Below is a list of terms that are commonly used when working with mortgages.
Amenity
A feature of the home or property that serves as a benefit to the buyerbut that is not necessary to its use; may be natural (like location,Woods, water) or man-made (like a swimming pool or garden).
Amortization
Repayment of a mortgage loan through monthly installments of principaland interest; the monthly payment amount is based on a schedule thatwill allow you to own your home at the end of a specific time period(for example, 15 or 30 years)
Annual Percentage Rate (APR)
Calculated by using a standard formula, the APR shows the cost of aloan; expressed as a yearly interest rate, it includes the interest,points, mortgage insurance, and other fees associated with the loan.
Application
The first step in the official loan approval process; this form is usedto record important information about the potential borrower necessaryto the underwriting process.
Appraisal
A document that gives an estimate of a property's fair market value; anappraisal is generally required by a lender before loan approval toensure that the mortgage loan amount is not more than the value of theproperty.
Appraiser
A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
ARM
Adjustable Rate Mortgage; a mortgage loan subject to changes ininterest rates; when rates change, ARM monthly payments increase ordecrease at intervals determined by the lender; the Change in monthly-payment amount, however, is usually subject to a Cap.
Assumable Mortgage
A mortgage that can be transferred from a seller to a buyer; once theloan is assumed by the buyer the seller is no longer responsible forrepaying it; there may be a fee and/or a credit package involved in thetransfer of an assumable mortgage.
Balloon Mortgage
A mortgage that typically offers low rates for an initial period oftime (usually 5, 7, or 10) years; after that time period elapses, thebalance is due or is refinanced by the borrower.
Borrower
A person who has been approved to receive a loan and is then obligatedto repay it and any additional fees according to the loan terms.
Building Code
Based on agreed upon safety standards within a specific area, abuilding code is a regulation that determines the design, construction,and materials used in building.
Budget
A detailed record of all income earned and spent during a specific period of time.
Cap
A limit, such as that placed on an adjustable rate mortgage, on howmuch a monthly payment or interest rate can increase or decrease.
Cash Reserves
A cash amount sometimes required to be held in reserve in addition tothe down payment and closing costs; the amount is determined by thelender.
Certificate of Title
A document provided by a qualified source (such as a title company)that shows the property legally belongs to the current owner; beforethe title is transferred at closing, it should be clear and free of allliens or other claims.
Closing
Also known as settlement, this is the time at which the property isformally sold and transferred from the seller to the buyer; it is atthis time that the borrower takes on the loan obligation, pays allclosing costs, and receives title from the seller.
Closing Costs
Customary costs above and beyond the sale price of the property thatmust be paid to cover the transfer of ownership at closing; these costsgenerally vary by geographic location and are typically detailed to theborrower after submission of a loan application.
Commission
An amount, usually a percentage of the property sales price that iscollected by a real estate professional as a fee for negotiating thetransaction.
Condominium
A form of ownership in which individuals purchase and own a unit ofhousing in a multi-unit complex; the owner also shares financialresponsibility for common areas.
Conventional Loan
A private sector loan, one that is not guaranteed or insured by the U.S. government.
Credit History
History of an individual's debt payment; lenders use this informationto gauge a potential borrower's ability to repay a loan.
Credit Report
A federal law whereby a person's assets are turned over to a trusteeand used to pay off outstanding debts; this usually occurs when someoneowes more than they have the ability to repay.
Credit Bureau Score
A number representing the possibility a borrower may default; it isbased upon credit history and is used to determine ability to qualifyfor a mortgage loan.
Debt-to-Income Ratio
A comparison of gross income to housing and non-housing expenses; Withthe FHA, the-monthly mortgage payment should be no more than 29% ofmonthly gross income (before taxes) and the mortgage payment combinedwith non-housing debts should not exceed 41% of income.
Deed
The document that transfers ownership of a property.
Default
The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Delinquency
Failure of a borrower to make timely mortgage payments under a loan agreement.
Discount Point
Normally paid at closing and generally calculated to be equivalent to1% of the total loan amount, discount points are paid to reduce theinterest rate on a loan.
Down Payment
The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.
Earnest Money
Money put down by a potential buyer to show that he or she is seriousabout purchasing the home; it becomes part of the down payment if theoffer is accepted, is returned if the offer is rejected, or isforfeited if the buyer pulls out of the deal.
Equity
An owner's financial interest in a property; calculated by subtractingthe amount still owed on the mortgage loon(s) from the fair marketvalue of the property.
Escrow Account
A separate account into which the lender puts a portion of each monthlymortgage payment; an escrow account provides the funds needed for suchexpenses as property taxes, homeowners insurance, mortgage insurance,etc.
Fair Market Value
The hypothetical price that a willing buyer and seller will agree uponwhen they are acting freely, carefully, and with complete knowledge ofthe situation.
Fixed-Rate Mortgage
A mortgage with payments that remain the same throughout the life ofthe loan because the interest rate and other terms are fixed and do notchange.
Foreclosure
A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Good Faith Estimate
An estimate of all closing fees including pre-paid and escrow items aswell as lender charges; must be given to the borrower within three daysafter submission of a loan application.
Home Inspection
An examination of the structure and mechanical systems to determine ahome's safety; makes the potential homebuyer aware of any repairs thatmay be needed.
Homeowner's Insurance
An insurance policy that combines protection against damage to adwelling and its contents with protection against claims of negligence)or inappropriate action that result in someone's injury or) propertydamage.
Index
A measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.
Interest
A fee charged for the use of money.
Interest Rate
The amount of interest charged on a monthly loan payment; usually expressed as a percentage.
Insurance
Protection against a specific loss over a period of time that issecured by the payment of a regularly scheduled premium.
Rent to Own
Assists low- to moderate-income homebuyers in purchasing a home byallowing them to lease a home with an option to buy; the rent paymentis made up of the monthly rental payment plus an additional amount thatis credited to an account for use as a down payment.
Lien
A legal claim against property that must be satisfied When the property is sold
Loan
Money borrowed that is usually repaid with interest.
Loan Fraud
Purposely giving incorrect information on a loan application in orderto better qualify for a loan; may result in civil liability or criminalpenalties.
Loan-to-Value (LTV) Ratio
A percentage calculated by dividing the amount borrowed by the price orappraised value of the home to be purchased; the higher the LTV, theless cash a borrower is required to pay as down payment.
Lock-in
Since interest rates can change frequently, many lenders offer aninterest rate lock-in that guarantees a specific interest rate if theloan is closed within a specific time.
Loss Mitigation
A process to avoid foreclosure; the lender tries to help a borrower whohas been unable to make loan payments and is in danger of defaulting onhis or her loan.
Margin
An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.
Mortgage
A lien on the property that secures the Promise to repay a loan.
Mortgage Banker
A company that originates loans and resells them to secondary mortgage lenders.
Mortgage Broker
A firm that originates and processes loans for a number of lenders.
Mortgage Insurance
A policy that protects lenders against some or most of the losses thatcan occur when a borrower defaults on a mortgage loan; mortgageinsurance is required primarily for borrowers with a down payment ofless than 25% of the home's purchase price.
Mortgage Modification
A loss mitigation option that allows a borrower to refinance and/orextend the term of the mortgage loan and thus reduce the monthlypayments.
Offer to Purchase
Indication by a potential buyer of a willingness to purchase a home ata specific price; generally put forth in writing.
Origination
The process of preparing, submitting, and evaluating a loanapplication; generally includes a credit check, verification ofemployment, and a property appraisal.
PIT
Principal, Interest, and Taxes - the three elements of a monthlymortgage payment; payments of principal and interest go directlytowards repaying the loan while the portion that covers taxes goes tothe city for payment of property taxes.
Pre-Approve
Lender commits to lend to a potential borrower; commitment remains aslong as the borrower still meets the qualification requirements at thetime of purchase.
Pre-Foreclosure Sale
Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
Pre-Qualify
A lender informally determines the maximum amount an individual is eligible to borrow.
Premium
An amount paid on a regular schedule by a policyholder that maintains insurance coverage.
Prepayment
Payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.
Principle
The amount borrowed from a lender; doesn't include interest or additional fees.
Real Estate Agent
An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.
Realtor
A real estate agent or broker who is a member of the Canadian Real Estate Association.
Refinancing
Paying off one loan by obtaining another; refinancing is generally doneto secure better loan terms (like a lower interest rate).
Special Forbearance
A loss mitigation option where the lender arranges a revised repaymentplan for the borrower that may include a temporary reduction orsuspension of monthly loan payments.
Surveyors Certificate
A property diagram that indicates legal boundaries, easements,encroachments, rights of way, improvement locations, etc.
Title Insurance
Insurance that protects the lender against any claims that arise fromarguments about ownership of the property; also available forhomebuyers.
Title Search
A check of public records to be sure that the seller is the recognizedowner of the real estate and that there are no unsettled liens or otherclaims against the property.
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