Accrued Interest
Interest earned but not yet paid.

Adjustable Rate Mortgage Loans (ARM)
Loans with interest rates that are adjusted periodically based on changes in a pre-selected index. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates. These mortgage loans must specify how their interest rate changes, usually in terms of a relation to a national index such as (but not always) Treasury bill rates. If interest rates rise, your monthly payments will rise. An interest rate cap limits the amount by which the interest rate can change; look for this feature when you consider an ARM loan.

Adjustment Interval
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.

Alternative Documentation
A method of documenting a loan file that relies on information the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application.

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

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 is a percentage that results from an equation considering the amount financed, the finance charges, and the term of the loan.

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.

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.

Assessment
A local tax levied against a property for a specific purpose, such as road or sidewalk construction, a sewer, or streetlights.

Assignment
The transfer of ownership, rights, or interests in property by one person, the assignor, to another, the assignee.

Assumability
A feature of a loan which allows it to be transferred to the new purchaser of a home. Assumable mortgages can help attract buyers since assumption of a loan requires lower fees and/or qualifying standards than a new loan.

Assumption
A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property.

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Balloon Mortgage
Balloon mortgage loans are short-term fixed-rate loans with fixed monthly payments for a set number of years followed by one large final balloon payment ("the balloon") for all of the remainder of the principal. Typically, the balloon payment may be due at the end of 5, 7, or 10 years. Borrowers with balloon loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.

Balance Sheet
A document showing the financial situation--assets, liabilities, and net worth--of a company at a specific point in time.

Bankruptcy
A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts.

Bearer
The legal owner of a piece of property.

Bequest
A gift of personal property by will.

Bill of Sale
A document by which one transfers ownership of goods to another.

Bi-Weekly Mortgage
A payment plan under which one pays one half of a monthly payment every two weeks, saving substantially over the life of the loan.

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

Bona Fide
In good faith.

Bond
A document representing a right to certain payments on underlying collateral.

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 below-market rate for a period of time. In these cases, the builder or the seller will contribute funds in the form of points as a sort of interest rate subsidy to the lender.

Buyers Broker
An agent hired by a buyer to locate a property for purchase and to represent the buyer in negotiations with the seller's broker for the best possible deal for the buyer.

Buyer's Market
Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.

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Call Option
A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

Caps
Limits on changes in ARM interest rates or monthly payments, either in an adjustment period or over the life of the loan.

Caps (interest)
Consumer safeguards which 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. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

Caps (payment)
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, these consumer safeguards may cause negative amortization.

Cash Out
Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already 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. For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in points), you would be left with $18,000 cash out. Cash-out loans may not be available for all types of property.

Cashier's Check (or Bank Check)
A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's.

CC&Rs
See Covenants, Conditions and Restrictions.

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

Certificate of Eligibility
Document issued by the Veterans Administration to qualified veterans which verifies a veteran's eligibility for a VA guaranteed loan. Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA form 1880 (request for Certificate of Eligibility).

Certificate of Occupancy
Document issued by local government agency stating that a property meets the requirements of health and building codes.

Certificate of Reasonable Value (CRV)
A property appraisal performed by a VA approved appraiser, which establishes the limit on the principal of the VA loan.

Certificate of Title
Written opinion 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.

Certificate of Veteran Status
FHA form filled out by the VA to establish a borrower's eligibility for an FHA Vet loan. Obtainable through local VA office by submitting form DD 214 (Separation Paper) with form 26-8261a (request for certificate of veteran status).

Certified Check
A check drawn on the issuer's account for funds that have been segregated by the bank, guaranteeing payment.

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

Clear Title
A marketable title, free of clouds and disputes.

Closing (or Settlement)
The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

Closing Costs
Costs for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, and surveying fees.

Cloud on Title
An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title.

Collateral
Assets (such as your home) pledged as security for a debt.

Combined Loan-to-Value (CLTV)
The percentage of the total mortgage liens to the appraised value (or the sales price, whichever is less) of the property.

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

Commitment
A promise to lend and a statement by the lender of the terms and conditions under which a loan is made.

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 purchase by federal agencies such as FNMA and FHLMC. The maximum conforming loan amount is $240,000 for a one-unit property.

Construction Loan
A short term interim loan to fund the construction of buildings or homes, which usually advances the money to the builder as work progresses. After completion, a permanent loan is used to pay off the construction loan.

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

Contract of Sale
The 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 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 with the option to convert to a fixed-rate loan during a given time period.

Conveyance
The document used to effect 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, usually by members of the 11th Federal Home Loan Bank District.

Covenants, Conditions and Restrictions (CC&Rs)
A document that defines the use, requirements and restrictions of a property.

Credit Report
A report detailing the credit history of a prospective borrower that's used to help determine borrower creditworthiness.

Credit Risk
The possibility that the borrower may default on financial obligations to the investor.

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Deed
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.

Deed of Trust
A legal document that conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full.

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

Deferred Interest
Interest added to the balance of a loan when monthly payments are not sufficient to cover it. (See negative amortization.)

Delinquency
Failure to make payments as agreed in the loan agreement.

Deposit
Cash paid to the seller when a formal sales contract is signed.

Depreciation
Decline in property value.

Discount Points (or Points)
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.

Documentary Stamps
A state tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another.

Document Review
Fee charged by lender for review of documents necessary to fund a loan.

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

Due-on-Sale Clause
Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.

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Earnest Money
Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed.

Effective Rate
The effective rate is a consumer-oriented rate that takes into account the projected amount of time you tell us you will actually have the loan, as well as the specific costs, fees, and potential rate changes associated with it. The fees and costs are distributed over the time you plan to be in the house, allowing you to do an apples-to-apples comparison of a variety of loan types. The effective rate is not the APR. It is similar in that it factors in interest, mortgage insurance, and other fees (including points); however, the APR assumes that you keep your loan for the entire term, while the effective rate takes into account how long you tell us you plan to be in your house.

Encumbrance
A legal right or interest in a property that affects title and lessens the property value. Encumbrances can take the form of claims, liens, unpaid taxes, etc. These will usually have to be taken care of before a buyer will want to purchase the property.

Equal Credit Opportunity Act (ECOA)
Federal law requiring 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
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.

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.

Escrow Account
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they become due. Also known as Impound Account.

Escrow Agent
A person 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.

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

Farmer's Home Administration (FmHA)
An agency, within the U.S. Department of Agriculture, that provides financing for purchasers of homes and farms in small towns and rural areas.

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 Bank Board (FHLBB)
Former name for the regulatory and supervisory agency for federally chartered savings institutions, now called the Office of Thrift Supervision.

Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac)
This agency buys 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.

Federal Reserve
Central bank of the United States and major regulatory agency for many commercial banks.

Fee Simple
Absolute ownership of real property.

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. FHA loans typically permit borrowers to buy a home with a lower down payment than conventional loans. With FHA insurance, eligible buyers can purchase a home with a down payment as little as 3% of the appraised value or the purchase price, whichever is lower. FHA borrowers typically are required to participate in a face-to-face meeting with their lender or a government approved mortgage counselor prior to closing on a new mortgage loan. The current FHA loan limits vary depending on home type and home location. To find the most recent limits for your home, consult the FHA Maximum Mortgage Limits web page.

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
An interest rate which is fixed for the term of the loan.

Fixed-Rate Loans
Fixed-rate loans have interest rates that do not change over the life of the loan. As a result, monthly payments for principal and interest are also fixed for the life of the loan. Fixed-rate loans typically have 15-year or 30-year terms. With a fixed-rate loan, you will have predictable monthly mortgage payments for as long as you have the loan.

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

Floor
The minimum rate of interest payable on an adjustable-rate mortgage.

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

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

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

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Ginnie Mae
See Government National Mortgage Association.

GNMA
See Government National Mortgage Association.

Good Faith Estimate
Written estimate of the settlement costs the borrower will likely have to pay at closing. 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.

Government National Mortgage Association (GNMA, or Ginnie Mae)
Government agency that provides funds for VA and FHA loans.

Graduated Payment Mortgage (GPM)
Mortgage in which initial low payments (with potential negative amortization) increase regularly for several years and then level off.

Grace Period
Period of time 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 Income
Total income before taxes or expenses are deducted.

Gross Monthly Income
The total amount earned by the borrower each month

Growing Equity Mortgage
A fixed-rate loan in which payments increase by some predetermined amount each year, which reduces the outstanding balance of the loan. This accelerated payment plan allows repayment of a 30-year loan in 15 to 20 years.

Guarantee
To assume liability for another's debts in the event of his default.

Guaranty
A promise by one party to pay a debt or perform an obligation contracted.

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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 Loan
A loan secured by the equity in your home. These are sought for a variety of purposes, including home improvements, major purchases or expenses, and debt consolidation. Interest paid is usually tax -deductible.

Housing Code
Local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.

HUD
Housing and Urban Development. 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 or refinancing a loan.

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Impound Account
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses impound account funds on behalf of the borrower when they become due. (Also known as Escrow Account.)

Index
A published rate used by lenders that serves as the basis for determining interest rate changes on ARM loans.

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

Insolvency
Condition of a person who is unable to pay his debts as they fall due.

Interest
Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed.

Interest Rate
The annual rate of interest on the loan, expressed as a percentage of 100.

Interest Rate Cap
Consumer safeguards which limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

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

Joint Tenancy
A form of ownership of property giving each person equal interest in the property, including rights of survivorship.

Jumbo Loan
A mortgage larger than the $240,000 limit set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

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.

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Late Charge
Penalty paid by a borrower when a payment is made after the due date.

Lease-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Monthly rental payments cover mortgage payments, and also include an additional amount which is saved toward a down payment.

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

LIBOR (London Interbank Offered Rate)
The interest rate charged among banks in the foreign market for short-term loans to one another. A common index for ARM loans.

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

Loan Administration (or Loan Servicing)
The collection of mortgage payments from borrowers and related responsibilities (such as handling escrows for property tax and insurance, foreclosing on defaulted loans and remitting payments to investors).

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 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.

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

Loan Servicing (or Loan Administration)
The collection of mortgage payments from borrowers and related responsibilities (such as handling escrows for property tax and insurance, foreclosing on defaulted loans and remitting payments to investors).

Loan-to-Value Ratio (LTV)
The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property.

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

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Margin
A specified percentage that is added to your chosen financial index to determine your new interest rate at the time of adjustment for ARM loans.

Monthly Housing Expense
Total monthly expense of principal, interest, taxes, and insurance.

Mortgage
A legal document by which real property is pledged as security for the repayment of a loan.

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

Mortgage Broker
An individual or company that arranges financing for borrowers.

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

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.

Mortgagor
The borrower in a mortgage loan transaction.

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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
After taxes.

Net Effective Income
Gross income minus federal income tax.

Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.

Nondischargeable Debt
Debt, such as taxes, that cannot be forgiven in a bankruptcy liquidation.

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.

Notice of Default
Written notice to a borrower that a default has occurred and that legal action may be taken.

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Office of Comptroller Currency
The oldest federal financial regulatory body, which oversees the nation's federally chartered banks.

Office of Thrift Supervision
Regulatory and supervisory agency for federally chartered savings institutions.

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

Owner Financing
A purchase in which the seller provides all or part of the financing.

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Payment Cap
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.

Per Diem Interest
Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.)

Permanent Loan
A long term mortgage of ten years or more.

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

Pledged Account Mortgage (PAM)
Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

Points (or Discount Points)
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.

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

Pre-approval
The process of determining how much money a prospective homebuyer or refinancer will be eligible to borrow prior to application for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.

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

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
Fee charged by a lender for a loan paid off in advance of the contractual due date.

Pre-qualification
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.

Primary Mortgage Market
Includes banks, savings and loans, credit unions, and mortgage bankers who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to lenders like FNMA in the secondary mortgage market.

Prime Rate
Lowest commercial interest rate charged by a bank on short term loans to its most credit worthy customers.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
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 purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

Profit and Loss Statement
Financial statement showing sales, expenses and profits over a period of time.

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

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Real Property
Land and any improvements permanently affixed to it, such as buildings.

Reclamation
The right of the person with title to a property to recover it from the debtor in case of a bankruptcy.

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 the public records.

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

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

Rent With Option To Buy
See Lease-purchase mortgage loan.

Repossession (or Foreclosure)
Legal process by which the lender forces the sale of a property because the borrower has not met the mortgage terms.

RESPA
Real Estate Settlement Procedures Act. RESPA is a federal law that gives consumers the right to review information about loan settlement costs. The law gives you the right to review this information after you apply for a loan, and again at loan settlement. The law only obliges lenders to provide these settlement costs after application.

Reverse Annuity Mortgage (RAM)
Mortgage used by the elderly in which the lender makes periodic payments to the borrower using the borrower's equity in the home.

Right to Rescission
Under the provisions of the Truth-in-Lending Act, the borrower's right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage.

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

Satisfaction
The payment of a debt which satisfies an obligation.

Secondary Mortgage Market
The market into which primary mortgage lenders sell the mortgages they make to obtain funds to originate more new loans; includes investors like Fannie Mae and Freddie Mac.

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

Servicing (or Loan Administration)
The collection of mortgage payments from borrowers and related responsibilities such as handling escrows for property tax and insurance, foreclosing on defaulted loans and remitting payments to investors).

Settlement (or Closing)
The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

Settlement Costs
Also known as closing costs, these costs are for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees.

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.

Shared Appreciation Mortgage (SAM)
Loan in which the borrower is given a below-market interest rate and the lender receives a portion of the future appreciation of the property value.

Subsidized Second Mortgage
Alternative financing option for low- and moderate-income households that also includes a down payment and a first mortgage, with funds for the second mortgage provided by city, county, or state housing agencies, foundations, or nonprofit corporations. Payment on the second mortgage is often deferred and carries low interest rates (if any). Part of the debt may be forgiven for each year the family remains in the home.

Survey
A measurement of land, prepared by a licensed surveyor, showing a property's boundaries, elevations, improvements, and relationship to surrounding tracts.

Sweat Equity
Value added to a property in the form of labor or services of the owner rather than cash.

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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
Public sale of property by a government authority as a result of non-payment of taxes.

Term
The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

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

Title Company
A company that insures title to property.

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

Title Search
Examination of municipal 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.

Transfer Tax
Tax paid when title passes from one owner to another.

Truth-in-Lending Act
Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires the right to rescission period.

Two-Step Mortgage
Mortgage with a low fixed interest rate for 5, 7, or 10 years, which is then adjusted to a new rate for the rest of the loan.

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

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

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VA Loans
Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veterans. VA loans are available to veterans, reservists, active-duty personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to purchase a home with no down payment, no cash reserve, no application fee, and lower closing costs than other financing options. The maximum VA loan amount is currently $203,000.

Variable Rate Mortgage
See Adjustable Rate Mortgage.

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

Verification of Deposit (VOD)
Document signed by the borrower's bank or other financial institution verifying the borrower's account balance and history.

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

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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 corrected before closing.

Warehouse Fee
Mortgage firms often borrow funds on a short term basis in order to originate loans that will later be sold to investors in the secondary mortgage market. When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

Warehousing
A loan is said to be in a lender's warehouse before it is sold to investors in the secondary mortgage market.

Wraparound Mortgage
Loan arrangement in which an existing loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate.

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