Real Estate and Mortgage Glossary

A-C

• adjustable-rate mortgage (ARM): A mortgage with an interest rate that changes periodically based on a specified index.
• adjustment date: The date when the interest rate changes for an adjustable-rate mortgage (ARM).
• adjustment period: The time between adjustment dates for an adjustable-rate mortgage (ARM).
• amortization: The process of repaying a mortgage loan through regular payments covering principal and interest.
• amortization term: The time required to fully repay a mortgage loan, expressed in months.
• annual percentage rate (APR): The yearly cost of a mortgage, including interest, mortgage insurance, and loan origination fee.
• appreciation: An increase in property value due to various factors. Opposite of depreciation.
• asset: Anything of monetary value owned by an individual, including real property, personal property, and other assets.
• assignment: Transferring a mortgage from one person to another.
• assumable mortgage: A mortgage that a buyer can take over from the seller when purchasing a home.
• assumption: Transferring the seller’s existing mortgage to the buyer.
• assumption clause: A provision in an assumable mortgage allowing a buyer to take over the mortgage from the seller without repaying it in full.
• assumption fee: A fee paid to a lender for assuming an existing mortgage.
• balance sheet: A financial statement showing assets, liabilities, and net worth on a specific date.
• balloon mortgage: A mortgage with regular monthly payments that will fully amortize it over a stated term but requires a lump sum payment earlier.
• balloon payment: The final lump sum payment due at the end of a balloon mortgage.
• basis point: 1/100th of a percentage point.
• binder: A preliminary agreement secured by an earnest money deposit under which a buyer offers to purchase real estate.
• biweekly payment mortgage: A mortgage requiring payments every two weeks instead of monthly.
• blanket mortgage: A mortgage secured by a cooperative project, not individual units.
• breach: Violation of any legal obligation.
• bridge loan: A short-term loan collateralized by the borrower’s current home, allowing them to close on a new house before selling their current home.
• broker: A person who brings parties together and assists in negotiating contracts for a commission or fee.
• buydown mortgage: A mortgage where an initial lump sum payment is made to reduce monthly payments for the first few years or the entire life of the loan.
• call option: A provision in a mortgage allowing the lender to demand full repayment after a specified period.
• cap: A provision in an adjustable-rate mortgage (ARM) that limits interest rate or payment changes.
• capital improvement: A permanent structure or component added to real property, increasing its value and useful life.
• cash-out refinance: A refinance transaction where the new loan amount exceeds the total needed to repay the existing mortgage, closing costs, and other liens, providing the borrower with cash.
• certificate of deposit (CD): A deposit bearing a maturity date and a specified interest rate, with penalties for early withdrawal.
• certificate of eligibility: A document certifying a veteran’s eligibility for a VA mortgage.
• certificate of reasonable value (CRV): A document establishing the maximum value and loan amount for a VA mortgage.
• certificate of title: A statement indicating that the title to real estate is legally held by the current owner.
• chain of title: The history of documents transferring title to a property.
• change frequency: The frequency of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
• clear title: A title free of liens or legal questions regarding property ownership.
• closing: The finalization of a property sale where the buyer signs mortgage documents and pays closing costs.
• closing cost item: A fee or amount paid by a home buyer at closing for a specific service, tax, or product.
• closing costs: Expenses beyond the property price incurred by buyers and sellers during property transfer.
• closing statement: The final statement of costs incurred to close a loan or purchase a home.
• cloud on title: Conditions revealed by a title search that adversely affect property title.
• collateral: An asset guaranteeing loan repayment.
• collection: Efforts to bring a delinquent mortgage current or to proceed with foreclosure.
• combination loan: A loan where a first mortgage covers 80% of the loan amount, and a second mortgage covers the remainder.
• combined loan-to-value (CLTV): The total unpaid principal balances of all mortgages on a property divided by its appraised value.
• co-maker: A person who co-signs a promissory note with the borrower, guaranteeing loan repayment.
• commission: A fee charged by a broker or agent for facilitating a real estate or loan transaction.
• commitment letter: A formal offer by a lender stating loan terms it agrees to offer a home buyer.
• common areas: Areas in a PUD or condominium project used by all unit owners.
• Community Home Improvement Mortgage Loan: A financing option allowing low- and moderate-income home buyers to obtain 95% financing for purchasing and improving a home.
• community property: In certain states, a form of ownership where property acquired during marriage is presumed jointly owned unless acquired as separate property.
• comparables: Properties similar to a subject property used in the appraisal process to determine its approximate market value.
• compound interest: Interest earned on both the principal and any accumulated interest.
• condominium conversion: Changing the ownership of an existing building to condominium ownership.
• conforming loan: The rate is usually tied to a specific index, such as the U.S. Treasury Bill rate.
• Construction Loan: A short-term loan for financing construction costs. Payments are made to the builder as work progresses.
• Consumer Reporting Agency: An organization that prepares reports on potential borrowers’ credit history using data from credit repositories and other sources.
• Contingency: A condition that must be met for a contract to be legally binding.
• Conventional Mortgage: A mortgage not insured or guaranteed by the federal government.
• Convertibility Clause: A provision in some adjustable-rate mortgages allowing the borrower to switch to a fixed-rate mortgage at specific times.
• Convertible ARM: An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under certain conditions.
• Cooperative (Co-op): A multiunit housing where residents own shares in the cooperative corporation that owns the property.
• Corporate Relocation: Employer-arranged relocation of an employee or transfer of operations and employees to a new area.
• Cost of Funds Index (COFI): An index determining interest rate changes for certain adjustable-rate mortgage plans.
• Covenant: A clause in a mortgage that can result in foreclosure if violated.
• Credit Repository: An organization that collects and updates financial and public records information about individuals’ payment records.

D-E

• Deed: The legal document transferring property title.
• Deed in Lieu: A deed given by a borrower to avoid foreclosure.
• Default: Failure to make timely mortgage payments or meet other mortgage requirements.
• Delinquency: Failure to make mortgage payments when due.
• Depreciation: A decline in property value.
• Due-on-Sale Provision: A mortgage clause allowing the lender to demand full repayment if the borrower sells the property.
• Earnest Money Deposit: A deposit showing the buyer’s intent to purchase.
• Easement: A right of way giving non-owners access to a property.
• Effective Age: An appraiser’s estimate of a building’s physical condition.
• Electronic Funds Transfer (EFT): A secure method for electronically transferring funds.
• Encumbrance: Anything affecting or limiting property title.
• Endorser: Someone who transfers ownership interest to another party.
• Equal Credit Opportunity Act (ECOA): A law ensuring equal credit access without discrimination.
• Equity: A homeowner’s financial interest in a property.
• Escrow: An item of value held by a third party until a condition is met.
• Escrow Account: An account where mortgage servicers hold escrow payments for property expenses.
• Escrow Analysis: Examination of escrow accounts to ensure sufficient funds for property expenses.
• Estate: The total real and personal property owned by an individual at death.
• Eviction: Lawful removal of an occupant from a property.
• Examination of Title: A report on a property’s title from public records.

F

• Fair Credit Reporting Act: A law regulating consumer credit report disclosure.
• Fair Market Value: The price a willing buyer would pay and a willing seller would accept.
• Fannie Mae: A congressionally chartered company supplying home mortgage funds.
• Fee Simple: The greatest possible interest in real estate.
• Federal Housing Administration (FHA): A HUD agency insuring residential mortgage loans.
• Finder’s Fee: A fee paid to a mortgage broker for finding a loan.
• Fixed-Rate Mortgage (FRM): A mortgage with a constant interest rate.
• Flood Insurance: Insurance against property damage from flooding.
• Foreclosure: A legal process where a defaulted borrower loses their property.

G-I

• Good Faith Estimate: An estimate of potential settlement charges.
• Hazard Insurance: Insurance against property damage from various causes.
• Home Equity Line of Credit: A credit line secured by a second deed of trust on a house.
• Housing Ratio: The ratio of monthly housing payment to gross monthly income.
• HUD: The U.S. Department of Housing and Urban Development.
• Index: A published interest rate tied to an Adjustable Rate Mortgage.
• Interest-Only Loan Option: A loan where only interest is paid for a specified period.

J-L

• Jumbo Mortgage: A non-conforming loan exceeding the conforming loan limit.
• Lien: A claim against property for unpaid debt.
• Lender: The entity offering the loan.
• LIBOR: London Inter-Bank Offered Rate, an international index following world economic conditions.
• Lifetime Cap: A limit on the highest rate for an ARM over its life.
• Loan to Value Ratio (LTV): The ratio of unpaid mortgage balance to property’s appraised value.
• Lock Period: The time a lender guarantees a loan’s interest rate.
• Lock-In: A written agreement guaranteeing a specified interest rate for a set period.

M-O

• Margin: Percentage points added by a lender to an index value to determine the ARM rate.
• Maturity Date: A date when principal funds can be withdrawn without penalty.
• Mortgage: A legal document pledging property as loan security.
• Mortgage Insurance (MI): Insurance protecting lenders against loss from a mortgage default.
• Mortgagee: The entity receiving the mortgage as a pledge for loan repayment.
• Mortgagor: The borrower giving the mortgage as a repayment pledge.
• Negative Amortization: When a loan’s balance grows due to payments being less than the accruing interest.
• Non-Conforming Loan: A loan not eligible for sale to Fannie Mae or Freddie Mac.
• Origination Fee: A fee from a lender to cover loan processing expenses.
• Owner Financing: Property financing provided by the seller.

P-R

• Periodic Cap: The maximum rate increase for a specific loan period.
• PITI: Components of a monthly mortgage payment.
• Points: Charges by the mortgage lender, usually payable at closing.
• Prepayment Penalty: A charge for paying off a mortgage loan ahead of schedule.
• Principal: The total amount deposited or the amount of debt excluding interest.
• Private Mortgage Insurance (PMI): Insurance provided by non-government insurers protecting lenders against borrower default.
• Qualifying Ratios: The ratio of fixed monthly expenses to gross monthly income.
• Rate: The annual loan interest rate.
• Rate Cap: A limit on interest rate changes.
• Rate Lock-In: A written agreement guaranteeing a specific interest rate for a set period.
• Rebate: Compensation from a wholesale lender used to cover closing costs or as a refund.
• Refinancing: Paying off one loan with another loan’s proceeds.
• Residential Mortgage Credit Report (RMCR): A report used by lenders to evaluate a borrower’s creditworthiness.

S-U

• Seller Carry Back: An agreement where the property seller provides some or all financing.
• Simple Interest: Interest earned on an account holder’s principal.
• Stated/Documented Income: Loan products requiring applicants to state their income source without providing supporting documentation.
• Subordination: Refinancing a first mortgage and having an existing second mortgage or home equity line take the second lien position.
• Survey: A print showing property boundary measurements and improvements.
• Tenants in Common: An undivided property interest taken by multiple persons.
• Title Insurance: Insurance against loss from title defects.
• Title Search: An investigation into a property’s title history.
• Total Debt Ratio: Monthly debt and housing payments divided by gross monthly income.
• Variable Rate: An interest rate that can change after an account opens.

V-Z

• VA Mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
• Veterans Administration (VA): An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.
• Wraparound Mortgage: A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full
  payments on both mortgages are made to the “wraparound” mortgagee, who then forwards the payments on the first mortgage to the first mortgagee. These mortgages may not be allowed by the first mortgage holder, and if discovered could be subject to a demand for full paymen