home Loan Mortgage Corporation (Freddie Mac)
A government-sponsored institution that supports the secondary mortgage market by purchasing mortgages from lenders and reselling them as securities.

Federal Housing Administration (FHA)
A federal agency that issues first mortgages, enabling lenders to lend a very high percentage of the sale price.

Federal National Mortgage Association (Fannie Mae)
A privately owned, congressionally chartered company that is the nation's largest mortgage investor.

FHA Loan
A loan insured by the Federal Housing Administration.

Finance Charge
The cost of interest and other charges involved in borrowing money.

First Mortgage
A mortgage which has priority over all other voluntary liens against a certain property; used in states that secure loans against real property with a mortgage.

Fixed Rate Mortgage
A mortgage in which the interest rate and monthly principal and interest payments remain the same for the life of the loan.

Floating Your Rate
Deciding not to lock in the interest rate at the time of application, and instead to float with the market until a later date at which time you will ask the lender to lock in the interest rate.

Flood Insurance
Insurance that compensates for physical damage to a property by flood. It is required for properties located in federally designated flood zones.

Forbearance
The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent

Foreclosure
A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.

Freddie Mac or Federal Home Loan Mortgage Corporation (FHLMC)
This agency buys loans that are underwritten to its specific guidelines. These guidelines serve as an industry standard for residential conventional lending.

Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Fannie Mae or Federal National Mortgage Association (FNMA)
This agency buys loans that are underwritten to its specific guidelines. These guidelines serve as an industry standard for residential conventional lending.

Fee Simple
Absolute ownership of real property.

G

Gift Letter
A written statement from friends or family that explains gift funds given to a borrower to purchase a home, and states that no repayment is expected.

Good Faith Estimate
An estimate given to the borrower within three days of formal application that lists the costs they may incur at closing.

Gross Income
Total income before taxes or expenses are deducted.

H

Hazard Insurance
Insurance coverage that provides compensation to the insured in case of property loss or damage.

Home Equity Line of Credit (HELOC)
A loan, based on the borrower’s available equity in the home, that allows the borrower to withdraw and repay available loan proceeds on an ongoing basis.

Home Inspection
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

Homeowner’s Association Fees
The fee condominiums and planned unit developments assess monthly for maintaining common areas and service for the development.

Homeowner’s Insurance
Includes the coverage for hazard insurance plus added coverage such as personal liability, theft away from the home, and other such coverage.

Homeowner’s Warranty Program
An insurance program through which participating builders provide homebuyers with a warranty on the workmanship and materials of a home, and warrants against major structural defects.

HUD
Housing and Urban Development. A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

HUD-1 Uniform Settlement Statement
A standard form which itemizes the closing costs associated with purchasing a home or refinancing a loan.

I

Impound Account
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses impound account funds on behalf of the borrower when they become due. (Also known as Escrow Account.)

Income
The amount of money received during a period of time.

Index
The rate you pay directly related to a particular interest-rate index.

Initial Rate
The rate charged during the first interval of an ARM loan.

Interest
The amount paid for the use of money, usually expressed as an annual percentage.

Interest Adjustment
Required on all sellers’ payoffs due to interest being paid one month in arrears. It is always best to figure on 30 days of interest. To figure out one month’s interest, multiply the unpaid principal balance and interest rate, and then divide by 12. The new lender will also charge the buyer a “per diem” (per day) interest adjustment from the date of loan disbursement to 30 days before the first payment comes due.

Interest Rate
The interest charged by a lender for the use of money, expressed as a percentage.

Interest Rate Cap
Consumer safeguards which limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

Investment Property
A property that is not occupied by the owner.

Income-to-Debt Ratios
A qualifying ratio used in underwriting a residential mortgage loan, which computes the percentage of monthly income, required to meet the monthly housing expense.

Investor
Any person or institution that invests in mortgages or mortgage-backed securities.

J

Joint Liability
Liability shared among two or more people, each of whom is liable for the full debt.

Joint Tenancy
A form of ownership of property giving each person equal interest in the property, including rights of survivorship.

Judgment
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

Jumbo
A loan with a dollar amount that exceeds the statutory size limit purchase by Fannie Mae or Freddie Mac.

Junior Mortgage
A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first.

K

L

Late Charge
Penalty paid by a borrower when a payment is made after the due date.

LIBOR (London Inter Bank Offer Rate)
An interest rate charged among banks in London for short-term loans denominated in a specific currency. A common index for debt securities.

Lien
A monetary claim against your property. Usually liens must be settled before the seller can take title.

Line of Credit
Type of loan in which the borrower may draw on funds at any time, up to an established maximum limit; the borrower may borrow, repay, and borrow again, any and all of the credit extended; a revolving loan.

Loan Application Fee
A lender’s fee that you must pay when applying for a mortgage.

Loan Origination Fee
See Origination Points.

Loan Servicing
A mortgage banking function which includes the receipt of payments, customer service, escrow administration, investor accounting, collections and foreclosures.

Loan-to-Value Ratio (LTV)
The ratio of mortgage amount to appraised value or sales price of real property. Used by lenders to determine maximum loan amounts set by secondary market investors and/or government insuring agencies.

Loan Term
See Term.

Locking Your Rate
A procedure where a lender agrees to lock-in a specific interest rate (initial interest rate in the case of an adjustable rate mortgage) on a mortgage loan request for a specified period of time.

M

Margin
Percentage added to the index by the lender to determine the interest rate.

Maturity Date
The date that a loan is due in full.

Modification
A change to the terms of a mortgage.

Mortgage Insurance (PMI)
See Private Mortgage Insurance.

Mortgagee
The lender in a mortgage loan transaction.

Mortgagor
The borrower in a mortgage loan transaction.

Mortgage Life Insurance
Term life insurance paid by the borrower in which the amount of coverage decreases as the mortgage balance declines. In the event the borrower dies while the policy is in force, the debt is automatically satisfied by the insurance proceeds.

Mortgage Term
See Term.

N

Negative Amortization
An increase in the outstanding mortgage balance that occurs when the amount of interest due is greater than the borrower’s monthly payment, and the difference is added to the mortgage principal.

Non-conforming
A loan that is not eligible to be purchased by Fannie Mae or Freddie Mac.

Note
A signed document in which a borrower agrees to repay a debt to a lender within a certain timeframe and according to certain terms.

Note Rate
The interest rate stated on the note.

Notice of Default
Written notice to a borrower that a default has occurred and that legal action may be taken.

O

Original Principal Balance
The total amount of principal owed on a mortgage before any payments are made.

Origination Fee
Fee charged by a lender to cover administrative costs of processing a loan.

Origination Points
The amount lenders charge to borrowers to prepare documents and to process and close the loan. One point equals one percent of the loan amount.

P

Payment Cap
Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.

Per Diem Interest
Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.)

Pest Inspection
May be required on new loans to determine if there is an infestation of termites or other pests in the home.

Points (or Discount Points)
Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Usually, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are typically paid in cash at closing.

Power of Attorney
A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Prepaid Expenses
Taxes, insurance and assessments paid in advance of their due dates. These expenses are included at closing.

Prepaid Interest
Money paid by the borrower to the lender for interest that accrues between the closing date and the end of the month.

Prepayment Penalty
A fee that is charged if the loan is paid off earlier than the specified term of the loan. Depending on your Homecomings Financial loan program, you may or may not incur a prepayment penalty. Please contact a Homecomings Financial loan officer for more information.

Pre-qualification
The process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan. Information submitted during pre-qualification is subject to verification at application.

Prime Rate
The most favorable interest rate charged by a commercial bank for short term loans; a benchmark from which a bank computes an appropriate rate of interest for a loan contract.

PITI
Acronym for items included in a monthly mortgage payment: principal, interest, taxes and insurance.

Point
An amount equal to one percent of the principal amount of the mortgage.

Principal
The balance on the loan amount, excluding interest.

Private Mortgage Insurance (PMI)
Insurance that protects a mortgage lender against loss in the event of default by a borrower.

Property Tax
The tax assessed on the property by the local government (e.g. city, county, village or township) for the various services provided to the property owner. Services may include police and fire department, garbage pick up and snow removal.

Purchase Contract (Purchase Offer)
A document that lists the price, conditions and terms under which the buyer is willing to purchase a property.

Q

Quitclaim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

R

Rate Adjustment Period
With most ARMs, any periodic adjustment in the interest rate changes the payment. Adjustment periods tend to reflect the period of the index of the most popular ARMs; currently, annual adjustments are the most common.

Rate Cap
Consumer safeguards that protect the interest rate during the application and processing period.

Rate Guarantee
The interest rate lock feature that lenders offer to borrowers.

Real Estate Brokerage Fee
The amount paid to the real estate firm by the buyer or seller for services rendered.

Real Estate Settlement Procedures Act (RESPA)
A federal law that requires lenders to provide mortgage loan borrowers with information of known or estimated settlement costs.

Reconveyance
An instrument used to transfer title.

Recording Fees
Charged by the county recorder’s office for the filing of documents or details of a legal document to make them a matter of public record. Usually requires the witnessing and notarizing of the documents to be recorded.

Refinance
The repayment of a debt from the proceeds of a new loan using the same property as security.

Remaining Balance
The amount of principal that has not yet been repaid. See principal balance.

Remaining Term
The original amortization term minus the number of payments that have been applied.

Repayment Plan
An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions."

RESPA
See Real Estate Settlement Procedures Act.

Right to Rescission
Under the provisions of the Truth-in-Lending Act, the borrower's right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage.

S

Sales Agreement
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Second Trust Deed
A loan on a property that was made after the first deed.

Secondary Mortgage Market
The market where lenders and investors buy and sell existing mortgages or mortgage-backed securities, thereby providing funds for additional mortgage lending.

Servicing
A mortgage banking function following loan closing which includes the receipt of payments, customer service, escrow administration, investor accounting, collections, and foreclosures.

Settlement
See Closing.

Settlement Costs
Also known as closing costs, these costs are for services required in connection with the loan. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees.

Settlement Cost (HUD guide)
HUD-published booklet that provides an overview of the lending process, and that is given to consumers after completing loan application.

Subordination Agreement
An agreement by which an encumbrance is made subject to a junior encumbrance; a lender with a loan in second position agrees to stay in second position on the property, even when the loan in first position has been rewritten or refinanced.

Subordinate Financing

Survey
A measurement of land, prepared by a licensed surveyor, showing a property's boundaries, elevations, improvements, and relationship to surrounding tracts.

T

Tax Impound
Money paid to and held by a lender or loan servicer for annual tax payments.

Tax Lien
Claim against a property for unpaid taxes.

Tax Sale
Public sale of property by a government authority as a result of non-payment of taxes.

Tax Service
Required by the lender to assure that all tax billings are paid on the right tax parcel. FHA and VA do not allow the borrower to pay the tax service fee.

Term
The period of time during which a loan is repaid.

Title
The right to ownership in real estate, which is transferred by a deed. Evidence of ownership in real estate.

Title Insurance
Coverage that compensates the insured for any loss caused by defects of title.

Title Search
The process of checking all the records relating to the title to see that it doesn’t have any liens or claims against it that would keep it from being transferred.

Transfer Fee
Fees a buyer or seller pays a municipality to defray the cost of recording a transfer of ownership.

Truth-in-Lending Act
Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires the right to rescission period.

U

Underwriting
The analysis of the risk involved in making a mortgage loan that determines whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, the borrower's ability to repay the loan and the application of criteria specified by an investor.

Unsecured Loan
A loan that is not secured by any form of collateral.

V

VA Loan
A loan guaranteed by the Department of Veterans Affairs.

Variable Rate Mortgage
See Adjustable Rate Mortgage.

Variable Rate
Interest rate that changes periodically in relation to an index and margin, if included in the loan documents.

Verification of Deposit (VOD)
Document signed by the borrower's bank or other financial institution verifying the borrower's account balance and history.

Verification of Employment (VOE)
Document signed by the borrower's employer verifying the borrower's position and salary.

W

Waiver
Voluntary relinquishment or surrender of some right or privilege.

Walk-through
A final inspection of a home to check for problems that may need to be corrected before closing.

X

Y

Z

Zoning Ordinances (or Zoning Regulations)
Local law establishing building codes and usage regulations for properties in a specified area.