Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically according to a pre-selected index.

Amortization
Payment of a debt in regular, periodic installments of principal and interest as opposed to interest only payments.

Annual Percentage Rate (APR)
A term used in the Truth-in-Lending Act to represent the percentage relationship of the total finance charge to the amount of the loan. The APR reflects the cost of your mortgage loan as a yearly rate. It will be higher than the interest rate stated on the note because it includes, in addition to the interest rate, loan discount points, fees and mortgage insurance.

Application
A printed form used by a mortgage lender to record necessary information concerning a prospective mortgage.

Application Fee
A sum of money paid towards estimated initial mortgage processing expenses such as appraisal and credit report.

Appraisal
A report made by a qualified person setting forth an opinion or estimate of property value. The term also refers to the process by which this estimate is obtained.

As Separate Property
Ownership in real property which is to be specifically excluded from community property.

Assessed Valuation
The value that a taxing authority places on real or personal property for the purpose of taxation.

Assessment
A charge against a property for purpose of taxation. This may take the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the valuation of his or her property.

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Borrower
A person (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.

Buy down
Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.

Cash to Close
Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

Closing
The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.

Closing Costs
Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney's fees, survey, and pre-paid items such as tax and insurance escrow payments.

Closing Statement
A form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

Co-Borrower
Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.

Collateral
Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

Commitment (Loan)
A binding pledge made by the lender to the borrower to make a loan, usually at a stated interest rate within a given period of time for a given purpose, subject to the compliance of the borrower to stated conditions.

Commitment Fee (Loan)
Any fee paid by a potential borrower to a lender for the lender's promise to lend money at a specified rate and within a given time period.

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

Conforming Loan
Conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). These agencies generally purchase first mortgages up to loan amounts mandated by Congressional directive.

Conventional Mortgage
A mortgage not obtained under a government insured program (such as FHA or VA).

Credit Report
A report detailing an individual's credit history.

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Deed of Trust
An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.

Default
The failure to perform an obligation as agreed in a contract.

Delinquency
A loan payment that is overdue but within the period allowed before actual default is declared.

DeMinimus PUD
A PUD in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units. Also see PUD.

Deposit
A sum of money given to bind a sale of real estate. Also known as earnest money.

Depreciation
A loss of value in real property brought about by age, physical deterioration, functional or economic obsolescence.

Discount Point
Amount payable to the lender institution by the borrower or seller to increase the lender's effective yield. One point is equal to one percent on the loan amount.

Discounted Loan
When the note rate on a loan is less than the market rate, the lender requires additional points to raise the yield on the loan to the market rate.

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Earnest Money
A portion of the downpayment delivered with a purchase offer by the purchaser of real estate to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith. Also known as a deposit.

Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.

Equity
The ownership interest; i.e. portion of a property's value over and above the liens against it.

Escrow
A procedure whereby a disinterested third party handles legal documents and funds on behalf of a seller and buyer.

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Fair Credit Reporting Act (FCRA)
A federal law which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information. This law also requires consumer reporting agencies to exercise fairness, confidentiality and accuracy in preparing and disclosing credit information.

Federal Home Loan Mortgage Corporation - FHLMC (FREDDIE MAC)
A quasi-governmental agency that purchases conventional mortgages in the secondary mortgage market from insured depository institutions and HUD-approved mortgage bankers. It sells participation sales certificates secured by pools of conventional mortgage loans, their principal, and interest guaranteed by the federal government through the FHLMC. It also sells Government National Mortgage Association bonds to raise funds to finance the purchase of mortgages. Popularly known as Freddie Mac.

Federal National Mortgage Association - FNMA (FANNIE MAE)
A taxpaying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.

First Mortgage
A real estate loan that has priority over any subsequently recorded mortgages.
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Fixed Interest Rate
An interest rate which does not change during the loan term.

Foreclosure
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

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Gift Letter
A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

Gross Monthly Income
Total monthly income earned before tax and other deductions.

Hazard Insurance
A contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards (i.e. fire).

High-Ratio Loan
Mortgage loans in excess of 80 percent of the loan amount divided by the lower of the sales price or appraised value.

Homeowners' Association Dues
The fees imposed by a condominium or homeowners' association for maintenance of common areas.

Insured Loans
A loan insured by HUD-FHA or a private mortgage insurance company.

Interest
Consideration in the form of money paid for the use of money. Also a right, share or title in property.

Interest rate
The percentage of an amount of money which is paid for its use for a specified time.

Investment Property
Real estate owned with the intent of supplementing income and not intended for owner occupancy.

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Lien
A legal claim or attachment against property as security for payment of an obligation.

Loan-To-Value Ratio
The ratio between the amount of a given mortgage loan and the lower of sales price or appraised value.

Market Value
The most probable price which a ready, willing and able buyer would pay and a willing seller will accept, both being fully informed under no pressure to act. The market value may be different from the price a property can actually be sold for at a given time (market price).

Maturity
The termination or due date on which final payment on a loan must be paid in full.

Monthly Payment
Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.

Mortgage
The conveyance of an interest in real property given as security for the payment of a loan.

Mortgage
The lender on a mortgage transaction.

Mortgage Insurance Premium (MIP)
The consideration paid by a mortgagor (borrower) for mortgage insurance - either to the FHA or to a private mortgage insurer.

Mortgage Note
A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.

Mortgagor
The borrower in a mortgage transaction who pledges property as security for a debt.

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Non-Conforming Loan
Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines
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Occupancy
The use of a property as a full-time residence, either by the title holder (owner-occupancy) or by another party through a formal agreement (rental).

Origination Fee
The amount charged for services performed by the company handling the initial application and processing of the loan.

Percentage Point
One percent of the loan or a measure of the interest rate.

PITI (Principal, Interest, Taxes, and Insurance)
The most common components of a monthly mortgage payment.

Preliminary Title Report
The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.

Primary Residence
A residence which the borrower intends to occupy as the principal residence.

Principal Balance
The remaining balance due on a debt, exclusive of accrued interest.

Private Mortgage Insurance
Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.

Processing
The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

PUD (Planned Unit Development)
A planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners; the association of unit owners generally owns, pays fees, and maintains the common areas. Also see DiMinimus PUD.

Purchase Contract (Agreement/Offer)
An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.

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Rate Lock Option
An agreement guaranteeing an individual a specified interest rate on a loan provided the loan is closed within a set period of time.

Real Assets
Real estate or real property owned by an individual or business.

Real Estate Settlement Procedures Act (RESPA)
A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances.

Real Property
Land and that which is affixed to it.

Refinancing
The repayment of a debt from the proceeds of a new loan using the same property as security.

Satisfaction of Mortgage
The recordable instrument issued by the lender verifying full payment of a mortgage debt.

Second Home (Vacation Home, Weekend Home)
A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year. Must be suitable for year-round occupancy.

Secondary Mortgage Market
A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Security
In lending, the collateral given, deposited, or pledged to secure the payment of a debt.

Settlement Services
Services provided by the lender at the closing of a loan.

Survey
The measurement and description of land by a registered surveyor.

Term
The time limit within which a loan must be repaid.

Title
The legal evidence of ownership rights to real property.

Title Insurance Policy
A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchaser, mortgage, or otherwise.

Title Search
An examination of public records to disclose the past and current facts regarding the ownership of a given piece of real estate.

Truth-in-Lending Act
A Federal law requiring full disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms and financial institutions.

Underwriting
Analysis of risk and setting of an appropriate rate and terms for a mortgage on a given property for given borrowers.

Zero Point Option
An option which allows the borrower to opt to pay a slightly higher loan interest rate in lieu of paying the loan origination points generally charged for the particular loan product

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