Housing Glossary

Acceleration Clause A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Adjustable-Rate-Mortgage (ARM)  A mortgage whose interest rate changes over time based on an index.

Amortization The gradual repayment of a mortgage by installments.

Amortization schedule  A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

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

Appraisal A professional opinion of the market value of a property.

Appreciation An increase in the value of a house due to changes in market conditions or other causes.

Assessed Value  The valuation placed upon property by a public tax assessor for purposes of taxation.

Assumable Mortgage  A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

Assumption The transfer of the seller's existing mortgage to the buyer.

Binder  A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.

Cap  A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

Cash Reserve A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.

Clear Title  A title that is free of leins and legal questions as to ownership of the property.

Closing The occasion where a sale is finalized; the buyer signs the mortgage, and the closing costs are paid.  Also called a "settlement".

Closing Costs  Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property.  Also called "settlement costs".

Commitment Letter  A formal offer by a lender stating the terms under which it agrees to loan money to a home buyer.

Community Home-Buyer's Program  An alternative financing option that allows households of modest means to qualify for mortgages using non-traditional credit histories; 33 percent housing-to-income and 38 percent debt-to-income ratios, and the waiver of the usual two payment cash reserve at closing.

Community Home Improvement Mortgage Loan  An alternative financing option that allows low and moderate income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs.

Community Land Trust Mortgage Loan  An alternative financing option that enables low and moderate income home buyers to purchase housing that has been improved by a non-profit Community Land Trust, and to lease the land on which the property stands.

Condominium  A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest m common areas of a multi-unit project.

Contingency  A condition that must be met before a contract is legally binding.

Conventional Mortgage  Any mortgage that is not insured or guaranteed by the federal government.

Convertible ARM  An adjustable-rate mortgage that can be converted into a fixed rate mortgage under specified conditions.

Cooperative  A form of common property ownership in which the residents of an apartment building do not own their units, but rather own shares m the corporation that owns the property.

Covenant A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

Credit Report A report of an individual's credit history prepared by a credit bureau, and used by a lender in determining a loan applicants credit worthiness.

Deed The legal document conveying title to a property.

Deed of Trust  The deed used in some states instead of-a mortgage; title is conveyed to a trustee rather than to the borrower.

Default Failure to make mortgage payments on a timely basis or comply with other conditions of a mortgage.

Delinquency A loan in which a payment is overdue but not yet in default .

Deposit Cash paid to the seller when a formal sales contract is signed.

Depreciation A decline in the value of property; the opposite of "appreciation".

Discount Points  See "points".

Down Payment  The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

Due-on-Sale Clause  A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

Earnest Money  A deposit given to the seller to show that a prospective buyer is serious about buying the house.

Easement  A right of way giving persons other than the owner access to or over a property.

Equal Credit Opportunity Act (ECOA) A federal law that prohibits lenders from denying mortgages on the basis of the borrowers race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

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

Equity Loan  A loan based on the borrower's equity in his or her home.

Escrow The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

Fair Credit Reporting Act  A consumer protection law that sets up a procedure for correcting mistakes on one's credit record.

Federal Home Loan Mortgage Corporation (FHLMC) “Freddie Mac” Stockholder-owned Corporation that supports the secondary market by purchasing blocks of mortgage loans.

Federal Housing Administration (FHA)  Federal agency within HUD that provides insurance for mortgage loans, sets certain standards.

Federal National Mortgage Association (FNMA) “Fannie Mae” Privately owned corporation; Part of secondary market that purchases mortgages and sells mortgages-backed securities.

FHA Loan  A mortgage that is insured by the Federal Housing Administration

First Mortgage The mortgage that has the first claim in the event of a default.

Fixed-Rate Mortgage  A mortgage in which the interest rate does not change during the entire term of the mortgage.

Fixed Rate Mortgage  A mortgage in which the interest rate does not change during the entire term of the mortgage.

Flood Insurance Insurance required for properties in federally designated flood areas.

Forbearance  The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

Foreclosure  The process by which a mortgaged property may be sold when a mortgage is in default.

Good Faith Estimate  Estimate of all closing costs required by RESPA.

Government National Mortgage Association (GNMA) Government agency created in 1968; Insures mortgage-backed securities based on FHA and VA loans.

Graduated Payment Mortgage A mortgage that starts with low monthly payments that increase at a predetermined rate.

Hazard Insurance Insurance  to protect the homeowner and the lender against physical damage to a property  from fire, wind, vandalism,  or other hazards.

Homeowner’s Policy  Multiple peril insurance policy available to owners which covers dwelling, contents, and personal liability.

Homeowner's Warranty  A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Housing Finance Agency (HFA)  State or local agency responsible for financing of housing and Administration of housing programs.

HUD  (Department of Housing and Urban Development) Government agency responsible for implementation and  administration of housing and urban development programs.

Inspector  One who exams property for deficiencies, required repairs.

Interest   The fee charged for borrowing money.

Investor  Person or institution investing in mortgages or mortgage backed securities.

Interest Rate Cap A provision of an ARM limiting how much interest rates may increase per adjustment period.  See also "lifetime cap."

Joint Tenancy A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Late Charge The penalty a borrower must pay when a payment is made after the due date.

Lease-Purchase Mortgage Loan An alternative financing option that allows low and moderate income home buyers to lease a home from a non-profit organization with an option to buy, and with each month’s  rent consisting  of PITI payments on the first  mortgage, plus an extra amount that is earmarked for a savings account in which money for a down payment accumulates.

Lien A legal claim against a property that must be paid when the property  is sold.

Lifetime Cap A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Listing Agreement   Contract between owner and real estate broker for purpose of marketing property to find buyer and for which service owner agrees to pay commission.

Loan Commitment See "Commitment letter.”

Loan Servicing The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan Origination Fee  A fee that covers the administrative cost of processing the loan.

Loan-to-Value Ratio (LTV) The relationship between the amount of a mortgage and the total value of the property.

Lock-in A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed in a set period of time.  The lock-in also usually specifies the number of points to be paid at closing.

Margin The set percentage the lender adds to the index rate to determine the interest rate of an ARM.

Mortgage A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage-backed Securities (MBS)   Investment instrument backed by mortgage loans as security; income from mortgages used to pay interest and principal on the securities.

Mortgage Banker A company that originates mortgages exclusively for resale on the secondary market.

Mortgage Broker A company that, for a fee, matches borrowers with lenders.

Mortgagee   Lender in mortgage loan transaction.

Mortgagor Borrower in mortgage loan transaction.

Mortgage Insurance See "Private Mortgage Insurance”

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

Mortgage Note  A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.

Negative Amortization   Payment terms under which the borrower’s monthly payments do not cover the interest due; as a result, the loan balance increases.

Notice of Default A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Origination Fee A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount or points.

Owner Financing A purchase in which the seller provides all or part of the financing.

Payment Cap A provision of some ARMs limiting how much a borrower's payments may increase regardless of how much the interest rate increases; may result in negative amortization.

PITI Stands for principal interest, taxes, and insurance - the components of a monthly mortgage payment.

Points  A one-time charge by the lender to increase the yield of a loan; a point is 1 percent of the amount of the mortgage and should decrease your interest rate.

Pre-Approval The process of applying for a loan and obtaining approval for a maximum loan amount.

Prepaid Interest  Interest paid in advance from the date of settlement to the beginning of the period covered by the first monthly mortgage payment.

Prepayment Penalty  A fee charged to a borrower who pays off a loan before it is due.

Pre-qualification The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.

Principal The amount borrowed or remaining unpaid; also, that part of a monthly payment that reduces the outstanding balance of a mortgage

Private Mortgage Insurance (PMI)   Insurance provided by non-government insurers that protects lenders against a loss if a borrower defaults.

Promissory Note   Written promise to pay; sometimes used in lieu of earnest money deposit check with contract.

Purchase and Sale Agreement   A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Qualifying ratios Guidelines applied by lenders to determine how large a loan to grant a home buyer.

Radon  A radioactive gas found in some homes that in sufficient concentrations can cause health problems.

Rate Lock   See "Lock-in".

Real Estate Agent  A person licensed to negotiate and transact the sale of real estate on behalf of the owner.

Real Estate Settlement Procedures Act (RESPA) A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Refinancing The process of paying off one loan with the proceeds from a new loan secured by the same property.

Rent With Option to Buy See "Lease-Purchase Mortgage Loan”.  

Sales Contract Written agreement between buyer and seller stating terms and conditions of a sale or exchange of property.   

Second Mortgage A mortgage that has lights that are subordinate to the rights of the first mortgage holder.

Secondary Mortgage Market The buying and selling of existing mortgages.

Securitization  Process of pooling loans into mortgage-backed securities for sale in the secondary mortgage market.

Seller Take-back   An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Settlement See "Closing.

Settlement Sheet The computation of costs payable at closing which determines the seller’s  net proceeds and the buyers net payment.

Subsidized Second Mortgage An alternative financing option for low and moderate income households that also includes a down payment and a first mortgage with funds for the second mortgage provided by the city, county, state housing agencies, foundations, or non-profit corporations.  Payment on the second mortgage is often deferred, carries no, or low interest rates, and part of the debt may be forgiven for each year the family remains in the home.

Survey A drawing showing the legal boundaries of the property.

Tenancy by Entirety A type of joint ownership of property available only to a husband and wife.

Tenancy in Common  A type of joint ownership in a property without rights of survivorship.

Three/Two (3/2) Option.  An alternative financing plan that enables households whose earnings are no more than 115 percent of the median income in their regional area to make a 3 percent down payment with their own funds, coupled with a 2 percent gift from a relative or 2 percent grant or unsecured loan from a non-profit, state or local government program.

Title A legal document establishing the right of ownership.

Title Company A company that specializes in insuring title to property.

Title Insurance  Insurance to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Search A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other outstanding claims.

Transfer Tax   State or local tax payable when title passes from one owner to another.

Truth-In-Lending A federal law that  requires lenders to fully disclose in writing, the terms and conditions of a mortgage, including the ARP and other charges.

Underwriting The process of evaluating a loan application to determine the risk involved for the lender.

Veteran’s Administration (VA)  Department of Veteran’s Affairs, cabinet level agency of government; encourages lenders to offer long-term,  no-money-down loans to eligible veterans by partially guaranteeing the lender against loss on the loan.

VA Loan A loan that is guaranteed by the Veterans Administration.