Mortgage and Finance Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Acceleration: Declaring a loans entire balance due immediately; usually due to default or sale of the property without the lenders approval.

Acceleration Clause: A condition in a security note that allows the lender to pronounce the debt owed due immediately.

Acknowledgement: When a person who has signed a document declares to an authorized official, usually a notary public that he has signed voluntarily.

Adjustable-Rate Mortgage (ARM): A loan where the interest rate is periodically increased or decreased to reflect changes in the cost of money.

Actual Age: The age of a home or structure from a chronological point of view; how many years the structure has actually been in existence.

Effective Age: The age of a home or structure by the standpoint of its condition and remaining usefulness.

Alienation: Transfer of ownership (interest) in property from one person to another.

Alienation Clause: A condition in a security agreement that allows the lender the right to accelerate the loan if a borrower sells the property without the lenders approval.

Amortization: Gradually paying off a loan through installment payments that include principal and interest.

Annual Percentage Rate (APR): The relationship between a loans total finance charge and the total amount financed.

Appraisal: An expert judgment of the value of property on a certain date; based on documented breakdown of the features of the property.

Appraiser: An individual who estimates the value of property based on the property’s features.

Appreciation: An increase in the value of property.

Asset: Anything that a person owns of value.

Liquid Assets: Cash or assets that can be immediately turned into cash.

Assign: Transfer rights or interests to another.

Assignee: The person whose rights have been assigned.

Assignment: A transfer of contractual rights from one person to another.

Assignor: A person who has assigned his rights or interests to another person.

Assumption: A circumstance when a buyer takes on responsibility for payment of the seller’s current or existing mortgage.

Assumptor: A person who assumes a mortgage.

Audit: An examination and verification of financial records.

Vacancy Factor: A percentage deducted from a property’s potential gross income that is likely to be lost due to vacancies of tenants.

Balloon Mortgage: A mortgage loan that requires the borrower to make a balloon payment.

Balloon Payment: A payment of the remaining balance of a loan due at the end of the loan term; a loan payment that is larger than the normal payments.

Beneficiary: The lender in a deed of trust.

Bill of Sale: A document used to transfer ownership and title of personal property.

Bi-Weekly Loan: A loan that requires a payment every two weeks rather then once a month.

Blanket Mortgage: A mortgage that encumbers more than one parcel of property.

Breach: Violation of an obligation or failure to perform on a contractual obligation.

Brokerage Fee: The compensation charged for a real estate brokers services.

Budget Mortgage: A mortgage where monthly payments include part of the property taxes and insurance.

Buydown: When the seller or third party pays a lump sum to lower the interest rate charged to the buyer.

Capital Expenditures: Funds spent on improvements that add to the value of a property.

Certificate of Eligibility: A document issued by the Department of Veterans Affairs that indicates a veteran’s eligibility for a VA loan.

Certificate of Sale: A document given at a sheriff’s sale to a buyer.

Closed Mortgage: a loan that cannot be paid off early.

Closing: The final stage in a real estate transaction that transfers ownership.

Closing Costs: Expenses incurred in the closing of a real estate transaction; not to include the purchase price but does include things such as: appraisal fee, title insurance, brokerage fees and transfer fees.

Co-Borrower: A person who is held jointly liable for the repayment of a loan along with the primary borrower.

Collateral: Property accepted by a lender as security for a loan.

Commission: The compensation paid to a real estate agent or broker for services rendered.

Commitment: A lenders agreement to make a loan.

Conditional Commitment: An approval of a loan that requires certain conditions be fulfilled before final approval.

Firm Commitment: An approval of a loan without any conditions.

Comparables: Properties that are used in an appraisal that is similar to the subject property that have recently sold.

Comparative Market Analysis (CMA): The estimate of value of a property by a real estate agent; based on similar properties that are listed or have sold.

Condition: A stipulation that makes the parties’ obligations dependant on the occurrence of a particular event.

Conforming Loan: A loan made in accordance with standard underwriting circumstances of major agencies such as Fannie Mae and Freddie Mac.

Consideration: Something of value given to another to enter into a contract.

Construction Loan: A loan used to finance the construction of a building or house.

Contract Rent: The rent an owner is currently receiving from a property.

Conventional Loan: A loan that is not insured by a government agency.

Convertible ARM: An adjustable rate loan that allows the borrower to convert the loan to a fixed rate loan.

Credit Report: A report prepared by a credit reporting agency outlining the credit history of an individual.

Credit Score: A number or figure calculated by a credit reporting agency that is used to evaluate a loan applicant’s credit history.

Debt to Income Ratio: A ratio of total obligations to income.

Deduction: The amount that is allowed to be subtracted from a taxpayer’s income.

Deed of Reconveyance: A document that states a deed of trust has been paid in full, releasing the security from the loan.

Deed of Trust: Similar to a mortgage, a security instrument giving power of sale to a third party.

Default: Failure to make payments on a loan.

Deferred Maintenance: Depreciation from physical wear and tear.

Deficiency Judgment: A court order against a borrower to pay the creditor the difference between the amount of the debt and the proceeds received from a foreclosure sale.

Deposit: Money offered as a commitment such as earnest money or a tenant’s security deposit.

Depreciation: A loss in value due to any cause.

Downpayment: Part of the purchase price that the buyer is not borrowing.

Earnest Money: A deposit that a buyer gives the seller as evidence of good faith to complete the purchase.

Effective Income: The loan applicants gross monthly income from all sources that can be anticipated to carry on.

Encumber: to place a lien against the title to a property.

Encumbrance: A right or interest held by someone other than the property owner.

Equal Credit Opportunity Act: A federal law that prohibits discrimination by lenders on the basis of race, color, national origin, religion, sex, age, marital status, or whether income comes from public assistance.

Equity: The difference between the property’s value and outstanding liens.

Escrow: A system where parties of a transaction can have a neutral third party hold valuable such as money or documents until conditions have been met.

Execute: To sign an instrument; to perform or complete.

Order of Execution: A court order to seize and sell property to satisfy a debt.

Fixed Expenses: Recurring expenses such as real estate taxes and insurance/

Variable Expenses: Expenses incurred with property that do not occur on a set schedule.

External Obsolescence: Depreciation due to factors outside the property or property owners control; such as air pollution.

Fair Housing Act: A federal law prohibiting discrimination on the basis of race, color, national origin, sex, religion, disability or familial status.

Federal Deficit: An occurrence when the federal government spends more money than it collects.

Federal Housing Administration: An agency that provides mortgage insurance to encourage lenders to make more affordable home loans.

Fee Packing: When a lender charges point or fees that are higher than usual for services provided.

Finance Charge: Any charge to a borrower in connection with a loan.

Financial Statement: A summary of the financial condition of an individual or business that includes assets and liabilities.

First Lien Position: The position of a lien that has higher priority over other liens.

First Mortgage: The mortgage against a property that has first lien position.

Fixed-Rate Loan: A mortgage loan where the rates remains unchanged throughout the life of the loan.

Fixture: An item that has been attached to property that becomes a part of the property.

Foreclosure: When a lien holder forces a property to be sold.

Free and Clear Ownership: Ownership free of any mortgage liens.

Fully Amortized Loan: A loan set so that the balance is paid off at the end of the loan term.

Functional Obsolescence: Depreciation that results from poor design.

Garnishment: A process in which a creditor can access funds of a debtor.

Gift Funds: Money given to a borrower as a gift towards closing; usually when a borrower would not have enough funds to close.

Gift Letter: A statement from a money donor that states the funds given to the borrower is not a loan and does not need to be repaid.

Graduated Payment Mortgage: A loan where the payments are increased periodically during the first years of a loan.

Grantor: The borrower in a deed of trust.

Gross Income: Income before taxes are deducted.

Hazard Insurance: Insurance against property due to fire, flood or other hazards.

Home Equity Loan: A loan using property that is already owned or using the equity in a home.

Homeowners Association: An association made up of homeowners in a development that is responsible for enforcing covenants and rules.

Homeowners Insurance: Insurance that protects against damage to personal and real property.

Income Property: A property that generates income for the owner, such as a duplex or apartment complex.

Index: A statistical report that indicates changes in the cost of money.

Instrument: A legal document.

Interest: The charge a lender charges in exchange for loaning funds.

Compound Interest: Interest that is calculated as a percentage of principal and unpaid interest.

Deferred Interest: Interest that accumulates over a period of time but is not payable until later time.

Prepaid Interest: Interest on a loan that must be paid at closing.

Interest-Only Loan: A loan where payments consist of only interest.

Interest-Rate Cap: A provision in an ARM loan that limits the amount an interest rate may be increased.

Junior Lien holder: A creditor who has lower priority than another lien holder.

Land Contract: A contract in which the buyer makes payments to the seller; also known as an owner contract.

Lease: A contract where one party pays the owner of a property for use and possession of property.

Lease Option: A lease that allows the opportunity to purchase the leased property.

Liability: Debt or obligation.

Lien: A financial encumbrance on the owner’s title.

Lien holder: A creditor who has a lien against property.

Loan Fee: A one time fee that a lender will charge for loan processing.

Loan to Value Ratio: The relationship between the loan amount and the sales price.

Lock-In: When a lender guarantees a particular interest rate.

Lock In Clause: A passage that prohibits prepayment of a loan before a set date.

Margin: The difference in the index rate and interest rate charged in an ARM loan.

Market Price: The price in which a property is actually sold.

Market Value: The most plausible price a property should bring.

Mortgage: An instrument creating a lien on a property used to secure repayment of debt.

Mortgage Banker: A party that originates and services loans on behalf of investors.

Mortgage Broker: A party that negotiates loan agreements between lenders and borrowers.

Mortgagee: The party that receives a mortgage; the lender.

Mortgage Insurance: Insurance that will reimburse the lender for loss due to a default.

Mortgage Payment Cap: In an ARM loan, a provision that limits the amount a payment can be increased.

Negative Amortization: When deferred interest is added to the principal balance increasing the amount owed.

Net Equity: The value of property subtracting any liens and selling expenses.

Nonconforming Loan: A loan that does not meet guidelines set by Fannie Mae or Freddie Mac.

Promissory Note: A legal, written promise to repay a debt.

Origination: The process of funding and approving a loan.

Origination Fee: The fee charged by a lender that covers administration costs of making a loan.

Package Mortgage: A loan that is secured by real property and personal property.

Partially Amortized Loan: A loan that includes principal and interest payments but does not pay off the loan at the end of the term.

Personal Property: Items that are not real property; something that is not attached to the land.

Physical Life: The amount of time a building or home will stay structurally sound and capable of being used.

PITI Payment: Monthly mortgage payment that includes principal, interest, taxes and insurance.

Points: A discount fee paid to the lender.

Pre-approval: Loan approval from a lender stating the maximum amount a lender is willing to loan.

Predatory Lending: Practices of lending where lenders take advantage of borrowers for a profit.

Pre-payment: Paying off all or part of a loan.

Pre-payment Penalty: A fee that is charged to a borrower for paying off a loan before a set date by the lender.

Prequalification: Loan approval that “suggests” a loan amount that a lender may be willing to loan to a borrower.

Principal: The original amount of a loan.

Principal: One of the parties to a transaction.

Principal Residence: A property that is the owner’s main dwelling.

Proration: Dividing something according to time, interest or benefit.

Purchase and Sales Agreement: A contract between a buyer and seller of real property.

Redlining: When a lender refuses to make a loan in certain neighborhoods because of race or ethnic backgrounds.

Repayment Period: The amount of time, usually in years, in which the borrower will make payments on a loan.

Reverse Equity Mortgage: An agreement in which a homeowner uses their home in exchange for monthly payments from a lender.

Seller Financing: An agreement between a buyer and seller in which the seller extends credit for the buyer to make payments to the seller instead of using a third party lender.

Seller Second: A loan made by the seller of property to the borrower in conjunction with an institutional loan.

Subject Property: In an appraisal, the property being appraised.

Term: An allotted amount of time in which a borrower pays off a loan.

Truth in Lending Act: A federal law that requires lenders to disclose loan costs to borrowers.

Underwriter: An employee of a lender that evaluates applications and decides which loans to approve.

VA: Department of Veterans Affairs.

VA Entitlement: The VA guaranty amount that a veteran is entitled to.

VA Guaranteed Loan: A loan made to an eligible veteran by an institutional lender that is backed and guaranteed by the Department of Veterans Affairs.

Verification of Deposit: A form that a lender submits to a financial institution to confirm that an applicant has sufficient funds on hand.

Wraparound Mortgage: An arrangement with a seller in which the seller uses part of the payments from a buyer to make the payments on an existing loan.