Home Mortgage Loan Definitions 

Mortgage Terminology
Abandonment - The voluntary surrender of
property, owned or leased. Abandonment does
not relieve obligations associated with
ownership or lease.
Abatement - A reduction in amount or intensity.
Usually relates to a decrease in taxes or
payments due.
Abrogate - Abolish, withdraw, cancel
Absolute Title - A title that is clear, without any
liens or judgments
Abstract Update - Making current an existing
Abstract of Title

Acceleration - The right of the mortgagee
(lender) to demand the immediate repayment of
the mortgage loan balance upon the default of
the mortgagor (borrower), or by using the right
vested in the Due-on-Sale Clause.
Acknowledgement - A declaration by a person
who has signed a document that such signature
is a voluntary act, made before a duly authorized
Act of God - An unpreventable destructive
occurrence of the natural world.
Addendum - Something added as an
attachment to a contract
Adjustable Rate Mortgage (ARM) - A
mortgage in which the interest rate is adjusted
periodically based on a pre-selected index. Also
known as a renegotiable rate mortgage, a
variable rate mortgage or a Canadian rollover
Adjusted Basis - The cost of a property plus
the value of any capital expenditures for
improvements to the property, minus any
depreciation taken.
Adjustment Date - The date that the interest
rate changes on an adjustable-rate mortgage

Adjustment Interval - On an adjustable rate
mortgage, the time between changes in the
interest rate and/or monthly payment, typically
one, three or five years depending on the index.
Adjustment Period - The period elapsing
between adjustment dates for an adjustable-rate
mortgage (ARM).
Adjustments (In Appraisal) - The dollar value
added or subtracted from the sale price of a
comparable property used to provide an
indication of value of the subject property.
Affordability Analysis - An analysis of a
buyer’s ability to afford the purchase of a home.
Reviews income, liabilities, and available funds,
and considers the type of mortgage you plan to
use, the area where you want to purchase a
home, and the closing costs that are likely.
Agency - The legal relationship between a
principal and his agent arising from a contract in
which the principal engages the agent to
perform certain acts on the behalf of the
Amortization - Means loan payment by equal
periodic payment calculated to pay off the debt
at the end of a fixed period, including accrued
interest on the outstanding balance.
Amortization Term - The length of time
required to amortize the mortgage loan
expressed as a number of months. For example,
360 months is the amortization term for a 30-
year fixed-rate mortgage.
Annual Percentage Rate (APR) - APR is a
measurement of the full cost of a loan including
interest and loan fees expressed as a yearly
percentage rate. Because all lenders apply the
same rules in calculating the annual percentage
rate, it provides consumers with a good basis for
comparing the cost of loans.
Appraisal - An estimate of the value of property,
made by a qualified professional called an
Appraised Value - An opinion of a property's
fair market value based on an appraiser's
knowledge, experience, and analysis of the
Assessment - A local tax levied against a
property for a specific purpose, such as a sewer
or street lights.
Assignment - The transfer of a mortgage from
one person to another.
Assumability - An assumable mortgage can be
transferred from the seller to the new buyer.
Generally requires a credit review of the new
borrower and lenders may charge a fee for the
assumption. If a mortgage contains a due-onsale
clause, it may not be assumed by a new
Assumption - An agreement between buyer
and seller where the buyer takes over the
payments on an existing mortgage from the
seller. Assuming a loan can usually save the
buyer money since this is an existing mortgage
debt, unlike a new mortgage wh
ere closing cost
and new, probably higher, market-rate interest
charges will apply.
Assumption Fee - The fee paid to a lender
(usually by the purchaser of real property) when
an assumption takes place.
Attachment - A legal seizure of property to
force payment of a debt. An attachment creates
a lien on property.

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Attest -To witness by observation and signature
Attorney’s Opinion of Title - A written
statement by an attorney after examination of
public records and or abstracts of title that in his
or her judgement that the title to a particular
property is good.
Back End Ratio - One of several criteria used to
qualify a loan. The back end ratio takes into
consideration all current indebtedness.
Bad Title -A condition where complete real
estate ownership is impaired by unsettled claims
and liens. Also called Cloud on Title.
Balloon Mortgage - A loan which is amortized
for a longer period than the term of the loan.
Usually this refers to a thirty-year amortization
and a five year or other term. At the end of the
term of the loan, the remaining outstanding
principal on the loan is due. This final payment is
known as a balloon payment.
Balloon Payment - The final lump sum paid at
the maturity date of a balloon mortgage.
Bankruptcy - The financial inability to pay one’s
debts when due and the debtor seeks relief
through court action that may restructure the
debts or erase the debt.
Basis Point - One 100th of 1%
Beneficiary - The person who receives or is to
receive the benefits from a specific action or act.
Bill of Sale - A written instrument given to pass
Title of personal property from the seller to the
Biweekly Payment Mortgage - A plan to
reduce the debt every two weeks (instead of the
standard monthly payment schedule). The 26 (or
possibly 27) biweekly payments are each equal
to one-half of the monthly payment required if
the loan were a standard 30-year fixed-rate
mortgage. The result for the borrower is a
substantial savings in interest.
Blanket Mortgage - A mortgage covering at
least two pieces of real estate as security for the
same mortgage.
Blended Rate - An interest rate applied to a
refinanced loan that is higher than the old rate
but lower than the new rate usually offered as an
inducement. In a refinance with a simultaneous
first and second mortgage an average of the first
and second mortgage rates calculated with the
percentage of each loan in relation to the total
loan. (The average is not an average of the two
rates only)
Bona Fide - In good faith, without fraud.
Borrower (Mortgagor) - One who applies for
and receives a loan in the form of a mortgage
with the intention of repaying the loan in full.
Bridge Loan - A second trust that is
collateralized by the borrower's present home
allowing the proceeds to be used to close on a
new house before the present home is sold.
Also known as "swing loan."
Broker - An individual in the business of
assisting in arranging funding or negotiating
contracts for a client but who does not loan the
money himself. Brokers usually charge a fee or
receive a commission for their services.
Buy-down - When the lender and/or the home
builder subsidized the mortgage by lowering the
interest rate during the first few years of the
loan. While the payments are initially low, they
will increase when the subsidy expires.
Cash Flow - The amount of cash derived over a
certain period of time from an income-producing
property. The cash flow should be large enough
to pay the expenses of the income producing
property (mortgage payment, maintenance,
utilities, etc.).
Caps (interest) - Consumer safeguards which
limit the amount the interest rate on an
adjustable rate mortgage may change per year
and/or the life of the loan.
Caps (payment) - Consumer safeguards which
limit the amount monthly payments on an
adjustable rate mortgage may change. May
result in Negative Amortization

Late Charge - The penalty a borrower must pay
when a payment is made a stated number of
days (usually 15) after the due date.
Lease-Purchase Mortgage Loan - An
alternative financing option that allows low- and
moderate-income home buyers to lease a home
with an option to buy. Each month's rent
payment consists of principal, interest, taxes and
insurance (PITI) payments on the first mortgage
plus an extra amount that accumulates in a
savings account for a down payment.
Liabilities - A person's financial obligations.
Liabilities include long-term and short-term debt.
Lien - A claim upon a piece of property for the
payment or satisfaction of a debt or obligation.
Lifetime Payment Cap - For an adjustable-rate
mortgage (ARM), a limit on the amount that
payments can increase or decrease over the life
of the mortgage.
Lifetime Rate Cap - For an adjustable-rate
mortgage (ARM), a limit on the amount that the
interest rate can increase or decrease over the
life of the loan. See cap.
Loan - A sum of borrowed money (principal) that
is generally repaid with interest.
Loan-to-Value Ratio - The relationship between
the amount of the mortgage loan and the
appraised value of the property expressed as a
Lock - Lender's guarantee that the mortgage
rate quoted will be good for a specific number of
days from day of application.
Margin - The amount a lender adds to the index
on an adjustable rate mortgage to establish the
adjusted interest rate.
Market Value - The highest price that a buyer
would pay and the lowest price a seller would
accept on a property. Market value may be
different from the price a property could actually
be sold for at a given time.

Page 7
Maturity - The date on which the principal
balance of a loan becomes due and payable.
Mortgage Insurance Premium (MIP) - It is
insurance from FHA to the lender against
incurring a loss on account of the borrower's
Monthly Fixed Installment - That portion of the
total monthly payment that is applied toward
principal and interest. When a mortgage
negatively amortizes, the monthly fixed
installment does not include any amount for
principal reduction and doesn't cover all of the
interest. The loan balance therefore increases
instead of decreasing.
Mortgage - A legal document that pledges a
property to the lender as security for payment of
a debt.
Mortgage Banker - A company that originates
mortgages exclusively for resale in the
secondary mortgage market.
Mortgage Broker - An individual or company
that charges a service fee to bring borrowers
and lenders together for the purpose of loan
Mortgagee - The lender.
Mortgage Insurance - Money paid to insure the
mortgage when the down payment is less than
20 percent. See private mortgage insurance,
FHA mortgage insurance.
Mortgage Life Insurance - A type of term life
insurance In the event that the borrower dies
while the policy is in force, the debt is
automatically paid by insurance proceeds.
Mortgagor - The borrower or homeowner.
Negative Amortization - Occurs when your
monthly payments are not large enough to pay
all the interest due on the loan. This unpaid
interest is added to the unpaid balance of the
loan. The danger of negative amortization is that
the home buyer ends up owing more than the
original amount of the loan
Net Effective Income - The borrower's gross
income minus federal income tax.
Non Assumption Clause - A statement in a
mortgage contract forbidding the assumption of
the mortgage without the prior approval of the
lender. Note: The signed obligation to pay a
debt, as a mortgage note.
Note - A legal document that obligates a
borrower to repay a mortgage loan at a stated
interest rate during a specified period of time
Office of Thrift Supervision (OTS) - The
regulatory and supervisory agency for federally
chartered savings institutions. Formally known
as Federal Home Loan Bank Board
One-Year Adjustable - Mortgage whose annual
rate changes yearly. The rate is usually based
on movements of a published index plus a
specified margin, chosen by the lender.
Origination Fee - The fee charged by a lender
to prepare loan documents, make credit checks,
inspect and sometimes appraise a property;
usually computed as a percentage of the face
value of the loan.
Owner Financing - A property purchase
transaction in which the party selling the
property provides all or part of the financing.
Payment Change Date -The date when a new
monthly payment amount takes effect on an
adjustable-rate mortgage (ARM) or a graduatedpayment
mortgage (GPM). Generally, the
payment change date occurs in the month
immediately after the adjustment date.
Periodic Payment Cap -A limit on the amount
that payments can increase or decrease during
any one adjustment period.
Periodic Rate Cap - A limit on the amount that
the interest rate can increase or decrease during
any one adjustment period, regardless of how
high or low the index might be.
Permanent Loan - A long term mortgage,
usually ten years or more. Also called an "end
PITI - Principal, Interest Taxes and Insurance
which comprise a mortgage payment that
includes taxes and insurance escrow.
Pledged Account Mortgage (PLAM) - Money
is placed in a pledged savings account and this
fund plus earned interest is gradually used to
reduce mortgage payments.
Points (loan discount points) - Prepaid
interest assessed at closing by the lender. Each
point is equal to 1 percent of the loan amount
(e.g., two points on a $100,000 mortgage would
cost $2,000).
Power of Attorney - A legal document
authorizing one person to act on behalf of
Pre-Approval - The process of determining how
much money you will be eligible to borrow
before you apply for a loan.
Prepaid Expenses - Necessary to create an
escrow account or to adjust the seller's existing
escrow account. Can include taxes, hazard
insurance, private mortgage insurance and
special assessments.
Prepayment - A privilege in a mortgage
permitting the borrower to make payments in
advance of their due date.
Prepayment Penalty - Money charged for an
early repayment of debt. Prepayment penalties

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are allowed in some form (but not necessarily
imposed) in many states.
Primary Mortgage Market - Lenders, such as
savings and loan associations, commercial
banks, and mortgage companies, who make
mortgage loans directly to borrowers. These
lenders sometimes sell their mortgages to the
secondary mortgage markets such as to FNMA
or GNMA, etc.
Principal - The amount borrowed or remaining
unpaid. The part of the monthly payment that
reduces the remaining balance of a mortgage.
Principal Balance - The outstanding balance of
principal on a mortgage not including interest or
any other charges.
Principal, Interest, Taxes, and Insurance
(PITI) - The four components of a monthly
mortgage payment. Principal refers to the part of
the monthly payment that reduces the remaining
balance of the mortgage. Interest is the fee
charged for borrowing money. Taxes and
insurance refer to the monthly cost of property
taxes and homeowners insurance, whether
these amounts that are paid into an escrow
account each month or not.
Private Mortgage Insurance (PMI) - In the
event that you do not have a 20 percent down
payment, lenders will allow a smaller down
payment - as low as 3 percent in some cases.
With the smaller down payment loans, however,
borrowers are usually required to carry private
mortgage insurance. Private mortgage
insurance will usually require an initial premium
payment and may require an additional monthly
fee depending on your loan's structure.
Qualifying Ratios - Calculations used to
determine if a borrower can qualify for a
mortgage. They consist of two separate
calculations: a housing expense as a percent of
income ratio and total debt obligations as a
percent of income ratio.
Rate Lock - A commitment issued by a lender to
a borrower or other mortgage originator
guaranteeing a specified interest rate. The rate
lock may include and lender costs for a specified
period of time to guarantee the rate.
Realtor® - A real estate broker or an associate
holding active membership in a local real estate
board affiliated with the National Association of
Real Estate Agent - A person licensed to
negotiate and transact the sale of real estate on
behalf of the property owner.
Real Estate Settlement Procedures Act
(RESPA) - RESPA is a federal law that allows
consumers to review information on known or
estimated settlement cost once after application
and once prior to or at a settlement. The law
requires lenders to furnish the information after
application only.
Rescission - The cancellation of a contract.
With respect to mortgage refinancing, the law
that gives the homeowner three days to cancel a
contract within three daysin some cases once it
is signed if the transaction uses equity in the
home as security.
Recording Fees - Money paid to the lender for
recording a home sale with the local authorities,
thereby making it part of the public records.
Refinance - Obtaining a new mortgage loan on
a property already owned, often to replace
existing loans on the property.
Renegotiable Rate Mortgage - A loan in which
the interest rate is adjusted periodically. See
adjustable rate mortgage.
Reverse Annuity Mortgage (RAM) - A form of
mortgage in which the lender makes periodic
payments to the borrower using the borrower's
equity in the home as collateral for and
repayment of the loan.
Revolving Liability - A credit arrangement,
such as a credit card, that allows a customer to
borrow against a pre-approved line of credit
when purchasing goods and services.
Satisfaction of Mortgage - The document
issued by the mortgagee when the mortgage
loan is paid in full. Also called a "release of
Second Mortgage - A mortgage made
subsequent to another mortgage and
subordinate to the first one.
Secondary Mortgage Market - The place
where primary mortgage lenders sell the
mortgages they make to obtain more funds to
originate more new loans. It provides liquidity for
the lenders.
Security - The property that will be pledged as
collateral for a loan.
Seller Carry-Back - An agreement in which the
owner of a property provides financing, often in
combination with an assumable mortgage. See
owner financing.
Servicer - An organization that collects principal
and interest payments from borrowers and
manages borrowers’ escrow accounts. The
servicer often services mortgages that have
been purchased by an investor in the secondary
mortgage market.
Servicing - All the steps and operations a
lender performs to keep a loan in good standing,
such as collection of payments, payment of
Free Training Tools from QuickStart™ Publications www.quick-start.net – www.lendertraining.com
Page 9
taxes, insurance, property inspections and other
administrative matters
Settlement/Settlement Costs - See
closing/closing costs
Shared Appreciation Mortgage (SAM) - A
mortgage in which a borrower receives a belowmarket
interest rate in return for which the lender
(or another investor such as a family member or
other partner) receives a portion of the future
appreciation in the value of the property. May
also apply to mortgage where the borrower
shares the monthly principal and interest
payments with another party in exchange for
part of the appreciation.
Simple Interest - Interest which is computed
only on the principle balance.
Standard Payment Calculation - The method
used to determine the monthly payment required
to repay the remaining balance of a mortgage in
substantially equal installments over the
remaining term of the mortgage at the current
interest rate.
Step-Rate Mortgage - A mortgage that allows
for the interest rate to increase according to a
specified schedule (i.e., seven years), resulting
in increased payments as well. At the end of the
specified period, the rate and payments will
remain constant for the remainder of the loan.
Subrogation - The substitution of one person
for another. The substituted person acquires all
Survey - A measurement of land, prepared by a
registered land surveyor, showing the location of
the land with reference to known points, its
dimensions, and the location and dimensions of
any buildings.
Sweat Equity - Equity created by a purchaser
performing work on a property being purchased.
Tenancy - The right of possession of real
Tenancy By The Entirety -An estate that exists
only between husband and wife and equal right
of possession and enjoyment during their joint
lives with the right of survivorship.
Tenancy in Common - An ownership of real
estate by two or more persons each of whom
has an undivided interest, without the right of
Tenancy in Severalty - Ownership of property
by one person or one legal entity (corporate
Testament - A will
Title - Evidence that the owner of land is in
lawful possession thereof.
Title Binder - Temporary title insurance
expected to be soon replaced by a title
insurance policy.
Third-Party Origination - When a lender uses
another party to completely or partially originate,
process, underwrite, close, fund, or package the
mortgages it plans to deliver to the secondary
mortgage market.
Time Value of Money -A concept that money
available now is worth more than the same
amount in the future because of its earning
Title - A document that gives evidence of an
individual's ownership of property.
Title Insurance - A policy, usually issued by a
title insurance company, which insures a home
buyer against errors in the title search. The cost
of the policy is usually a function of the value of
the property, and is often borne by the
purchaser and/or seller. Policies are also
available to protect the lender's interests.
Title Search - An examination of municipal
records to determine the legal ownership of
property. Usually is performed by a title
Total Expense Ratio - Total obligations as a
percentage of gross monthly income including
monthly housing expenses plus other monthly
Trust - An arrangement whereby property is
transferred to a trusted third party (trustee) by a
Grantor (trustor). The Trustee holds the property
for the benefit of another (Beneficiary).
Trustee - One who holds property in trust for
another party to secure performance of an

Cash Flow -The amount of cash derived over a
certain period of time from an income-producing
property. The cash flow should be large enough
to pay the expenses of the income producing
property (mortgage payment, maintenance,
utilities, etc.).
Ceiling - The maximum allowable interest rate
over the life of the loan of an adjustable rate
Certificate of Eligibility - The document given
to qualified veterans which entitles them to VA
guaranteed loans for homes, business and
mobile homes. Certificates of eligibility may be
obtained by sending form DD-214 (Separation
Paper) to the local VA office with VA form 1880
(request for Certificate of Eligibility)
Certificate of Reasonable Value (CRV) - An
appraisal issued by the Veterans Administration
showing the property's current market value
Certificate of Title - A statement provided by an
abstract company, title company, or attorney
stating that the title of real estate is legally held
by the current owner.
Certificate of Veteran Status - The document
given to veterans or reservists who have served
90 days of continuous active duty (including
training time) It may be obtained by sending DD

Page 3
214 to the local VA office with form 26-8261a
(request for certificate of veteran status. This
document enables veterans to obtain lower
down payments on certain FHA insured loans).
Change Frequency - The frequency (in months)
of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
Chattel - Personal property. Anything owned
other than real estate.
Clear Title - A Marketable Title or one free of
Closing - The act of transferring ownership of
property from seller to buyer in accordance to a
sales contract. A meeting between the buyer,
seller and lender or their agents where the
property and funds legally change hands, also
called settlement.
Closing Agent - A third party who prepares the
paper work. Costs usually include an origination
fee, discount points, appraisal fee, title search
and insurance, survey, taxes, deed recording
fee, credit report charge and other costs
assessed at settlement. The cost of closing is
usually 3 percent to 6 percent of the mortgage
Closing Costs - These are expenses over and
above the price of the property that are incurred
by buyers and sellers when transferring
ownership of a property. Closing costs normally
include an origination fee, property taxes,
charges for title insurance and escrow costs,
appraisal fees, etc. Closing costs will vary
according to the area country and the lenders
Cloud on Title - An outstanding claim or
encumbrance on the title.
Code of Ethics - A statement of principles
concerning behavior of those who subscribe to
the code.
Collateral - Property pledged as security for a
Combined Loan to Value - The relationship
between the unpaid principal balances of all the
mortgages on a property and the properties
appraised value or the loan amount whichever is
Commitment - A pledge or promise, a firm
Cost of Funds Index (COFI) - Adjustable-rate
mortgage with rate that adjusts based on a cost
of funds index, often the 11th District Cost of
Construction Loan – A short term interim loan
to pay for the construction of buildings or homes.
These are usually designed to provide periodic
disbursements to the builder as he or she
Conforming Loan - A loan that is eligible for
purchase by FNMA or FHLMC.
Consumer Reporting Agency (or Bureau) -
An organization that handles the preparation of
reports used by lenders to determine a potential
borrower's credit history. The agency gets data
for these reports from a credit repository and
from other sources.
Contract Sale or Deed - A contract between
purchaser and a seller of real estate to convey
title after certain conditions have been met. It is
a form of installment sale.
Controlled Business Arrangements (CBA) - A
brokerage office that provides related services
through subsidiary companies.
Conventional Loan - A mortgage not insured
by FHA or guaranteed by the VA.
Conversion Clause - A provision in an ARM
allowing the loan to be converted to a fixed-rate
at some point during the term. Usually
conversion is allowed at the end of the first
adjustment period. The conversion feature may
cost extra.
Conveyance - The transfer of the Title of real
estate from one to another.
Cost of Funds Index (COFI) - adjustable-rate
mortgage with rate that adjusts based on a cost
of funds index, often the 11th District Cost of
Covenant - Promise written into Deeds and
other instruments agreeing to performance or
non-performance of certain acts or preventing
certain uses of the property.
Credit Report - A report documenting the credit
history and current status of a borrower's credit
Credit Risk Score - A credit risk score is a
statistical summary of the information contained
in a consumer's credit report. The most well
known type of credit risk score is the Fair Isaac
or FICO score. This form of credit scoring is a
mathematical summary calculation that assigns
numerical values to various pieces of
information in the credit report. The overall credit
risk score is highly relative in the credit
underwriting process for a mortgage loan.
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 gross monthly income.
See housing expenses-to-income ratio.
Decree - An order issued by one in authority.
Deed - A written instrument properly signed and
delivered that conveys Title to real property.

Deed of Trust - In many states, this document
is used in place of a mortgage to secure the
payment of a note.
Default - Failure to meet legal obligations in a
contract, specifically, failure to make the monthly
payments on a mortgage.
Deferred Interest - When a mortgage is written
with a monthly payment that is less than
required to satisfy the note rate, the unpaid
interest is deferred by adding it to the loan
balance. See negative amortization.
Delinquent - Past due.
Delinquency - Failure to make payments on
time. This can lead to foreclosure.
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.
Disclaimer - A statement whereby responsibility
is rejected - a renunciation of ownership of a
Discount Point - Amount paid to the lender at
the time of origination of the loan to account for
the difference between the market rate and the
lower face rate of the note.
Donor - One who gives.
Down Payment - Money paid to make up the
difference between the purchase price and the
mortgage amount.
Due Diligence - Making a reasonable effort to
perform under a contract or making a
reasonable effort to provide accurate and
complete information. Examination of property to
determine presence of contaminants.
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
Earnest Money - Money given by a buyer to a
seller as part of the purchase price to bind a
transaction or assure payment.
Entitlement - The VA home loan benefit is
called an entitlement (i.e. entitlement for a VA
guaranteed home loan). This is also known as
Equal Credit Opportunity Act (ECOA) - Is a
federal law that requires lenders and other
creditors to make credit equally available without
discrimination based on race, color, religion,
national origin, age, sex, marital status or receipt
of income from public assistance programs.
Equity - The difference between the fair market
value and current indebtedness, also referred to
as the owner's interest. The value an owner has
in real estate over and above the obligation
against the property.
Escrow - An account held by the lender into
which the home buyer pays money for tax or
insurance payments. Also earnest deposits held
pending loan closing.
Escrow Disbursements - The use of escrow
funds to pay real estate taxes, hazard insurance,
mortgage insurance and other property
expenses as they become due.
Escrow Payment - The part of a mortgagor’s
monthly payment that is held by the servicer to
pay for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as
they become due.
Exculpatory Clause - A provision in a mortgage
allowing the borrower to surrender the property
without personal liability for the loan.
Executed Contract - A contract whose terms
have been completely fulfilled.
Fannie Mae - see Federal National Mortgage
Farmers Home Administration (FmHA) -
Provides financing to farmers and other qualified
borrowers who are unable to obtain loans
Federal Home Loan Bank Board (FHLBB) -
The former name for the regulatory and
supervisory agency for Federally chartered
savings institutions. Agency is now called the
Office of Thrift Supervision
Federal Home Loan Mortgage Corporation
(FHLMC) (also called "Freddie Mac") - Is a
quasi-governmental agency that purchases
conventional mortgage from insured depository
institutions and HUD-approved mortgage
Federal Housing Administration (FHA) - A
division of the Department of Housing and
Urban Development. Its main activity is the
insuring of residential mortgage loans made by
private lenders. FHA also sets standards for
underwriting mortgages.
Federal National Mortgage Association
(FNMA) (also know as "Fannie Mae") - A taxpaying
corporation created by Congress that
purchases and sells conventional residential
mortgages as well as those insured by FHA or
guaranteed by VA. This institution, which
provides funds for one in seven mortgages,
makes mortgage money more available and
more affordable.
FHA Loan - A loan insured by the Federal
Housing Administration open to all qualified
home purchasers. While there are limits to the
size of FHA loans ($155,250 as of 1/1/96), they

Page 5
are generous enough to handle moderatelypriced
homes almost anywhere in the country.
FHA Mortgage Insurance - Requires a fee (up
to 2.25 percent of the loan amount) paid at
closing to insure the loan with FHA. In addition,
FHA mortgage insurance requires an annual fee
of up to 0.5 percent of the current loan amount,
paid in monthly installments. The lower the down
payment, the more years the fee must be paid.
FHLMC - The Federal Home Loan Mortgage
Corporation provides a secondary market for
savings and loans by purchasing their
conventional loans. (Also known as "Freddie
FICO Score - A credit score developed by Fair
Isaac and Company. A credit score attempts to
condense a borrower’s credit history in a single
Firm Commitment - A promise by FHA to
insure a mortgage loan for a specified property
and borrower. A promise from a lender to make
a mortgage loan.
First Mortgage - The primary lien against a
Fixed Installment - The monthly payment due
on a mortgage loan including payment of both
principal and interest.
Fixed Rate Mortgage - The mortgage interest
rate will remain the same on these mortgages
throughout the term of the mortgage for the
original borrower.
Fully Amortized ARM - An adjustable-rate
mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at
the interest accrual rate, over the amortization
Float - An interest rate that is not fixed.
Flood Insurance - Insurance that compensates
for physical property damage resulting from
flooding. It is required for properties located in
federally designated flood zones.
Foreclosure - A legal process by which the
lender or the seller forces a sale of a mortgaged
property because the borrower has not met the
terms of the mortgage. Also known as a
repossession of property.
Freddie Mac - see Federal Home Loan
Mortgage Corporation
FSBO - For sale by owner
FTC - Federal Trade Commission
Full Disclosure - A requirement to reveal all
information pertinent to a transaction.
Fully Indexed Rate - In an adjustable rate
mortgage (ARM) the interest rate indicated by
the sum of the current value of the index and
margin applied to the loan.
Funding - Providing cash for the loan. Funds
provided by the lender at settlement.
GEM - Growing equity mortgage
Gift Deed - A Deed for which consideration is
love and affection and no material consideration
is involved.
Ginnie Mae - see Government National
Mortgage Association.
Good Faith Estimate - Under Real Estate
Settlement Procedures Act, an estimate of
closing costs that must be given to mortgage
applicants within three days after loan
application is made.
Government National Mortgage Association
(GNMA) - Also known as "Ginnie Mae," provides
sources of funds for residential mortgages,
insured or guaranteed by FHA or VA.
Grace Period - The period during which one
party may fail to perform without being
considered in default.
Graduated Payment Mortgage (GPM) - A type
of flexible-payment mortgage where the
payments increase for a specified period of time
and then level off. This type of mortgage has
negative amortization built into it.
Gross Income - For qualifying purposes, the
income of the borrower before taxes and
expenses are deducted.
Growing-Equity Mortgage (GEM) - -A fixedrate
mortgage that provides scheduled payment
increases over an established period of time.
The increased amount of the monthly payment
is applied directly toward reducing the remaining
balance of the mortgage.
Guaranty - A promise by one party to pay a
debt or perform an obligation contracted by
another if the original party fails to pay or
perform according to a contract.
Guaranteed Mortgage - A mortgage that is
guaranteed by a third party.
Hazard Insurance - A form of insurance in
which the insurance company protects the
insured from specified losses, such as fire,
windstorm or other damage.
Home Equity Line of Credit (HELOC) - A loan
secured by a second mortgage on one’s
principal residence, generally to be used for
some non-housing expenditure. The HELOC
establishes a credit line that can be drawn upon
as needed.
Housing Expenses-to-Income Ratio - The
ratio, expressed as a percentage, which results
when a borrower's housing expenses are
divided by his/her gross monthly income. See
debt-to-income ratio.
HUD-1 Statement - A document that provides
an itemized listing of the funds that are payable
at closing. Items that appear on the statement
include real estate commissions, loan fees,
points, and initial escrow amounts. Each item on
the statement is represented by a separate
number within a standardized numbering
system. The totals at the bottom of the HUD-1
statement define the seller's net proceeds and
the buyer's net payment at closing.
Impound - That portion of a borrower's monthly
payments held by the lender or servicer to pay
for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as
they become due. Also known as reserves.
Index - A published interest rate against which
lenders measure the difference between the
current interest rate on an adjustable rate
mortgage and that earned by other investments
(such as one- three-, and five-year U.S.
Treasury security yields, the monthly average
interest rate on loans closed by savings and
loan institutions, and the monthly average costsof-funds
incurred by savings and loans), which is
then used to adjust the interest rate on an
adjustable mortgage up or down.
Indexed rate - The sum of the published index
plus the margin. For example if the index were
9% and the margin 2.75%, the indexed rate
would be 11.75%. Often, lenders charge less
than the indexed rate the first year of an
adjustable-rate mortgage.
Initial Interest Rate - This refers to the original
interest rate of the mortgage at the time of
closing. This rate changes for an adjustable-rate
mortgage (ARM). It's also known as "start rate"
or "teaser."
Installment - The regular periodic payment that
a borrower agrees to make to a lender.
Insured Mortgage - A mortgage that is
protected by the Federal Housing Administration
(FHA) or by private mortgage insurance (MI).
Interest - The fee charged for borrowing money.
Interest Accrual Rate - The percentage rate at
which interest accrues on the mortgage. In most
cases, it is also the rate used to calculate the
monthly payments.
Interest Rate Buydown Plan - An arrangement
that allows the property seller to deposit money
to an account. That money is then released
each month to reduce the mortgagor's monthly
payments during the early years of a mortgage.
Interest Rate Ceiling - For an adjustable-rate
mortgage (ARM), the maximum interest rate, as
specified in the mortgage note.
Interest Rate Floor - For an adjustable-rate
mortgage (ARM), the minimum interest rate, as
specified in the mortgage note.
Interim Financing - A construction loan made
during completion of a building or a project. A
permanent loan usually replaces this loan after
Investor - A money source for a lender.
Jumbo Loan - A loan which is larger (more than
$240,000 as of 1/1/99) than the limits set by the
Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
Because jumbo loans cannot be funded by
these two agencies, they usually carry a higher
interest rate.

Verification of Employment (VOE) - A
document signed by the borrower's employer
verifying his/her position and salary.
Vicarious Liability -The responsibility of one
person for the acts of another. The responsibility
of an employer for acts of an employee.
Void - Having no legal force or effect;
Waiver - The voluntary renunciation,
abandonment, or surrender of some claim, right,
or privilege.
Warehouse Fee - Many mortgage firms must
borrow funds on a short term basis in order to
originate loans which are to be sold later in the
secondary mortgage market (or to investors).
When the prime rate of interest is higher on
short term loans than on mortgage loans, the
mortgage firm has an economic loss which is
offset by charging a warehouse fee.
Warranty Deed - A Deed that contains a
covenant that the grantor will protect the grantee
against any and all claims.
Wraparound Mortgage - Results when an
existing assumable loan is combined with a new
loan, resulting in an interest rate somewhere
between the old rate and the current market
rate. The payments are made to a second
lender or the previous homeowner, who then 

Unsecured Loan - A debt that has no collateral
or security.
URAR - Uniform Residential Appraisal Report
Usury - Interest charged in excess of the legal
rate established by law.
VA Loan - A long-term, low- or no-down
payment loan guaranteed by the Department of
Veterans Affairs. Restricted to individuals
qualified by military service or other
VA Mortgage Funding Fee - A premium of up
to 3.3% (depending on the size of the down
payment) paid on a VA-guaranteed loan.
Variable Rate Mortgage (VRM) - see
adjustable rate mortgage
Verification of Deposit (VOD) - A document
signed by the borrower's financial institution
verifying the status and balance of his/her
financial accounts.

Truth-In-Lending Act (TILA) - A federal law
requiring disclosure of the Annual Percentage
Rate to home buyers shortly after they apply for
the loan. Also known as Regulation Z.
Two-Step Mortgage - A mortgage in which the
borrower receives a below-market interest rate
for a specified number of years (most often
seven or 10), and then receives a new interest
rate adjusted (within certain limits) to market
conditions at that time. the lender sometimes
has the option to call the loan due with 30 days
notice at the end of seven or 10 years.
Underwrite - Assume liability for certain events.
Guarantee the sale of certain securities. Assess
the risk of a situation.
Underwriting - The decision whether to make a
loan to a potential home buyer based on credit,
employment, assets, and other factors and the
matching of this risk to an appropriate rate and
term or loan.

Page 10
Unencumbered Property - Real Estate with
free and clear title.
Uniform Settlement Statement - The form
prescribed by the Real Estate Settlement
Procedures Act for Federally related mortgages.
Unrecorded Deed - An instrument that transfers
Title from one party (grantor) to another party
(grantee) without providing public notice of
change in ownership.