Mortgage Glossary

A
adjustable rate mortgage
adjustment period
amortization
annual percentage rate
appraisal
appraised value
assessed value
B
balloon mortgage
balloon payment
buydown
buyer's agent
C
cap
closing
closing costs
co-borrower
comparables
conventional mortgage
conveyance
D
dual agent
due on sale clause
E
equity
escrow
F
FHA mortgage
fixed rate mortgage
foreclosure
G
general warranty deed
gift letter
H
hazard insurance
HUD-1 real estate settlement statement
I
impound account
index
investor
L
lien
loan-to-value ration
M
manufactured home
margin
market value
modular home
mortgage insurance
multiple listing service (MLS)
N
negative amortization
non-conforming loan
note
P
PITI
point
prepaid interest
purchase and sale contract
Q
quitclaim deed
R
refinancing
reverse mortgage
S
second mortgage
seller's agent
septic system
< ahref="#s4">sub prime loans
T
term
title insurance
title search
U
underwriting
V
VA Mortgage

Adjustable-Rate Mortgage - A home loan with an interest rate tied to a financial index which can increase or decrease at pre-determined adjustment periods - typically semi-annually or annually.

Adjustment Period - The interval at which the loan rate and/or monthly payment can change on an adjustable-rate mortgage, usually one or more times per year.

Amortization - The gradual repayment of debt through periodic payments of principal and interest over a prescribed period until there is a zero balance.

Annual Percentage Rate - The true annual interest rate. The total cost or finance charge for a loan per year, expressed as a percentage.

Appraisal - An opinion or estimate of value, or the process whereby that opinion is reached.

Appraised Value - An opinion of value reached by an appraiser based upon study of pertinent data.

Assessed Value - Value placed upon property for tax purposes by the tax assessor.

Balloon Mortgage - A mortgage with monthly payments 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.

Balloon Payment - the unpaid principal amount of a mortgage due on a specified date in a lump sum.

Buydown - An interest rate subsidy in the form of additional discount points usually paid by the builder, lender, seller or buyer.

Buyer's agent- A real estate agent employed to work in the best interests of a buyer in a real estate transaction. The agent's loyalties are with the buyer. It is the agent's duty to share any information about the property or sellers that may help the buyer make decisions regarding the transaction. Agent status must be disclosed to all parties.

Cap - A limit on how much the interest rate or monthly payment can change, either during the adjustment period or over the life of the loan.

Closing - The delivery of a deed, signing of notes, and disbursement of funds necessary to consummate a real estate sale or loan transaction.

Closing Costs - Expenses incurred by the buyer and seller during the purchase and sale of real estate such as title fees, loan fees, etc.

Co-Borrower - A second borrower who signs a mortgage loan with the borrower. The co-borrower-s income, assets, and debt are combined with that of the borrowers for the sake of qualifying and underwriting purposes. The co-borrower-s name must also appear on the mortgage or deed of trust.

Comparables - Properties sold recently that are similar to property being considered for purchase. Comparables should be in the same general location and of similar size, character and construction type.

Conventional Mortgage - A mortgage made by a lender without the backing provided by government guarantees such as VA or FHA.

Conveyance - The document, such as a deed or mortgage, used to effect a transfer.

dual agent -A dual agent is a real estate agent who has signed a buyer agency agreement with a buyer who wishes to purchase a listing held by the agent or the agent's firm. A dual agent must be loyal to both the buyer and the seller. In states where dual agency is allowed, it must usually be agreed to by all parties--in writing.

due on sale clause - A clause inserted in loan documents that makes the entire loan balance due immediately if a borrower transfers ownership of the financed property to someone else.

Equity - The difference between the actual value of a property and the outstanding loan balance.

Escrow - The temporary holding by a neutral third party of deposited funds pending completion of agreed terms in a transaction.

FHA Mortgage - A low down payment loan insured by the Federal Housing Administration. The FHA protects the lender against loss in case the borrower defaults.

Fixed-Rate Mortgage - A loan with an interest rate that remains unchanged over the term of the loan.

Foreclosure- A legal proceeding where property used to secure a debt is sold to pay off that debt when the borrower has defaulted on loan payments or broken other terms of the mortgage agreement. If a borrower has not made payments for a time specified in the mortgage agreement, the lender may sell the property to pay off the loan. A mortgage can also be canceled for other reasons. For example, the balance is usually due in full when a home is sold to another party.

General warranty deed- A deed where the grantor (seller) fully warrants he or she holds clear title to a piece of real estate. The guarantee is not limited to the time the grantor owned the property: it extends to the property's origins.

Gift Letter - A letter from the donor of gift funds certifying to the underwriter that funds in a borrower-s account are a gift and do not need to be repaid.

Hazard Insurance - Insurance coverage providing compensation to the insured in case of a loss or damage to a property.

HUD-1 real estate settlement statement- The HUD-1 is a form used by the settlement agent to itemize all charges for a real estate transaction. It gives each party a complete list of their incoming and outgoing funds.

Impound Account - Account held by a lender for payment of taxes, insurance, mortgage insurance, and other debts against property. The borrower pays an apportioned amount with each monthly payment.

Index - A base for determining the interest rate adjustment of an ARM, such as the interest rate on U.S. Treasury securities. Indexes generally reflect prevailing market conditions.

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

Lien - A claim against property for debt, such as a mortgage.

Loan-to-Value Ratio (LTV) - The ratio of mortgage amount to the lower appraised value or sales price. Used by lenders to determine maximum loan amounts.

manufactured home-Formerly called mobile homes, manufactured homes are built in a factory and must conform to a federal building code (HUD). They are built on a non-removable steel chassis and transported to the home site on their own wheels.

Margin - The amount, expressed as a percentage, that a lender adds to an index to arrive at the effective interest rate on an ARM.

Market Value - The current value of a property that a buyer is willing to pay and the seller is willing to accept.

modular home- Modular homes are homes built in modules at a factory. Modules are transported to the home site on flat bed trucks. Unlike manufactured homes, modulars conform to all state, local and regional codes where the home is to be located.

Mortgage Insurance - Insurance obtained from a non-governmental insurer that provides the lender with protection in case the borrower defaults.

multiple listing service (MLS)- A group of real estate brokers who share their listing agreements with one another in order to find buyers for listed properties more quickly than they could on their own.

negative amortization- Occurs when loan payments are not enough to cover the amount of interest due for that payment period. The unpaid interest is calculated and added to the total loan amount, increasing your outstanding balance.

Non-Conforming Loan - A conventional loan is considered non-conforming when the loan amount is too large or underwriting practices are outside the guidelines established by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). A jumbo loan or a loan for borrowers with less-than-perfect credit are examples of non-conforming loans.

Note - A general term for an instrument signed by the borrower that is an acknowledgment of the debt and a promise to pay.

PITI - An acronym for the items included in a monthly payment: Principal, Interest, Taxes, and Insurance.

Point - An amount equal to one percent of the loan amount. The origination fee is often expressed in points.

Prepaid interest- Interest you pay at closing to cover the period from the the time the bank funds your loan (the day before or day of closing) to the date your first payment is due.

Purchase and Sale Contract - The formal agreement in which the seller agrees to sell and the buyer agrees to buy the property.

Quitclaim deed- A type of deed where a grantor (person with ownership interest) transfers all interests he or she has in a property. With this type of deed the person offers no warranties or promises about the title to the new owner (grantee). A quitclaim deed is often used to clear up defects in a title. For instance, one property owner may have had the right to cross another property to access his or her land. If that access is no longer desired, a quitclaim deed can be filed to formally give up all interests in the easement or right of way. Quitclaim deeds can also be used when an heir or former spouse gives up all interests in a piece of real estate.

Refinancing - A new borrowing against a property that is currently mortgaged, with the intention of retiring the previous debt.

reverse mortgage- A special type of home equity loan for persons 62 and older. Reverse mortgages allow owners to convert some of the equity in their homes to cash. The loan does not usually have to be repaid during the homeowner's lifetime. Loan advances are not taxable and do not affect the homeowner's Social Security or Medicare benefits.

Second Mortgage - A second lien on a property.

seller's agent- A real estate agent employed to work in the best interests of a seller in a real estate transaction. The agent's loyalties are with the seller. It is the agent's duty to share with the seller all information about potential buyers that may help the seller make decisions regarding the transaction.

septic system- A private waste removal system for homes that are not connected to a community sewer. A conventional septic system consists of three main parts: a septic tank, a drainfield, and the soil beneath the drainfield. Waste is filtered to the soil, where components in the soil neutralize bacteria and chemicals before they reach groundwater or nearby rivers and lakes.

sub prime loans- Borrowers that cannot qualify for the conventional or government loans and the reason is typically due to credit loans. These loans have a higher interest rate along with higher closings costs. Most sub prime loans contain a pre payment (early) pay off penalty.

Term - The period or duration of a note or loan.

Title Insurance - Insurance written by a title company to protect the lender or owner against loss in the case of undisclosed liens or defects in title to the property.

Title search- A title search is a close examination of all public records that involve title to a specific property. The search is conducted to verify that there are no liens or other claims against the property (other than those scheduled to be erased at closing if done for a purchase).

Underwriting - In mortgage banking, the analysis of risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender.

VA Mortgage - A low down payment loan guaranteed by the Department of Veterans Affairs.