Glossary of VA Mortgage Terms
A summary of the public records relating to the title to a particular
piece of land. An attorney or title insurance company reviews an abstract
of title to determine whether there are any title defects which must be
cleared before a buyer can purchase clear, marketable, and insurable
Condition in a mortgage that may require the balance of the loan to
become due immediately, if regular mortgage payments are not made or for
breach of other conditions of the mortgage.
An offeree’s consent to enter into a contract and be bound by the terms
of the offer.
Additional principal payment
A payment by a borrower of more than the scheduled principal amount due
in order to reduce the remaining balance on the loan.
Adjustable Mortgage Loan
Any mortgage that does not have a fixed interest rate and a fixed
payment for the term of the loan, or does not amortize to zero at the end
of the set term, when required payments are made on time.
Adjustable Rate Mortgage
A mortgage in which the interest rate is adjusted periodically
according to the movement in a pre-selected index.
The original cost of a property plus the value of any capital
expenditures for improvements to the property minus any depreciation
The date on which the interest rate changes for an adjustable-rate
For an adjustable rate mortgage, the time between changes in the
interest rate charged. The most common adjustment intervals are one, three
or five years.
The period that elapses between the adjustment dates for an
adjustable-rate mortgage (ARM).
A person appointed by a probate court to administer the estate of a
person who died intestate.
Agreement of Sale
Known by various names, such as contract of purchase, purchase
agreement, or sales agreement according to location or jurisdiction. A
contract in which a seller agrees to sell and a buyer agrees to buy, under
certain specific terms and conditions spelled out in writing and signed by
A feature of real property that enhances its attractiveness and
increases the occupant’s or user’s satisfaction although the feature is
not essential to the property’s use. Natural amenities include a pleasant
or desirable location near water, scenic views of the surrounding area,
etc. Human-made amenities include swimming pools, tennis courts, community
buildings, and other recreational facilities.
A payment plan, which enables the borrower to reduce his debt gradually
through monthly payments of principal.
A timetable for payment of a mortgage loan. An amortization schedule
shows the amount of each payment applied to interest and principal and
shows the remaining balance after each payment is made.
The amount of time required to amortize the mortgage loan. The
amortization term is expressed as a number of months.
Reduce a debt by regular payments of both principal and interest.
A timetable for payment of a mortgage showing the amount of each
payment applied to interest and principal and the remaining balance.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage stated as a percentage of the loan
amount: includes the base interest rate, primary mortgage insurance, and
loan origination fee (points)
An amount paid yearly or at other regular intervals, often on a
guaranteed dollar basis.
A form used to apply for a mortgage loan and to record pertinent
information concerning a prospective mortgagor and the proposed
The fee charged by the lender to the borrower for applying for a
An opinion of a property’s fair market value, based on an appraiser’s
knowledge, experience, and analysis of the property.
A person qualified by education, training, and experience to estimate
the value of real property and personal property.
A professional opinion of the market value of a property.
An increase in the value of a house due to changes in market conditions
or other causes.
The valuation placed upon property by a public tax assessor for
purposes of taxation.
The process of placing a value on property for the strict purpose of
taxation. May also refer to a levy against property for a special purpose,
such as a sewer assessment.
A public official who establishes the value of a property for taxation
Anything of monetary value that is owned by a person. Assets include
real property, personal property, and enforceable claims against others
(including bank accounts, stocks, mutual funds, and so on).
The transfer of a mortgage from one person to another.
These loans may be passed on from a seller of a home to the buyer. The
buyer “assumes” all outstanding payments.
A provision in an assumable mortgage that allows a buyer to assume
responsibility for the mortgage from the seller. The loan does not need to
be paid in full by the original borrower upon sale or transfer of the
The fee paid to a lender (usually by the purchaser of real property)
resulting from the assumption of an existing mortgage.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally
liable for payment of an existing mortgage. In an assumption, the
purchaser is substituted for the original mortgagor in the mortgage
instrument and the original mortgagor is to be released from further
liability in the assumption, the mortgagee’s consent is usually
One who holds a power of attorney from another to execute documents on
behalf of the grantor of the power. The original mortgagor should always
obtain a written release from further liability if he desires to be fully
released under the assumption. Failure to obtain such a release renders
the original mortgagor liable if the person assuming the mortgage fails to
make the monthly payments. An “Assumption of Mortgage” is often confused
with “purchasing subject to a mortgage.” When one purchases subject to a
mortgage, the purchaser agrees to make the monthly mortgage payments on an
existing mortgage, but the original mortgagor remains personally liable if
the purchaser fails to make the monthly payments. Since the original
mortgagor remains liable in the event of default, the mortgagee’s consent
is not required to a sale subject to a mortgage. Both “Assumption of
Mortgage” and “Purchasing Subject to a Mortgage” are used to finance the
sale of property. They may also be used when a mortgagor is in financial
difficulty and desires to sell the property to avoid foreclosure.
A financial statement that shows assets, liabilities, and net worth as
of a specific date.
A person, firm, or corporation that, through a court proceeding, is
relieved from the payment of all debts after the surrender of all assets
to a court-appointed trustee.
A proceeding in a federal court in which a debtor who owes more than
his or her assets can relieve the debts by transferring his or her assets
to a trustee.
Income before taxes are deducted.
The person designated to receive the income from a trust, estate, or a
deed of trust.
Bill of sale
A written document that transfers title to personal property.
Binder or “Offer to Purchase”
A preliminary agreement, secured by the payment of earnest money,
between a buyer and seller as an offer to purchase real estate. A binder
secures the right to purchase real estate upon agreed terms for a limited
period of time. If the buyer changes his mind or is unable to purchase,
the earnest money is forfeited unless the binder expressly provides that
it is to be refunded. Broker (See Real Estate Broker)
Blanket insurance policy
A single policy that covers more than one piece of property (or more
than one person).
An interest-bearing certificate of debt with a maturity date. An
obligation of a government or business corporation. A real estate bond is
a written obligation usually secured by a mortgage or a deed of trust.
One who receives funds with the expressed or implied intention of
repaying the loan in full.
A form of second trust that is collateralized by the borrower’s present
home (which is usually for sale) in a manner that allows the proceeds to
be used for closing on a new house before the present home is sold.
An individual in the business of assisting in arranging funding or
negotiating contracts for a client but who does not loan the money
himself. Brokers usually charge a fee or receive a commission for their
Local regulations that control design, construction, and materials used
in construction. Building codes are based on safety and health
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which
construction may not extend. The building line may be established by a
filed plat of subdivision, by restrictive covenants in deeds or leases, by
building codes, or by zoning ordinances.
Money advanced by an individual (seller, builder, etc.) to reduce
monthly payments for a home mortgage either during the entire term or for
an initial period of years.
A provision in the mortgage that gives the mortgagee the right to call
the mortgage due and payable at the end of a specified period for whatever
The cost of an improvement made to extend the useful life of a property
or to add to its value.
Any structure or component erected as a permanent improvement to real
property that adds to its value and useful life.
A provision of an ARM limiting how much the interest rate or mortgage
payments may increase.
A loan transaction in which the borrower receives funds at the time of
A refinance transaction in which the amount of money received from the
new loan exceeds the total of the money needed to repay the existing first
mortgage, closing costs, points, and the amount required to satisfy any
outstanding subordinate mortgage liens.
Certificate of deposit
A document written by a bank or other financial institution that is
evidence of a deposit, with the issuer’s promise to return the deposit
plus earnings at a specified interest rate within a specified time period.
Certificate of Eligibility A document issued by the federal government certifying a veteran’s
eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV) A document issued by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount for a VA mortgage.
Certificate of Title
A certificate issued by a title company or a written opinion rendered
by an attorney that the seller has good marketable and insurable title to
the property, which he is offering for sale. A certificate of title offers
no protection against any hidden defects in the title, which an
examination of the records could not reveal. The issuer of a certificate
of title is liable only for damages due to negligence. The protection
offered a homeowner under a certificate of title is not as great as that
offered in a title insurance policy.
Chain of title
The history of all of the documents that transfer title to a parcel of
real property, starting with the earliest existing document and ending
with the most recent.
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
Another name for personal property.
An amount requested of an insurer, by a policyholder or a claimant, for
an insured loss.
A title that is free of liens or legal questions as to ownership of the
The occasion where a sale is finalized; the buyer signs the mortgage,
and closing costs are paid. Also called “settlement.”
Expenses (over and above the price of the property) incurred by buyers
and sellers in transferring ownership of a property. Also called
Closing cost item
A fee or amount that a homebuyer must pay at closing for a single
service, tax, or product.
The day on which the formalities of a real estate sale are concluded.
The certificate of title, abstract, and deed are generally prepared for
the closing by an attorney and this cost charged to the buyer. The buyer
signs the mortgage, and closing costs are paid. The final closing merely
confirms the original agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or encumbrance, which adversely affects the
marketability of title.
An additional borrower on a loan. A co-borrower’s obligation on a loan
are the same as all other borrowers.
A sharing of insurance risk between the insurer and the insured.
Coinsurance depends on the relationship between the amount of the policy
and a specified percentage of the actual value of the property insured at
the time of the loss.
A provision in a hazard insurance policy that states the amount of
coverage that must be maintained — as a percentage of the total value of
the property — for the insured to collect the full amount of a loss.
An asset (such as a car or a home) that guarantees the repayment of a
loan. The borrower risks losing the asset if the loan is not repaid
according to the terms of the loan contract.
The efforts used to bring a delinquent mortgage current and to file the
necessary notices to proceed with foreclosure when necessary.
A person who signs a promissory note along with the borrower. A
co-maker’s signature guarantees that the loan will be repaid, because the
borrower and the co-maker are equally responsible for the repayment.
Money paid to a real estate agent or broker by the seller as
compensation for finding a buyer and completing the sale.
A formal offer by a lender stating the terms under which it agrees to
loan money to a homebuyer.
Common area assessments
Levies against individual unit owners in a condominium or planned unit
development (PUD) project for additional capital to defray homeowners’
association costs and expenses and to repair, replace, maintain, improve,
or operate the common areas of the project.
Those portions of a building, land, and amenities owned (or managed) by
a planned unit development (PUD) or condominium project’s homeowners’
association (or a cooperative project’s cooperative corporation) that are
used by all of the unit owners, who share in the common expenses of their
operation and maintenance. Common areas include swimming pools, tennis
courts, and other recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress, etc.
An unwritten body of law based on general custom in England and used to
an extent in the United States.
In some western and southwestern states, a form of ownership under
which property acquired during a marriage is presumed to be owned jointly
unless acquired as separate property of either spouse.
An abbreviation for comparable properties used for comparative purposes
in the appraisal process; facilities of reasonably the same size and
location with similar amenities; properties which have been recently sold,
which have characteristics similar to property under consideration,
thereby indicating the approximate fair market value of the subject
Interest paid on the original principal balance and on the accrued and
The taking of private property for public use by a government unit,
against the will of the owner, but with payment of just compensation under
the government’s power of eminent domain. Condemnation may also be a
determination by a governmental agency that a particular building is
unsafe or unfit for use.
Individual ownership of a dwelling unit and an individual interest in
the common areas and facilities, which serve the multi-unit project.
Changing the ownership of an existing building (usually a rental
project) to the condominium form of ownership.
A condominium project that has rental or registration desks, short-term
occupancy, food and telephone services, and daily cleaning services and
that is operated as a commercial hotel even though the units are
A short-term loan for funding the cost of construction. The lender
advances funds to the builder as the work progresses.
Consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to
determine a potential borrower’s credit history. The agency obtains data
for these reports from a credit repository as well as from other
A condition that must be met before a contract is legally binding.
An oral or written agreement to do or not to do a certain thing.
In the construction industry, a contractor is one who contracts to
erect buildings or portions of them. There are also contractors for each
phase of construction: heating, electrical, plumbing, air conditioning,
road building, bridge and dam erection, and others.
Any mortgage that is not insured or guaranteed by the federal
A provision in some adjustable-rate mortgages (ARMs) that allows the
borrower to change the ARM to a fixed-rate mortgage at specified time.
An adjustable-rate mortgage that can be converted to a fixed-rate
mortgage under specified conditions.
The amount of protection, usually expressed in a percentage of the
total claim amount, an insured receives under a certificate.
A type of multiple ownership in which the residents of a multiunit
housing complex own shares in the cooperative corporation that owns the
property, giving each resident the right to occupy a specific apartment or
A business trust entity that holds title to a cooperative project and
grants occupancy rights to particular apartments or units to shareholders
through proprietary leases or similar arrangements.
An apartment building or a group of dwellings owned by a corporation,
the stockholders of which are the residents of the dwellings. It is
operated for their benefit by their elected board of directors. In a
cooperative, the corporation or association owns title to the real estate.
A resident purchases stock in the corporation, which entitles him to
occupy a unit in the building or property owned by the cooperative. While
the resident does not own his unit, he has an absolute right to occupy his
unit for as long as he owns the stock.
Mortgages related to a cooperative project.
A residential or mixed-use building wherein a corporation or trust
holds title to the property and sells shares of stock representing the
value of a single apartment unit to individuals who, in turn, receive a
proprietary lease as evidence of title.
Arrangements under which an employer moves an employee to another area
as part of the employer’s normal course of business or under which it
transfers a substantial part or all of its operations and employees to
another area because it is relocating its headquarters or expanding its
Cost of funds index (COFI)
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It represents the weighted-average
cost of savings, borrowings, and advances of the 11th District members of
the Federal Home Loan Bank of San Francisco.
A clause in a mortgage that obligates or restricts the borrower and
that, if violated, can result in foreclosure.
A written letter of agreement detailing the terms and conditions by
which the lender will lend and the borrower will borrow funds to finance a
A record of an individual’s open and fully repaid debts. A credit
history helps a lender to determine whether a potential borrower has a
history of repaying debts in a timely manner.
Credit life insurance
A type of insurance often bought by mortgagors because it will pay off
the mortgage debt if the mortgagor dies while the policy is in force.
A person to whom money is owed.
A report of an individual’s credit history prepared by a credit bureau
and used by a lender in determining a loan applicant’s
An organization that gathers, records, updates, and stores financial
and public records information about the payment records of individuals
who are being considered for credit.
A loan that is removed from a delinquency status with no loss to the
avoid foreclosure. Also called a “voluntary conveyance.” Deed of Trust Like a mortgage, a security instrument whereby real property is given
as security for a debt. However, in a deed of trust there are three
parties to the instrument: the borrower, the trustee, and the lender, (or
beneficiary). In such a transaction, the borrower transfers the legal
title for the property to the trustee who holds the property in trust as
security for the payment of the debt to the lender or beneficiary. If the
borrower pays the debt as agreed, the deed of trust becomes void. If,
however, he defaults in the payment of the debt, the trustee may sell the
property at a public sale, under the terms of the deed of trust. In most
jurisdictions where the deed of trust is in force, the borrower is subject
to having his property sold without benefit of legal proceedings. A few
States have begun in recent years to treat the deed of trust like a
Failure to make mortgage payments on a timely basis or to comply with
other conditions of a mortgage.
A court order to pay the balance owed on a loan if the proceeds from
the sale of the security are insufficient to pay off the loan. Deficiency
judgments are not allowed in all states.
A loan in which a payment is overdue but not yet in default.
A sum of money given to bind the sale of real estate, or a sum of money
given to ensure payment or an advance of funds in the processing of a
A decline in the value of property; the opposite of “appreciation.”
A State tax, in the forms of stamps, required on deeds and mortgages
when real estate title passes from one owner to another. The amount of
stamps required varies with each State.
The rights of a widow in the property of her husband at his death.
The part of the purchase price, which the buyer pays in cash and does
not finance with a mortgage
A provision in a mortgage that allows the lender to demand repayment in
full if the borrower sells the property that serves as security for the
This terminology is usually used for second mortgages.
The deposit money given to the seller or his agent by the potential
buyer upon the signing of the agreement of sale to show that he is serious
about buying the house. If the sale goes through, the earnest money is
applied against the down payment. If the sale does not go through, the
earnest money will be forfeited or lost unless the binder or offer to
purchase expressly provides that it is refundable.
A right-of-way granted to a person or company authorizing access to or
over the owner’s land. An electric company obtaining a right-of-way across
private property is a common example.
An appraiser’s estimate of the physical condition of a building. The
actual age of a building may be shorter or longer than its effective age.
Effective gross income
Normal annual income including overtime that is regular or guaranteed.
The income may be from more than one source. Salary is generally the
principal source, but other income may qualify if it is significant and
The right of a government to take private property for public use upon
payment of its fair market value. Eminent domain is the basis for
A special Fannie Mae housing initiative that offers several different
ways for employers to work with local lenders to develop plans to assist
their employees in purchasing homes.
An obstruction, building, or part of a building that intrudes beyond a
legal boundary onto neighboring private or public land, or a building
extending beyond the building line.
A legal right or interest in land that affects a good or clear title,
and diminishes the land’s value. It can take numerous forms, such as
zoning ordinances, easement rights, claims, mortgages, liens, charges, a
pending legal action, unpaid taxes, or restrictive covenants. An
encumbrance does not legally prevent transfer of the property to another.
A title search is all that is usually done to reveal the existence of such
encumbrances, and it is up to the buyer to determine whether he wants to
purchase with the encumbrance, or what can be done to remove it.
A person who signs ownership interest over to another party. Contrast
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit
equally available without discrimination based on race, color, religion,
national origin, age, sex, marital status, or receipt of income from
public assistance programs.
The difference between the market value of a property and the
homeowner’s outstanding mortgage balance.
A loan based on the borrower’s equity in his or her home. Prior to
closing; also, an account held by the lender into which a homeowner pays
money for taxes and insurance.
The account in which a mortgage servicer holds the borrower’s escrow
payments prior to paying property expenses.
The periodic examination of escrow accounts to determine if current
monthly deposits will provide sufficient funds to pay taxes, insurance,
and other bills when due.
Funds collected by the servicer and set aside in an escrow account to
pay the borrower’s property taxes, mortgage insurance, and hazard
The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become due.
The portion of a mortgagor’s monthly payment that is held by the
servicer to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due.
The ownership interest of an individual in real property. The sum total
of all the real property and personal property owned by an individual at
time of death.
The lawful expulsion of an occupant from real property.
Examination of title
The report on the title of a property from the public records or an
abstract of the title.
A written contract that gives a licensed real estate agent the
exclusive right to sell a property for a specified time, but reserving the
owner’s right to sell the property alone without the payment of a
A person named in a will to administer an estate
A consumer protection law that regulates the disclosure of consumer
credit reports by consumer/credit reporting agencies and establishes
procedures for correcting mistakes on one’s credit record.
The highest price that a buyer, willing but not compelled to buy would
pay, and the lowest a seller, willing but not compelled to sell, would
(Federal Deposit Insurance Corporation). Provides insurance of accounts
for institutions whose deposits were formerly covered by the Federal
Savings & Loan Insurance Corporation. (FSLIC).
The greatest possible interest a person can have in real estate.
Fee simple estate
An unconditional, unlimited estate of inheritance that represents the
greatest estate and most extensive interest in land that can be enjoyed.
It is of perpetual duration. When the real estate is in a condominium
project, the unit owner is the exclusive owner only of the air space
within his or her portion of the building (the unit) and is an owner in
common with respect to the land and other common portions of the
(Federal Housing Administration). A division of the Department of
Housing and Urban Development. The FHA’s main activity is the insuring of
residential mortgage loans made by private lenders. It sets standards for
construction and underwriting. FHA neither lends money, nor plans, nor
Government loans are loans that are guaranteed or purchased by
government organizations. Two of the most popular Government Loans are the
Federal Housing Administration (FHA) and the Department of Veterans
(Federal Housing Finance Board). It oversees the credit functions of
the twelve regional Federal Home Loan Banks.
(Federal Home Loan Bank Board). A regulatory and supervisory agency for
federally charted savings institutions, which oversees the operations of
the FSLIC and FHLMC. This agency was abolished by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989. (See
(Federal Home Loan Mortgage Corporation, Freddie Mac). A private
corporation authorized by Congress, which became an independent,
stockholder-owned government corporation with the passage of FIRREA. FHLMC
promotes the flow of funds into the housing markets by purchasing
conventional mortgages in the secondary market and selling securities
backed by those mortgages in the capital market.
The total dollar amount your loan will cost you. It includes all
interest payments for the life of the loan, any interest paid at closing,
your origination fee and any other charges paid to the lender and/or
broker. Appraisal, credit report and title search fees are not included in
the finance charge calculation.
A fee or commission paid to a mortgage broker for finding a mortgage
loan for a prospective borrower.
(Financial Institutions Reform, Recovery and Enforcement Act of 1989).
An act signed into law in August 1989, by President Bush that restructured
the thrift regulatory an insurance system.
A lender’s agreement to make a loan to a specific borrower on a
The mortgage that has first claim in the event of default.
The monthly payment due on a mortgage loan.
(FRM) A mortgage in which the interest rate does not change during the
entire term of the loan.
(Federal National Mortgage Association, Fannie Mae). A
government-sponsored corporation, owned solely by private investors,
created to provide support to the secondary market for FHA and VA
mortgages and conventional mortgages.
Personal property that becomes real property when attached in a
permanent manner to real estate.
Insurance that compensates for physical property damage resulting from
flooding. It is required for properties located in federally designated
The loss of money, property, rights, or privileges due to a breach of
The process by which a mortgage property may be sold when a mortgage is
Fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at the interest accrual
rate, over the amortization term.
Setting the P&I payments to the level that will fully amortize the
loan’s outstanding balance over the remaining term using the fully indexed
accrual rate at the recasting point.
Fully Indexed Accrual Rate
The interest (accrual) rate resulting from the index at closing (or at
another point in the loan) plus the lender’s full spread, rounded as
prescribed in the loan documents (often to the nearest 1/8th of 1%).
A deed which conveys not only all the grantor’s interests in and title
to the property to the grantee, but also warrants that if the title is
defective or has a “cloud” on it (such as mortgage claims, tax liens,
title claims, judgments, or mechanic’s liens against it) the grantee may
hold the grantor liable.
Good Faith Estimate
An estimate of charges, which a borrower is likely to incur in
connection with a loan closing.
Graduated Payment Mortgage
(GPM) A mortgage where the payments are scheduled to increase, usually
annually, for a set number of years, and then level off. GPM can be used
with either a fixed or adjustable interest rate, and usually has a 30-year
That party in the deed who is the buyer or recipient.
That party in the deed who is the seller or giver.
Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes
or expenses. Often used in calculations to determine whether a borrower
qualifies for a particular loan.
Growing Equity Mortgage
(GEM) A fixed rate, graduated payment mortgage with small initial
payments that increase each year so that the loan pays off in a shortened
term, usually 15 years.
Insurance to protect the homeowner and the lender against physical
damage to a property from fire, wind, vandalism, or other hazards.
An insurance policy that combines liability coverage and hazard
A type of insurance that covers repairs to specified parts of a house
for a specific period of time.
The ratio of the monthly housing payment to total gross monthly income.
Also called Payment-to-Income Ratio or Front-End Ratio.
(Department of Housing and Urban Development). A cabinet department
responsible for the implementation and administration of government
housing and urban development programs.
Real estate developed or improved to produce income.
(Also called “Rate Index”). A regularly published rate, independent of
the lending institution, that measures the prevailing cost of funds, and
is used periodically with the margin to set AML accrual rates.
Initial Borrower Interest Rate
The rate on which the borrower’s first payment is calculated.
Initial Borrower Payment Rate
The annual interest rate used to calculate the borrower’s initial cash
An increase in the amount of money or credit available in relation to
the amount of goods or services available, which causes an increase in the
general price level of goods and services. Over time, inflation reduces
the purchasing power of a dollar, making it worth less.
Initial interest rate
The original interest rate of the mortgage at the time of closing.
The regular periodic payment that a borrower agrees to make to a
Borrowed money that is repaid in equal payments, known as installments.
A furniture loan is often paid for as an installment loan.
A property title that a title insurance company agrees to insure
against defects and disputes.
A contract that provides compensation for specific losses in exchange
for a periodic payment. An individual contract is known as an insurance
policy, and the periodic payment is known as an insurance premium.
A document that states that insurance is temporarily in effect. Because
the coverage will expire by a specified date, a permanent policy must be
obtained before the expiration date.
A mortgage that is protected by the Federal Housing Administration
(FHA) or by private mortgage insurance (MI). If the borrower defaults on
the loan, the insurer must pay the lender the lesser of the loss incurred
or the insured amount
The fee charged for borrowing money.
Interest accrual rate
The percentage rate at which interest accrues on the mortgage. In most
cases, it is also the rate used to calculate the monthly payments,
although it is not used for an adjustable-rate mortgage (ARM) with payment
The percentage of an amount of money, which is paid for its use for a
Interest Rate Cap
A provision of an ARM limiting how much interest rates may increase per
Interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as
specified in the mortgage note.
Interest rate floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as
specified in the mortgage note.
A property that is not occupied by the owner.
IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred
contributions to a personal retirement fund. Individuals can place IRA
funds in bank accounts or in other forms of investment such as stocks,
bonds, or mutual funds.
A form of co-ownership that gives each tenant equal interest and equal
rights in the property, including the right of survivorship.
A decision made by a court of law. In judgments that require the
repayment of a debt, the court may place a lien against the debtor’s real
property as collateral for the judgment’s creditor.
A lien on the property of a debtor resulting from the decree of a
A type of foreclosure proceeding used in some states that is handled as
a civil lawsuit and conducted entirely under the auspices of a court.
Jumbo, or non-conforming, is a term used to describe a loan that does
not conform to Fannie Mae or Freddie Mac guidelines.
The penalty a borrower must pay when a payment is made a stated number
of days (usually 15) after the due date.
A written agreement between the property owner and a tenant that
stipulates the conditions under which the tenant may possess the real
estate for a specified period of time and rent.
A way of holding title to a property wherein the mortgagor does not
actually own the property but rather has a recorded long-term lease on
A property description, recognized by law that is sufficient to locate
and identify the property without oral testimony.
An institution that makes loans to borrowers on real estate.
A person’s financial obligations. Liabilities include long-term and
short-term debt, as well as any other amounts that are owed to others.
Insurance coverage that offers protection against claims alleging that
a property owner’s negligence or inappropriate action resulted in bodily
injury or property damage to another party.
A legal claim against a property that must be paid when the property is
A provision of an ARM that limits the total increase in interest rates
over the life of the loan.
Lifetime payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that
payments can increase or decrease over the life of the mortgage.
Line of credit
An agreement by a commercial bank or other financial institution to
extend credit up to a certain amount for a certain time to a specified
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with
Formal offer by a lender stating the terms under which it agrees to
loan money to a homebuyer.
The process by which a mortgage lender brings into existence a mortgage
secured by real property.
The collection of mortgage payments from borrowers and related
responsibilities of a loan servicer.
(LTV). The loan-to-value ratio (LTV) is the original loan amount
divided by the lower of the sales price or the appraised value.
The period, expressed in days, during which a lender will guarantee a
The time period during which the lender has guaranteed an interest rate
to a borrower.
A title that is free and clear of objectionable liens, clouds, or other
title defects. A title which enables an owner to sell his property freely
to others and which others will accept without objection.
A homeowners’ association in a large condominium or planned unit
development (PUD) project that is made up of representatives from
associations covering specific areas within the project. In effect, it is
a “second-level” association that handles matters affecting the entire
development, while the “first-level” associations handle matters affecting
their particular portions of the project.
The date on which the principal balance of a loan, bond, or other
financial instrument becomes due and payable.
Merged credit report
A credit report that contains information from three credit
repositories. When the report is created, the information is compared for
duplicate entries. Any duplicates are combined to provide a summary of a
(Also called “Spread”). The amount the lender adds to the index to
determine the Fully Indexed Accrual Rate.
Money market account
A savings account that provides bank depositors with many of the
advantages of a money market fund. Certain regulatory restrictions apply
to the withdrawal of funds from a money market account.
Money market fund
A mutual fund that allows individuals to participate in managed
investments in short-term debt securities, such as certificates of deposit
and Treasury bills.
Monthly Housing Expense
Total principal, interest, taxes, and insurance paid by the borrower on
a monthly basis. Used with gross income to determine affordability.
Monthly payment mortgage
A mortgage that requires payments to reduce the debt once a month.
A legal document that pledges a property to the lender as security for
a payment of a debt.
A company that originates mortgages exclusively for resale in the
A company that for a fee matches borrowers with lenders.
The lender in a mortgage agreement.
A written notice from the bank or other lending institution saying it
will advance mortgage funds in a specified amount to enable a buyer to
purchase a house.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD to
help defray the cost of the FHA mortgage insurance program and to provide
a reserve fund to protect lenders against loss in insured mortgage
transactions. In FHA insured mortgages this represents an annual rate of
one-half of one percent paid by the mortgagor on a monthly basis.
Mortgage life insurance
A type of term life insurance often bought by mortgagors. The amount of
coverage decreases as the principal balance declines. In the event that
the borrower dies while the policy is in force, the debt is automatically
satisfied by insurance proceeds.
A written agreement to repay a loan. The agreement is secured by a
mortgage, serves as proof of indebtedness, and states the manner in which
it shall be paid. The note states the actual amount of the debt that the
mortgage secures and renders the mortgagor personally responsible for
The borrower in a mortgage agreement.
Properties that provide separate housing units for more than one
family, although they secure only a single mortgage.
A residential mortgage on a dwelling that is designed to house more
than four families, such as a high-rise apartment complex.
(Also called “Deferred Interest”). A gradual increase in mortgage debt
that occurs when the monthly payment is not large enough to cover the entire
principal and interest due. The amount of the shortfall is added to the
remaining balance to create “negative” amortization
Net cash flow
The income that remains for an investment property after the monthly
operating income is reduced by the monthly housing expense, which includes
principal, interest, taxes, and insurance (PITI) for the mortgage,
homeowners’ association dues, leasehold payments, and subordinate
Net Effective Income
Gross income less federal income tax.
The value of all assets, including cash, less total liabilities.
No cash-out refinance
A refinance transaction in which the new mortgage amount is limited to
the sum of the remaining balance of the existing first mortgage, closing
costs (including prepaid items), points, the amount required to satisfy
any mortgage liens that are more than one year old (if the borrower
chooses to satisfy them), and other funds for the borrower’s use (as long
as the amount does not exceed 1 percent of the principal amount of the new
An asset that cannot easily be converted into cash.
A legal document that obligates a borrower to repay a mortgage loan at
a stated interest rate during a specified period of time.
The interest rate stated on a mortgage note.
Notice of Default
A formal written notice to a borrower that a default has occurred and
that legal action may be taken.
The total amount of principal owed on a mortgage before any payments
A fee paid to a lender for processing a loan Application.
(The Office of Thrift Supervision). Charters federal thrifts, serves as
the primary federal examiner and regulator of federal and state-chartered
savings associations, and administers laws governing savings and loan
A property purchase transaction in which the property seller provides
all or part of the financing.
“Owner Occupied” means the property is the owner’s primary
The length of time (typically a year) between changes to the
borrower’s P&I (Principal & Interest) payment.
Payment Buy down
Payment buy downs occur when a third party, typically a builder, pays
part of the initial P&I payments for a year or two, so that the
borrower has smaller payments and can qualify for the loan.
A limit on the amount the payment can be changed at the end of each
Payment Adjustment Period.
In a payment discount, the lender reduces the first year’s interest
rate to make the mortgagor more attractive to borrowers.
Periodic payment cap
A limit on the amount that payments can increase or decrease during any
Periodic rate cap
A limit on the amount that the interest rate can increase or decrease
during any one adjustment period, regardless of how high or low the index
Any property that is not real property.
Principal, Interest, Taxes and Insurance are components of a mortgage
A map or chart of a lot, subdivision or community drawn by a surveyor
showing boundary lines, buildings, improvements on the land, and
A one-time charge by the lender to increase the yield of the loan; a
point is 1 percent of the amount of the mortgage.
Power of attorney
A legal document that authorizes another person to act on one’s behalf.
A power of attorney can grant complete authority or can be limited to
certain acts and/or certain periods of time.
Payment of mortgage loan, or part of it, before due date.
The process of determining how much money a prospective homebuyer will
be eligible to borrow before application.
The interest rates that banks charge to their preferred customers.
The amount borrowed or remaining unpaid, also, that part of the monthly
payment that reduces the outstanding balance of a mortgage.
Private Mortgage Insurance
Insurance provided by nongovernmental insurers that protect lenders
against loss if a borrower defaults.
A written promise to repay a specified amount over a specified period
A meeting in an announced public location to sell property to repay a
mortgage that is in default.
Planned Unit Development (PUD)
A project or subdivision that includes common property that is owned
and maintained by a homeowners’ association for the benefit and use of the
individual PUD unit owners.
See Agreement of Sale.
Purchase money transaction
The acquisition of property through the payment of money or its
Guidelines applied by lenders to determine how large a loan to grant a
A deed, which transfers whatever interest, the maker of the deed may
have in the particular parcel of land. A quitclaim deed is often given to
clear the title when the grantor’s interest in a property is questionable.
By accepting such a deed the buyer assumes all the risks. Such a deed
makes no warranties as to the title, but simply transfers to the buyer
whatever interest the grantor has. (See Deed.)
A radioactive gas found in some homes that in sufficient concentrations
could cause health problems.
(Also called “Interest Rate Caps”). A limit on the amount of which the
interest rate charged to the borrower can be changed.
A commitment issued by a lender to a borrower or other mortgage
originator guaranteeing a specified interest rate for a specified period
Real Estate Broker
A middleman or agent who buys and sells real estate for a company,
firm, or individual on a commission basis. The broker does not have title
to the property, but generally represents the owner.
Real Estate Owned
(REO). A term frequently used by lending institution as applied to
ownership of real property acquired for investment or as a result of
(Real Estate Settlement Procedures Act). A Federal law that requires
lenders to provide home mortgage borrowers with information about known or
estimated settlement costs.
Land and appurtenances, including anything of a permanent nature such
as structures, trees, minerals, and the interest, benefits, and inherent
A real estate broker or an associate who holds active membership in a
local real estate board that is affiliated with the National Association
The cancellation or annulment of a transaction or contract by the
operation of a law or by mutual consent.
The public official who keeps records of transactions that affects real
property in the area.
The noting in the registrar’s office of the details of a properly
executed legal document, such as a deed, a mortgage note, a satisfaction
of mortgage, or an extension of mortgage, thereby making it a part of the
The process of the same mortgagor paying off one loan with the proceeds
from another loan.
A mortgage created to cover the costs of repairing, improving, and
sometimes acquiring an existing property.
The amount of principal that has not yet been repaid.
The original amortization term minus the number of payments that have
An arrangement made to repay delinquent installments or advances.
Lenders’ formal repayment plans are called “relief provisions.”
Replacement reserve fund
A fund set aside for replacement of common property in a condominium,
PUD, or cooperative project — particularly that which has a short life
expectancy, such as carpeting, furniture, etc.
Private restrictions limiting the use of real property. Restrictive
covenants are created by deed and may “run with the land,” binding all
subsequent purchasers of the land, or may be “personal” and binding only
between the original seller and buyer. The determination whether a
covenant runs with the land or is personal is governed by the language of
the covenant, the intent of the parties, and the law in the State where
the land is situated. Restrictive covenants that run with the land are
encumbrances and may affect the value and marketability of title.
Restrictive covenants may limit the density of buildings per acre,
regulate size, style or price range of buildings to be erected, or prevent
particular businesses from operating or minority groups from owning or
occupying homes in a given area. (This latter discriminatory covenant is
unconstitutional and has been declared unenforceable by the U.S. Supreme
A credit arrangement, such as a credit card, that allows a customer to
borrow against a pre-approved line of credit when purchasing goods and
services. The borrower is billed for the amount that is actually borrowed
plus any interest due.
Right of first refusal
A provision in an agreement that requires the owner of a property to
give another party the first opportunity to purchase or lease the property
before he or she offers it for sale or lease to others.
Right of ingress or egress
The right to enter or leave designated premises.
Right of survivorship
In joint tenancy, the right of survivors to acquire the interest of a
deceased joint tenant.
(Resolution Trust Corporation). Formed to resolve thrift failures over
the next three years and dispose of their assets and liabilities.
See Agreement of sale.
A mortgage that has rights that are subordinate to the rights of the
first mortgage holders.
Secondary Mortgage Market
The buying and selling of existing mortgages.
(Also called “Seller Contributions”). Seller-provided funds include all
transaction cost paid by the seller except the real estate agent’s (or
The party who has entered into an agreement with the insured to service
See Closing Costs.
A premium, which provides coverage for more than a year.
A special tax imposed on property, individual lots or all property in
the immediate area, for road construction, sidewalks, sewers,
A lien that binds a specified piece of property, unlike a general lien,
which is levied against all one’s assets. It creates a right to retain
something of value belonging to another person as compensation for labor,
material, or money expended in that person’s behalf. In some localities it
is called “particular” lien or “specific” lien. (See Lien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to
protect the grantee against title defects or claims asserted by the
grantor and those persons whose right to assert a claim against the title
arose during the period the grantor held title to the property. In a
special warranty deed the grantor guarantees to the grantee that he has
done nothing during the time he held title to the property which has, or
which might in the future, impair the grantee’s title.
A map or plat made by a licensed surveyor showing the results of
measuring the land with its elevations, improvements, boundaries, and its
relationship to surrounding tracts of land. A survey is often required by
the lender to assure him that a building is actually sited on the land
according to its legal description.
As applied to real estate, an enforced charge imposed on persons,
property or income, to be used to support the State. The governing body in
turn utilizes the funds in the best interest of the general public.
A claim against real estate for the amount of its unpaid taxes.
Similar to a Payment Discount, but implies either an unusually large
initial rate discount or an attempt by the lender to lure an otherwise
unqualified borrower into the mortgage.
Tenancy by the entirety
A type of joint tenancy of property that provides right of survivorship
and is available only to a husband and wife. Contrast with tenancy in
Tenancy in common
A type of joint tenancy in a property without right of survivorship.
Contrast with tenancy by the entirety and with joint tenancy.
The obligee for a cooperative share loan, who is both a stockholder in
a cooperative corporation and a tenant of the unit under a proprietary
lease or occupancy agreement.
A process by which a lender uses another party to completely or
partially originate, process, underwrite, close, fund, or package the
mortgages it plans to deliver to the secondary mortgage market.
As generally used, the rights of ownership and possession of particular
property. In real estate usage, title may refer to the instruments or
documents by which a right of ownership is established (title documents),
or it may refer to the ownership interest one has in the real estate.
A company that specializes in examining and insuring titles to real
Protects lenders or homeowners against loss of their interest in
property due to legal defects in title. Title insurance may be issued to a
“mortgagee’s title policy.” Insurance benefits will be paid only to the
“named insured” in the title policy, so it is important that an owner
purchase an “owner’s title policy”, if he desires the protection of title
Title Search or Examination
A check of the title records, generally at the local courthouse, to
make sure the buyer is purchasing a house from the legal owner and there
are no liens, overdue special assessments, or other claims or outstanding
restrictive covenants filed in the record, which would adversely affect
the marketability or value of title.
Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also
known as Back-End Ratio.
Total expense ratio
Total obligations as a percentage of gross monthly income. The total
expense ratio includes monthly housing expenses plus other monthly
Equity that results from a property purchaser giving his or her
existing property (or an asset other than real estate) as trade as all or
part of the down payment for the property that is being purchased.
Transfer of ownership
Any means by which the ownership of a property changes hands. Lenders
consider all of the following situations to be a transfer of ownership:
the purchase of a property “subject to” the mortgage, the assumption of
the mortgage debt by the property purchaser, and any exchange of
possession of the property under a land sales contract or any other land
trust device. In cases in which an inter vivos revocable trust is the
borrower, lenders also consider any transfer of a beneficial interest in
the trust to be a transfer of ownership.
State or local tax payable when title passes from one owner to
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans.
A party who is given legal responsibility to hold property in the best
interest of or “for the benefit of” another. The trustee is one placed in
a position of responsibility for another, a responsibility enforceable in
a court of law.
(TIL). A federal law that requires lenders to fully disclose, in
writing, the terms and conditions of a mortgage, including the APR and
Two- to four-family property
A property that consists of a structure that provides living space
(dwelling units) for two to four families, although ownership of the
structure is evidenced by a single deed.
The process of evaluating a loan application to determine the risk
involved for the lender. Underwriting involves an analysis of the
borrower’s creditworthiness and the quality of the property itself.
A loan that is not backed by collateral.
Government loans are loans that are guaranteed or purchased by
government organizations. Two of the most popular Government Loans are the
Federal Housing Administration (FHA) and the Department of Veterans
Having the right to use a portion of a fund such as an individual
Department of Veterans Affairs (VA)
An agency of the federal government that guarantees residential
mortgages made to eligible veterans of the military services. The
guarantee protects the lender against loss and thus encourages lenders to
make mortgages to veterans.
A mortgage that includes the remaining balance on an existing first
mortgage plus an additional amount requested by the mortgagor. Full
payments on both mortgages are made to the wraparound mortgagee, who then
forwards the payments on the first mortgage to the first mortgagee.
The acts of an authorized local government establishing building codes,
and setting forth