“One, Two, Three” Financing A type of financing where the buyer assumes an existing loan, obtains a second mortgage from a third party lender, and takes a third loan from the seller. “Subject to” Clause A clause in a deed that states that the grantee takes title “subject to” and existing mortgage. The original mortgagor is alone responsible for any deficiency, should there be foreclosure of the mortgage. 'As-is' agreement Certifies that a buyer accepts whatever physical condition a property is in at the time the contract is signed. May be controlled by state and local regulations. 12-Month Treasury Average (MTA) This is an index that is the 12 month average of the monthly average yields of U.S. Treasury securities adjusted to a constant one year maturity. It is computed by averaging the previous 12 monthly values of the 1-Year Constant Maturity Treasury (CMT). Because this index is an annual average, it is more secure than the 1-Year CMT index. The MTA index usually fluctuates slightly more than the 11th District Cost of Funds Index (COFI), although its movements track each other closely. The MTA and COFI-indexed adjustable rate mortgages (ARM) work much the same way. ARMs tied to the MTA index may have the potential for negative amortization. Abstract of Title A review of the public records relating to the title to a property. An attorney or title insurance company reviews the abstract of title to establish whether there are any title flaws that must be cleared before a buyer can purchase clear, marketable, and insurable title. Acceleration Clause A provision that allows the lender to demand the immediate repayment of the mortgage loan balance due to circumstances such as: failure to make payments, bankruptcy, nonpayment of taxes on mortgaged property, or the breaking of loan covenants. Acceptance A contractual agreement that binds the offeree to the terms and responsibilities outlined in the offer. Accrued Interest Interest earned for the period of time passed since the interest was last paid. Acquisition Loan A loan made for the sole purpose of purchasing land. Also called "land acquisition loan." Add-on Interest The amount of interest paid on the principal of a loan for the term of that loan. Additional Principal Payment A payment by a borrower made in excess of the required monthly payment in order to reduce the remaining balance on the loan. Adjustable Rate Mortgage (ARM) A mortgage where the interest rate is adjusted periodically based on a pre-selected index. Also known as a "floating rate mortgage." Adjusted Basis The base price of an asset or security that reflects any deductions taken on, or improvements to the asset or security. Adjusted basis is used to compute the gain or loss when the asset or security is sold. Adjusted Gross Income The gross income of a building if it is fully rented, not including an allowance for estimated vacancies. Adjustment Date The date that the interest rate changes on an adjustable rate mortgage (ARM). Adjustment Interval The period of time between changes in the interest rate and/or monthly payments for an adjustable rate mortgage (ARM), typically, one, three, or five years. Adjustment Period The period of time passing between adjustment dates for an adjustable rate mortgage (ARM). Administrator A person appointed by a probate court to manage and distribute the estate of a person who has died without a will. Affordability Analysis An examination of a buyer's ability to afford a house, by reviewing income, liabilities, available funds, mortgage type, home price, and closing costs. Alt-A This is a type of loan program that is almost conforming, but slightly off on one or more criteria. Amortization The repayment of a mortgage loan, both the principal and interest, through regular installments. Amortization Term The number of months required to repay the mortgage loan. Annual Mortgage Statement A report sent to the borrower each year stating the amount of taxes, insurance, and interest paid during the year, as well as the remaining mortgage loan balance. Annual Percentage Rate (APR) A figure that calculates the full cost of a loan including interest rate and all other fees associated with securing a loan. Apartment Conversion The conversion of a rental apartment building to individually owned units. Application Fee The fee charged by the lender to the borrower for applying for a loan. Appraisal A written analysis of the estimated value of a property prepared by a qualified appraiser. Appraised Value An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Appraiser A person familiar with local real estate values, qualified by education, training, and experience to estimate the value of real property and personal property. Appreciation An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation. Arms Length Transaction All parties involved in a real estate transaction with no personal interest in the transaction or other involved persons. Assessed Value The valuation placed upon property by a public tax assessor for purposes of taxation. Assessment The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment. Asset Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). Assignment The transfer of a mortgage from one person to another. Assignment of Leases & Rents The instrument evidencing transfer by a lessee to the Lender and/or assigns of the exact interest of said lessee including rent receipts. Assumption The act of taking over an obligation or liability of a mortgage note from the previous borrower. Assumption Fee The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage. Assumption of Mortgage An obligation undertaken by the purchaser of property to be legally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required. Attorney-in-Fact One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An 'Assumption of Mortgage' is often confused with 'purchasing subject to a mortgage.' When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both 'Assumption of Mortgage' and 'Purchasing Subject to a Mortgage' are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure. Balance Sheet A financial statement that shows assets, liabilities, and net worth as of a specific date. Balloon Mortgage A mortgage that has fixed monthly payments that will amortize it over a stated term but that requires a lump sum payment to be due at the end of an earlier specified term. Balloon Payment The final lump sum payment that is made at the maturity date of a balloon mortgage. Bankrupt A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee. Bankruptcy A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. Basis Point A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500. Before-Tax Income Income before taxes are deducted. Beneficiary The person designated to receive the income from a trust, estate, or a deed of trust. Binder or 'Offer to Purchase' A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded. Broker (See Real Estate Broker) Biweekly Payment Mortgage A mortgage that allows payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest. Blanket Mortgage The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project. Bond An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a Deed of Trust. Bond Financing A type of financing which is an agreement to repay the principal along with the interest on a specified date. Borrower Any entity that is, or when loan is made will become, the obligor on the loan. For commercial loans, the obligor may be an Individual, Corporation, Partnership, Limited Liability Co (LLC) or a Trust, depending on the loan amount. Breach A violation of any legal obligation. Bridge Loan A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as 'swing loan.' Broker (real estate) A licensed real estate professional who, typically, represents the seller of a property. A broker's duties might include: determining market values, advertising properties for sale, showing properties to prospective buyers, and advising clients with regard to offers and related matters. Builder Loans (also developer loans) These are loans for builders who are financing the construction of multiple properties or spec/model homes before they are sold to an occupant. Building Code Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards. Building Line or Setback Guidelines that limit the distance from the street or adjacent properties where construction may not extend. The building line may be established by building codes, zoning ordinances, or restrictive covenants in deeds or leases. Buy Down Money advanced by an individual (seller, builder, etc.) to reduce monthly payments for a home mortgage either during the entire term or for an initial period of years. Call Option A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason. Cancellation Clause The details in a lease, or other contract, under which each party may terminate the agreement. Cap A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate may increase or decrease. Cap Rate A rate of return used to derive the capital value of an income stream. Value = Annual Income / Cap Rate. Capital Expenditure The cost of an improvement made to extend the useful life of a property or to add to its value. Capital Improvement Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. Capital Improvements Escrow A trust account established to hold funds allocated for the completion of rehabilitation, repairs or incomplete items of construction as required by an escrow agreement. Capitalization Process A process by which anticipated future income is converted into one lump sum value. Carryback Financing A transaction where the seller of the property takes a promissory note for some, or all, of the equity in their house, upon its selling. The promissory note specifies the terms under which the buyer of the property is expected to pay the amount owed to the seller over time. Carrybacks can be secondary financing, after a separate first mortgage obtained elsewhere, or the carryback might be for the whole amount as well. Also referred to as "seller financing." Carrying Charges The costs incurred to maintain a property when it is non-productive or in interim use. Cash Flow Money available for debt service, less tenant improvement reserves and leasing improvement reserves when applicable. Cash-out Refinance A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate liens. In-hand cash that is received from any given refinance or mortgage. Certificate of Deposit A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period. Certificate of Eligibility A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage. Certificate of Reasonable Value (CRV) A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage. Certificate of Sale An official document that entitles the buyer to receive a deed, pending court confirmation. Certificate of Title A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property, which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title, which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy. Certificate of Veteran Status A document that enables veterans who have served 90 days of continuous active duty to obtain lower down payments on certain FHA insured loans. It may be obtained by sending DD 214 to the local VA office with form 26-8261: Request for Certificate of Veteran Status. Chain of Title The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent. Change Frequency The monthly frequency of payments and/or interest rate changes in an adjustable rate mortgage (ARM). Chapter 11 A type of bankruptcy that allows the debtor to maintain operating control of the business while restructuring and reorganizing debts, and creating an acceptable debt-payment plan. Also known as "debtor in possession." Chapter 13 A type of bankruptcy plan where the debtor repays the creditor on a scheduled three-to-five year period. Also called "wage earner plan." Chapter 7 A type of bankruptcy filing which allows the debtor's assets to be distributed among the creditors. Also called a "liquidation." Closing A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called 'settlement.' Closing Costs Costs associated with the purchase of a home that must be paid at the sale closing. These could include mortgage fees, title insurance, appraisal, inspection fees, and points. Cloud on Title Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quit claim deed, release, or court action. Co-Borrower An additional borrower on a loan. A co-borrower's obligation on a loan is the same as the borrower's. Co-Maker A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. Coinsurance A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss. Collateral An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract. Collection The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary. Combination Loan With this type of loan, you receive a first mortgage for a percentage of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance), consider combination loans. Combined Loan-to-Value (CLTV) The relationship between the unpaid principal balances of all the mortgages on a property (usually first and second) and the property's appraised value (or sales price, if it is lower). Commercial Loan Financing given on a commercial property. Financed amount is determined by the particular property, based off previous reported income histories and projected rental income and leaves a reserve of 25% (see Debt Service Coverage). Commission The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the sales price of the property or loan. Commitment A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a 'loan commitment.' Common Area Assessments Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project. Common Areas Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD), a condominium project's homeowners' association, or a cooperative project's cooperative corporation, that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc. Community Home Improvement Mortgage Loan An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value. Community Property In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse. Comparables An abbreviation for 'comparable properties.' used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities, and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property. Compound Interest Interest paid on the original principal balance and on the accrued and unpaid interest. Condemnation The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use. Condominium A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. Condominium Conversion Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership. Condominium Hotel A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services, and that is operated as a commercial hotel even though the units are individually owned. Conforming Loan The current conforming loan limit is $359,650 and below. Conforming loan limits change annually. Construction Loan A short-term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses. Construction to Permanent A type of loan to pay off an existing construction loan, lot loan, and any additional construction costs. Must be completed and inspected before loan closes and funds to pay off, but it has to be approved prior to completion Consumer Credit Counseling This is a non-profit organization that helps citizens lower their debt payments, and consolidate payments under this organization. They are also know as CCCS (consumer credit counseling services). Consumer Reporting Agency (or bureau) An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources. Contingency A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector. Contract An agreement between two or more parties, especially one that is written and enforceable by law. Conventional Mortgage Any mortgage that is not insured or guaranteed by the federal government. Conversion Clause A condition in an adjustable rate mortgage (ARM) that allows the loan to be converted to a fixed-rate mortgage at some point during the term. Convertibility Clause A provision in some adjustable rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified time frames after loan closing. Convertible Arm An adjustable rate mortgage that can be converted to a fixed-rate mortgage under specified conditions. Cooperative (co-op) A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit. Corporate Relocation Arrangements When an employer pays all or part of the costs to relocate an employee to another location of the company. Correspondent brokers or bankers and sells them to a wholesale lender through a prior commitment. The lender who originates the loan then receives a service fee from the correspondent lender. Cosigner An individual, other than the borrower, who signs a mortgage loan obligation and, thereby, assumes equal liability. Cost of Funds Index (COFI) An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. Coupon Rate The actual interest rate on a debt, bond, note, or other fixed income security. The coupon rate on a mortgage is the contract rate stated in the mortgage note. Covenant A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure. Credit 1. A measurement of a person's ability to pay bills on time. Several companies track individuals' credit histories by detailing late or missed payments on loans, credit cards, and other debts. 2.An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date. Credit Enhancement A process to reduce credit risk, and provide the lender with reassurance that they will be compensated if the borrower defaults, by requiring collateral, insurance, or other agreements. Credit History A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner. Credit Life Insurance A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force. Credit Report A report of an individual's credit history prepared by a credit bureau and used by lenders to determine a potential borrower's creditworthiness. Independent sources compile the report, which lists the borrower's debts, liabilities, and assets. Credit Repository An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit. Creditor An entity, such as a mortgage company or bank, that loans money for repayment and interest. Cure A loan that is removed from a delinquency status with no loss to the insurer. Current Assets Assets that could be converted into cash within a year, such as cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other such assets. Debt Consolidation Refinance A refinance transaction that uses the equity in your house or monies from your mortgage to consolidate your debt into one low rate monthly payment. Debt Ratio The total of the proposed monthly payments divided by the total monthly income. Debt Service Coverage Ratio The ratio calculated by dividing the property's cash flow available for debt service by the annual principal and interest requirements. ('DSC') Declaration of Trust A written document from one having legal title to a property, that the property is held in trust for the benefit of another. Deed A document that transfers real estate from one party to another. Officially recorded in government records. Deed of Trust Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument Deed-in-Lieu A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a 'voluntary conveyance.' Default Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage. Deficiency The difference between the balance on a loan and profits from the sale of the loan collateral. Deficiency Judgment A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgments are not allowed in all states. Delegated Underwriting and Servicing (DUS) Fannie Mae allows certain lenders to process and approve FNMA’s multifamily loans wherein the lender takes a percentage of the risk. Delinquency A loan in which a payment is overdue but not yet in default. Delivery The actual placement of the property to the grantee, usually by delivery of a deed to the buyer or by recording of the deed. Demand Note There is no set day for repayment of a this note, but it is due on the “demand” of the lender. Density The number of persons or buildings occupying a certain amount of land. An acre is usually used. Department of Veterans Affairs (VA) An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans. Deposit A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. Depreciation A decline in the value of property; the opposite of appreciation. Direct Reduction Mortgage An amortized mortgage in which principal and interest payments are paid monthly with interest being computed on the remaining balance. Discount Points Charges levied by the mortgage lender to obtain a better interest rate, usually payable at closing. One point represents 1% of the mortgage loan amount. Discount Rate The Federal Reserve System’s rate of interest charged to banks that buy money from them. An increase in the rate discourages banks from borrowing. A compound interest rate used to convert expected future income into a present value income. Disposition of Real Estate Statement A requirement for the borrower that they will occupy the property being purchased even though they may own other property. The borrower must state that the other property will be sold or rented. 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. The amount of stamps required varies with each State. Documentary Transfer Tax A tax charged by the city or county of a property based on the sales price upon the transfer of that property. Double Declining Balance Method of Depreciation A use of the declining balance method, but with double the depreciation allowable by straight line. This is an accelerated method. Double Escrow Two concurrent escrows on the same property, having the same buyer and seller of the property. Escrow 1 buys from escrow 2 and then sells the same property to another. This process is illegal in many states unless a full disclosure is made. Doublewide A type of manufactured housing that comes as two units joined together at the lot or park it is to be placed on. Dower The rights of a widow or widower of the property upon the spouse’s death. Down Payment The part of the purchase price, which the buyer pays in cash and does not finance with a mortgage. Drive by Appraisal A type of appraisal where valuations are based only on public records and exterior inspections. Dual Agency The representation of both the buyer and seller by the same agency at the same time. Full disclosures are required. Due Diligence An investigation or audit by the investor of a potential investment. Due diligence examines all material facts in regards to a sale. Due-on-sale Provision A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage. Early Occupancy When the buyer is allowed to take possession of the property before the sale is completed. Earnest Money The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable. Easement A right, such as a right of way, afforded a person or entity to make limited use of another's real property. Easement of Necessity An easement granted by a court that states an easement is absolutely necessary for the use and enjoyment of the land. Commonly given to landlocked parcels. Effective Age An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age. Effective Gross Income Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable. Egress A term concerning a right to come and go across the land of another. The term is usually “ingress and egress.” Eighty-Ten-Ten Loan (80/10/10) See 'combination loan'. Eleemosynary Corporation Created for charitable purposes that allow tax advantages although they operate the same as a profit-making corporation. They are called nonprofit corporations. Eminent Domain The right of the government to appropriate private property for public use, usually with compensation to the owner. Employer-Assisted Housing A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes. Encroachment Any improvement such as a building, wall, fence, or other fixture which overlaps onto an adjoining property. Encumbrance A legal right or interest in land that affects a good or clear title, and diminishes the land's value. Endorsement Any change or addition to a title insurance policy that affects coverage of the policy as per specific requirements of the insured. Endorser A person who signs ownership interest over to another party. Contrast with co-maker. Engineering Report A report created by an architect or engineer describing the current physical condition of the property and its major building systems. Also known as a "structural report." Entitlements A right to certain benefits specified by contract or law. Environmental Site Assessment A detailed study of the environmental condition of the property and surroundings conducted in accordance with ASTM standard E 1527 or E1528 (Phase I or Transaction Screen Process) Also known as 'ESA' Environmental Transaction Screen Report The report prepared in compliance with the American Society for Testing Materials (ASTM) standards to identify recognized environmental conditions of a property (i.e., the presence, or likely presence, of any hazardous substances on the property). Equal Credit Opportunity Act (ECOA) 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. Equitable Conversion A legal term regarding a land contract which treats the buyer’s interest as a real property interest, even though the seller holds legal title. Equitable Mortgage A lien against real property, which is enforceable in a court of equity but does not legally constitute a mortgage. Also, a deed given as security for a debt will be considered a mortgage rather than a transfer of title. Also known as a constructive mortgage. Equity 1. A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage 2. The actual cash value of property after all claims against the property have been paid. Equity Capital Money invested by owners who receive a portion of the profits. Equity Line of Credit A deed of trust is recorded against the borrower’s property for a predetermined maximum loan amount and the borrower can borrow up to the amount of the loan amount as needed. Usually interest only for a period of 5 to 10 years and then the loan becomes a fixed mortgage and no more equity can be borrowed. Payments are then principal and interest until payoff. Equity Loan A loan based on the borrower's equity in his or her home. Also, an account held by the lender into which a homeowner pays money for taxes and insurance. Escape Clause A provision in a contract that allows for the cancellation of all or part of the contract. Escrow An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. Escrow Account The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses. Escrow Analysis The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due. Escrow Collections Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance. Escrow Disbursements The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due. Escrow Payment The portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as 'impounds' or 'reserves' in some states. Estate The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death. Eviction The lawful expulsion of an occupant from real property. Examination of Title The report on the title of a property from the public records or an abstract of the title. Exception In a title insurance policy, a provision that excludes liability for a specified title defect or outstanding encumbrance. Exclusive Listing A contract that gives a licensed real estate agent the exclusive right to sell a property for a set period of time. Executor An individual appointed in a will to administer an estate. Exit Fees On some transactions, a lender will charge fees upon the repayment of the loan. They can be a penalty for early loan repayment or may be additional compensation for the lender over and above the interest cost. Expert Testimony The testimony that is given by a person with special training or knowledge in a particular subject and is therefore considered an “expert.” Exposure When a property is for sale or lease, the amount of notice or exposure the property gets through advertising, multiple listing groups, or other means. Fair Credit Reporting Act A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record. Fair Market Value 1. The value of a property as determined by a licensed, professional appraiser, primarily based on the sales prices of comparable properties recently sold nearby 2.The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept. Fannie Mae's Community Home Buyer's Program An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions. Farmers Home Administration (FmHA) Financing provided to farmers and other qualified borrowers who are unable to acquire loans elsewhere. FDIC (Federal Deposit Insurance Corporation). Provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings & Loan Insurance Corporation. (FSLIC). Federal Home Loan Mortgage Corporation, Freddie Mac (FHLMC) A private corporation authorized by Congress, which became an independent, stockholder-owned government corporation with the passage of FIRREA. FHLMC promotes the flow of funds into the housing markets by purchasing conventional mortgages in the secondary market and selling securities backed by those mortgages in the capital market. Federal Housing Administration (FHA) A division of the Department of Housing and Urban Development. The FHA's main activity is the insuring of residential mortgage loans made by private lenders. It sets standards for construction and underwriting. FHA neither lends money, nor plans, nor constructs housing. Federal Housing Finance Board (FHFB) It oversees the credit functions of the twelve regional Federal Home Loan Banks. Federal National Mortgage Association (FNMA) A government-sponsored corporation, owned solely by private investors, created to provide support to the secondary market for FHA and VA mortgages and conventional mortgages. Fee Simple Private ownership of real estate in which the owner has the right to control, use, and transfer the property at will. Fee Simple Estate An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property. FHA Loan Government loans are loans that are guaranteed or purchased by government organizations. Two of the most popular Government Loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). FHLBB (Federal Home Loan Bank Board) FICO FICO scores were developed by Fair Isaac & Company, Inc. for each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. These scores only consider the information in an individual's credit file, not income or savings. Finance Charge The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee, and any other charges paid to the lender and/or broker. Appraisal, credit report, and title search fees are not included in the finance charge calculation. Financial Statement A financial report that includes a balance sheet, income statement, and statement of cash flows. Finder's Fee A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower. FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989). An act signed into law in August 1989, by President Bush that restructured the thrift regulatory an insurance system. First Mortgage The mortgage that is the primary lien against a property and has first claim in the event of default. Fixed Assets Assets that will not be turned into cash within a year, such as manufacturing equipment, real estate, or furniture. Also called "long-term assets." Fixed Installment The monthly payment due on a mortgage loan. Fixed Second Mortgage See home equity loan. Fixed-Rate Mortgage (FRM) A mortgage in which the interest rate does not change during the entire term of the loan. Fixture Personal property that becomes real property when attached in a permanent manner to real estate. Floating Rate Mortgage See Adjustable Rate Mortgage (ARM) Flood Insurance Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas. Foreclosure The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt. Foreclosure Bailout These are loans designed to take the equity of your home or to refinance your home in order to pay off existing loan payment lates that have gone into default. Forfeiture The loss of money, property, rights, or privileges due to a breach of legal obligation. Foundation The concrete slab beneath the property that holds the property in place. Front Ratio The proportion of a purchaser's income that lenders will allow for principal, interest, taxes, and insurance on a property. Used in the evaluation of a loan application. Full Disclosure A requirement that sellers fully disclose all known defects in a property when selling it. Full Recasting Setting the principal and interest payments to the level that will fully amortize the loan's outstanding balance over the remaining term using the fully indexed accrual rate at the recasting point. Fully Amortized ARM An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term. Fully Indexed Accrual Rate The interest (accrual) rate resulting from the index at closing (or at another point in the loan) plus the lender's full spread, rounded as prescribed in the loan documents (often to the nearest 1/8th of 1%). Future Acquired Property A loan agreement may state that the loan is a lien on all property presently owned or which the borrower may acquire in the future. Future Interest A current interest in the land, but only a future right to possession and enjoyment of the land, such as a remainder interest, reversionary interest, etc. Garnishment A legal proceeding under which a person’s money in control of another, such as salary, is taken for payment of a debt. The amount taken is set by stature, and in most states, a judgment is necessary before garnishment. General Membership A partnership made up of general partners, without special (limited) partners. General Warranty Deed A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a 'cloud' on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable. Georgian Architecture A colonial style of architecture dating back to the eighteenth century. Characterized by first floor windows extending to the ground, its exterior placements (windows, doors, etc.) are simple and well balanced, yet formal in appearance. Gerrymander To divide an area into districts, against the obvious natural divisions, in order to accomplish an unlawful purpose. Gifts Money received from a relative or close friend to assist in the purchase of a home. Good Faith Deposit A deposit made by a purchaser of property to show they are serious about the purchase. Good Faith Estimate (GFE) A document that tells borrowers an estimate of the settlement charges the mortgagor incurs at closing. Under the requirements of the Real Estate Settlement Procedures Act (RESPA), a borrower must receive a GFE within three business days after the loan application is received. Government Loans FHA / VA Government loans are loans that are guaranteed or purchased by government organizations. Two of the most popular Government Loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). Government National Mortgage Association (GNMA) A goverment-owned agency, also known as "Ginnie Mae," that provides sources of funds for residential mortgages. Guaranteed or insured by the Federal Housing Administration (FHA) or the Veterans Administration (VA). Grace Period A specified time (typically 15 days) after a mortgage payment is due, in which the lender will not charge a late penalty. Graduated Payment Mortgage (GPM) A mortgage where the payments are scheduled to increase, usually annually, for a set number of years, and then level off. GPM can be used with either a fixed or adjustable interest rate, and usually has a 30-year term. Grantee That party in the deed who is the buyer or recipient. Grantor The party in the deed who is the seller or giver. Gross Income Total personal income, before the deduction of taxes and expenses. Growing Equity Mortgage (GEM) A fixed rate, graduated payment mortgage with small initial payments that increase each year so that the loan pays off in a shortened term, usually 15 years. Guarantee Mortgage A mortgage that is guaranteed by a third party if the original party fails to pay. Guaranty To accept responsibility for an obligation if the original party fails to pay or perform according to a contract. Hard Equity High interest rate financing. Hard Money Loan An equity based loan with high interest rates and with flexible guidelines. Hazard Insurance Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards. Hedging The sale or purchase of future mortgage contracts by a mortgage banker or lender for the purpose of protecting cash transactions made at a future date. Heir The person who by law receives the estate of a deceased person. Hereditaments Anything that may be inherited or anything considered real property. Hidden Defect An encumbrance on a title that is not apparent in the public records. Holdback A portion of a loan commitment withheld until a specified event occurs, such as a rental or construction. Home Equity Line of Credit (heloc) A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for a pre-determined term, usually 5 years, with interest payments only. After this term, the loan becomes a fixed second and no more equity can be taken. Homeowner's Insurance An insurance policy that combines liability coverage and hazard insurance. Homeowner's Warranty A type of insurance that covers repairs to specified parts of a house for a specific period of time. Homestead The home and property of the head of the household. Some states allow statutory exemptions that protect homestead property against the rights of creditors. Housing Ratio The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio. Housing Starts The number of homes that construction has began on. These figures are used to determine the availability of housing, need for mortgage loans, and labor and materials, etc. HUD (Department of Housing and Urban Development). A cabinet department responsible for the implementation and administration of government housing and urban development programs. Hybrid Investment An investment that is a combination of both debt and equity. Hypothecate Having pledged or mortgaged a security without delivery to the lender. Impound The portion of a borrower's monthly payment that is held by the lender in order to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other additional items. Improvements Any permanent improvements to a structure such as buildings, streets, utilities, etc. Inchoate Instrument An unrecorded instrument, such as a deed, which is valid only between the parties involved but not as it would be after recording. Income Approach A method of appraising a property that is based on the property’s anticipated future income. The net income is established and then divided by the estimated capitalization rate to arrive at a fair market value. Income Property Real estate developed or improved to produce income. Index (Also called 'Rate Index'). A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set AML accrual rates. Inflation An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worthless. Ingress and Egress Easements that give the right to go in and out of a section of property, but not the right to park on it. Inheritance Tax A tax on the transfer of property from a deceased person, based on the right to acquire the property rather than the property itself. Initial Borrower Interest Rate The rate on which the borrower's first payment is calculated. Initial Borrower Payment Rate The annual interest rate used to calculate the borrower's initial cash payment. Initial Interest Rate The original interest rate of the mortgage at the time of closing. Insolvency When a debtor is unable to meet his/her debt obligations. Installment A borrower's periodic payment to a mortgage lender. Insurable Title A property title that a title insurance company agrees to insure against defects and disputes. Insured Mortgage A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred, or the insured amount Interest Accrual Rate The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations. Interest Only Loans These are short term loans whose only payment is on the interest, not on the principle loan amount. Interest Rate The percentage of an amount of money, which is paid for its use for a specified time. Interest Rate Cap A provision of an ARM limiting how much interest rates may increase per adjustment period. Interest Rate Ceiling For an adjustable rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note. Interest Rate Floor For an adjustable rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note. Interim Financing Short-term financing issued during the completion of a building or project, in anticipation of longer-term financing. Interpleader A court action which may be filed in an existing case to be the initial action. A neutral third party holding funds that are in dispute would file an interpleader. Investment Banker An individual or institution that operates as an underwriter or agent for corporations issuing securities, but that does not accept deposits or make loans. In addition, most investment bankers maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. Investment Property A property that is not occupied by the owner. Also known as non-owner occupied (NOO). Investor An individual or organization that invests in mortgages. Involuntary Conversion When a property is taken by eminent domain, the owner can convert the money from the condemned property into real property without paying taxes on the gain. This is for a period up to 3 years. Jetty A pier or other structure built out into a body of water. Pier and post is a fairly common foundation for properties partially on water. Joint and Several Note Two or more parties who are responsible for the entire amount of the debt. Joint Appraisal An appraisal done by more than one appraiser, but with one appraiser stating the conclusion of all. Joint Tenancy A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship. Judgment A Court act creating or affirming an obligation, such as a debt. The court may place a lien against the debtor's real property as collateral for the judgment's creditor. Judgment Lien An unpaid, court-ordered, monetary judgment against a current or previous property owner. Judgment Proof Someone who a judgment creditor cannot collect due to no assets. Judicial Foreclosure A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Jumbo Mortgage The current loan limit for a conforming loan is $333,700. Loans for amounts above $333,700 are considered non-conforming or jumbo mortgages. Just Compensation When an owner receives the fair market value of a property that is taken by the government. Key Tenants Any tenant contributing revenues of 30% or more of the total revenue for a particular property. Kicker A payment to a lender in addition to the ordinary fixed-interest payments. It may include an equity position in a property or a percentage participation in the income stream. Laches An unreasonable delay by a party making a claim or bringing an action, so that the rights of said party are waived. Land Development A loan for the acquisition of raw land in anticipation of future zoning and development. Late Charge The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date. Lateral Support The landowner has the right to the natural support of his land by adjoining land. The adjoining landowner does not have the right to change his land so as to cause the support to be weakened or removed. Lease A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent. Lease-Purchase Mortgage Loan A financing option that allows low and moderate income buyers to lease a home with the option to buy. Each month's payment includes principal, interest, taxes, and insurance (PITI) on the first mortgage, plus an additional amount that accrues in a savings account and is used for a down payment. Leasehold Estate A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it. Leasing Commission Reserve Funds set aside on a monthly basis to pay leasing commission necessary to release vacant space during the term of the loan. Legal Description A property description, recognized by law that is sufficient to locate and identify the property without oral testimony. Lender An institution that makes loans to borrowers on real estate. Lender Margin The profit the lender anticipates to receive from the loan. Letter of Credit A written statement permitting an individual to draw on a bank, or stating that the bank will honor their credit up to the stated amount. Letter of Intent A written statement expressing that a buyer or developer is interested in a property. The letter is not legally binding. Liabilities A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others. Liability Insurance Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. Lien Any claim against a property, including mortgages, unpaid taxes, or repair bills, or other unpaid charges. Prospective property buyers conduct a title search to determine whether any liens against the property exist. A lien must be filed or recorded with the local county government to be attached to a property title. Lifetime Cap A provision of an adjustable rate mortgage (ARM) that limits the total increase in interest rates over the life of the loan. Lifetime Payment Cap For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. Line of Credit An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. Liquid Asset A cash asset or an asset that is easily converted into cash. Lis Pendens A legal notice of action given when a lawsuit is pending. Loan A sum of borrowed money (principal) that is generally repaid with interest. Loan Application A non-binding agreement between a lender and a prospective borrower showing the terms they are going to submit to the underwriter for approval. A cash deposit is usually part of the agreement. Loan Closing The end of the process of purchasing or refinancing a home. Often done at a title company where the documents are signed, recorded, and the loan funded usually within 3 days of signing the legal closing documents. Loan Commitment Formal offer by a lender stating the terms under which it agrees to loan money to a home buyer. Loan Origination The process by which a mortgage lender brings into existence a mortgage secured by real property. Loan Policy A title insurance policy that insures a mortgagee or beneficiary under a deed of trust against loss caused by invalid title. Loan Servicing The collection of mortgage payments from borrowers and related responsibilities of a loan servicer. Loan-to-Value A ratio calculated by dividing the mortgage amount by the value of the property. A lender will often use the lower of the purchase price or the appraised fair market value when the loan is used to purchase a property. Local Housing Authority A government agency that monitors and executes community housing development programs. Lock The period, expressed in days, during which a lender will guarantee a rate. Lock Period The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45, or 60 days. Lockout Period A period of time after the loan is originated during which a borrower cannot prepay the mortgage loan. London Inter-Bank Offer Rate (LIBOR) The rate of interest that the largest international banks charge each other for loans. Long Term Financing A mortgage or deed of trust that lasts at least ten years or more. Long Term Lease A lease with a term of five or more years. Lot Size The total square footage of a property. Manufactured Homes that are built off site and are on their own steel under carriage with wheels and axles and pulled to the site. They are usually doublewide or triplewide, but can be singlewide. If put on a permanent foundation with wheels and axles removed, it is taxed as “real property.” Manufactured Construction Loan A loan provided for the development of a manufactured property, specifically home transport, removal of the axles and wheels, permanent foundation development, etc… Margin (Also called 'Spread'). The number of percentage points a lender adds to the index value to calculate the adjustable rate mortgage (ARM) interest rate at each adjustment period. A representative margin would be 2.75%. Market Approach A method of appraising a property by comparing sales prices of similar properties that have recently sold. Market Value The price as determined by buyers and sellers in an open market. Marketable Title A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property without encumbrances. Master Association A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a 'second-level' association that handles matters affecting the entire development, while the 'first-level' associations handle matters affecting their particular portions of the project. MAT Monthly Average Treasury index. Maturity The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable. Mechanic's Lien Any payment owned to a contractor for work done on the property. Merged Credit Report A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of your credit. Metes and Bounds A way of describing the boundaries of land by courses, directions, distances, and monuments. Mile A linear measurement equal to 5280 feet on land and 6076 feet across water. Mini Perm Short-term financing, usually three to six years. Mobile Home Usually within a home park, and generally a single to doublewide. It can be a triple wide with wheels and axles not removed, therefore taxed as a moving vehicle. Modular Pre-fabricated at a factory, then moved to site and onto a permanent foundation (no under carriage, wheels, or axles). Money Market Account A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account. Money Market Fund A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills. Monthly Payment Mortgage A mortgage that requires payments once a month to reduce debt. Mortgage A legal document that pledges a property to the lender as security for a payment of a debt. Mortgage Banker A banker who originates, sells, and services mortgages in the secondary mortgage market. Mortgage Bankers Association of America (MBA) A trade organization of the mortgage bankers and brokers in the United States. They provide seminars and publications for its members and sponsors. Mortgage Broker An individual or company which brings borrowers and lenders together for the purpose of loan origination, but which does not originate or service the mortgage. Mortgage Commitment A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house. Mortgage Correspondent An authorized person who represents a financial institution in a certain area for the purpose of placing loans. Mortgage Disability Insurance A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time. Mortgage Insurance (MI) Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher. Mortgage Insurance Premium The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis. Mortgage Life Insurance A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. Mortgage Note A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment. Mortgage Reduction Programs A type of accelerated payment program where payments are made more frequently (bi-weekly or weekly) rather than conventional monthly payments. The net result may be a savings on the total interest paid. Mortgage Securities Pool A method by which securities backed by the value of real estate mortgages are issued in the market for investment purposes. Mortgage Servicing The lender or company acting for the lender, for a service fee, that manages the mortgage by collecting payments, releasing the lien upon payment in full, foreclosing if in default, paying taxes and insurance, etc. Mortgagee The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender. Mortgagor The mortgage borrower who gives the mortgage as a pledge to repay. Multi-dwelling Units Properties that provide separate housing units for more than one family, although they secure only a single mortgage. Multi-family Mortgage A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex. Negative Amortization (Also called 'Deferred Interest'). If the payments are too small to cover the interest due on a loan, the remaining interest owed is added to the outstanding loan balance, causing negative amortization. Net Cash Flow The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments. Net Effective Income Gross income less federal income tax. Net Operating Income Gross income less vacancy and collection loss, operating expenses and replacement reserves. (NOI) Net Proceeds The amount of cash received from the sale of the property, not including relevant expenses. Net Worth The value of all assets, including cash, less total liabilities. NINA (no income no assets) This is a type of loan documentation used when borrower's do not wish to disclose income or assets, usually due to the complexity of the borrowers income. No Cash-out Refinance or Rate and Term Refinancing A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them). No cash in hand allowed beyond 1% of loan amount. No Income Verification (no-doc) A loan that requires little to no income verification. Non-Arms Length Transaction When parties involved in a real estate transaction have some relationship with one another. ie; the borrower works for the lender. Non-Assumption Clause A mortgage clause prohibiting the transfer of a mortgage to another borrower without the approval of the lender. Non-Conforming Loan Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because borrower or property do not meet underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $252,700 and above. Non-Liquid Asset An asset that cannot easily be converted into cash. Non-Owner Occupant Investment ownership in which a tenant, and not the owner, occupies the property. Non-recourse A loan that is secured by collateral, usually property. If the borrower defaults, then the issuer can seize the collateral, and the borrower is not personally liable. Nonbearing Wall Any wall that separates areas, but is not a weight bearing wall, such as the outer walls. Nonexclusive Listing When a real estate broker has an exclusive listing, but the owner can sell his property without an agent and not be liable to pay a commission. This is also called an agency agreement. Notarization When a Notary Public certifies that someone signing a document has been properly identified. The content of the document is not certified, just the signature. Note A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand. Note Rate The interest rate stated on a mortgage note. Notice of Cessation Concerning a construction project, a notice given that work has stopped. This is done to accelerate the period for filing a mechanic’s lien. Notice of Default (NOD) A formal written notice to a borrower that a default has occurred and that legal action may be taken. Notorious Possession A requirement for adverse possession, which is so open that it is assumed that the owner has notice of the possession. Nuncupative Will A will given orally, usually in a deathbed situation, before witnesses who later testify to its authenticity. Oath An affirmation that binds someone legally and morally. Offset Statement A statement by a lien holder to a buyer stating the balance due on existing liens against the property being purchased. One-Year Adjustable A mortgage program where the annual rate changes yearly. Open-End Mortgage A loan amount that can be increased upon mutual agreement of the lender and the borrower. Operations and Maintenance Plan Program A plan set forth to mitigate and remedy a known or potential environmental issue for instance, asbestos contamination. Oftentimes referred to as an "O&M plan." Option The right to buy or sell property or sign a contract, based upon certain terms and conditions. Usually applicable to specific time frames during which the 'option' may be exercised. Original Principal Balance The total amount of principal owed on a mortgage before any payments are made and without added interest. Origination Fee A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent. Owner Financing A property purchase transaction in which the property seller provides all or part of the financing. Owner Occupied 'Owner Occupied' means the property is the owner's primary residence. Ownership The right to enjoy and use property to the exclusion of others. Participation A mortgage where the lender receives a percentage of the gross proceeds along with the mortgage payments. Participation Certificates A mortgage security rather than a mortgage. The certificate is more readily marketable. Payment Adjustment Period The length of time, typically six months to a year, between changes to the AML borrower's P&I payment. Payment Buy Down Payment buy downs occur when a third party, typically a builder, pays part of the initial P&I payments for a year or two, so that the borrower has smaller payments and can qualify for the loan. Payment Cap A limit on the amount the payment can be changed at the end of each Payment Adjustment Period. Payment Discount In a payment discount, the lender reduces the first year's interest rate to make the mortgagor more attractive to borrowers. Payoff The full payment of an existing loan or any other type of lien. Perfecting Title The process of eliminating any adverse claims against a title. Periodic Payment Cap A limit on the amount that payments can increase or decrease during any one-adjustment period. Periodic Rate Cap A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be. Personal Property Any property that is not attached to real property. Physical Assessment Report Engineering and physical assessment of the property. Completed in addition to the appraisal. PITI Principal, Interest, Taxes and Insurance are components of a mortgage payment. PITI Ratio The ratio used in mortgage lending decisions that consists of the principal, interest, tax, and insurance payment to the total gross income. Planned Unit Development (PUD) A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners. Plat A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements. Pledged Account Mortgage (PAM) Money that is placed in a pledged savings account. This fund, and earned interest, is used to reduce monthly mortgage payments. Points Charges levied by the mortgage lender to obtain a better interest rate and usually payable at closing. One point represents 1% of the mortgage loan amount. Possibility of Reverter The term refers to the chance that an estate will exist as some future time. An example would be a property sold on the condition that it would be a park, but if not used for that, it would revert back to the seller who would then have a “possibility of reverter.” Power of Attorney A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time. Pre-approval A process whereby a potential home buyer secures a conditional credit approval before making an offer on a home. Pre-paids Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, and interest. Pre-qualification The process of determining how much money a prospective homebuyer will be eligible to borrow before application. Premium The amount paid for a property above the expected price, or the value of a mortgage or bond in addition to its face amount. Prepayment Payment of mortgage loan, or part of it, before due date. Prepayment Penalty (PPP) A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule. Prescriptive Easement An easement granted by a court based on the assumption that a written easement was given after a period of continuous use of the land, although none existed. Prime Rate The interest rates that banks charge to their preferred customers. Principal The amount borrowed or remaining unpaid. Also, that part of the monthly payment that reduces the outstanding balance of a mortgage. Principal Balance The outstanding balance of principal on a mortgage, which does not include interest or any other charges. Private Mortgage Insurance (PMI) Insurance provided by nongovernmental insurers that protect lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%. Pro rate The allocation of proportionate shares of certain expenses, such as interest, to be paid by the buyer and seller at closing. Promissory Note A written promise to repay a specified amount over a specified period of time. Property Classification A classification that a lender gives to a property according to its age and needed repairs. Property Tax Local tax assessed on the market value of a property Public Auction A meeting in an announced public location to sell property to repay a mortgage that is in default. Purchase Agreement See Agreement of Sale. Purchase Money Transaction The acquisition of property through the payment of money or its equivalent. Quadrant A measurement that is a quarter section of a circle, also one of the quarters that is created by two intersecting roads or streets. Qualification The process that determines an applicant's financial ability to meet the terms of the loan. Qualifying Ratios Guidelines applied by lenders to determine how large a loan to grant a home buyer. Quantity Survey Method A method of arriving at an estimate of costs for new construction by a detailed estimate of quantities of necessary building materials plus labor costs. Quarter Section A measurement of a quarter of a section and contains 160 acres. Quietus The final disposition of a debt or a claim. Quitclaim Deed A deed that transfers whatever interest or title a grantor may have, without warranty. Radon A radioactive gas found in some homes that in sufficient concentrations could cause health problems. Rate The annual rate of interest on a loan, expressed as a percentage of 100. Rate and Term Refinance Paying off an existing loan with the proceeds from a new loan, using the same property as collateral. Rate Caps (Also called 'Interest Rate Caps'). A limit on the amount of which the interest rate charged, either at each adjustment period or over the life of the loan. Rate Index An index used to determine interest rate changes for certain adjustable rate mortgages (ARM). Rate Lock A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time. Ratification The affirmation of a prior act that was not legally binding and making it a legal effect. Raw Land Land without added improvements such as sewers, utilities, streets, or structures. Real Estate Land and permanently affixed items such as buildings, fences, etc. Real Estate Broker A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner. Real Estate Investment Trust (REIT) A mutual fund that sells shares of ownership and must be invested in real estate or mortgages. Real Estate Market A market for potential buyers or sellers of real property at a given time. Real Estate Owned (REO). A term frequently used by lending institution as applied to ownership of real property acquired for investment or as a result of foreclosure. Real Estate Settlement Procedures Act (RESPA) A Federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs. Real Property Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof. Realtor A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors. Rebate Compensation received from a wholesale lender, which can be used to cover closing costs, or as additional revenue for the broker. Loans with rebates often carry higher interest rates. Recapture of Depreciation Upon the sale of a property, the amount of depreciation taken above straight-line depreciation. Recasting Revision of the terms of an existing mortgage to cure delinquency, such as extending the loan or modifying the interest rate. Recission The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Reconveyance A transfer of title from a trustee to the owner of real estate, when the title is held as collateral, at the time the trust deed is paid in full. Recorder The public official who keeps records of transactions that affects real property in the area. Recording The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record. Recording Fee Fee charged by a government for entering into the public record a real estate purchase or sale. Redemption A defeasable title to land that is cancelled by a mortgage foreclosure or tax sale of the property. Redemption Period The period of time allowed during which an owner may buy back their foreclosed properties by paying all delinquent mortgage payments, plus interest and fees. The time period varies state by state. Refinancing The process of paying off one loan with the proceeds from a new loan using the same property as security. Rehabilitation Mortgage A mortgage created to cover the costs of repairing, improving and acquisition of an existing property. Rehabilitation Tax Credit The Tax Reform Act of 1986 allows a 20% tax credit for rehabilitating historic structures and 10% for buildings in service after 1936. Reinstatement Bringing a note, mortgage, deed of trust, etc. from default to good standing. Release of Mortgage A document distributed by the mortgagee when the mortgage loan has been paid in full. Remaining Balance The amount of principal that has not yet been repaid. Remaining Term The original amortization term minus the number of payments that have been applied. Renegotiable Rate Mortgage See "Adjustable Rate Mortgage (ARM)" Rent Step-Up An agreement in which the rent increases every period for a certain amount of time or for the duration of the lease. Repayment Plan An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called 'relief provisions.' Replacement Reserves Funds A fund set aside from net operating income (NOI) to pay eventual wear and tear of a property. Amount is determined by property type. Normal reserves on a multi-family would be $250-$350 per unit, and on retail deals it is usually done by square foot. Residential Mortgage Credit Report (RMCR) A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application. Residual Income The amount of money remaining after mortgage payment and all other debts are paid: typically used with VA loans. Restraint of Alienation Any restriction placed against the vesting/sale of a property. Some restrictions are allowed, but must conform to the rule against perpetuities and free right of an owner to sell. Restrictive Covenants Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may 'run with the land,' binding all subsequent purchasers of the land, or may be 'personal' and binding only between the original seller and buyer. In the determination of whether a covenant runs with the land, or is personal property is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style, or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court). Reverse Mortgage An arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender. Revolving Credit Open lines of credit that are subject to adjustable payments in accordance with the balance, such as credit cards. Revolving Liability A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due. Right of First Refusal A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others. Right of Ingress or Egress The right to enter or leave designated premises. Right of Survivorship In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant. Right of Way Land set aside as an easement or in fee, either by agreement or condemnation, to have the right to be on or travel on. RTC (Resolution Trust Corporation) Formed to resolve thrift failures over the next three years and dispose of their assets and liabilities. Rural Housing Service (RHS) A U.S. Department of Agriculture program that provides various financing programs to aid in the development of rural America. Safety Clause A clause in a listing that protects the broker from having buyer and seller wait until the listing expires to make a deal, thereby avoiding paying the commission. Sale/Lease Back When a lender purchases a property and leases it back to the seller for a specified amount of time. Sales Agreement See Agreement of sale. Sales Comparison Approach A method of appraising a property by comparing recent sales of comparable properties and making the necessary adjustments for any differences. Satisfaction of Mortgage A document distributed by the mortgagee when the mortgage loan has been paid in full. Also referred to as "release of mortgage." Savings and Loans Institutions that are chartered to hold savings and make real estate loans, as well as offer checking accounts, consumer loans, and other services offered by banks. Seasoned Mortgage A mortgage where the borrower has made consistent payments for a year or longer. Second Mortgage A mortgage that has rights subordinate to the rights of the first mortgage holders. Can be for purchase or refinance, concurrent or stand alone. Secondary Financing Any additional financing lien against a property, after the primary or first lien. If the property is foreclosed on, proceeds from the sale of the property will be used to pay off the existing liens in the order that they are recorded on the title. For that reason, a lender considers secondary financing to be riskier than a first lien position loan. Secondary Mortgage Market The buying and selling of existing mortgages. Self-Amortization Occurs when monthly payments allow a loan to be repaid, including principal and interest, over its terms without any balloon payments. Seller Carry-Back An agreement in which the owner of a property provides secondary financing in combination with a lender first. Seller Contributions Seller provided funds include all allowable transaction costs to be paid by the seller. Seller-Provided Funds (Also called 'Seller Contributions'). Seller-provided funds include all allowable transaction costs to be paid by the seller. Separate Property Real property that is owned by one person exclusive of any interest of another person. Servicer The party who has entered into an agreement with the insured to service a loan. Servicing Fee The monthly or yearly fee made by a lender to the correspondent lender who originally made the loan for the servicing of the loan. Servicing rights may be bought or sold with the loan. Settlement (Closing) The process by which all financial dealings and contractual arrangements are completed for the buyer and seller. At the time of settlement, or closing, all debts are paid, adjustments made, and money disbursed, and a deed is prepared in the new owner's name. Settlement Costs See Closing Costs. Shared Appreciation Mortgage (SAM) A mortgage in which a borrower receives an interest rate below the market rate, in return, the lender (or another investor) shares part of the future property value appreciation. Simple Interest Interest that is calculated only on the principle balance. Simple Premium A premium which provides coverage for more than a year. Simultaneous Closing A first and second lien position loans that close at the same time. Single Premium A premium which provides coverage for more than a year. Singlewide A mobile home consisting of one complete unit. Special Assessments A special tax imposed on property, individual lots, or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc. Special Lien A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called 'particular' lien or 'specific' lien. (See Lien). Special Warranty Deed A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed, the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title. Spread The difference between the rate at which the money can be borrowed (wholesale) and the rate at which it is loaned (retail). It can also mean the difference between the price offered by a buyer and the price asked for by the seller of a property. Stated Documented Income Some loan products require only that applicants 'state' the source of their income without providing supporting documentation such as tax returns. Step-Rate Mortgage A mortgage program that allows for the interest rate to increase on a particular schedule. At the end of the specified period, the rate and payments stay the same for the remainder of the loan. Stick Built A residential home that is built on site, from the ground up, from a pre-determined set of plans and materials. Sub-prime Credit with higher risk characteristics, such as slow pays, bankruptcy, or collection accounts. Sublease A lease agreement between the lessee and a third party for a term no longer than the remaining portion of the original lease. Subordination Agreement An agreement where a prior lien agrees to take a lesser position to a new lien. Suburban A description of a town or an unincorporated, developed area that has a close proximity to a city. Largely residential and dependent on the closest city for employment, etc. Super Jumbo Loan A loan amount that is over 1 million dollars Surface Rights The rights (easements) to use the surface of the land. If subsurface rights are involved, the right also to drill or mine beneath the surface. Survey 1. A professional examination of a property. A survey usually will reveal the size of a property, its boundary distances, ground contours, and where improvements or alterations have been made. 2. A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography. Swap Spread Exchanging one asset or liability for a similar asset or liability to either lengthen or shorten maturities, or raise or lower coupon rates. Sweat Equity The equity produced by a purchaser doing work on a property being built. Take Out Commitment An agreement by a lender to place a “long-term,” take out loan on a property after the construction is complete. Take-back A loan made directly from the seller to the buyer. Tax As applied to real estate, an enforced charge imposed on persons, property, or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public. Tax Base To determine the amount of tax due. The assessed value of the property is multiplied by the tax rate. Tax Deduction A tax deduction allowed by the government and used to reduce taxable income. The government allows certain deductions to be subtracted such as mortgage interest. Tax Deed A deed on a property purchased at public sale for the nonpayment of taxes. Tax Lien A type of lien placed on a title when the owner has not paid property or assessment taxes or other state and federal taxes. Teaser Rate An advertised very low, but very temporary, introductory rate on an Adjustable Rate Mortgage (ARM). Tenancy at Will A type of tenancy where a person has possession by permission of the owner but without an agreement for a fixed term. Tenancy by the Entirety A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Tenancy in Common A type of joint tenancy of property without right of survivorship, each tenants portion of ownership is distributable under will. Tenant Improvement Reserves Funds Funds set aside on a monthly basis to improve the property for current and or future tenants. Tenant-Stockholder The obligee for a cooperative share loan, who is both a stockholder in a cooperative corporation and a tenant of the unit under a proprietary lease or occupancy agreement. Term The period of time which covers the life of the loan. For example, a 30 year fixed loan has a term of 30 years. The Office of Thrift Supervision (OTC) Charters federal thrifts, serves as the primary federal examiner and regulator of federal and state-chartered savings associations, and administers laws governing savings and loan holding companies. Third Mortgage A mortgage that has rights subordinate to the rights of the first and second mortgage holders. Third-party Origination A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market. Title As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate. 1. Evidence of the right of property ownership; can be held solely, jointly, in common, in corporate, or partnership form. 2. The evidence one has of right to possession of land. Title Company A company that performs and insures title searches. Usually selected by the seller, they sometimes work as a lender's agent. Depending on the preferences of the seller, buyer and others involved in the sale, the closing might take place at the title company's offices. Title Insurance Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to a 'mortgagee's title policy.' Insurance benefits will be paid only to the 'named insured' in the title policy, so it is important that an owner purchase an 'owner's title policy', if he desires the protection of title insurance. Title Plant The part of a title company where data is kept and updated on the records of all properties in a certain area and can be readily searched. Title Search or Examination A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record, which would adversely affect the marketability or value of title. Total Debt Ratio Monthly debt and housing payments divided by gross monthly income. Also known as Back-End Ratio. Total Expense Ratio Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts. Trade Equity Equity that results from a property purchaser giving his or her existing property (or an asset other than real estate) as trade as all or part of the down payment for the property that is being purchased. Transfer of Ownership Any means by which the ownership of a property changes hands. Transfer Tax State or local tax payable when title passes from one owner to another. Treasury Bill (T-Bill) A debt security issued by the U.S. government with maturity of one year or less. Treasury bills are exempt from state and local taxes. Treasury Index An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans.