Terminology

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Adjustable   Rate Mortgage: A loan that adjusts on a regular schedule. Also called “variable rate mortgage.”
 

Amortization: The process of paying off a loan with regular payments over a fixed time period.
 

Amortization Schedule: A timetable for payment of a mortgage showing the amounts of each payment that are applied to interest and   principal, as well as the remaining balance.
 

Application Fee: A one-time fee charged by a lender for processing a borrower’s application for a mortgage loan.
 

Appraisal: A professional opinion of the market value of a property.
 

Appreciation: An increase in the value of a house due to changes in market conditions, home improvements or other factors.
 

Assessed Value: The value placed on a house by a public tax assessor for the purpose of determining property taxes.
 

Asset: Anything an individual owns that has commercial or exchange value.
 

Biweekly Mortgage: A loan in which you qualify for a 30-year schedule of monthly payments, but make payments every two weeks to pay off the loan sooner and save money on interest charges.
 

Borrower: The person who obtains a mortgage loan.
 

Budget: A financial plan for spending and saving money. Also called “spending plan.”
 

Buy—Downs: Points a borrower pays in advance to lower the interest rate. Also called “discount points.”
 

Buyer’s Agent: A real estate professional who enters into a   contract-of-agency relationship with the buyer and typically gets paid by splitting the sales commission with the selling, or listing, agent.
 

Cap: The maximum amount an interest rate can increase or decrease in a designated period of time (interest rate cap) or over the life of the   loan (lifetime cap) on an adjustable-rate loan.
 

Cash-Out Refinance: When an owner refinances a loan and takes some equity out as cash.
 

Cash Reserves: A requirement of some lenders that buyers have sufficient cash remaining after closing.
 

Closing: The final step in the transfer of property ownership. Usually occurs at a formal meeting between the buyer, seller, settlement agent and possibly real estate agents, where the buyer signs the mortgage and   mortgage note, the seller receives payment for the property, the buyer or seller or both pay closing costs and the title is transferred from the seller to the buyer. Also called “settlement.”
 

Closing Costs: Expenses incurred over and above the purchase price of the property by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”
 

Closing Disclosure: Replaces the HUD 1 Settlement Statement and the final Truth-in-Lending disclosure. Designed to provide disclosures that will be helpful for the consumer in understanding all of the costs of the   transaction. Provided to the consumer 3 business days before they close the mortgage loan.
 

Commission: The fee a real estate agent is paid for helping sell a house; it is usually a percentage of the purchase price.
 

Condominium: A home that is attached to other homes and shares common areas that everyone in the building or development owns together and maintains through a homeowners association fee.
 

Contingency: A condition put in an offer to buy a home.
 

Conventional Mortgage: A loan made by for-profit lenders and not insured by the federal government.
 

Credit Report: A record of how a consumer has repaid credit in the past. Is used as a guide to determine a potential homebuyer’s creditworthiness.
 

Credit Reporting Agency: A company that gathers, files and sells information to creditors and others with a legitimate business purpose. Also called “credit bureau.” Equifax, Transunion and Experian are the largest   three credit reporting agencies.
 

Credit Score: A numerical measure of creditworthiness.
 

Credit Union: A financial institution that is a cooperative and offers savings and checking accounts and other financial services for its members.
 

Debt-to-Income Ratio: The maximum percentage of a borrower’s gross monthly income that can be spent on the house payment and all other debts. Also called “back-end ratio.”
 

Deed: A legal document conveying title to a property. Also called “grant deed” or “warranty deed.”
 

Deed-In-Lieu: An agreement where a delinquent borrower gives the lender the deed and the keys and moves out of the property in exchange for forgiveness of the loan. Also called deed-in-lieu of foreclosure.
 

Deed of Trust: An alternative to a mortgage in some states, whereby a third party holds the deed of the property as security until the buyer repays the loan. Also called “trust deed.”
 

Default: Failure to meet financial obligations, which may result in the lender foreclosing on the loan.
 

Depreciation: A decrease in the value of property due to changes in market conditions, wear and tear on the property, or other factors.
 

Discretionary Income: The amount of money left over in a month after regular expenses are subtracted from the take-home pay.
 

Down Payment: The amount of cash a borrower pays towards purchasing a home.
 

Earnest Money: Funds that are included with an offer to show good faith in following through with the transaction.
 

Equity: The current market value of a home minus outstanding mortgage balance(s).
 

Escrow: The period between the date the purchase contract is signed and the date of the loan closing.
 

Escrow Account: A special account set up by the lender to collect and hold monthly payments towards annual property taxes and homeowners insurance. Also called “impound account.”
 

Fair Housing Act: A federal law that prohibits discrimination in housing and real estate transactions.
 

Fair Market value: The price a buyer will pay and a seller will accept for real property.
 

FHA Loan: A type of mortgage that is insured by the Federal Housing Administration, a department of the federal government.
 

FICO (Fair Isaac Corporation): A system of scoring credit reports and the company that developed the system.
 

Finance Charge: The total dollar amount charged to use credit, which includes interest and other costs.
 

First Mortgage: A home loan that has priority over the claims of subsequent lenders for the same property in the event of default.
 

Fixed Expense: An expense that does not change from month to month, such as loan payments or rent.
 

Fixed-Rate Mortgage: A loan on which the interest rate remains the same over the life of the loan.
 

Flexible Expense: Expenses that change from month to month, like the cost of groceries, entertainment and personal items.
 

Flood Insurance: A policy required by a lender if a buyer’s house is located in a flood zone.
 

Forbearance: An agreement by the lender to allow a delinquent borrower to skip one or more payments completely and make them up later   through a payment plan.
 

Foreclosure: The legal process used to force the payment of debt secured by collateral whereby the property is sold to satisfy the debt.
 

Gross Income: Money earned before taxes and other deductions.
 

Hazard Insurance: Insurance to protect the homeowner against physical damage to a property from fire, wind, vandalism and other hazards.
 

Home Equity Line of Credit (HELOC): A type of home equity loan that allows the homeowner to access the loan money with checks or a credit card as needed.
 

Home Equity Loan: A loan based on the difference of the amount of equity paid on a home and the home’s current market value.
 

Homeowners Association: A group of homeowners within a defined community, neighborhood or complex who make decisions, pay to maintain and repair land and common areas and/or enforce community rules and covenants.
 

Homeowners Insurance: An insurance policy on a house and its contents that combines liability coverage and hazard insurance.
 

Home Warranty: A guarantee for certain features of a new home, such as the materials, workmanship and main components.
 

Home Inspection: A professional opinion of the structural soundness of a property.
 

Housing Ratio: The maximum percentage of a borrower’s gross monthly income that can be used to make the monthly mortgage payments. Also called “front-end ratio.”
 

Interest Rate Lock-In: A written guarantee that a buyer will receive a specified interest rate from a lender, provided the loan closes within a set period of time.
 

Lender: The entity or person who offers the mortgage loan. Also called “mortgagee.”
 

Lien: A legal hold or claim of one person on the property of another as security for a debt. May be listed on a credit report as public record.
 

Listing Agent: A real estate professional who has a contract with the seller of a house to advertise the property for sale and represent the seller when offers are made.
 

Loan Estimate: Replaces the Good Faith Estimate (GFE) and the initial Truth-in-Lending Disclosure. Designed to provide disclosures that will be helpful to consumers in understanding the key features, costs and risks of the mortgage loan for which they have applied. Provided to consumers within 3 business days after they submit a mortgage loan application.
 

Loan Modification: An agreement between a lender and a delinquent borrower that changes one or more of the loan terms.
 

Loan Term: The amount of time a borrower has to pay off a loan.
 

Loan-to-Value (LTV): The ratio of the loan balance to the appraised value of the house.
 

Mortgage: A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right collect payment on the loan and to foreclosure if the loan   obligations are not met.
 

Mortgage Insurance: A policy required by the lender if a borrower puts less than 20 percent cash down when buying a home with a conventional or FHA loan, which protects the lender in the case of the borrower’s default. Also called “private mortgage insurance (PMI)” and “mortgage insurance premium (MIP)” for FHA loans.
 

Mortgage Note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period that is secured by a mortgage and recorded in the public records along with the deed.
 

Mortgage Payment: The total monthly loan payment known as principal, interest, taxes and insurance (PITI).
 

Multiple Listing Service (MLS): A service within a given   community or area that allows real estate professional to submit listings and agree to attempt to sell as properties in the service.
 

Negative Amortization: Payment terms under which the borrower’s monthly payments do not cover the interest due and the loan balance subsequently increases.
 

Net Income: Money earned after taxes and other payroll deductions have been withdrawn.
 

Origination Fee: A fee some lenders charge for submitting, processing and evaluating a proposed mortgage loan.
 

Payment Plan: An agreement with a lender in which a borrower promises to make up any missed payments by sending one full payment and one partial payment each month until delinquent mortgage payments are caught up.
 

Point: A fee that is 1 percent of the loan amount.
 

Pre-approval: A guarantee that a lender will lend a potential buyer a fixed amount as long as the borrower buys a home by a certain time and house appraises for the amount of money for which the borrower qualifies.
 

Predatory Lending: A type of lender that falls between appropriate risk-based pricing and blatant fraud and combines certain products, terms, prices and practices.
 

Prepayment: Paying more each month than the amount of the mortgage loan payment to pay the loan off sooner and save money on interest charges.
 

Prepayment Penalty: A fee charged on some loans to a borrower who pays off a loan before it is due.
 

Prequalification: The process lenders use to calculate a potential buyers’ mortgage affordability, usually based on unverified information.
 

Principal: The outstanding balance of a loan, not including interest and other charges.
 

Promissory Note: A document in which the borrower promises to repay the loan. Also call “note.”
 

Property Tax: A tax charged by the local government and used to fund a variety of municipal services such as schools, police or street maintenance. Also called “real estate tax.”
 

Public Record: Information that is available to anyone, including credit reporting agencies, from court records. Includes information on liens, bankruptcy filings, judgment and deeds.
 

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

Purchase Offer: A proposal to the seller of a house from a would-be buyer offering a stated amount for the house, often provided certain conditions (contingencies) are met.
 

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.
 

Reverse Mortgage: A type of home loan in which a homeowner 62 years old or older can convert the equity in the home into cash.
 

Secondary Market: Investors that purchase residential mortgages originated by primary lenders, which in turn provides lenders with money for future lending.
 

Second Mortgage: A home loan that has rights subordinate to the first mortgage. In the case of a foreclosure, the second mortgage is repaid after the first mortgage.
 

Short Sale: Where the bank agrees to accept less than the amount due on a mortgage in order to make the sale of the house possible. May have tax implications for the borrower.
 

Single-Family Home: A type of house that is owned by one person or family, including the land on which it sits. The types of properties are usually detached.
 

Title: A legal document establishing the right of ownership in a property.
 

Truth-In Lending Act (TILA): A federal law that requires creditors to give complete and accurate information about the cost of credit to consumers and the terms of repayment.
 

Underwriting: The process of analyzing a borrower’s finances in order to approve or deny a loan.
 

Variable Expense: An expense that changes, such a utilities, food, clothing or entertainment.
 

Walk-Through: A buyer’s final inspection of a property, usually conducted right before closing, to determine that the property is as described in the purchase agreement.
 

Workout Agreement: A negotiated agreement between a borrower and a lender or servicer to address a debt in default by the homeowner in order to avoid foreclosure.