Glossary

Abstract of title

A summary of recorded transactions concerning the title of a property.

Acceleration clause

Provision in a mortgage that gives the lender the right to require immediate repayment of the loan balance if a borrower breaches the conditions of the mortgage.

Accrued interest

Interest earned or incurred but not yet paid or received.

Adjustable rate

An interest rate that changes periodically according to an index.

Adjustable-rate mortgage (ARM)

A mortgage with an interest rate that adjusts periodically based on a preselected index after a fixed period.

Adjustment interval

The time between changes in the interest rate and/or monthly payments on an ARM.

Agent

One that acts for or represents another.

Agreement of sale

Also known as a sales contract, a written document in which a purchaser agrees to buy property under certain given conditions, and the seller agrees to sell under certain given conditions.

Alternative documentation

A method of documenting a loan file that relies on information the borrower provides instead of waiting on verification for statements made in the application.

Amortization

The process of repaying a loan in regular, fixed payments of principal and interest.

Annual percentage rate (APR)

The annual cost of a loan expressed as a yearly rate. APR takes into account interest, lender fees, and other factors, so it may be slightly higher than the interest rate on the loan.

Application

Often referred to as a 1003 form, a document used by lenders to collect personal and financial information from a borrower applying for a loan.    

Application fee

A fee charged by a lender to cover costs of processing a loan application.

Appraisal

A written estimate of a property's current market value based on recent sales information for similar properties, the current condition of the property, and other factors.

Appraisal fee

A fee charged by a licensed, certified appraiser to render an opinion of current market value as of a specific date.

APR

See Annual percentage rate.

ARM

See Adjustable-rate mortgage.

ARM disclosure

A disclosure specific to adjustable-rate mortgages that is provided to the consumer when they receive an application form from a lender. 

ARM handbook

The Consumer Handbook to Adjustable-Rate Mortgages ("CHARM" booklet) is provided to the consumer when they receive an application form from a lender (in addition to the ARM disclosure referenced above).

Asset

Anything of monetary value that a person owns. 

Assignment

The transfer of property, title, or rights from one person or entity to another.

Assumability

A feature of a loan allowing it to be transferred from the original borrower to the new purchaser of a home. 

Assumption

Agreement between the buyer and the seller for the buyer to take over the seller’s existing mortgage.

Balance sheet

A document showing the assets, liabilities and other financial information of a person or entity at a specific point in time.

Bank check

See Cashier's check.

Bankruptcy

Proclamation by a court of an individual's (or organization's) state of insolvency or inability to pay debts. 

Basis point

A unit of measure to track interest rates and other financial instruments: 1/100th of one percent. For example, the difference between a 9.0 percent loan and a 9.5 percent loan is 50 basis points.

Bequest

A gift of personal property that is part of a will or trust.

Bill of sale

A document that transfers ownership of goods from one person to another.

Biweekly mortgage

A mortgage product where mortgage payments are made every two weeks.

Bona fide

In good faith.

Borrower (Mortgagor)

An individual who applies for and receives a loan in the form of a mortgage.

Broker

An individual who facilitates transactions for a client.

Buy-down

A situation in which the seller contributes money that allows the lender to give the buyer a lower rate and payment. 

Buyer's broker

An agent hired by a buyer to represent them in a real estate transaction.

Buyer's market

Market conditions that favor buyers.

Call option

A provision in the mortgage that gives the lender the right to demand full payment of the mortgage.

Caps (Interest rates)

Limits on changes in ARM interest rates.

Caps (Payments)

Limits on changes in monthly payments for an ARM. 

Cash out refinance

A refinance that allows a borrower to tap into their home equity and convert it into cash. The borrower refinances their existing mortgage for a higher amount than they currently owe and receives the difference in cash. 

Cashier's check (or Bank check)

A check whose payment is guaranteed by a bank and drawn on the bank's account instead of the customer's.

CC&Rs

See Covenants, conditions, and restrictions.

Certificate of Eligibility (COE)

Document issued by the Department of Veterans Affairs (VA) that verifies a qualified veteran is eligible for a VA-backed loan.

Certificate of occupancy (CO)

Document issued by a local government agency stating that a property meets the requirements of health and building codes.

Certificate of Reasonable Value (CRV)

A document that establishes the highest amount of money the VA will loan to a borrower. 

Certificate of title

A document that identifies the legal owner/owners of a property.

Certificate of Veteran Status

A document that establishes a veteran’s eligibility for a VA-backed loan.

Certified check

A check drawn on the issuer's account for funds that have been earmarked by the bank, normally guaranteeing payment.

CFPB

See Consumer Financial Protection Bureau.

Chain of title

The chronological order of ownership of a property from the original owner to the present owner.

Clear title

A title free of clouds and disputes.

Closing (or Settlement)

The final step of a real estate transaction in which property and funds legally change hands.

Closing costs (or Settlement costs)

Fees incurred in a real estate transaction and paid by the borrower and/or seller during a mortgage loan closing. These may include loan origination, attorney, and appraisal fees.  

Closing statement

A statement that lists the funds associated with a real estate transaction.

Closing disclosure

A statement that lists final mortgage loan terms, monthly payments, closing costs, and other information.

Cloud on title

An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title.

CLTV

See Combined loan-to-value.

COFI

See Cost of Funds Index.

Collateral

Asset(s) that back a mortgage loan.

Combined loan-to-value (CLTV)

A borrower’s new loan amount plus their total mortgage balance(s), divided by their home value.

Commission

Money paid to a real estate agent, broker, or other professional for their services. 

Commitment letter

A formal document from a lender that states they intend to provide a loan under certain terms or conditions.

Condominium

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

Conforming loan

A mortgage loan that meets the criteria of Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (FHFA).

Consumer Financial Protection Bureau (CFPB)

A federal agency that enforces laws that protect consumers of financial products and services, such as mortgages, credit cards, and deposit accounts.

Contingency (Mortgage)

Allows a buyer to cancel a mortgage if they are unable to get final approval. 

Contract of sale

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

Conventional loan

A mortgage not insured or guaranteed by the government. 

Conversion clause

A provision in some ARMs allowing a borrower to change an ARM to a fixed-rate loan.

Convertible ARMs

ARMs with the option of conversion to a fixed-rate loan.

Conveyance

The transfer of ownership of a property.

Cost of Funds Index (COFI)

An index used to determine interest rate changes on some ARMs.

Covenants, conditions, and restrictions (CC&Rs)

Rules governing the use, requirements, and restrictions of a property.

Creative financing

See Owner financing.

Credit report

A report detailing the credit history of a person or company.

Credit risk

The possibility that the borrower may default on financial obligations.

CRV

See Certificate of Reasonable Value.

Debt-to-income (DTI) ratio

The percentage of monthly income that goes toward monthly debt payments.

Deed

A legal document that transfers a property from one owner to another.

Deed of reconveyance

See Reconveyance. 

Deed of trust

Used to secure a home loan by transferring a property’s title to a trustee until the loan is paid.

Default

Failure to meet legal obligations in a contract, including failure to make payments on a loan. 

Deferred interest

Interest on a loan that is postponed for a specific time period.

Delinquency

Failure to make payments on time.

Department of Housing and Urban Development (HUD)

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

Department of Veterans Affairs (VA)

A U.S. government agency providing support for veterans and their families and survivors; guarantees loans for veterans, certain family members, and other eligible groups.

Depreciation

When the value of a property declines.

Discount points (or Points)

Money paid to a lender at closing in exchange for a lower interest rate. Each point is typically equal to 1% of the loan amount.

Documentary stamps

A state tax sometimes required on mortgages, deeds, and other legal documents.

Down payment

A cash amount paid upfront when purchasing a home. 

Due-on-sale clause

Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.

Earnest money

Deposit made by a buyer to show they are serious about buying a home.

ECOA

See Equal Credit Opportunity Act.

Encumbrance

A claim made against a property by someone who is not the owner.

Equal Credit Opportunity Act (ECOA)

Federal law requiring lenders to make credit equally available without discrimination.

Equity (or Home equity)

The difference between the current market value of a property and the outstanding mortgage balance.

Equity loan

A loan secured by the borrower’s home that’s based on the equity they have built up in the property.

Escrow

A financial arrangement where a third party holds money and/or documents until legal conditions have been met. 

Escrow account

Account managed by a lender containing funds from mortgage payments for annual expenses such as taxes and insurance.

Escrow waiver

A waiver of a requirement to have an escrow account with a lender.

Fannie Mae

See Federal National Mortgage Association.

FHAct

See Fair Housing Act.

Fair Housing Act (FHAct)

Prohibits discrimination in real estate transactions because of race, color, religion, sex, and other factors. It applies to mortgage lending as well as other aspects of real estate transactions.

Farmer's Home Administration (FMHA)

An agency within the U.S. Department of Agriculture (USDA) that provides financing for homes and farms in small towns and rural areas.

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)

A publicly traded, government-sponsored enterprise that purchases mortgages from lenders to hold or package into mortgage-backed securities (MBSs).

Federal Housing Administration (FHA)

A government agency part of the Department of Housing and Urban Development (HUD) that insures residential mortgage loans made by approved private lenders and sets standards for underwriting mortgage loans.

Federal National Mortgage Association (FNMA or Fannie Mae)

Like Freddie Mac, a publicly traded, government-sponsored enterprise that purchases mortgages from lenders to hold or package into MBS.

Federal Reserve

The central bank of the U.S. and the major regulatory agency for many commercial banks.

Fee simple

Absolute ownership of a piece of land.

FHA

See Federal Housing Administration.

FHA Loan

A home loan insured by the FHA.

FHLMC

See Federal Home Loan Mortgage Corporation.

FIAR

A fully indexed accrual rate (FIAR) is an interest rate calculated by adding a margin to an index interest rate (index + margin).

First mortgage

A mortgage that is in the first lien position, taking priority over all other liens.

Fixed rate

An interest rate that is fixed for the term of the loan.

Fixed-rate mortgage

A mortgage with an interest rate that stays consistent for the life of the loan.

Flood insurance

A form of hazard insurance that may be required by lenders to cover properties in flood zones.

Floor

The lowest interest rate a borrower can receive from a lender on an ARM. 

FMHA

See Farmer's Home Administration.

FNMA

See Federal National Mortgage Association.

Forbearance

Grace period given when a lender postpones, pauses, or reduces monthly payments for a specific amount of time.

Foreclosure (or Repossession)

Legal process by which a lender forces the sale of a property because the borrower has not met the mortgage terms.

Freddie Mac

See Federal Home Loan Mortgage Corporation.

Government National Mortgage Association (GNMA or Ginnie Mae)

A federal agency that guarantees securities backed by government loans. 

Graduated Payment Mortgage (GPM)

A mortgage with initial low payments that gradually increase over time.

Grace period

Period of time during which a loan payment may be made after its due date without incurring a late penalty.

Gross

Before taxes.

Gross income

Total income before taxes or expenses are deducted.

Gross monthly income

The total amount earned by a borrower each month before any deductions.

Guaranty

A promise by one party to pay a debt incurred by another in case of that person's default.

Hazard insurance

Protects the insured against loss due to fire or other natural disasters in exchange for a premium paid to the insurer.

Home equity

See Equity.

Home equity loan

A second mortgage that lets a homeowner pull cash from their home equity. It can be used for a variety of purposes, including home improvements, major expenses, or debt consolidation.

Homeowners warranty

A type of insurance that covers repairs to specified parts of a house for a specific period.

Housing code

Local government ordinance that sets minimum standards of safety, sanitation, and other factors for residential buildings.

Housing expense ratio

Calculated by dividing a borrower’s monthly housing-related expenses by their gross monthly income. 

HUD

See Department of Housing and Urban Development.

Impound (or Reserves)

A portion of a borrower's monthly payments held by the lender to pay for taxes, insurance, and other items as they become due.

Impound account

Account for accumulating the portion of a borrower’s monthly payments designated for future payments of taxes and insurance.

Index

A published rate used by lenders to determine the interest rate they may charge on financial products.  

Initial rate (or Start rate)

The interest rate charged during the first interval of an ARM.

Insolvency

When a person or company is unable to pay their debts.

Interest

The charge paid for borrowing money.

Interest rate

The charge paid for borrowing money expressed as a percentage.

Interest rate change date

Dates upon which the rate of interest is subject to change.

Joint liability

When liability for an obligation is shared among two or more people.

Joint tenancy

The ownership of property by two or more people, each with equal rights and obligations. 

Jumbo loan

A mortgage larger than conventional conforming loan limits.

Late charge

Penalty that a lender charges when a borrower fails to make a payment on time. 

Lender

The organization that loans money. 

Lien

A claim by a lender on the property of the borrower for payment of a debt.

Life cap (or Lifetime cap)

A pre-determined amount that establishes the maximum interest rate a borrower may pay throughout the entire term of an ARM. 

Loan administration (or Loan servicing)

The lender’s administrative handling of a loan, which may include monitoring payments, handling escrow, and other tasks.

Loan application

A document required by lenders containing detailed information about the loan applicant.

Loan application fee

A fee an applicant pays a lender when applying for a mortgage.

Loan estimate

This document sets out the costs associated with a mortgage, including the interest rate and lender fees. 

Loan origination fee

A fee a lender charges to process a loan.

Loan servicing

See Loan administration.

Loan-to-value (LTV) ratio

A measure of the loan amount relative to the current value of a property. 

Lock or lock-in

Ensures an interest rate stays the same for a set period, usually between the loan offer and the loan closing.

LTV

See Loan-to-value ratio.

Margin

The number of percentage points added to an index by a lender to set the interest rate. 

Marketable title

A title free and clear of liens, clouds, or other defects that may prevent the sale of the property.

Market rate (Real estate)

The prevailing rate of interest in the real estate market.

Market value

The amount a property would sell for in the open market under normal conditions.

Monthly housing expense

Total monthly costs to maintain home ownership, including mortgage loan principal and interest, taxes, and insurance. 

Mortgage

A legal document that pledges real estate as collateral for repayment of a loan. 

Mortgage banker

An individual or organization that originates mortgages.

Mortgage broker

A individual or organization that matches borrowers with lenders.

Mortgagee

The lender in a mortgage loan transaction.

MIP (Mortgage insurance premium)

A type of mortgage insurance required on FHA loans.

Mortgage loan

A loan for which real estate serves as collateral to provide repayment in case of default.

Mortgage note

A legal document that obligates a borrower to repay a loan plus interest at a specified rate and time length.

Mortgagor

The borrower in a mortgage loan transaction.

Negative amortization

An increase in principal balance that occurs when monthly payments are not large enough to pay all interest due on a loan. 

Net

After taxes.

Net income

Gross income minus taxes and other deductions.

Non-assumption clause

A clause in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.

Non-conforming loan

A loan that doesn’t meet the requirements for a conforming loan. 

Non-dischargeable debt

Debt, such as child support, that generally cannot be discharged through bankruptcy.

Note (or Promissory note)

A written promise to repay borrowed money.

Notice of default

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

Office of the Comptroller of the Currency (OCC)

An independent bureau of the U.S. Department of the Treasury that regulates, charters, and supervises national banks, federal savings associations, and federal agencies and branches of foreign banks.  

Owner financing (or Creative financing)

A real estate arrangement where a property’s seller provides financing to the buyer. 

Payment change date

Dates upon which the payment amount is subject to change.

Per diem interest

Interest calculated on a daily basis. 

Periodic interest rate cap

The maximum amount the interest rate on an ARM can adjust within a specific period. 

PMI

See Private mortgage insurance.

Points

See Discount points.

Power of attorney

Legal document authorizing one person to act on behalf of another.

Prepaid expenses

Paying certain expenses related to home ownership before they are due.

Prepaid interest

Charged to a borrower at closing to cover interest on the loan between the closing date and the period covered by the first mortgage payment.

Prepayment

A full or partial payment of the loan principal before the due date. 

Pre-payment penalty

A fee a lender may charge if a borrower pays off all or part of their mortgage early.

Prequalification

The process of estimating how much money a prospective homebuyer may be able to borrow.

Primary mortgage market

Includes banks, credit unions, and other primary lenders who make mortgage loans directly to borrowers. 

Prime rate

Lowest interest rate charged by a financial institution to its most credit-worthy customers.

Principal

The amount of money borrowed.

Private mortgage insurance (PMI)

A type of mortgage insurance typically required when a down payment is less than 20% of the purchase price of a property.

Profit and loss (P&L) statement

A financial statement showing revenue, expenses, and other financial information over a period of time.

Promissory note

See Note.

Property tax

A government tax based on the value of a property.

Purchase agreement

A contract signed by the buyer and the seller stating the terms and conditions of a home sale.

Qualifying ratio

A measurement used by lenders to determine if someone qualifies for a loan. It normally considers their housing expense ratio and DTI ratio. 

Real estate agent

A professional that helps people buy and sell property.

Real estate broker

A professional that helps people buy and sell property who is licensed to manage their own real estate business.

Real Estate Settlement Procedures Act (RESPA)

A law that governs the real estate settlement process.

Real property

Land and everything that is permanently affixed to it.

Reconveyance (or Deed of reconveyance)

The transfer of a property title back to the owner when a mortgage is fully repaid.

Recording

The act of entering real estate documents into public records.

Recording fee

Money paid to the government to enter real estate documents into public records.

Refinancing (Mortgage)

The process of replacing a mortgage with a new one with potentially more favorable terms and/or rates.

Repossession

See Foreclosure.

Rescission

The cancellation of a contract for some types of home loans, permitted by law within three business days.

Reserves

See Impound.

RESPA

See Real Estate Settlement Procedures Act.

Sale agreement

A contract signed by the buyer and the seller stating the terms and conditions under which a property will be sold.

Satisfaction of mortgage

A document showing a borrower has paid off a mortgage.

Secondary mortgage market

The market where lenders and investors sell and buy mortgages and their servicing rights.

Second mortgage

A secured loan in addition to a first mortgage that uses the borrower’s home as collateral, such as a home equity loan or home equity line of credit (HELOC).

Seller's broker

A broker hired by a seller.

Seller's market

Market conditions that favor sellers.

Settlement

See Closing.

Settlement costs

See Closing costs.

Simple interest

Interest calculated only on the loan principal amount.

Special assessment

A local tax levied against properties that have benefited from improvements such as road or sidewalk construction, sewers, or streetlights.

Start rate

See Initial rate.

Subsidized second mortgage

Alternative financing option for low- and moderate-income households.

Survey

A measurement of land, prepared by a licensed surveyor, showing a property's boundaries, elevations, improvements, and other information.

Sweat equity

Ownership interest or value added to a property through the owner’s physical labor. 

Tax lien

Claim against a property for unpaid taxes.

Tax sale

Public sale of property by a government authority as a result of nonpayment of taxes.

Term

The number of years until a loan is due to be paid in full.

Title

A document that gives evidence of ownership of a property.

Title company

A company that insures and verifies the title to a property.

Title insurance

Insurance that protects against loss due to disputes over property ownership.

Title search

Examination of public records to confirm the legal owner of a property and that there are no claims against the property.

Transfer tax

Tax paid when a title passes from one person or entity to another.

Trust account

An account where funds and/or assets are held by a trustee for the benefit of a beneficiary.

Trustee

A person or company given legal responsibility to hold funds and/or assets for the benefit of a beneficiary. 

Truth in Lending Act (TILA)

A federal law that, among other things, requires lenders to provide borrowers with loan cost information, including fees.

Underwriting

The process of verifying data and evaluating a loan application. 

VA loan

A home loan available to eligible veterans partially backed or guaranteed by the VA.

Variable-rate mortgage

See Adjustable-rate mortgage.

Variable rate

An interest rate that changes periodically in relation to an index.

Verification of Deposit (VOD)

A document that verifies a borrower has the necessary funds for a down payment.

Verification of Employment (VOE)

A document signed by the borrower's employer that verifies the borrower's position, salary, and other information.

VOD

See Verification of Deposit.

VOE

See Verification of Employment.

Waiver

Voluntary relinquishment or surrender of some right or privilege.

Walk-through

A final inspection of a home by a buyer to check for problems that may need to be corrected before closing.

Warehouse fee

The cost of holding a mortgage before it is sold on the secondary mortgage market.