Please feel free to use our Mortgage & Loan Glossary to help understand real estate industry terms.
Abstract of Title
A historical summary of all the recorded transactions that affect the title to the property.
An attorney or a title company will review an abstract of title to determine if there are
any problems affecting the title to the property. All such problems must be cleared before
the buyer can be issued a clear and insurable title.
A clause in your mortgage which allows the lender to demand payment of the outstanding
loan balance for various reasons. The most common reasons for accelerating a loan are if
the borrower defaults on the loan or transfers title to another individual without informing
Accelerated Mortgage Plan
A plan that increases the amount or frequency of loan payments so as to pay down the principal
owed on a property before the standard term expires. If done correctly, an accelerated
mortgage plan can save thousands of dollars in interest and provide full ownership of a
property in less time than would be required if only the minimum required payment were
made throughout the life of the loan.
Formal declaration before a public official (typically a Notary Public) that one has signed
a document. Required before recording real estate legal documents, such as a deeds of trust.
A measure of land equal to 43,560 square feet.
Adjustable-Rate Mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations
in an index. All ARMs are tied to indexes.
This is the length of time for which the interest rate is fixed on an adjustable. Therefore
if the adjustment period is six months, then the interest rate will remain fixed for six
months, after which time it will adjust.
Agreement of Sale
A written signed agreement between the seller and the purchaser in which the purchaser
agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement.
Also known as contract of purchase, purchase agreement, offer and acceptance, earnest money
contract or sales agreement.
Payment of a debt in regular, periodic installments of principal and interest as opposed
to interest only payments.
Annual Percentage Rate (APR)
A term used in the Truth-in-Lending Act to represent the percentage relationship of the
total finance charge to the amount of the loan. The APR reflects the cost of your mortgage
loan as a yearly rate. It will be higher than the interest rate stated on the note because
it includes, in addition to the interest rate, loan discount points, fees and mortgage
A printed form used by a mortgage lender to record necessary information concerning a prospective
A sum of money paid towards estimated initial mortgage processing expenses such as appraisal
and credit report.
A report made by a qualified person setting forth an opinion or estimate of property value.
The term also refers to the process by which this estimate is obtained.
The increase in the value of a property due to changes in market conditions, inflation,
or other causes.
As Separate Property
Ownership in real property which is to be specifically excluded from community property.
The value that a taxing authority places on real or personal property for the purpose of
A charge against a property for purpose of taxation. This may take the form of a levy for
a special purpose or a tax in which the property owner pays a share of the cost of community
improvements according to the valuation of his or her property.
Items of value owned by an individual. Assets that can be quickly converted into cash are
considered "liquid assets." These include bank accounts, stocks, bonds, mutual
funds, and so on. Other assets include real estate, personal property, and debts owed to
an individual by others.
A mortgage loan which allows a new home buyer to take over the obligation of making loan
payments with no change in the terms of the loan. Assumable loans do not have a due-on-sale
clause. The lender has to be notified and agree to the assumption. The lender may require
the buyer to qualify for the loan and may charge an assumption fee. The seller should obtain
a written release from the lender stating clearly that he/she is no longer liable to make
Attorney In Fact
One who is authorized to act for another under a power of attorney which may be general or limited in scope.
A mortgage loan that requires the remaining principal balance be paid at a specific point
in time. For example, a loan may be amortized as if it would be paid over a thirty year
period, but requires that at the end of the tenth year the entire remaining balance must
By filing in federal bankruptcy court, an individual or individuals can restructure or
relieve themselves of debts and liabilities. Bankruptcies are of various types, but the
most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which
relieves the borrower of most types of debts. A borrower cannot usually qualify for an
"A" paper loan for a period of two years after the bankruptcy has been discharged
and requires the re-establishment of an ability to repay debt.
The person who receives or is to receive the benefits resulting from certain acts. Example:
The lender is named as the beneficiary on a mortgage loan.
Bill of Sale
A written document that transfers title to personal property.
(1) A title insurance binder is the written commitment of a title insurance company to
insure title to the property subject to the conditions and exclusions shown on the binder.
(2) Preliminary agreement, normally secured with earnest money, between a buyer and a seller
as an offer to purchase real estate.
A mortgage in which you make payments every two weeks instead of once a month. The basic
result is that instead of making twelve monthly payments during the year, you make thirteen.
The extra payment reduces the principal, substantially reducing the time it takes to pay
off a thirty year mortgage.
A mortgage covering more than one piece of property.
(1) A debt instrument in the capital markets. The U.S. government, corporations and municipalities
use bonds to raise money. Bonds can also be backed by mortgages. The best known bond is
the 30-year treasury bond issued by the U.S. government.
(2) A sum of money given to a court to guarantee against a loss. For example if there is
a lien on a property, the owner may remove the lien by posting a bond.
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow
this market intensely because as the yields of bonds go up and down, fixed rate mortgages
do approximately the same thing. The same factors that affect the Treasury Bond market
also affect mortgage rates at the same time. That is why rates change daily, and in a volatile
market can and do change during the day as well.
A person (also known as mortgagor) who receives funds in the form of a loan with an obligation
to repay principal with interest.
A short-term interim loan. Bridge loans are commonly used to close a transaction on one
property while another is being sold.
As it relates to the real estate, a mortgage broker does not lend money, but acts as an
agent between the borrower and the lender to secure financing. A broker can often be a
more effective means for securing a loan because he or she is able to "shop"
for the best rate and term available from several different lending sources at one time,
something that would take a borrower much longer to do on his or her own. Brokers earn
a profit for this service usually expressed as "points" on a loan.
Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments
for a home mortgage either during the entire term or for an initial period of years. A
"2-1" Buydown can be used to qualify a borrower who otherwise may not qualify
for a loan by reducing the interest rate on the first two years of payments, thereby making
the mortgage more affordable.
A real estate agent hired by a buyer to locate a property for purchase. The broker represents
the buyer and negotiates with the sellers broker for the best possible deal for the buyer.
Buyer's Agents do not charge for their services; they split the commission with the seller's
Listing Agent instead as compensation for their assistance in selling the property.
Market conditions that favor buyers i.e. there are more sellers than buyers in the market.
As a result buyers have ample choice of properties and may negotiate lower prices. Buyers
markets may be caused by an economic slump or overbuilding.
CC&Rs - Covenants, Conditions and Restrictions
The basic rules establishing the rights and obligations of owners of real property within
a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized
for the purpose of operating and maintaining property commonly owned by the individual
owners. The association is normally made up of property owners.
Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually
limited to a certain amount. Those limitations may apply to how much the loan may adjust
over a six month period, an annual period, and over the life of the loan, and are referred
to as "caps." Some ARMs, although they may have a life cap, allow the interest
rate to fluctuate freely, but require a certain minimum payment which can change once a
year. There is a limit on how much that payment can change each year, and that limit is
also referred to as a cap.
Profit earned from the sale of real estate or other valuable assets. A seller may defer
taxes on the capital gain of his/her primary residence by buying a higher priced residence
within 2 years.
The amount of cash derived over a certain period of time from an income-producing property.
The cash flow should be large enough to pay the expenses of the income producing property
(mortgage payment, maintenance, utilities, etc.).
When a borrower refinances his mortgage at a higher amount than the current loan balance
with the intention of pulling out money for personal use, it is referred to as a "cash
Cash to Close
Liquid assets that are readily available to be used to pay the closing costs involved in
a closing of a mortgage transaction.
Certificate of Eligibility
The document issued by the Veterans Administration to those that qualify for a VA loan
which may be used to buy a house with 0 down. Certificates of eligibility may be obtained
by sending the form DD-214 to the local VA office along with VA form 1880.
Certificate of Occupancy
Document issued by a local governmental agency that states a property meets the local building
standards for occupancy and is in compliance with public health and building codes. This
document is normally required by a lender prior to closing the loan.
Certificate of Reasonable Value
An appraisal performed by an VA approved appraiser which establishes the property's current
market value. This value establishes the ceiling on the maximum VA mortgage loan principal.
Certificate of Title
An opinion rendered by an attorney as to the status of title to a property, according to
the public records. This certificate does not provide the same level of protection as title
Chain of Title
The chronological order of conveyance of a parcel of land from the original owner to the
A marketable title, free of clouds and disputed interests. Most lenders require a clear
title prior to closing.
The consummation of a real estate transaction. The closing includes the delivery of a deed,
financial adjustments, the signing of notes, and the disbursement of funds necessary to
complete the sale and loan transaction.
Expenses incurred by the buyer and seller in a real estate or mortgage transaction. There
are two types of costs: recurring and non-recurring. Non-recurring closing costs are one
time transactional costs which include: discount and origination points, lender fees, underwriting,
processing, document preparations, flood certificate, tax service, wire transfer, courier,
title insurance, escrow, attorney or closing agent fees, recording fees, inspection fees,
appraisal fees and real estate brokerage commissions.
Recurring costs are fees associated with owning the property that recur month after
month. These costs may include hazard insurance, interest, property taxes, mortgage insurance
(PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing
including prepaid interest (interest charged from the date of closing to the end of the
month) and property taxes (if due). Hazard insurance, fire insurance or homeowner's insurance
must be paid up for one year. Mortgage insurance (PMI) may be required if the loan amount
is more than 80% of the value of the property. Many mortgage insurance companies require
1-3 month's payment in advance. Mortgage insurance premiums are normally paid every month
with the loan payment.
A form used at closing that gives an account of the funds received and paid at the closing,
including the escrow deposits for taxes, hazard insurance, and mortgage insurance.
Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s)
appears on documents with equal legal obligations.
Property pledged as security for a debt, such as the real estate pledged as security for
When a borrower falls behind, the lender contacts them in an effort to bring the loan current.
The loan goes to "collection." As part of the collection effort, the lender must
mail and record certain documents in case they are eventually required to foreclose on
Most salespeople earn commissions for the work that they do and there are many sales professionals
involved in each transaction, including Realtors, loan officers, title representatives,
attorneys, escrow representative, and representatives for pest companies, home warranty
companies, home inspection companies, insurance agents, and more. The commissions are paid
out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally
earn the largest commissions, followed by lenders, then the others.
A binding pledge made by the lender to the borrower to make a loan, usually at a stated
interest rate within a given period of time for a given purpose, subject to the compliance
of the borrower to stated conditions.
Commitment Fee (Loan)
Any fee paid by a potential borrower to a lender for the lender's promise to lend money
at a specified rate and within a given time period.
A formal offer by a lender stating the terms under which it agrees to loan money to a home
In some states, property acquired by a married couple during their marriage is considered
to be owned jointly, except under special circumstances.
Comparable Sales ("Comps")
Recent sales of similar properties in nearby areas and used to help determine the market
value of a property.
Conventional home mortgages eligible for sale and delivery to either the Federal National
Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). These
agencies generally purchase first mortgages up to loan amounts mandated by Congressional
directive. This amount is currently $300,700.00 or less.
Anything of value given to induce another to enter into a contract. Earnest money deposit
on a sales contract is consideration.
A short-term, interim loan for financing the cost of construction. The lender makes payments
to the builder at periodic intervals as the work progresses.
A condition that must be met before a contract is legally binding.
An agreement between competent parties to do or not do certain things for consideration.
Contract Sale or Deed
A real estate installment selling arrangement where the buyer may occupy the property but
the seller retains the title until the agreed upon sales price has been paid. Also known
as an installment land contract.
A mortgage not obtained under a government insured program (such as FHA or VA). A conventional
loan may be conforming or non-conforming.
Convertible ARM (Adjustable Rate Mortgage)
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate
mortgage within a specific time.
The transfer of title of real property from one party to another.
Cost of Funds Index (COFI)
One of the indexes that is used to determine interest rate changes for certain adjustable-rate
mortgages. It represents the weighted-average cost of savings, borrowings, and advances
of the financial institutions such as banks and savings & loans, in the 11th District
of the Federal Home Loan Bank.
Borrowers are rated by lenders according to the borrower's credit-worthiness or risk profile.
Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based
on various factors such as a borrower's payment history, available credit, and derogatory
information, among others. There is no exact science to rating a borrower's credit, and
different lenders may assign different grades to the same borrower. A FICO Score is
used as a measure of creditworthiness, and is represented as a numerical score assigned
by each of the three primary credit repositories.
A report detailing an individual's credit history.
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.
Debt-to-Income Ratio (DIR)
Used as one of the primary considerations for a loan approval, a borrower's debt-to-income
ratio is expressed as a percentage of the total amount of monthly payment obligations for
secured and unsecured debt compared to total gross monthly income. The ratio of debt to
income is 50% or less in order to qualify for a loan in most circumstances.
A written document by which title to real property is transferred from one owner to another.
The deed should contain an accurate description of the property being conveyed, should
be signed and witnessed according to the laws of the State where the property is located,
and should be delivered to the buyer at closing.
Deed of Trust
An instrument used in many states (including California) in place of a mortgage. Property
is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary)
and reconveyed upon payment in full.
A clause in a deed that limits the use of land. Example: A deed might require that a road
cannot be built on the land.
Failure to make the mortgage payment within a specified period of time. For first mortgages
or first trust deeds, if a payment has still not been made within 30 days of the due date,
the loan is considered to be in default.
Any recorded instrument that would prevent a grantor/seller from giving a clear title.
Example: The seller has a lien on the property that was filed when he failed to pay a contractor
for work performed. The seller may obtain clear title by paying the contractor and removing
Personal claim against the debtor when the sale of foreclosed property does not yield sufficient
proceeds to pay off the mortgages, accrued interest, legal fees, etc.
A loan payment that is overdue but within the period allowed before actual default is declared.
A PUD in which the common property has less than a 2% influence upon the value of the premises.
The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total
number of units. Also see PUD.
A sum of money given to bind a sale of real estate. Also known as earnest money.
A loss of value in real property brought about by age, physical deterioration, functional
or economic obsolescence.
Fees paid to a lender to reduce the interest rate. One point is equal to one percent of
the loan amount.
When the note rate on a loan is less than the market rate, the lender requires additional
points to raise the yield on the loan to the market rate.
Documentary Tax Stamp
Stamp affixed to a deed showing the amount of transfer tax.
The part of the purchase price of a property that the buyer pays in cash and does not finance
with a mortgage.
A provision in a mortgage that pledges other properties as collateral. A default in the
mortgage could lead to foreclosure proceedings on any of the properties in the dragnet.
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 mortgage.
A portion of the down payment delivered with a purchase offer by the purchaser of real
estate to the seller or an escrow agency by the purchaser of real estate with a purchase
offer as evidence of good faith. Also known as a deposit.
The right to use the land of another for a specific purpose. Easements may be temporary
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.
The right of the government or a public utility to acquire property for necessary public
use by condemnation, with proper compensation to the owner.
A building, a part of a building, or an obstruction (e.g.. a fence or a wall) that physically
intrudes upon or overlaps into the property of another.
Anything that affects or limits the fee simple title to a property, such as mortgages,
leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit equally available without
discrimination based on race, color, religion, national origin, sex, age, marital status,
receipt of income from public assistance programs or past exercising of rights under the
Consumer Credit Protection Act.
The ownership interest; i.e. portion of a property's value over and above the liens against
Joint ownership of a property between the owner/occupant and the owner/investor, that results
in tax advantages for both parties. Upon sale of the property the joint owners split profits
based on the percentage they own.
The reversion of property to the state in the event that the owner dies without leaving
a will and has no legal heirs.
A procedure whereby a disinterested third party handles legal documents and funds on behalf
of a seller and buyer.
Once you close your purchase transaction, you may have an escrow account or impound account
with your lender. This means the amount you pay each month includes an amount above what
would be required if you were only paying your principal and interest. The extra money
is held in your impound account (escrow account) for the payment of items like property
taxes and homeowner's insurance when they come due. The lender pays them with your money
instead of you paying them yourself.
Once each year your lender will perform an "escrow analysis" to make sure they
are collecting the correct amount of money for the anticipated expenditures.
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance,
and other property expenses 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.
A written contract that gives a licensed real estate agent the exclusive right to sell
a property for a specified time.
Executor (m) Executrix (f)
A person named in a will to carry out its provisions for the disposition of the estate.
Term meaning "For Sale By Owner". A property for sale that is not listed with
a real estate broker.
Fair Credit Reporting Act (FCRA)
A federal law which requires a lender who is rejecting a loan request because of adverse
credit information to inform the borrower of the source of such information. This law also
requires consumer reporting agencies to exercise fairness, confidentiality and accuracy
in preparing and disclosing credit information.
Fair Market Value
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 accept.
Farmers Home Administration — FmHA
An agency within the U.S. Department of Agriculture that administers assistance programs
for purchasers of homes and farms in small towns and rural areas.
Federal Home Loan Mortgage Corporation - FHLMC (FREDDIE MAC)
A quasi-governmental agency that purchases conventional mortgages in the secondary mortgage
market from insured depository institutions and HUD-approved mortgage bankers. It sells
participation sales certificates secured by pools of conventional mortgage loans, their
principal, and interest guaranteed by the federal government through the FHLMC. It also
sells Government National Mortgage Association bonds to raise funds to finance the purchase
of mortgages. Popularly know as Freddie Mac.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity
is the insuring of residential mortgage loans made by private lenders. The FHA sets standards
for construction and underwriting but does not lend money or plan or construct housing.
Federal National Mortgage Association - FNMA (FANNIE MAE)
A taxpaying corporation created by Congress to support the secondary mortgage market. It
purchases and sells residential mortgages insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.
Federal Reserve System - FED
The central federal banking system that regulates and provides services to member commercial
banks. Also has the responsibility for conducting federal monetary policy.
The greatest possible interest a person can have in real estate.
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans,
an FHA loan will often be referred to as a government loan.
A person in a position of trust or responsibility with specific duties to act in the best
interest of a client. A real estate broker is a fiduciary for his/her clients.
Interest charged by a lender.
A lender's agreement to make a loan to a specific borrower on a specific property.
A real estate loan that has priority over any subsequently recorded mortgages.
Fixed Interest Rate
An interest rate which does not change during the loan term.
Personal property that becomes real property when attached in a permanent manner to real
Insurance that compensates for physical property damage resulting from flooding. It is
required for properties located in federally designated flood areas.
A legal procedure in which property mortgaged as security for a loan is sold to pay the
defaulting borrower's debt.
Fully Indexed Rate
The Fully Indexed Rate = Value of the index + Margin.
General Warranty Deed
A deed in which the grantor (seller) agrees to the protect the grantee (buyer) against
any other claim to title of the property.
A written explanation signed by the individual giving the gift stating, "This is a
bona fide gift and there is no obligation expressed or implied to repay this sum at any
Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a loan closing. Receipt
of a Good Faith Estimate is not the same as a Loan Approval, and is subject to change before
an actual loan is approved by a lender.
Government Loan (mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by
the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that
are not government loans are classified as conventional loans.
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development
(HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie
Mae and Freddie Mac in providing funds to lenders for making home loans. The difference
is that Ginnie Mae provides funds for government loans (FHA and VA).
Graduated Payment Mortgage (GPM)
A mortgage that has lower payments initially (with potential negative amortization) which
increase each year until the loan is fully amortized.
The person to whom an interest in real property is conveyed. The Grantor is the seller
Gross Monthly Income
Total monthly income earned before tax and other deductions.
A contract whereby an insurer, for a premium, undertakes to compensate the insured for
loss on a specific property due to certain hazards (i.e. fire).
Mortgage loans in excess of 80 percent of the loan amount divided by the lower of the sales
price or appraised value.
Home Equity Conversion Mortgage (HECM/RAM)
Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique
is that instead of making payments to a lender, the lender makes payments to you. It enables
older home owners to convert the equity they have in their homes into cash, usually in
the form of monthly payments. Unlike traditional home equity loans, a borrower does not
qualify on the basis of income but on the value of his or her home. In addition, the loan
does not have to be repaid until the borrower no longer occupies the property.
Home Equity Line of Credit (HELOC)
A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn
against the equity of his home, up to a predetermined amount.
A thorough inspection by a professional that evaluates the structural and mechanical condition
of a property. A satisfactory home inspection is often included as a contingency by the
Homeowners' Association Dues (also known as Common Area Assessments)
The fees imposed by a condominium or homeowners' association for maintenance of common
An insurance policy that combines personal liability insurance and hazard insurance coverage
for a dwelling and its contents.
A type of insurance often purchased by homebuyers that will cover repairs to certain items,
such as heating or air conditioning, should they break down within the coverage period.
The buyer often requests the seller to pay for this coverage as a condition of the sale,
but either party can pay.
Status provided to a homeowner's principal residence in some states that protects the home
against judgments up to specified amounts.
Available in some states, this causes the assessed value of a principal residence to be
reduced by the amount of the exemption for the purposes of calculating property tax.
Home Warranty Plan
Insurance that covers appliances, heating systems, etc. Typically purchased at the time
A local government ordinance that sets minimum standards of safety and sanitation for existing
Housing & Urban Development (HUD)
A U.S. government agency established to implement certain federal housing and community
HUD Median Income
Median family income for a particular county or metropolitan statistical area (MSA), as
estimated by the Department of Housing and Urban Development (HUD).
HUD-1 Settlement Statement
A document that provides an itemized listing of the funds that were paid at closing. Items
that appear on the statement include real estate commissions, loan fees, points, and initial
escrow (impound) amounts. Each type of expense goes on a specific numbered line on the
sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds
and the buyer's net payment at closing. It is called a HUD1 because the form is printed
by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known
as the "closing statement" or "settlement sheet."
That portion of a borrower's monthly payments held by the lender or servicer to pay for
taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become
due. Also known as Escrows or Impounds.
A method used by an appraiser to estimate the value of a property based on the income it
A statistic that indicates some current economic or financial condition. Indexes are used
to make adjustments in variable rate loans.
Ingress & Egress
The right to go in and out over a piece of property but not the right to park on it.
A loan insured by HUD-FHA or a private mortgage insurance company.
Consideration in the form of money paid for the use of money. Also a right, share or title
The percentage of an amount of money which is paid for its use for a specified time. Investment
Property Real estate owned with the intent of supplementing income and not intended for
Joint & Several Liability
A creditor can demand full repayment from any and all of those who have borrowed. Each
borrower is liable for the full debt, not just the prorated share.
A form of ownership or taking title to property which means each party owns the whole property
and that ownership is not separate. In the event of the death of one party, the survivor
owns the property in its entirety.
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
The claim on the property of a debtor resulting from a judgment.
A loan that exceeds Fannie Mae's and Freddie Mac's loan limits, currently at $300,700 or
more. Also called a non-conforming loan. Freddie Mac and Fannie Mae loans are referred
to as conforming loans.
A mortgage subordinate to another mortgage. In the case of a foreclosure a senior mortgage
will be paid prior to a junior mortgage.
A real estate installment selling arrangement whereby the buyer may use and occupy land,
but no deed is given by seller until the sales price has been paid.
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 it.
Lease Option Purchase
An alternative financing option that allows home buyers to lease a home with an option
to buy. Each month's rent payment may consist of not only the rent, but an additional amount
which can be applied toward the down payment on an already specified price.
A property description, recognized by law, that is sufficient to locate and identify the
property without oral testimony.
A person to whom property is rented under a lease. (Tenant)
A person who rents property to another under a lease. (Landlord)
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. It is usually part of a homeowner's insurance policy.
A legal claim or attachment against property as security for payment of an obligation.
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can
increase or decrease over the life of the mortgage.
An estate in real property for the life of a living person. The estate then reverts back
to the grantor or to a third party.
Latin for "lawsuit pending." Recorded notice that litigation is pending on a
property. Most lenders will require the clearance of the Lis Pendens prior to closing.
Also referred to by a variety of other terms, such as lender, loan representative, loan
"rep," account executive, and others. The loan officer serves several functions
and has various responsibilities: they solicit loans, they are the representative of the
lending institution, and they represent the borrower to the lending institution.
How a lender refers to the process of obtaining new loans.
Loan Origination Fee
Charge by a lender or broker connected with originating a loan. This is different from
discount points which are used to buy down the rate of interest.
After you obtain a loan, the company you make the payments to is "servicing"
your loan. They process payments, send statements, manage the escrow/impound account, provide
collection efforts on delinquent loans, ensure that insurance and property taxes are made
on the property, handle pay-offs and assumptions, and provide a variety of other services.
Loan-To-Value Ratio (LTV)
The ratio between the amount of a given mortgage loan and the lower of sales price or appraised
An agreement in which the lender guarantees a specified interest rate for a certain amount
of time at a certain cost.
The difference between the interest rate and the index on an adjustable rate mortgage.
The margin remains stable over the life of the loan. It is the index which moves up and
The most probable price which a ready, willing and able buyer would pay and a willing seller
will accept, both being fully informed under no pressure to act. The market value may be
different from the price a property can actually be sold for at a given time (market price).
Title that is free of liens, clouds and other legal defects and hence is readily acceptable
by a buyer.
The termination or due date on which final payment on a loan must be paid in full.
The right of an unpaid contractor or subcontractor to file a lien against property to recover
the amount due to him/her.
A special tax imposed on property, individual lots or all property in the neighborhood
to pay for improvements: street lights, sidewalks, toll roads, etc. Also known as
Merged Credit Report
A credit report which reports the raw data pulled from two or more of the major credit
Occasionally, a lender will agree to modify the terms of your mortgage without requiring
you t refinance. If any changes are made, it is called a modification.
Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month
on a mortgage loan.
A legal document that pledges a property to the lender as security for payment of a debt.
Instead of mortgages, some states (such as California) use First Trust Deeds.
Mortgage Backed Security (MBS)
A bond or other financial obligation secured by a pool of mortgage loans.
A mortgage banker is generally assumed to originate and fund their own loans, which are
then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae.
A mortgage company that originates loans, then places those loans with a variety of other
lending institutions with whom they usually have pre-established relationships.
The lender in a mortgage transaction.
Mortgage Insurance (MI)
Insurance that covers the lender against some of the losses incurred as a result of a default
on a home loan. Often mistakenly referred to as PMI, which is actually the name of one
of the larger mortgage insurers. Mortgage insurance is usually required in one form or
another on all loans that have a loan-to-value higher than eighty percent. Mortgages above
80% LTV that call themselves "No MI" are usually a made at a higher interest
rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay
a higher interest rate to the lender, which then pays the mortgage insurance themselves.
Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless
of the loan-to-value.
Mortgage Insurance Premium (MIP)
The consideration paid by a mortgagor (borrower) for mortgage insurance - either to the
FHA or to a private mortgage insurer.
A written promise to pay a sum of money at a stated interest rate during a specified term.
The note contains a complete description of the conditions under which the loan is to be
repaid and when it is due.
The borrower in a mortgage transaction who pledges property as security for a debt.
Properties that provide separate housing units for more than one family, although they
secure only a single mortgage.
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a
required minimum payment. If a borrower makes only the minimum payment it may not cover
all of the interest that would normally be due at the current interest rate. In essence,
the borrower is deferring the interest payment, which is why this is called "deferred
interest." The deferred interest is added to the balance of the loan and the loan
balance grows larger instead of smaller, which is called negative amortization.
Negative Amortization Loan
An adjustable rate mortgage loan, usually based on the 11th District Cost of Funds Index
(COFI) plus a margin. This type of loan allows a mortgagor more payment flexibility than
a standard ARM by paying simple interest, full interest or interest and principal in any
given month. The loan adjusts monthly and has a life cap. Provided a mortgagor has the
discipline to make more "full" payments than interest-only (thereby paying down
the principal balance), this can be an excellent loan for first-time home buyers, self-employed
persons and owners of rental properties whose incomes are inconsistent.
Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC
because of various reasons, including loan amount, loan characteristics or underwriting
A legal document that obligates a borrower to repay a mortgage loan at a stated interest
rate during a specified period of time.
Notice of Default (NOD)
A formal written notice to a borrower that a default has occurred and that legal action
may be taken.
The use of a property as a full-time residence, either by the title holder (owner-occupancy)
or by another party through a formal agreement (rental).
Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money under the same mortgage,
with certain conditions.
An amount which may be charged for services performed by the company handling the initial
application and processing of a mortgage loan.
Owner of Record
The individual named on a deed that has been recorded at the county recorders office.
Mortgage covering both real and personal property.
A provision in a mortgage that allows some of the property secured to be freed from serving
A mortgage that allows the lender to share in part of the income or resale proceeds.
Pass Through Certificates
Interests in a pool of mortgages sold by mortgage bankers to investors. Money collected
as monthly mortgage payments is distributed to those who own certificates.
One percent of the loan amount or a measure of the interest rate.
PITI (Principal, Interest, Taxes, and Insurance)
The most common components of a monthly mortgage payment.
Planned Unit Development (PUD)
A zoning classification that allows flexibility in the design of a subdivision. PUDs include
individually owned units as well as some common space that is jointly owned. See PUD below.
A plan or map of a specific land area.
A public record containing maps of land, showing the division of the land into streets,
blocks, and lots and indicating the measurements of the individual parcels.
Fees paid to lenders. 1 Point = 1% of the loan amount.
Example: On a $100,000 loan 1 Point is $1,000. Points may be further classified into Origination
points or loan "Discount" Points.
A loan that is held as an investment by a bank or savings and loan, and not sold on the
secondary market to investors.
Power of Attorney
A written document authorizing a person to act on the behalf of another person. That person
does not have to be an attorney.
A loosely used term which is generally taken to mean that a borrower has completed a loan
application and provided debt, income, and savings documentation which an underwriter has
reviewed and approved. A pre-approval is usually done at a certain loan amount and making
assumptions about what the interest rate will actually be at the time the loan is actually
made, as well as estimates for the amount that will be paid for property taxes, insurance
and others. A pre-approval applies only to the borrower.
Preliminary Title Report
The results of a title search by a title company prior to issuing a title binder or commitment
to insure clear title.
Prepaid interest is the interest charged to borrowers at closing to pay for the cost of
borrowing for a balance of the month. Example: A loan closes on the 19th of the month and
the first payment is due on the 1st of the following month, the lender will charge 12 days
of prepaid interest.
Expenses such as taxes, insurance and assessments which are paid in advance of their due
date and which must be paid by the buyer on a prorated basis at closing.
Any amount paid to reduce the principal balance of a loan before the due date. Payment
in full on a mortgage that may result from a sale of the property, the owner's decision
to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs
before the loan has been fully amortized.
A fee that may be charged to a borrower who pays off a loan before it is due.
This usually refers to the loan officer's written opinion of the ability of a borrower
to qualify for a home loan, after the loan officer has made inquiries about debt, income,
and savings. The information provided to the loan officer may have been presented verbally
or in the form of documentation, and the loan officer may or may not have reviewed a credit
report on the borrower.
Primary Mortgage Market
Companies that originate and service mortgage loans (banks, savings & loans, credit
union, mortgage bankers, institutional lenders) make up the primary mortgage market.
A residence which the borrower intends to occupy as the principal residence.
The interest rate that banks charge to their preferred customers. Changes in the prime
rate are widely publicized in the news media and are used as the indexes in some adjustable
rate mortgages, especially home equity lines of credit. Changes in the prime rate do not
directly affect other types of mortgages, but the same factors that influence the prime
rate also affect the interest rates of mortgage loans.
The remaining balance due on a debt, exclusive of accrued interest.
Private Mortgage Insurance
Insurance written by a private company protecting the mortgage lender against loss resulting
from a mortgage default.
Court process to establish the validity of the will of a deceased person.
The preparation of a mortgage loan application and supporting documentation for consideration
by a lender or insurer.
A government levy based on the market value (as assessed by the county assessor's office)
of the property.
PUD (Planned Unit Development)
A planned combination of diverse land uses, such as housing, recreation, and shopping in
one contained development or subdivision. A major feature of a PUD includes areas of common
land for use by the housing unit owners; the association of unit owners generally owns,
pays fees, and maintains the common areas. Also see DiMinimus PUD.
Purchase Contract (Agreement/Offer)
An agreement between a buyer and seller of real property, setting forth the price and terms
of the sale. Also known as a sales contract.
Purchase Money Mortgage
A mortgage used to finance the purchase of a property.
Calculations that are used in determining whether a borrower can qualify for a mortgage.
There are two ratios. The "top" or "front" ratio is a calculation of
the borrower's monthly housing costs (principle, taxes, insurance, mortgage insurance,
homeowner's association fees) as a percentage of monthly income. The "back" or
"bottom" ratio includes housing costs as will as all other monthly debt.
Quiet Title Action
A court action to settle a title dispute.
Quit Claim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at
the time the conveyance is made.
Rate Lock Option
An agreement guaranteeing an individual a specified interest rate on a loan provided the
loan is closed within a set period of time.
Real estate or real property owned by an individual of business.
Real Estate Broker
An individual who often owns a real estate company or is in a management position, and
who is licensed to represent a buyer or a seller in a real estate transaction.
Real Estate Investment Trust (REIT)
A trust that uses investors money to purchase and manage real estate. Investors realize
some of the tax advantages in owning real estate.
Real Estate Settlement Procedures Act (RESPA)
A federal law requiring lenders to provide home mortgage borrowers with information on
known or estimated settlement costs. It also establishes guidelines for escrow account
A real estate professional who is a member of the National Association of Realtors.
Land and that which is affixed to it.
When a mortgage is paid off in full, the lender conveys the property back to the owner.
The public official who keeps records of transactions that affect real property in the
area. Sometimes known as a "Registrar of Deeds" or "County Clerk."
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 public record. A Recording Fee may be charged.
The right of the holder of a note secured by a mortgage or deed of trust to claim money
from the borrower in default in addition to the property pledged as a collateral.
The repayment of a debt from the proceeds of a new loan using the same property as security.
Regulation Z (Reg Z)
A federal regulation requiring creditors to provide full disclosure of the terms of a loan
including the terms of the loan and the annual percentage rate (APR).
The cancellation of an already signed contract. When refinancing a mortgage on a principal
residence the law gives the homeowner three days to change his mind and cancel (rescind)
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.
A mortgage used by the elderly that provides income as long as they live in exchange for
title to the property after death. Payments made cause the loan principal to increase.
Example: A lender makes payments on a property to its owner, however, the owner continues
to live in it until his death. At that time the property is turned over to the lender.
The American Association of Retired Persons (AARP)
has great information on this type of mortgage.
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 Survivorship
The right of a surviving joint tenant to acquire the interest of a deceased joint owner.
A loan that is amortized over a long period of time (e.g. 30 years) but the interest rate
is fixed for a short period (e.g. 5 years). The loan may be extended or rolled over, at
the end of the shorter term, based on the terms of the loan.
SFR (Single Family Residence)
A type of residential structure designed to include one dwelling.
Satisfaction of Mortgage
The recordable instrument issued by the lender verifying full payment of a mortgage debt.
Savings & Loan (S&Ls)
Depository institutions that specialize in originating, servicing and holding mortgage
loans primarily on owner-occupied residential property.
Second Home (Vacation Home, Weekend Home)
A residence other than the borrower's primary residence which the borrower intends to occupy
for a portion of each year. Must be suitable for year-round occupancy.
A subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second
mortgages generally carry a higher rate than a first mortgage since they represent a higher
risk for an investor.
Secondary Mortgage Market
A market where existing mortgages are bought and sold. It contrasts with the primary mortgage
market where mortgages are originated.
Section 8 Housing
Privately owned rental units participating in the low-income rental assistance program.
Landlords receive subsidies on behalf of qualified low-income tenants, allowing the tenants
to pay a limited proportion of their incomes toward the rent.
A trigger on a mortgage loan whereby the interest rate charged by the lender exceeds federally
mandated thresholds above comparable federal treasury yields. Enacted as part of the effort
to curb predatory lending practices, lenders originating subprime loans that fall under
Section 32 must provide full written disclosure to the borrower in advance.
Section 1031 (1031 Exchange)
A section of the IRS Code that deals with tax free exchanges of certain property.
In lending, the collateral given, deposited, or pledged to secure the payment of a debt.
An agreement in which the owner of a property provides financing, sometimes in combination
with an assumable mortgage.
An organization that collects principal and interest payments from borrowers and manages
borrowers' escrow accounts. The servicer often services mortgages that have been purchased
by an investor in the secondary mortgage market.
Settlement Cost (HUD Guide)
A booklet that provides an overview of the lending process and is required to be given
to consumers after the loan application is completed.
Services provided by the lender at the closing of a loan.
Shared Appreciation Mortgage
A residential loan with a fixed interest rate that is below market, with the lender entitled
to a specified share of appreciation of the property over an agreed upon time interval.
A single family dwelling constructed by a builder in anticipation of finding a buyer.
A special tax imposed on property, individual lots or all property in the neighborhood
to pay for improvements: street lights, sidewalks, toll roads, etc. Also known as
Special Warranty Deed
The grantor does not warrant against title defects arising from conditions that existed
before he/she owned the property. The seller warrants that he/she has done nothing to impair
Standard Uniform Loan Application (FNMA 1003)
A standard loan application widely used in the mortgage industry.
Subject To (purchase Subject To a mortgage)
The buyer agrees to make payments on the existing mortgage, without notifying the lender.
The seller remains liable for making payments on the loan if the buyer does not make the
mortgage payment. The buyer is not personally liable for mortgage payments, but must make
payments to keep the property.
Any mortgage or other lien that has a priority that is lower than that of the first mortgage
(such as a second mortgage).
The measurement and description of land by a registered surveyor.
Value added to a property due to improvements made personally by the owner.
A commitment to provide permanent financing upon completion of construction. The take out
loan normally pays off the construction loan.
Lien for nonpayment of taxes.
Public sale of a property at an auction by a government authority as a result of non-payment
A low initial interest rate on a mortgage.
Tenancy by Entirety
A form of ownership by husband and wife whereby each owns the entire property. In event
of the death of one, the survivor owns the property without probate.
Tenancy in Common
Ownership of a property by 2 or more persons, each of whom has an undivided interest, without
the right of survivorship. Upon the death of one of the owners, the ownership share of
the deceased is inherited by the beneficiary designated on the owner's will.
Tenancy in Severalty
Ownership of property by one person.
The time limit within which a loan must be repaid.
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
A form of property ownership under which a property is held by a number of people, each
with the right of possession for a specified time interval. Time sharing is used mostly
for vacation properties.
The legal evidence of ownership rights to real property.
Title Insurance Policy
A contract in which an insurer, usually a title insurance company, agrees to pay the insured
party a specific amount for any loss caused by defects of title on real estate in which
the insured has an interest as purchaser, mortgagee, or otherwise.
A document indicating the current state of title. The report includes information on the
current ownership, outstanding deeds of trust or mortgages, liens, easements, covenants,
restrictions, and any defects.
An examination of public records to disclose the past and current facts regarding the ownership
of a given piece of real estate.
Residence which normally has 2 or more floors and is attached to other similar units. Town
houses are commonly found in planned unit developments (PUDs) and condominiums.
A parcel of land, generally held for subdividing.
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
Tax paid to the city, county, state or other government entity upon sale of a property.
An index that is used to determine interest rate changes for certain adjustable-rate mortgage
(ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its
Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve,
which is based on the closing market bid yields on actively traded Treasury securities
in the over-the-counter market.
One in which the tenant pays all operating expense of the property. Usually expressed in
cost-per-foot over and above base cost-per-foot. The landlord receives the net rent.
A separate bank account maintained by a broker or escrow company to handle all money collected
by clients. A broker may not co-mingle these funds with his/her own funds.
A fiduciary who holds or controls property for the benefit of another.
A Federal law requiring full disclosure of credit terms using a standard format. This is
intended to facilitate comparisons between the lending terms and financial institutions.
An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven
years of its mortgage term and a different interest rate for the remainder of the amortization
Analysis of risk and setting of an appropriate rate and terms for a mortgage on a given
property for given borrowers.
An ownership right to use and possess a property that is shared among co-owners, with no
one co-owner having exclusive rights to any portion of the property.
Real estate with free and clear title.
Land that has received no development.
A document that transfers title from the grantor to the grantee without recording (i.e.
providing public notice).
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Variable Rate Mortgage
Same as Adjustable Rate Mortgage.
Verification of Deposit (VOD)
A document signed by the borrower's bank or other financial institution verifying the account
balance and history.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her starting date, job title,
salary and probability of continued employment.
Having the right to use a portion of a fund such as an individual retirement fund. For
example, individuals who are 100 percent vested can withdraw all of the funds that are
set aside for them in a retirement fund.
Veterans Administration (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.
Mortgage bankers and other financial institutions make loans that are then periodically
sold on the secondary market. After the loan is made but before it is sold--the loan is
said to be in the lenders warehouse.
A deed conveying the title to a property with a warranty of a clear marketable title.
A loan arrangement whereby the existing loan is retained an a new loan is added to the
property. Example: The seller sells his/her property for $200,000. The buyer puts $80,000
down. The seller has an existing loan balance of $100,000 for a remaining period of 25
years at an interest rate of 6%. The seller then makes a wraparound mortgage to the buyer,
(where the seller acts as a lender) for $120,000 at 8%. The seller has to continue making
payments on his old loan. They buyer has to pay the seller on the new loan. The buyer may
at a later date refinance the property and close both loans.