Like any other industry, the mortgage industry has its own language of sorts. These words may be confusing to consumers who hear about "amortization," "Fannie Mae" or "Jumbo." These definitions should help clear up confusion surrounding these terms.
abstraction method
This method of estimating the value of property uses similar properties available in the same market to extract the value of a parcel of land.
acceleration clause
The clause in a mortgage or deed of trust that can be enforced o make the entire debt due immediately if the borrower defaults on an installment payment or other covenant.
addendum
A supplement to any document that contains additional information pertinent to the subject. Appraisers use an addendum to further explain items for which there was inadequate space on the standard appraisal form.
adjustable-rate mortgage (ARM)
A mortgage characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.
adjustment date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).
amortization
The loan payment consisting of a portion which will be applied to pay the interest on a loan, with the remainder being applied to the principal balance. The interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off in the specified time.
amortization schedule
A table which shows how much of each payment will be applied toward principal balance and how much toward interest over the entire life of the loan. It also shows the decrease of the loan balance until it is paid in full.
amenity
Any feature of a property that increases its value or desirability. These might include natural amenities such as location or proximity to mountains, or man-made amenities like swimming pools, parks or other recreation.
annual percentage rate (APR)
The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act.
appraisal
A written justification of the price paid for a property, based mainly on an analysis of comparable sales of similar homes near the subject property.
appraised value
Opinion of a property's fair market value which is based on an appraiser's knowledge, experience, and analysis of the property.
appraiser
An independent person trained to provide and unbiased estimate of a property's market value.
appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.
assessed value
The valuation that is placed upon property by a public tax assessor for purposes of taxation.
assessment
The placing of a value on property for the purpose of taxation.
assessor
A public official who establishes the value of a property for purpose of taxation by government.
asset
Items of value that are owned by an individual. Those that can be quickly converted to cash are considered "liquid assets," such as bank accounts, stocks, bonds and mutual funds.
assignment
When ownership of your mortgage is transferred from one company or individual to another, it is known as an assignment.
assumable mortgage
A mortgage that can be assumed by the buyer when a home is sold. Most of the time, the borrower must qualify before being allowed to assume the mortgage.
assumption
The term applied when a buyer assumes the seller’s mortgage.
balloon mortgage
A mortgage loan with a final payment that is larger than the required periodic payments because the loan amount was not full amortized.
bankruptcy
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities.
bill of sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.
biweekly mortgage
A mortgage whereby the borrower makes a half monthly payment every two weeks instead of the usual 12 monthly payments. This arrangement results in 26 half monthly payments per year and a significant reduction in interest since an extra monthly payment is made.
bridge loan
Bridge loans are loans intended to be used for a short period time between the initial requirement for funds and a permanent, usually less costly, financial solution. Bridge loans are typically funded by collateralized real estate. There are typically very few limitations on the uses of funds for a bridge loan, although lenders will review the use to insure that payback can be met.
broker
Broker may have several meanings in different situations. Most real estate agents work under a broker. Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but brokers loans to larger lenders or investors.
buy down
A cash payment made by any party to reduce a borrower's monthly loan payment.
building code
Regulations that ensure the safety and material compliance of new construction within a municipality. Building codes are localized to ensure they are adequate to meet the risk of common hazards.
call option
A clause in a mortgage which allows the lender to demand payment of the outstanding balance at a specific time.
cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
capital
Accumulated goods and money which is most often used to generate additional income.
cash-out refinance
When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of using some money for his own personal use.
certificate of deposit (CD)
Also called a time deposit, this is a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited. A CD bears a maturity date and a specified interest rate, and can be issued in any denomination.
Certificate of Eligibility
Document issued by the Veterans Administration to qualified veterans and that verifies a veteran's eligibility for a VA guaranteed loan. Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA form 1880 (request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV)
Certificate showing the appraised value of the property and maximum VA guaranteed loan a veteran under GI guaranteed mortgage loan may obtain from a private lender. See also certificate of eligibility.
chain of title
The analysis of the transfers of title for a property over the years.
chattel
Any personal property which is not attached to or an integral part of a property. Chattel is not commonly taken into consideration when appraising the value of real property.
clear title
A title that is considered free of liens or legal issues as to ownership of the property.
closing
In the sale of real estate it is the final moment when all documents are executed and recorded and the sale is complete. Can have different meanings in different states.
closing costs
The numerous expenses that buyers and sellers normally incur to complete a transaction in the transfer of ownership of property. These costs are in addition to price of the property and are items prepaid on the day of closing.
cloud on title
Any claim or encumbrance, usually discovered in a title search, that may impair the title to a property, and make its validity questionable.
collateral
Assets pledged by a borrower to secure a loan or other credit , and subject to seizure in the event of default.
commission
The majority of salespeople earn commissions for the work that they do and there are many sales professionals involved in each real estate transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative and more. A commissions is paid out of the charges paid by the seller or buyer in the purchase transaction. Real estat agents generally earn the largest commissions, followed by lenders.
common area
In condominium and some cooperative housing projects, the areas not owned by an individual owner of the condominium or cooperative residence, but shared by all owners, either by percentage inter- est or owned by the management organization. Common areas may include recreation facilities, outdoor space, parking, landscaping, fences, laundry rooms and all other jointly used space. Management is by a homeowners' association or cooperative board, which collects assessments from the owners and pays for upkeep, some insurance, maintenance and reserves for replacement of improvements in the common area.
common law
An unwritten body of law based on general custom in England and used to an extent in some states.
community property
Method by which a married couple owns property in some states whereby each spouse owns a one-half interest. Upon the death of one spouse, the survivor's half remains with the survivor, and the deceased's half becomes part of their probate estate.
concessions
Additional value granted by a buyer or seller to entice another party to complete a deal.
condominium
A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title.
construction loan
A short-term loan used for financing the construction cost of a home, in which the lender makes payments to the builder at periodic intervals as the work progresses.
contingency
A condition that must be met before a contract is legally binding. A typical real estate transaction often includes a contingency that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector service.
conventional mortgage
A mortgage loan 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 certain circumstances.
cooperative (co-op)
A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that actually owns the property, giving each resident the right to occupy a specific unit.
cost of funds index (COFI)
Cost-of-Funds Index, one of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage.
credit history
When a lender reviews an applicant's credit history, the lender examines all the information in a credit report. This includes your credit cards, student loans, automobile loans, and other loans. The lender reviews how you have made your payments -- on time or late. Your credit report also notes whether any of your creditors discharged a debt because they believed it would never be repaid, you declared bankruptcy, or your home had been foreclosed.
creditor
A person or institution to whom money is owed.
credit report
A report of an individual's credit history prepared by a credit bureau which is used by lenders in determining a loan applicant's creditworthiness.
