Home Loan Vocabulary

3 in 1 ARM - 3/1 ARM is an adjustable-rate mortgage, or ARM, that has an initial interest rate for the first three years, and thereafter adjusts each year.

80-20 Loan - Also known as 100% Financing, allows for an 80% first mortgage plus a 20% Home Equity second that serves as the down-payment.

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

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

Agreement for Sale - A document in which the buyer agrees to buy certain estate (or personal property) and the sellar agrees to sell under stated terms and conditions. Also called sales contract binder or earnest money contract.

Amortization - Gradual debt reduction. Usally, the reduction is made according to a pre-determined schedule for installment payments.

Amortization Tables - Mathematical formula for calculating a borrower's monthly payments,based on the amount borrowed, the interest rate and the term of the loan.

Annual Percentage Rate (APR) - A term used in the Truth in Lending Act to represent the whole cost of a loan including interest and loan fees.

Appraisal - Formal written estimation of the latest market value of a home.

Appraiser - The appraiser decides the market value of a home based on its condition and the selling prices of comparable homes recently sold in the area. His or her job is to compute a fair estimate of market value to help the lender decide a reasonable loan amount.

Appreciation - An increase in value or the opposite of depreciation

APR - Is the 'Annual Percentage Rate' which helps compare the total cost of comparable home loans. It takes into account the length of the term of the mortgage, the amount of interest you will pay, and other charges such as any fees.

ARM - Short for adjustable rate mortgage. An ARM is a mortgage which has an interest rate that fluctuates periodically based on a predetermined index.

Assessed Valuation - The value that a taxing authority places upon personal property for the purposes of taxation.

Assumption - The contract between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller.

Balloon (Payment) Mortgage - Usually a short-term fixed-rate loan which involves a set interest rate for a certain period of time (usually 5 or 7 years) and one large payment for the remaining amount of the principal at the conclusion of that time frame (may be able to convert or refinance).

Borrower - A mortgagor who receives funds in the form of a loan with the obligation of repaying the loan in full with interest if applicable.

Bridge Loan - Short-term financing which is expected to be paid back relatively quickly.

Broker - One who receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of agreements between them.

Building Code - The local regulations that control construction and materials used in construction. Building codes are based on safety and health standards.

Buy-Down - A method of lowering the buyer's monthly payment for a short period of time. The home builder or borrower subsidizes the mortgage by lowering the interest rate for the first few years of a loan.

Buyers Agent - A buyer's agent will offer research materials that help you make a realistic offer.

Cash Out - Cashing out refers to the refinancing of a loan where the borrower will take out money on their own home. If a home is appraised at $100,000 and the borrower's outstanding home loan is $60,000, it is possible to enter into an 80% cash-out refinance transaction for a loan of $80000 (80% of $100000). The new mortgage of $80000 will pay off the $60000 loan and leave $20000 cash-out to the borrowers.

Certificate of Occupancy - Written authorization given by a local municipality that allows a newly built or substantially completed structure to be inhabited.

Closing - The conclusion of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.

Closing Costs - All of the costs to the buyer and seller individually that are associated with the purchase sale or financing of real property. They include but are not limited to prorating of agreed items such as taxes and rent, the cost of title insurance policies, and the cost of credit reports, recording fees, and escrow fees.

Closing Statement - A financial disclosure giving an account of all funds received and expected at the closing including the escrow deposits for taxes hazard insurance and mortgage insurance.

Collateral - Property pledged as security for a debt.

Commitment - An agreement between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.

Condominium - Condo for short, is a form of housing tenure.

Contingency - A condition that must be met before a contract is binding.

Contract of Sale - A contract between a purchaser and a seller of real property to convey a title after certain agreements have been met and payments have been made.

Conventional Mortgages - A conventional loan is the most common type of mortgage. With low down payments conventional mortgages are usually insured by private mortgage insurance companies (PMI). Private mortgage insurance adds a relatively small cost to your financing ( about 6/10 of one percent of the loan amount per year or $600 per year on a $100000 loan) but it allows you to buy a home with a lower down payment.

Credit Rating - A rating given to a person to establish willingness to pay obligations based upon one's past history of good payment.

Credit Report - A report to a prospective lender on the credit standing of a prospective borrower to help determine credit worthiness.

Debt Consolidation - When one combines all smaller loans into one big loan to lower monthly bills.

Debt-to-Income Ratio - Long-term debt expenses as a percentage of monthly income.

Deed of Trust - In many states, this document is used in place of a mortgage to secure the payment of a note.

Demand Clause - Demand Clause is empowering the mortgage lenders to demand payments of the total outstanding balance for any reason.

Department of Veteran Affairs (VA) - An independent agency of the federal goverment created in 1930. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low down payment mortgages to eligible veterans by guaranteeing the lender against loss.

Discount Fee - In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give the borrower a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.

Down Payment - When you borrow money for a home any lender will ask you to contribute some of your own money to the purchase of the house. A lender will usually require a down payment of at least 20% of the sales price unless the buyer purchases mortgage insurance.

Due-on-Sale Clause - A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money - Sum of money given to bind a sale of real estate.

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

Equity - The difference between fair market value and the current amount the owner owes on the property.

Equity Line - Line of credit based on the amount of equity in your home.

Escrow - An amount set up by the lender into which the borrower makes periodic payments for taxes, hazard insurance assessments, and mortgage insurance premiums.

Fair Market Value - The price at which property is transferrred between a willing buyer and a willing seller.

Fannie Mae - The Fannie Mae Foundation is the nation's largest foundation devoted to affordable housing.

Farmers Home Administration (FmHA) - Provides loans to farmers and qualified borrowers.

Federal Housing Administration (FHA) - Part of HUD. They insure residential home loans made by private lenders.

Federal National Mortgage Association (FNMA) - A company created by Congress that buys and sells residential mortgages including those insured by FHA or VA.

FHA - It's main activity is the insuring of residential home loans made by private lenders.

FHA Loan - A loan insured by the Federal Housing Administration open to all qualified home purchasers.

FHA Mortgages - The Federal Housing administration a government agency created in 1934 provides insurance on some types of home loans.The buyer pays a one-time fee of 3.8% of the loan amount for the mortgage insurance premium at closing time.

FHLMC - FEDERAL HOME LOAN MORTGAGE CORPORATION - A private corporation created by Congress to support the secondary mortgage market.Popularly known as the Freddie Mac.

First Mortgage - A real estate loan that creates a primary lien against real property.

Fixed Rate Mortgage - A mortgage which the interest rate is set for the term of the loan.

FNMA - Short for Federal National Mortgage Association. A private corporation created by Congress to support the secondary mortgage market.

Foreclosure - In the event that the borrower fails to pay back the loan through mortgage payments the lender has the right to put the home up on the market for sale to recover the money owed to the lender.

Freddie Mac - A private corporation created by Congress to support the secondary mortgage market.

Good Faith Estimate - An estimate of all the costs associated with a purchase or refinance. This may include points closing costs escrow.

Government National Mortgage Association (GNMA) - AKA Ginnie Mae provides sources of funds for residential mortgages guaranteed or insured by FHA or VA.

Graduated Payment Mortgage (GPM) - A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This kind of mortgage has negative amortization built into it.

Gross Monthly Income - The amount of consistent and stable income that an individual receives each month averaged over a period of time. This amount includes overtime pay bonuses commissions and income from dividends or interest provided that the individual can show a history of receiving such income.

Hard Money Loan - A specific type of financing in which a borrower receives funds based on the value of a specific parcel of land.

Hazard Insurance - A contract that pays for loss on a home from certain hazards.

High Risk Lenders - Lenders who make loans to higher-risk clients.

Home Inspection - The purpose of your personal inspection is only to eliminate those properties from consideration that have too many obvious deficiencies.

Homeowners Association - An organization of homeowners residing within a particular devlopment whose major purposes is to maintain and provide community facilities and services for the enjoyment of the residents.

HSH - The HSH Mortgage Survey, which includes everything you need to know about mortgages offered around the country, updated weekly.

Impound - That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes hazard insurance mortgage insurance lease payments and other items as they become due.

Index - The measure of interest rate changes the lender uses to decide how much the interest rate on an ARM will change over time.

Interest - Money paid for the use of money; the periodic charge, expressed as a percentage, for use of credit.

Investor - A money source for a lender or bank.

Jumbo Loan - A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

LEM - The Location Efficient Mortgage (LEM)is a mortgage that helps people become homeowners in location efficient communities.

Lender - Any person or institution that provides a borrower with money.

LIBOR - Short for London Interbank Offered Rate, and are benchmark interest rates for many adjustable rate mortgages, business loans, and financial instruments traded on global financial markets.

Lien - A claim on property of another as security against the payment of a just debt.

Loan - An amount of money a borrower will take from a lender to pay for a purchase.

Loan Officer - Loan officers facilitate lending by finding potential clients and assisting them in applying for loans.

Loan-to-Value Ratio - The relationship between the amount of a home loan and the total value of the property.

Lock-in Rate - A agreement from a lender to make a loan at a pre-set interest rate at some future date usually for not more than 90 days.

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

Market Value - The highest price that a willing buyer would pay and the lowest that a willing seller would accept.

Mortgage - An interest in real property given for security for the payment of an obligation.

Mortgage Calculator - This calculator will compute the monthly principal and interest payment on a mortgage. It does not include insurance or taxes.

Mortgage Insurance - A policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to fully repay a loan.

Mortgage Investor - Any person or institution that invests in mortgages.

Mortgage Life Insurance - A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force the debt is paid by insurance proceeds.

Mortgagee - A lender to whom property is conveyed as security for the loan.

Mortgagor - One who borrows money while using a mortgage a deed of trust on real property as collateral.

Negative Amorization - Occurs when the monthly payments on the mortgage do not cover all of the interest cost. The interest cost that isn't covered is added to unpaid principal balance.

Origination Fee - The fee charged by a lender to prepare loan documents, process, underwrite, make credit checks, inspect, and sometimes appraise a property.

PITI - Short for Principal, Interest, Taxes, and Insurance, which are the components of a mortgage payment.

PMI Insurance - Private mortgage insurance enables borrowers to obtain a larger loan amount because the lender is protected against default.

Point - A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount.

Power of Attorney - A legal document authorizing a person to act on behalf of another.

Pre-qualification - Qualifying a borrower for a loan amount before looking for a home. Final approval subject to appraisal of the property.

Prepaids - Necessary to create an escrow account or to adjust the seller's existing escrow account.

Prepayment - A privilege in a mortgage permitting a borrower to make payments in advance of their due date.

Prepayment Penalty - Money charged for an early repayment of debt. Prepayment penalties are allowed in some form in 36 states and the District of Columbia.

Principal - The original blanace of money loaned excluding interest. Also the remaining balance of a loan excluding the interest.

Purchasing - Obtaining a home loan for the acquisition of property usually a home.

Rate - A percentage of the monthly mortgage payment that is paid to the lender.

Real Estate Broker - The seller of the house pays the real estate broker to attract potential buyers and help negotiate the contract between the seller and the buyer. The broker identifies available properties for buyers and shows them homes that meet their criteria.

Real Estate Settlement Procedures Act (RESPA) - RESPA is a federal law that in part allows consumers to review information on known or estimated settlement costs, once after application, and once prior to, or at, a settlement.

Realtor - A member of National Association of Realtors.

Refinance - Obtaining a new home loan on a property already owned.

RESPA - Real Estate Settlement Procedures Act. RESPA is a federal law which requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.

Second Mortgage - When one takes out a second mortgage to cash out equity in the home.

Second Trust - A mortgage that is made subsequent to another mortgage and subordinate to the first one.

Sellers Agent - Agents that aid home buyers in finding a home that they can afford and will be satisfied with.

Servicer - After a home loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance, and manages delinquent payments. Lenders often "release" servicing to another business which means that a home buyer will not necessarily send house payments to the original lender.

Stamp Duty - Government tax you have to pay on the purchase price of a property worth $60,000 or more.

Subprime Credit - Refers to less than perfect credit, or unsatisfactory payment history.

Title - The evidence of the right to or ownership in property.

Title Insurance - A policy usually issued by a title insurance company which insures a home buyer against errors in the title search (Owners Title Insurance). The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests (Lenders Title Insurance).

Truth in Lending Act - AKA Regulation Z. A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after applying for the loan.

Underwriter - He/she who performs the analysis of the risk involved in making a loan to a potential home buyer based on credit employment assets and other factors.

Unsecured Note - A loan that is not backed by collateral property.

VA Mortgages - Mortgage loans which are insured by the Veterans Administration, these are loans which are available only to current and former members of the U.S. Armed Forces.

Variable Rate Mortgage (VRM) - Adjustable Rate Mortgage.

Verification of Employment - A document signed by a borrower's employer verifying his/her position and salary.

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