Acceleration Clause - A
provision in a mortgage that gives the lender the right to
demand payment of the entire outstanding balance if a monthly
payment is missed.
Acceptance - A party's consent to enter into a
contract and be bound by the terms of the offer.
Adjustable Rate Mortgage (ARM) - A mortgage
whose interest rate changes over time based on a pre-determined
Administrative Fee - A fee charged by a lender
to cover the administrative costs of processing your loan
request (e.g., a lender fee).
Amenities - Features of real property that
enhance its attractiveness and increase the satisfaction of the
occupant or user, even though the feature is not essential to
the property's use (e.g., a swimming pool).
Amortization - The gradual repayment of a
mortgage by installments.
Annual Percentage Rate (APR) - The total yearly
cost of a mortgage stated as a percentage of the loan amount,
including the base interest rate, primary mortgage insurance,
and loan origination fee (points).
Application - A form used by the lender to
collect information about a prospective borrower and the
property being used as collateral.
Application Deposit - Funds required by a
lender in advance of processing a loan request. Generally, a
deposit is collected to cover the costs of an appraisal and
credit report and may or may not be refundable.
Appraisal - An evaluation of the property to
determine its value for purposes of the mortgage loan. An
appraisal is concerned chiefly with market value, or what the
home would sell for in the marketplace.
Appreciation - An increase in the value of a
Assessed Value - The valuation placed on
property by a public tax assessor for the purposes of taxation.
Assessment - The process of placing a value on
property for the strict purpose of taxation. Assessment may also
refer to a levy against a property for a special purpose (e.g.,
a sewer assessment).
Assumable Mortgage - A mortgage that can be
taken over ("assumed" by the buyer) when a home is sold.
Basis Point - 1/100th of one
Binder - A preliminary agreement, secured by
the payment of earnest money, under which a buyer offers to
purchase real estate.
Building Code - Local or state building
regulations that govern the design, construction and materials
used in a building.
Buyer's Broker - A broker who represents the
buyer in a fiduciary capacity.
Buyer's Market - A situation in which the
supply of properties available exceeds demand. As a result,
sellers are forced to lower their prices to attract buyers.
Cap - A provision of an ARM
limiting how much the interest rate or mortgage payments may
increase or decrease in any single adjustment or over the life
of the loan. See also Lifetime Cap.
Certificate of Title - Like a car title, this
is the paper that signifies ownership of a home.
City/County Tax Stamp - A tax that is required
in some municipalities if a property changes hands or a new
mortgage is obtained. The amount of this tax can vary with each
state, city and county.
Clear Title - A title that is free of clouds,
liens, disputed interests or legal questions with regard to
ownership of the property.
Closing Costs - Sometimes called settlement
costs, these are costs in addition to the price of the home,
including mortgage service charges, title search and insurance,
and transfer of ownership charges.
Closing Day - The date on which the title for
property passes from the seller to the buyer, and/or the date on
which the borrower signs the mortgage.
Commitment Letter - A formal offer by a lender
stating the terms under which the lender agrees to loan money to
Condominium - A type of property that includes
individual ownership of one unit in a multi-unit dwelling, and
an undivided interest in the common area and facilities that
serve the entire multi-unit project.
Contingency - A condition that must be met
before a contract is legally binding.
Conventional Mortgage - A mortgage in which the
interest rate does not change during the entire term of the
loan. Also called a Fixed-Rate Mortgage (FRM).
Cosigner - Another person who signs your loan
and assumes equal responsibility for it.
Credit Bureau - An agency that gathers and
keeps your credit record (e.g., Experian, Equifax and TransUnion).
Credit Report - A report of an individual's
credit history prepared by a credit bureau and used by a lender
in determining a loan applicant's credit worthiness.
Deed - A legal document that
transfers ownership of a property from one person to another.
Default - Failure to make mortgage payments on
a timely basis or to comply with other conditions of a mortgage.
Depreciation - A decline in the value of a home
as the result of time, changes in the housing market, wear and
tear, adverse changes in the neighborhood and its patterns, or
any other reason.
Down payment - An initial payment on a home,
usually a specific percentage of the home purchase price that is
required of a borrower at the time of loan closing.
Earnest Money - The deposit
money given to the seller by the potential buyer to show that
he/she is serious about buying the home. If the deal goes
through, the earnest money is usually applied toward the down
payment. If the deal does not go through, it may be forfeited.
Easement Rights - A right of way granted to a
person or company authorizing access to or over the owner's
land. Electric companies often have easement rights across your
Equal Credit Opportunity Act (ECOA) - A federal
law that prohibits lenders from denying mortgages on the basis
of the borrower's race, color, religion, national origin,
handicap, age, sex, marital status or receipt of income from
public assistance programs.
Equity - The difference between the market
value of the home and the amount of money you still owe on it.
Escrow - The holding of documents and money by
a neutral third party prior to closing; also an account held by
the lender into which a homeowner pays money for taxes and
Escrow Account - The account in which funds are
held by the lender for the payment of real estate taxes and/or
homeowners insurance. This can also refer to the account in
which that funds are held for the completion of repairs or
improvements to a property that cannot be completed prior to
Escrow Funds - Money, or papers representing
transactions, that are given to a third party to hold until all
conditions in a contract are fulfilled.
Fair Credit Reporting Act - A
consumer protection law that sets up a procedure for correcting
mistakes on one's credit record.
Fannie Mae - Federal National Mortgage
Association. See FNMA.
FHA - Federal Housing Administration. A
government agency whose primary purpose is to insure residential
FNMA - Federal National Mortgage Association. A
congressionally chartered corporation (sometimes called a
government sponsored enterprise or GSE) that buys mortgages on
the secondary market, pools them and sells them as
mortgage-backed securities to investors on the open market.
Monthly principal and interest payments are guaranteed by FNMA
but not by the U.S. Government.
Fixed Rate Mortgage - A mortgage in which the
interest rate does not change during the entire term of the
Flood Insurance - Insurance required for
properties in federally designated flood areas.
Foreclosure - The process by which a mortgaged
property may be sold by the mortgage lender when the homeowner
fails to pay the monthly mortgage payment. The mortgage is
considered in default.
Freddie Mac - Federal Home Loan Mortgage
Corporation (or FHLMC). A quasi-public corporation (sometimes
called a government sponsored enterprise or GSE) authorized to
make loans and loan guarantees. The FHLMC was created to expand
the secondary market for mortgages. Along with other GSEs,
Freddie Mac buys qualified mortgage loans from the financial
institutions that originate them, securitizes the loans and
sells them as mortgage-backed securities to investors on the
open market. The U.S. Government does not back the securities.
Hazard Insurance - Insurance to
protect the homeowner and the lender against physical damage to
a property from fire, wind, vandalism or other hazards.
Homeowner's Association Fee - A term related to
a condominium association’s collection of money from the owners
of each condominium. In determining whether you can afford the
property, the lender will calculate the homeowner's association
fee as part of your housing-to-income ratio. The fee pays for
common expenses including insurance, maintenance, trash removal
and is used to establish reserves for future major expenditures.
Home Inspection - A complete and detailed
inspection that examines and evaluates the mechanical and
structural condition of a property. The home buyer often
requires a complete and satisfactory home inspection.
Homeowners Insurance - Insurance that protects
a homeowner against the cost of damages to a property caused by
fire, windstorms and other common hazards. Also referred to as
Home Mortgage Loan - A loan used to buy a home.
HUD - Also known as the U.S. Department of
Housing and Urban Development. Among other things, HUD ensures
that home mortgage loans made by lenders meet minimum standards.
HUD-1 - Statement Also referred to as the
closing statement or the settlement statement, this document
that provides line-by-line information of the financial details
related to a specific real estate transaction, such as the fees
paid by the seller and the buyer for a purchase transaction.
Interest - The fee charged for
Joint Tenancy - A form of
co-ownership that gives each tenant equal interest and equal
rights in the property, including the right of survivorship.
Jumbo Loan - A loan (such as a mortgage) that
exceeds the size limit set for purchase or securitization by the
appropriate agency, such as Fannie Mae or Freddie Mac.
Late Charge - The penalty a
borrower must pay when a payment is made after the due date.
Lender - The bank, mortgage broker or financial
institution providing the loan funds to a borrower.
Liabilities - A person's financial obligations,
including both long-term and short-term debt, as well as any
other amounts that are owed to others.
Lien - A legal claim against a property that
must be paid when the property is sold.
Lifetime Cap - A provision of an ARM that
limits the total increase or decrease in the loan interest rate
over the life of the loan.
Loan-to-Value Ratio (LTV) - The relationship
between the amount of a mortgage and the total value of the
Lock-In - A written agreement guaranteeing the
home buyer a specified interest rate, provided the loan is
closed within a set period of time.
Margin - The set percentage
that the lender adds to the index rate to determine the interest
rate of an ARM.
Mortgage Commitment - The written notice from
the bank or other lender saying that it will advance you the
mortgage funds in a specified amount to enable you to buy the
Mortgage - The legal document that pledges a
property to the lender as security for payment of debt.
Mortgagee - The bank or lender who loans the
money to the mortgagor.
Mortgagor - The homeowner who is obligated to
repay a mortgage loan on a purchased property.
Non-Liquid Assets - Any assets
that cannot easily be converted into cash (e.g., property).
Offer to Purchase Real Estate -
A promise by a buyer to enter into an agreement to purchase real
estate, provided certain terms and conditions are met by the
Origination Fee - A fee charged for the work
involved in preparing and processing a proposed mortgage loan.
This is stated as a percentage of the mortgage amount, or
points, and is usually paid at closing.
PITI (P)rincipal, (I)nterest, (T)axes
and (I)nsurance - a reference to the total monthly
payment required to repay a mortgage in accordance with its
term, as well as monthly escrow payments for taxes and
Points - A one-time charge by the lender to
increase the yield of the loan. A point is 1% of the mortgage
Prepaid Expenses - The initial deposit at the
time of closing for taxes, hazard insurance and the subsequent
monthly deposits made to the lender for that purpose. Expenses
may also include an interest amount.
Prepaid Items/Expenses - Obligations paid in
advance at a real estate closing.
Pre-Qualification - The process of determining
how much money a prospective home buyer will be eligible to
borrow before a loan is applied for.
Principal - The amount borrowed or remaining
unpaid; also, that part of the monthly mortgage payment that
reduces the outstanding balance of a mortgage.
Private Mortgage Insurance (PMI) - Insurance
provided by non-government insurers that protect lenders against
loss if a borrower defaults.
Processing/Administrative Fee - A fee charged
by a lender to cover the administrative costs of processing a
Purchase and Sale Agreement (P&S) - A written
contract signed by the buyer and seller stating the terms and
conditions under which a property will be sold.
Property Taxes - Taxes based on the assessed
value of the home, paid by the homeowner for community services
such as schools, public works and other costs of local
government. Property taxes are sometimes paid as part of the
monthly mortgage payment.
Qualifying Ratios - Guidelines
applied by lenders to determine how large a loan may be granted
to a home buyer.
Radon - A naturally appearing
radioactive gas, found in some buildings that in sufficient
concentrations may cause health problems.
Rate Lock - An agreement by a lender to
guaranty the interest rate offered for a mortgage provided the
loan closes within a specified period of time.
Real Estate Agent - A person licensed to
negotiate and transact the sale of real estate on behalf of an
owner or a seller.
Real Estate Settlement Procedures Act (RESPA) -
A consumer protection law that requires lenders to give
borrowers advance notice of closing costs.
REALTOR® - A real estate agent who is a member
of the National Association of Realtors® and subscribes to its
strict Code of Ethics. Not all real estate agents are Realtors®.
Recording Fees - A fee charged by the local
government to record mortgage documents into the public record
so that any interested party is aware that a lender has an
interest in the property.
Refinancing - The process of paying off one
loan with the proceeds from a new loan secured by the same
Repair and Maintenance - The costs incurred in
replacing damaged items or maintaining household systems to
Second Mortgage - A mortgage
with rights that are subordinate to the rights of the first
Sellers Market - An economic situation that
favors the seller because the demand for property exceeds the
Special Assessment - A tax for a specific
purpose such as providing paved streets or new sewers. People
whose properties abut the improved streets or tie into the new
sewer system must pay the tax. Condominium owners may also be
assessed for major repairs done in common areas of their
Survey - A drawing that shows the legal
boundaries of a property.
Tenancy by Entirety - A type of
joint ownership of property available only to a husband and
Tenancy in Common - A type of joint ownership
in a property without the right of survivorship.
Title - The evidence of a person's legal right
to possession of property, normally in the form of a deed.
Title Company - A company that specializes in
insuring title to property.
Title Insurance - This special insurance
protects lenders against a loss of interest in a property due to
unforeseen occurrences that have already occurred and might be
traced to legal flaws in previous ownerships (e.g., forged
deed). An owner can protect his interest by purchasing separate
Title Search - A check of the title records to
ensure that the seller is the legal owner of the property, and
that there are no liens or other claims outstanding.
Total Debt Ratio - A standard calculation
performed by mortgage lenders to determine if a borrower
qualifies for a specific loan type. Total debt ratio is
calculated by dividing the monthly housing expense (PITI plus
all other monthly debt obligation) by the borrowers monthly
gross income. This is also referred to as a "back-end ratio" or
Truth-in-Lending - A federal law that requires
lenders to fully disclose, in writing, the terms and conditions
of a mortgage, including the APR and other charges.
Sources: Wikipedia, The Boston Globe and