earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house. (return to top)

easement
A right of way giving persons other than the owner access to or over a property. (return to top)

effective age
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. (return to top)

effective gross income
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. (return to top)

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

endorser
A person who signs ownership interest over to another party. Contrast with co-maker. (return to top)

Equal Credit Opportunity Act (ECOA)
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. (return to top)

equity
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. (return to top)

escrow
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. (return to top)

escrow account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses. (return to top)

escrow analysis
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. (return to top)

escrow collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance, and hazard insurance. (return to top)

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

escrow payment
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. (return to top)

estate
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 time of death. (return to top)

eviction
The lawful expulsion of an occupant from real property. (return to top)

examination of title
The report on the title of a property from the public records or an abstract of the title. (return to top)

Fair Credit Reporting Act
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. (return to top)

fair market value
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. (return to top)

Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. (return to top)

Fannie Mae's Community Home Buyer's Program
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. (return to top)

Federal Housing Administration (FHA)
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. (return to top)

fee simple
The greatest possible interest a person can have in real estate. (return to top)

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

finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower. (return to top)

first mortgage
A mortgage that is the primary lien against a property. (return to top)

fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan. (return to top)

flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas. (return to top)

foreclosure
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. (return to top)

fully amortized ARM
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. (return to top)

good faith estimate
An estimate of charges which a borrower is likely to incur in connection with a settlement. (return to top)

hazard insurance
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy. (return to top)

housing ratio
The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio. (return to top)

HUD
The U.S. Department of Housing and Urban Development. (return to top)

index
A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indexes include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI). (return to top)

lien
An encumbrance against property for money due, either voluntary or involuntary. (return to top)

lifetime cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan. (return to top)

loan to value ratio (LTV)
The ratio of the amount of your loan to the appraised value of the home. 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. (return to top)

lock-in
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. (return to top)

margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period. A representative margin would be 2.75%. (return to top)

mortgage
A legal document that pledges a property to the lender as security for payment of a debt. (return to top)

mortgage disability insurance
A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time. (return to top)

mortgage insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher. (return to top)

mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender. (return to top)

mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay. (return to top)

non-conforming loan
Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium.The current non-conforming loan limit is ,601 and above. (return to top)

note
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. (return to top)

origination fee
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent. (return to top)

owner financing
A property purchase transaction in which the property seller provides all or part of the financing. (return to top)

Planned Unit Developments (PUD)
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. (return to top)

PITI
Principal, interest, taxes and insurance--the components of a monthly mortgage payment. (return to top)

points
Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan. (return to top)

prepaid's
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc. (return to top)

prepayment penalty
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. (return to top)

principal
Amount of debt, not including interest. The face value of a note or mortgage. (return to top)

private mortgage insurance (PMI)
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%. (return to top)

qualifying ratios
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. (return to top)

rate cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan. (return to top)

rate lock-in
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time. (return to top)

rebate
Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points" (see above). (return to top)

refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security. (return to top)

residential mortgage credit report (RMCR)
A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application. (return to top)

seller carry back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage. (return to top)

survey
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. (return to top)

tenants-in-common
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship. (return to top)

title
The evidence one has of right to possession of land. (return to top)

title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property. (return to top)

title search
An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership. (return to top)

total debt ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio. (return to top)

Truth-in-Lending Act
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. (return to top)

Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans. (return to top)