Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S |T | U | V | W | X | Y | Z

— A —
Adjustable-Rate Mortgage (ARM): A term for any mortgage in which the interest rate and, generally, the payments change over the life of the loan. The interest rate is adjusted to match the rise or fall of a preselected interest rate index (the LIBOR index and the Treasury index, for example). A borrower’s regular payments will increase or decrease accordingly. Different types of adjustable-rate mortgages (ARMs) have different frequencies for these adjustments. Also known as a variable-rate loan.
Adjustment Date: The actual date that the interest rate is changed for an adjustable-rate mortgage (ARM).
Adjustment Index: The published market index used to calculate the interest rate of an adjustable-rate mortgage (ARM) at the time of origination or adjustment.
Adjustment Interval: The time between the interest rate change and the monthly payment for an adjustable-rate mortgage (ARM). The interval is usually every one, three or five years depending on the index.
Adjustment Period: An adjustable-rate mortgage (ARM) contains a provision for the adjustment of the interest rate. The time period between adjustments is known as the adjustment period.
Amortization: The systematic and continuous repayment of an obligation through periodic installments until the debt has been paid off in full.
Amortization Period: That period of time over which a calculated mortgage payment will fully repay a set loan amount at a specific interest rate.
Annual Percentage Rate (APR): The actual interest rate the borrower pays when all the costs of obtaining credit are included.
Applicant: One who applies for a real estate loan (the prospective borrower/mortgagor).
Application: A form used by a borrower to submit pertinent financial and property information concerning a borrower/mortgagor and the proposed security.
Appraisal: A report made by a qualified appraiser setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.
Appraised Value: An estimation of property value made by a qualified expert.
Appraiser: An expert qualified by education, training and experience who sets forth an opinion or estimate of value of a property, based on available facts and an inspection of that property.
Appreciation: An increase in the value of a property. Appreciation may be the result of an increased demand for a property, any improvements or additions made, improvements to the neighborhood, etc.
Asking Price: The initial price of a property set by the seller.
Assets: Items of value an individual owns.
Assessed Value: The value of the property as set by a public official to determine taxes.
Assessment: Tax on real property either by an annual property tax based on current fair market value or via special assessments for sewers, public improvements, etc.
Assumption: A means by which the title/mortgage may be transferred to another party with or without release of liability on the note.

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— B —
Balloon Mortgage: Mortgage with monthly payments based on a longer amortization schedule (such as 30-years) with the unpaid principal due on a shorter-set period of time (such as 5, 7, or 10 years); the borrower needs to either paid the loan in full at that time or refinance the mortgage.
Balloon Payment: The unpaid, principal amount of a mortgage loan that is due on a specified date, and paid in a lump sum at the end of the term.
Bankruptcy: Legal relief from the payment of all debts after the surrender of all assets to a court-appointed trustee. Assets are distributed to creditors as full satisfaction of debts, with certain priorities and exemptions.
Buydown: A sum of money paid to the lender at closing to reduce the borrower’s out-of-pocket monthly payment. A buydown can be temporary or permanent.
Back End Ratio (debt ratio): A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.
Biweekly Payment Mortgage: A mortgage payment where the borrower makes a payment every two weeks instead of once a month; used to accelerate the time needed to payoff the loan and reduce the amount paid in interest on the loan.
Borrower(s): The person or persons approved for and obligated to repay a loan plus any additional fees included in the loan terms.
Bridge Loan: A short-term loan intended to be paid back relatively soon. Most often used until a long-term loan can be processed.

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— C —
Cap: A limit placed on payments, interest rates and/or the balance of a loan. Caps can limit increases by either a dollar amount or a percentage.
Capacity: The ability to make mortgage payments on time.
Cash Reserves: The borrower’s or borrowers’ savings, investments, and assets; lender may require certain amount in reserves in order to approve a loan.
Cash-Out Refinance: Refinancing of one’s mortgage at a higher principal amount to get additional money.
Certificate of Title or Title: A document, usually provided by a title company, that shows a property legally belongs to the current owner; Also known as a Deed.
Closing or Loan Closing: The completion of the transaction, where the buyer(s) or borrower(s) sign the mortgage documents, the closing costs are paid, and title is transferred to the new property owner. Also known as the settlement date.
Closing Agent: An individual who directs the closing-related activities.
Closing costs: Costs, in addition to the price of the property itself, that are due at closing. These costs normally include, but are not limited to, origination fees, discount points (see Points) attorney fees, costs for title insurance, surveys, recording documents, and prepayments of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help the borrower pay some of these costs.
Co-Borrower: A party who signs the mortgage note along with the borrower and who shares the title to, and the obligation to pay for, the property with the borrower. Also called “co-mortgagor.”
Collateral: Money or property used as security on a loan and may be taken from the borrower in the case of a default; on a mortgage loan, the home is most often the collateral.
Commitment: An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.
Concession: Items or terms given up or agreed to in the sale of a house.
Co-Mortgagor: See Co-Borrower.
Condominium or Condo: A form of ownership of real property. The purchaser receives title to a particular unit and a proportional interest in certain common areas.
Construction Loan: A short-term interim loan for financing the cost of construction of real property. Payments are made to the builder at periodic intervals as the construction progresses.
Construction Loan Agreement: A written agreement between a lender and/or a borrower and a builder in which the specific terms and conditions of construction and/or the construction loan, including the schedule of payments, are spelled out.
Construction Loan Draw: The periodic/partial disbursement of the construction loan, based on the schedule of payments in the loan agreement.
Contingency: A clause in a purchase contract stating conditions that must be met in order for the contract to be executed.
Conventional Loan: A mortgage loan not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) or Farmers Home Administration (FmHA). No governmental agency approval is required of the lender, borrower or property. It is called “conventional” because it conforms to accepted standards, modified within legal bounds by mutual consent of the borrower and the lender. Also called “conventional residential mortgage.”
Convertible ARM: An adjustable-rate mortgage where the borrower(s) may convert to a fixed-rate within a specified time.
Co-Op: A form of multiple ownership of real estate in which a corporation or business trust entity holds title to a property and grants the occupancy rights to particular apartments or units to shareholders by means of proprietary leases or similar arrangements.
Co-Signer: A party who signs the mortgage note along with the borrower, but who does not own or have any interest in the title to the property.
Cost of Funds Index (COFI): An index used in some adjustable-rate mortgages to determine the interest rate changes.
Counter Offer: A rejection of part or all of an offer by either the buyer or seller which includes different terms in an attempt to reach an acceptable agreement from both sides.
Coupon Rate: The annual interest rate shown on the face of a mortgage note.
Credit Bureau: An agency that provides financial information and payment history about potential borrowers. Currently there are three major credit bureaus in the United States.
Credit Enhancement: An approach used by a lender to reduce the risk of a borrower defaulting on a loan such as requiring mortgage insurance.
Credit History: A record that lists an individual’s debts and the payment history of those debts. Lenders often use this information to determine a borrower's ability to repay a loan.
Credit Report: A document completed by a credit-reporting agency providing information about the buyer’s credit cards, previous mortgage history, bank loans and public records dealing with financial matters.
Credit Risk: A term used by lenders to describe the likelihood of a borrower defaulting on a loan.
Credit Score: Commonly referred to as a FICO score, a number ranging from low 300s – mid-800s (the higher the score the lower the perceived risk) that assists a lender in determining the borrower’s creditworthiness. The score is calculated by using the borrower’s credit report.
Creditor: A person to whom a debt is owed by another person who is the “debtor.”
Creditworthiness: The ability of a borrower to repay a loan as perceived by the lender.

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— D —
Debt: A sum of money due by certain and express agreement.
Debtor: The borrower
Debt-to-Income Ratio: The percentage of a borrower’s gross monthly income needed to pay for monthly housing expense, car payments, child support, alimony, and other installment debts, plus any payments on revolving or open-ended accounts (for example: credit cards.)
Deed: The formal written document that transfers the rights of ownership and possession from the seller to the buyer. Also called Certificate of Title or Title.
Deed-in-Lieu of Foreclosure: A transfer of title to real property, from a delinquent mortgagor to the mortgagee, given voluntarily to satisfy the balance due on a defaulted loan and to avoid foreclosure proceedings. Also called “voluntary conveyance.”
Deed of Trust: A legal document which conveys title to real estate to a disinterested third party (trustee) who holds the title until the owner of the property has repaid the debt. In states where it is used, a deed of trust accomplishes essentially the same purpose as a regular mortgage. Also called “trust deed” or “trust indenture.” In some states, this is used in place of a mortgage. Three people are involved in a deed of trust: the borrower, the lender and the trustee. The borrower transfers the legal title for the property to the trustee who holds the property as a security for the debt. If the borrower pays the mortgage as agreed, the trustee gives the legal title to the owner. If the borrower does not pay the mortgage as agreed, the trustee can sell the property.
Default: A breach or nonperformance of the terms of a note or the covenants of a mortgage or deed of trust; or the failure to do what is required by law or the terms of a contract.
Deferred Interest: With adjustable-rate mortgages (ARMs), if monthly payments do not cover the interest cost, the interest left unpaid is deferred to later years by adding it to the unpaid principal balance.
Delinquent: A loan payment that has not been received 30 days after its due date.
Deposit: With reference to the sale of real estate, a sum of money given to either bind a sale of real estate or assure payment or an advance of funds in the processing of a loan. Also known as “earnest money.”
Depreciation: A lowering of value based on physical deterioration or functional or economic obsolescence.
Disbursements: Payments made during the course of an escrow or at closing.
Disclosures: Information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the seller’s responsibility to provide all known information about the property.
Discount Point or Point: An amount equal to one percent of the principal amount of a note. Discount points are a one-time charge assessed at closing by the lender that allow the borrower to reduce the interest rate on a loan.
Down Payment: The difference between the sales price of real estate and the amount of the mortgage loan.
Dwelling Unit: The living quarters occupied, or intended for occupancy, by a household.

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— E —
Earnest Money: See Deposit.
Easement: A right to the enjoyment or access of land held by another. An easement is a nonownership interest in land.
Encroachment: An improvement that intrudes or invades illegally upon another’s property.
Equity: The owner’s interest, or the amount of cash the owner has, realized, paid in or invested in real estate.
Escape Clause: A provision that allows either the buyer or seller to cancel the entire contract or a specified part of the contract if certain criteria weren’t met. A common example is when a buyer makes the purchase contingent on the sale of another house.
Escrow Account: An account held by the lending institution to which the borrower pays monthly installments for property taxes, insurance and special assessments, and from which the lender disburses these sums as they become due.
Escrow Agreement: An agreement to allocate funds to be set aside in a special account to guarantee payments that occur after settlement.
Escrow Payment: The portion of a borrower’s monthly payment that is set aside by the lender in an escrow account to pay the taxes, hazard insurance, mortgage insurance, ground rents and other special items as they come due.
Exclusive Listing: A contract with a real estate agent giving the agent exclusive rights to sell a property, usually within a specific timeframe.

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— F —
Fair Credit Reporting Act: Federal act ensuring credit bureaus are fair and accurate in protecting the borrwer’s privacy rights.
Fair Housing Act: A law prohibiting the discrimination on the basis of race, color, national origin, religion, sex, familial status, or disability in any part of the home buying process.
Fair Market Value: The supposed price that a buyer and seller would agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fannie Mae: A federally-chartered organization that purchases residential mortgages and converts them into securities for sale to investors; in doing so, Fannie Mae helps supply funds that lenders use to make additional loans to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).
Federal Housing Administration (FHA): A federal agency within the U.S. Department of Housing and Urban Development (HUD). Using loan insurance programs to insure mortgages for lenders, FHA stimulates the availability of housing for low- and moderate-income families.
FICO Score: FICO is an abbreviation for Fair Isaac Corporation. For more information see Credit Score.
First Mortgage: Mortgage holding priority over the claims of subsequent lenders against the same property.
Fixed Interest Rate: A mortgage feature that structures the loan so that there will be no increases or decreases in the interest rate during the life of the loan.
Fixed Monthly Payment: A feature in a loan that prevents increases or decreases in the monthly payment amount during the life of the loan.
Fixed-Rate Mortgage: The type of loan in which the interest rate will not change for the entire term of the loan.
Float: Allowing the interest rate and discount points to fluctuate with changes in the market during the time of applying for a loan and closing.
Flood Insurance: Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will usually require flood insurance before approving a loan.
For Sale by Owner (FSBO): A home that the owner is selling without the help of a real estate professional.
Forbearance: A temporary reduction or suspension of mortgage payments granted by the lender, often combined with a reinstatement or a repayment plan to pay off the missed or reduced mortgage payments.
Foreclosure: An action to eliminate the interest of a borrower in real estate so as to give the lender good title.
Freddie Mac: A federally chartered corporation that purchases and sells conventional residential mortgages and converts them into securities for sale to investors; in doing so, Freddie Mac helps supply funds that lenders use to make additional loans to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).
Front End Ratio: A percentage comparing a borrower's total monthly cost to buy a house (mortgage principal and interest, insurance, and real estate taxes) to monthly income before deductions.
FSBO: Abbreviation of: For Sale by Owner (See above).
Fully Indexed Accrual Rate: The base index value of an adjustable-rate mortgage (ARM) plus the highest gross margin during the life of the loan.

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— G —
Gift Letter: A letter or affidavit that indicates part of a borrower’s down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid.
Ginnie Mae: A government corporation within the Department of Housing and Urban Development (HUD) that provides assistance for the purchase of certain Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages and guarantees securities backed by pools of mortgage loans.
Good Faith Estimate: Provides a breakdown of the estimated closing charges.
Graduated-Payment Mortgage (GPM): A mortgage in which the monthly payments will generally increase for a set period of time and then reach an amount that remains constant for the rest of the amortization period. This increasing payment feature can be incorporated into fixed-rate or floating-rate loans.
Graduated-Payment Period: The time frame during which a borrower’s monthly payments cover only part of the actual amount needed to amortize the loan, with the payment obligation increasing annually. This time period and the specific payment amounts may result in negative amortization if there is no pledged account to supplement the borrower’s payment.
Graduated Payments: The amount a borrower pays initially covers only part of the actual amount needed to amortize the loan. Payments increase annually during the first few years of the loan and then ultimately level off. Such payments may result in negative amortization if there is no pledged account to supplement the borrower’s payment.
Gross Income: The money earned before taxes or other deductions.
Gross Monthly Income: The money earned in a month before taxes or other deductions.
GSEs: Abbreviation for Government Sponsored Enterprises. See Fannie Mae and Freddie Mac.

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— H —
Hazard Insurance: Insurance on a property against fire and similar risk.
Home Equity Line of Credit: Line of credit that allows a borrower to obtain cash against the equity of a home.
Home Equity Loan: A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property.
Home Inspection: An examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.
Home Warranty: Coverage, usually over a specific amount of time, that protects the homeowner from the costs of mechanical systems and attached appliances repairs.
Homeowner's Insurance: An insurance policy that protects the homeowner against both damage to a home and its contents from disasters such as fire, storms, etc, as well as against claims of negligence or inappropriate action that result in someone's injury. Most lenders will require homeowners insurance. Also called hazard insurance.
Homeowners Association: An association of people who own homes in a given area for the purpose of improving or maintaining the quality of the area.
Housing Expense Ratio: The percentage of gross monthly income that goes toward paying for housing expenses.
HUD: The U.S. Department of Housing and Urban Development
HUD1 Statement: Itemizes all closing costs, including commissions, loan fees, points, and escrow amounts. Must be given to the borrower at or before closing. Also referred to as the "settlement sheet," “settlement statement” or "closing statement"
HVAC: Heating, Ventilation and Air Conditioning.

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— I —
Improvements: Any permanent structures on land such as buildings, fences and driveways, as well as landscaping, drainage, utilities, etc.
Index: A measure of prevailing market interest rates used with the margin to determine a new interest rate at the time of adjustment on an adjustable-rate mortgage (ARM). An index must be readily verifiable by the borrower and beyond the control of the lender.
Initial Interest Rate: The beginning interest rate at the start of an adjustable-rate mortgage (ARM). It may be lower than the fully indexed rate or “going market rate” and it will remain constant until it is adjusted up or down on the adjustment date.
Interest: A charge for borrowing money. It is usually expressed on an annual rate, or as a percentage, of the money still owed. For example, the interest rate might be 6%. If a person borrowed $10,000 and agrees to pay it in full at the end of one year, the interest will be $600.
Interest-Only Mortgage: A mortgage in which the borrower makes monthly payments of interest only for a specified period of time.
Interest Rate: The percentage of an amount of money which is paid for its use for a specified time; usually expressed as an annual percentage.
Interest Rate Cap: A limit placed on the amount the interest rate can increase after each interest rate adjustment period. The cap is usually given as a percentage. The most common interest rate caps are a 1% to 2% maximum rate increase per adjustment and a 5% to 6% maximum rate increase over the loan’s life.
Investment Properties: Property purchased by a borrower not for a primary residence but as an investment with the intent of generating rental income, tax benefits and profitable resale.
Investor: The eventual owner of a loan. This can be the original lender of the loan, or an institution that purchases the loan from the lender to hold in their portfolio.

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— J —
Jumbo Loan: A loan that exceeds Fannie Mae's and Freddie Mac's set loan limits. Also known as a non-conforming loan.
Junior Lien: A loan secured by a mortgage that does not stand in a first lien position. Also called “junior (or second or third) mortgage.”
Junior Lienholder: An individual or entity owning a junior lien.

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— L —
Late Charge: An additional charge a borrower is required to pay as a penalty for failure to pay a regular mortgage loan installment when due; a penalty for a delinquent payment.
Lease: A written agreement between a property owner and a tenant that specifies the payment, time and other conditions under which the tenant may occupy the home or apartment.
Lender: A person or company that makes loans for real estate purchases.
Liabilities: A borrower’s financial obligations.
LIBOR (London Interbank Offer Rates) Index: An average of interest rates at which international banks are willing to lend funds to or borrow funds from the London Interbank market. The rates are an international benchmark in determining interest rates for adjustable-rate mortgages (ARMs).
Lien: A legal encumbrance or claim of one person on the property of another as security for a debt or charge.
Life Cap: The maximum amount the interest rate may increase over the life of an adjustable-rate mortgage (ARM). It can be expressed either as a maximum interest rate or as the maximum number of percentage points it may increase from the initial note rate.
Line of Credit: An agreement by a financial institution to extend certain amount of credit for a set amount of time to a borrower.
Liquid Asset: A cash or an asset that is easily converted to cash.
Listing Agreement: A contract between a seller and a real estate professional to market and sell a home.
Liquidity: The amount an individual or entity holds in cash, checking and savings accounts and other assets quickly convertible to cash without any significant loss.
Loan: The letting out or renting of money by a lender to a borrower, to be repaid with or without interest.
Loan Balance: The amount of principal that a borrower owes.
Loan Balance Cap: Because the loan balance may increase with adjustable-rate mortgage (ARMs), many lenders place limits on how much deferred interest may be added to the original loan balance. If, during the life of the loan, the unpaid principal owed exceeds this limit, the borrower can no longer defer interest. The monthly payment must be increased (perhaps significantly, resulting in “payment shock”) to pay all monthly interest due and enough of the monthly principal to fully pay off the loan within its remaining life.
Loan Closing or Closing: A meeting between borrower and lender in which transfer of ownership is accomplished, funds and deed are exchanged, and all loan documents, including the promissory note and mortgage, are signed.
Loan Fraud: A crime in which one purposely gives incorrect information on a loan application in order to better qualify for a loan.
Loan modification: A written agreement between a mortgage company and borrower that permanently changes one or more of the original terms of the loan to make the payments more affordable.
Loan Officer: A person working on behalf of a lending or mortgage company responsible for soliciting borrowers, qualifying and processing loans. Also known as originator, lender, loan representative or loan rep.
Loan Origination Fee: A charge (usually 1 to 2 percent of the mortgage) to cover the administrative costs of making the loan.
Loan Servicer: The company that collects a borrower’s monthly mortgage payments and disperses money for property taxes and insurance payments. They may be the lender or a company that is under contract with the investor to service the loan.
Loan-to-Value Ratio (LTV): The ratio, expressed as a percentage, of the amount of a loan (numerator) to the value or selling price of real property (denominator).
Lock or Lock-In Rate: An agreement between the lender and borrower guaranteeing a specific interest rate that will be charged if the loan closes by a set amount of time.

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— M —
Margin: Under the terms of an adjustable-rate mortgage (ARM), the margin is a premium that a lender charges which is added to the index. This premium is typically two or three percentage points. Once the lender specifies the margin, it remains fixed.
Market Value: An estimate of the probable price a property would sell for within a reasonable period of time, on the open market under normal conditions, and between a willing, ready and able buyer and seller.
MGIC: Mortgage Guaranty Insurance Corporation.
Monthly Housing Expense Ratio: The amount of the monthly income as a percentage of the amount the borrower will owe each month in principal, interest, real estate tax and insurance on a mortgage.
Mortgage: A pledge or security for the payment of a debt.
Mortgage Banker: An entity or individual active in the field of mortgage banking. Mortgage bankers, as local representatives of regional or national institutional lenders, act as correspondents between lenders and borrowers.
Mortgage Banking: The origination, sale and servicing of mortgage loans by a firm or individual.
Mortgage Broker: An individual or firm that acts as an agent for both the borrower and the lender of a mortgage loan. The broker places the borrower and lender in contact with each other, and receives a commission from the borrower if a loan is made. Unlike a mortgage banker, a mortgage broker does not negotiate the terms of the loan, issue a loan commitment, prepare the loan documents or service the loan.
Mortgage Commitment: An agreement between the borrower and the lender to disburse a mortgage loan at a future date if specified terms and conditions are satisfied.
Mortgagee: The institution, group or individual that lends money on the security of pledged real estate; the association, the lender.
Mortgage Insurance (MI): Insurance written by an independent mortgage guaranty insurance company that protects the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sales price. Private companies, such as MGIC, offer this insurance. The federal government writes this form of insurance through the Federal Housing Administration (FHA).
Mortgage Insurance Premium (MIP): The amount paid by a mortgagor for mortgage guaranty insurance either to the FHA or a private mortgage guaranty insurance company.
Mortgage Interest Deduction: The interest paid on a mortgage is a tax-deductible expense and may be used to reduce the taxable income of the borrower.
Mortgage Lender: A classification used to describe those institutions or organizations at least partially engaged in the primary mortgage market – that is, extending funds directly to the borrower.
Mortgage Life and Disability Insurance: Life insurance bought by borrowers to pay off a mortgage in the event of death or make monthly payments in the case of disability.
Mortgage Loan Correspondent: A mortgage banker who services mortgage loans as an agent for either the owner of the mortgage or an investor. Also applies to the mortgage banker in the role of originator of mortgage loans for an investor.
Mortgage Note: A written promise to pay a sum of money at a stated interest rate during a specified term. It is usually secured by a mortgage.
Mortgagor: The owner of real estate who pledges his property as security for the repayment of a debt; the borrower.
Multiple Borrowers: Two or more borrowers who are not husband and wife.

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— N —
Negative Amortization: The gradual increase in the balance of a loan, caused by adding unpaid interest to the loan balance. The unpaid interest is a result of monthly payments being less than the amount required to pay the interest. Negative amortization can occur on a potential or scheduled basis. (a) Potential negative amortization: Negative amortization that results from borrower optional payment caps. (b) Scheduled negative amortization: Negative amortization that is scheduled to occur during the life of the loan.
Net Income: The amount of money that one receives after taxes and deductions.
Net Monthly Income: The amount of money that one receives in a month after taxes and deductions
No Cash Out Refinance: The refinancing of an existing loan only for the amount remaining on the mortgage; the borrower receives no extra cash from the new loan. Also called a "rate and term refinance."
Non-Conforming loan: A loan that exceeds Fannie Mae's and Freddie Mac's set loan limits.
Note: A written promise by one party to pay a specified sum of money to a second party under conditions agreed upon mutually. Also called a “promissory note.”
Note Rate: The interest rate on the mortgage loan.
Notice of Default: A notice recorded after the occurrence of a default under a deed of trust or mortgage. Typically required by an interested third party that has insured or guaranteed the loan.

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— O —
Offer or Offer to Purchase: A document completed by a homebuyer specifying the terms and conditions under which real estate will be purchased.
Open House: When a house that is up for sell is open to the public to tour.
Original Principal Balance: The total principal owed on a mortgage before any payments are made.
Origination: The process of preparing, submitting, and evaluating a loan application.
Open-End Mortgage: A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and the borrower.
Origination Fee: The fee that the lender charges the borrower to cover the cost of issuing a loan commitment. It pays for processing the loan which includes collecting information about the borrower’s creditworthiness and the property. The fee is usually computed as a percentage (for example, 1%) of the mortgage loan. It usually does not include fees for appraisals, credit reports, inspections and loan document preparation.
Owner-Occupied Property: The borrower lives in the property as a primary residence.

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— P —
Partial Payment: A mortgage payment less than the total amount owed by the borrower.
Payment Cap: A limit placed on the amount the monthly payment can increase at each predetermined adjustment period, regardless of the interest rate being charged. The cap is usually given as a percentage. When payment caps are present, there is the potential for negative amortization to occur.
Payment Shock: Occurs when the terms of a mortgage instrument require an increased payment and the borrower is unable to make or keep up with the increased payment obligation.
Personal Property: Property that is not real property or attached to real property. A washer and dryer is not attached and would be personal property, where as a ceiling fan would be considered attached and part of the real property.
PITI (Principal, Interest, Real Estate Tax, Insurance): The total mortgage payment which includes principal, interest, taxes and insurance.
PITI Ratio: Compares the amount of the monthly income to the amount the borrower will owe each month in principal, interest, real estate tax and insurance on a mortgage. It is used by lenders in deciding whether to give the borrower a loan. (Compare to Qualifying Debt Ratio.)
Planned Unit Development (PUD): A planned unit development (PUD) in which the common areas are of minimal value and have little influence on the enjoyment of the premises or the value of the property.
PMI: Private Mortgage Insurance: See Mortgage Insurance
Points: See Discount Point
Pre-Approval: A fixed loan amount that a lender commits to lend to a borrower based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. This does not guaranty a loan until the property has passed inspections and meets underwriting guidelines.
Predatory Lending: Abusive lending practices that include intentionally placing borrowers in loans with notably worse terms or higher costs than loans offered to similarly qualified consumers from the same area. This may include convincing a borrower to refinance a loan that he or she likely would not have done, had the borrower been fully aware of all the implications and consequences of the new loan.
Pre-Qualify: An estimation by the lender of the maximum amount an individual is eligible to borrow. Not a guaranty of a loan.
Premium: The amount paid on an insurance policy to maintain coverage.
Prepaid Interest: Interest that the borrower pays the lender before it becomes due.
Prepayment: A loan repayment made in advance of its contractual due date.
Prepayment Penalty: A penalty under a note, mortgage or deed of trust imposed when the loan is paid before its maturity date.
Prime Rate: The interest rate banks charge to preferred customers. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages, as well as may be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit.
Principal Balance: The outstanding balance of a mortgage, exclusive of interest and any other charges. The capital sum of a loan.
Private Mortgage Insurance: See Mortgage Insurance
Property Appraisal: A supportable estimate of a property’s market value determined by a trained and certified appraiser who measures the likelihood that a property will maintain its value over the duration of the loan.
Property Tax: The tax charged by local government to the owner of a piece of land. The amount of property tax is determined locally.
Purchase Money: Refers to a loan for the purpose of purchasing a home, rather than a loan refinance or home improvement loan.

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— Q —
Qualifying Debt Ratio: The amount of the total monthly payments for all debt (for example, installment, revolving, and proposed PITI) as a percentage of the monthly income.
Qualifying Rate: The interest rate at which the borrower is qualified for a loan. It is usually higher than the initial rate (if there is a discount) to ensure the borrower can afford a potential payment increase.

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— R —
Rate-and-Term Refinance: The borrower replaces a mortgage loan on the subject property with another mortgage loan for the purpose of getting a better interest rate and loan term. Also called a “No Cash Out Refinance.”
Real Property: Land and anything permanently affixed to the land, such as fences, buildings and those things attached to the buildings, such as light fixtures or plumbing. May refer to rights in real property as well as the property itself.
Recasting: An adjustment to the current mortgage – a loan modification – that does not involve the issuance of a new mortgage guaranty insurance certificate. With a recast loan, a modification may be made in the type of instrument involved. In whatever form a recast loan takes, the major benefit to the borrower is the potential for substantially reduced mortgage payments.
Redemption Period: The time period in a foreclosure in which a borrower in default cannot be divested of legal title or evicted and can exercise the right to redeem the property by paying the debt in full.
Refinance: The payment of a debt from the proceeds of a new loan, using the same property as security.
Reinstatement: Occurs when a borrower cures a mortgage default. A mortgage is reinstated if it is brought up to date by paying all charges that had become overdue.
RESPA: Real Estate Settlement Procedures Act; a law requiring lenders to disclose all settlement costs, practices, and relationships

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— S —
Secondary Market: An informal market where existing mortgages are bought and sold. It is the traditional aftermarket for mortgage loans that brings together lenders that sell mortgages with lenders, investors and agencies that buy mortgages. Also called “secondary mortgage market,” it should not be confused with a second mortgage.
Settlement Statement: see HUD 1 Settlement Statement.
Servicing: All the management and operational procedures that the mortgage company handles for the life of the mortgage, up through foreclosure if necessary, including: collecting the mortgage payments, ensuring that the taxes and insurance charges are paid promptly, and sending an annual report on the mortgage and the escrow accounts. (See also Escrow Account.)
Short Sale: A short sale occurs when a borrower and the lender who holds the mortgage on the property agree to transfer title for less than the current mortgage obligation (including any missing payments, late fees, penalties, and advances for taxes and the like). The event may take place when the value of the property falls below the mortgage balance due.
Start Rate or Initial Note Rate: The interest rate at the time the mortgage is originated.
Subject Property: The property that is the subject of an appraisal.
Subordinate Lien: A lien by which an encumbrance is made subject to or junior to the original lien.
Survey: A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions and the location and dimensions of any improvements.

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— T —
Term: The time period granted for repayment of a loan. Also known as “loan term.”
Third Party: A general term that includes anyone not a party to a contract, agreement, instrument, etc.
Title: see Certificate of Title.
Title Insurance Policy: A contract by which the insurer, usually a title insurance company, indicates who has legal title and agrees to pay the insured a specific amount of any loss caused by clouds, claims or defects of title to real estate.
Total Principal Balance: The sum of the outstanding principal balances of the loans in the package.
Treasury Bill Index: Calculated weekly by the Federal Reserve using data from the sale of treasury bills and treasury securities. can be used as the basis for adjustable rate mortgages (ARMs)
Truth-in-Lending Act: Federal legislation that provides borrowers with specific information on the cost of obtaining credit.

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— U —
Underwriting: In mortgage lending, the process of approving or denying a loan based on an evaluation of the property and the applicant’s creditworthiness and ability to repay the loan. The underwriter analyzes the risks involved and selects an appropriate loan term and interest rate.
Uniform Residential Loan Application: A standard mortgage application borrowers complete listing income, assets, liabilities, and a description of the property he or she plans to buy.

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— V —
VA Mortgage: A mortgage guaranteed by the Department of Veterans Affairs (VA).
Verification of Deposit (VOD): A form sent to each depository listed on the loan application to verify the funds of the borrower at such institution.
Verification of Employment (VOE): A form sent to the borrower’s employer to verify the borrower’s employment and employment history.

— W —
Walk Through: A buyer’s final inspection of a property to confirm that any contingencies specified in the purchase agreement have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.

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