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

Adjustable Rate Mortgage (ARM)
This is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage, or the Canadian rollover mortgage.

Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three, five or ten years.

Amortization
Means loan repayment by equal periodic payments calculated to pay off the debt within a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR)
Is an interest rate percentage reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account discount points, prepaid interest, mortgage insurance together with other costs of obtaining credit. The APR allows homebuyers to compare different types of mortgages based on the annual cost of each loan.

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

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

Assumption
The agreement between buyer and seller where the buyer takes over the payment on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs, prepaid expenses and new, probably higher, interest charges may apply.

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

Blanket Mortgage
This is a mortgage recovering at least two pieces of real estate as security for the same mortgage.

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

Broker
A broker is an individual in the business of assisting in arranging funding or negotiating contracts for a client. A broker does not loan the money him or herself. Brokers usually charge a fee or receive a commission for their services.

Buy-Down
Buy-Down is when the lender and /or the homebuilder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

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

Caps (interest)
Consumer safeguards that limit the amount the interest rate on an adjustable rate mortgage may change per year and over the life of the loan.

Caps (payment)
Consumer Safeguard that limit the amount the monthly payments on an adjustable mortgage may change.

Certificate of Eligibility
The document given to qualified veterans that entitles them to VA guaranteed loans for homes. Certificates of Eligibility may be obtained by sending your DD-214 (Separation Paper) to the local VA office with VA from 1880 (request for Certificate of Eligibility ).

Certificate of Reasonable Value (CVR )
An appraisal issued by the Veterans Administration showing the property's current market value.

Certificate of Veteran Status
This is a document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD-214 to the local VA office with form 26-8261a (request for Certificate of Veteran Status ).

Closing
A closing is the meeting between the buyer, seller and lender, and their agents, where the property and funds legally change hands. Also called "settlement". Closing costs usually include such fees and charges as an origination fee, discount points, appraisal fee, title search, insurance, survey, taxes, deed recording fee, credit report charge, and other costs assessed at settlement. Actual closing costs vary by state.

Commitment
This is a promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A commitment may also be a promise by an investor to purchase mortgages from a lender with specific terms or conditions. A commitment from a lender to a borrower is typically in writing and guarantees to loan money at a future date subject to the completion of paperwork and/or compliance with stated conditions.

Construction Loan
This is a short-term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as construction advances on the home.

Contract Sale or Deed
A contract between purchaser and seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional Loan
A mortgage not insured by FHA or guaranteed by the VA.

Credit Report
This is a report documenting the credit history and current status of a borrower's credit standing. A credit report will also include a borrower's Credit Scores from each of the three main credit repositories.

Debt to Income Ratio
This is a ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long term debts is divided by their gross monthly income. See Housing Expenses -To-Income-Ratio.

Deed of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note. In a Deed of Trust state, the title to the mortgaged property is held by a Trustee. In mortgage state, the title to the property is held by the borrower. Both are considered equal measures of ownership.

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

Deferred Interest
When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.

See Negative Amortization Delinquency.

Delinquency
This is failure to make payments on time and can lead to foreclosure after three missed payments.

Department of Veteran Affairs
This is an independent agency of the Federal Government that guarantees long-term, low or no-down payment mortgages to eligible veterans.

Discount Point
See Point

Down Payment
This is money paid to make up the difference between the purchase price and the mortgage amount.

Due -on- Sale-Clause
This is a provision in a mortgage or Deed of Trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

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

Entitlement
The VA home loan benefit is called Entitlement. Entitlement for a VA guaranteed home loan. Entitlement is also known as Eligibility. VA Entitlement is currently 25% of the Fannie Mae or Freddie Mac conforming loan limits.

Equal Credit Opportunity
ECOA is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance.

Equity
This is the difference between the fair market value and current indebtedness. Also referred to as owner's interest. The value an owner has in real estate over and above the obligation against the property.

Escrow
This is an account held by the lender into which the home buyer pays money for tax and/or insurance payments. Earnest money deposits are also held in escrow accounts pending loan closing.

Fannie Mae
See Federal National Mortgage Association.

USDA Rural Development, formerly known as Farmers Home Administration (FmHA)
USDA Rural Development provides 100% financing to farmers and other qualified borrowers in specific geographical areas.

Federal Home Loan Bank Board (FHLBB)
This is the former name for the regulatory and supervisory agency for federally chartered savings institutions. This agency is now called Office of Thrift Supervision.

Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC provides a secondary market for savings and loans by purchasing their conventional loans. FHLMC is now known as Freddie Mac.

Federal Housing Administration
This is a division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA also sets standards for underwriting mortgages.

Federal National Mortgage Associations (FNMA) now known as "Fannie Mae"
This is a tax-paying corporation created by Congress that purchases and sells conventional residential mortgages. VA. This institution makes mortgage money more available and more affordable.

FHA Loan
This is a loan insured by the Federal Housing Administration and is open to all qualified home purchasers. The FHA floor is currently 172,632 (as of 1/3/2005 ) with higher amounts available in certain 'high cost' areas.

FHA Mortgage Insurance
An upfront fee of up to 1.5% together with an annual renewal fee of .50% payable monthly until the loan reaches 78% loan to value. FHA Mortgage Insurance guarantees the lender will suffer limited losses if there is a default under the terms of the mortgage.

Firm Commitment
This is the promise FHA or a Direct Endorsement Underwriter makes to insure a mortgage loan for a specified property and borrower. This is a promise from a lender to make a mortgage loan.

Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage.

Foreclosure
This is a legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. It is also known as a 'repossession' of property.

Freddie Mac
See Federal Home Loan Mortgage Corporation

Government National Mortgage Association (GNMA) - also known as "Ginnie Mae"
Ginnie Mae helps more Americans buy their own homes. Ginnie Mae does not loan money for mortgages. Instead Ginnie Mae helps make mortgage-backed securities more attractive to investors thereby increasing the availability of mortgage credit.

Graduated Payment Mortgage (GPM)
This is a type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization and is currently not in general use.

Guaranty
This is a promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

Hazard Insurance also know as Homeowner's Insurance
This is a form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm, and the like.

Housing Expense-to-Income
This is the ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by their gross monthly income. (see Debt-to-Income Ratio)

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

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

Interest Only Payments
Interest Only or Interest First mortgages permit the borrower to pay only interest plus taxes, insurances, etc. for the first three, five or seven years of the mortgage. The outstanding principal balance is amortized over the remaining term of the mortgage. Interest Only mortgages facilitate a lower monthly mortgage obligation in the early years of the mortgage.

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

Investor
This is a money source for a lender

Jumbo Loan
This is a loan that is larger than the limits set by the Federal National Mortgage association and the Federal Home Loan Mortgage Corporation . Because Jumbo Loans cannot be funded by these two agencies, they usually carry a higher interest rate.

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

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

Margin
This is the amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate. The index plus margin equal the fully indexed rate.

Market Value
This is the highest price a buyer would pay and the lowest price a seller would accept on the sale of a property. Market value may be different from the price a property could actually be sold for at any given time.

Mortgage Insurance
Money paid to insure the mortgage when down payment is less than 20%. See Private Mortgage Insurance, FHA Mortgage Insurance.

 Mortgage Insurance Premium (MIP)
It is insurance from HUD which protects the lender should there be a default under the terms of the mortgage.

Mortgagee
This is the lender.

Mortgagor
This is the borrower.

Negative Amortization
This occurs when your monthly payments are not large enough to pay all the interest due to the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of Negative Amortization is that the homebuyer ends up owning more than the original amount of the loan.

Net Effective Income
This is the borrower's gross income minus federal income tax and social security deductions.

Non-Assumption Clause
This is a statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: the signed obligation to pay the mortgage debt is a promissory note.

Office of Thrift Supervision (OTS)
This is a regulatory and supervisory agency for federally chartered savings institutions. Formerly known as Federal Home Loan Bank Board.

Origination Fee
This is a fee that is often charged by a lender to prepare loan documents, make credit checks, inspect, and sometimes appraise a property. The origination fee is usually computed as a percentage of the loan amount.

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

PITI
PITI stands for "principal, interest, taxes, and insurance". Also called "monthly housing expense."

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

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

Power of Attorney
This is a legal document authorizing one person to act in behalf of another.

Prepaid Expenses
Include taxes, hazard insurance, private mortgage insurance, and special assessments. Sufficient prepaid expenses are collected at closing to ensure there will be ample funds available to pay taxes, hazard insurance and mortgage insurance as they become due.

Prepayment
A privilege written in a mortgage, permitting the borrower to make payments in advance of their due date or to pay off the loan in full at any time.

Prepayment Penalty
This is money that is charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Primary Mortgage Market
Lenders making mortgage loans directly to borrowers such as: credit unions, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets.

Principal
This is the amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance
Lenders may allow no down payment or a small down payment when the borrower obtains private mortgage insurance. Private mortgage insurance may be paid monthly, annually or financed in either the loan amount or the interest rate.

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

Realtor
A realtor is a real estate broker or and associate holding active membership in a local estate board affiliated with the National Association of Realtors.

Recision
Recision is the cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases, if the transaction uses equity obtained through a security in the home.

Recording Fees
This is money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public record.

Refinance
Obtaining a new mortgage loan on a property already owned. It is often done to replace existing loans on the property.

Renegotiable Rate Mortgage
This is a loan in which the interest rate is adjusted periodically. See Adjustable Rate Mortgage.

Reverse Annuity Mortgage (RAM) also known as Home Equity Reverse Mortgage
This is a form of mortgage that the lender makes periodic payments to the borrower using the borrower's equity in the home.

Second Mortgage
This is a mortgage made subsequent to another mortgage and subordinate to the first one.

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

Security Instrument
This is the general name used for a 'mortgage', 'deed of trust' or a 'security deed'. It serves to pledge the house as collateral for the mortgage loan and allows the property to be sold as repayment for the mortgage debt if the borrower defaults on the mortgage obligation.

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

Settlement/Settlement Costs
See Closing Costs.

Simple Interest
This is interest that is computed only on the outstanding principle balance.

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

Sweat Equity
Equity created by purchaser performing work on a property being purchased.

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

Title Insurance
This is a policy, usually issued by a title insurance company that insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property and often borne by the seller. Policies are also available to protect the lenders interest.

Title Search
Title search is an examination of municipal records to determine the legal ownership of property. Usually done by a title company.

Truth-in-Lending
A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan. Also known as "Regulation Z".

Two-Step-Mortgage
This is a Mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often five, seven or ten) and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due within 30 days notice at the end of the five, seven or ten year first step.

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

USURY
This term refers to interest charged in excess of the legal rate established by law.

VA Loan
This loan is a long-term, low or no-down payment loan guaranteed by the Department of Veteran Affairs. It is restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee
A premium paid on a VA guaranteed loan. The Funding Fee currently (1/03/2005) ranges currently up to 3.3%, depending on the Veteran's status and number of times they have used their VA entitlement.

Variable Rate Mortgage (VRM)
See Adjustable Rate Mortgage.

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

Verification of Employment (VOE)
This is a document signed by the borrower's employer verifying their position and salary.

Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans that are to be sold later in the secondary mortgage market or to investors. When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss that is offset by charging a Warehouse Fee.

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