Acceleration Clause:  Condition in a mortgage that may require the balance of the loan to become due and payable in advance of the fixed payment date if regular mortgage payments are not made.

Adjustable Mortgage Rate: A mortgage that can change the interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change.
 
Agreement of Sale: A contract in which a seller agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. Also may be known as Contract to Purchase, Purchase Agreement, or Sales Agreement

Amortization: A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.

Amortization Schedule: A table chart which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Annual Percentage Rate (A.P.R.): A term used in the Truth in Lending Act.  It represents the relationship of the total finance charge (interest, discount points, origination fees, loan broker, commission, etc.) to the total amount to be financed.

Appraisal:  An estimate of real estate value, usually issued to standards of FHA, VA, and FHMA.  The most recent comparable sales in the neighborhood are the most important factor in determining value. 

Appraiser: One who estimates value.  An individual qualified by education, training, and experience to estimate the value of real property and personal property.  Although some appraisers work directly for mortgage lenders, most are independent.

Assumption of Mortgage:  The Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the new for the unpaid balance of the mortgage.  In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument but that does not release the original mortgagor from further liability under the mortgage. The mortgagor will need a mortgagee’s consent to be fully released.  Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments.

Balloon Mortgage: A mortgage loan that requires the remaining principal balance be satisfied at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Balloon Payment: The final remaining principle balance becomes the payment that is due at the termination of a balloon mortgage.

Bankruptcy: By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities.

Biweekly Mortgage: A mortgage arrangement in which you make payments every two weeks rather than of once per month. Instead of making twelve payments in a year, you would ultimately make thirteen payments. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage.  Typical results average about 6 years less than a full 30 year mortgage.  The interest saved is substantial. 

Bond Market: Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. That is why rates change daily, and in a volatile market can and do change during the day as well.

Bridge Loan: When equity is taken from one home to use as a down payment on another home.

Buy down: When you pay money up front to lower the interest rate offered.  The additional money is a part of your closing cost to obtain to loan.

Cap: Most commonly used with Adjustable Rate Mortgages (ARM).  The loan will have a maximum adjustment rate cap every 6 months or yearly, typically 2%.  There is also a life cap that the rate cannot exceed over the life of the loan, typically 5-6%.   See life cap.

Cash out Refinance:  When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use.

Certificate of Eligibility: A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.

Certificate of Reasonable Value (CRV): Is what the Veterans Administration issues once a VA loan appraisal has been completed.

Closing Costs: There are numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of property and are items prepaid at closing.

Closing Day: The day on which the sale of real estate is finalized.  The certificate of title abstract & deed are generally prepared for by the title company or by an attorney and this cost is charged to the buyer. The buyer signs the mortgage documents, and the closing costs and down payment are paid. The final closing merely confirms the original agreement reached in the agreement of sale. 

Co-Borrower:  An additional individual who is both obligated on the loan and is on title to the property.
           
Collateral: The property is considered collateral when it has a mortgage.  If the loan is not repaid according to the terms and conditions of the mortgage agreement, then the borrower risk losing the property (collateral).
               
Construction loan: A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Conventional Mortgage: Conditions are established by the lending institution and state statutes.  Rates can vary between lenders and from state to state.  This type of mortgage is not guaranteed by VA (Veterans Administration or insured by HUD.

Cost of Funds Index (COFI): One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

Credit: Referred to loan or credit card limit that is given to a borrower in exchange for a promise to repay the lender as agreed to in the agreement for credit.

Credit History: A record of an individual's repayment history of debt. Credit histories are found credit reporting agencies.  The 3 credit bureau’s used are, Equifax, Experian, and Transunion.  Lenders will review the credit history and use it as one of the underwriting criteria’s to determining credit risk.

Creditor: A party to whom money is owed.

Credit Report: A report of an individual's credit history prepared by a credit bureau and used by a lender in determining an applicant's credit worthiness.

Credit Repository: An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Debt: An amount owed to another.

Default: The mortgage is in default when the payment is 30 days late. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. In the event of default, the lender may have the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.

Delinquency: When you fail to make your mortgage payment on time. 

Discount Points: A loan fee charged by a lender of FHA, VA or conventional loans to increase the yield on the investment so the buyer can obtain a better rate.  One point = 1% of the loan amount.

Down payment: Down payment is the difference between the sales price and the mortgage amount.  The amount of cash the buyer will pay at the time of purchase.

Earnest Money: Upon the signing of the agreement of sale, earnest money is given to the seller show good faith that the buyer is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

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: Equity is computed by subtracting market value from the total unpaid mortgage balance along with any outstanding liens against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all leans against the property are paid in full, the homeowner has 100% equity in his property.

Escrow: Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, such as earnest money. When referring to a mortgage escrows, the money is held in a trust fund, provided by the lender for the buyer. Such funds are collected as a part of the closing cost and should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments.

Escrow Analysis: An evaluation performed each year to determine the amount of escrow funds that may or may not be necessary to collect to maintain your escrow account balance.  These funds are used to pay out the monthly mortgage insurance, real estate taxes and hazard insurance for the coming year.  If there is not enough money in your escrow account to cover the expenses, you will get a letter notifying you to either pay the deficient amount or pay a new monthly payment amount to make up for the deficiency.   It is possible that your payment could be lowered if you have too much in your escrow account, at which point you can accept the reduce payment amount or ask for a refund of the overage amount.

Escrow Disbursements: Payment of real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fannie Mae: Nickname for Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

Fannie Mae's Community Home Buyer's Program: An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA Insured Mortgage: A mortgage under which the Federal Housing Administration insures loans made, according to its regulations and will often be referred to as a government loan.

First Mortgage:  The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed Rate Mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.

Foreclosure: A legal procedure whereby property that is used as security for a debt will be sold to satisfy the debt in the event that the mortgage is in default of payment.

Freddie Mac: Nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market.  It purchases and sells residential conventional home mortgages.

Government loan (mortgage): A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government National Mortgage Association (Ginnie Mae): A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD).  GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is
that Ginnie Mae provides funds for government loans (FHA and VA).

Graduated Payment Mortgage: The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its life.

Grantee: The party in the deed who is the buyer or the recipient.

Grantor: The party in the deed who is the seller or the giver.

HELOC: Home Equity Line of Credit.  Usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home Equity Conversion Mortgage (HECM): Commonly known as a Reverse Mortgage. Instead of making payments to a lender, the lender makes payments to you.  It allows older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments.  The borrower is qualified on the value of his home, not their income. The loan does not have to be repaid until the borrower no longer occupies the property.

HUD: U.S. Department of Housing and Urban Development. Office of Housing / Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

Interest:  A charge paid for borrowing money. Len: A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor.

Jumbo loan: A loan that exceeds Fannie Mae's and Freddie Mac's loan limits, currently at $417,000.  Also considered a nonconforming loan.  Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Lender: Loan officer, institution making the loan or representing the firm.

Liabilities: A person's financial obligations.

Liability Insurance: Insurance Coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.  It is usually part of a homeowner's insurance policy.

Lien: A legal claim against a property that must be paid off when the property is sold. A mortgage is considered a lien.

Life Cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.

Line of Credit: An agreement by a financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid asset: Cash or an asset that is easily converted into cash.

Loan: A sum of borrowed money (principal) that is generally repaid with interest.

Loan Officer: Referred as lender, loan representative, loan "rep," account executive, and others.  A loan officer originates the loan.

Loan Servicing: After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

Loan to Value Ratio (LTV): The ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value.  Example – on a $100,000 home, with a mortgage loan principal of $80,000 the loan to value ratio is 80%.

Lock-in: An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Lock-in period: The time period during which an interest rate is guaranteed to a borrower by the lender.

Margin: The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan.  It is the index which moves up and down.

Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Merged Credit Report: A credit report which reports data pulled from two or more of the major credit repositories.

Modification: Occasionally, a lender will agree to modify the terms of your mortgage without requiring you t refinance. If any changes are made, it is called a modification.

Mortgage:  A legal document that pledges a property to the lender as security for payment of a debt instead of mortgages, some states use First Trust Deeds.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in a mortgage agreement.

Mortgage Commitment:  A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage Insurance Premium: The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

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

Negative Amortization: An adjustable rate mortgage that allows the interest rate to fluctuate independently of a required minimum payment.  If a borrower makes the minimum payment it typically will not cover all of the interest that would normally be due at the current interest rate. Because of this, the borrower is deferring the interest payment, which is then added to the balance of the loan.  The mortgage balance increases every month creating a ‘negative amortization’.

No cash-out refinance: Often referred to as a "rate and term refinance." Only refinances your current balance which does not give you cash.

No-Cost Loan: A ‘no cost’ loan really means ‘no cost’ that you can see.  Typically the cost will be tied in with your rate which typically means a higher rate for you.  Other cost to be aware of which aren’t associated with the rate would be title fees, notary fees, appraisal, escrow fees, settlement fees and others.  

No-points loan: Most lenders offer loans with "no points." interest rates on a "no points" loan is approximately a quarter percent higher than on a loan where you pay one point.

Note: A written promise to pay a certain amount of money.

Note Rate: The interest rate stated on a mortgage note.

Notice of Default : A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Original Principal Balance: The total loan amount owed on a mortgage before any payments are made.

Origination Fee: A fee paid to the lender for originating the loan.

Owner Financing:  A property purchase transaction in which the owner/seller provides all or part of the financing.

Partial Payment: A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

Payment Change Date: The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Periodic Payment Cap: For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another usually every 6 months or 12 months.  There is a limit on the amount that the payments can increase or decrease during any adjustment period.  This is commonly found in ‘Negative Amortization’ types of loans.

Periodic Rate Cap: For an adjustable-rate mortgage, there is a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

PITI: This stands for Principal, Interest, Taxes and Insurance.

Points: May be called "discount points." One point is one percent of the amount of the mortgage loan. Points are charged by a lender to raise the yield on his loan and to get a lower rate for the borrower. On a conventional mortgage, points may be paid by either the buyer or the seller. Sellers must pay points on a VA loan.

Pre-Approval: A loan pending, all documents are in file with a strong probability that there are no credit or income issues that will stop the loan from closing. 

Prepayment:  Payment of mortgage loan, or part of it, before the final due date.

Prepayment Penalty: A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-Qualification: A loan officers written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The loan officer may or may not have reviewed a credit report on the borrower.

Private Mortgage Insurance (PMI): See Mortgage Insurance Premium.

Principal: The capital sum before tax, insurance and interest.

Qualifying Ratios: The calculations that are used in determining whether a borrower can qualify for a mortgage.  There are two ratios. The "top” ratio is a calculation of the borrower's monthly  income, and the "back" ratio includes housing costs (principle, taxes, insurance, mortgage insurance, and homeowner’s association fees) as well as all other monthly debt.

Refinancing:  The process of the same mortgagor paying off one loan with the proceeds from another
loan.

Secondary Market: The buying and selling of existing mortgages, usually as part of a "pool" of mortgages.

Second Mortgage/Second deed of Trust/ Junior Mortgage or Junior Lien: An additional loan that has a lien position subordinate to the first mortgage.  Generally, a higher interest rate and shorter term than a “first” mortgage.

Secured Loan: A loan that is secured by collateral.

Security: The property that will be pledged as collateral for a loan.

Tax: As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State.

Trustee:  One who is given the legal responsibility to hold property in a trust for the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, enforceable in a court of law. (See deed of trust.)

Truth-in-Lending:  A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Two-step mortgage:  An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

VA mortgage:  A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

Vested: Having the right to use a portion of a fund such as an individual retirement fund.  

Veterans Administration (VA): An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

401(k)/403(b): An employer sponsored investment plan that allows individuals to set aside tax deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations and are an acceptable source of down payment for most types of loans. 403(b) plans are provided by employers that are not for profit organizations. Both plans allow for loans against the monies you have accumulated in these plans.