A

Acceleration
The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

This latter is, of course, the opposite of the Santa Claus.

Additional principal payment
A payment made by a borrower of more than the scheduled principal amount due. You might do this if you want to more quickly reduce the remaining balance owed.

Adjustable rate mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
 
Adjusted basis
The original cost of a property, plus the value of any capital expenditures for improvements, minus any depreciation.

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

Adjustment interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment -- typically one, three or five years, depending on the index.

Affordability analysis
A detailed analysis of your ability to buy a home. This includes your income, holdings, and debts. It may also include the type of mortgage you plan to use, the location of the home, and your closing costs.

Agent
An individual who represents a seller, a buyer or both in the purchase or sale of real estate.

Amenity
A nice feature of the house, but something which isn't crucial to the house's very existence. A roof, for instance, is not an amenity; it's a necessity. An amenity might be a lovely view of the sunset over the ocean, or a swimming pool or tennis court.

Amortization
The period of time during which you will owe interest and principal to your lender.

Amortization
The schedule of loan payments that establishes the amount of payment to be applied to the principal and the amount to be applied to interest, usually on a monthly basis, for the full term of the loan.

Amortization Means
Regular loan payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Amortization Schedule
A schedule that provides a breakdown of the principal and interest payments, and the amount outstanding at any given point during the amortization period.

Amortize
To repay a mortgage with regular payments, both the principal due and the interest.

Annual membership or participation fee
An amount that is charged annually for having the line of credit available. It is charged regardless of whether or not you use the line.

Annual percentage rate (A.P.R.)
An interest rate reflecting the cost of a mortgage as a yearly rate.
This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Application
A form used to apply for a loan, on which you'll put relevant information about yourself. Also refers to the whole process of applying for a loan. Or, for that matter, of applying to college (but that's a different story entirely).

Appraisal
An estimate of value of a Real Estate property by a professional third party. Virtually all non-owner financed mortgages will require an appraisal and is generally paid for by the buyer.

Appraised value
An opinion of a property's fair market value, given by an appraiser, whose job it is to evaluate such things.

Appreciation
An increase in the value of a property due to changes in market conditions, or for other reasons. The opposite of depreciation.

Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assessment rolls
The public record of taxable property. Not something you eat with butter and jam.

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

Asset
Anything with a dollar value that you own. Your assets are tallied up when the bank is trying to figure out what it can afford to lend you.

Assignment
The transfer of a mortgage from one individual to another. This isn't always allowed.

Assumable mortgage
A mortgage (on a home) that can be taken over by the buyer of the home.

Assumption
The agreement between buyer and seller in which the buyer takes over the payments on an existing mortgage from the seller.

Assuming a loan can usually save the buyer money, since this is an existing mortgage debt, unlike a new mortgage where closing costs as well as new, possibly higher, market-rate interest charges may apply.

Assumption fee
Fee usually paid by the buyer to a lender if the buyer assumes, or takes on, an existing mortgage.
 


B

Back-end ratio, or debt ratio
The amount you pay in monthly debt (credit cards, student loans, etc.) divided by your gross monthly income.

Balloon (payment) mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time, and one large payment for the remaining amount of the principal at a time specified in the contract.

Betterment
An improvement that increases property value, as distinct from repairs that simply maintain value. It's an upgrade, not just upkeep.

Bill of sale
a written document that transfers title to the property.

Binder
A preliminary agreement, secured by an earnest money deposit, through which the buyer offers to purchase the home.

Biweekly payment mortgage
A mortgage that requires payments to be made every two weeks (instead of monthly).

Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.

Blended Payments
payments placed in an osterizer and mixed until all the lumps are gone. Er... just kidding. Actually, it's a repayment method by which the same amount is paid each month, but the composition of the interest and principal changes with each payment. With each payment, the amount allocated to the principal increases as the amount allocated to interest decreases. Most mortgages use blended payments because it provides a consistent monthly payment amount for the borrower.

Blockbusting
The attempt to induce someone to sell their home because someone from a protected class is rumored to be moving into the neighborhood. The classic example of this would be a real estate agent passing out her card to neighbors while telling them that a minority family is moving in down the block and they should sell now before the neighborhood gets any worse. This is illegal.

Bona fide
In good faith, real, not fraudulent. We think this is a Latin phrase, but it may also have something to do with a dog.

Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage, with the intention of repaying the loan in full. If you don't have the intention to repay the loan, then there are other terms that you might not want to see applied to you: crook, deadbeat, scam artist, fugitive from justice, etc.

Breach
A violation of any legal obligation. Not to be confused with Henry V -- "Once more unto the breach, dear friends!"

Broker
1) an individual in the business of helping to arrange funding or negotiating contracts for a client, but who does not loan the money himself. This is a mortgage broker; mortgage brokers usually charge a fee or receive a commission for their services.

2) Someone who helps you find a house and charges a fee for their services as well. This is a real estate broker; the term is usually synonymous with real estate agent, although there are, technically, differences.

Building code
Local regulations having to do with design and construction of a building. This means, of course, that it's not OK to build a house made of oatmeal, no matter what that builder may tell you.

Buy-down
The lender and/or the home builder subsidize the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Buyer's Agent
A Real Estate Agent that has made an agreement to represent the buyer exclusively, rather than the seller.
 


C

Call option We're not talking stocks here. It's a clause your mortgage that gives the lender the right to 'call' the mortgage due and payable at the end of a given length of time, for whatever reason. In other words, you've got to come up with all the money owed at that time, and repay the lender.

Capital expenditure
The cost of an improvement made either to lengthen the useful life of a property or to add value to it. It's a fancy term for the money you pony up for improvements. See also capital improvement.

Capital improvement
Any structure which is a permanent improvement to the property.

Caps (interest)
Consumer safeguards which limit the amount that the interest rate on an adjustable rate mortgage may change per year and/or during the life of the loan.

Caps (payment)
Consumer safeguards which limit the amount that monthly payments on an adjustable rate mortgage may change.

Cash Flow
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 (including mortgage payment, maintenance, utilities, etc.)

Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility.

Certificate of Reasonable Value (CRV)
an appraisal issued by the Veterans Administration showing the property's current market value.

Certificate of title
A statement which confirms that the title to the house is legally held by the current owner. This is important, because you don't want to buy something from someone who doesn't really own it, now do you?

Certificate of Veteran Status
the document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD-214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA-insured loans.

Chain of title
The history of all of the documents that transfer title to a a piece of real estate. Think of it as being a genealogy for the home since it was built.

Change frequency
The frequency of payment and/or interest rate changes in an adjustable-rate mortgage (ARM). Generally expressed in months.

Chattel
Another name for personal property. You've probably heard the expression 'goods and chattels.' Meet 'chattels.'

Clear title
A title that is free of liens. You've probably heard of 'you own it free and clear.' Meet 'clear.' See also cloud on title.

Closing
the meeting between the buyer, seller and lender or their agents at which the property and funds legally change hands. Also called 'settlement.' See also Closing Costs.

Closing costs
Expenses incurred by buyers and sellers in transferring ownership of a property. These may include an origination fee, taxes, the costs of obtaining title insurance, transfer fees, etc. They can often total several, or many, thousands of dollars.

Cloud on title
anything found by the title search which indicates that the property is not owned free and clear by the purported owner.

This can take you right off Cloud Nine.

Collateral
An asset (such as a car or a home) that can be used to guarantee the repayment of a loan. You, the borrower, risk losing that asset if the loan is not repaid in a timely fashion.

Collection
The process of forcing a borrower to pay what he owes on a loan and,if it comes to that, to proceed with foreclosure.

Commitment
A promise by a lender to make a loan, on specific terms or conditions, to a borrower or builder. It can also be a promise by an investor to purchase mortgages from a lender with specific terms or conditions.

It can also be the agreement (or, in its absence, the refusal) to engage in a long-term relationship with someone with whom you may or may not be in love. There are no easy answers here. However (OK, we'll continue this digression) you might consider the old 80/20 rule: if it's really good 80% of the time, it's probably love, and you might as well commit.

 Comparable Market Analysis (CMA)--A comparison of the prices of similar houses in the same general geographic area. A CMA is used to help determine the value of a property, either for a seller or a buyer.

Condominium
A building or group of buildings in which each unit owner has title to a specific unit. They may also have the exclusive use of certain common areas. See Also co-op.

Construction loan (or interim loan)
A loan to provide the funds necessary to pay for the construction of buildings or homes. The lender advances funds to the builder at periodic intervals as the work progresses.

Contingency
A specified condition that must be met before a contract is legally binding. The two most common contingencies in home purchasing are that 1) the house must pass the home inspection, and 2) the borrower must get the loan.

Contract sale or deed
A contract between a buyer and a seller which conveys title after certain conditions have been met. It is a form of installment sale.

Conventional loan

A mortgage not insured by the FHA or guaranteed by the VA.

Convertibility clause
A clause in certain adjustable-rate mortgages (ARMs) which permit the borrower to switch to a fixed-rate mortgage at specified time. Not to be confused with Mustang Convertible.

Cooperative (co-op)
The residents of this type of housing complex own shares in the cooperative corporation that owns the property, and each has the right to occupy a specific dwelling. They don't actually own the dwelling; they own shares in the corporation.

Cost of funds index (COFI)
The weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. It's an index used, not surprisingly, for the type of ARMs known as COFI loans. It's a slow-moving index, but often these types of ARMs have no caps.

Credit limit
The maximum amount that you can borrow.

Credit Report
A report documenting the credit history and current status of a borrower's credit standing.

If there are debts you owe which you never paid, or times in which you've been delinquent in paying, these items will presumably show up on your credit report and can hurt your chances of getting approved for a loan.
 


D

Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See housing expenses-to-income ratio.

Deed of trust
In many states, this document is used in place of a mortgage to secure the payment of a note.

Default
Failure to meet legal obligations in a contract; specifically, failure to make the monthly payments on a mortgage. If this happens, you can end up losing the house.

Deferred interest
When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See also negative amortization.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

Depreciation
A decline in the value of property over time.

Discrimination in Advertising
Any printed or published material that uses words, no matter how subtle, that are of a discriminatory nature aren't allowed by HUD. Some of the examples that HUD gives are "adult building, Jewish home, restricted, private, integrated, or traditional."

Down payment
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on conventional loans.

Due-On-Interest
A clause inserted in a mortgage that allows the lender, at its option, to call the loan due and payable upon the transfer of the property.

Also known as "paragraph 17" in FNMA/FHLMC mortgages.

Due-on-Sale-Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
 


E

Earnest Money
Money given by a buyer to a seller as part of the purchase price, in order to bind a transaction or to assure payment.

Easement
A right of way giving people other than the owner access to a property. If there is one of these on the house you're considering, make sure you understand what it is, or you may have troops of 1953 alien-landing devotees plodding through your back yard on the way to that sacred corn field just next door.

Encroachment
1) An improvement that intrudes illegally on someone else's property. 2) defensive lineman getting overanxious in a football game.

Encumbrance
Anything which limits the title to a property, such as leases, mortgages, easements, or other restrictions.

Entitlement
The VA home loan benefit is known as entitlement. It is also known as eligibility.

Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity
The value an owner has in real estate over and above the obligation against the property. In other words, that portion of the property which the owner actually owns, having already paid for it. (It's also referred to as the owner's interest.)

If a homeowner owns a house valued at $200,000.00 and has a mortgage of $50,000.00, the homeowner's equity is $150,000.00 (the value less the mortgage). As the value of the house increases or decreases, the homeowner's equity increases or decreases accordingly. The lender's equity is always equal to the value of the outstanding loan.

Escrow--Funds held in reserve both prior to closing (for example the earnest money and deposit) by a third party and after closing by the mortgage company to pay future taxes and homeowners insurance. In some areas, "escrow" also refers to the closing process.

F

Fannie Mae
(see Federal National Mortgage Association)

Farmers Home Administration (FmHA)
Organization which provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Bank Board (FHLBB)
A regulatory and supervisory agency for federally chartered savings institutions.

Federal Home Loan Mortgage Corporation (FHLMC), or "Freddie Mac"
A quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA), or "Fannie Mae"
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA loan
a loan insured by the Federal Housing Administration, open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.

FHA mortgage insurance
a way of insuring an FHA loan, this insurance requires a small fee (up to 3.8 percent of the loan amount) paid at closing, or a portion of this fee added to each monthly payment of an FHA loan. On a 9.5 percent $75,000 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

FHLMC
The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."

Firm commitment
The agreement by a lender to make a loan to a specific borrower for a specific property.

Firm Commitment
A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

First mortgage
The mortgage which is the primary lien against a property.

Fixed Rate Mortgage--A mortgage loan where the interest rate is established at its origination and continues unchanged through the life of the loan. 

Foreclosure
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Freddie Mac
See FHMLC, or Federal Home Loan Mortgage Corporation.

Front-end ratio
Your prospective monthly mortgage payments divided by your gross monthly income. This comes out to a percentage, and a lender uses this percentage to get an idea of how much of your income will be going to pay your loan. If they like the number (say, below 29%) then they will be more inclined to sell you the loan.

FSBO (For Sale By Owner)
Real Estate that is sold without the assistance of an Agent. FSBO can refer to both the individual selling the property "They are a FSBO," or the property itself "that house is a FSBO."

 
G

Ginnie Mae
(see Government National Mortgage Association

Government mortgage
A mortgage insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS).

Government National Mortgage Association (GNMA), or Ginnie Mae
Provides sources of funds for residential mortgage, insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Guarantee mortgage
A mortgage that is guaranteed by a third party.

Guaranteed loan
Another term for 'government mortgage.

Guaranty
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.


H

Hazard Insurance
a form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Home equity line of credit
A loan against the amount of equity you may have in a property.

Home inspection
A complete and thorough inspection of the physical condition of a property, including all major systems and structural elements. It's conducted by someone who knows what to look for, and who will inform you of what he finds. If he turns up something you don't like and which the seller refuses to repair, you don't proceed with the purchase of the home.

Homeowner's Association
An owners group, whether in a condominium, townhouse or single family subdivision that establishes general guidelines for the operation of the community, as well as its standards.

Homeowner's insurance
An insurance policy, required when you take ownership, that combines personal liability insurance and hazard insurance for the home as well as its contents.

Homeowner's warranty
A warranty which will cover repairs to specified parts of a house for a specific period of time. It is provided by the seller (or, if the place is new, the builder) as a condition of the sale.

Hot Market
A market in which houses are selling fast. Otherwise known as a 'seller's market' -- the seller is going to sell their house at very close to the asking price, since there's a lot of demand.

Housing Expenses-to-Income Ratio
the ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See debt-to-income ratio.

HUD-1 statement
A document which sets forth an itemized listing of whatever costs must be paid at closing, such as real estate commissions, loan fees, points, and initial escrow amounts. It's also known as the "closing statement" or "settlement sheet."


I

Impound
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 reserves.

Index
a published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments. These other investments may include one-, three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans. This information is then used to adjust the interest rate on an adjustable mortgage up or down.

Initial interest rate
The interest rate of the mortgage at the time of closing. This rate will change for an adjustable-rate mortgage (ARM). Also known as the "start rate" or "teaser."

Inspection
A whole house inspection of a home being considered for purchase which looks for defects in the property.

Interest
The amount of money, expressed as a percentage of the principal, charged for the use of the money borrowed.

Interest Adjustment
If the closing (the date on which the buyer takes possession of the property) occurs at a time of the month other than the date on which the mortgage payment is due, the borrower will pay an amount to cover interest from the "interest adjustment date."

Interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum rate to which your loan can climb.

Interest rate floor
For an adjustable-rate mortgage (ARM), the minimum interest rate to which your loan can sink.

Interim Financing
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion of the project.

Investor
A money source for a lender.


J

Jumbo Loan
A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
 


L

Late charge
The penalty that must be paid by the borrower when a payment is late. This must be spelled out; make sure you know when you would incur such a charge.

Lease-purchase mortgage loan
A financing option for low- and moderate-income home buyers, by which they can lease a home, with an option to buy, from a nonprofit organization. Each month's rent payment consists of principal, interest, taxes and insurance, plus an extra amount that is sent to a savings account in order to accumulate money for a down payment.

Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Listing
A property for sale by a Real Estate Brokerage and Agent.

Listing Price
The price at which the house is listed; the asking price.

Loan-to-Value Ratio (LTV)
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock-in
A written agreement from the lender to offer a specified interest rate if the mortgage goes to closing within a set period of time.
 


M

Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Maturity
The date on which the principal balance of a loan is due and payable.

Minimum payment
The minimum amount that you must pay (usually monthly).

MLS (Multiple Listing Service)
A listing (almost always computerized) of all the properties for sale by Real Estate Brokerages in a given geographical area.

Mortgage
A legal contract that is registered against the title to a property in order to guarantee that a loan will be repaid.

Mortgage banker
A company or loan officer at a bank that originates mortgages for resale in the secondary mortgage market.

Mortgage broker
A person or company that offers loans to borrowers from numerous sources; they're generally paid a commission for their services.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

Mortgage Insurance Premium (MIP)
The one-half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. On September 1, 1983, the MIP was changed to a one-time charge to the borrowers.

Mortgagee
The lender.

Mortgagor
The borrower or homeowner.
 

N

Negative Amortization
Something which occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The home buyer ends up owing more than the original amount of the loan.

Negotiable Rate Mortgage (RBM)
A loan in which the interest rate is adjusted periodically. (See adjustable rate mortgage.)

Net Effective Income
The borrower's gross income minus federal income tax.

No-doc loan
A loan requiring very little loan documentation. The borrower generally puts down a sizable down payment, usually at least 25%. These loans tend to be more common among self-employed people (those who have enough for the down payment) whose tax returns might indicate earnings substantially less than what would otherwise be acceptable to the lender.

Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Note
The signed obligation to pay a debt, as a mortgage note.


O

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property, usually computed as a percentage of the face value of the loan.


P

Permanent Loan
A long-term mortgage, usually ten years or more. Also called an "end loan."

PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Pledged account mortgage (PAM)
Money is placed in a pledged savings account and this fund, plus earned interest, is gradually used to reduce mortgage payments.

Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Prepaid Expenses
Money necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment
A privilege in a mortgage which permits the borrower to make payments in advance of their due date.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Pre qualification
The first stage of a mortgage application where the lender will run a basic credit report and determine your debt to income ratio in order to see how much mortgage you qualify for.

Primary Mortgage Market
Lenders making mortgage loans directly to borrowers such as savings and loan association, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
in the event that you do not have a 20 percent down payment, lenders will allow a smaller one - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on you loan's structure.

On a $75,000 house with a 10 percent down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

Property Tax--An annual or semi-annual tax paid to one or more governmental jurisdictions based on the amount of the property assessment. Generally paid as part of the mortgage payment. 


R

Radon
A radioactive gas which seeps up from the ground. It may be found in some homes, and if it is in sufficient concentration, then it can cause health problems. A radon test is often part of the home inspection.

Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract (in some cases) once it is signed, if the transaction uses equity in the home as security.

Recording
The act of entering deed and/or mortgage information into public record with your local government jurisdiction.

Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

If you're in the recording studio singing your heart out, then 'recording fees' no doubt refers to something else entirely.

Redlining
The illegal practice of refusing to make mortgages or issue insurance policies in specific areas for reasons other than the economic qualifications of the applicant.

Refinance
Obtaining a new mortgage loan on a property already owned, often to replace existing loans on the property.

RESPA
The Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as collateral.


S

Sale Price
The price at which the house actually sold. By noting the difference between the sale price and the listing price in houses that have recently sold, comparable to the one you're interested in, you can get an idea of how much below the asking price you might be able to offer.

Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."

Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary Mortgage Market
The market in which primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.

Security interest
an interest that a lender takes in the borrower's property to assure repayment of a debt.

Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement/Settlement Costs
See closing/closing costs.

Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property.

It may also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.

Simple Interest
Interest which is computed only on the principal balance.

Soft Market
A market where not much is selling, the sales price is likely to be significantly lower than the asking (listing) price. So, the price is 'soft' -- you can push it down, like a squishy sponge.

Steering
The effort to maneuver home buyers into, or away from, a particular area of town because they won't "fit in." Telling a white couple, "You don't want to live in Mount Pleasant because that's where all the Latinos are" is an example. Or not telling a black family that a house that would otherwise be perfect for them is available in an all-white neighborhood. Both of these are illegal.

Sub-Agent
A Real Estate Agent who is working with a buyer but who represents the seller in the transaction.

Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

Sweat Equity
Equity created by a purchaser performing work on a property being purchased. The idea is that you're improving the property through all the sweaty work you're putting into it.


T

Term
The life span of the contract to repay a loan.

Don't confuse "term" with "amortization." The term can be 6 months to 10 years. For example, a mortgage that is amortized over 20 years might have a 5-year term. At the end of 5 years the mortgage will mature. However, because the loan is amortized over 20 years, there will still be money owed on the loan. (This is sometimes referred to as a "balloon" mortgage). The borrower can either renew the loan, refinance it with another lender, or pay it off completely.

Term mortgage
See balloon payment mortgage.

Title
A document that gives evidence of an individual's ownership of property.

Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is us ally a function of the value of the property, and is often borne by the purchaser and/or seller.

Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Transaction fee
A fee charged each time you draw on your credit line.

Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan.

Two-Step Mortgage
Mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. also called "Super Seven" or "Premier" mortgage.


U

Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

Usury
Interest charged in excess of the legal rate established by law.


V

VA Loan
A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.


W

Warranty--Covers either most of the house in a new home, or selected items (for example the heating and air conditioning system or the water heater) in a used home. Warranties can vary widely and are optional in used homes (paid for by either the buyer or the seller).

Z

Zoning--Laws that govern specifically how a zoned area can be used. For example, an area may be zoned for single family residential, condominiums, commercial or retail, or a mix of two or more uses.