Glossary of Terms

Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans — monies must be repaid to avoid serious penalty charges.

A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

An offeree’s consent to enter into a contract and be bound by the terms of the offer.

A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

A mortgage that permits the lender to adjust the mortgage’s interest rate periodically on the basis of changes in a specified index. The interest rates on these loans will be fixed for a specified period of time, then will become adjustable for the remaining years of the loan. Once adjustable, the interest rates may move up or down, as market conditions change.

The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

A person appointed by a probate court to administer the estate of a person who died in the state.

A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.

A feature of real property that enhances its attractiveness and increases the occupant’s or user’s satisfaction although the feature is not essential to the property’s use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

The gradual repayment of a mortgage loan by installments.

A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

To repay a mortgage with regular payments that cover both principal and interest.

A report sent to the mortgagor (the borrower) each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. Lenders use the information on the loan application to evaluate whether or not they can give the loan, and if so, the amount of money they can lend.

An estimate of the value of property made by a qualified professional called an “appraiser.”

An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.

A person qualified by education, training, and experience to estimate the value of real property and personal property.

An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

The valuation placed on property by a public tax assessor for purposes of taxation.

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.

The public record of taxable property.

A public official who establishes the value of a property for taxation purposes.

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).

The transfer of a mortgage from one person to another.

A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.

The transfer of the seller’s existing mortgage to the buyer.

A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

A financial statement that shows assets, liabilities, and net worth as of a specific date.

A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term. The principal and interest on the loan are amortized over a longer period than the actual term of the mortgage.

The final lump sum payment that is made at the maturity date of a balloon mortgage.

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.

A legal proceeding that allows individuals or businesses to seek relief from debts they cannot repay.

Income before taxes are deducted.

The person designated to receive the income from a trust, estate, or a deed of trust.

To transfer personal property through a will.

An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

A written document that transfers title to personal property.

A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

A mortgage that requires payments every two weeks, which is more frequent than the standard monthly payment schedule. These payments effectively reduce the loan balance faster and result in interest savings over time.

A mortgage that covers multiple properties or units under one mortgage. Typically used for real estate developments or investments.

In good faith, without fraud.

A financial instrument representing debt owed by the issuer (borrower) to the bondholder (lender). Real estate bonds are often secured by mortgages or deeds of trust.

A violation of any legal obligation.

A short-term loan that bridges the gap between the purchase of a new property and the sale of an existing property. It’s often used when the buyer needs funds to buy the new property before selling the old one.

A person who acts as an intermediary or agent between parties involved in real estate transactions. Brokers facilitate negotiations, provide market insights, and assist with contracts.

A specific category of income or expense data used in budgeting. Budget categories help organize and track financial activities.

Local regulations that establish standards for design, construction, and materials used in building projects. Building codes ensure safety and quality in construction.

An account where funds are held to subsidize mortgage payments in a buydown mortgage. During the initial years of the mortgage, funds from the buydown account are used to lower the borrower’s interest rate and monthly payments.

A mortgage with a reduced initial interest rate, often for a specified period. A buydown mortgage usually involves an upfront payment (buydown fee) to lower the initial interest rate. The rate gradually increases over time to the regular rate, resulting in lower initial payments that increase over time.

A clause in a mortgage agreement that allows the lender to demand full repayment of the mortgage balance under specific conditions, often before the loan’s maturity date. This is typically used as a protective measure for the lender.

A limit placed on the amount that an adjustable-rate mortgage’s interest rate or monthly payment can change. Caps protect borrowers from significant increases in interest rates. There are different types of caps, including periodic caps (limits on how much rates can change within a specific period) and lifetime caps (limits on how much rates can change over the life of the loan).

(1) Money used to generate income, whether invested in a business or income property. (2) The wealth owned or used by an individual or business. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the excess of its assets over liabilities.

The cost of an improvement made to increase the useful life or value of a property. Capital expenditures are typically made for lasting improvements, such as renovations, additions, or upgrades that enhance the property’s value over time.

A permanent addition or improvement to real property that increases its value and extends its useful life. This can refer to structures or components added to a property that enhance its overall value and utility.

A refinancing transaction where the new loan amount is greater than the balance of the existing mortgage, and the borrower receives the difference in cash. The borrower can use this extra cash for various purposes, such as home improvements, debt consolidation, or other financial needs.

A document issued by a financial institution that represents a deposit and specifies the interest rate and maturity date. It’s often used to save money over a fixed period and earn interest.

An index used to determine interest rate adjustments for some adjustable-rate mortgage (ARM) plans. It reflects the average interest rate of six-month certificates of deposit (CDs) and is a factor in calculating the new interest rate for the ARM.

A document provided by the Department of Veterans Affairs (VA) that certifies a veteran’s eligibility for a VA mortgage loan. It’s required for veterans to apply for and obtain VA home loans.

A document issued by the Department of Veterans Affairs (VA) that determines the maximum value and loan amount for a VA-guaranteed mortgage. This ensures that the loan amount does not exceed the reasonable value of the property according to VA guidelines.

A document that verifies legal ownership of real estate property. It’s issued by a title company, abstract company, or attorney after conducting a title search and confirming the property’s legal status.

A historical record of all documents that establish a property’s ownership. It includes a chronological list of documents, such as deeds, transfers, and encumbrances, that show the property’s title history from the original owner to the current owner.

The interval (in months) at which adjustments can be made to the interest rate or payment amount in an adjustable-rate mortgage (ARM). This determines how often the ARM’s terms will change according to the prevailing interest rate index.

Another term for personal property, which refers to movable assets that are not permanently affixed to real property.

A title to a property that is free from any liens, encumbrances, or disputes that could challenge ownership. It signifies that the owner has clear and unambiguous legal ownership rights to the property.

A meeting where the sale of a property is finalized by the buyer signing mortgage documents and paying closing costs. Ownership of the property is transferred from the seller to the buyer at this meeting. Also known as “settlement.”

A fee or cost that a homebuyer must pay at closing for a specific service, tax, or product. These individual costs contribute to the total closing costs, which include various expenses associated with transferring ownership of a property.

Expenses incurred by both buyers and sellers during a property transaction, over and above the property’s price. Closing costs include fees like origination fees, attorney’s fees, taxes, escrow funds, and charges for title insurance and surveys. These costs vary by location and are typically outlined in the HUD-1 statement.

Also known as the HUD-1 statement, it’s a document provided at closing that details all the financial aspects of a real estate transaction. It lists all the costs, fees, and charges associated with the sale, including the distribution of funds to various parties.

Any conditions discovered during a title search that negatively affect a property’s title, making it unclear or questionable. Clouds on title might include unresolved liens, competing claims, or other issues that need to be addressed before a clear title can be established.

A person who signs a promissory note along with the borrower, committing to repay the loan in case the borrower defaults. Both the borrower and the co-maker are equally responsible for repaying the loan. This arrangement offers an additional layer of security for the lender.

A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the policy amount and a specified percentage of the actual value of the insured property at the time of a loss. If the insured’s coverage is less than the required percentage, a penalty may apply to claims.

A provision in a hazard insurance policy that stipulates the minimum amount of coverage (as a percentage of property value) the insured must maintain to receive the full amount of a loss claim. If the coverage is below this percentage, the payout may be reduced proportionally, regardless of the total loss amount.

Property or assets pledged as security for a loan. In real estate, the property being financed is often used as collateral for a mortgage loan. If the borrower defaults, the lender can seize and sell the collateral to recover the outstanding debt.

The process of collecting overdue payments or delinquent accounts, often involving contacting the borrower to resolve the debt and bringing the loan current.

A fee or percentage of the sale price paid to a real estate agent as compensation for their services in facilitating a property sale.

A formal document provided by a lender outlining the terms under which it is willing to lend money to a borrower for a mortgage. This letter confirms the borrower’s eligibility for the loan and specifies key details, such as interest rate, loan amount, and duration. Also called a “loan commitment.”

Fees charged to individual unit owners in condominium or planned unit development (PUD) projects to cover the costs of operating, maintaining, and repairing common areas shared by all residents. These areas might include facilities like gyms, pools, and parking lots.

Shared spaces in a condominium or cooperative property that are used by all residents. Common areas might include lobbies, hallways, elevators, fitness rooms, and recreational spaces.

An unwritten body of law developed through court decisions, customs, and legal precedents. Common law principles are often used to interpret laws and make legal decisions, and they vary between jurisdictions.

A financing approach that enables low- and moderate-income homebuyers to purchase improved housing from a nonprofit Community Land Trust. The property’s land is leased from the Trust, allowing buyers to affordably acquire homes while maintaining affordability for future buyers.

A financing method for low- and moderate-income households where a second mortgage is subsidized by an investor. This second mortgage is often issued by a nonprofit organization, and its payment may be deferred or carry a low interest rate. Some portion of the debt may be forgiven based on the buyer’s tenure.

An affordable financing option that involves a second mortgage issued by a government agency, foundation, or nonprofit organization to provide additional down payment assistance to qualified homebuyers. This can help reduce the initial mortgage loan amount and improve affordability.

Short for “comparable properties,” referring to properties similar to the subject property being appraised. Comparables are used for valuation purposes to determine the fair market value by comparing the size, location, features, and recent sale prices of similar properties.

Interest calculated on both the original principal balance and the accumulated unpaid interest. As interest accrues, it’s added to the principal, and future interest is then calculated based on this new total, resulting in exponential growth of the loan balance over time.

The legal process by which a government exercises its right of eminent domain to take private property for public use. This usually involves compensating the property owner at a fair market value. Condemnation may also refer to declaring a building unfit for use and requiring its destruction.

A type of real estate development in which individual units in a building or complex are individually owned by residents. Owners also share ownership and access to common areas, such as halls, elevators, and recreational facilities, through a homeowners’ association.

The process of changing an existing property, often a rental building, into individual condominium units. This involves subdividing the property and converting rental agreements into individual ownership titles.

A condominium project that functions like a hotel, offering short-term occupancy, rental or registration desks, daily cleaning services, and amenities such as dining and telephone services. Individual units are owned by separate owners, while common areas are shared.

A temporary, short-term loan specifically designed to fund the construction or development of a property. The lender disburses funds in installments, often directly to the builder, based on project milestones and work completion.

A condition or requirement outlined in a contract that must be met before the contract becomes binding or effective. Common contingencies in real estate contracts include satisfactory home inspections, obtaining financing, or securing necessary permits.

An agreement, whether written or oral, between two or more parties outlining the terms, conditions, and obligations to be fulfilled. Contracts serve as legally binding documents once they are entered into by all involved parties.

A mortgage that is not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). These mortgages typically require higher down payments and have stricter qualification criteria.

A provision in certain adjustable-rate mortgages (ARMs) that permits the borrower to convert the ARM into a fixed-rate mortgage during specific time periods. This gives borrowers the option to switch to a stable interest rate if market conditions change.

An adjustable-rate mortgage (ARM) that includes a provision allowing the borrower to convert the loan into a fixed-rate mortgage at specified times. This provides flexibility for borrowers to lock in a fixed interest rate if rates begin to rise.

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.

A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

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. See adjustable-rate mortgage (ARM).

A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

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.

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.

A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.

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.

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.

A person to whom money is owed.

An amount owed to another. See installment loan and revolving liability.

The legal document conveying title to a property.

The document used in some states instead of a mortgage; title is conveyed to a trustee.

A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Failure to make mortgage payments when mortgage payments are due.

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.

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.

A decline in the value of property; the opposite of appreciation.

See point.

The rights of a widow in the property of her husband at his death.

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

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.

This terminology is usually used for second mortgages. See due-on-sale provision.

A deposit made by the potential home buyer to show that he or she is serious about buying the house.

A right of way giving persons other than the owner access to or over a property.

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.

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.

The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

A special housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

An improvement that intrudes illegally on another’s property.

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

A person who signs ownership interest over to another party. Contrast with CO-maker.

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.

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.

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.

The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.

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.

Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

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.

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 the time of death.

The lawful expulsion of an occupant from real property.

The report on the title of a property from the public records or an abstract of the title.

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.

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.

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.

A financing option for a fixed-rate mortgage that offers home buyers a 3 percent down payment loan with a term between 15 and 30 years. The mortgage features a loan-to-value (LTV) percentage of 97 percent, designed to expand homeownership opportunities for people with modest incomes. Borrowers must take a pre-purchase home buyer education session to qualify for a Fannie 97 mortgage.

A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.

Fannie Mae owns, manages, and has available for sale, single-family detached homes, two- to four-unit properties, condominiums, and townhouses in a variety of neighborhoods. The number, type, and sales price may vary substantially. Fannie Mae homes are sold through local real estate brokers whose contact information is provided in the Fannie Mae Properties for Sale search results on homepath.com.

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.

An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

The greatest possible interest a person can have in real 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.

A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor’s default.

A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

A lender’s agreement to make a loan to a specific borrower on a specific property.

A mortgage that is the primary lien against a property.

The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

A mortgage in which the interest rate does not change during the entire term of the loan.

Personal property that becomes real property when attached in a permanent manner to real estate.

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

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.

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.

A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with conventional mortgage.

A government-owned corporation within the US Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

The person to whom an interest in real property is conveyed.

The person conveying an interest in real property.

The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.

A single-family residential structure designed or adapted for occupancy by unrelated developmentally disabled persons. The structure provides long-term housing and support services that are residential in nature.

A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

A mortgage that is guaranteed by a third party.

Also known as a government mortgage.

Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage.

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 the term of the loan. The minimum payment due each month is interest only.

A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

Fannie Mae’s adjustable-rate conventional reverse mortgage, which allows older homeowners to borrow against the value of their homes and receive the proceeds according to the payment option they select. The amount available is based on the number of borrowers and their ages and the adjusted property value. Anyone 62 years or older who either owns his or her own home free and clear or has very low mortgage debt is eligible.

A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.

A mortgage that enables eligible borrowers to obtain financing to remodel, repair, and upgrade their existing homes or homes that they are purchasing. See also HomeStyle Standard Mortgage, HomeStyle Remodeler, HomeStyle Community Mortgage and HomeStyle Consumer Energy Loan.

The percentage of gross monthly income that goes toward paying housing expenses.

Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the “closing statement” or “settlement sheet.”

An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

Real estate developed or improved to produce income.

A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage.

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 worth less.

The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as “start rate” or “teaser.”

The regular periodic payment that a borrower agrees to make to a lender.

Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

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.

A property title that a title insurance company agrees to insure against defects and disputes.

A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

The fee charged for borrowing money.

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.

The rate of interest in effect for the monthly payment due.

An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage. During the specified period, the mortgagor’s effective interest rate is “bought down” below the actual interest rate.

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

A property that is not occupied by the owner.

A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.

A lien on the property of a debtor resulting from the decree of a court.

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.

A loan that exceeds Fannie Mae’s mortgage amount limits. Also called a nonconforming loan.

The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

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.

An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a down payment will accumulate.

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.

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

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.

An encumbrance against property for money due, either voluntary or involuntary.

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap, interest rate ceiling and interest rate floor.

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. See home equity line of credit.

A cash asset or an asset that is easily converted into cash.

A sum of borrowed money (principal) that is generally repaid with interest.

See commitment letter.

The process by which a mortgage lender brings into existence a mortgage secured by real property.

The unpaid principal balance of the mortgage on a property divided by the property’s appraised value. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.

A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

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.

The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.

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.

The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product.

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.

The act of changing any of the terms of the mortgage.

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.

A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.

A mortgage that requires payments to reduce the debt once a month.

A legal document that pledges a property to the lender as security for payment of a debt.

A company that originates mortgages exclusively for resale in the secondary mortgage market.

An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA).

The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

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.

The lender in a mortgage agreement.

The mortgage borrower who gives the mortgage as a pledge to repay.

A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

Fannie Mae provides financing for multifamily (buildings with five or more units) rental properties through a nationwide network of mortgage lenders.

Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create “negative” amortization.

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.

The value of all of a person’s assets, including cash, minus all liabilities.

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, and other funds for the borrower’s use.

An asset that cannot easily be converted into cash.

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.

The interest rate stated on a mortgage note.

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

The total amount of principal owed on a mortgage before any payments are made.

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

A property purchase transaction in which the property seller provides all or part of the financing.

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM).

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

For an adjustable-rate mortgage (ARM), 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.

Any property that is not real property.

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.

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.

A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.

The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

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.

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Amount of debt, not including interest. The face value of a note or mortgage.

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

Insurance provided by non-government insurers that protects 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%.

A written promise to repay a specified amount over a specified period of time.

A meeting in an announced public location to sell property to repay a mortgage that is in default.

Development) 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.

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

The acquisition of property through the payment of money or its equivalent.

The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

A radioactive gas found in some homes that in sufficient concentrations can cause health problems.

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time. See lock-in.

A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.

A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

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.

The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.

The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

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.

The process of paying off one loan with the proceeds from a new loan using the same property as security.

A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.

The amount of principal that has not yet been repaid. See principal balance.

The original amortization term minus the number of payments that have been applied.

Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

See lease-purchase mortgage loan.

An arrangement made to repay delinquent installments or advances. Lenders’ formal repayment plans are called “relief provisions.”

A fund set aside for replacement of common property in a condominium, PUD, or cooperative project — particularly that which has a short life expectancy, such as carpeting, furniture, etc.

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.

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.

The right to enter or leave designated premises.

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.

A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

A mortgage that has a lien position subordinate to the first mortgage.

The buying and selling of existing mortgages.

A loan that is backed by collateral.

The property that will be pledged as collateral for a loan.

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See owner financing.

An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

See closing.

See HUD-1 statement.

One- to four-unit properties including detached homes, townhouses, condominiums, and cooperatives.

An account that is established for rehabilitation mortgages to hold the funds needed for the rehabilitation work so they can be disbursed from time to time as particular portions of the work are completed.

The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.

A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

An alternative financing option known as the Community Seconds® mortgage for low- and moderate-income households. An investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit corporation. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

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.

Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.

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.

A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy.

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. See mortgage broker.

A legal document evidencing a person’s right to or ownership of a property.

A company that specializes in examining and insuring titles to real estate.

Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Total obligations as a percentage of gross monthly income. This includes monthly housing expenses plus other monthly debts.

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.

Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership.

State or local tax payable when title passes from one owner to another.

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See adjustable-rate mortgage (ARM).

A fiduciary who holds or controls property for the benefit of another.

A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.

An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.

A loan that is not backed by collateral.

A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.

An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.

A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house.

A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.