Amortization: The gradual repayment of a mortgage by installments.
Amortization schedule: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.
Annual percentage rate (APR): The total yearly cost of a mortgage stated as a percentage of the loan amount; includes such items as the base interest rate, primary mortgage insurance and loan origination fee (points).
Appraisal: A professional opinion of the market value of a property.
Appreciation: An increase in the value of a property due to changes in market conditions or other causes.
Assessed value: The valuation placed upon property by a public tax assessor for purposes of taxation.
Assumable mortgage: A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.
Assumption: The transfer of the seller’s existing mortgage to the buyer.
Cash reserve: A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments.
Clear title: A title that is free of liens or legal questions as to ownership of property.
Closing costs: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”
Condominium: A form of property ownership in which the home-owner holds title to an individual dwelling unit, an undivided interest in common areas of a multi-unit project, and sometimes the exclusive use of certain limited common areas.
Contingency: A condition that must be met before a contract is legally binding.
Conventional mortgage: Any mortgage that is not insured or guaranteed by the federal government.
Convertible ARM: An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
Cooperative: A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Covenant: A clause in a mortgage that obligates or restricts the borrower and that, if violated, can results in foreclosure.
Credit report: A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
Default: The failure to make a mortgage payment on a timely basis or to comply with other requirements of a mortgage.
Delinquency: A loan in which a payment is overdue but not yet in default.
Deposit: See Earnest money.
Depreciation: A decline in the value of property; the opposite of “appreciation.”
Discount points: See Points.
Down payment: The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.
Due date: The date each month when the borrower’s monthly payment on an account is due to the lender.
Due-on-sale clause: A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.
Easement: A right of way giving persons other than the owner access to or over a property.
Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from denying mortgages on the basis of the borrower’s race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity: A homeowner’s financial interest in a property. Equity is the difference between the fair market value of a property and the amount still owed on the mortgage.
Equity loan: A loan based on the borrower’s equity in his or her home.
Escrow: The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.
Fair Credit Reporting Act: A consumer protection law that regulates the disclosures of consumer/credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
FHA mortgage: A mortgage that is insured by the Federal Housing Administration. Also referred to as a “government” mortgage.
First mortgage: A mortgage that has first claim in the event of default.
Fixed-rate mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.
Flood insurance: Insurance that compensates for physical property damages resulting from flooding. It is required for properties located in federally designated flood areas.
Foreclosure: The legal process by which a mortgaged property may be sold when a mortgage is in default.
Homeowner’s insurance: An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents.
Homeowner’s warranty (HOW): A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.
Interest rate cap: A provision of an ARM limiting how much interest rates may increase or decrease per adjustment period or over the life of a mortgage. See also Lifetime cap.
Lien: A legal claim against a property that must be paid off when the property is sold.
Loan commitment: See Commitment letter.
Loan servicing: The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Loan-to-value percentage (LTV): The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.
Lock-in: A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Minimum Monthly Payment: During the draw period, the minimum monthly payments will equal the total finance charges that accrued on the outstanding balance of your EquityLine during the preceding billing cycle, plus any amount past due and all other charges, unless your total outstanding balance is less than $50 in which case, you must pay your balance in full.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage insurance: See Private mortgage insurance.
Mortgage insurance premium (MIP): The fee paid by a borrower to FHA or a private insurer for mortgage insurance.
Mortgage margin: The set percentage the lender adds to the index value to determine the interest rate of an ARM.
Mortgage note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the mortgage note is secured by a mortgage.
Mortgage interest rate: The rate of interest in effect for the monthly payment due.
Mortgagee: The lender in a mortgage agreement.
Mortgagor: The borrower in a mortgage agreement.
Payment cap: A provision of some ARMs limiting the amount by which a borrower’s payments may increase regardless of any interest rate increase; may result in negative amortization. See Adjustable-rate mortgage.
PITI: Stands for principal, interest, taxes, and insurance - the components of a monthly mortgage payment.
Planned unit development (PUD): A project or subdivision that consists of common property that is owned and maintained by an owners’ association for the benefit and use of the individual PUD unit owners.
Prepayment penalty: A fee that may be charged to a borrower who pays off a loan before it is due.
Prequalification: The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.
Principal: The amount borrowed or remaining unpaid; also, that part of the monthly principal that reduces the outstanding balance of a mortgage.
Private mortgage insurance (PMI): Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80 percent.
Purchase and sale agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Rate lock: See Lock-in.
Real estate sales professional: A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA): A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Refinancing: The process of paying off one loan with the proceeds from a new loan using the same property as security.
Secondary mortgage market: The buying and selling of existing mortgages.
Settlement: See Closing.
Settlement sheet: The computation of costs payable at closing that determines the seller’s net proceeds and the buyer’s net payment.
Survey: A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Tenancy in common: A type of joint ownership in a property without right of survivorship.
Title: A legal document evidencing a person's right to or ownership of a property.
Title company: A company that specializes in examining and insuring titles to real estate.
Title insurance: Insurance to protect the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of property.
Title search: A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Transfer tax: State or local tax payable when title passes from one owner to another.
Truth-in-lending: A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.
Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
Glossary provided by FNMA, February 2017.