This is a glossary of the more common terms.

What is Acceleration?
The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

What is an Adjustable Rate Mortgage (ARM)?
Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

What is an Adjustment Iinterval?
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

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

What is Annual Percentage Rate A.P.R.?
Is a interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. the APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

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What is an Appraisal?
An estimate of the value of property, made by a qualified professional called an "appraiser".

What is an Assessment?
A local tax levied against a property for a specific purpose, such as a sewer or street lights.

What is an Assumption?
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.

What is a Balloon (payment) Mortgage?
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

What is a Blanket Mortgage?
A mortgage covering at least two pieces of real estate as security for the same mortgage.

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What is a Borrower (Mortgagor)?
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

What is a Broker?
An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers us ally charge a fee or receive a commission for their services.

What is a Buy-down?
When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

What is Cash Flow?
The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)

What is Caps (interest)?
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

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

What is Certificate of Eligibility?
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility.

What is a Certificate of Reasonable Value (CRV)?
An appraisal issued by the Veterans Administration showing the property's current market value.

What is Certificate of Veteran Status?
The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans.

What is Closing?
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement, closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount. commitment an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

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What is Commitment?
A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. construction loan (interim loan): A loan to provide the funds necessary to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.
contract sale or deed: A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

What is a Construction Loan?
A short term interim loan for financing the cost of construction. The lender advance funds to the builder at periodic intervals as the work progresses.

What is a Conventional Loan?
A mortgage not insured by FHA or guaranteed by the VA or deferred interest: When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.

What is Debt-to-Income Ratio?
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligations is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See housing expenses-to-income ratio.

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What is Deed of Trust?
In many states, this document is used in place of a mortgage to secure the payment of a note.

What is Default?
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

What is Deferred Interest?
see negative amortization

What is Delinquency?
Failure to make payments on time. this can lead to foreclosure.

What is the Department of Veterans Affairs (VA)?
An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

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What is a Discount Point?
see point

What is a Down Payment?
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on conventional.

What is Due-On-Interest?
A clause inserted in a mortgage that allows the lender to call the loan due and payable at its option upon the transfer of the property also known as paragraph "17" in FNMA/ FHLMC Mortgage.

What is Due-on-Sale-Clause?
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

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

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What is the Equal Credit Opportunity Act (ECOA)?
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.

What is Entitlement?
The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

What is Equity?
The value an owner has in real estate over and above the obligation against the property.

What is Escrow?
Funds that are set aside and held in trust, usually for payment of taxes and insurance on real property. Also earnest deposits held pending loan closing.

What is Fannie Mae?
Federal National Mortgage Association (FNMA) also know as "Fannie Mae" is 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.

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What is a Firm Commitment?
A promise by FHA to insure a mortgage loam for a specified property and borrower. A promise from a lender to make a mortgage loan.

What is Fixed Rate Mortgage?
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

What is FNMA?
The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."

What is Foreclosure?
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

What is "Freddie Mac"?
Federal Home Loan Mortgage Corporation (FHLMC) also called "Freddie Mac", is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.

What is the Federal Housing Administration (FHA)?
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

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What is a FHA loan?
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($124,875 and higher), they are generous enough to handle moderately-priced homes almost anywhere in the country.

What is FHA Mortgage Insurance?
Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

What is Ginnie Mae?
Government National Mortgage Association (GNMA) also known as "Ginnie Mae, provides sources of funds for residential mortgage, insured or guaranteed by FHA or VA.

What is a Graduated Payment Mortgage (GPM)?
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.

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What is a Guaranty?
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.

What is Hazard Insurance?
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

What is Housing Expenses-to-Income Ratio?
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See debt-to-income ratio.

What is Impound?
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

What is Index?
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

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What is an Investor?
A money source for a lender.

What is Interim Financing?
A construction loam made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

What is a Jumbo Loan?
a loan which is larger (more than $275,250) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

What is a Lien?
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

What is a Loan-to-Value Ratio?
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

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What is a Margin?
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

What is Market Value?
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.

What is Mortgage Insurance Premium (MIP)?
MIP is the one-half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. The MIP was changed to a one-time charge to the borrowers.

What is Mortgage Insurance?
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

What is a Mortgagee?
The lender.

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What is a Mortgagor?
The borrower or homeowner.

What is Negative Amortization?
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. the danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

What is Negotiable Rate Mortgage (RBM)?
A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

What is Net Effective Income?
The borrower's gross income minus federal income tax.

What is a Non Assumption Clause?
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

What is an Origination Fee?
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. (points)

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What is a Permanent Loan?
A long term mortgage, usually ten years or more. Also called an "end loan."

What is PITI?
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

What is 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.

What are Points (loan discount points)?
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

What is Power of Attorney?
A legal document authorizing one person to act on behalf of another.

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What is Prepaid Expenses?
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.

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

What is Prepayment Penalty?
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

What is Primary Mortgage Market?
Lenders making mortgage loans directly to borrower's such as savings and loan association, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

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

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What is Private Mortgage Insurance (PMI)?
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on you loan's structure. On a $75,000 house with a 10 percent down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

What is a Realtor® ?
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

What is a Recision?
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

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

What is Refinance?
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

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What is RESPA?
RESPA is short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

What is Reverse Annuity Mortgage (RAM)?
RAM is a form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loam is paid in full. Also called a "release of mortgage."

What is a Second Mortgage?
A mortgage made subsequent to another mortgage and subordinate to the first one.

What is the Secondary Mortgage Market?
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders security.

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What is Servicing?
Servicing is all the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

What is Settlement/Settlement Costs?
see closing/closing costs

What is Shared Appreciation Mortgage (SAM)?
SAM is a mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.

What is Simple Interest?
Interest which is computed only on the principle balance.

What is a Survey?
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

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What is Sweat Equity?
Equity created by a purchaser performing work on a property being purchased. term mortgage see balloon payment mortgage.

What is a Title?
a document that gives evidence of an individual's ownership of property.

What is Title Insurance?
Title Insurance is a policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is us ally a function of the value of the property, and is often borne by the purchaser and/or seller.

What is a Title Search?
A Title Search is an examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

What is Truth-In-Lending?
Truth-in-Lending is a federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan.

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What is a Two-Step Mortgage?
A Two-Step Mortgage is a mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. the lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. also called "Super Seven" or "Premier" mortgage.

What is Underwriting?
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

What is USURY?
Interest charged in excess of the legal rate established by law.

What is a VA Loan?
A VA Loan is a long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

What is a VA Mortgage Funding Fee?
A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

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What is a Variable Rate Mortgage (VRM)?
see adjustable rate mortgage

What is a Verification of Deposit (VOD)?
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

What is Verification of Employment (VOE)?
A document signed by the borrower's employer verifying his/her position and salary.

What is a Warehouse Fee?
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). 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.

What is a Wraparound?
Wraparound results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

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