ADJUSTABLE-RATE MORTGAGE (ARM) - a mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.

ADJUSTMENT INTERVAL - the period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are one year, three years and five years.

AMORTIZATION - the systematic and continuous payment of an obligation through installments until the debt has been paid in full.

ANNUAL PERCENTAGE RATE (APR) - a stated interest rate that reflects all the financing costs of a mortgage. The APR includes points, origination fees and other finance charges in addition to the interest on the mortgage, and includes them all in a yearly interest rate. As a result, the APR is usually higher than the interest rate alone. It also provides a benchmark for comparing different types of mortgages based on the annual cost for each loan.

APPRAISAL - an estimate of the value of a property, made by a qualified professional called an appraiser.

ASSESSED VALUATION - the value that a taxing authority places on real or personal property for the purpose of taxation.

ASSESSMENT - a charge against a property for purposes of taxation. This may take the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the valuation of his or her property.

BALLOON (PAYMENT) MORTGAGE - usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

BIWEEKLY MORTGAGE - a type of fixed-rate mortgage with payments for half the usual monthly amount scheduled every two weeks. Because you make the equivalent of 13 months of payments every year, the loan term is shortened from 30 years to 18 or 19 years, and total interest cost are substantially lower.

BORROWER - a person (also known as Mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.

BUYDOWN - a payment to the lender from the seller, buyer or third party, reducing the mortgage note rate.

CAPS - safeguards for adjustable-rate mortgages that limit the amount monthly payments can increase. An interest rate cap limits the amount the interest can change, while a payment cap limits the increase in monthly payment to a specific dollar amount or percentage of payment increase.

CASH OUT - a loan transaction in which the borrower receives funds as the time of closing.

CERTIFICATE OF ELIGIBILITY - a document issued by the federal government certifying a veteran’s eligibility for a Veterans Administration (VA) mortgage guarantee.

CERTIFICATE OF TITLE - a written statement usually furnished by a title company or attorney which presents the status of the title to a piece of property.

CASH TO CLOSE - liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

CLOSING - the meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands. Also called settlement.

CLOSING AGENT (ESCROW/TITLE COMPANY) - a third party who oversees the closing of the loan transaction.

CLOSING COSTS - the costs and fees associated with the official change in ownership of the property and with obtaining your mortgage that are assessed at the closing or settlement. Closing costs include required certifications, insurance, taxes and other fees.

CLOSING DOCUMENTS - the documents which are signed at closing. These include the Deed of Trust or Mortgage with attachments, Promissory Note, Truth-in-Lending Disclosure, and other documents related to the transaction.

CLOSING STATEMENT - a form, sometimes referred to as Settlement Statement or HUD1 Statement, used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

CO-BORROWER - additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.

COLLATERAL - property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

COMMITMENT (LOAN) - a binding pledge made by the lender to the borrower to make a loan, usually at a stated interest rate within a given period of time for a given purpose, subject to the compliance of the borrower to stated conditions.

COMMITMENT FEE (LOAN) - any fee paid by a potential borrower to a lender for the lender’s promise to lend money at a specified rate and within a given time period.

COMMITMENT LETTER - a lender’s written offer to grant a mortgage loan outlining the terms, the amount of the loan, the interest rate and any other conditions. It can also serve as a communication of the lender’s decision to the borrower’s application.

COMPARABLES - an abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to the property under consideration, thereby indicating the approximate fair market value of the subject property.

CONFORMING - a mortgage loan that conforms to regulatory limits such as loan-to-value ratio, term and other characteristics.

CONFORMING LOAN - conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). These agencies generally purchase traditional fixed rate level payment first mortgages up to loan amounts mandated by Congressional directive.

CONVERTIBLE ARM - a type of adjustable rate mortgage that allows the borrower to change from an ARM to a fixed rate loan according to the terms of the note and security instrument.

CONVENTIONAL MORTGAGE - a mortgage not obtained under a government insured program (such as FHA or VA).

CONSTRUCTION LOAN - a short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

CREDIT REPORT - a report that documents a borrower’s credit history and current status. Borrowers can examine their own credit reports, although most credit reporting companies charge a fee to provide a report.

DEED OF TRUST - an instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustier), in favor of the lender (beneficiary) and reconveyed upon payment in full.

DEBT-TO-INCOME RATIO - the ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans).

DEFAULT - the failure to perform an obligation as agreed in a contract.

DEFICIENCY JUDGEMENT - a court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgments are not allowed in all states.

DELINQUENCY - a loan payment that is overdue but within the period allowed before actual default is declared.

DEPARTMENT OF VETERANS AFFAIRS (VA) - an independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.

DEPOSIT - a sum of money given to bind a sale of real estate. Also known as earnest money.

DEPRECIATION - a loss of value in real property brought about by market conditions, age, physical deterioration, functional or economic obsolescence.

DISCOUNT POINT - amount payable to the lending institution by the borrower or seller to decrease or "buy down" the mortgage note rate. One point is equal to one percent of the loan amount.

DISCOUNTED LOAN - when the note rate on a loan is less than the market rate, the lender requires additional points to raise the yield on the loan to the market rate.

DOWN PAYMENT - an amount paid in cash to the seller when a home is purchased. The down payment is the difference between the purchase price and the mortgage amount.

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 - a portion of the down payment delivered to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith.

EQUAL CREDIT OPPORTUNITY ACT (ECOA) - a Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.

EQUITY - the difference between the fair market value and current indebtedness, also referred to as the owner’s interest.

ESCROW - a special account set up by the lender in which money is held to pay for taxes and insurance. "Escrow" can also refer to a third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.

FAIR CREDIT REPORTING ACT (FCRA) - a Federal law which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information.

FEDERAL HOUSING ADMINISTRATION (FHA) MORTGAGE - a loan insured by the Federal Housing Administration. FHA mortgages loans may require lower down payments than conventional mortgages, and also feature less stringent income and financial requirements.

FEDERAL HOME LOAN MORTGAGE CORPORATION - FHLMC (FREDDIE MAC) - a corporation authorized by Congress. It purchases residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages. It sells participation certificates whose principal and interest are guaranteed by FHLMC.

FEDERAL NATIONAL MORTGAGE ASSOCIATION - FNMA (FANNIE MAE) - a taxpaying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.

FIRST MORTGAGE - a real estate loan that has priority over any subsequently recorded mortgages.

FIXED-RATE MORTGAGE - a mortgage with an interest rate that remains constant for the life of the loan. The most common fixed-rate mortgage is repaid over a period of 30 years; 15 year fixed-rate mortgages are also available.

FORECLOSURE - a legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower’s debt.

GIFT LETTER - a written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

GRADUATED PAYMENT MORTGAGE (GPM) - a mortgage where the payments are scheduled to increase, usually annually, for a set number of years and then level off. GPM can be used with either a fixed or adjustable rate, and usually have a 30 year term.

GROSS MONTHLY INCOME - total monthly income earned before deductions.

HAZARD INSURANCE - a contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards.

HIGH-RATION LOAN - mortgage loans in excess of 80 percent of the loan amount divided by the lower of the sales price or appraised value.

HOMEOWNERS’ ASSOCIATION DUES - the fees imposed by a condominium or homeowners’ association for maintenance of common areas.

INDEX - an economic indicator, usually a published interest rate, that determines changes in the interest rate of an ARM. ARM rates are adjusted to reflect changes in the index. The margin is the amount a lender adds to the index to establish the actual interest rate on an ARM.

INSURED LOANS - a loan insured by FHA or a private mortgage insurance company.

INTEREST - the sum paid for borrowing money, which pays the lender’s costs of doing business.

INTEREST RATE - the percentage of an amount of money which is paid for its use for a specified time.

INITIAL BORROWER INTEREST RATE - the rate on which the borrower’s first payment is calculated. If the loan is discounted or brought down, it may be lower than the Fully Indexed Accrual Rate.

INITIAL BORROWER PAYMENT RATE - the annual interest rate used to calculate the borrower’s initial cash payment. If, for example, the note specifies that a fully amortizing annual rate of 11% be used to calculate the initial monthly payment, and that rate is "brought down" 2%, the IBPR is 9%.

INVESTMENT PROPERTY - real estate owned with the intent of

supplementing income and not intended for owner occupancy

LENDER BUY-DOWN MORTGAGE - a convertible mortgage offering a discounted interest rate at the beginning of the loan that gradually increases to an agreed-upon fixed-rate over the first few years of the loan. It provides lower initial payments and a stable final monthly rate, but the final rate may be somewhat higher than on a standard fixed-rate mortgage.

LIEN - a legal claim or attachment against property as security for payment of an obligation.

LIFETIME CAP - a provision of an ARM that limits the total increase in interest rates over the life of the loan.

LOAN ORIGINATION FEE - the fee charged by a lender to prepare all the documents associated with your mortgage.

LOAN-TO-VALUE RATIO - the relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

MARKET VALUE - the highest price which a ready, willing and able buyer would pay and a willing seller will accept, both being fully informed under no pressure to act. The market value may be different from the price a property can actually be sold for at a given time (market price).

MATURITY - the termination or due date on which final payment on a loan must be paid in full.

MONTHLY PAYMENT - usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.

MORTGAGE - the conveyance of an interest in real property given as security for the payment of a loan.

MORTGAGE BANKER - a company that originates and funds, and services mortgages exclusively for resale in the secondary market.

MORTGAGE BROKER - a company that for a fee matches borrowers with Mortgage Bankers.

MORTGAGEE - the lender in a mortgage transaction.

MORTGAGE INSURANCE - an insurance policy the borrower buys to protect the lender from nonpayment of the loan. Private mortgage insurance policies are usually required if you make a down payment that is below 20% of the appraised value of the home.

MORTGAGE INSURANCE PREMIUM (MIP) - the consideration paid by a mortgagor (borrower) for mortgage insurance - either to the FHA or to a private mortgage insurer.

MORTGAGE NOTE - a written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.

MORTGAGOR - the borrower in a mortgage transaction who pledges property as security for a debt.

NON-CONFORMING - a mortgage loan that does not conform to regulatory limits such as loan-to-value ratio, term and other characteristics.

NON-CONFORMING LOAN - conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines.

OCCUPANCY - the use of a property as a full-time residence, either by the title holder (owner-occupancy) or by another party through a formal agreement (rental).

ORIGINATION FEE - the amount charged for services performed by the company handling the initial application and processing of the loan.

OWNER-OCCUPIED - this means that the property is the owner’s primary residence.

PITI (PRINCIPAL, INTEREST, TAXES AND INSURANCE) - the four components that (for most homeowners) are included in the monthly mortgage payment. Principal and interest are the portions of the payment assigned to repay the mortgage itself; taxes and insurance are paid by your lender into a special escrow account to pay for homeowners insurance and property taxes.

POINTS (LOAN DISCOUNT POINTS) - prepaid interest on a mortgage that is usually paid at the time of closing. Each point is equal to one percent of the total amount of a mortgage (one point on an $80,000 mortgage is $800, or 1 percent of 80,000). Most lenders offer mortgages with several combinations of points and interest rates; generally, the lower the interest rate, the more points you will pay at settlement.

PRELIMINARY TITLE REPORT - the results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.

PRE-QUALIFICATION - the process of determining how much money a prospective home buyer will be eligible to borrower before formal application for a loan.

PRIMARY RESIDENCE - a residence which the borrower intends to occupy as the principal residence.

PRINCIPAL - the amount of debt, not including interest, left on a loan; also the face amount of the mortgage.

PRIVATE MORTGAGE INSURANCE (PMI) - insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.

PROCESSING - the preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

PUD (PLANNED UNIT DEVELOPMENT) - a planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners; the association of unit owners generally owns, pays fees, and maintains the common areas. Also see DeMinimus PUD.

PURCHASE CONTRACT (AGREEMENT/OFFER) - an agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.

QUALIFYING RATIOS - guidelines applied by lenders to determine how large a loan to grant a home buyer.

RATE LOCK OPTION - an agreement guaranteeing the home buyer a

specified interest rate provided the loan

REAL ASSETS - real estate or real property owned by an individual or business.

REAL ESTATE OWNED (REO) - a term frequently used by lending institutions as applied to ownership of real property acquired for investment or as a result of a foreclosure.

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) - a Federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and the disclosure of settlement costs.

REAL PROPERTY - land and that which is affixed to it.

REFINANCING - the repayment of a debt from the proceeds of a new loan using the same property as security.

SATISFACTION OF MORTGAGE - the recordable instrument issued by the lender verifying full payment of a mortgage debt.

SECOND HOME - a residence other than the borrower’s primary residence which the borrower intends to occupy for a portion of each year. Must be suitable for year-round occupancy.

SECONDARY MORTGAGE MARKET - a market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

SECURITY - in lending, the collateral given, deposited, or pledged to secure the payment of a debt.

SETTLEMENT SERVICES - services provided by the lender at the closing of a loan.

SURVEY - the measurement and description of land by a registered surveyor.

TERM - the time limit within which a loan must be repaid.

TITLE INSURANCE - an insurance policy which insures you against errors in the title search, essentially guaranteeing you and your lender’s financial interest in the property.

TITLE SEARCH - an examination of public records to disclose the past and current facts regarding the ownership of a given piece of real estate.

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 financial institutions.

UNDERWRITING - the process of deciding whether to make a loan based on credit, employment, assets and other factors.

VA (DEPARTMENT OF VETERANS AFFAIRS) MORTGAGE -government insured loans guaranteed by the Department of Veterans Affairs, requiring very low or no down payments and with generous requirements for qualification. They are available only to veterans of the armed services, those currently on active duty or in the reserves, and their spouses.

ZERO POINT OPTION - an option which allows the borrower to not pay the points associated with the loan origination fee. This savings is offset by a slightly higher loan interest rate.