Glossary
A

Acceleration Clause - a clause in the mortgage note that requires the borrower/homeowner to immediately repay the entire loan balance
when the borrower fails to perform a specific function (such as in the case of a payment default or the sale of the property).

Adjustable Rate Mortgage (ARM) - also known as Variable Rate Mortgage, a mortgage in which the interest rate adjusts periodically, almost
always pegged to a certain index.

Adjustment Period - The length of time between interest rate adjustments.

Amortization - the calculation of a payment schedule (usually consisting of periodic installments of identical amount) which eventually repays
a loan in a predetermined time.

Annual Percentage Rate (APR) - the mortgage interest rate plus certain lender charged closing costs, expressed as an interest rate.  This is
one way to compare loan programs offered by different lenders.

Appraisal Report - a licensed appraiser's estimate of the value of a property at a given date.

B

Balloon Mortgage - a mortgage which at the end of the loan term requires a lump sum payment.

Binder (Insurance) - evidence of an effective (title, hazard, etc) insurance policy.

Biweekly Mortgage - a mortgage that requires the borrower to make installment repayments (of half the monthly amount) every two week
(rather than every month).  The idea is to pay off a loan sooner (over the course of a year, twenty six half payments translates into thirteen
monthly payments, one extra payment more than the usual twelve payment per year mortgage), thereby paying less interest.

Blanket Mortgage - a mortgage covering more than one property.

Bridge Loan - a short term (usually six months) loan often used when a homeowner purchases a new home before his current home is sold.

Buydown - fees paid to the lender at closing to obtain a lower interest rate, usually only for the initial two to five years of the loan term.

C

Cash Out Refinance - the process of taking out a mortgage with a loan amount higher than the outstanding balance of an existing mortgage to
repay the existing mortgage and keep the remaining proceeds.

Certificate of Eligibility - a document the Department of Veterans Affairs issues to those who qualify for a VA loan.

Closing Agent - the person who conducts the settlement process, usually an attorney, a notary, or a title agent.

Closing Costs - expenses incurred in association with the mortgage application, which include lender fees, title charges, recording fees, and
prepaid interests.

COFI - Cost of Funds Index, also referred to as the 11th District Cost of Funds Index, used as an index for some Adjustable Rate Mortgages.

Commitment Letter - a loan approval issued by a lender agreeing to make a loan (usually after certain conditions are met).

Condominium - Individual ownership of a unit in a multi-unit building with an undivided interest in common in a portion of real property.

Conforming Loan - a mortgage abides by the underwriting guidelines set by Fannie Mae/Freddie Mac

Construction Loan - a short term loan to finance the construction of a building or a home.

Contract of Sale - a written agreement to purchase/sell a property

Conventional Loan - a mortgage loan that is not government guaranteed (unlike VA/FHA loans).

Cooperative (Co-op) - a form of ownership where a co-op owner does not hold title to  the actual unit, but rather owns shares of a corporation
that owns the underlying building and gets a lease to occupy the subject unit.

Convertible Adjustable Rate Mortgage - an Adjustable Rate Mortgage that gives the borrower the option to convert to a fixed rate mortgage
based on a predetermined formula.

Credit Report - a report on an individual's payment habits, outstanding debts, available accounts, tax lien and judgment records

Credit Scores - numeric values assigned by the three major credit report companies (TransUnion, Equifax, and Experian)based on what
appears on an individual's credit report.

D

Debt To Income Ratio - a ratio, total debt divided by gross income, used by lenders to qualify loan applicants.

Deed - a document, recorded at the local county clerk's office, evidencing the transfer of title of real property form one owner to another.

Department of Housing and Urban Development, The - also known as HUD, a government agency that plays a major role in promulgating
rules and regulations (such as RESPA) that governs residential real estate transactions.  

Discount Points - fees paid to a lender to reduce the interest rate.

Downpayment - the amount the buyer of a property invests towards the purchase price.

Due on Sale Clause - a clause in the mortgage note that requires the borrower repay the entire loan upon the sale of  the property.

E

Earnest Money - a good faith deposit the buyer makes at the signing of the purchase contract.  The earnest money is held in an escrow
account.

80/15/5 - two mortgages with the loan amounts of the first being 80% of the property value, the second being 15% and a 5% downpayment.  
This loan structure is often used when the borrower needs to borrower more than 80% and wants to avoid buying Private Mortgage Insurance.  
Depend on the borrower's financial situation, a loan officer can structure a 80/10/10, 80/20, or any combination thereof.  See also
80/10/10 and
80/20.

80/10/10 - a combination of two mortgage loans with the loan amount of the first mortgage being 80% of the property value, the second being
10%, and a 10% downpayment.

80/20 - a type of No-Money-Down mortgage where a home buyer takes out two mortgages against the subject property, with the first loan
amount being 80% and the second 20%.  Such loan structure is used to avoid the additional monthly expense of purchasing Private Mortgage
Insurance that lenders require when the loan amount of any one mortgage exceeds 80% of the property value.

Equity - the value of a property, less any mortgage balance owe to lenders.

Escrow - an impartial third party that holds funds to be disbursed to the rightful recipient upon the completion of a certain condition (such as
the disbursement of the earnest money to the seller upon closing).


F

Fannie Mae - see Federal National Mortgage Association.

Federal Discount Rate - the interest rate the Federal Reserve Bank charges its member banks.

Federal Funds Rate - the interest rate banks charge each other for overnight loans.

Federal Home Loan Mortgage Corporation (Freddie Mac) - together with Fannie Mae, the two Congress chartered organizations are the
largest purchasers of mortgages originated by banks and credit unions.

Federal Housing Administration (FHA) - a Department of Housing and Urban Development (HUD) agency that insures FHA mortgages
against default, thereby lenders are more willing to make affordable financing to certain borrowers.

Federal National Mortgage Association (Fannie Mae) - one of two Congress chartered organizations (the other being Freddie Mac) that was
created to promote home ownership in the US by purchasing (conforming) mortgages originated by banks and other lending institutions, then
resell these mortgage-back securities to investors, thereby creating a cycle of liquid funds.

Fee Simple - the highest form of ownership of real property, where the owner has absolute power of disposition that passes down from
generation to generation (as oppose to Leasehold).

FICO Score - a score assigned by Experian, a credit reporting company, based on what appears on one's credit report.  See also Credit Score.

Finance Charge - interest and other fees charged by a bank in association of a loan application.

First Mortgage - mortgage that has priority over all other junior mortgages (such as a second mortgage) in the order to be satisfied in the
event of a foreclosure.

Flood Insurance - an insurance policy that insures a property against flood.  Lenders require a borrower to secure a flood policy when the
subject property is located in a flood zone.

Foreclosure - a legal process in which the lender claims title to a real property in the event of the borrower defaulting.  The result is usually a
sale or an auction of the property with the proceed going towards the satisfaction of any liens against the subject property.

Freddie Mac - See Federal Home Loan Mortgage Corporation.

G

Good Faith Estimate-a list of expenses a borrower is likely to incur in association of his mortgage application.  All lenders are required by HUD
to furnish the Good Faith Estimate, among other disclosures, to potential borrowers.


H

Hazard Insurance - also known as Homeowner insurance, insures real property against loss due to fire and other perils.  Lenders require
borrowers to have coverage for the subject property.

HELOC - See Home Equity Line of Credit.

Home Equity Line of Credit - an account, with the borrower's home as collateral, against which the borrower can withdraw (borrow) funds any
time, up to the limit of the credit line.

Homeowners Association - an association of unit owners in a condominium or planned unit development whose main objective is to
manage the building/complex.

Homestead - Status provided to a homeowner's principal residence that protects real property against certain types of judgments.

HUD - see the Department of Housing and Urban Development.

HUD-1 - also known as the settlement statement, prepared by the closing agent at or one day before closing, itemizes the expenses incurred
by a buyer (and seller) in association of the real estate transaction.

Hybrid Mortgage - a mortgage loan that has an initial fixed rate period (usually 1, 3, 5, 7, or 10 years) followed by an adjustable interest rate for
the rest of the loan term.

I

Index - an indicator of an economic condition.  An interest rate index is used to indicate the interest rate market condition just as a stock index
is used to indicate the market condition of a particular security segment.

Interest Only Mortgage - a mortgage in which the borrower is required to make payments only for the interest accrued, as opposed to
payments towards principal reduction and interest accrued.  The interest-only feature is usually available for the beginning of the loan term,
then fully amortized payments (principal plus interest) are required.  Interest-only mortgages are preferred by buyers who either expect to sell
the property in the near future, or expect higher personal incomes in the near future.


J

Joint and Several Liability - a legal situation where each and every debtor is 100% liable, as oppose to each debtor being liable for his own
share.

Joint Tenancy - a form of ownership of real property where each owner owns his share of the entire property (undivided interest) with the right
of survivorship.

Judgement Lien - a claim on a property by a creditor as a result of a legal judgment.

Jumbo Loan - a mortgage where the loan amount exceeds the acceptable loan amount set by Fannie Mae/Freddie Mac.  Since Jumbo Loans
cannot be sold to Fannie Mae/Freddie Mac, they always carry higher interest rates.

Junior Mortgage - a mortgage subordinate to a first mortgage.  In the case of foreclosure, junior mortgage liens are satisfied only after first
mortgage liens are paid off.

K


L

Leasehold - a form of legal ownership of real estate in which the owner has the right of possession for a specific period of time.

Lease with Option to Purchase - a lease agreement in which the lessee has to right to purchase the underlying property within a
predetermined period of time.

Legal Description - legal terms to identify a piece of land, usually referred to as Section, Block, and Lot.

LIBOR - London Interbank Offered Rates, often used as an index for many Adjustable Rate Mortgages.

Lien - a claim against a property.

Listing - a real property becomes a Listing when it is listed for sale on the multiple listing service.

Loan Origination Fee or Points - fee charged by a lender or broker for doing the mortgage application.

Loan Servicing - the activity of collecting mortgage payments, collecting property tax and hazard insurance impounds, and remitting the
appropriate portion of the mortgage payments to the note holder.  Some lenders sells the mortgage loan to Fannie Mae/Freddie Mac or other
institutions but retain the Loan Servicing rights.

Loan to Value Ratio - also known as LTV, calculated by dividing the loan amount by the purchase price or the value of the property, whichever
is less.  Lenders use this ratio, among other things, to underwrite a mortgage application.


M

Margin - a fixed number added to the index to calculate the interest rate on an Adjustable Rate Mortgage.

Market Value - the highest price that a buyer would pay and the lowest price a seller would accept on a property at a given time.

Mortgage - a recorded document that creates a lien against a real property as security for the payment of a loan.

Mortgage Banker - a lender licensed to make mortgage loans.

Mortgage Broker - an intermediary licensed to originate loans and often work with a number of banks that specialize in various loan programs.


Mortgagee - the lender.

Mortgagor - the borrower.

Mortgage Insurance - insurance policy that insures the lender against payment default.  FHA requires most borrowers to purchase Mortgage
Insurance as a condition to grant loan.  See also
Private Mortgage Insurance.

Mortgage Note - the  "I O U" of the mortgage loan.  The Mortgage Note is a recorded document that details the terms of the mortgage, such as
the loan amount, the loan term, the subject property, etc.

N

Negative Amortization - an increase in the loan balance due to the monthly payments being lower than the amount of interest accrued.  
Negative Amortization is the potential result of an Option Arm mortgage or an Adjustable Rate Mortgage with a fixed payment, in which if the
interest rate goes up and the payment remains the same, the loan balance can get larger and larger.

Nonconforming Loan - mortgage loans that do not abide by Fannie Mae/Freddie Mac underwriting guidelines, usually because of a large loan
amount.  Because Nonconforming Loans cannot be sold to Fannie Mae/Freddie Mac, they tend to have higher interest rates.

Notary Public - a person who is authorized by law to validate signatures and legal documents.  In the world of mortgages, a Notary Public can
be a closing agent.

Note - a promise to repay a loan, a recorded document with the terms of the loan, such as the loan amount, interest rate, the manner to repay,
etc.  See also
Mortgage Note.

Notice of Default - a notice a lender mails to the defaulting borrower.

O

100% Mortgage - a home loan structure in which the buyer of real property borrows the amount of the entire purchase price and does not use
his personal funds to make a downpayment towards the purchase, except to pay for closing costs associated with the purchase.

103% Financing - a mortgage loan structure where the home buyer borrows 100% of the purchase price in addition to  the seller of the property
paying 3% of the purchase price towards the buyer's closing costs in the form of Seller concession.

Open-end Mortgage - a mortgage loan that allows the borrower to borrow additional funds repeatedly.  A HELOC is an example of Open-End
Mortgage.

Open House - a popular real property marketing tactic where the seller/listing agent  openly invites all potential buyers/buyer agents to visit the
subject property during certain hours on a certain day without appointments.

Option Arm - a mortgage loan program that gives the borrower the option to pay the fully amortized amount, only the accrued interest, or a
minimum amount (which is usually less than the accrued interest and thereby creating a negative amortization situation).

Owner Occupied - real property that is occupied by its owner.  This is important to lenders because mortgage interest rates for Owner
Occupied homes and for investment properties are different.

P

Permanent Mortgage - a mortgage that has a long loan term, as opposed to mortgages with shorter terms, such as Construction Loans and
Bridge Loans.

PITI - stands for Principal, Interest, Taxes and Insurance.  PITI is the borrower's total housing expense.  Lenders use PITI, among other
considerations,  to qualify loan applicants.

Planned Unit Development (PUD) - a community development that includes individually owned units as well as some common space that is
jointly owned.

PMI - see Private Mortgage Insurance.

Points - fees paid by borrowers to banks and mortgage brokers. 1 point = 1 percent of the loan amount.

Portfolio Loan - a mortgage loan that is held as an investment by a bank , rather than being sold on the secondary market, usually due to the
fact that the loan does not comply with the underwriting guidelines set by the secondary market investors.

Prepaid Interest - interest paid in advance by the borrower to the lender at settlement, for interest that will accrued from the settlement date to
the next billing cycle.

Prepayment - any additional payments made towards the reduction of the loan principal, such as a 13th monthly payment in a year or the pay
off of the existing loan through refinance/sale of the property.

Prepayment Penalty - a fee charged to the borrower by the lender for making a (full or partial) prepayment.

Primary Mortgage Market - banks, mortgage brokers, and other financial institutions that original mortgage loans

Prime Rate - the interest rate that banks offer to their best customers.

Principal - the outstanding balance on a loan.

Private Mortgage Insurance - also known as PMI, an insurance policy that protects the lender against default on the mortgage loan.  Lenders
almost always require the borrower to purchase PMI when the loan amount of the mortgage is more than 80% of the value of the property.  See
also
80/20.

Property Tax - a tax levied based on the county assessed value of the property.

Purchase Agreement - a contract between a buyer and a seller of real property specifying the terms and price of the sale.

Purchase Money Mortgage - a mortgage used to finance the purchase (as opposed to the refinance) of a real property.

Q

Quit Claim Deed - a legal document used to transfer interest in real property.  The signer of the document "quits" all "claims " of interest in the
subject property.

R

Rate and Term Refinance - the process of taking out a mortgage loan with either a lower interest rate or a shorter loan term to pay off an
existing mortgage with either a higher interest rate or a longer term.

Real Estate Settlement Procedure Act - also known as RESPA, a law that governs how lenders must conduct mortgage business that involve
one to four family residential properties.  It also protects borrowers by giving them certain rights.

Recapture tax - certain government subsidized programs require home buyers to retain ownership of the property for a specified period of
time.  If the home owner sells the subject property before specified period has ended, a portion of the subsidy is charged (recaptured) to the
home owner.

Recording - the act of registering legal instruments such as deeds and mortgage notes into the local county's public records.

Rescission - the cancellation by the borrower of the settlement.  Certain law gives the borrower of a residential property three days to change
his mind, applies only to refinances.

Recourse - the right given to the lender to hold the borrower liable in the case of default of a property mortgage (usually a commercial property
mortgage).

Redlining - the illegal practice of refusing to make mortgage loans in a particular neighborhood.

Refinancing - the process of taking out a mortgage loan to pay off an existing mortgage on the same property.  See also Rate and Term
Refinance
and Cash Out Refinance.

Regulation Z
- a law that requires lenders to disclose to borrowers certain terms of the loan.

Reverse Mortgage - a mortgage the allows the elderly to make periodic withdraws against the equity of their homes while they live at said
homes.  The withdraws cause the loan balance to increase and creates a negative amortization situation.

Right of survivorship - the right to inherit the interests (in the property) of a deceased joint tenant.

S

Secondary Mortgage Market - the market where lenders sell mortgages to investors such as Fannie Mae and Freddie Mac.

Second Home - a second residence or a vacation home occupied occasionally by the home owner and not rented out and therefore would not
be considered by lenders as an investment property.

Second Mortgage - an additional mortgage loan, borrow over the amount of the first mortgage.  Second Mortgages are considered riskier than
first mortgages because they are subordinate to first mortgages in the order of satisfaction (repayment) in the case of default and therefore
carry higher interest rates.

Seller Concession - the seller pays for all or part of the buyer's settlement cost, as an incentive to induce the buyer to purchase the property.  
See also
103% Financing.

Servicing - the business activity usually performed by lenders, consisting of billing, collecting mortgage payments, maintaining escrow
accounts, and making property tax and hazard insurance premium payments.

Settlement Cost - the total expenses incurred by the buyer in association of the real estate transaction, often used interchangeably with
Closing Cost.  Sellers of real properties also have Settlement Cost, such as real estate agent commission and transfer tax.

Settlement Statement - also known as HUD-1, an itemized list of expense incurred by the buyer and seller in a real property transaction.

Special Assessment - a one-time tax levy imposed on the home owner to pay for a special improvement such as paving the public sidewalk.

Sheriff's Deed -  deed given at the sheriff's sale in the foreclosure of a mortgage.

Spec House - a house built by a builder before finding a buyer, sometime as a sample home.

Subdivision - the division of a piece of land into smaller parcel for building purposes.

Subordination - being lower in priority (referring to the order of satisfaction of liens in case of default).

Subject To Clause - a clause in contracts that would void the said contract unless a specified event/condition occurs.  All good purchase
contracts contain a  "subject to mortgage" clause which avoids the contract if the buyer is unable to secure financing.

Survey - a map of the property made by a licensed surveyor that details the boundaries of the property in relation to its surroundings.  Lenders
use the Survey map to ensure no part of the subject structure is built upon land that is not part of the property and that the adjacent structures
do not infringe upon the subject property.

T

Tax Lien - a claim by the government on a property for nonpayment of taxes.

Tax Sale - a sale of a property by the government as a result  of nonpayment of taxes.

Teaser Rate - a low initial interest rate on a mortgage that will rise in the near future.

Tenancy at Sufferance - tenancy established lawfully initially but wrongfully retains possession of property after expiration of a lease.

Tenancy at Will - a tenancy situation where by either the occupant or the landlord may terminate at will.

Tenancy by the Entirety - a form of ownership by husband and wife whereby each owns the entire property, with the right of survivorship.

Tenancy in Common - a form of ownership of real property by two or more owners without the right of survivorship.

Tenancy in Severalty - ownership of property by one person.

Time Share - a form of ownership whereby a property is owned by a number of people, each with the right of possession for a specified time
interval.

Title - evidence of rightful ownership of a real property.

Title Abstract - a report on the chain of ownership in a property registered at the county clerk's office.

Title Insurance - an insurance policy to protect the home owner and the lender against losses due to title defects.

Title Report - a collection of documents showing the current ownership, any mortgages and liens, and any title defects.

Title Search - the act of inspecting the public records on a property at the local county clerk's office in order to prepare the title report.

Transfer Tax - tax paid to the state and county upon the transfer of a title.

Truth in Lending - a document required by law to be presented to borrowers that contains important informations about the mortgage loan,
such as the amount borrowed, the APR, and the interest amount paid over the life of the loan.

U

Underwriting - the process of assessing the risk involved in making a mortgage loan.

Uniform Residential Loan Application -  a standardized residential mortgage loan application.  Fannie Mae and Freddie Mac (and therefore all
lenders) stipulates the use of this application for all mortgage loan that they purchase.

Usury - the act of charging an interest rate of greater than that permitted by law.

V

Vacation Home - a second home used primarily by the owner and not rented out, and therefore would not be considered by the lender as an
investment property.

VA Loan - a mortgage loan insured by the U. S. Veterans Administration.

Variable Rate Mortgage - See Adjustable Rate Mortgage.

Verification of Deposit - a document widely used in the mortgage industry to verify with a mortgage applicant's depository institution the
balance and history of the account.  The Verification of Deposit is used in lieu of monthly bank statements.

Verification of Employment - a document used to confirm a mortgage applicant's (current and the likelihood of continued) employment with
the employer.

W

Warehousing - the business practice by mortgage banks and other lenders to keep (warehouse) mortgage loans originated, then later bundle
these loans to sell on the secondary market.

Z

Zero Percent Down - a type of mortgage loan structure in which the buyer of real property need not to put a downpayment towards the
purchase.

Zoning - the act of assigning certain usages allowed in a neighborhood.  For example, industrial and manufacturing facilities are not allowed
to be built in residential neighborhoods.
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