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Acceleration Clause
A provision in a note giving the lender the right to demand immediate repayment of the entire balance if the borrower either violates a contractual requirement or is found to have provided false information.

Adjustments
Money credited to either/both buyer and seller at closing, including real estate taxes, price adjustments based on disclosures in the inspection, etc.

Adjustable Rate Mortgage (ARM)
A mortgage on which the interest rate, after an initial period, can be changed by the lender. ARMs usually link their rate changes to a pre-selected interest rate index such as the “Prime Rate” or LIBOR.

Agent
A licensed person who represents the seller (and/or buyer) and who provides market assessment, sales or buying strategy, recommends various services and sources important to the seller or buyer.

Amortization
The repayment of principal from mortgage payments that is greater than the interest due. Also the same as the reduction in the loan balance (Payment – Interest = Amortization).

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Amortization Schedule
A table showing the interest and amortization due at the end of each month, and the total amount due. An amortization schedule may also show the tax and insurance payments made and the escrow account balance if these payments are made by the lender.

Annual Percentage Rate (APR)
A measure of the total cost of credit to the borrower that takes into account the interest rate, points charged, and other flat dollar charges.

Appraisal
Professional and unbiased written opinion of property’s value based on recent, comparable sales, quality of construction, current condition and style of architecture.

Assessor
A municipal or county official who determines the value of properties for the purpose of taxation.

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Assumption of Mortgage
The buyer assumes liability for an existing mortgage held by the seller, subject to approval by the lender.

Balloon (payment) 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.

Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.

Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buy-down
When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

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Cap
Loan financing conditions implemented by a borrower at the time of the application wherein the rates applied for and the points to be paid cannot rise if market rates rise, but they can decline if market rates decline. This is also known as a "Float-down". This option usually costs the borrower an additional fee because it is a more costly for the lender.

Cash-Out
Refinancing for an amount greater than the balance on the old loan plus any refinancing or settlement costs. The borrower takes "cash-out" of the transaction.

Closing
The final settlement at which time the title is transferred from seller to buyer, accounts are settled, new mortgages signed and all fees and expenses dispersed or satisfied.

Closing Costs
Costs that the borrower must pay at the time of closing, in addition to the down payment. Also referred to as settlement costs.

Collateral
Personal property pledged as the security for a debt. The mortgage is usually the collateral for the property itself.

Commission
A previously agreed upon percentage of the home’s sale price paid to the listing and selling agent(s).

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Conforming Mortgage
A loan eligible for purchase by either Fannie Mae or Freddie Mack, the two major Federal agencies that buy mortgages.

Construction Financing
The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house.

Conversion Option
The option to convert an Adjustable-Rate mortgage to a Fixed-Rate Mortgage at some point during the loan’s term. Usually more expensive than an Adjustable-Rate Mortgage that does not have this option.

Co-Signing
Assuming responsibility to repay somebody else's loan in the event that that person defaults on the loan.

Credit Report
A report from a credit bureau containing detailed information on an individual's credit history.

Credit Score
A single numerical score, usually between 400 and 800, that measures an individual's credit worthiness. The Credits Score is calculated by individual credit bureaus using a variety of factors, some of which include payment history, amount already borrowed, and credit-card debt. Each credit bureau uses their own criteria in calculating their credit score. The most widely used credit score is called FICO score, which was developed by Fair Issac Co.

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Debt Consolidation
Combining short-term debt, such as credit card, automobile, or student-loan debt, into a home mortgage loan.

Debt Service
The total of the borrower’s monthly payments required on credit cards, installment loans, home equity loans, and other debts.

Deed
A legal “instrument” that conveys the title to a property from seller buyer.

Default
Failure by the borrower to comply with the terms of the loan agreement. Usually default is triggered when a borrower is 90 days or more delinquent.

Delinquency
A mortgage payment that is more than 30 days late.

Demand Clause
A clause in the note that allows the lender to demand repayment of the loan at any time for any reason.

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Disclosure
Statement concerning the condition of the property for sale and the surrounding area.

Documentation Requirements
Information demanded by the lender regarding a loan applicant's income and assets that will determine if a loan meets the conditions for approval. The lender will specify how the supplied information will be used.

Down Payment
The difference between the purchase price of a piece of property and the loan amount. This can be expressed either in dollars or as a percentage of the price. For example, if the house sells for $100,000 and the loan is for $90,000, the down payment is $10,000 or 10%.

Due-on-Sale Clause
A provision of a loan contract that stipulates that if the property is sold, the loan balance must be repaid to the lender. A mortgage containing a due-on-sale clause is not an assumable mortgage.

Earnest Money
Money paid by the buyer at the time an official offer to purchase is submitted to the seller, intended to demonstrate the good faith of the buyer to complete the purchase. Earnest money applied against the purchase price; however, it may be forfeited if the buyer fails to complete the purchase under the terms of the sales contract.

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Equity
The difference between the value of a home and the outstanding loan balance on the home.

Escrow
An agreement between two parties whereby money (or possibly other objects of value) are placed with a third party for safe-keeping. The money will be released to one of the two parties of the original agreement when performance by the other party is performed. In home lending, it is common for lenders to require an escrow agreement by the borrower to pay a portion of taxes, interest and/or insurance each month.

Escrow Account
A third party account used to retain funds including the property owner’s real estate taxes, buyer’s earnest money or hazard insurance premiums.

Escrow Waiver
A provision in a loan program where the lender allows the borrower to make their tax and insurance payments directly. Normally, a lender requires that a borrower pay a portion of their taxes and insurance each month along with their mortgage payment and deposits the payments in an escrow account. The lender will then pay the taxes and insurance from that escrow account when they are due. Because a lender incurs additional risk when payments for taxes and insurance are not escrowed, an escrow waiver usually costs the borrower additional points or a higher interest rate.

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Fannie Mae
One of two Federal agencies that purchase home loans from lenders. Its purpose is to provide liquidity in the home-mortgage industry by providing cash to lenders so that those lenders can later issue more mortgages to new borrowers. Fannie Mae’s purchase guidelines greatly influence and determine the underwriting guidelines of most lenders.

Fees
The sum of all cash payments required by the lender at the time of the loan’s issuance. Origination fees and points are expressed as a percent of the loan. Additional fees are expressed in dollars.

FHA Mortgage
A mortgage where a guarantee is issued by the Federal Housing Administration to the lender that insures lender against loss. Similar to Private Mortgage Insurance (PMI), the borrower borrow pays a mortgage insurance premium, but the borrower can usually make a very low down-payment.

FICO Score
A single numerical score developed by Fair Issac Co that measures an individual's credit worthiness; this score is usually between 400 and 800. The credit score is calculated using a variety of factors, some of which include payment history, amount already borrowed, and credit-card debt. Each credit bureau uses their own criteria in calculating their credit score.

First Mortgage
The first-priority claim against the property in the event the borrower defaults on the loan.

Fixed Rate Mortgage
A mortgage where the interest rate is specified in the loan contract and remains unchanged throughout the term of the mortgage.

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Float
Allowing the rate and points to adjust in accordance with changes in market conditions. The borrower may elect to lock the rate and points at any time during the loan application process. Allowing the rate to float exposes the borrower to market risk.

Float-Down
Loan financing conditions implemented by a borrower at the time of the application wherein the rates applied for and the points to be paid cannot rise if market rates rise, but they can decline if market rates decline. This is also known as a "Cap." This option usually costs the borrower an additional fee because it is a more costly for the lender.

Foreclosure
The legal process by which a lender acquires possession of the property securing a mortgage loan when the borrower defaults.

Free and Clear Title
Title to a property which is free from any mortgage, lien, or other encumbrance.

Freddie Mac
One of two Federal agencies that purchase home loans from lenders. Its purpose is to provide liquidity in the home-mortgage industry by providing cash to lenders so that those lenders can later issue more mortgages to new borrowers. Freddie Mac’s purchase guidelines greatly influence and determine the underwriting guidelines of most lenders.

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Gift of Equity
A sale price below market value, where the difference is a “gift” from the sellers to the buyers. These usually occur between family members. Lenders will usually allow the gift to count as down payment.

Good Faith Estimate
The list of settlement charges that the lender is obliged to provide the borrower within three business days of receiving the loan application.

Grace Period
The period after the payment due date during which the borrower can pay without being hit for late fees.

Graduated Payment Mortgage
This mortgage offers low initial monthly payments which increase at a pre-determined rate, then cap at a final level for the duration of the mortgage.

Hazard Insurance
Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. Also known as “homeowners insurance.”

Home Equity Loan
A second mortgage, structured either as a lump sum loan or as a line of credit.

Home Inspection
A formal survey of a home’s structure, mechanical systems and overall condition, generally performed by a licensed professional inspector.

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Housing Expense
The total amount of money spent by a borrower for their home; it includes the mortgage payment, hazard insurance, property taxes, and homeowner association fees.

Housing Expense Ratio
The ratio of housing expense to borrower income, which is one factor used to qualify a borrower for a loan.

Interest
The pre-determined charge or fee paid to a lender by the borrower for the use of monies loaned.

Interest-Only Mortgage
A mortgage where the monthly mortgage payment consists of interest only for a period of time. During that period, there is no loan amortization (the loan balance remains unchanged.)

Interest Payment
The dollar amount of interest paid each month.

Interest Rate
The rate charged the borrower each period. This is usually quoted as a annual basis. A rate of 6%, for example, means a rate of 1/2% per month.

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Interest Rate Adjustment Period
The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period. As an example, using common terminology, a 3/3 ARM is one in which both periods are 3 years while a 3/1 ARM has an initial rate period of 3 years after which the rate adjusts every year.

Interest Rate Index
The specific interest rate series to which the interest rate on an ARM is tied, such as “LIBOR” or “Prime Rate.” The index used must be published regularly in a readily available source.

Interest Rate Ceiling
The highest interest rate possible under an ARM contract; same as "lifetime cap." It is often expressed as a specified number of percentage points above the initial interest rate.

Interest Rate Floor
The lowest interest rate possible under an ARM contract. Floors are less common than ceilings.

Interest Rate Increase Cap
The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points.

Interest Rate Decrease Cap
The maximum allowable decrease in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points.

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Jumbo Mortgage
A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac. It is currently $300,700.

Late Fees
Additional fees that lenders are entitled to collect from borrowers who don't make their payments within the specified grace period.

Lease-Purchase Agreement
An agreement between owner and tenant specifying a portion of monthly rent, during a specified period, to be credited toward purchase of property.

Lender
The party who disburses funds to the borrower.

Lien
A lender’s right to claim the borrower’s property if the borrower defaults. There can be multiple liens on a property. Each lien is then labeled “first,” “second,” “third,” etc. In the event of default, the first lien must be paid before the second lien and the second lien must be paid before the third lien, etc.

Loan Amount
The amount the borrower promises to repay, as set forth in the mortgage contract.

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Loan-to-Value Ratio (LTV)
The loan amount divided by either the selling price or the appraised value (whichever is lower.)

Lock
An option exercised by the borrower during the loan application or approval process whereby the loan rate and points are contractually agreed to, or "locked in."

Lock Period
The number of days for which both parties agree to abide by the lock. Usually, the longer the lock period, the more it will cost the borrower.

Market Price
The actual price at which a property is sold.

Market Value
The price that is established by existing economic conditions, property location and market style and size preferences.

Minimum Down Payment
The minimum allowable ratio of payment made in relation to the total price on a piece of property. This ratio can vary by loan program. With a 10% ratio requirement, a borrower must make a $10,000 down payment on a $100,000 house.

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Mortgage
A note that describes the terms of the loan between a lender and a borrower. The mortgage provides the lender with a first lien on the property as security for the loan.

Mortgage Banker
A lender who sells loans that they originate, and may or may not service loans.

Mortgage Broker
An advisor who provides a borrower with options on the loans products/options available from multiple lenders. The mortgage broker will also usually take the application and process the loan, but will not actually underwrite the loan.

Mortgage Insurance
Special insurance that protects a lender against loss in the event the borrower defaults on the mortgage. The borrower usually pays the insurance premiums for the mortgage insurance. It is usually referred to as “PMI.”

Mortgage Interest
The amount the borrower pays the lender to compensate the lender for the use of money to purchase the borrower’s home. This is tax deductible interest.

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Mortgage Payment
The monthly payment of principal and interest made by the borrower.

Mortgage Program
The terms of a specific mortgage, such as the mortgage’s term, rates, insured, etc. Mortgage programs differ by lender.

Negative Amortization
Most likely to occur with ARMs when monthly payments are not sufficient to cover interest cost. Additional interest is added to principal balance and the borrower may end up owing more than at the initiation of the loan.

No-Cost Refinance
A refinancing in which all costs are paid by the lender or mortgage broker.

Non-Conforming Mortgage
A mortgage that does not meet the purchase requirements of either Fannie Mae or Freddie Mac. Reasons for a loan being declared non-conforming include that the mortgage is too large, the borrower’s credit is poor, or other reasons.

Note
A written agreement between two (or possibly more) parties that confirms a debt and the terms under which that debt will be repaid.

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Origination Fee
An upfront fee charged by lenders for providing the loan to the borrower. It is usually referred to as “Points,” which are a percent of the loan amount.

Payment Cap
A limit on the amount monthly payments on an adjustable rate mortgage can increase or decrease at each adjustment period.

PMI
See Private Mortgage Insurance

Points
An upfront cash payment required by the lender as part of the fees for providing the loan to the borrower. It is expressed as a percent of the loan amount. For example, 2 points is equal to 2% of the loan amount.

Pre-Approval
A commitment by a lender to make a loan prior to the identification of a specific property.

Prepayment Penalty
A charge sometimes imposed by a lender if the borrower decides to pay off the loan early. Not all loans have prepayment penalties; they are usually specific to an individual loan program.

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Pre-Qualification
A preliminary procedure whereby it is determined whether a customer has enough cash and adequate income to meet the minimum loan requirements set by the lender on a requested loan. Qualification is not the same as approval: information given during the application process must be verified by the lender before final loan approval is given. A potential borrower may be qualified for a loan, but may have a poor credit history that will eventually disqualify them from actually receiving the loan. Qualification can differ by lender and/or loan program.

Primary Residence
Where the borrower will live.

Principal
The portion of the borrower’s monthly payment that is applied to reducing the loan balance.

Private Mortgage Insurance (PMI)
Special insurance that protects a lender against loss in the event the borrower defaults on the mortgage. The borrower usually pays the insurance premiums for the mortgage insurance. It is usually referred to as “PMI.”

Processing
A procedure that entails the gathering and maintaining the information for underwriting the loan. Processing usually includes the application, the credit report, the appraisal, the verifications, the assets, etc. in the file. Processing is not underwriting or approving of the mortgage.

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Prorate
Proportionate division of expense based on days or time occupied or used by the seller and/or buyer.

Qualification
A preliminary procedure whereby it is determined whether a customer has enough cash and adequate income to meet the minimum loan requirements set by the lender on a requested loan. Qualification is not the same as approval: information given during the application process must be verified by the lender before final loan approval is given. A potential borrower may be qualified for a loan, but may have a poor credit history that will eventually disqualify them from actually receiving the loan. Qualification can differ by lender and/or loan program.

Qualification Requirements
The criteria established by a lender that a borrower must meet in order to be considered for a mortgage. These can include maximum debt ratios, loan to value rations, minimum income levels, etc. Qualification requirements are not as comprehensive as underwriting requirements because qualification requirements usually do not incorporate a borrower’s credit score or history. A potential borrower may be qualified for a loan and still be denied by underwriting.

Refinance
When a borrower replaces their current mortgage with a new mortgage. A borrower may do this in order to lower their interest rate or monthly payment, consolidate debt, or to raise cash for other purposes.

Second Mortgage
A type of mortgage that has a lien on a property, but that lien is behind the first or primary mortgage to receive payment if the borrower defaults on the loan(s). A lender who gives a second mortgage will only be paid after the lender who gives the first mortgage is paid in full. Because of the additional risk for the lender, second mortgages usually have a higher interest rate. Sometimes, second mortgages are known as "home equity loans."

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RESPA Statement
The Real Estate Settlement Procedures Act requires a precise listing of all closing costs for both sellers and buyers.

Settlement
This term relates to all legal and financial transactions required to finalize the contract between buyer and seller, at the conclusion of which closing takes place.

Settlement Costs
Costs that the borrower must pay at the time of closing, in addition to the down payment.

Servicing
The process of administering a loan between the date when the loan is initially granted until the dated that the loan is fully paid off. Servicing includes collecting the monthly payment from the borrower, maintaining a record of loan, making or ensuring that payments are made for taxes and/or insurance, and collecting delinquent accounts.

Simple Interest Mortgage
A mortgage on which interest is calculated daily based on the balance at the time of the last payment. Interest is not charged on the interest accrued during the intervening days since the last payment. The daily interest charge within the month remains constant.

Standard Mortgage
A mortgage with a fixed interest rate and payments that will remain constant over the full term of the loan.

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Stated Income
A documentation requirement used by some lenders for some loan programs. The borrower will declare their annual income to the lender and the lender will verify the source of the income, but not the amount.

Stated Assets
A documentation requirement used by some lenders for some loan programs. The borrower will declare their assets income to the lender, but the lender will not verify their existence or value.

Subordination
The act of a (second) lender who allows a borrower to refinance their first mortgage while agreeing to leave their (second) in place. In the event of borrower default, the secondary lender agrees to allow the first holder to be paid in full before the secondary lender receives any payment.

Subordinate Financing
A type of financing whereby an existing second mortgage on a property is not paid off when a new loan is taken out. The existing second mortgage lender must allow subordination of the second mortgage to the new first mortgage.

Sub-Prime Borrower
A borrower with poor credit history.

Sub-Prime Lender
A lender who specializes in lending to sub-prime borrowers.

Swing Loan
A short-term loan that spans or "bridges" the period between the closing date of a home purchase and the closing date of a home sale.

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Term
The period used to calculate the monthly mortgage payment, usually 30 years. The term is usually but not always the same as the maturity. For example, on a 10-year balloon loan the maturity is 10 years.

Title
A legal document that defines the property, right of ownership and possession.

Title Insurance
An insurance policy that protects the buyer against errors, omissions or any defects in the title.

Total Housing Expense
Housing expense plus current debt service payments.

Total Interest Payments
The sum of all interest payments to date or over the life of the loan.

Total Expense Ratio
The ratio of housing expense plus current debt service payments to borrower income.

Underwriting
The process of examining all the data about a borrower's property and transaction to determine whether the mortgage applied for by the borrower should be issued.

Underwriting Requirements
The standards imposed by lenders in determining whether a borrower qualifies for a loan. These standards are more comprehensive than qualification requirements in that they include an evaluation of the borrower’s creditworthiness.

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VA Mortgage
A mortgage on which the lender is insured against loss by the Veterans Administration. With a VA mortgage, the required down payment is very low and the maximum allowable loan amounts is higher than with an FHA loans. However, only veterans are eligible for these loans.

Walk-Through Inspection
The final inspection by the buyer, usually in the company of the buyer’s real estate sales agent, to ensure that all conditions noted in the offer-to-purchase, and all seller-related contingencies have been met. This inspection is most often completed immediately prior to the official act of closing, after the seller has vacated the premises.

Warranty
Protection provided to the purchaser regarding the condition of appliances and pictures. Often, new homes have more extensive warranties also covering the overall structure.

Wholesale Lender
A lender who provides loans through mortgage brokers.

Wrap-Around Mortgage
A mortgage on a property that already has a mortgage, where the new lender assumes the payment obligation on the old mortgage. These are usually utilized by a home seller when the current market rates are above the existing mortgage rates.

Yield-Spread Premium
Fees paid by a lender to a mortgage broker for a loan that is issued at a rate higher than the current zero point loan rate. These can be used to offset some of a borrower’s total settlement costs.

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