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Acceleration Clause

A provision in a mortgage note that gives a lender the right to demand repayment of the entire balance of the loan under certain conditions, such as the failure to make timely payments or a transfer of the property.

An amount paid by a borrower of more than the scheduled principal amount due. This type of payment reduces the remaining balance and shortens the term of the loan. Also called a "principal curtailment."

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A mortgage that permits the lender to periodically adjust the interest rate on the basis of changes in a specified index.

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

For an adjustable rate mortgage, the time period between interest rate change dates, as stated in the mortgage note.

An estimation of a borrower's ability to afford the purchase of a home and/or the payment on a loan. An affordability analysis may consider income, liabilities, the type of mortgage, the loan amount, purchase price, the expected closing costs, and other factors.

The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan.

Amortization Schedule

A timetable for payment of a mortgage loan. An amortization schedule shows: the amount of each payment; the amount to be applied to principal and interest; and the remaining principal balance after each payment is made.

To repay a mortgage with regular payments that cover both principal and interest.

The measure of the cost of credit stated as a yearly rate; includes such items as the stated interest rate, plus certain charges.

An amount paid yearly or at other regular intervals, often at a guaranteed minimum amount. Also, a type of insurance policy in which the policy holder makes payments for a fixed period or until a stated age, and then receives annuity payments from the insurance company.

A written estimate or opinion of a property's value prepared by a qualified appraiser.

An increase in the value of an item (e.g., the increase in the market value of real estate).

Typically the value placed on property for the purpose of taxation.

A public official who establishes the value of a property for taxation purposes.

Anything of monetary value that is owned by a person or company. Assets include real property, personal property, stocks, mutual funds, etc.

A document evidencing the transfer of ownership of a mortgage from one person to another.

A mortgage loan that can be taken over (assumed) by the buyer when a home is sold. An assumption of a mortgage is a transaction in which the buyer of real property takes over the seller's existing mortgage; the seller remains liable unless released by the lender from the obligation. If the mortgage contains a due-on-sale clause, the loan may not be assumed without the lender's consent.

A fee a lender charges a buyer who will assume the seller's existing mortgage.

An automated process performed by a technology application that streamlines the processing of loan applications and provides a recommendation to the lender to approve the loan or refer it for manual underwriting.

A financial statement that shows assets, liabilities, and net worth as of a specific date.

A mortgage in which the borrower's monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump sum payment or refinance the loan.

The final lump sum payment that is made at the maturity date of a balloon mortgage.

A legal proceeding that allows debtors to eliminate or restructure debts when they have financial difficulties.

Income before taxes are deducted. Also known as "gross income."

A mortgage with payments due every two weeks (instead of monthly).

In good faith, without fraud.

A short-term loan secured by the borrower's current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold. Also known as a "swing loan."

An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker.

Local regulations that set forth the standards and requirements for the construction, maintenance and occupancy of buildings. The codes are designed to provide for the safety, health and welfare of the public.

An arrangement whereby the property developer or another third party provides an interest subsidy to reduce the borrower's monthly payments typically in the early years of the loan.

An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease.

• See also "Lifetime Payment Cap," "Lifetime Rate Cap," "Periodic Payment Cap," and "Periodic Rate Cap"

A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate liens.

A document issued 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.

A document issued by the U.S. Department of Veterans Affairs (VA) certifying a veteran's eligibility for a VA-guaranteed mortgage loan.

The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

A change in the original construction plans ordered by the property owner or general contractor.

Ownership that is free of liens, defects, or other legal encumbrances.

The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as "escrow," a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions.

The person or entity that coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions.) Typically the closing is conducted by title companies, escrow companies or attorneys.

The fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney's fee, and prepaid items, such as escrow deposits for taxes and insurance.

The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.

• See "HUD-1 Settlement Statement"

Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note.

An asset that is pledged as security for a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan agreement.

The efforts a lender takes to collect past due payments.

The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).

A binding offer by a lender to loan money at a future date subject to the borrower's compliance with stated conditions.

Those portions of a building, land, or improvements and amenities owned 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 abbreviation for "comparable properties," which are used as a comparison in determining the current value of a property that is being appraised.

A real estate project in which each unit owner holds title to an individual unit in a building, and an undivided interest in the common areas.

A loan for financing the cost of construction or improvements to a property; the lender disburses payments to the builder at periodic intervals during construction.

A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection contingency; the sales contract is not binding unless and until the purchaser has the home inspected.

A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as FHA, VA or RHS. Contrast with "Government Mortgage."

A provision of some adjustable-rate mortgage (ARM) loans that allows the borrower to change the ARM to a fixed-rate mortgage at specified times after loan origination.

An adjustable-rate mortgage (ARM) that allows the borrower to convert the loan to a fixed-rate mortgage under specified conditions.

A project in which a corporation holds title to a residential property and sells shares to individual buyers, who then receive a proprietary lease as their title.

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the weighted monthly average cost of deposits, advances, and other borrowings of members of the Federal Home Loan Bank of San Francisco.

An independent agency that gathers and maintains information on the debts and repayment records of individuals and businesses.

A record of an individual's debts and repayment record. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

A type of insurance that pays off a specific amount of debt or a specified credit account if the borrower dies while the policy is in force.

A document provided by a credit reporting agency containing information about an individual's previous mortgage history, bank loans, credit cards, and public records dealing with financial matters.

A numerical value that ranks a borrower's credit risk at a given point in time based on a statistical evaluation of information in the individual's credit file that has been proven to be predictive of loan performance.

A person to whom money is owed.

An amount owed to another.

The relationship between a borrower's total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.

The legal document conveying title to a property (i.e., transferring the ownership of real property from one party to another.)

The transfer of title from a borrower to the lender to satisfy the mortgage debt and avoid foreclosure. Also called a "voluntary conveyance."

A legal document that conveys title to real estate to a disinterested third party (a "trustee") who holds the title until the borrower has repaid the debt. In some states, this document is used in place of a mortgage.

The failure to make a scheduled payment or otherwise comply with the terms of a mortgage loan or other contract.

Failure to make a payment when it is due. The condition of a loan when a scheduled payment has not been received by the due date, but generally used to refer to a loan for which payment is 30 or more days past due.

A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount.

The amount of cash a buyer puts toward a purchase.

A provision in a mortgage that allows the lender to demand repayment in full of the outstanding balance if the property securing the mortgage is sold.

A deposit submitted with a purchase offer to show that the buyer's offer is being made in "good faith."

A right to the use of, or access to, land owned by another.

A program in which companies assist their employees in purchasing homes by providing assistance with the down payment, closing costs, or monthly payments.

The intrusion onto another's property without right or permission.

Any claim on a property, such as a lien, mortgage or easement.

A federal law that requires lenders to make credit equally available without regard to the applicant's race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant's income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

The owner's interest in a property, calculated as the current fair market value of the property less the amount of existing liens.

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

An account that a mortgage servicer establishes on behalf of a borrower to pay taxes, insurance premiums, or other charges when they are due. Sometimes referred to as an "impound" or "reserve" account.

The accounting that a mortgage servicer performs to determine the appropriate balances for the escrow account, compute the borrower's monthly escrow payments, and determine whether any shortages, surpluses or deficiencies exist in the account.

The legal act of removing someone from real property.

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.

A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and specifies procedures for challenging errors on a credit record.

The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.

A New York stock exchange company. It is a public company that operates under a federal charter and is the nation's largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.

A lender that Fannie Mae has approved to sell loans to it and to service loans on Fannie Mae's behalf.

The current 2004 Fannie Mae/Freddie Mac loan limit for a single-family home is $333,700 and is higher in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. The Fannie Mae loan limit is $427,150 for a two-unit home; $516,300 for a three-unit home; and $641,650 for a four-unit home. Also referred to as the "conventional loan limit."

An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.

A loan that is insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD).

A mortgage that is the primary lien against a property.

A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.

An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term.

A mortgage loan in which the interest rate does not change during the entire term.

A fee charged by independent mapping firms to identify properties located in areas designated as flood zones.

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood hazard zones.

The legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

The loss of money, property, rights, or privileges due to a breach of a legal obligation.

A mortgage in which the monthly payments are designed to retire the obligation at the end of the mortgage term.

A person who oversees a home improvement or construction project and handles various aspects such as scheduling workers and ordering supplies.

A form required by the Real Estate Settlement and Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, for specific settlement services the borrower is likely to incur in connection with the mortgage transaction.

A mortgage loan that is insured or guaranteed by a federal government entity such as the Federal Housing Administration (FHA) or guaranteed by the U. S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Popularly known as Ginnie Mae.

Payment for the use of land when title to a property is held as a leasehold estate (that is, the borrower does not actually own the property, but has a long-term lease on it).

A fixed-rate mortgage in which the monthly payments increase according to an agreed-upon schedule, with the extra funds applied to reduce the loan balance and loan term.

Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other covered hazards or natural disasters.

A special type of mortgage-developed and insured by the Federal Housing Administration (FHA) that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Sometimes called a reverse mortgage.

A type of revolving loan, that enables a home owner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in the property.

An examination of the construction, condition and internal systems of a home prior to purchase; satisfactory home inspection may be a condition of purchase.

A broad form of insurance coverage that combines hazard insurance with personal liability protection and other coverage.

Insurance offered by a seller that covers certain home repairs and fixtures for a specified period of time.

An organization of homeowners residing within a particular area whose principal purpose is to ensure the provision and maintenance of community facilities and services for the common benefit of the residents.

The percentage of a borrower's gross monthly income that is devoted to housing costs.

A document that lists all closing costs on a real estate purchase or refinance transaction. Also known as the "closing statement" or "settlement sheet."

Real estate developed or purchased to produce income, such as a rental unit.

A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, stated in the note.

The original interest rate for an adjustable-rate mortgage (ARM). Sometimes known as the "start rate."

The regular periodic payment that a borrower agrees to make to a lender.

A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).

The fee charged for borrowing money, usually expressed as an annual percentage of the principal.

The percentage rate at which interest accumulates or increases on a mortgage loan.

For an adjustable-rate mortgage, a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

A property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower's primary residence. Contrast with "second home."

A lien on the property of a debtor resulting from the decree of a court.

A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae or Freddie Mac. Also called "nonconforming loan."

A loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage.

A penalty imposed by the lender when a borrower fails to make a scheduled payment on time.

Lease-Purchase Option

An option sometimes used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs.

A person's debts and other financial obligations.

Insurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party.

An index used to determine interest rate changes for certain ARM plans, based on the average interest rate at which international banks lend to or borrow funds from the London Interbank Market.

A legal encumbrance or claim on property as security for a debt.

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate or monthly payment can increase or decrease over the life of the loan.

A cash asset or an asset that is easily converted into cash.

The process by which a lender makes a loan which may include taking a loan application, processing and underwriting the application, and closing the loan.

A fee to cover some of the administrative costs of processing a loan. It is often expressed in points. One point is equal to 1 percent of the loan amount.

The relationship between the loan amount and the value of the property (the lower of appraised value or sales price), expressed as a percentage of the property's value. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

An agreement in which the lender agrees to "lock-in" the borrower's interest rate for a set period of time before closing.

Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). Manufactured homes may be single- or multi-section and are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law, and may be financed with a mortgage. Homes that are not permanently affixed to a foundation generally are classified as personal property, and are financed with a retail installment sales agreement.

For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.

The date on which a mortgage loan is scheduled to be paid in full, as stated in the note.

A credit report issued by a credit reporting company that combines information from the three major credit repositories.

Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.

A type of investment in which funds are invested in short term securities.

A loan to finance the purchase of real estate, for which the borrower pledges the real property as security for the repayment of the loan. The borrower gives the lender a lien on the property as collateral for the loan.

A company that specializes in originating real estate loans, and typically uses its own funds or warehouse line of credit to close loans.

An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans, but generally does not use its own funds to close the loan. Mortgage brokers often act as independent contractors and not as an agent of the borrower or lender.

Insurance that protects lenders against losses caused by a borrower's default on a mortgage loan. MI typically is required if the borrower's down payment is less than 20% of the purchase price.

The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (PMI) company.

A type of insurance that will pay off a mortgage if the borrower dies while the loan is outstanding; a form of credit life insurance.

The institution or individual to whom a mortgage is given; the lender.

The owner of real estate who pledges property as security for the repayment of a debt; the borrower.

A mortgage loan on a building with more than four dwelling units.

Typically, buildings with five or more dwelling units.

An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.

The value of a company or individual's assets, including cash, less total liabilities.

An asset that cannot easily be converted into cash.

A written promise to pay a specified amount under the agreed upon conditions.

The interest rate stated on a mortgage note, or other loan agreement.

The total amount of principal owed on a mortgage before any payments are made.

A fee paid to a lender to cover the administrative costs of processing a loan application. The origination fee typically is stated in the form of points. One point is 1 percent of the mortgage amount.

A transaction in which the property seller provides all or part of the financing for the buyer's purchase of the property.

A property that serves as the borrower's primary residence.

A payment that is less than the scheduled monthly payment on a mortgage loan.

The date on which a new monthly payment amount takes effect, for example, on an adjustable-rate mortgage (ARM) loan.

For an adjustable-rate mortgage (ARM) or other variable rate loan, a limit on the amount that payments can increase or decrease during any one adjustment period.

Any property that is not real property.

An acronym for the four primary components of a monthly mortgage payment: principle, interest, taxes, and insurance (PITI).

A cash amount that a borrower has available after making a down payment and paying closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

A real estate project in which individuals hold title to a residential lot and home while the common facilities are owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

An amount equal to 1 percent of the loan amount.

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.

A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant???s credit history and may involve the review and verification of income and assets to close.

Real Estate Terms