Mortgage Glossary   Acceleration Clause- A common provision of a mortgage or note providing the holder with the right to demand that the entire outstanding balance is immediately due and usually payable in the event of default. Acceptance of Deed- The physical taking of the deed by the grantee. Acceptance of Offer- The seller's agreement to the terms of the agreement of sale. Accrued Interest- Interest earned but not yet paid. Acknowledgment- A formal declaration of one's signature before a notary public. Adjustable Rate Mortgage Loans (ARM)- Loans with interest rates that are adjusted periodically based on changes in a pre-selected index. Adjustment Interval- On an ARM loan, the time between changes in the interest rate or monthly payment. Agreement of Sale- Contract signed by buyer and seller stating the terms and conditions under which a property will be sold. Alternative Documentation- A method of documenting a loan file that relies on information the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application. Amortization- Repayment of a loan with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time. Amortized Mortgage- A mortgage in which repayment is made according to a plan requiring the payment of certain amount at specified times so that all the debt is repaid at the end of the term. Annual Percentage Rate (APR)- The cost of credit expressed as a yearly rate.  The annual percentage rate is often not the same as the interest rate.  It is a percentage that results from an equation considering the amount financed, the finance charges, and the term of the loan. Appraisal- A written estimate of a property's current market value completed by an impartial party with knowledge of real estate markets. Appraisal Fee- A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date. Assignment- The transfer of ownership, rights, or interests in property by one person, the assignor, to another, the assignee. Assumption- A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property. Balloon Mortgage-  Balloon Mortgage loans are short-term fixed-rate loans with fixed monthly payments for a set number of years followed by on large final “balloon” payment for all of the remainder of the principal. Bankruptcy- A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts. Bargain and Sale Deed with Covenant- A deed conveying real property with a covenant which warrants title against grantor's acts. Bargain and Sale Deed without Covenant- A deed conveying real property without any covenants warranting title. Blanket Mortgage- A mortgage that covers more than one parcel of real estate. Borrower- Also known as the mortgagor, refers to the individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan. Broker- An individual who brings buyers and sellers together and assists in negotiating contracts for a client. Buy-Down Mortgage- A mortgage loan with a below-market rate for a period of time. Buyer's Market- Market conditions that favor buyers. Call Option- A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term.  The option may be exercised due to breach of the terms of the loan or  at the discretion of the lender. Cash Out- Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already built up in the house.  The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan. Cashiers Check- Also known as a bank check, refers to a check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's. Ceiling- The maximum allowable interest rate of an adjustable rate mortgage. Certificate of Eligibility- Document issued by the Veterans Administration to qualified veterans which verifies a veteran's eligibility for a VA guaranteed loan. Certificate of Title- Written opinion of the status of title to a property, given by an attorney or title company.  This certificate does not offer the protection given by title insurance. Certificate of Veteran Status- FHA form filled out by the VA to establish a borrower's eligibility for an FHA Vet Loan. Chain of Title- The chronological order of conveyance of a property from the original owner to the present owner. Closing- Also known as settlement, refers to the conclusion of a real estate transaction and includes the delivery of the security instrument, signing of legal documents and the disbursement of the funds necessary to the sale of the home or loan transaction.    Closing Costs- Also known as settlement costs, refers to the costs for services that must be performed before the loan can be initiated, such as title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees and surveying fees. Collateral- Assets pledged as security for a debt, such as a home. Commission- Money paid to a real estate agent or broker for negotiating a real estate or loan transaction. Commitment- A promise to lend and a statement by the lender of the terms and conditions under which a loan is made. Condominium- A form of property ownership in which the homeowner hold title to an individual dwelling unit and a proportionate interest in common areas and facilities of a multi-unit project. Conforming Loan- A mortgage loan which meets all requirements to be eligible for purchase by federal agencies such as FNMA and FHLMC. Consideration- Something of value exchanged between parties to a contract; a requirement for a valid contract. Contingency- A condition which must be satisfied before a contract is legally binding. Contract of Sale- The agreement between the buyer and seller on the purchase price, terms and conditions of a sale. Conventional Loan- A mortgage made by a financial institution which loan is not insured or guaranteed by the government. Conversion Clause- A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period.  The new fixed rate will be set at current rates and there may be a charge for the conversion feature. Convertible ARMs- A type of ARM loan with the option to convert to a fixed-rate loan during a given time period. Conveyance- The document used to effect a transfer, such as a deed, or mortgage. Cooperative- Ownership of stock in a corporation which owns property that is subdivided into individual units. Cost of Funds Index (COFI)- An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District. Covenant- An undertaking by one or more parties to a deed. Credit Report- A report detailing the credit history of a prospective borrower that's used to help determine borrower creditworthiness. Deed- Legal document by which title to real property is transferred from one owner to another.  The deed contains a description of the property and is signed, witnessed and delivered to the buyer at closing. Deed of Trust- A legal document that conveys title to real property to a third party.  The third party holds title until the owner of the property has repaid the debt in full. Default- Failure to meet legal obligations in a contract, including failure to make payments on a loan. Delinquency- Failure to make payments as agreed in the loan agreement. Discount Points- Points are an up-front fee paid to the lender at the time that you get your loan.  Each point equals one percent of your total loan amount.  Points and interest rates are inherently connected: in general, the more pints you pay, the lower the interest rate you get.  However, the more points one pays, the more cash they need up front since points are paid in cash at closing. Down Payment- The amount of a home's purchase price one needs to supply up front in cash to get a loan. Due-on-Sale Clause- Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property. Earnest Money- Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed. Equal Credit Opportunity Act (ECOA)- Federal law requiring 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. Equity- The difference between the current market value of a property and the total debt obligations against the property.  On a new mortgage loan, the down payment represents the equity in the property. Escrow- A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds. Escrow Account- An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance.  The lender disburses escrow account funds on behalf of the borrower when they become due.  Also known as Impound Account. Escrow Agent- A person with fiduciary responsibility to the buyer and seller, or the borrower and lender, to ensure that the terms of the purchase/ sale or loan are carried out. Executor's Deed- A deed given by an executor or other fiduciary which conveys real property. Fannie Mae- A common nickname for the Federal National Mortgage Association. Federal Deposit Insurance Corporation (FDIC)- Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nations banking system. Federal Home Loan Mortgage Corporation (FHLMC)- Also known as “Freddie Mac,” refers to the federal agency which buys loans that are underwritten to its specific guidelines, an industry standard for residential conventional lending. Federal Housing Administration (FHA)- A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans. Federal National Mortgage Association (FNMA)- Also known as “Fannie Mae,” refers to the federal agency which buys loans that are underwritten to its specific guidelines, an industry standard for residential conventional lending. Fee Simple- Absolute ownership of real property. FHA Loans- Fixed or adjustable rate loans insured by the U.S. Department of Housing and Urban Development. First Mortgage- A mortgage which is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages. Fixed Rate- An interest rate which is fixed for the term of the loan. Fixed-Rate Loans- Fixed-rate loans have interest rates that do not change over the life of the loan.  As a result, monthly payments for principal and interest are also fixed for the life of the loan. Flood Insurance- Insurance that compensates for physical damage to a property by flood.  Typically not covered under standard hazard insurance. Forbearance- The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent. Foreclosure- Legal process by which a mortgaged property may be sold to pay off a mortgage loan that is in default. Full Covenant and Warranty Deed- A deed conveying real property which contains a covenant that warrants title by each previous holder of warranty deeds. Good Faith Estimate- Written estimate of the settlement costs the borrower will likely have to pay at closing.  Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application. Grace Period- Period of time during which a loan payment may be made after its due date without incurring a late penalty.  The grace period is specified as part of the terms of the loan in the Note. Grantee- One who receives a conveyance to real property by deed. Grantor- One who conveys real property by deed. Gross Income- Total income before taxes or expenses are deducted. Hazard Insurance- Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer. Housing and Urban Development (HUD)- A federal government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration. HUD-1 Uniform Settlement Statement- A standard form which itemizes the closing costs associated with purchasing a home or refinancing a loan. Impound Account- Also known as an escrow account, refers to an account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance.  The lender disburses impound account funds on behalf of the borrower when they become due.  Index- A published rate used by lenders that serves as the basis for determining interest rate changes on ARM loans. Initial Rate- The rate charged during the first interval of an ARM loan. Interest- Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed. Interest Rate- The annual rate of interest on the loan, expressed as a percentage of 100. Interest Rate Cap- Consumer safeguards which limit the amount the interest rate on an ARM loan can change in an adjustment interval and/ or over the life of the loan. Joint Liability- Liability shared among two or more people, each of whom is liable for the full debt. Joint Tenancy- A form of ownership of property giving each person equal interest in the property, including rights of survivorship. Jumbo Loan- A mortgage larger than the $240,000 limit set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Junior Mortgage- A mortgage subordinate to the claim of a prior lien or mortgage.  In the case of a foreclosure, a senior mortgage or lien will be paid first. Late Charge- Penalty paid by a borrower when a payment is made after the due date. Legal Description- A means of identifying the exact boundaries of land. Lender- The bank, mortgage company, or mortgage broker offering the loan. LIBOR ( London Interbank Offered Rate)- The interest rate charged among banks in the foreign market for short0term loans to one another.  A common index for ARM loans. Lien- A legal claim by one person on the property of another for security for payment of a debt. Loan Application- An initial statement of personal and financial information required to apply for a loan. Loan Application Fee- Fee charged by a lender to cover the initial costs of processing a loan application.  The fee may include the cost of obtaining a property appraisal, a credit report and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges. Loan Origination Fee- Fee charged by a lender to cover administrative costs of processing a loan. Loan-to-Value Ratio (LTV) The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property. Lock or Lock-In- A lender's guarantee of an interest rate for a set period of time.  The time period is usually that between loan application approval and loan closing.  The lock-in protects you against rate increases during that time. Margin- A specified percentage that is added to your chosen financial index to determine your new interest rate at the time of adjustment for ARM loans. Mortgage- A written instrument, duly executed and delivered, that creates a lien upon real estate as security for the payment of a specific debt. Mortgage Banker- An individual or company that originates and or services mortgage loans. Mortgage Broker- An individual or company that arranges financing for borrowers. Mortgage Loan- A loan for which real estate serves as collateral to provide for repayment in case of default. Mortgage Note- Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time.  The agreement is secured by a mortgage or deed of trust or other security instrument. Mortgagee- The lender in a mortgage loan transaction. Mortgagor- The borrower in a mortgage loan transaction Negative Amortization- A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due.  The monthly shortfall in payment is added to the unpaid principal balance of the loan. Non-Assumption- A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender. Note- Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time.  The agreement is secured by a mortgage or deed of trust or other security instrument. Notice of Default- Written notice to a borrower that a default has occurred and that legal action may be taken. Offer- The submittal of a set of terms for the purchase of real estate. Origination Fee- Fee charged by a lender to cover administrative costs of processing a loan. Partition- A division of real property among co-owners. Payment Cap- Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change.  Since they do not limit the amount of interest the lender is earning, they may cause negative amortization. Per Diem Interest- Interest calculated per day.  PITI- Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment. Power of Attorney- Legal document authorizing one person to act on behalf of another. Pre-approval- The process of determining how much money a prospective home buyer or refinancer will be eligible to borrow prior to application for a loan, including a preliminary review of a borrower's credit report. Prepaid Expenses- Taxes, insurance and assessments paid in advance of their due dates. Prepaid Interest- Interest that is paid in advance of when it is due which is typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date. Prepayment- Full or partial repayment of the principal before the contractual due date. Prepayment Penalty- Fee charged by a lender for a loan paid off in advance of the contractual due date. Pre-qualification- The process of determining how much money a prospective home buyer will be eligible to borrow prior to application for a loan. Principal- The amount of debt, not counting interest, left on a loan. Private Mortgage Insurance (PMI)- Insurance to protect the lender in case you default on your loan, generally not required with conventional loans if the down payment is at least 20% Purchase Agreement- Contract signed by buyer and seller stating the terms and conditions under which a property will be sold. Quitclaim Deed- A deed which conveys as much right, title and interest, if any, as the grantor may have in the property. Real Estate- The land and all the things permanently attached to it. Real Property- Real estate and the rights of ownership. Recording- The process of filing of certain legal instruments or documents with the appropriate government office. Reconveyance- The transfer of property back to the owner when a mortgage loan is fully repaid. Recording- The act of entering documents concerning title to a property into the public records. Referee's Deed- A deed given by a referee or other public officer pursuant to a court order for the sale of property. Refinancing- The process of paying off one loan with the proceeds from a new loan secured by the same property. RESPA- The Real Estate Settlement Procedures Act, a federal law that gives consumers the right to review information about loan settlement costs. Right of Survivorship- The automatic succession to the interest of a deceased joint owner in a joint tenancy. Right to Rescission- Under the provisions of the Truth-in-Lending Act, the borrower's right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage. Sales Agreement- Contract signed by buyer and seller stating the terms and conditions under which a property will be sold. Second Mortgage- An additional mortgage placed on a property that has rights that are subordinate to the first mortgage. Seller Carry Back- An agreement in which the owner of a property provides financing, often in combination with financing from a lending institution. Settlement- Also known as closing, refers to the conclusion of a real estate transaction and includes the delivery of the security instrument, signing of legal documents and the disbursement of the funds necessary to the sale of the home or loan transaction. Settlement Costs- Also known as closing costs, refers to the cost for services that must be performed before the loan can be initiated, such as title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees and surveying fees. Severalty- Ownership by a person in his own right. Specific Performance- The requirement that a party must perform as agreed under a contract. Statute of Frauds- Legal doctrine providing that all agreements concerning title to real estate must be in writing to be enforceable. Survey- A measurement of land, prepared by a licensed surveyor, showing a property's boundaries, elevations, improvements and relationship to surrounding tracts. Sweat Equity- Value added to a property in the form of labor or services of the owner rather than cash. Tax Impound- Money paid to and held by a lender for annual tax payments. Tax Lien- Claim against a property for unpaid taxes. Tax Sale- Public sale of property by a government authority as a result of non-payment of taxes. Tenancy By the Entirety- An estate held by a husband and wife in which each have an undivided and equal right of possession during their joint lives, with the right of survivorship in the other spouse. Tenancy in Common- An ownership of real estate by two or more persons, each of whom has an undivided fractional interest in the whole property, without any right of survivorship. Term- The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due. Title- Document which gives evidence of ownership of a property.  Also indicates the rights of ownership and possession of the property. Title Company- A company that insures title to property. Title Insurance- Refers to an insurance policy which protects the lender and or buyer against loss due to disputes over ownership of a property. Title Search- Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property. Transfer Tax- Tax paid when title passes from one owner to another. Truth-in-Lending Act- Federal law requiring written disclosure of the terms of a mortgage by a lender to a borrower after application. Underwriting- In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan. Usury- Interest charged in excess of the legal rate established by law. VA Loans- Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs.  They are designed to make housing affordable for eligible U.S. Veterans.  VA loans are available to veterans, reservists, active-duty personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to purchase a home with no down payment, no cash reserve, no application fee and lower closing costs than other financing options. Variable Rate- interest rate that changes periodically in relation to an index. Variance- The authorization to improve or develop a particular property in a manner not authorized by the zoning ordinance. Verification of Deposit (VOD)- Document signed by the borrower's bank or other financial institution verifying the borrower's account balance and history. Verification of Employment (VOE)- Document signed by the borrower's employer verifying the borrower's position and salary. Waiver- Voluntary relinquishment or surrender of some right or privilege. Walk-through- A final inspection of a home to check for problems that may need to be corrected before closing.