Home Buying / Selling Glossary


"A" Loan or "A" Paper
the file for a person or couple who have had no late mortgage payments in the previous twelve months, and who have a FICO score of 660 or more. This is the best credit rating for going into a mortgage.

ARM: Adjustable Rate Mortgage
an ARM adjusts over time, depending on current mortgage rates. The mortgage payment increases or decreases at set time (i.e. every year, every three years, or every five years, depending on the terms of the loan). There is typically a minimum and maximum interest rate cap

Abstract of Title
a series of documents that give the history of ownership of a property.

ACE-Automated Certificate of Eligibility
a system used by VA-approved lenders to determine which veterans qualify for the Certificate of Eligibility for the VA Home Loan Guarantee Program.

the ability for a lender to call in a loan at any time. While most mortgages never experience acceleration, technically banks can call for complete payment of any loan at any time.

According to Value
this term refers to the assessed value of your home. Also know as "Ad Valorem".

Additional Principal Payment
extra money paid on a mortgage for the purpose of reducing the principal, thus saving the mortgage holder interest money over time.

Adjustment Date
the date that an adjustable-rate mortgage adjusts, increasing or decreasing the amount of the payment.

Adjustment Index
the index published and used for calculating the standard interest rate on an adjustable-rate mortgage when the loan is first written.

Adjustment Interval
the period of time between interest rate adjustments on an adjustable-rate mortgage loan. Standard industry practice is to set these adjustment intervals at every one, three, or five years.

a monthly payment designed to allow the mortgage holder to pay a set amount of principal and interest over an agreed-upon interval (i.e. ten, fifteen, or thirty years). The debt (principal) is gradually reduced over time via this schedule of payments.

Annual Mortgagor Statement
a yearly statement that explains the remaining principal and the amount of interest paid. This document is sent to the mortgage holder each year for recordkeeping and auditing if needed.

Annual Percentage Rate (APR)
a combination of the interest rate and some fees at closing on a mortgage, expressed as an interest rate. The APR can be used as a tool for consumers to compare lenders, and federal law controls certain mortgage lending practices. A lender that bundles fees into the APR will show a higher rate than one that does not.

the form used to begin the mortgage process. This may include personal details, a credit report, paystubs, tax forms, etc. to begin the process of receiving a mortgage.

Application Fee
a fee charged to begin a mortgage loan application. Typically a small fee.

a form from a professional real estate value estimator. The form details the approximate market value of a home, using comparable, nearby sales as a basis for determining appraisal value. Appraisals are required by lenders to ensure that the property is worth at least as much as the mortgage loan.

Appraisal Fee
this fee is charged by an appraisal company to estimate the value of a home based on comparable home sales in the area and home features.

Appraised Value
the value of a home compared to other homes in the area. This number is based on the market value of the home.

a real estate valuation professional who gives the approximate market value of a home in documents provided to sellers, buyers, and lenders.

the increase in a property's value.

a method for resolving a dispute or conflict outside of the court system.

As-is Condition
purchasing a property without regard to an inspection or possibly even knowing about repair issues.

Asking Price
the price a seller sets his or her property at for sale.

Assessed Value
the value used to determine property taxes, a value set by town officials to determine the value of land and buildings.

determining the value of land and buildings for taxation purposes.

an employee of local government who determines assessed value of land and buildings in a given town or city.

items that have equity or value.

Assumable Mortgage
a mortgage that can be transferred from one mortgage holder to another mortgage holder. In order to assume a mortgage, the buyer must meet all credit requirements that the assumable mortgage requires.

Automated Underwriting
a computer-based system in which mortgage applicants provide information and documents completely through computers or through online transactions.


"B" Loan or "B" Paper
mortgage applications in which the person or couple has FICO scores from 620 - 659. Lower scores may include up to two 30-day late mortgage payments for the mortgage holder and anywhere from two to three late payments on other installment debts. (See "Sub Prime").

Back End Ratio (See "Debt Ratio")
a ratio that takes all income and compares it to all debts to arrive at a number. Exceeding the back end ratio may result in a rejection for a mortgage.

Balance Sheet
a set of documents that displays all of a mortgage applicant's assets and liabilities, to help determine credit worthiness.

Balloon Loan or Mortgage
a mortgage that requires interest-only payments or extremely low payments for a series of time (typically five, seven, or ten years) with the entire balance of the mortgage due at the end of the set period.

Balloon Payment
the entire balance of a mortgage, de at the end of a Balloon Loan or Balloon Mortgage.

a legal action in which a person is discharged from a portion of all of his or her consumer debts. If the person has significant assets but an inability to pay debts, the assets may be turned over to a trustee to be disbursed among creditors

the legal signator of a loan. The borrower agrees to abide by the loan contract and repay money based on a set payment schedule, until the debt is paid in full.

Bridge Loan
a short-term loan designed to help people own a home, buy a new one, and handle both mortgage payments for a short time.

Buy Down
a process in which the seller pays the lender a set amount of money to reduce the amount of the mortgage purchased by the buyer. This is generally done to hasten a sale and to help bring monthly mortgage payments down to a certain point.


"C" Loan or "C" Paper
for these sorts of mortgages, the applicant typically has FICO scores typically from 580 to 619. Credit problems might involve as many as three late mortgage payments, four to six late installment and/or debt payments, and as many as four to six 60-day late payments. In many cases, borrowers with C Paper have a bankruptcy in their history within the past one to two years. (See "Sub Prime")

a limit placed on adjustable rate mortgages to create a maximum rate that a borrower might experience over the course of his or her mortgage loan. The limit may also include a limit on how much an interest rate on an adjustable-rate mortgage might increase or decrease during a set period of time.

Capital or Cash Reserves
assets that can include savings, investments, retirement accounts, etc.

Cash-Out Refinance
a form of mortgage refinancing that allows the borrower to renegotiate the terms of the mortgage to cash out some equity in their home.

Cash Reserves
an amount determined by the lender, required in some mortgage cases. The lender requires the borrower to have a certain amount of cash held in reserve until the closing is complete.

Casualty Protection
home insurance that covers the inside, the contents, and the structure of the home; required by most lenders.

Certificate of Eligibility
certificate required to prove eligibility for the VA Home Loan Guarantee Program. Only VA-approved lenders can issue Certificate of Eligibility. You will need a VA Form 26-1880 and a copy of your DD Form 214 when you apply for a Certificate of Eligibility.

Certificate of Title
a document provided by a title company that shows the property belongs, in full, to the current owner. Any liens of claims to the property must be cleared, and a clean title issued, before closing.

Clear Title a document that shows a property has no liens, claims, or other "defects" and that the property is clear for sale.

a meeting between the seller, seller's agent, buyer, buyer's agent, a real estate attorney, and any other interested parties in which the transfer of ownership and payment for the transfer takes place. See "settlement".

Closing Costs
origination fees, points, appraisal costs, prepayment of property taxes and insurance, and other loan fees required for the granting of a mortgage. For buyers, closing costs may run 2% of the cost of the home, whereas sellers may spend more along the lines of 8-9%, as sellers often pay real estate agents 5-6% in real estate transaction fees.

Cloud On The Title
any "defect" or condition that prevents a title from being clear.

Co-Signed Account
an account with two or more borrowers; all signators are responsible for the loan, even if one or more persons default in their paying the loan.

a person who helps another person to get a loan and assumes full responsibility for repayment should the first person default.

real money or real property offered as backing for a loan. Homes act as collateral in a home loan; the borrower loses the home in the event of default.

Collection Account
an account that has become delinquent and has been handed over to a collection agency; collection amounts can appear on credit reports and affect your chance to receive a mortgage.

a fee, usually a percentage of the total transaction amount, for mortgage brokers and real estate agents. Real estate agents typically earn 2.5% to 6% of the transaction price, while mortgage brokers earn up to 2-3% of the cost of the mortgage.

Comparative Market Analysis (COMPS)
a comparison of the property being considered for purchase with other properties of the same size, on the same amount of land, within a certain distance of the purchase property. Used to determine market value.

Compensating Factors
factors used to determine ability to repay a loan that are outside the mainstream determining criteria. Factors can include employment, utility payments, rent, etc.

Conforming loan
a loan that is within the Fannie Mae/Freddie Mac limits.

an item with a certain value that is given to an interested party in exchange for an act or promise.

a clause in a purchase contract that documents any condition, from the buyer or the seller, that must be met before the closing can be completed. Both the seller and the buyer must accept any contingency offered for the contingency to be valid.

Conventional Loan
a loan from a private-sector lender. The loan is not insured or guaranteed by the federal government.

Conversion Clause
a section of some Adjustable-Rate Mortgage contracts that allows the ARM to change to a fixed-rate mortgage at some period during the term of the mortgage. Conversions generally are permitted at the end of the first term of the ARM (i.e. if the ARM is a 3-year ARM, at the end of the third year). The new rate is the standard rate at the time of the conversion, not at the time the ARM was initially implemented

Convertible ARM
an adjustable-rate mortgage with a conversion clause in the contract, allowing the borrower to switch from an adjustable-rate mortgage to a fixed-rate mortgage at a specified time during the term of the mortgage.

Cost of Funds Index (COFI)
an index that is used for some ARMS to determine interest rate changes.

Counter Offer
an offer made by the buyer or the seller that rejects all or part of a previous offer from the other side in a negotiation.

conditions or restrictions that govern how a property can be used. Any covenant that is discriminatory cannot be enforced.

the offer of access to money from a lender under an agreement that the money will be paid back, with or without interest or fees, at a time in the future.

Credit Bureau
an agency or private company that manages documents and information concerning the credit history of an individual or company. The credit bureau provides credit reports to lenders to show an individual or company credit history.

Credit Counseling
a private company or non-profit corporation service that provides education and advice on matters related to credit and finance.

Credit Enhancement
a series of steps used for individuals and/or companies to improve the credit rating or to improve the chances of receiving credit. Steps can include repairing a credit report, requiring collateral, or forms of insurance.

Credit Grantor
a lender or credit company providing capital under a credit agreement.

Credit History
a record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Repair Companies
Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.

Credit Report
a report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.

Credit Risk
the chance that a borrower may not pay back a loan; the term used to describe this risk.

the lender providing a loan or a credit line to a borrower.


DD Form 214
your military discharge papers, officially called the Certificate of Release or Discharge from Active Duty. You will need to have a copy of your DD Form 214 when you apply for a VA Certificate of Eligibility.

the individual or company that borrows money from a lender. Debtor and borrower are synonyms.

Debt-to-Income Ratio
a ratio of household or individual income to the amount of debt an individual or household holds. With many lenders, the monthly mortgage payment cannot exceed 29-32% of gross income and the total amount of debt cannot exceed 40-42% of gross income. Reducing debt to improve the debt-to-income ratio within the 40-42% threshold can help borrowers to get mortgages and to improve the mortgage rate offered.

also known as a title, the deed is a document that proves ownership of property and transfers ownership of property from one entity to another.

when a mortgage holder does not pay the mortgage for a certain period of time, the mortgage goes into default as a result of the inability or unwillingness to make payments on the agreed schedule to the lender. In most cases, loans are in default after 60 to 90 days of non-payment.

the first step toward default, an account is delinquent when payment has not been received on the due date. In most cases, a fee applies after the payment is 15-30 days late.

also known as earnest money, a deposit is money that a potential buyer pays when making an offer on a property. Earnest money becomes part of the payment if the seller accepts the buyer's offer, or is returned to the buyer if the seller rejects the officer.

the reduction in the price and/or value of a property. Depreciation can take place as a result of neglect, a decline in prices in the market, a severe natural disaster, or other issues.

Disclosures information concerning a property that may affect the purchaser's use of the property. In some cases, disclosure of certain issues, such as lead paint, are required by law. If a seller lies or misinforms a buyer with incorrect disclosures, the seller could face legal action.

Discount Point
money paid to reduce the interest rate on a mortgage loan. One point equals 1% of the mortgage amount, and buyers can pay "points" at the closing of a loan to reduce the interest rate.

Down Payment
the amount of the purchase price of a property that the buyer must give to the lender as an exchange of collateral or equity when receiving a mortgage. The down payment is typically paid in cash. While industry standard down payments range from 0% to 20%, any mortgage loan in which the borrower does not hold 20% equity or more may face private mortgage insurance fees.

Document Recording
papers such as titles and tax records that result from the transfer of property from the seller to the buyer require document recording, as certain documents are then filed with lenders, municipalities, and other governmental agencies, along with the lender and the seller's lending institution to confirm and complete financial records.

Due on Sale Clause
a legal provision in loan documents that permit the lender to require full repayment of any outstanding mortgage on a property when and if the borrower sells the property. This prevents fraud or default from sellers not repaying an outstanding mortgage.


exceptions made for how property can be used by people other than the owner. Easements can affect property values and can be part of the title, deeding the easement right.

any structure that crosses over a property line onto an other person's property. Surveyors are required for encroachments, to measure exact locations of items. In many cases, the owner of the structure that encroaches will be asked to remove the structure. In other cases, an exception request can be filed by the owner of the encroaching structure.

in military or veteran's terms, a veteran's basic entitlement is $36,000 and up to $89,912 for certain loans over $144,000, which is the amount of money that the Veteran's Administration offers as a guarantee to lenders. In general, lenders will loan up to four times each veteran's available entitlement under a no-money-down arrangement.

Equal Credit Opportunity Act (ECOA)
the ECOA is a a federal law that prevents lenders from discriminating against borrowers on the basis of race, religion, color, national origin, sex, age, marital status, or status as a public assistance recipient.

the amount of outright ownership a borrower has in his or her property. Partial equity develops over time as more of the principal of a loan is paid off; equity is the result of subtracting the remaining mortgage from the fair market value of a property. Owners with full equity have no mortgages on their property.

Escape Clause
a section of a contract between a seller and buyer that allows either party to cancel the contract for reasons specified in the clause. Examples include the inability for the buyer to get a mortgage at a set interest rate, or the inability for a seller to find a house before a specified date.

money held by a third party (usually a real estate lawyer) until the property transaction from seller to buyer is complete. The real estate lawyer then distributes funds held in escrow. Lenders can also hold funds in escrow for borrowers to pay taxes and house insurance.


FICO Score
FICO stands for Fair Isaac Corporation, which is a company that began the credit scoring system. FICO refers to the calculation of a person's credit score based on how the person has managed his or her credit access over time. Many lenders and credit companies (auto loans, personal loans, credit cards) use the FICO score to determine whether a person is a good credit risk and will pay bills generated from credit extension.

stands for For Sale by Owner, and is used by home owners to sell a house without hiring a real estate professional. Most FSBOs are done to save the 5-6% real estate commission involved in selling a home. In theory, the commission savings should result in a lower-priced home for the buyer, and a commission savings for the seller.

Fair Credit Reporting Act
this act, enacted by the federal government, ensures that credit bureaus apply equal opportunity standards to credit reporting and protect individuals' privacy when handling credit information.

Fair Housing Act
prohibits discrimination against persons on the basis of race, color, religion, sex, national origin, family status, age, or disability when it comes to finding housing or purchasing property.

Fair Market Value
the price determined by a professional appraiser based on recent asles on comparable properties in the area. Many lenders will only lend 80% of the fair market value determined by an appraiser.

Fixed-Rate Mortgage
a mortgage that remains the same interest rate throughout the life of the loan. The principal and interest total is a fixed number, although the cost of property taxes and insurance may vary.

a system whereby a borrower may request and receive approval to stop making payments, or make partial payments, on a mortgage for an agreed-upon period of time.

lenders enter into foreclosure on a property when a borrower fails to make a predetermined number of payments (typically three or four months' worth), and the lender has the legal right to reclaim the property and force the borrower to relinquish the property to the lender.

Front End Ratio
the ratio of a borrower's gross income (total amount of income before deductions) to housing expenses (mortgage, interest, taxes, insurance).


Good Faith Estimate
a document given to the borrower by the lender detailing the estimate of all fees and expenses associated with taking out a mortgage. According to federal law, the lender must provide the good faith estimate to the borrower within three days of a loan application submission.

Gross Income
income generated by an individual or household before any taxes are deducted. Gross income can come from wages, self-employment income, government assistance, entitlement programs, alimony, child support, trust funds, retirement payments, or interest.


Hazard Insurance
this form of insurance protects property from losses including fire, windstorms, tornadoes, hurricanes, etc. The homeowner pays a set premium over time to cover specific losses outlined in the contract.

Home Equity Line of Credit
also known as a "second mortgage", a home equity line of credit (HELOC) is a credit line drawn on the equity a homeowner has in his or her home. The borrower receives a cash payment for the amount of money the lender permits them to extract from home equity; in some cases, like a credit card, the homeowner can use part or all of the credit line as needed and pay an agreed-upon payment each month.

Home Inspection
a thorough inspection of the property being considered for purchase, to note flaws, damages, or structural problems in a building or home. The inspection is often used by buyers to get sellers to pay for costly repairs, or to negotiate a lower price in light of needed repairs.

Home Warranty
a policy, typically lasting for one year after the purchase of a home, that offers protection against the loss of use of major systems (plumbing, heating, cooling) or appliances; home warranties do not cover major structural issues.

Homeowner's Insurance
also known as hazard insurance, homeowner's insurance is designed to protect the homeowner against unexpected damage to the home, and to pay for repairs after a deductible is met. Most homeowner's insurance policies also cover the owner in cases of negligence or for liability issues.

HUD stands for the U.S. Department of Housing and Urban Development. This federal agency manages housing policy and regulates the mortgage process and home sales in the U.S. Fair housing laws are also enforced through HUD.

HUD1 Statement
this long document, often known as the "settlement sheet," or "closing statement", lists all closing costs, recording fees, property taxes and other fees required to be paid by the seller and the buyer at a property closing. The HUD1 Statement is designed to be transparent, so that all parties in a property transaction know where the money changing hands is going (i.e. real estate agent, lawyers, city records, etc.).


the process of securing against loss or damage to a property or building, and to reimburse or compensate a person or company for any damage, loss, or harm. When completing home improvement repairs or renovations, indemnification is an important part of any contract with contractors to gain protection. If a contractor's work is faulty and causes harm to someone on the homeowner's property, the lack of an indemnification clause can leave the homeowner viable.

the system used by lenders to determine to what degree an adjustable rate mortgage should be increased or decreased at the agreed-upon rate change date. Understanding how the lender calculates or uses the index is important for anticipating payment changes as rates fluctuate.

Interest Rate
the percentage of the principal that is charged in the form of interest paid to the lender as a fee for lending the principal.


Joint Tenancy (with Rights of Survivorship)
also known as JTWROS or JTWRS, this term indicates that two or more people share ownership of a bank account, property, or other material goods or accounts. If a joint owner dies, the other joint owners have control over the property or account, and only a joint owner can inherit the account or goods upon another joint owner's death.

a legal decision that results in a judge finding a way to provide money to a lender to whom a debt is owed. This may include placing a lien on real property, or requiring repossession of goods.

Jumbo Loan
also known as a non-conforming loan, jumbo loans exceed Fannie Mae and Freddie Mac loan limits. Jumbo loans are more common in higher cost of living areas.


Liability Insurance
insurance that covers claims made my a person that an owner, due to negligence, action, or inaction, caused harm, injury, or damage to another person of that person's property. Liability insurance is generally included in homeowner's insurance policies with varying amounts that can be set by the policy holder.

a claim against property set to the amount of money owned by the property owner to a person or corporation. This legal claim can be paid when the property is sold, and the owner cannot keep the amount of money received from the sale of property until the lien is satisfied. The lien is considered a "defect" on the title for the property and is recorded by the city, county, or municipality in property records.

Lien Waiver
when a homeowner hires a general contractor or specific contractor to make home renovations or improvements, a lien waiver is often signed freeing the homeowner from any financial obligation to any subcontractors once the homeowner has paid the general contractor in full.

Life Cap
the maximum amount within a range of interest rates for adjustable rate mortgages. For instance, an ARM that starts at 5% might have a "life cap" of 11%, never exceeding the life cap regardless of how high interest rates might climb.

Line of Credit
a set amount of money that a lender will provide to a borrower for a specific period of time, to be paid back on a schedule.

Liquid Asset
any asset or account that can easily be converted to cash.

Loan Acceleration
if a monthly payment, or a set number of monthly payments, are missed, a loan acceleration clause allows the lender to demand payment in full of the principal and any outstanding interest or late fees owned.

Loan Fraud
providing incorrect or false information for the purposes of receiving a better loan or a larger line of credit. Loan fraud is a crime and can be punishable via civil and criminal courts.

Loan Guaranty Entitlement
the amount of money any veteran who has borrowed money using VA benefits in the past can use on a new VA loan guaranty.

Loan Origination Fee
typically one to two percent of the total amount of a mortgage, a loan origination fee is charged by lenders and (in some cases) mortgage brokers to cover the costs of making the loan to a borrower.

Loan Servicer
the company that administers the payments for mortgages, handles delinquent accounts and other problems, and pays property taxes and homeowner's insurance for owners. In some cases, lenders have loan service departments that handle these issues, while in other cases they contract out the work.

Loan to Value (LTV) Ratio
the ratio of the amount of money to be borrowed for a mortgage to the appraised value of the home and/or price. The higher the LTV, the less money required for a down payment.

a guarantee from a lender that the interest rate on a mortgage will remain fixed for a certain period of time while the borrower completes his or her mortgage loan application. The lock-in period is usually set for thirty to sixty days.

Loss Mitigation
a process followed by owners as well as lenders to prevent foreclosures. Borrowers may approach lenders when they experience financial trouble and ask for mortgage renegotiations, while lenders may work with borrowers to prevent default and help the homeowner keep his or her home.


Mandatory Delivery Commitment
also known as a MDC, this agreement states that a lender will complete and deliver a loan or security on a given date under previously-determined terms.

taking the index rate, the lender adds a certain number of percentage points to determine the ARM for each adjustment.

Market Value
the amount of money a property will get on the open market, or the amount of money a buyer is willing to pay for a home in comparison with similar properties in the area. Market value is often, though not only, determined by a professional appraiser.

the date that a loan's principal balance is due.

Median Price
taking the total number of homes for sale in a given area, the home price that is the exact middle on a number line of prices from least expensive to most expensive.

Merged Credit Report
raw information from the three major credit reporting agencies merged together to form a single, overarching report.

changes or improvements made to a property for sale, typically to improve the home. Lead mitigation 9removing lead or sealing lead paint) is a common example.

a lender can agree to changes in a loan, such as reducing the monthly payment, without requiring complete refinancing of a loan.

Mortgage Acceleration Clause
a clause that allows a lender to demand payment in full of all principal and/or interest due to the lender on demand. A Mortgage Acceleration Clause is very rare unless the home is sold, the property title is changed, refinancing takes place, or default or foreclosure is imminent.

Mortgage Broker
an independent agent or firm that is not part of a bank or part of a lender, but acts as an agent, matching buyers seeking mortgages with lenders offering debt.

Mortgage Insurance Premium (MIP)
a monthly payment typically blended into the buyer's payment for mortgage insurance that protects the lender in case of borrower default.

Mortgage Interest Deduction
the amount of interest paid on a mortgage that is permissible by the Internal Revenue Service to be deducted from taxable income on tax forms. Some states permit mortgage interest to be deducted from state taxes as well.

Mortgage Note
a document that requires a borrower to pay back mortgage principal and interest to the lender; legal statements that bind the borrower to the agreement. Mortgage notes are recorded with land records in most counties.

Mortgage Qualifying Ratio
sometimes known as "debt to income ratio," the mortgage qualifying ratio is used to calculate the maximum mortgage payment (principal, interest, taxes and insurance) that a borrower can handle based on debts and income. The typical ratio is 28% of gross income and no more than 36% of all gross income can be spent on all debt, including the mortgage.

the institution, bank, or lending agency that offers a line of credit to a borrower.

the person or company that borrows money from a Mortgagor for the purposes of purchasing property

Multifamily Housing
residential buildings that contain four or more separate apartments or units.

Multiple Listing Service (MLS)
a service used by real estate agents, some mortgage brokers, and home buyers and sellers to see which homes and properties are available for sale. The MLS is a database that contains all homes, commercial properties, and other properties for sale nationwide. Real estate agents pay a few to list a home, while "for sale by owner" sellers can also pay a fee to a special real estate company to have their home listed as well. The majority of all real estate properties for sale are listed on the MLS, which is searchable on the Internet.


National Credit Repositories
the three main credit reporting agencies in the United States - TransUnion, Experian, and Equifax. These credit reporting agencies - also called credit bureaus - maintain a file for each person who has received credit over the course of his or her lifetime, and uses that file to assist lenders in determining credit worthiness for lines of credit, mortgages, auto loans, etc.

National Personnel Records Center
a clearinghouse for military records. Submit a Standard Form 180 to this center if you are in need of a DD Form 214 for VA loans or other loans.

Negative Amortization
being "upside down" on a loan results in negative amortization; the amount of payment made each month does not cover the interest on the loan, leading the interest to be added to the principal. The principal grows, as does the interest, leaving the borrower owing more than the original loan amount, in spite of regular payments. In some cases, ARM payments that reach a mazimum cap can result in negative amortization when the monthly payment is not high enough to cover interest that is due.

Net Income
the amount of money a worker receives after the gross salary has any debits subtracted, such as health insurance, federal taxes, payroll taxes, state taxes, 401K contributions, deductions, etc.

No Cash Out Refinance
refinancing a mortgage for the exact balance of the mortgage. In a "cash out refinance" the total equity owned by the homeowner is considered for refinancing, allowing some homeowners to walk away from the refinancing with cash to spend as they see fit.. Also known simply as a "rate and term refinance."

No Cost Loan
in exchange for a higher interest rate, buyers may be offered a no cost loan, which does not include points, fees, appraisal charges, etc. Buyers will little or no money for upfront costs may choose a no cost loan.

a legal document that requires a borrower to repay principal and interest. The interest rate is negotiated in advance with the lender and the borrower's obligations are outlined in the note.

Note Rate
the negotiated interest rate documented on a mortgage note.

Notice of Default
a legal notice given to a borrower declaring that the borrower has failed to make agreed-upon payments on a mortgage. The notice of default may also warn the borrower of future legal action.

Non-Conforming Loan
loans that exceed the Fannie Mae and Freddie Mac loan maximums for mortgages. "Conforming loans" are those loans that follow Fannie Mae and Freddie Mac guidelines.

Notary Public
a person given the power by his or her state to serve as a public official to verify a signature's authenticity when a person signs an official document. The Notary Public may charge a small fee for notarizing - placing a public stamp on a signed document.


a written or verbal statement of willingness to buy a property for a specific sum of money or under specific conditions.

Original Principal Balance
the starting amount of money borrowed by a property buyer when receiving a mortgage from a lender.

the buyer's process of preparing and submitting a loan application, and the lender or mortgage broker's process of evaluating the submitted application. Origination normally includes credit checks, employment verification, condition analysis, and property appraisals.

Origination Fee
the amount of money charged by a lender or mortgage broker for the process of origination.

Owner Financing
when a seller acts as a lender, owner financing can include all or part of the price of the property negotiated as a loan at set terms. Buyers wishing to avoid conventional loans can search for or request owner financing.


Principal, Interest, Taxes, and Insurance, the four main parts of any mortgage payment. The payments are split into four pieces, with principal helping to pay down the original loan, interest going to the lender, taxes paid to the local municipality, and insurance paid to the property insurance agency that protects the property.

PITI Reserves
a certain number of months' worth of principal, interest, taxes and insurance that must be in an account or ready to be paid at the closing. For borrowers who place their taxes and insurance in escrow, at the closing property taxes normally must be paid months in advance, property insurance a full year in advance.

Private Mortgage Insurance, a special mortgage insurance designed for people who do not have 20% equity in their home. This insurance often equals .50-.75 of one percent of the mortgage, and protects the lender from borrower default.

Partial Payment
a payment that is less than the contractually-agreed-upon amount due for a monthly mortgage payment. While some lenders will accept partial payments, most will not; payment in full is required. Contact your lender if financial trouble results in your ability to make only partial payment.

Payment Cap
a limit on how much an ARM's payment may increase, regardless of how much the interest rate increases.

Payment Change Date
the date that the monthly payment for an adjustable-rate mortgage changes if there is an increase or decrease in the mortgage rate. A typical ARM chage date takes place the month after the interest rate changes.

points are payments made in cash at the beginning of a mortgage to reduce the interest rate of the mortgage. One point is equal to one percent of the total amount borrowed (i.e 1 point on a $200,000 mortgage would be $2,000). Lenders may charge points to reduce mortgage interest rates or to allow a borrower to fold closing costs into a mortgage. Buyers or sellers can pay points, and buyers can often request that sellers pay points as part of negotiation.

Power of Attorney
a "POA is a legal document permitting another adult to act on your behalf in all legal matters. Signing over power of attorney is common when you are geographically distant from a needed signing of legal documents, when you are incapacitated mentally or physically, and can be given for a short period or time or permanently.

a borrower may fill out an application with a lender, giving income, debt, and personal information that allows the lender to give a preliminary estimate of the amount of money the borrower is determined to be worth lending. The pre-approval is not a commitment from the lender to lend the amount, but generally assures the seller of the buyer's credit worthiness.

Pre-foreclosure Sale
a type of sale in which the owner of a home has the lender's permission to sell the home before complete foreclosure proceedings will take place. The borrower is permitted, in a pre-foreclosure sale, to sell the property for less than the amount owed, but not owe the difference to the lender. These types of sales will be reported to the borrower's credit report and can severely lower credit ratings, but are not as adverse as a foreclosure or bankruptcy.

any amount of money up to the full amount owed that is paid ahead of the agreed-upon schedule of mortgage payments. Prepayment refers to the principal borrowed. Borrowed can prepay their mortgage by adding extra amounts to each monthly payment, or by paying the mortgage in full.

Prepayment Penalty
a provision within some mortgage loan documents (though rare) that charges a penalty to the borrower for paying the mortgage principal off before the agreed-upon loan period.

the amount of money that a borrower contracts to borrow from a lender. The principal does not include the interest, taxes, or insurance on a home loan. A borrower who borrows $100,000 is borrowing $100,000 in principal; at any given time the principal amount may increase or decrease (depending on loan structure). The principal is the original loan amount minus any payments made to the principal.

Promissory Note
a legal document declaring the amount borrowed and the borrower's promise to repay it over time.

Property Tax
taxes charged by counties or towns based on land and structures on the land. In many areas in the United States, property taxes fund essential services such as schools, roads, fire departments, and other emergency services. Home owners pay property taxes in installments directly to the town; if you have a mortgage, the amount is often bundled into the mortgage payment and placed in an escrow account, to be paid by the lender when due.

Punch List
a documentation of items that have not been completed regarding a home during the final walk-through before closing on a newly-constructed home.

Purchase Offer
a legal document that outlines the amount of money offered for a particular property. The offer is first submitted to the seller, who can then accept, reject, or counter the original offer. When signed by the seller and buyer the offer is legally binding, though may change as a result of future home inspections.


Qualifying Ratios
similar to the debt-to-income ratio, the qualifying ratios take the amount of income a borrower or couple has, and the amount of debt they carry, and determine the credit worthiness and amount of mortgage permitted for borrowing.

Quitclaim Deed
generally a fast process in while a deed is transferred from one person to another without a title search or title insurance being provided.


the acronym for Real Estate Settlement Procedures Act. This law protects buyers and sellers from abusive practices in real estate, and requires lenders, real estate agents and brokers, mortgage brokers, etc. to be transparent in all dealings with consumers.

Rate Cap
the limits adjustable rate mortgages can rise and fall in a set adjustment rate and during the life of an adjustable rate loan. For instance, a common practice limits any rate reset to 2% as an increase or a decrease, and 6% as an increase limit for the life of the loan.

Rate Lock
typically a 45 or 60 day period in which a lender guarantees a particular interest rate for a mortgage. When a borrower applies for a mortgage the rate lock generally begins.

Real Estate Property Tax Deduction
the ability to deduct property taxes on federal and state tax returns. When a tax payer itemizes, the deductions reduce taxable income.

also known as the Registrar of Deeds or the County Clerk, the Recorder maintains records of property transactions and transfers from one owner to another.

Recording Fees
fees charges by mortgage lenders and at closing to record property transfer to the proper government agency.

the process of applying for a new line of credit at a different interest rate or under different terms in order to pay the balance of a former mortgage and take out a new mortgage under new terms. Refinancing is generally done for one of two reasons: to reduce the interest rate on a mortgage or to do a cash-out refinance.

Rehabilitation Mortgage
a special mortgage that includes the costs of remodeling or doing major rehabilitation work to a distressed property. The Federal Housing Authority offers special rehabilitation mortgages through programs such as 203(k) to consolidate rehab costs into a conventional mortgage.

Reinstatement Period
a period in which an owner in default or close to default can pay all the money due to the lender and to have his or her mortgage reinstated to its proper state. Reinstatement is done to prevent foreclosure.


Sale Leaseback
the deeding of a property from a seller to a buyer for payment and the immediate return of the property to the seller.

Second Mortgage
a new or additional mortgage on a property. Second mortgages typically carry higher interest rates and are more recently used to prevent buyers from having to carry private mortgage insurance. In cases of default the first mortgage takes priority in terms of payment over the second mortgage.

Secured Loan
loans that are backed by a particular piece of real property or by cash or other real investments in a secured bank account.

Seller Take Back
any legal agreement in which the seller/owner acts as the financer/lender for a second mortgage for the buyer.

Serious Delinquency
mortgages that are ninety or more days overdue. Foreclosure is typically next.

financial service companies that college mortgage payments from borrowers and divides the payments into various accounts for processing iI.e. taxes, insurance, principal and interest, private mortgage insurance).

the act of collecting mortgage payments from borrowers.

a distance determined by local zoning laws between property lines and where a building can be located on a particular property. Environmental concerns, such as drainage and flooding, can be reasons for certain specific setbacks.

also known as the "closing".

Settlement Statement
a legal document required to be prepared and submitted to both buyer and seller according to the Real Estate Settlement Procedures Act (RESPA). The settlement statement must be transparent and list all fees, charges, and the purposes of all recorded monies required for a closing to take place. Also known as the HUD 1 Settlement Statement.

Sub-Prime Loan
generally any loan in which the borrower's FICO score is under 659, although there are two layers to sub-prime loans: "B" (FICO 620-659) and "C" (FICO 580-619). In general, sub-prime loans carry significantly higher interest rates than prime loans as the lender views the borrower as a riskier investment than a prime loan borrower. Sub-prime loans may require fewer documents than prime loans.

a blueprint of a piece of land with or without buildings, which details property lines, legal boundaries, setbacks, easements, shared driveways or rights of way, and other legal distinctions about a property. Surveys are generally required by lenders to denote the legal limitations on a piece of property and its buildings before lending can take place.

Sweat Equity
generally the borrower's or owner's use of personal labor or labor donated by friends and family to build a home or remodel a home or property. Programs such as Habitat for Humanity will use sweat equity as part of the down payment for a home.


a period of time, interest rate, and specific schedule of payment determined by a lender and borrower at the time the loan is given.

also known as the "deed", the title is a legal document that gives an owner a recorded right of ownership to a particular piece of property and/or building. The title is recorded in the town, county, or municipality in which the property resides.

Title Company
a company that examines titles and insures a clear title for real estate transactions. The title provides a clear understanding of the path of ownership throughout the years, and title companies insure that there are no unknown owners.

Title Defect
any claim on a property, such as a previously unknown heir to a piece of property, which limits the seller's ability to sell the property.

Title Insurance
title companies do research into the chain of ownership of a title over the years and the end result is a title search that demonstrates that a piece of property is free from any ownership claims, unknown heirs, or other claims to a piece of property. The resulting title insurance gives the lender and the borrower piece of mind in knowing that there are no other interested parties regarding the property. The borrower and lender generally each have title insurance, a fee disclosed on the HUD 1 Settlement Statement.

Title Search
research through public records that examines the chain of ownership for a piece of property to ensure that the current owner owns the title free and clear, with no outstanding clams on the property.

Transfer of Ownership
the purchase or sale of a property, the assumption of an owner's mortgage, land sales contracts, inheritance, or land trust; the changing of ownership of a piece of property by any legal means.

Transfer Taxes
local, county, and state taxes required when ownership of a property changes from one entity to another. Transfer taxes are a source of revenue for government and typically are charged as a percentage of the sale.

the legal requirement that a lender provide a potential borrower written disclosure of all fees, conditions, terms, and definitions regarding any loan product offered by the lender, but specifically products the borrower is considering. Failure to provide truth-in-lending paperwork is a violation of federal law.

Two Step Mortgage
an adjustable-rate mortgage (ARM) with two separate interest rates: one that lasts for the first five to seven years of the loan, and a second that resets at a new rate for the remainder of the loan (typically 23-25 remaining years).


the process taken by a financial company and often the actual lender whereby the borrower's application is analyzed to assess risk and credit worthiness for lending money. The level of risk is calculated by examining credit history, income, and other financial information to determine a level of risk and an interest rate and loan terms based on the underwriter's results.

Up Front Charges
fees charged to borrowers by lenders during the closing of a loan. Mortgage points, broker fees, pre-paid taxes and insurance, origination fees, etc. are all considered up front charges.


VA (Department of Veterans Affairs)
a federal agency devoted to the concerns of veterans. The VA offers loans to veterans through the VA loan program, and such loans range from low-down-payment home mortgage loans to home renovation loans. These loans are guaranteed, freeing the veteran from paying private mortgage insurance, guaranteeing the lender their money in cases of default, and helping veterans to buy homes with less up-front money.

VA Mortgage
any mortgage guaranteed by the Department of Veterans Affairs (VA) through their home mortgage loan program; the guarantee assures lenders that in the case of default they will receive their investment.

any special circumstance in zoning law that allows property or buildings to be used in a manner that is different from the current zoning law. A variance might be made to allow residential land to be used for commercial purposes, for instance, to support a home-based business.


Walk Through
an examination of the property being purchased right before the property closing. Generally done by the buyer with his or her real estate agent, the walk-through insures that fixtures remain on the property, any materials or items agreed to remain are present, the property buildings are in good working order, and that the property is cleaned according to state law.


laws developed over time by towns, cities, and counties to determine how specific sections of land can be used. Zoning laws dictate where factories can be located, how close schools can be to businesses, or how many homes can be built on an acre (or land requirements for residential building).Setbacks, easements, and lot size are determined by zoning laws, and lenders are often wary of lending if zoning laws for the purchase property are not clearly defined.