amortization term
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. (return to top)

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

application
A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security. (return to top)

appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser. (return to top)

appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property. (return to top)

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

asset
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). (return to top)

assignment
The transfer of a mortgage from one person to another. (return to top)

assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold. (return to top)

assumption
The transfer of the seller's existing mortgage to the buyer. (return to top)

assumption clause
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. (return to top)

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

balance sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date. (return to top)

balloon mortgage
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. (return to top)

balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage. (return to top)

bankrupt
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. (return to top)

bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. (return to top)

before-tax income
Income before taxes are deducted. (return to top)

beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust. (return to top)

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

biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest. (return to top)

blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project. (return to top)

bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust. (return to top)

breach
A violation of any legal obligation. (return to top)

bridge loan
A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan." (return to top)

broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. (return to top)

buy down mortgage
A temporary buy down is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buy down reduces the interest rate over the entire life of a mortgage. (return to top)

call option
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason. (return to top)

cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. (return to top)

capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. (return to top)

cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose. (return to top)

Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage. (return to top)

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage. (return to top)

certificate of title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner. (return to top)

chain of title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent. (return to top)

change frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM). (return to top)

clear title
A title that is free of liens or legal questions as to ownership of the property. (return to top)

closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement." (return to top)

closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement. (return to top)

closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country. (return to top)

closing statement
Also referred to as the HUD1. The final statement of costs incurred to close on a loan or to purchase a home. (return to top)

cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action. (return to top)

collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract. (return to top)

collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary. (return to top)

co-maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser. (return to top)

commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan. (return to top)

commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment." (return to top)

common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc. (return to top)

Community Home Improvement Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value. (return to top)

community property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse. (return to top)

comparable's
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparable's are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparable's help the appraiser determine the approximate fair market value of the subject property. (return to top)

condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. (return to top)

condominium conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership. (return to top)

construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses. (return to top)

consumer reporting agency (or bureau)
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. (return to top)

contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector. (return to top)

contract
An oral or written agreement to do or not to do a certain thing. (return to top)

conventional mortgage
A mortgage that is not insured or guaranteed by the federal government. (return to top)

convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframe's after loan origination. (return to top)

convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions. (return to top)

cooperative (co-op)
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. (return to top)

corporate relocation
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. (return to top)

cost of funds index (COFI)
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. (return to top)

covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure. (return to top)

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

credit history
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. (return to top)

credit report
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. See merged credit report. (return to top)

credit repository
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. (return to top)

debt
An amount owed to another. (return to top)

deed
The legal document conveying title to a property. (return to top)

deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. (return to top)

deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee. (return to top)

default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage. (return to top)

delinquency
Failure to make mortgage payments when mortgage payments are due. (return to top)

deposit
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. (return to top)

depreciation
A decline in the value of property; the opposite of appreciation. (return to top)

down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage. (return to top)

due-on-sale provision
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. (return to top)