Glossary

Adjustable Rate Mortgage (ARM) - A mortgage whose rate of interest can change over time.

Amortization - Repayment of a mortgage loan by installment payments

Amortization Schedule - Time schedule for loan repayment of a home loan showing what amount of each payment is applied to principal and interest for the remaining balance of the loan.

Annual Percentage Rate (APR) - Total yearly cost of a mortgage stated as a percentage of the loan amount which includes the base interest rate, loan origination fee (points), and primary mortgage insurance (PMI).

Appreciation - Increase of home or property value due to market changes or conditions.

Assumable Home Loan - A home loan that can be assumed or taken over by the buyer when a home is sold.

Assumption - Transfer of the seller's mortgage to the buyer

Binder - An agreement secured by earnest money, which a buyer offers to purchase real estate.

Cap - A provision limiting how much the interest rate or payments can increase on an ARM

Cash Reserve - Amount of money a buyer has left over after closing. Some lenders may require borrowers to have cash reserve equal to two mortgage payments.

Clear Title - A title that is free from liens and or legal questions as to who owns the property

Closing - Finalization of a mortgage.

Closing Costs - Expenses incurred by the buyer during transfer of ownership of a property.

Community Property - Property acquired during a marriage by husband and wife. Each spouse has equal rights to the property.

Contingency - Condition that must be met before a contract is legally binding.

Conventional Home Loan - A home loan that is not insured or guaranteed by the federal government.

Convertible ARM - An adjustable rate mortgage (ARM) that may be converted to a fixed rate loan under specified conditions.

Covenant - Obligates or restricts the borrower and if violated can result in foreclosure.

Credit Report - A report generated by a credit bureau that shows an individuals credit or repayment history over time. Used by lenders to determine creditworthiness.

Deed - A legal document conveying the title to a property. Shows ownership.

Deed of Trust - A document that is used in some states instead of a mortgage. The title conveyed by a trustee instead of the borrower.

Default - Failure to complete payments to the lender under the original conditions of the loan.

Delinquency - Payment on a loan is overdue.

Depreciation - Decline in property value. Opposite of Appreciation

Down Payment - Initial money put down as a deposit on a property.

Due on Sale Clause - A loan provision allowing the lender to demand repayment of the loan in full if the property is sold.

Earnest Money - A deposit given by the buyer to the seller demonstrating that the prospective buyer is serious a purchasing a home or property.

Equal "Credit Opportunity Act (ECOA) - Federal law that prohibits lenders from denying a loan on the basis of race, color, religion, national origin, age, sex, marital status, or income derived from public assistance programs.

Equity - The difference between the homeowner's outstanding mortgage balance and the fair market value of a property.

Equity Loans - A loan that is based on a borrower's equity in a home or property.

Fair Credit Reporting Act - Consumer protection law(s) that sets up a procedure for an individual to dispute or correct inaccuracies on ones credit report.

FHA Loan - A home loan that is insured by the Federal Housing Administration.

First Mortgage - A mortgage that has the first claim in the event the borrower defaults on the mortgage.

Fixed Rate Mortgages - A mortgage in which the interest rate will not change during the term of the loan.

Flood insurance - Insurance that may be required by the lender if a property is in a federally designated flood area.

Foreclosure – A process allowing the sale of property when the borrower is in default of the contract.

Graduated Payment Mortgage - A loan starting with small monthly payments and increasing at a predetermined rate over a period of time.

Hazard Insurance - Insurance that protects the homeowner and lender against damage to home or property due to fire, wind, vandalism or other hazards.

Homeowners Insurance - Insurance that combines liability coverage and hazard insurance.

Interest - The amount that is charged for borrowing money.

Late Charge - A penalty that a borrower must pay when payment is made after the date it is due.

Lease Purchase Loan - The buyer leases a home with the option to buy. Each month's rent payments consists of PITI payments on the first mortgage, plus an extra amount is used for a savings account that accumulates for a down payment.

Lien – A legal claim against a property. Once the property is sold the lien holder is then paid the amount that is owed.

Loan to Value Ratio (LTV) - Relationship between the amount of a home loan and the total value of the property.

Lock in - Written agreement guaranteeing the homebuyer a specific interest rate providing the loan is closed within a certain time frame. The amount of points due upon closing are typically predetermined.

Mortgage - The pledge of a property to the lender as security for payment of a debt.

Mortgage Broker - A company that matches borrower with lenders for a fee.

Mortgage Insurance Premium (MIP) - The fee paid by a borrower for mortgage insurance. Fees are generally paid to the FHA or private insurer.

Mortgagee – The person to whom property is mortgaged, or to whom a mortgage is made or given.

Mortgagor – The person who give a mortgage for money to be repaid.

Negative Amortization - When monthly payments are not enough to cover the interest due each month therefore the loan balance increases.

Notice of Default - Written notice to a borrower that a default of the contract has occurred and that legal action may be taken.

Origination Fee - Fee for processing a loan application; generally stated as a percentage of the mortgage amount or points.

PITI - Principal, interest, taxes and insurance.

Points - One time charge by the lender in order to increase the yield of the loan, one point is one percent of the amount of the loan.

Prepayment Penalty - The borrower is charged a fee for paying off a loan before it is due.

Principal - Remaining unpaid balance of a loan.

Private Mortgage Insurance (PMI) - Insurance that protects lenders against loss if a borrower defaults.

Purchase Agreement - A contract between the borrower and the lender that discloses the terms and conditions under which a property will be sold.

Refinancing - Paying off a loan with the money from a new loan which is secured by the same property.

Second Mortgage - A mortgage that provides rights, subordinate to the rights of the first mortgage holder.

Secondary Mortgage Market - Buying - Selling of existing mortgages

Seller Carryback - Current property owner provides financing to the buyer, at times in combination with an assumed mortgaged.

Title Company - Company that specializes in insuring titles to properties

Title Insurance - Insurance which protects the lender (Lenders Policy) or the buyer (Owners Policy) against loss from disputes of ownership.

Title Search - A search of the title records to ensure the seller is the legal owner of the said property. Also ensures that there are no liens or claims against the property.

Transfer Tax - Taxes that may be payable when the title passes from one owner to the next.

Truth in Lending Act - Federal law that requiring lenders to fully disclose, in writing, the terms and conditions of a mortgage to the borrower, including the APR and other charges.

Underwriting Process - The process of evaluating a loan application to determine risks involved for the lender.

VA Loan - Loans that are guaranteed by the Veterans Administration.