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Our best clients are our most informed clients. We’ve provided this glossary to explain many commonly used terms you may encounter. This list, however, should not be considered comprehensive and is not meant to take the place of legal or financial advice.
APR or Annual Percentage Rate
the interest rate that is the true rate of interest charged for a loan. The APR is shown on the Truth-in-Lending statement.
ARM or Adjustable Rate Mortgage
a loan with an interest rate attached that changes at certain times during the specified term of the mortgage.
Appraisal (Appraised Value)
an estimated dollar value of a property established by a qualified and licensed appraiser used by a lender to establish the value of a property.
Assessed Value
the value that a taxing authority (commonly the county, or municipality) places on a property for the purposes of collecting payment of taxes (NOT to be confused with the Appraised Value).
Assign
transfer of the right, title, or interest in a property.
Assignee
one to whom a right, title, or interest has been transferred.
Assumable Mortgage
allows for a buyer / purchaser to take ownership of a property by taking the responsibility for the unpaid mortgage balance (most typically seen on VA or FHA loans).
Automated Underwriting System
a means by which loan approval is received directly from Fannie Mae or Freddie Mac and is communicated by computer.
* Fannie Mae & Freddie Mac are government-approved private organizations that, because of their being the largest buyer and seller of mortgages, establish guidelines for lending institutions to grant loans.
Balance Sheet
a document or “statement” of the financial condition of an individual or a business showing assets, liabilities, and net worth as of a given date.
Bankruptcy
a condition awarded by a court of law under which an individual or business is relieved of payment on debt. (a mortgage may be granted after the bankruptcy has been discharged for 4 years – some lenders may grant a loan after 2 years with certain conditions being met).
Bill of Sale
a document that transfers title of property
Blanket Mortgage
a mortgage that entails a lien on more than one parcel of land – usually incurred by developers who have purchased a single track of land for the purposes of dividing it into smaller parcels for sale.
Buy Down
the option to decrease future loan costs by paying an additional amount at closing for a lower interest rate.
“C” Paper Loan
a mortgage for borrowers that have little documented income, poor credit, or a recent bankruptcy – interest rates usually are 3% to 5% higher then current rates – the loan to value ratio often ranges between 65% and 75% depending on the lender.
Cap
the limit as to how high or low an ARM mortgage can adjust periodically over the life of the loan.
Call Option
the right of the lender to require full payment of outstanding principle balance of a loan within a predetermined period of time (also known as a “Demand Clause”).
Capital Gain
taxable profit resulting from the sale of a property.
Cash Flow
the available cash from an income producing property after deducting all operating expenses and debt.
Cash-on-Hand
cash held that is not verifiable in a bank or other holding institution – this money is rarely counted as an asset.
Cash Reserves
liquid assets (savings, money market funds, etc.) that the borrower retains AFTER making the down payment AND paying closing costs.
Certificate of Occupancy (“C of O” )
written authorization given by a local municipality (often the local zoning & building department) that allows a structure to be inhabited.
Chain of Title
a chronological listing of past titleholders of a specific piece of land or property.
Chattel
item of personal property (such as a lighting fixture).
Co-Borrower
the person who signs a mortgage note along with the borrower – the Co-Borrower shares all obligations jointly and severally on the mortgage.
Commitment Fee
a fee paid at the time an interest rate is locked in. This commits both the lender and the borrower to a specific interest rate for a specific term / period of time – some commitment fees may be refundable at closing.
Commitment Letter
a document provided by the lender that details the terms and conditions of the loan approval.
Comparable (“Comp” )
recently sold properties that are used in the appraisal to determine the fair market value of the subject property – these Comparable Properties are approximately the same size, location, and have similar amenities as the subject property.
Conforming Loan Amount
a loan amount that does NOT exceed a specific amount established each year by Fannie Mae and Freddie Mac – any mortgage equal to OR less than the established amount will usually have lower interest rates and terms than a “Jumbo Mortgage” which is any loan amount ABOVE that established by these agencies (i.e. the conforming loan amount for the year 2001 was $275,000)
Construction Loan Draw
a partial distribution of construction loan funds based on the schedule of payments in the loan agreement.
Consumer Handbook
on Adjustable Rate Mortgages a book provided by the Federal Reserve Board explaining the risks involved with adjustable mortgage loans (this should be provided to the borrower at the time of application).
Consumer Price Index ( CPI )
a monthly report that measures the change in the cost of living.
Contingency Clause
a provision placed in a sales contract that requires the completion of a certain act or event before a contract becomes binding.
Conventional Mortgage
this term can either mean a mortgage that is not an FHA or VA loan or a mortgage that is considered one with a conforming loan amount.
Coupon Rate
the annual interest rate shown on the face of the mortgage note.
Covenant
an agreement written into a deed that promises the performances or non-performance of certain acts or stipulations regarding the use of property
Covenants, Conditions, and Restrictions
( CC&R’s )
restrictions that are placed on the use of the land and states the penalties for failure to comply – used often by a subdivider on newly divided areas and include items such as setbacks and easements – usually recorded and disclosed in an investigation of public records.
Deed
a written document in which ownership of real property is stated – this document is required for transferring ownership.
Dee in Lieu of Foreclosure
a deed is given by a borrower to a lender to satisfy a debt and avoid foreclosure.
Deferred Interest
in an ARM mortgage; if the payments do not cover the interest cost, the interest is deferred to later years by adding it to the unpaid principle balance – this is also known as “negative amortization.”
Deferred Maintenance
repairs or maintenance of a property that should have been done but has been postponed – often resulting in physical deterioration of the property.
Deficiency Judgment
the amount a borrower must pay if the sale of a foreclosure does not raise enough money to pay the balance of the loan.
Depreciation
a decline in the value of property for tax purposes, an artificial amount applied consistently over an arbitrary life of the property.
Discount Points ( “Points” )
additional charges required by a lender to buy the interest rate to below-market rate – each “point” equals one percent (1%) of the loan amount.
Down Payment
the difference between the sales price and the mortgage amount.
Easement
a limited right to use another’s land for a specific purpose – an easement can be terminated at any time by the grantor or it may be perpetual (i.e. utility and cable right of way lines, or may be created of ingress and egress over a neighbor’s property, joint driveways, water wells, etc.).
Economic Life
the period over which a property will yield a return on the investment – the period during which a building is valuable.
Eminent Domain
the process by which the government takes private land for public use.
Encroachment
an unauthorized intrusion of real or personal property such as an overhanging roof, tree branches and roots, misplaced fences, or walkways.
Encumbrance
a lien or claim to the title of property such as a mortgage or easement.
End Loan
permanent mortgage financing secured to payoff a construction loan.
Equity
cash value of a property after deducting all mortgages.
Escrow Account
an account where funds are set aside for:property taxes, homeowners insurance, and/or PMI insurance – collected in monthly installments along with principal and interest – these payments are collected by the lender who distributes these funds when payments are due.
“E-Z Doc Loan"
see: Limited Documentation Loan
Fannie Mae
Federal National Mortgage Association: this agency purchases loans from approved lenders (does not deal directly with the public) – not a government agency – along with Freddie Mac, helps to establish most lending guidelines.
Fee Simple
a term used to describe the most complete form or ownership conveyed for possible infinite duration – there are no limitations with this type of ownership – most property is owned “fee simple.”
FHLMC
Federal Home Loan Mortgage Corporation: (also known as “Freddie Mac”)
First Mortgage
a loan that creates a primary lien against real property – this does not refer to the first mortgage a borrower may have secured in his lifetime.
FNMA see Fannie Mae
Forbearance Agreement
an agreement that a lending institution will delay exercising its right to foreclose on a loan as long as the borrower performs certain agreed upon term and conditions.
Foreclosure
to terminate the owner’s rights to a property after he / she defaults on the mortgage.
Gift Letter
a letter verifying that funds given to a borrower are truly a gift and need not be paid back.
Grantee
a descriptive term in a deed naming the buyer of real estate.
Grantor
in a deed; the seller of real estate.
Gross Income
the Total income before any taxes and/or expenses are deducted
Hazard Insurance
also known as “Homeowner’s Insurance” – which is insurance that protects property from theft, fires, and other types of damage – the policy must cover at least the unpaid mortgage amount and is usually required by all lenders.
“HE-LO” Lock
Home Equity Loan rate lock.
HMDA Statement
Home Mortgage Disclosure Act – requires banks to disclose information such as race, gender, and economic position of every person who applies for a mortgage – this act was passed by the federal government to protect consumers from discrimination.
Housing Affordability Index
estimate of housing affordability based on the price of the median sale price of an existing single-family home, median income, mortgage rates and assumptions concerning down payment. Property taxes, and insurance.
Housing Starts
monthly report that measures the number of the residential homes on which construction is begun during each month.
Impound Account
see Escrow Account
Initial Interest Rate
the beginning interest rate on an ARM mortgage – also known as a teaser rate
Installment Debt
a debt that is paid in several successive payments for a specific amount of time (i.e. a car loan).
Installment Sales Contract
a contract between a purchaser and seller of a property wherein the seller acts as the lender – the borrower usually does not receive title to the property until all payments and terms of the contract have been met.
Institutional Lender
see Portfolio Lender.
Insurance Binder
written evidence of a temporary hazard coverage that runs for a limited time only and must be replaced by a permanent policy on the subject property.
Interim Financing
financing procured during the time a real estate project is beginning until the completion when permanent financing is obtained – usually in the form of a construction loan and/or development loan.
Intestate
when a person dies without leaving a will, the estate becomes subject to state laws of survivorship.
Joint Tenancy
an equal and undivided ownership of property by two or more persons – the survivors take complete interest in the property upon death of any of the owners.
Judgment
the decision of a court that becomes a lien or liens against an individual or on the real property of an individual.
Jumbo Mortgage
any loan amount that is greater than the current conforming loan amount – interest rates for a jumbo mortgage usually will have a higher interest rate than offered for conforming loans – also qualifying ratios are usually 33% of income for the total housing debt and 38% of the income for total debt.
Junior Lien
a mortgage that does not stand in first lien position (i.e. a home equity loan).
Leasehold Estate
an estate whereby one has possession but, not ownership of land.
Legal Description
a description of land sufficiently accurate so that an independent surveyor can locate and identify the property.
Lesee
the person to whom property is rented or leased, the “tenant.”
Lessor
the person who rents the property to another, the “landlord.”
Libor Index
is an index used for Adjustable Rate Mortgage (ARM) products, based on an average interest rate that 5 major international banks charge each other to borrow U.S. dollars on deposit in the London financial market. This index can change daily causing interest rates to move quickly.
Lien
a claim against the property (commonly “liens” are mortgages, unpaid repair or construction bills, over-due property taxes, sewer & water charges, or condo fees).
Life Estate
ownership of a property only for the lifetime of a specific individual.
Limited Documentation Loans
Mortgage loans that require less documentation for approval.
Limited Partnership
a partnership that consists of one or more general partners who are fully liable for the amount of their investment.
Liquid Assets
Cash, or assets that can be immediately converted to cash.
LTV
Loan–To–Value ratio.
Market Value
Highest price that a buyer would pay for a property and the lowest price a seller will accept.
Maximum Loan Amount
maximum loan amounts established by both Fannie Mae and Freddie Mac.
Mechanic Lien
a lien allowing contractors, laborers, and suppliers to be put on buildings where work has been performed or for which materials were supplied and payment is still due. (With new construction it is important to obtain lien waivers for any improvements. A lien waiver can be a partial waiver or final waiver. A partial waiver is used where only partial payment has been provided to the contractor)
Member, Appraisal Institute (MAI)
a designation awarded to a member of the American Institute of Real Estate Appraisers.
Monthly Operating Income
income from rental property that is determined by subtracting annual operating expenses from the annual gross income and dividing by 12 (months out of the years).
Mortgage Insurance
Private Mortgage Insurance (PMI)
Mortgage Servicing Disclosure
a lender must inform the homeowner if the servicing rights of this mortgage may be sold to another lender (this could affect where the mortgage payments are mailed).
Mortgagee
the Lender who is providing the mortgage.
Mortgagor
the person who is seeking a mortgage loan.
Net Income
the difference between gross income and the expenses including taxes and insurance but, before the mortgage and depreciation. Net Income is calculated on income property.
Net Rental Income Method
a means of estimating income from rental property – 25% of gross rent to cover maintenance and vacancies can be deducted and the remaining 75% can be used for additional income for qualifying purposes.
Net worth
the value of all assets, including cash less total liabilities.
“No Income” Verifying Loans
a mortgage program especially for the self-employed that does not need to verify the income reported by the borrower.
Non-Owner Occupant
a borrower on the mortgage who will not be living in the property. The borrower on an investment property is also known as a non-owner occupant.
Open-End Mortgage
a mortgage that provides the outstanding loan balance may be increased upon mutual agreement of the lender and the borrower.
Operating Expenses
the cost of maintaining a multi-unit property.
Origination Fee
also known as “points” - is a percentage of the principal amount of the mortgage. This is a one time charge assessed at closing by the lender.
Owner Occupant
a borrower who will be residing in the subject property as his principle residence.
Par
the principal amount of a mortgage with no premiums or discounts (i.e. a loan interest rate that is quoted at no points – an interest rate of 9.5% with zero points means that 9.5% is at “par” ).
Payment Cap
in an ARM (Adjustable Rate Mortgage) – the maximum amount a mortgage payment can increase or decrease when it changes at each payment adjustment period.
Payment Shock
an underwriting term indicating a situation where the borrower has a significant increase in monthly housing debt.
Personal Property
all property other than real estate; such as curtains, light fixtures, appliances, etc.
Physical Obsolescence
the loss of property value resulting from wear and tear that may be either curable or incurable.
Pledge-Account Mortgage (PAM)
a graduated payment mortgage in which part of the buyer’s down payment is deposited in a savings account – funds are drawn from the account to supplement the monthly payment during the early years of the loan.
Point
a dollar amount, expressed as a percentage of the mortgage amount (i.e. 1 point = 1%) that is paid to the lender as compensation for providing the mortgage.
Power-of-Authority
a legal document authorizing one person to act on behalf of another – if one party applying for a mortgage cannot be at the closing, some lenders will allow an authorized person to sign documents for the absent applicant with a Power-of-Authority form.
Pre-paid Interest
Mortgage interest that is paid in advance of when it is due.
Pre-payment Penalty
a monetary penalty for paying off the mortgage loan earlier than the specific term stated in the mortgage.
Primary Residence
a property where the homeowner occupies and takes title to – a person can have only one primary residence.
Prime Rate Index
usually the lowest interest rates that a lending institution charges their best clients.
Principal Balance
the outstanding balance of a mortgage, exclusive of interest and other charges.
Purchase Money Mortgage
a mortgage given by a purchaser of real estate to the seller as part of consideration in a sales contract.
Quit Claim Deed
a deed that releases a claim or interest in a property. This type of deed is used very often in a divorce, it is important to remember that this does not limit the liability for paying the mortgage. Both parties are still on the note and mortgage. IF the spouse who receives the house in the divorce does not make payments in a timely manner, the other spouse who has “quit claimed” the property will be responsible for the payments. Any late mortgage payments will show up on both spouses’ credit reports. This has surprised many divorced people trying to get a new mortgage – in short: a possible DEAL KILLER.
Real Property
land and what is affixed to or growing upon the land
Reconveyance
the transfer of the title of land from one person to the immediate proceeding owner –used when the performance of debt satisfied under the terms of a deed of trust.
Recording
the official noting in the registrar’s office (often the county clerk’s office) of the details of a deed, mortgage satisfaction of mortgage or extension of mortgage and making it a part of the public record.
Redemption Period
time period in a foreclosure that a borrower who is in default cannot be evicted or be divested of legal title – this time period also allows the borrower to repay his debt in full.
Redlining
alleged identification by some lenders of specific geographic areas for the purpose of denying mortgages in a discriminating way.
Regulation H
a federal rule or regulation used by the Secretary of Housing and Urban Development (HUD) to implement the real Estate Settlement Procedures Act (RESPA).
Regulation Z
a federal rule or regulation to carry out the purpose of the Truth-In-Lending Act which is the basis for disclosing the information contained in the Truth in Lending Statement.
Renegotiable Rate Mortgage (RRM)
an ARM where the interest rate and terms can be renegotiated at regular intervals – these loans are subject to fluctuations without any protection or caps on interest rate adjustments.
Resident alien
an individual who is not an U.S. citizen but, who has an Alien Registration Receipt Card – he/she is authorized to line and work in the U.S. on a permanent basis. Generally, there is no problem in obtaining a mortgage – providing he/she has a legal “green card” as proof of resident status for lenders.
Right-of Recession
the right of a borrower on some types of loans (refinancing, home equity) under the Truth-in-Lending law, to rescind a transaction within a period of 3 days after the closing has taken place – if the borrower does not exercise this right of recession, all monies are then disbursed on the fourth business day after the closing.
Sales Concessions
money or other things of value paid or transferred by the seller to the buyer to entice him to purchase the property – these concessions will be deducted from the sale price before the loan amount is determined.
Seasonal Income
income received by borrowers who consistently work less than 12 months in a year – these types of borrowers include laborers, painters, gardeners, and construction workers.
Second Home
a home that the borrower occupies in addition to his / her primary residence – this home cannot be income producing property (a type of vacation home).
Second Mortgage
also known as a home equity loan
Securitize
the pooling of existing loans to form an investment security similar to a bond.
Selling the Mortgage
this occurs when the current lender that the borrower is paying his mortgage to sells his loan to another mortgage servicing company – the lender is required by federal law to inform the borrower if servicing rights have been sold. The only change this means for the borrower is where to send his mortgage payments. All terms of the borrower’s mortgage do not change.
Settlement Statement
HUD-1 Statement of Closing Costs
Sheriff’s Sale
a legal sale of a property that is presided over by a sheriff who is appointed by the court.
Society of Real Estate Appraisers
a professional organization for qualified appraisers.
Subordinate Financing
a mortgage that is junior to the mortgage in “first position” (your principle mortgage). i.e. a home equity loan would be subordinate to the first or primary mortgage.
Subordinate Clause
a clause or condition inserted into a mortgage document that keeps the mortgage secondary to any other mortgages.
* Loans are valued according to the chronological order on which they are put onto a property. In the event of a foreclosure, all the money from the sale goes to pay off the holder of the first mortgage. Whatever money is left goes to pay off the holder of the second mortgage, third, or fourth mortgages. When a second advances to first position, it could prevent a homeowner from refinancing. Hence a “subordinate clause” is inserted in the second mortgage so that it remains in second position.
Survey
a “plat” or survey is drawn by a qualified surveyor and outlines a property’s measurements and shape. It also shows the house with any easements and/or encroachments that are noted on the title policy. The measurements shown on the survey must correspond to those in the deed for the property.
Sweat Equity
Sometimes a buyer can count repairs done on the home he/she is purchasing. However, the lender usually requires that all work be noted on the appraisal, that the work was done by a buyer who is qualified to do the work, provide an itemized account of cost of work, AND the work was done at an reasonable cost. IT IS IMPORTANT that a borrower have a loan approval BEFORE he/she starts any work on the home.
Tenancy by the Entirety
a form of ownership offered only to married couples that allows for automatic right of survivorship if one of the spouses die.
Tenancy in Common
ownership of property by two or more persons with no right of survivorship. Interest in the property is passed on to the heirs after the death of an owner. This form of ownership is usually requested if the mortgage is part of a business arrangement.
Term
the length of time before a mortgage is scheduled to be paid off (most often expressed in years).
Title
the evidence that an individual has the right to ownership of the property. A title can be acquired through purchase, inheritance, gift, or through foreclosure.
Title Search
examination of public records, laws and court decisions to disclose the current and past facts regarding ownership of a specific piece of real estate.
Transfer Fees
fees collected from a buyer and a seller of a property to defray city or county charges for changing the mortgage records.
Transfer Tax
a tax levied on the sale of property (a form of sales tax on real estate).
Treasury Securities Index
a reference index for Adjustable Rate Mortgages (a.k.a. ARM ) which is published weekly by the Federal Reserve Board giving the constant maturity interest rate for treasury securities (this interest rate is the rate that investors pay to buy government debts).
Trust Deed
(a.k.a. “Deed of Trust”) an arrangement or instrument in place of a mortgage.
Truth In Lending Statement
a material document that discloses all costs associated with a mortgage closing – NOTE: because this document may be generated prior to the exact date of closing, thus, some personal financial conditions as well as tax and loan interest cannot be determined prior to the exact closing date, some costs must be estimated – however, the truth-in-lending statement will disclose all lender fees and fees associated with the cost of the mortgage.
Unimproved Property
Vacant land
Upfront Lock-in Fee
same as a Commitment Fee – a fee paid at the time an interest rate is locked in – committing both lender and borrower to a specific interest rate.
Usury Law
SOME states – such as New York - have usury laws, which state that interest shall not be charged above a certain percentage.
Vacancy Factor
the percentage rate showing the loss from gross rental income due to vacancy on income property.
Variable Rate Mortgage
another term for “adjustable rate mortgage” (ARM).
VOD
Verification of Deposit
VOE
Verification of Employment
VOL
Verification of Mortgage or Rent
Voluntary Conveyance
the transfer of title, usually from a delinquent mortgagor (homeowner) to the mortgagee (lender), given voluntarily to satisfy the balance due on a defaulted loan and to avoid foreclosure. ALSO called: “Deed in lieu of Foreclosure” or “Voluntary Deed”
Waiver of Lien
a contractor who holds legal claim to the value of materials provided until paid in full. IF this contractor executes a waiver of lien, the claim is surrendered against the property that the work has been done on.
Warranty Deed
a deed in which the grantor guarantees good clear title to the property (the BEST deed to want when buying a home).
Wire Transfer
A quick way to move cash between banks. Often, funds for closing are wire transferred from the lender to whoever is closing the loan.
Yield
the effective annual amount of income that is being accrued on an investment. “Yield” is expressed as a percentage of the price originally paid.
Zero Lot Line
the placing of a structure on a lot so one-side rests directly on the lot’s boundary line. Such construction is restricted by setback ordinances.
Zoning
Public regulations to control land use.
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