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Mortgage and finance terminology can be a little
confusing. Below are a few common phrases/terms
and their meanings.
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 &
D Loan
Acquisition and Development Loans are used
in purchasing and developing raw land with the
intent of future development.
Abstract of Title
A written history of ownership showing verification
or non-verification of title.
Acceleration Clause
Requires the balance of a loan to become due
immediately. Occurs when regular payments are
not made.
Acquisition Cost
The price to obtain property, including purchase
price and all non-recurring closing costs, including
discount points, FHA application fee, service
charge, credit report, FHA appraisal, escrow,
document preparation, title insurance, termite
inspection, reconveyance and recording fees for
FHA-insured loans.
Ad Valorem
A Latin phrase used to describe a tax charged
in relation to the value of the property taxed
meaning "according to value".
Adjustable Rate Mortgage
(ARM)
A loan with an adjusted interest rated determined
by a preselected index.
Adjustment Period
The period between adjustments of an ARM interest
rate.
All-inclusive Trust
Deed
Overriding trust deed; A financing tool where
a lender assumes payments on an existing mortgage
or trust deed and takes from the borrower a trust
deed with a face value in an amount equal to the
amount due on the old instrument and the additional
amount of money borrowed.
Amortization
A financial obligation paid in installments;
An amortized loan includes both principal and
interest, usually due monthly, resulting in complete
payment of the amount borrowed, with interest,
by the end of the loan term.
Annual Percentage Rate
(APR)
The cost of credit including interest, loan
fees and discount points stated as an annual percentage.
Appraisal
A licensed appraiser’s estimate of a
property’s monetary value on the open market;
Justifies the contract purchase price.
Arrearages
The total delinquent principal, interest,
taxes and insurance owed.
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Balloon
Payment
An installment payment on a loan that is usually
a larger payment and due on a specified date.
Bond
Real Estate Bond. An obligation issued on
security of a mortgage or trust deed.
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Cap
A limit on interest rate fluctuation on an
adjustable rate.
Certificate of Reasonable
Value
Property appraisal necessary for a VA-guaranteed
loan.
Certificate of Redemption
Certificate issued by the county tax collector
verifying payment of all past due obligations.
Chattel Mortgage
Using personal property to guarantee a promissory
note.
Closing
The ending of a real estate transaction resulting
in title and fund conveyance.
Closing Costs
Expenses resulting from the closing of a real
estate mortgage loan.
Closing Statement
Also known as a HUD-1 statement. Provides
a listing of all funds payable at closing.
Cloud on Title
Encumbrance which affects the title marketability.
Compound Interest
Interest payable on the principal loan amount
and accrued interest.
Conventional Loan
A secured loan that is not insured by FHA
and VA loans.
Cost Approach
An Appraisal method to determine market value
calculated by adding value less depreciation to
the replacement value.
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Deed
A legal document conveying title to real property.
Debt to Income Ratio
Ratio comparing total monthly obligations,
including home loan payments, to total monthly
gross income.
Discount Points
Fee charged by the lender to decrease the
interest rate on a loan.
Due on Sale Clause
Mortgage provision stating that the entire
note balance is due if the borrower sells the
property.
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Easement
The right and use to a specific piece of land
owned by someone else.
Encroachment
A property improvement that unlawfully intrudes
on another’s property.
Equity
Calculated by subtracting the balance owed
on a home from the market value.
Escrow
The holdings of documents or funds by a neutral
third party on the behalf of the borrower pending
the closing of a loan or payment of real estate
taxes, insurance and any such agreements of a
contract.
Escrow Impounds
Money paid at loan settlement and with monthly
loan payments for the purpose of paying future
real estate taxes and homeowners insurance.
Escrow Waiver
The borrower’s request to not pay taxes
and insurance through impounds. Equity positions
play a role in the decision.
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Fair
Credit Reporting Act
Law protecting consumers that establishes
procedures to correct errors on credit reports
and gives consumers specific rights in dealing
with credit reporting agencies.
Fannie Mae (FNMA)
The Federal National Mortgage Association.
It purchases, sells and guarantees conventional,
VA or FHA mortgages.
Federal Home Loan Mortgage
Corporation (FHLMC)
Purchases conventional mortgage loans in the
secondary mortgage market.
Federal National Mortgage
Association (FNMA)
Purchases mortgage loans from primary lenders
in the secondary mortgage market.
Federal Truth In Lending
Act
Requires disclosures about terms and costs
intended to give consumers cost vs. credit comparisons.
FHA
Federal Housing Authority. Provides home loan
insurance for FHA loans.
Fico Score
Enables a credit grantor to identify credit
prospects with the best credit opportunities.
Fixed Rate Mortgage
The interest rate on a loan that remains constant
throughout the entire term.
Floating Interest Rate
The interest on a loan before it is guaranteed
by a lender.
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Gift
Letter
A signed letter or statement from an individual
providing a cash gift to a borrower in order to
qualify for a loan. The letter or statement states
that the cash gift does not have to be repaid.
Ginnie Mae
Government National Mortgage Associations
works with FHA facilitating efficient secondary
market activities for federally insured or guaranteed
mortgages.
Graduated Payment Mortgage
(GPM)
A mortgage based on payments that will be
increased over time dependent on a predetermined
schedule.
Gross Income Multiplier
Using the gross annual income of a property
to calculate an estimate of a property’s
value.
Good Faith Estimate
A document prepared by the lender showing
borrowers the estimated cost they will incur payable
at closing.
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Hazard
Insurance
Insurance policy placed on property improvements
that covers damage by fire or other natural disasters.
HUD
The United States Department of Housing and
Urban Development. Responsible for all facets
of the federal housing and urban development programs.
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Index
A factor used to calculate the interest on
an adjustable rate mortgage.
Inheritance Taxes
Taxes on real and personal property received
through an inheritance.
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Jumbo
Loan
A home loan that is monetarily more than the
limits of Freddie Mac or Fannie Mae.
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Land
Contract
A contract used in a real property sale where
the seller keeps the title to the property until
the sales price has been paid.
Leverage
Use of debt financing to purchase an investment.
Lien
A legal hold against the property as security
for the payment of a debt, mortgages, judgments
or taxes.
Loan to Value Ratio
Ratio reflecting the mortgage loan amount
to the appraised value or purchase price of a
home.
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Market
Value
The highest price that a buyer is willing
to pay and the lowest price that a seller is to
accept for real estate.
Marketable Title
Enables an owner to sell property without
objection. It is free of any clouds.
Mortgage
A guarantee of real estate from a borrower
as security for the payment of a loan to a lender.
Mortgage Insurance
Insures the lender against nonpayment of a
government or conventional loan.
Mortgagee
The lender for a home loan.
Mortgagor
The borrower in a home loan.
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Negative
Amortization
A loan schedule in which the principal increases
due to a payment that does not cover all of the
interest.
Notice of Default
Written notice to a borrower showing default
on a mortgage.
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Origination
Fee
Lender’s fee for processing and underwriting
loan documents. Usually 1 point or 1%.
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PITI
Principal, interest, taxes and insurance,
which combined make a monthly mortgage payment.
Points
A one-time payment to lower the interest rate
on a mortgage.
Prepaid Interest
The interest charged at closing calculated
to pay for the cost of borrowing for the remainder
of the month.
Prepayment Penalty
Fee paid by the borrower if loan is paid before
its due date.
Pre-qualification
A non-binding opinion of how much a borrower
will be qualified to borrow.
Private Mortgage Insurance
(PMI)
Insurance required by lender from a non-governmental
insurer if down payment is less than around 20%.
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Real
Estate Settlement Procedures Act (RESPA)
Requires advance disclosure to consumers about
mortgage loan settlements.
Redlining
The illegal practice of lending institutions
denying loans to certain areas of a community.
Refinancing
The borrower pays off one loan with another.
Reverse Annuity Mortgage
(RAM)
The homeowner receives monthly payments based
on accumulated equity. The loan must be repaid
at a prearranged date or upon the death of the
owner or the sale of the property.
Right of Recission
The borrowers right to cancel a mortgage refinance
transaction within three days from the date the
settlement documents were executed.
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Sales
Comparison Approach
The construction and locations of homes comparable
to the subject home are used to form an appraisal.
Satisfaction
Paying and being released from an obligation
in its’ entirety before the end of the term.
Second Mortgage
Mortgage that has a lien position second to
a first mortgage.
Secondary Mortgage Market
Market in which investors buy and sell existing
mortgages.
Security Instrument
The deed of trust or mortgage verifying the
pledge of real property as security for the repayment
of the debt.
Servicing
The operational procedures related to the
collection of home loan payments and other payments
related to mortgage loans.
Shared Appreciation
Mortgage (SAM)
Loan in which the lender participates in any
profits when the property is sold.
Simple Interest
Interest payable on the principal amount of
the loan only.
Subrogation
Substituting the legal rights and claims from
one creditor to another.
Suspended
A loan can neither be approved nor denied.
More information is needed.
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Takeout
Loan
Loan in which the lender provides financing
to the builder or developer upon completion of
construction.
Temporary Buydown
Money paid at closing to temporarily reduce
the interest rate for the first and second year
of the mortgage.
Title Insurance
Insurance policy protecting owner or lender
against loss affecting title.
Title Search
An examination of public records to determine
legal ownership of property.
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Usury
Charging an interest rate greater than the rate
permitted by law.
Underwriting
Analyzing a home buyer’s ability to repay
a home loan.
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VA Loan
A home loan guaranteed by the Department of
Veterans Affairs. Enables a veteran to buy a home
with no money down.
VOD
Verification of Deposit
VOM
Verification of Mortgage
VOE
Verification of Employment
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Wraparound
Mortgage
A loan in which a new loan is added to the
existing first mortgage loan.
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