Adjustment Period This is the length of time for which the interest rate is fixed on an adjustable-rate mortgage.
Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that changes based on market conditions.
Aggregate Adjustment: A calculation that aligns the required escrow balance with the actual payments due over the next year.
Amortization: The process of gradually paying off a debt over a period through regular payments.
Amortization Schedule: A table detailing each periodic payment on a mortgage over time.
Annual Percentage Rate (APR): The annual rate charged for borrowing, expressed as a single percentage.
Appraisal: An evaluation of a property's value, conducted by a professional appraiser.
Appreciation: An increase in the value of a property over time.
Arrears- Payments that cover a period that has already passed.
Assessed Value: The dollar value assigned to a property for tax purposes by a tax assessor.
Assessment: A fee charged by a homeowners' association for maintenance and other expenses.
Asset: Any item of value owned by an individual.
Assignment: The transfer of property rights or other interests from one party to another.
Assumable Mortgage: A mortgage that can be transferred from the seller to the buyer of a property.
Balloon Mortgage: A mortgage with small regular payments and a large final payment.
Bankruptcy: A proceeding in which the debtor surrenders their assets to the bankruptcy court thereby relieving them from insurmountable debt.
Basis Point A yield of 1/100th of a percentage point.
Bridge Loan: A short-term loan secured by the homeowner's existing property and is repaid once the old property is sold.
Buydown: A financing technique where the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage.
Cap: A limit on how much an interest rate can increase or decrease during an adjustment period.
Cash-Out Refinance: A refinancing option where a new mortgage is for more than the existing loan amount, and the borrower takes out the difference in cash.
Certificate of Eligibility (COE): A document from the VA that proves a veteran's eligibility for a VA loan.
Certificate of Title: A document that shows ownership of property
Closing: The final step in executing a real estate transaction where ownership is transferred.
Closing Costs: The fees and expenses required to finalize the mortgage and transfer ownership of the property. These costs usually range from 2% to 5% of the loan amount and include various charges such as appraisal fees, title insurance fees, and lender fees.
Closing Disclosure: The final details about the loan you have selected. It includes a breakdown of all costs associated with the mortgage and the exact amount you will need to bring to closing.
Collateral: A type of asset (such as a car or a home) that can be used as a guarantee to pay off a loan. In the event that the terms of the loan are not met, the borrower risks losing the asset.
Comparative Market Analysis (CMA): An estimate of a home's value based on recently sold, similar properties in the immediate area.
Condominium: A building or complex of buildings containing individually owned units.
Construction Loan: A short-term loan used to finance the building of a home or another real estate project.
Consumer Credit Report: A credit report that typically provides information from only one of the credit agencies.
Conventional Loan: A mortgage that is not insured or guaranteed by the federal government.
Cost of Funds Index (COFI): An index used to determine interest rate changes for certain adjustable-rate mortgages.
Covenants: Legally enforceable terms that stipulate what can and cannot be done on a property.
Credit Bureau: Also known as a credit reporting agency or consumer reporting agency, is a company that collects and sells credit reports and credit scores.
Credit History: A complete record detailing a person's open and repaid debts.
Credit Score: A numerical expression based on a level analysis of a person's credit files, representing the creditworthiness of an individual.
Debt: An amount that is owed.
Debt-to-Income Ratio (DTI): A personal finance measure that compares an individual's debt payment to their overall income.
Deed: A legal document that grants ownership of a property.
Deed in Lieu of Foreclosure: A legal process where a borrower voluntarily transfers ownership of their property to the lender to satisfy a loan that is in default and avoid foreclosure.
Default: Failure to fulfill a legal obligation or duty, such as failing to make the required payments on a loan.
Delayed Financing: a mortgage option that allows a buyer who purchased a property with cash to immediately refinance the purchase to recoup the cash used in the transaction
Depreciation: A decrease in the value of a property over time.
Discount Points: These are actually prepaid interest on the mortgage loan. The more points you pay, the lower the interest rate on the loan and vice versa.
Down Payment: The initial, upfront payment you make when purchasing a home. It is a percentage of the home's purchase price, ranging from 3% to 20%.
Due Diligence: The investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party.
Due-On-Sale Clause: A provision in a mortgage allowing the lender to demand full repayment if the property is sold.
Earnest Money: A deposit made to a seller indicating the buyer's good faith in a transaction.
Easement: A right to cross or otherwise use someone else's land for a specified purpose.
Encroachment: An intrusion on a person's territory or rights.
Equity: The difference between the value of the property and the amount owed on it.
Escrow Account: The part of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance and mortgage insurance.
Escrow Analysis: An annual review of escrow accounts to ensure the correct monthly amounts are being collected.
Estate: The total value of a person's assets, including real property, at the time of their death.
Fair Credit Reporting Act (FCRA): A federal law that regulates the collection, dissemination, and use of consumer information, including consumer credit information.
Fair Market Value: The price that a given property or asset would sell for on the open market.
Fannie Mae (FNMA): The Federal National Mortgage Association, a government-sponsored enterprise that buys and guarantees mortgages issued through lenders.
“The FED”: The Federal Reserve, is the central banking system of the United States. It regulates the nation's money supply, sets interest rates, supervises and regulates banks, and aims to ensure financial stability. The FED's key goals are controlling inflation, managing unemployment, and promoting economic growth.
Federal Housing Administration (FHA): A government agency that provides mortgage insurance on loans made by FHA-approved lenders.
Fee Simple: The greatest possible interest a person can have in real estate.
FHA Loan: A loan insured by the Federal Housing Administration.
FICO Score: A credit score that predicts how likely someone is to repay a loan on time. It's a three-digit number that typically ranges from 300 to 850. Lenders use FICO scores to assess a borrower's creditworthiness and determine whether to extend credit, such as for a mortgage, credit card, or other loan.
First Mortgage: The primary lien against a property.
Fixed-Rate Mortgage: A mortgage with a fixed interest rate for the entire term of the loan.
Foreclosure: The process by which a lender takes control of a property from a borrower who has defaulted on their loan.
Freddie Mac (FHLMC): The Federal Home Loan Mortgage Corporation, a government-sponsored enterprise that buys and securitizes mortgages.
Fully Indexed Rate: The index plus the margin, rounded to the next highest eighth.
Grace Period: A set length of time after the due date during which payment may be made without penalty.
Gross Income: Total income before taxes and deductions.
Home Equity Line of Credit (HELOC): A line of credit extended to a homeowner that uses the borrower's home as collateral.
Home Inspection: An examination of the condition of a real estate property.
Homeowners' Association (HOA): An organization in a subdivision, planned community, or condominium that makes and enforces rules for the properties within its jurisdiction.
Homeowners Insurance: A form of property insurance that covers losses and damages to an individual's residence.
Housing Ratio: The relationship of the total housing payments (PITI- Principal, Interest, Taxes, Insurance) to the gross monthly income.
Index: A measure by which Adjustable-Rate Mortgage interest rates are raised and lowered.
Installment Loan: A type of loan that is repaid over time with a set number of scheduled payments.
Interest: The cost of borrowing money, typically expressed as an annual percentage of the loan amount.
Interest Rate: The proportion of a loan charged as interest to the borrower.
Interested Party Contributions: refer to contributions made by parties involved in a real estate transaction other than the buyer, typically the seller, builder, or real estate agent, toward the buyer's closing costs or other financial concessions. These contributions can include paying for closing costs, discount points, or other fees associated with obtaining a mortgage.
Investment Property: Real estate property purchased with the intent of renting it out.
Joint Tenancy: A form of ownership by two or more individuals together that includes rights of survivorship.
Jumbo Loan: A mortgage loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency.
Lease: A contract outlining the terms under which one party agrees to rent property owned by another party.
Leaseback: A transaction where the seller of a home leases it back from the buyer for a set period of time.
Lender: The institution, i.e., bank, mortgage company or mortgage broker that is offering the loan.
Lien: A legal right or interest that a lender has in the borrower's property, granted until the debt is paid off.
Loan Estimate: An estimate of the loan terms, monthly payment, and closing costs. It helps you compare loan offers from different lenders.
Loan Officer: A representative of a brokerage who finds and assists borrowers in acquiring loans.
Loan-to-Value Ratio (LTV): A financial term used by lenders to express the ratio of a loan to the value of an asset purchased.
Margin: In adjustable-rate mortgages, the amount added to the index rate to determine the interest rate.
Market Value: The amount for which something can be sold on a given market
Mortgage: A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor's property.
Mortgage Broker: An intermediary who brings mortgage borrowers and mortgage lenders together but does not use their own funds to originate mortgages.
Mortgage Insurance Premium (MIP): a type of insurance required by government-backed loan programs, such as FHA (Federal Housing Administration) loans, VA (Veterans Affairs) loans, and USDA (United States Department of Agriculture) loans. It protects the lender against losses if the borrower defaults on the loan.
Mortgage Note: A promissory note secured by a specified mortgage loan.
Mortgage Underwriter: The person who evaluates and approves or denies a mortgage loan application.
Multiple Listing Service (MLS): A service used by a group of real estate brokers that allows them to see each other's listings of properties for sale.
Negative Amortization: An increase in the principal balance of a loan caused by making payments that do not cover the interest due.
Net Income: Income after taxes and deductions have been subtracted.
Non-Conforming Loan: A loan that does not conform to the guidelines set by Fannie Mae and Freddie Mac.
Origination Fee: A charge by the lender to cover the costs of making the loan
PITI: An acronym for the elements of a mortgage payment: Principal, Interest, Taxes, and Insurance.
Points: A point is equal to one percent of your mortgage loan. You may want to consider "buying down" your interest rate by paying discount points up front - especially if you plan to own your home for a long time.
Pre-Approval: Requires your loan officer to review your income, assets, and credit, resulting in a conditional loan amount. It shows you’re serious and ready to buy.
Prepaids: Upfront payments made at closing for expenses you will incur as a homeowner. These typically include the first year of homeowner’s insurance, property taxes, and mortgage interest from the closing date to the end of the month. Additionally, an initial deposit for an escrow account to cover future insurance and tax payments may be required.
Pre-Qualification: An initial assessment based on your self-reported financial information. It’s an estimate, based off what you told your loan officer
Principal: The amount of money borrowed or the amount still owed on a loan, separate from interest.
Private Mortgage Insurance (PMI): Insurance that a borrower must buy if their down payment is less than 20% of the home's value.
Promissory Note: A written promise to pay a specified amount of money on demand or at a set time.
Property Tax: A tax assessed on real estate by the local government.
Qualifying Ratio: The ratio of a borrower’s fixed monthly expenses to their gross monthly income, used to determine how much they can afford to borrow.
Quitclaim Deed: A deed that transfers ownership without making any guarantees about the title.
Rate Lock: An agreement between the borrower and lender that the interest rate on the mortgage will not change for a specific period.
Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-producing real estate.
Real Estate Owned (REO): Property owned by a lender after an unsuccessful sale at a foreclosure auction.
Recording Fees: Fees charged by the title company for recording legal documents such as deeds and mortgages.
Refinance: The process of replacing an existing mortgage with a new loan, usually to obtain better terms.
Revolving Debt: Credit that does not have a fixed number of payments, such as credit card debt.
Right of Rescission: The right to cancel a mortgage transaction within three days of signing for a refinance.
Second Mortgage: A loan that is subordinate to a first mortgage and typically has a higher interest rate.
Secured Loan: A loan backed by collateral, reducing the risk for lenders.
Servicer: A company that handles the day-to-day tasks of managing a loan.
Settlement: The process of finalizing a mortgage transaction where the buyer pays the seller and the property changes ownership.
Short Sale: A sale of property where the proceeds are less than the balance owed on the mortgage.
Subordinate Clause: A clause that allows one debt to be ranked behind another in priority for collecting repayment.
Survey: A process of measuring land to determine the location of property boundaries.
Sweat Equity: The increased value of property due to the labor put into it by the owner.
Tax Proration: is an adjustment made during a real estate transaction to fairly split property taxes between the buyer and the seller based on how long each party has owned the property during the tax period.
Tenancy in Common: A form of ownership where each party owns a separate share of the property.
Title: Legal documentation proving ownership of a property.
Title Company: A company that ensures the title to a property is legitimate and provides title insurance.
Title Insurance: Insurance that protects the lender or homeowner against any claims that arise from disputes over the ownership of the property.
Title Search: The process of examining public records to determine the legal ownership and any claims on a property.
Transfer Tax: A tax imposed by the state or local government on the transfer of property.
Tri-merge credit report: A three-bureau report combining the information from all three consumer credit reports into one. It’s the one that mortgage lenders use.
Trustee: An individual or organization that holds or manages property for the benefit of another.
Truth-in-Lending Act (TILA): A federal law designed to promote informed use of consumer credit by requiring disclosures about its terms and cost.
Underwriting: The process by which a lender evaluates the risk of a loan application.
Uniform Residential Loan Application: A standardized form used by lenders to collect financial and property information from borrowers.
VA Loan: A mortgage loan guaranteed by the U.S. Department of Veterans Affairs, available to veterans, service members, and eligible surviving spouses.
Verification of Employment (VOE): A process used by lenders to confirm the employment status and income of a loan applicant.
Verification of Deposit (VOD): A process used by lenders to confirm the assets of a loan applicant.
Warranty Deed: A deed in which the seller guarantees that they hold clear title to a piece of real estate and have a right to sell it.
Zoning: Laws that regulate the use of land and structures within designated areas.