Glossary of Key Financial and Mortgage Terms

A summary of the public records relating to the title to a particular piece of land.

Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

APR is a measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.

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

A mortgage loan that requires the remaining principal balance be paid 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.

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

Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property..

A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale.

The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement.

These are expenses - over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. 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 cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the stated conditions.

Any loan that meets the criteria and limits set forth by the largest buyers of loans, Fannie Mae or Freddie Mac.

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.

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

A record of an individual's repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.

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 income (FHA/VA loans) or gross monthly income (Conventional loans).

A report documenting the credit history and current status of a borrower's credit standing, prepared by a credit bureau, and used by a lender in determining a loan applicant's creditworthiness.

An organization that gathers, records, updates, and stores financial and public records information about the payment history of individuals.

Legal document by which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.

Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.

A list of documents you will be required to provide when submitting a loan application. The required documents range from W2's to a signed sales contract.

Information that must be given to consumers about their financial dealings.

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in the property.

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

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.

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

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

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.

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

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.

The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income.

This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."

A charge paid for borrowing money.

The annual rate of interest on the loan, expressed as a percentage.

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This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."

A charge paid for borrowing money.

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

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

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 lock-in protects you against rate increases during that time.

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

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.

An individual or company that arranges financing for borrowers.

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. (Note, however, that FHA and VA loans have different insurance guidelines.)

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Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.

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 the face value of the loan.

Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.

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

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

Legal document authorizing one person to act on behalf of another.

The process of determining how much money you will be eligible to borrow before you apply for a loan.

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.

The four components of a monthly mortgage payment. 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 monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.

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

The 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.

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan's structure.

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In lending, the amount of interest on the loan expressed as an interest rate or annual percentage rate (APR) of the principal.

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

The process of paying off one loan with the proceeds from a new loan secured by the same property.

An additional mortgage placed on a property that has rights that are subordinate to the first mortgage.

An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

Document which gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property.

A company that specializes in examining and insuring titles to real estate.

Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

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.

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

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