Mortgage Dictionary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Amortization
A gradual paying off of a debt by periodic installments which pay principal and interest.

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

Annual Membership
An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee."

Annual Percentage Rate (APR)
The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution: The APR is sometimes computed differently by different lenders and can be misleading.

Application
An initial statement of personal and financial information which is required to approve your loan.

Application Fee
Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).

Appraisal
An opinion or estimate of the value of a property at a given date.

Appraised Value
An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., to the property and surroundings.

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

Arm's Length Transaction
A transaction among parties each of who acts in his or her own best interest. Example: A transaction between a father and his son would NOT be an Arm's length transaction.

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

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

Assumable Mortgage
A mortgage loan which allows a new home buyer to take over the obligation of making loan payments with no change in the terms of the loan. Assumable loans do not have a due-on-sale clause. The lender has to be notified and agree to the assumption. The lender may require the buyer to qualify for the loan and may charge an assumption fee. The seller should obtain a written release from the lender stating clearly that he/she is no longer liable to make mortgage payments. See also Subject To.

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

Attorney In Fact
One who is authorized to act for another under a power of attorney which may be general or limited in scope. Example: John wants to sell his house but has to be out of the country for 4 months. John gives authorization to Mary to sign the grant deed to sell the property to a buyer. Mary becomes John's Attorney In Fact.

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B

Balloon 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. Example: A balloon mortgage for $25,000 has interest only payments for 5 years at 12% ($250 per month), with the full principal of $25,000 due and payable after 5 years.

Balloon Payment
A lump sum payment of the unpaid balance of the loan.

Bankruptcy
The financial inability to pay one's debts when due. The debtor surrenders his assets to the bankruptcy court. An individual typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes a payment plan to pay off debts). A bankruptcy stays on an individual's credit report for 7 years.

Beneficiary
The person who receives or is to receive the benefits resulting from certain acts.Example: The lender is named as the beneficiary on a mortgage loan. Example: John has a life insurance policy for $100,000 with Jane as his beneficiary. Should John die – Jane will receive the benefits i.e. $100,000.

Binder
Definition #1: A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder.
Definition #2: Preliminary agreement, normally secured with earnest money, between a buyer and a seller as an offer to purchase real estate.

Bi-weekly Mortgage
A mortgage which requires 1/2 the normal monthly payment every two weeks. Over the course of the year, 26 half payments are made which is equivalent to 13 full mortgage payments. As a result of this extra payment the loan amortizes much faster than a loan with normal monthly payments.

Blanket Mortgage
A mortgage covering more than one piece of property. Example: A developer subdivides a tract of land into lots and obtains a blanket mortgage on the whole tract.

Bond
Definition #1: A debt instrument in the capital markets. The U.S. government, corporations and municipalities use bonds to raise money. Bonds can also be backed by mortgages. The best known bond is the 30 yr. treasury bond issued by the U.S. government.
Definition #2: A sum of money given to a court to guarantee against a loss. For example if there is a lien on a property, the owner may remove the lien by posting a bond.

Borrower (Mortgagor)
One who applies for a loan secured by real estate and is responsible for repaying the loan (mortgage).

Bridge Loan
An interim loan typically used when the buyer is unable to sell his/her house but needs money to close the transaction on the house he/she is buying. The bridge loan is made on the buyer's current residence to finance the buyer’s new residence. The loan is paid off when the buyer's current residence is sold.

Broker
See Real Estate Broker or Mortgage Broker.

Buydown
Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply for the full duration of the loan or for just the first few years. A buydown may be used to qualify a borrower who would otherwise not qualify. This is because a buydown results in lower payments which are easier to qualify for. Example: A very popular buydown is the 2-1 buydown. If the interest rate on the note is 9%, the buydown results in the rate being 7% (9%-2%) for the first year, 8% (9%-1%) for the second year, and 9% thereafter.

Buyer’s Broker
An agent hired by a buyer to locate a property for purchase. The broker represents the buyer and negotiates with the sellers broker for the best possible deal for the buyer.

Buyer’s Market
Market conditions that favor buyers i.e. there are more sellers than buyers in the market. As a result buyers have ample choice of properties and may negotiate lower prices. Buyers markets may be caused by an economic slump or overbuilding.

Bylaws
A set of regulations by which an organization conducts its business. Example: A condominium association prepares bylaws that state the minimum number of owners to conduct a meeting to decide policies.

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C

Call Provision
A clause in the mortgage or deed of trust giving the mortgagee or beneficiary the right to accelerate payment of the mortgage debt in full on a certain date or on the happening of specified conditions.

Capital Gains
Profit earned from the sale of real estate. A seller may defer taxes on the capital gain of his/her primary residence by buying a higher priced residence within 2 years.

Cap (on Interest)
Consumer safeguard which limits the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Cap (on Payment)
Consumer safeguard which limits the amount 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 (mortgage payment, maintenance, utilities, etc.).

Cash Out
Receiving money back when refinancing your present mortgage.

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

Caveat Emptor
A legal term meaning "let buyer beware". The buyer must examine the property and buy at his/her own risk. Example: A property may be offered in an "as is" condition with no expressed or implied guarantee of quality or condition.

CC&R's - Covenants, conditions, and restrictions
The basic rules establishing the rights and obligations of owners of real property within a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized for the purpose of operating and maintaining property commonly owned by the individual owners. The association is normally made up of property owners.

Ceiling
The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of Eligibility
The document issued by the Veterans Administration to those that qualify for a VA loan which may be used to buy a house with 0 down. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.

Certificate of Reasonable Value (CRV)
An appraisal performed by an VA approved appraiser which establishes the property's current market value. This value establishes the ceiling on the maximum VA mortgage loan principal.

Certificate of Occupancy
Document issued by a local governmental agency that states a property meets the local building standards for occupancy and is in compliance with public health and building codes. This document is normally required by a lender prior to closing the loan.

Certificate of Title
An opinion rendered by an attorney as to the status of title to a property, according to the public records. This certificate does not the same level of protection as title insurance.

Certified Mortgage Banker (CMB)
A professional designation in the mortgage banking industry.

Chain of Title
The chronological order of conveyance of a parcel of land from the original owner to the present owner. Example: An abstractor can research title to property going back to the date that the property was granted to the United States.

Clear Title
A marketable title, free of clouds and disputed interests. Most lenders require a clear title prior to closing.

Collateral
Property pledged to secure a loan.

Closing
Definition #1: The act of transferring ownership of a property from seller to buyer in accordance with a sales contract.
Definition #2: The time when a closing takes place.

Closing Costs
Expenses incurred by the buyer and seller in a real estate or mortgage transaction. There are two types of costs: recurring and non-recurring. Non-recurring costs are one time transactional costs which include:

  • Discount and origination points
  • Lender fees - underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc
  • Title insurance fees
  • Escrow, attorney or closing agent fees
  • Recording fees
  • Inspection and appraisal fees
  • Real estate brokerage commissions
  • Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing including
  • Pre-paid interest - interest charges from the date of closing to the end of the month
  • Property taxes if due
  • Hazard insurance, fire insurance or homeowners insurance has to be paid for one year
  • Mortgage insurance (PMI) - may be required if the loan amount is more than 80% of the value of the property. In the past a whole year of PMI had to be paid up front, however in recent years many PMI companies only require 1-2 months up front. Mortgage insurance premiums are normally paid every month with the loan payment
  • Impound account may need money to be set up for future payments

Cloud on Title
An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title. Compare with clear title.

Commitment (Letter)
A written document provided by a lender to agreeing to make a loan on specific terms to a borrower or builder.

Community Home Buyer's Program
An alternative financing option that allows households of modest means to qualify for mortgages using nontraditional credit histories, 33 percent housing-to-income and 38 percent debt-to-income ratios, and the waiver of the usual two payments cash reserves 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.

Condemnation
Definition #1: Taking private property for a public use with compensation to the owner under eminent domain. Used by governments to acquire land for streets, schools, freeways, etc and by utilities to acquire necessary property.
Definition #1: Declaring a structure unfit for use because of violations in housing codes or other reasons.

Conditional Commitment
A written document provided by a lender agreeing to make a loan provided certain conditions are met prior to closing.

Condominium
Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.

Conforming Loan
Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.

Construction Loan
A short term loan to pay for the construction of buildings or homes. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan.

Consideration
Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration.

Contingency
Conditions which must be satisfied before the buyer can close the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller. Example: The buyer has 14 days to remove the property contingency under the sales contract. In this case the buyer has 14 days to inspect the property and request the seller to perform repairs. If the buyer is not satisfied with the condition of the property or if the buyer and the seller cannot agree on repairs, the buyer may back out of the contract with no penalty. After 14 days the buyer no longer has the right to back out with no penalty as a result of a problem with the condition of the property.

Contract
An agreement between competent parties to do or not do certain things for consideration. Example: To have a valid contract for the sale of real estate there must be: an offer an acceptance competent parties consideration legal purpose written documentation description of the property signatures by principals or their attorney-in-fact

Contract Sale or Deed
Definition #1: A real estate installment selling arrangement where the buyer may occupy the property but the seller retains the title until the agreed upon sales price has been paid. Also known as an installment land contract. Example: John sells Mary a house. Mary has to put $10,000 and pay $1,000 per month for 24 months, after which time she will receive title to the property.
Definition #2: Same as the Agreement of Sale

Conventional Loan
Any mortgage loan other than a VA or an FHA loan. A convention loan may be conforming or non-conforming.

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

Conversion Clause
A provision in some Adjustable Rate Mortgages that permit converting the ARM to a fixed rate loan under specified conditions at a predetermined time. Sometimes available for an additional cost.

Convertible ARMs
Some variable loans come with options to convert them to a fixed loan based on a pre-determined formula, during a given time period. For example the 1 yr tbill adjustable may be converted to a fixed during the first five years on the adjustment date. The means that you could convert during the 13th, 25th, 37th, 49th and 61th months of the loan.

Conveyance
The transfer of title of real from one party to another.

Co-op; Cooperative
An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

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

Credit Limit
The maximum amount that you can borrow under a home equity plan.

Credit Report
A report detailing a borrower’s credit history including payment history on revolving accounts (e.g. credit cards) and installment accounts (e.g. car loan). A credit report also includes information found from public records including tax liens and judgments.

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D

Debt Service
The total amount of credit card, auto, mortgage or other debt upon which you must pay.

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).

Deed
A written document by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the buyer at closing.

Deed in Lieu
A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.

Deed of Trust
Used in many states in lieu of a mortgage to secure the payment of a note. In a deed of trust there are three parties: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he/she defaults in the payment of the debt, the trustee may sell the property without a court proceeding.

Deed Restriction
A clause in a deed that limits the use of land. Example: A deed might require that a road cannot be built on the land.

Default
Failure to meet legal obligations in a contract - such as the failure to make the monthly mortgage payment.

Defective Title
Any recorded instrument that would prevent a grantor/seller from giving a clear title. Example: The seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for the kitchen remodel. The seller may obtain clear title by paying the contractor and removing the lien.

Deficiency Judgment
Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages, accrued interest, legal fees, etc.

Delinquency
Failure to make payments on time. Can lead to foreclosure.

Delivery
The final, unconditional and absolute transfer of a deed to the Grantee so that the Grantor may not revoke it. A Deed, signed but held by the Grantor, does not pass title.

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

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

Depreciation
Decline in the value of a house due to wear and tear, obsolescence, adverse changes in the neighborhood, or any other reason.

Discount
The difference between face value of an installment note and mortgage or deed of trust, and the present cash value.

Discount Points
Fees paid to a lender to reduce the interest rate.

Documentary Tax Stamps
Stamps affixed to a deed showing the amount of transfer tax.

Dower
The rights of a widow or child to part of a deceased husband's or father’s property.

Down Payment
The amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs. Example: John buys a house for $100,000 and obtains a loan for $80,000. His down payment is $20,000.

Dragnet Clause
A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet.

Due on Interest
A clause inserted in a mortgage that allows the lender to call the loan due and payable at its option upon the transfer of the property also known as paragraph "17" in FNMA/ FHLMC Mortgage.

Due on Sale Clause
A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.

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E

Earnest Money
A deposit made by a buyer of real estate towards the down payment to evidence good faith. This money is typically held by the real estate brokers or the escrow company.

Easement
The right to use the land of another for a specific purpose. Easements may be temporary or permanent. Example: The utility company may need an easement to run electric lines.

Effective Interest Rate
The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Eminent Domain
The right of the government or a public utility to acquire property for necessary public use by condemnation, with proper compensation to the owner.

Encroachment
A building, a part of a building, or an obstruction (e.g.. a fence or a wall) that physically intrudes upon or overlaps into the property of another.

Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Entitlement
The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

Equal Credit Opportunity Act (ECOA)
Is 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
Equity = Property Value - Loans/Liens Against the property. Equity is typically expressed as a percentage of the property value.

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

Equity Sharing
Joint ownership of a property between the owner/occupant and the owner/investor, that results in tax advantages for both parties. Upon sale of the property the joint owners split profits based on the percentage they own.

Escheat
The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.

Escrow
Definition #1: Neutral third party that handles all funds in a real estate transaction. The buyer puts his deposit into escrow, the lender funds the loan into escrow. Escrow pays the real estate brokers commission, pays off any loans/liens against the property, pays real estate taxes and any other fees associated with the transaction and sends the balance of the money to the seller.
Definition #2: Escrow payment - see impound account.

Executor (Executrix - feminine for Executor)
A person named in a will to carry out its provisions for the disposition of the estate.

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F

Fannie Mae
See Federal National Mortgage Association.

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

Farmer's Home Administration (FmHA)
An agency, within the U.S. Department of Agriculture, that administers assistance programs for purchasers of homes and farms in small towns and rural areas.

Federal National Mortgage Association (FNMA, Fannie Mae)
Purchases loans from lenders, securitizes them and sells FNMA mortgage backed securities on wall street.

Federal Home Loan Bank Board (FHLBB)
Provides financing to farmers.

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
Purchase loans from members of the Federal Reserve and the Federal Home Loan Bank Systems, securitizes them and sells FHLMC mortgage backed securities on wall street.

Federal Housing Administration (FHA)
An agency within the U.S. Department of Housing and Urban Development (HUD) that administers loan programs, issues loan guarantees to make more housing available.

Federal Reserve System
The central federal banking system that regulates and provides services to member commercial banks. Also has the responsibility for conducting federal monetary policy.

Fee Simple (Fee Absolute or Fee Simple Absolute)
Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owners life and upon his death the property descends to the owner's designated heirs.

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 ($124,875), they are generous enough to handle moderately-priced homes almost anywhere in the country.

FHA Mortgage 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 to insure the loan with FHA. 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.

Fidelity Bond
An assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds. Example: A landlord employs a clerk who collects rents. To safeguard these funds during the collection process, the landlord purchases a fidelity bond the clerk.

Fiduciary
A person in a position of trust or responsibility with specific duties to act in the best interest of a client. A real estate broker is a fiduciary for his/her clients.

Finance Charge
Interest charged by a lender.

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

First Mortgage
A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages. See also second mortgage.

Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

Fixture
Improvements or personal property attached to the land so as to become a part of the real estate. Fixtures are transferred to the buyer upon sale of the property. To determine whether an item is a fixture include:

  • Intent (was it intended to be part of the property)
  • How is it fixed ?
  • Is the fixture essential to the property ?
  • Relationship - was the fixture intended to be a part of the tenant's business?

Example: John sells his house to Mary. John wants to take the chandelier because he states it is personal property. Mary wants the chandelier to stay because she believes it is a fixture.

Flood Insurance
An insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone.

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

Foreclosure (Repossession)
A legal process by which the lender forces a sale of a property because the borrower has not met the terms of the mortgage.

Freddie Mac
See Federal Home Loan Mortgage Corporation.

Free and clear
A property that has no liens.

FSBO
For sale by owner. A property for sale that is not listed with a real estate broker.

Fully Indexed Rate
The fully indexed rate = value of the index + margin.

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G

General Warranty Deed
A deed in which the grantor (seller) agrees to theprotect the grantee (buyer) against any other claim to title of the property. See also warranty deed.

Ginnie Mae
See Government National Mortgage Association.

Good Faith Estimate
A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Government National Mortgage Association (GNMA)
A government agency part of HUD that buys VA and FHA loans from lenders, securitizes them and sells Ginnie Mae securities to investors.

Grace Period
A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Grantee
That party in the deed who is the buyer or recipient.

Grantor
That party who is the seller or the giver.

Graduated Payment Mortgage (GPM)
A mortgage that has lower payments initially (with potential negative amortization) which increase each year until the loan is fully amortized.

Grandfather Clause
The clause in a law permitting the continuation of a use, business, etc., which was permissible but because of a change in the law is now no longer permissible.

Gross Income
For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

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.

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H

Hazard Insurance (Fire Insurance, Homeowners insurance)
Insurance on a property against fire and other risks. A homeowners policy may have additional coverage for theft, liability, etc that a fire insurance policy may not cover.

Homeowners Association
An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.

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

Home Equity Line of Credit
A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan
A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Homestead
Status provided to a homeowner's principal residence in some states that protects the home against judgments up to specified amounts.

Homestead Exemption
Available in some states - this causes the assessed value of a principal residence to be reduced by the amount of the exemption for the purposes of calculating property tax. Example: John's principal residence is assessed at $100,000 and the homestead exemption is $7,000. His property taxes will be based on $93,000.

Home Warranty Plan
Insurance that covers appliances, heating systems, etc. Typically purchased at the time of closing.

Housing and Urban Development
A U.S. government agency established to implement certain federal housing and community development programs.

Housing Code
A local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.

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).

HUD 1
A closing document required by HUD that outlines the settlement cost of a loan. The closing agent prepares this document and sends it to the buyer upon closing.

Hypothecate
To pledge a property as security without having to give up possession of it.

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I

Improvements
Additions to raw land such as buildings, streets, etc. that add value to the land.

Impound Account
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.

Income Approach
A method used by an appraiser to estimate the value of a property based on the income it generates.

Income Property
Real estate that generates rental income. Examples: apartment buildings, office buildings and shopping centers.

Index
A statistic that indicates some current economic of financial condition. Indexes are used to make adjustments in variable rate loans.

Ingress and Egress
The right to go in and out over a piece of property but not the right to park on it. See also easement.

Installment Sale
See land contract.

Insured Mortgage
A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

Interest Rate
The periodic charge, expressed as a percentage, for use of credit.

Interest Rate Cap
A provision of an ARM limiting how much interest rates my increase in a given adjustment period. See also lifetime cap.

Investor
A money source for a lender.

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

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J

Joint and Several Liability
A creditor can demand full repayment from any and all of those who have borrowed. Each borrower is liable for the full debt, not just the prorated share.

Joint Ownership Agreement
An agreement between owners defining their rights, ownership, monetary obligations and responsibilities. This could be between and investor and an occupant or the occupants. If an investor is involved, the investor does not take depreciation deductions and none of the occupant's payment is deemed rent for tax purposes.

Joint Tenancy
Ownership of a property by two or more people, each of whom has an undivided interest with the right of survivorship. Example: John and Mary own a house in joint tenancy. Each owns half of the entire (undivided) property. If John dies, Mary will own the entire property and vice versa.

Judgment
The decision of a court of law stating that one individual is indebted to another and fixing the amount of indebtedness. Judgments, when recorded, become a lien on real property owned by the defendant.

Judgment Lien
The claim on the property of a debtor resulting from a judgment.

Jumbo Loan
Loan size that is larger than the limit established by Fannie Mae or Freddie Mac.

Junior Mortgage
A mortgage subordinate to another mortgage. In the case of a foreclosure a senior mortgage will be paid prior to a junior mortgage.

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K

Kicker
A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan.

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L

Land Contract
A real estate installment selling arrangement whereby the buyer may use and occupy land, but no deed is given by seller until the sales price has been paid.

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 nonprofit organization with an option to buy, and with each month's rent payments 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.

Lease with Option to Purchase
A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease.

Leasehold Estate
Tenant's right of possession for a specific period of time under a lease agreement.

Legal Description
Legally acceptable identification of real estate by one of the following:

  • the government rectangular survey
  • metes and bounds
  • recorded plat (lot and block number)

Lessee
A person to whom property is rented under a lease. (Tenant)

Lessor
A person who rents property to another under a lease. (Landlord)

Lien
A claim against the property for the payment of a debt, judgment, mortgage or taxes. Example: Unpaid contractors may file a mechanic's lien.

Life Estate
An estate in real property for the life of a living person. The estate then reverts back to the grantor or to a third party.

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

Lis Pendens
Latin for "lawsuit pending." Recorded notice that litigation is pending on a property. Most lenders will require the clearance of the Lis Pendens prior to closing.

Loan Application
A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.

Loan Commitment
See Commitment (Letter).

Loan Origination Fee or Points
Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest.

Loan-to-Value Ratio (LTV)
The loan amount divided by the value of the property.

Loan Servicing
The act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors.

Lock or Lock In
A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

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M

Margin
A fixed number the lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Marketable Title
Title that is free of liens, clouds and other legal defects and hence is readily acceptable by a buyer.

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 termination or due date of a note, time, draft, acceptance, bill of exchange, or bond. The date a time instrument or indebtedness becomes due and payable.

Mechanics Lien
The right of an unpaid contractor or subcontractor to file a lien against property to recover the amount due to him/her.

Minimum Payment
The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Mortgage
A written instrument that creates a lien upon real estate as security for the payment of a specified debt.

Mortgage Backed Security (MBS)
A bond or other financial obligation secured by a pool of mortgage loans.

Mortgage Banker
Definition #1: Specializes in originating and servicing loans. They generally sell their loans to investors, but may continue to service them.
Definition #2: Arranges financing for a borrower by placing loans with lenders. Mortgage brokers are paid a fee by the borrower or the lender when a loan closes.

Mortgage Banking
The packaging or mortgage loans secured by real property to be sold to a permanent investor with servicing retained for the life of the loan for a fee. The origination, sale, and servicing of mortgage loans by a firm or individual. The investor-correspondent system is the foundation of the mortgage banking industry and the Secondary Market.

Mortgage Broker
Like mortgage bankers, mortgage brokers take loan applications and process the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L's, banks, or investment bankers.

Mortgagee
The lender.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent.

Mortgage Insurance Premium (MIP)
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.

Mortgage Life Insurance
Term life insurance designed to pay off the mortgage balance if the insured person dies.

Mortgage Loan
A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgage Note
A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgagor
The borrower.

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N

Negative Amortization
An increase in principal balance which occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance.

Negotiable Rate Mortgage (RBM)
Loan in which the interest rate is adjusted periodically.

Net Effective Income
The borrowers gross income minus federal income tax.

Net Worth
The value of all assets, including cash, less total liabilities. It is often used as an underwriting guideline to indicate an individual's creditworthiness and financial strength.

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.

Non-conforming Loan
Loans that do not comply with Fannie Mae or Freddie Mac guidelines.

Note
A written instrument that acknowledges a debt and promises to pay.

Notary Public
One authorized to take acknowledgments of certain types of documents, such as deeds, contracts, and mortgages.

Notice of Default
A letter sent to the defaulting party as a reminder of the default.

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O

Offer
An expression of willingness to purchase a property at a specified price.

Offeree
One who receives the offer. When the buyer makes an offer to the seller the seller is an offeree.

Offeror
One who makes the offer. When the buyer makes an offer to the seller the buyer is an offeror.

Office of Comptroller Currency
The oldest federal financial regulatory body that oversees the nation's federally chartered banks.

Office of Thrift Supervision
The OTS charters federal thrift institutions and is the primary regulator of all federal and many state-chartered thrift institutions.

Open House
A method of showing a home for sale to prospective buyers where the home is left open for inspection by those who may be interested in making a purchase.

Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions.

Origination Fee
See Loan Origination Fee.

Optionee
One who receives or purchases an option.

Optionor
One who gives or sells an option.

Oral Contract
A verbal agreement. Verbal agreements for the sale or use of real estate are normally unenforceable.

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

Owner of Record
The individual named on a deed that has been recorded at the county recorder’s office.

Owner Occupant
A tenant of a residence who also owns the property.

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P

Package Mortgage
Mortgage covering both real and personal property.

Paper
A mortgage, deed of trust or land contract provided in lieu of cash.

Partial Release
A provision in a mortgage that allows some of the property secured to be freed from serving as collateral.

Participation Mortgage
A mortgage that allows the lender to share in part of the income or resale proceeds.

Pass Through Certificates
Interests in a pool of mortgages sold by mortgage bankers to investors. Money collected as monthly mortgage payments is distributed to those who own certificates.

Payment Cap
See Cap (payment).

Permanent Loan or Mortgage
A mortgage for a long period of time. Often referred to as the mortgage that pays off a construction loan on a completed property.

Permit
Definition #1: A document issued by a government regulatory authority that allows the bearer to take some specific action.
Definition #2: An occupancy permit allows the owner of a building to occupy or rent the building.

PITI
Abbreviation for principal, interest, taxes and insurance, which may be combined in a single monthly mortgage payment.

Planned Unit Development (PUD)
A zoning classification that allows flexibility in the design of a subdivision. PUD's include individually owned units as well as some common space that is jointly owned.

Plat
A plan or map of a specific land area.

Plat Book
A public record containing maps of land, showing the division of the land into streets, blocks, and lots and indicating the measurements of the individual parcels.

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.

PMI
See Private Mortgage Insurance.

Points
Fees paid to lenders. 1 point = 1% of the loan amount. On a $100,000 loan 1 point is $1000. Points may be further classified into origination points or discount points.

Portfolio Loan
A loan that is held as an investment by a bank or savings and loan, and NOT sold on the secondary market to investors.

Power of Attorney
A written document authorizing a person to act on the behalf of another person. That person does not have to be an attorney. See Attorney-in-fact.

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

Prepaid Expenses
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.

Prepaid Interest
Prepaid interest is the interest charged to borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the following month, the lender will charge 12 days of prepaid interest.

Prepayment
Full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property, or refinances the existing loan.

Prepayment Penalty
Fees paid by the borrower if they pay the loan before its due date.

Primary Mortgage Market
Companies that originate and service mortgage loans (banks, savings & loans, credit union, mortgage bankers, institutional lenders) make up the primary mortgage market. See also secondary mortgage market.

Prime Rate
The lowest commercial interest rate charge by a bank on short term loans to their most credit worthy customers. View current prime rate.

Principal
Amount of debt, not including interest. The face value of a note, mortgage, etc.

Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 2 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance payments are normally made annual or monthly. An impound account may be required.

Probate
Court process to establish the validity of the will of a deceased person.

Property Tax
A government levy based on the market value (as assessed by the county assessor's office) of the property.

Prorate
To divide in proportionate shares, such as taxes, insurance, rent, or other items which the buyer and seller share as of the time of closing, or other agreed upon time.

Public Sale
An auction of property with notice to the general public.

Purchase Agreement
See Agreement of Sale.

Purchase Money Mortgage
A mortgage used to finance the purchase of a property.

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Q

Qualifying Ratios
Comparisons of a borrower's debts and gross monthly income.

Quiet Title (Action)
A court action to settle a title dispute.

Quit Claim Deed
A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

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R

Radon
A radioactive gas found in some homes that in sufficient concentrations can cause health problems. Your lender may require a radon check on your home.

Rate Lock
See Lock.

Real Estate
Land and anything permanently affixed to the land, and those things attached to the building.

Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of either the borrower or seller, or in some cases both partied.

Real Estate Broker
An individual who often owns a real estate company or is in a management position, and who is licensed to represent a buyer or a seller in a real estate transaction.

Real Estate Investment Trusts (REIT)
A trust that uses investors’ money to purchase and manage real estate. Investors realize some of the tax advantages in owning real estate.

Real Estate Settlement Procedure Act (RESPA)
A law that states how mortgage lenders must treat those who apply for real estate loans on property with 1-4 units. Example: A lender is required to provide a good faith estimate of closing costs within 3 days of an application being filed.

Realtor®
A real estate professional who is a member of the National Association of Realtors.

Reconveyance
When a mortgage is paid off in full, the lender conveys the property back to the owner.

Recording
The act of entering into a book of public records instruments affecting title to the real property. A lender requires that a deed of trust or a mortgage be recorded to evidence the debt against the property.

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

Recision
The cancellation of a contract. When refinancing a mortgage on a principal residence the law gives the homeowner three days to cancel the contract

Recourse
The right of the holder of a note secured by a mortgage or deed of trust to claim money from the borrower in default in addition to the property pledged as a collateral.

Redlining
The practice of refusing to provide loans or insurance in a certain neighborhood.

Refinancing
Repaying an existing loan from the proceeds of a new loan on the same property.

Regulation Z (Reg Z)
A federal regulation requiring creditors to provide full disclosure of the terms of a loan including the terms of the loan and the annual percentage rate (APR).

Reissue Rate
A charge for a title insurance policy if previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

Rent with Option to Buy
See Lease-Purchase Mortgage Loans.

RESPA
See Real Estate Settlement Procedure Act.

Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer.

Reverse Annuity Mortgage
Form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."

Reverse Mortgage
A mortgage used by the elderly that provides income as long as they live in exchange. Payments made cause the loan principal to increase.

Right of Survivorship
The right of a surviving joint tenant to acquire the interest of a deceased joint owner.

Rollover Loan
A loan that is amortized over a long period of time (e.g. 30 yrs) but the interest rate is fixed for a short period (e.g. 5 yrs). The loan may be extended or rolled over, at the end of the shorter term, based on the terms of the loan.

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S

Sales Agreement or Sales Contract
See Agreement of Sale.

Savings & Loan
Depository institutions that specialize in originating, servicing and holding mortgage loans primarily on owner occupied residential property.

Secondary Mortgage Market
The market where banks, savings & loans and mortgage bankers can sell mortgages to investors like Fannie Mae or Freddie Mac.

Second Home
Also known as a vacation home. This home is different from an investment property as it is not rented, but used occasionally by the owners.

Second Mortgage
A subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second mortgages generally carry a higher rate than a first mortgage since they represent a higher risk for an investor.

Section 8 Housing
Privately owned rental units participating in the low-income rental assistance program. Landlords receive subsidies on behalf of qualified low-income tenants, allowing the tenants to pay a limited proportion of their incomes toward the rent.

Section 1031
The section of the IRS that deals with tax free exchanges of certain property. General rules for tax free exchanges are that the properties must be:

  • Exchanged
  • Similar
  • Used for business or as an investment

Securities and Exchange Commission (SEC)
The federal agency which regulates securities and the securities business. It is involved in real estate and mortgage lending when MBS are issued.

Security
Property that serves as collateral for a debt.

Security Interest
An interest that a lender takes in the borrower's property to assure repayment of a debt. See Mortgage and Deed of Trust.

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

Servicing
The act of billing, collecting payment, filing reports, managing impound accounts and handling defaults on a mortgage.

Settlement
See Closing.

Settlement Cost (HUD guide)
A booklet that provides an overview of the lending process and is required to be given to consumers after the loan application is completed.

Settlement Statement
See HUD 1

Shared Appreciation Mortgage
A residential loan with a fixed interest rate that is below market, with the lender entitled to a specified share of appreciation of the property over an agreed upon time interval.

Sheriff's Deed
A deed given at the sheriff's sale in the foreclosure of a mortgage.

Single Family Housing (SFR)
A type of residential structure designed to include one dwelling. Example: Town houses, detached units.

Special Assessment
A special tax imposed on property, individual lots or all property in the neighborhood to pay for improvements - street lights, sidewalks, etc.

Special Warranty Deed
The grantor does not warrant against title defects arising from conditions that existed before he/she owned the property. The seller warrants that he/she has done nothing to impair title.

Spec House
A single family dwelling constructed by a builder in anticipation of finding a buyer.

Specific Performance
A legal action in which the court requires a party to a contract to perform the terms of the contract when the party has refused to fulfill its obligations.

Standard Uniform Loan Application (Form 1003)
A standard loan application widely used in the mortgage industry.

Subdivision
A tract of land divided into lots suitable for home building purposes.

Subordination
A loan in a lower priority, for example a second mortgage is subordinate to a first.

Subject To (Purchasing subject to a mortgage)
The buyer agrees to make payments on the existing mortgage, without notifying the lender. The seller remains liable for making payments on the loan if the buyer does not make the mortgage payment. The buyer is not personally liable for mortgage payments, but must make payments to keep the property.

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 city, county, or state housing agencies, foundations, or nonprofit 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
Map made by a licensed surveyor who measures land and charts its boundaries, improvements and relationship to the property surrounding it.

Sweat Equity
Value added to a property due to improvements made personally by the owner.

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T

Takeout Financing
A commitment to provide permanent financing upon completion of construction. The take out loan normally pays off the construction loan.

Tax Lien
Lien for nonpayment of taxes.

Tax Sale
Public sale of a property at an auction by a government authority as a result of non-payment of taxes.

Teaser Rate
A low initial interest rate on a mortgage.

Tenancy at Sufferance
Tenancy established when a person who had been a lawful tenant wrongfully remains in possession of property after expiration of a lease.

Tenancy at Will
A license to use or occupy land and buildings at the will of the owner. The tenant may decide to leave the property at any time or must leave at the landlord’s will.

Tenancy by the Entirety
A form of ownership by husband and wife whereby each owns the entire property. In event of the death of one, the survivor owns the property without probate.

Tenancy for Years
Created by a lease for a fixed term, such as 6 months, 2 years, etc.

Tenancy in Common
Ownership of a property by 2 or more persons, each of whom has an undivided interest, without the right of survivorship. Upon the death of one of the owners, the ownership share of the deceased is inherited by the beneficiary designated on the owner's will.

Tenancy in Severalty
Ownership of property by one person.

Term
The period of time between the commencement date and termination date of a note, mortgage, legal document, or other contract.

Time is of the Essence
Legal phrase in a contract requiring all references to specific dates and times noted in the contract be interpreted exactly.

Time Share
A form of property ownership under which a property is held by a number of people, each with the right of possession for a specified time interval. Time sharing is used mostly for vacation properties.

Title
Evidence that the owner of the property is in lawful possession. Evidence of ownership.

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

Title Insurance
An insurance policy which protects the insured against loss arising from defects in title. Title insurance policies are typically obtained for the buyer and the lender.

Title Report
A document indicating the current state of title. The report includes information on the current ownership, outstanding deeds of trust or mortgages, liens, easements, covenants, restrictions, and any defects.

Title Search
An examination of the public records to determine the ownership and encumbrances affecting the property.

Town House
Residence which normally has 2 or more floors and is attached to other similar units. Town houses are commonly found in planned unit developments (PUDs) and condominiums.

Tract
A parcel of land, generally held for subdividing.

Transaction Fee
A fee which may be charged each time you draw on a home equity credit line.

Transfer Tax
Tax paid to the city, county, state or other government entity upon sale of a property.

Triple-Net Lease
One in which the tenant pays all operating expense of the property. The landlord receives the net rent.

Trust Account
A separate bank account maintained by a broker or escrow company to handle all money collected for clients. A broker may not commingle these funds with his/her own funds.

Trust Deed
See Deed of Trust.

Trustee
A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

Truth in Lending
See Regulation Z.

Two-Step Mortgage
A mortgage in which the borrower receives a fixed rate for a specified number of years (most often 5 or 7), and then receives a new interest rate based on the terms in the note.

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U

Underwriting
The decision whether to make a loan to a potential home buyer based on credit, income, employment history, assets, etc.

Undivided Interest
An ownership right to use and possess a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.

Unincumbered Property
Real estate with free and clear title.

Unimproved Property
Land that has received no development.

Unrecorded Deed
A document that transfers title from the grantor to the grantee without recording (i.e. providing public notice).

Usury
Charging a rate of interest greater than that permitted by law.

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V

Vacation Home
See second home.

VA Loan
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
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.

Variable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Variable Rate Mortgage
See Adjustable Rate Mortgage

Verification of Deposit (VOD)
A document signed by the borrower's bank or other financial institution verifying the account balance and history.

Verification of Employment
A document signed by the borrower's employer verifying his/her starting date, job title, salary and probability of continued employment.

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W

Waiver
The voluntary renunciation, abandonment, or surrender of some claim, right, or privilege.

Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee. Wraparound results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

Warehousing
Mortgage bankers and other financial institutions make loans that are then periodically sold on the secondary market. After the loan is made but before it is sold - the loan is said to be in the lenders warehouse.

Warranty Deed
A deed conveying the title to a property with a warranty of a clear marketable title.

Wraparound Mortgage
A loan arrangement whereby the existing loan is retained and a new loan is added to the property. Example: The seller sells his/her property for $200,000. The buyer puts $80,000 down. The seller has an existing loan balance of $100,000 for a remaining period of 25 years at an interest rate of 6%. The seller then makes a wraparound mortgage to the buyer, (where the seller acts as a lender) for $120,000 at 8%. The seller has to continue making payments on his old loan. They buyer has to pay the seller on the new loan. The buyer may at a later date refinance the property and close both loans.

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Y

Yield
Ratio of income from an investment to the total cost of the investment over the period of the investment.

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Z

Zero Lot Line
A form of housing where individual units are on separate lots, but are attached to one another. Example: PUD, townhouse.

Zoning
Areas may be zoned to specify use of a property i.e. residential, commercial, agricultural. These zoning ordinances are normally enforced by the city or the county.

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