Real Estate Loan Glossary

Acceleration Clause
Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan.

Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, which may vary from 6 months to 7 years, depending upon the loan.

Amortization
Amount of loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, and includes accrued interest on the outstanding balance

Amount Financed
Dollar amount calculated by taking the principal amount of the loan and subtracting those amounts which are financed as part of the principal.


Annual Percentage Rate (APR)
An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser."

Appraisal Fee
A fee paid to the lender to cover the cost of a written report that estimates the monetary value of a property on the open market.

Assumption
Assuming a mortgage is simply taking the loan over from the seller, per a contractual agreement between buyer and seller, and becoming liable for the repayment. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charge will apply. The lender of record should be contacted. Lender approval may be needed, and the seller may continue to have liability for the mortgage.

Balloon (Payment) Mortgage
Usually a short-term fixed-rate loan that 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 note and deed of trust.

Broker
An individual in the business of assisting in arranging funding or negotiating contracts as an intermediary for a client. Brokers usually charge a fee or receive a commission for their services.

Buydown
Interest rate is lowered by an upfront payment or subsidy, thus reducing the interest during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires. This payment may be made by the Buyer, a lender, a home builder or even the seller as a concession negotiated within the purchase contract.

Caps (Interest)
Consumer safeguards that limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Caps (Payment)
Consumer safeguards that limit the amount monthly payments on an adjustable rate mortgage may change.

Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, documents are signed and the warranty to the property is awarded to the Purchaser. Also called settlement.

Closing Agent
A closing or settlement agent coordinates the various closing activities including preparing and recording the closing documents and disbursing funds after settlement or closing. Typically, a title company employee conducts the closing.

Closing Costs
Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing range from 3 to 6 percent of the mortgage amount.

Closing Date
Per contract, the date of the final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract.

Collateral
In a real estate contract another word for collateral would be earnest money-defined as: A sum of money paid by the purchaser of real estate at or about the time a purchase contract is entered into with a seller. Such deposit represents a portion of the eventual down payment and is considered a binder of the contract.

Commitment
An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions. It is also an agreement by the title company to provide title insurance.

Construction Loan
A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Contingent
A condition that must be met before a contract is legally binding. Home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector. A contingency for financing specifies that if you do not get the mortgage financing you need to purchase the house at the terms you want, the offer is void and you will be refunded your deposit.

Conventional Loan
A mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FmHA).

Credit
Something granted to an individual especially to finance the purchase of consumer goods.

Credit 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). See Housing Expenses-to-Income Ratio.

Credit Rating/Credit Score
A numerical value that ranks a borrower's credit risk at a given point in time. Your credit score is based on all the information in your credit report. This information is converted into a number that lenders use to determine whether you are likely to repay your loan in a timely manner.

Credit Report
A report of an individual's credit history, including open and fully repaid debt. The credit report is prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness

Credit Report Fee
A fee paid for a report of an individual's credit history, including open and fully repaid debt. The credit report is prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Deed of Trust
This document is used in place of a mortgage to secure the payment of a note.

Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Deferred Interest
See Negative Amortization.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

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

Discount Points
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). The interest rate may be "bought down" or lowered by paying discount points to secure a more attractive interest rate.

Down Payment
Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 0 to 20 percent of the sales price on conventional loans, and no money down up to 5 percent on FHA and VA loans.

Due-On-Sale Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment. This amount is typically in the form of a personal check or money order, however a promissory note may also be used.

Equal Credit Opportunity Act (ECOA)
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
The difference between the fair market value and current indebtedness, also referred to as the owner's interest. Current indebtedness would include all mortgages, and equity lines which secure the property as collateral.

Escrow
Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." In Nevada, this neutral third party is typically a Title Company. Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

Fannie Mae
See Federal National Mortgage Association.

Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Mortgage Corporation (FHLMC)
Also called Freddie Mac. A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA)
Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

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, they are generous enough to handle moderately-priced homes almost anywhere in the country. Not all homes meet the requirements set forth by FHA to qualify for this type of financing.

FHA Mortgage Insurance
Requires a small fee (up to 3 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 $2,250 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, the more years the fee must be paid.

FICO
This stands for the Fair Isaac Company which develops credit bureau risk scores using a composite of the three credit reporting companies. These scores are called FICO scores. Fair Isaac scores are used by lenders and others to assess the credit risk of prospective borrowers and/or existing customers in order to help make credit and marketing decisions. These scores are derived solely from the information available on credit bureau reports.

Finance Charge
The cost of credit over the life of the loan, expressed as a dollar amount. This includes not only interest, but any other charge which is required as a condition of receiving credit.

Fixed-Rate Mortgage
A loan on which the interest rate is set for the term of the loan.

Foreclosure
A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt. Often times, late fees and attorney charges are added to this amount.

Good-faith Estimate
The good-faith estimate is a report from the lender that states the costs associated with obtaining a mortgage. It is based on the lender's typical loan origination costs for the area where your home is located. The lender is required by law to provide a copy of this document to the borrower.

Good Funds
Nevadais a "good funds" state which means any monies brought to closing must be in negotiable funds such as a cashier's check or the credit union equivalent to such. Actual cash would indeed be considered "good funds" but most closing companies are not in a position to handle actual cash.

Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Gross Monthly Income
The total amount the borrower earns per month, before any expenses are deducted.

Guarantee
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.

Hazard Insurance
A property insurance policy that protects against loss resulting from physical damage to property due to hazards such as fire, flood and windstorm.

Homeowner Association Fees
A fee charged by the homeowners association for maintaining the common elements of a subdivision, such as roads and common areas owned by the association plus the costs to run the association.

Home Equity Loan A line of credit made against the equity (amount of appraised value less the outstanding mortgage) in the borrower's home.

Home Inspection
An objective examination of the physical structure and systems of a home.

Home Warranty
A home warranty is an annual service plan that provides for the repair or replacement of covered systems and appliances in the home that break down due to normal wear and tear.

Homeowner's Insurance
An insurance policy which protects homeowners from financial losses related the ownership of real property. In addition to covering losses due to vandalism, fire, hail, etc., most policies also provide theft and liability coverage. Flood related damage requires a separate flood insurance policy or rider.

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 Settlement Statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include loan fees, points, and initial escrow amounts, and other fees. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."

Impound
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.

Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Interest Rate
The percentage rate at which interest accrues on the mortgage. It is also the rate used to calculate the monthly payments.

Investor
Money source for a lender.

Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan Closing
The final transfer of the ownership of a property from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded.

Loan Discount Points
A fee paid by the borrower at closing to reduce the interest rate on a mortgage. A point equals 1 percent of the loan amount, reducing the interest rate by 1/6 to 1/8 percent.

Loan Origination Fee
The loan origination fee covers the administrative costs of processing the loan. It is often referred to as "points". One point is 1 percent of the mortgage amount. An example: a 100,000 mortgage with a loan origination fee of 1 point would be a fee of $1,000.

Loan-To-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock-in
An interest rate guaranteed not to increase for a period of time by a lender.

Maintenance and Repair
Proper care and preventative maintenance will add to the enjoyment of your home, protect your valuable investment and help assure the highest resale price when the time comes to sell your home. Your mortgage papers also require you to maintain your home in support of your loan.

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.

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

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

Mortgage Loan Application
Lenders use the information you provide on the loan application to evaluate whether or not they can give you a loan, and if so, the amount of money they can lend you.

Mortgage Payment
The monthly payment to made to your lender that reduces the debt once a month. Your monthly mortgage payment includes four components. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

Mortgagee
The lender.

Mortgagor
The borrower or homeowner.

Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

Net Effective Income
The borrower's gross income minus federal income tax.

Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Note
A document signed by the borrower of a loan that states the loan amount, the interest rate, the time and method of repayment and the obligation to repay. The note serves as the evidence of debt.

Occupancy Date
The date in a residential real estate contract defining when the buyer may actually take possession and/or move in to the property, also referred to as possession date. It is highly suggested whenever possible that the occupancy date be the same date as the closing date.

Offer
When you make an offer on a house, it means you are making a formal bid to buy a home. You can work with your REALTOR® to put together a written bid that includes, for example, the address of the home, the sales price, the type of financing you will use to purchase the home, and a target date for closing and occupancy. An earnest money deposit typically accompanies the offer. Your REALTOR® can provide guidance on other elements of the offer.

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

Personal Property
Any property that is not real property. An example of personal property is furniture. Often real property is distinguished between personal property if it is fixed or attached to the property.

PITI
Principal, interest, taxes, and insurance. Also called monthly housing expense.

Points
See Discount Points

Possession Date
The date the purchaser may take possession of the property.

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Predatory Lending
Deceptive and fraudulent sales tactics used when a party is taking out a mortgage or home equity loan. These tactics can result in interest rates and monthly payments higher then they should be. Sometimes interest rates and other costs are so high that home owners can't make their payment and end up losing their home. If you think you have been a victim of predatory lending go to www.stopmortgagefraud.com.

Prepaids
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
Paying of interest before it is due. Mortgage interest is paid for the previous month. Buyers may have to pay interest at closing for that month, and not be required to make a mortgage payment until the beginning of the second month following the closing.

Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment, and in some cases no down payment. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

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

Real Estate Sales Professional
A person licensed to negotiate and transact the sale of real estate on behalf of the either the buyer or the property owner.

REALTOR®
A real estate broker or an broker associate holding active membership in a local real estate board affiliated with the National Association of REALTORS®.   REALTORS® adhere to the Code of Ethics, which is based on professionalism and protection of the public.

Recision
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

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

Refinance
Paying off an existing loan with the proceeds from a new loan using the same property as security. Usually done to lower the interest payment or take cash from the equity in the property.

Renegotiable Rate Mortgage (RRM)
A loan in which the interest rate is adjusted periodically. See Adjustable Rate Mortgage.

Real Estate Settlement Procedures Act (RESPA)
RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.

Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

Sales Contract
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold. The agreement states the terms and conditions under which a property will be sold.

Schedule of Payments
The day of the month, timing, number and dollar amount of payment due over the entire course of the loan.

Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance.

Settlement
See Closing.

Settlement Costs
See Closing Costs.

Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in return for which a lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

Term Mortgage
See Balloon Payment Mortgage.

Title
A document that gives evidence of an individual's ownership of property.

Title Insurance
A policy, usually issued by a Title Insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.

Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Total of Payments
The total dollar cost of the loan to you, assuming all payments are made on time.

Truth in Lending Act (TILA)
The Truth in Lending Act is a United States federal law designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs so you can make informed choices about credit. There are five terms which are required to be disclosed: Finance Charge, Annual Percentage Rate (APR), Amount Financed, Schedule of Payments and Total of Payments.

Underwriting
The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

Up-front Costs
Expenses paid at time of property closing.

VA Loan
A 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 Fee
A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year 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 Mortgage (VRM)
See Adjustable Rate Mortgage.

Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment
A document signed by the borrower's employer verifying his/her position and salary.

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.