Additional Principal Payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjusted Gross Income
A person's total income, as reported on his or her IRS 1040 tax return form, after allowable contributions, deductions and expenses.

Addendum
A change made to a contract.

Adjustable Rate Mortgage Loans (ARM)
Loans with interest rates that are adjusted periodically based on changes in a pre-selected index. These mortgage loans must specify how their interest rate changes, usually in terms of a relation to a national index such as Treasury bill rates. An interest rate cap limits the amount by which the interest rate can change.

Adjustment Period
On an ARM loan, the time between changes in the interest rate or monthly payment.

Agreement of Sale
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Amortization
Repayment of a debt with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time.

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

Annual Percentage Rate (APR)
The cost of credit expressed as a yearly rate. The annual percentage rate is often not the same as the interest rate. It will be higher than the interest rate stated in the note because it includes in addition to the interest rate, loan discount points, fees and mortgage insurance.

Application
An initial statement of personal and financial information required to apply for a loan.

Application Fee
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges.

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

Appraisal
A written estimate of a property's current market value completed by an impartial party with knowledge of real estate markets.

Appraisal Fee
A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.

Assumable Mortgage
A mortgage that can be taken over (assumed) by the buyer when a home is sold.

Back-end ratio or back ratio
The sum of the house payment and all other monthly debt -- credit cards, car payments, student loans and the like -- divided by before-tax income. Traditionally, lenders were loath to extend borrowers' back-end ratios past 36 percent, but they often do now.

Balloon mortgage
A loan that has regular monthly payments which amortize over a stated term but call for a final lump sum (balloon payment) at the end of a specified term, or maturity date, such as 10 years.

Balloon payment
A loan installment that is larger than the other, periodic payments and pays off the remaining principal.

Bankruptcy
A legal proceeding in a federal court to relieve certain debts of a person or a business that is unable to pay its debts. Chapter 7 bankruptcy gets rid of all debts. Chapter 13 allows a borrower with and income to pay bills off over a set period of time.

Bearer
The legal owner of a piece of property.

Bequest
A gift of personal property by will.

Bill of sale
A document that spells out the transfer of property.

Biweekly Mortgage
A mortgage with payments due every two weeks, totaling 26 payments a year.

Blanket Mortgage
A mortgage that covers more than one parcel of real estate.

Bona Fide
In good faith.

Borrower (Mortgagor)
An individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan.

Broker
An individual who brings buyers and sellers together and assists in negotiating contracts for a client.

Buy-Down Mortgage
A mortgage loan with a less than market rate for a set period of time.

Buyer's Market
Market conditions that favor buyers. With too few buyers and too many properties for sale, the sellers may be forced to make substantial price discounts.

Caps (interest)
Caps limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan.

Caps (payment)
Consumer safeguards, which limit the amount monthly payments on an adjustable-rate mortgage may change.

Cash Out Refinancing
Money received when you get a new loan that is larger than the remaining balance of your current loan. This is based upon any equity that has been built up in the house.
The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan.

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

Ceiling
The maximum allowable interest rate of an adjustable rate mortgage.

Certificate of Title
Written viewpoint of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.

Chain of Title
The chronological order of conveyance of a property from the original owner to the present owner.

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

Closing Costs
Money paid generally by the borrower in connection with the closing of a mortgage loan.

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

Collateral
Property (for example, your home) pledged as security for a debt.

Commission
Money paid to a real estate agent or broker for negotiating a real estate or loan transaction.

Commitment (loan)
A binding pledge to lend and a statement by the lender of the terms and conditions under which a loan is made.

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

Condominium
A form of property ownership in which the homeowner holds title to an individual dwelling unit and a proportionate interest in common areas and facilities of a multi-unit project.

Conforming Loan
A mortgage loan which meets all requirements to be eligible for sale and delivery to Federal agencies such as FNMA and FHLMC. The maximum conforming loan amount is $300,000 for a one-unit property.

Contingency
A condition which must be satisfied before a contract is legally binding.

Contract of Sale
An agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Conventional Loan
Loans that are not made under any government housing program; they are not subject to the restrictions of government insured housing programs, such as loan size limits.

Conversion Clause
A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates and there may be a charge for the conversion feature.

Convertible ARMs
A type of ARM loan that can be converted to a fixed-rate loan during a given time period.

Conveyance
The document used to affect a transfer, such as a deed or mortgage.

Cost of Funds Index (COFI)
An index of the weighted-average interest rate paid by savings institutions for sources of funds.

Covenant
A clause in a contract that obligates or restricts the parties and which, if violated, can result in a legal action.

Credit Bureau
A credit bureau is a clearinghouse for credit history information.

Credit Report
A report detailing the credit history of an individual.

Credit Score
A statistical model used in assessing an individual's creditworthiness information such as your current history, type of credit you use and late payments.

Deed
Legal document conveying title to a property. The deed contains a description of the property, and is signed, witnessed and delivered to the buyer at closing.

Default
Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Delinquency
Failure to make payments as agreed in the loan agreement. The payment is overdue but default has not yet been declared.

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

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

Disclosure
Information that is required by law relevant to specific transactions

Discount Point
A point paid to the lender to permanently buy down or lower an interest rate. It is usually a percentage of the loan amount.

Down Payment
The amount of your home's purchase price you need to supply up front in cash to get your loan. For conventional loans, you should strive for a down payment that's at least 20% of your home's value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of your home's purchase price.

Earnest Money
Deposit made by a buyer towards the down payment in evidence of good faith delivered with a purchase offer.

Easement
A right of way giving persons other than the property owner access to or over a property.

Encroachment
An improvement that illegally violates another's property or right to use that property.

Equifax
One of the three largest credit bureaus in the United States.

Equal Credit Opportunity Act (ECOA)
Federal law requiring 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 or past exercising or rights under the Consumer Credit Protection Act.

Equity
The difference between the current market value of a property and the total debt obligations against the property.

Escrow
A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds. In some parts of the US escrow of taxes and insurance premiums are called impound or reserves.

Escrow Account
The segregated trust account in which escrow funds are held. The lender disburses escrow account funds on behalf of the borrower when they are due.

Escrow Agent
A person or organization with fiduciary responsibility to the buyer and seller, or the borrower and lender, to ensure that the terms of the purchase/sale or loan are carried out.

Experian
One of the three largest credit bureaus in the United States.

Fannie Mae
A common nickname for the Federal National Mortgage Association.

Federal Deposit Insurance Corporation (FDIC)
Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system.

Federal Home Loan Mortgage Corporation -
(FHLMC, or Freddie Mac)
A Quasi government agency that buys conventional loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Federal National Mortgage Association (FNMA, or Fannie Mae)
This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Fee Simple
Absolute ownership of real property giving the right to dispose or pass on the property.

FHA
See Federal Housing Administration.

FHA Loans
Fixed- or adjustable-rate loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers.

FHLMC
Federal Home Loan Mortgage Corporation.

FICO
The most common credit-scoring model used by lenders, it is also known as a Fair, Isaac score. Your FICO can range from 200 to 900. According to this model, the higher your score, the less likely you are to default on your loan.

First Mortgage
A mortgage which is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.

Fixed-Rate Loans
Fixed-rate loans have interest rates and payment that remain the same for the life of the loan.

Flood Insurance
Insurance that compensates for physical damage to a property by flood. Typically not covered under standard hazard insurance.

FNMA
Federal National Mortgage Association.

Forbearance
The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.

Foreclosure (or Repossession)
A legal process by which a mortgaged property may be sold to pay off a mortgage loan that is usually in default.

Freddie Mac
A common nickname for the Federal Home Loan Mortgage Corporation.

Ginnie Mae
This federal government corporation is a part of the Department of Housing and Urban Development. Among other governmental functions, it guarantees securities backed by mortgages that are insured or guaranteed by other government agencies.

Good Faith Estimate
Written estimate of the settlement costs the borrower will likely have to pay at closing base on common local practices. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.

Grace Period
Time period as stated on the loan terms during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note.

Gross Monthly Income
Total Monthly income before taxes or expenses are deducted.

Hazard Insurance
Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer.

Home Equity Line of Credit
A form of revolving credit in which your home serves as collateral.

Home Equity Loan
A revolving line of credit or loan based on the equity in the mortgagor's house. The property is the security for the loan, which is usable for any purpose.

Homeowner's Insurance
An insurance policy that combines liability coverage and hazard insurance

Housing and Urban Development (HUD)
A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

HUD-1 Uniform Settlement Statement
A standard form, which itemizes the closing costs associated with purchasing a home.

Impound Account
Also know as Escrow Account.

Index
An index is a widely published rate such as LIBOR, T-Bill or 11th District Cost of Funds (COFI). Lenders use these indices to establish the interest rates charged on mortgage loans. For Arm's, a predetermined margin is added to the index to compute the interest rate adjustment.

Initial Cap
Consumer safeguard, which limits the amount the interest rate on an adjustable rate mortgage, can change during the first adjustment period.

Initial Rate
The rate charged during the first interval of an ARM loan.

Interest
Consideration in the form of money paid for the use of money.

Interest Rate Cap
A provision of an ARM limiting how much interest rates may increase per adjustment period. See also Lifetime cap.

Joint Liability
Liability shared among two or more people, each of whom is liable for the full debt.

Junior mortgage –

A home loan than is subordinate to the primary loan, or first mortgage.

Joint Tenancy
A form of joint ownership of property giving each person equal interest in the property.
When one joint tenant dies the other has title to the entire property.

Jumbo Loan
A mortgage exceeding the $300,700 limit set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. A jumbo mortgage will generally carry a higher interest rate than a conventional mortgage.

Junior Mortgage
A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first.

Late Charge
A fee imposed on a borrower for not paying on time.

Late Payment
A sum a borrower sends to a lender that is received past the date when it was due.

Lender
The bank, mortgage company or mortgage broker offering the loan.

Letter of Intent
A formal notification that a buyer intends to buy a property. It is not legally enforceable.

Lien
A legal claim by one person on the property of another for security for payment of a debt or for services rendered.

Loan Application
An initial statement of personal and financial information required to apply for a loan.

Loan Application Fee
Fee charged by a lender to cover the initial costs of processing a loan application. The fee can include the cost of obtaining a property appraisal and a credit report.

Loan Commitment
A lender's promise to advance a specific sum on specific terms.

Loan Origination Fee
Fee charged by a lender to cover administrative costs of processing a loan.

Loan-to-Value Ratio (LTV)
The percentage of the home's price that is paid for by a mortgage.

Lock or Lock-In
A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The borrower wants the lock to stay in effect until closing.

Margin
The percentage difference between the index for a particular loan and the interest rate charged. This is a number predetermined by the lender.

Mortgage Banker
One who originates home loans, sells them to investors, services monthly payments and handles escrow. Some mortgage bankers sell their loans on the secondary market.

Market Value
The price at which a given property or product sells between a willing, unpressured buyer and seller who know all the pertinent facts about the property or product.

Mixed-Income Housing
A neighborhood whose residents earn widely varying wages and salaries.

Mortgage Refinance
A refinanced mortgage is one in which a borrower pays off an old loan with a new loan. People who refinance a mortgage usually do so to get a lower interest rate, lower their payments or to take cash out of their equity.

Multiple Listing Service (MLS)
A database provided by the Board of Realtors that lists all properties in an area for sale or lease, excluding properties that are being sold directly by their owners without the aid of a real-estate agen.

Mortgage
A legal document by which real property is pledged as security for the repayment of a loan. A lender can take possession of the property if the borrower stops making payments.

Mortgage Banker
An individual or company that originates and/or services mortgage loans.

Mortgage Broker
One that arranges financing for borrowers. A mortgage broker does not make the loan, but receives payments for services.

Mortgage Insurance
Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's appraised value. Also known as MI or PMI (Private Mortgage Insurance).

Mortgage Loan
A loan for which real estate serves as collateral to provide for repayment in case of default.

Mortgage Note
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.

Mortgagee
The lender in a mortgage loan transaction. Property is used as collateral to secure payment.

Mortgagor
The borrower in a mortgage loan transaction. Property is used as collateral to secure payment.

Negative Amortization
A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.

Net Income
The amount left after taxes have been paid.

Net Worth
The total value of all assets, such as house, car, furniture and investments, minus all debts, such as mortgages and credit card bills.

No Cash-Out Refinance
A home loan for a lower interest rate in an amount that does not exceed closing costs and the original mortgage's outstanding principal.

Nonresident Alien
A person who is not a permanent resident or a citizen of the United States and who is generally taxed on income from U.S. sources.

Notice of Default
A step in the foreclosure process in which the lender formally tells a court that the borrower is in arrears.

Non-Assumption Clause
A provision in a mortgage contract prohibiting the assumption of the mortgage by another borrower without the lenders permission.

Note
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time.

Origination Fee
Fee charged by a lender to cover administrative costs of processing a loan. It usually includes the cost to prepare loan documents, check the borrower's credits history, inspect the property and may also include cost of appraisal.

Open House
A selling tool in which a real-estate agent advertises a property for sale and invites people to visit without making an appointment.

Option
A legal agreement giving someone the right to buy, sell or lease a property or item at specified terms for a specified period.

Payment Cap
A contractual limit on the size of the monthly payment of an adjustable-rate mortgage or other variable rate loan.

Per Diem Interest
Interest calculated per day

Periodic Cap
Consumer safeguard, which limits the amount the interest rate on an adjustable rate mortgage (ARM), can change in an adjustment interval.

PITI
Abbreviation for Principal, Interest, Taxes and Insurance -- the components of a monthly mortgage payment.

Point
A point equals 1 percent of a mortgage loan. Some lenders charge "origination points" to cover expenses of making a loan. Some borrowers pay "discount points" to reduce the loan's interest rate.

Power of attorney
A document in which the signer authorizes someone to conduct business in his or her name -- signing title documents and checks, for example.

Pre-Approval
The process of determining how much money a potential homebuyer could borrow.

Prepaid Expenses
These expenses are included at closing. Taxes, insurance and assessments paid in advance of their due dates.

Prepaid Interest
Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.

Prepayment
Full or partial repayment of the principal before the contractual due date.

Prepayment penalty
A lender's charge to the borrower for paying off the loan before the end of the term.

Pre-Qualification
A non-binding process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan. Information submitted during pre-qualification is subject to verification at application.

Principal
1. The amount of money borrowed;
2. The amount of money owed, excluding interest.

Private Mortgage Insurance (PMI)
Insurance to protect the lender in case you, as the borrower, default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's purchase price. Although PMI protects the lender, it is paid monthly by the borrower.

Property Taxes
Taxes figured on the value of property you own, including real estate, boats, cars, recreational vehicles and business inventories.

Purchase Agreement
A document in which a property's buyer and seller approve the price and other terms of the transfer of the title. Also known as an agreement of sale, a purchase contract or a sale contract.

Real Financing Cost
The real financing cost is a consumer-oriented rate that takes into account the projected amount of time you tell us when you will actually have the loan, as well as the specific costs, fees and potential rate changes associated with it.

Real Property
Land and anything permanently affixed to it.

Reconveyance
The transfer of property back to the owner when a mortgage loan is fully repaid.

Recording
The act of entering documents concerning title to a property into public records.

Recording Fee
Money paid to an agent for entering the sale of a property into the public records.

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

RESPA
Real Estate Settlement Procedures Act. RESPA is a federal law that gives consumers the right to review estimated settlement costs. The law requires lenders to provide this information.

Sales Agreement
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Second Mortgage
An additional mortgage that has rights that are subordinate to the first mortgage.

Security Instrument
Mortgage or deed of trust evidencing the pledge of real estate as collateral for the loan.

Seller Contributions
Payment by the seller or any other interested party of some or all of the purchaser's closing costs.

Seller's Market
Market conditions that favor sellers. With too few sellers and too few properties for sale, the buyers may be forced to compete and pay more for the same property.

Settlement (or Closing)
The settlement or closing is the consummation of your real estate transaction. The closing transaction includes the delivery of a deed, signing of legal documents and the disbursement of the funds necessary to complete the sale and loan transaction.

Settlement Costs
Money paid by the borrowers and sellers to affect the closing of a mortgage.

Settlement Cost (HUD guide)
HUD - published booklet that provides an overview of the lending process, and that is given to consumers after completing loan application.

Settlement Sheet
The computation of costs payable at closing which determines the seller's net proceeds and the buyer's net payment.

Survey
The description of land prepared by a licensed surveyor.

Tax Impound
Money paid to and held by a lender for annual tax payments.

Tax Lien
Claim against a property for unpaid taxes.

Tax Sale
Sale of property by a government body as a result of non-payment of taxes.

Term
The period of time within which a loan must be paid off.

Title
Legal evidence of ownership of a property. Also indicates the rights of ownership and possession of the property.

Title Insurance Company
A company that insures title to property.

Title Insurance
Insurance Policy which protects a lender (lender's policy) or a buyer (owner's policy) against loss due to title error or disputes over ownership of a property.

Title Search
An examination of public records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.

Trans Union
One of the three largest credit bureaus in the United States.

Transfer Tax
State of local tax paid when title passes from one owner to another.

Truth-in-Lending Act (TIL)
Federal law requiring full written disclosure of the Credit terms of a mortgage using a standard format.

Underwriting
In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for a mortgage.

URLA
Uniform residential loan application.

Usury
Interest charged in excess of the legal rate as set by law.

VA Loans
Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs designed to make housing affordable for eligible U.S. veterans.

Variable Rate Mortgage
See Adjustable Rate Mortgage.

Variable Rate
Interest rate that changes periodically in relation to a specific index.

Verification of Employment (VOE)
Document signed by the borrower's employer verifying the borrower's position and salary.

Waiver
Voluntary relinquishment or surrender of some right or privilege.

Walk-through
A final inspection of a home to check for problems that may need to be addressed prior to closing.

Zoning Ordinances
Local law establishing building codes and usage regulations for properties in a specified area.