Adjustable Rate Mortgage (ARM)

A mortgage that has an interest rate that adjusts periodically based on a pre-selected index.

Amortization

A loan payment by equal installments of principal and interest, which calculates to pay off the amount of debt at the end of a fixed period.

Amortization Schedule

For a residential mortgage loan, a table that provides a breakdown of the schedule of payments from the loan’s first required payment to its final payment. It lists the amount of principal and the amount of interest paid each month of the loan’s term.

Annual Percentage Rate (APR)

A broader measure of the cost of a mortgage that includes the interest rate and other fees and charges paid to obtain the mortgage.

Appraisal

A written estimate of the fair market value of a piece of property.

Borrower

A person approved to receive a loan who holds responsibility for the repayment and any fees associated with the loan.

Closing

A meeting between the buyer, seller, mortgage banker and closing attorney where the property and funds are legally exchanged.

Commitment

An agreement, often expressed in writing, between the borrower and lender to loan money at a future time that is subject to the completion of paper work, compliance and any stated conditions.

Contract Sale or Deed

A contract between the buyer and seller of real estate to convey title after meeting certain conditions.

Conventional Mortgage

A private sector loan that is not FHA insured nor VA guaranteed.

Credit Report

A document detailing an individual’s credit history including all past and present debts and timeliness of repayment.

Debt-to-Income Ratio

The ratio, which is reflected in a percentage, of a borrower’s monthly payment obligation, divided by their monthly income.

Down Payment

The portion of a home’s purchase price that is prepaid in cash and separate from the mortgage loan amount.

Earnest Money

Money given by the buyer to the seller in order to bind a transaction or ensure payment, amount is then deducted from the purchase price of the home.

Equal Credit Opportunity Act (ECOA)

A federal law that, among other things, requires lenders to provide credit to all creditworthy applicants without regard to race, religion, national origin, color, age (provided the applicant has the capacity to contract), sex, marital status, obtains all or part of income from public assistance programs, or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

Equity

The difference between the fair market value of the home and the amount of the borrower’s loan.

Escrow

An account held by the lender in which the borrower deposits property taxes and homeowner’s and flood insurance.

FHA

The Federal Housing Administration provides mortgage insurance to lenders to cover the majority of mortgage loan losses in the event that a borrower defaults. FHA insurance encourages lenders to offer loans to borrowers who may not qualify for conventional loans.

FHA Loan

A loan insured by the FHA and open to all qualified borrowers with limits generous enough to handle moderately priced homes throughout the country.

FHA Mortgage Insurance

A loan policy paid at closing to insure the loan with the FHA.

FHA Streamlined Refinance

A refinance that allows home owners to quickly reduce the interest rate on their mortgage loan, often without requiring an appraisal. In order to qualify, home owners must already have a mortgage that is current and was insured by the FHA before 2009.

Fixed Rate Mortgage (FRM)

A mortgage that keeps the same interest rate and monthly payment through-out its term.

H.A.R.P.

The Home Affordable Refinance Program was enacted by the government in 2009 to help borrowers who are upside down or underwater on their mortgage loan. It allows borrowers who do not meet traditional guidelines to finance for a lower interest rate.

Hazard Insurance

A form of insurance by which the insured is protected from damages from losses such as a fire or windstorm.

Interest Rate Ceiling and Floor

The highest and lowest an interest rate on an ARM loan can go.

IRRRL

The Interest Rate Reduction Loan is a streamline refinance for VA loans.

Lender’s Title Insurance

Protects the lender against any problems with the title to the borrower’s property that may have occurred before the date of the policy.

Lien

A legal claim against property – must be resolved before the home sells.

Loan-to-Value (LTV)

A percentage calculated by dividing the amount borrowed by the price of the home.

Lock-In

Guarantees a specific interest rate as long as the loan is closed within a certain time period.

Market Value

The highest price that a buyer would pay and the lowest price that a seller would allow on a property.

Mortgage Insurance

A policy that protects lenders should a borrower default on a loan. Usually required with a down payment of less than 20%.

Origination Fee

A fee charged by lenders to prepare loan documents and complete other loan maintenance.

Owner’s Title Insurance

A policy that is usually issued in the amount of the real estate purchase.

Points

Prepaid interest charged by the lender at closing. Each point is equal to 1% of the loan.

Prepayment Penalty

Charges for paying off a loan prior to its due date.

Principal

The borrowed amount, not including interest and fees.

Private Mortgage Insurance (PMI)

Insurance paid by the borrower to ensure repayment in the event that the borrower defaults – may be required when borrower has a down payment of less than 20%.

Realtor

A real estate agent or broker affiliated with the National Association of Realtors.

Recording Fees

Money paid to the lender for recording the home sale with local authorities and making it part of the public record.

Required Cash

The total amount of cash the buyer will need to close the transaction.

RESPA

A federal law that, among other things, requires lenders to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process.

Sales Contract

Contract between buyer and seller to convey title after certain conditions are met.

Second Mortgage

A mortgage made subsequent and subordinate to a first mortgage.

Survey

A measurement of land that is prepared by a registered land surveyor showing the location of the land, its dimensions and the location and dimensions of any buildings.

Title Insurance

A policy, which is usually issued by a title insurance company, which insures a home buyer against any potential title search errors.

Truth-in-Lending

A federal law that requires lenders to provide borrowers with disclosures about import-ant terms of credit. These important terms include the annual percentage rate, the monthly payment, and the total amount of finance charge to be paid.

Upside Down or Under Water

When the balance of a home owner’s mortgage is greater than the home’s current appraised value.

VA Loan

A 100% financing, no down payment loan to veterans guaranteed by the Department of Veterans Affairs.

Verification of Deposit

A document that verifies the status and balance of an account.

Verification of Employment (VOE)

A document produced and signed by the borrower’s employer verifying the borrower’s position and salary.