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Glossary of Terms


Abstract (Of Title)
A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects, which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause
Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan.

Accrued Interest
Interest earned but not yet paid.

Adjustable Rate Mortgage (ARM)
A variable or flexible rate mortgage with an interest rate that adjusts periodically according to the financial index it is based upon plus a margin. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates.  To limit the borrower's risk, the ARM may have a payment or rate cap.

Adjustment Date
The date on which the interest rate changes for an adjustable rate mortgage (ARM).

Adjustment Period
The period that elapses between the adjustment dates for an adjustable rate mortgage (ARM).

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.

The reduction of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment and the amounts applied to interest and principal.

Annual Cap
See: Cap

Annual Percentage Rate (APR)
The cost of credit expressed as a yearly rate, taking into account interest, points, and other finance charges. Disclosure of the APR is required by the federal Truth-in-Lending Act and allows borrowers to compare the costs of different mortgage loans.

An initial statement of personal and financial information required to apply for a 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 loan process.

An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property's ability to produce income.
See MortgageIT Appraisal Policy

Appraisal Fee
A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.

A person qualified by education, training, and experience to estimate the value of real property and personal property.

A property's increase in value due to inflation or economic factors.

See Adjustable Rate Mortgage

Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or ground maintenance.

A means of transferring ownership, rights, or interests in property by one person, the assignor, to another, the assignee. See also C.E.M.

Assumable Mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

An agreement between a buyer and a seller which may require lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan's interest rate may be lower than current market rates. Depending on the terms of the mortgage or deed of trust, the lender may raise the interest rate or require the buyer to qualify for the mortgage.

Assumption Clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

See Recognition Agreement


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Balloon Mortgage
A mortgage that has level monthly payments which are insufficient to amortize the loan so that a balloon, or lump sum payment is due at the end of the term. Frequently, balloon mortgages contain an opportunity to refinance when the balloon payment is due.

Bank Attorney
The party with fiduciary responsibility to the lender to ensure the terms of the loan are carried out. Other responsibilities include review of Title and Lien searches, Assignments and other documents required to close the loan. Not all states require a Bank Attorney. See Escrow Agent

A proceeding in a federal court in which a debtor (who owes more than his/her assets or cash flow) is relieved from the payment of debts. This can affect the borrower's personal liability or the mortgage debt but not the lien of a mortgage.

Basis Points
Used to describe mortgage yield, one basis point equals one 100th of 1% or 0.01%. A mortgage yield increase from 9.50% to 9.75% is an increase of 25 basis points.

The legal owner of a piece of property.

Before-Tax Income
Income before tax is deducted.

The person designated to receive the income from a trust, estate, or a deed of trust.

A gift of personal property by will.

A preliminary agreement secured by the payment of an earnest money deposit under which a buyer offers to purchase real estate.

Biweekly Mortgage
A loan requiring payments of principal and interest at two-week intervals. Each biweekly payment is half the amount of a monthly payment. The borrower makes the equivalent of 13 monthly payments each year. As a result, this type of loan amortizes much faster than monthly payment loans.

Blanket Mortgage
A mortgage that covers more than one parcel of real estate.

Bona Fide
In good faith.

An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Borrower (Mortgagor)
An 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.

A violation of any legal obligation.

Bridge Loan
A loan, usually a second mortgage, that is collateralized by the borrower's present home (that is usually for sale).

An individual who brings buyers and sellers together and assists in negotiating contracts for a client.

Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Where the buyer pays additional discount points in return for a below market interest rate; or the buyer or seller deposits sufficient funds with the lender to reduce the rate during the first one to three years of the loan; or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased.

Buyer's Market
Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.


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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.

A limit on how much an adjustable rate mortgage's monthly payment or annual interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or a periodic cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan. A periodic cap limits the amount the interest rate can change each interest rate adjustment date.  For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

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. For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in points), you would be left with $18,000 cash out. Cash-out loans may not be available for all types of property.

Cashier's Check (or Bank Check)
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.

The maximum allowable interest rate of an adjustable rate mortgage.

Or Consolidation, Extension, and Modification of existing note(s) into one document: the CEM Agreement. In New York refinanced and purchase money mortgages are often documented in this manner to reduce the recording tax. Allowed only on properties located in New York State. (See Assignment)

Certificate of Eligibility
Document issued by the Veterans Administration to qualified veterans which 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 Occupancy (CO)
Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be inhabited; not to be confused with "Notice of Completion."

Certificate of Reasonable Value (CRV)
A Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.

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 a FHA Vet loan. Obtainable through local VA office by submitting form DD 214 (Separation Paper) with form 26-8261a (request for certificate of veteran status).

Chain of Title
The chronological order of conveyance of a property from the original owner to the present owner.

Closed-end Mortgage
A mortgage principal amount that is fixed and cannot be increased during the life of the loan.

Closing (or Settlement)
The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

Closing Costs
Costs payable by either seller or buyer at the time of settlement when the purchase of a property is finalized or by borrower when a loan is refinanced. They include expenses such as points, taxes, title insurance, mortgage insurance and attorneys' fees. You will receive more specific information about types and amounts of closing costs applicable to your transaction and the state where your property is located when you apply for a loan.

Closing Statement
Also referred to as the HUD1. The final statement of costs incurred to close on a loan or to purchase a home.

A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a clear title.

One who is individually and jointly obligated to repay a mortgage loan and may or may not share ownership of the property with one or more borrowers. See also: Co-signer

An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment Fee
A fee charged when an agreement is reached between a lender and a borrower for a loan on specific terms and conditions. Rate and points may be locked-in or may be "floating".

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money to a homebuyer. Also known as a "loan commitment."

Common Elements/Areas
Those portions of a building, land, and amenities of a PUD, condo or co-op that are used by all unit owners, who share in the common expenses of their operation and maintenance. Common areas usually include swimming pools, tennis courts, or other recreational facilities, as well as common corridors of buildings, parking lots, etc.

An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

A form of ownership where the dwelling units are individually owned and homeowners share ownership of common areas such as the grounds, the parking facilities and the tennis courts.

Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Conforming Loan
A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. The maximum conforming loan amount is $275,000 for a one-unit property.

Construction Loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses. Upon completion of the construction, some lenders will convert the loan to permanent financing while other lenders will require the borrower to pay the construction loan in full.  In this instance the borrower usually can refinance the property.

Consumer Handbook on Adjustable Rate Mortgages
A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).

Consumer Reporting Agency (or Bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

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 loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).

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 document used to effect a transfer, such as a deed, or mortgage.

A co-op is a form of ownership in which a corporation or business entity holds title to a property and grants the occupancy rights to particular apartments or units to shareholders by leases or similar arrangements. A loan granted for a co-op is collateralized by an assignment of the proprietary lease and a pledge of the shares of stock allocated to the unit.

Corporate Relocation
Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

A person who agrees to assume a debt obligation if the principal borrower defaults on the payments. A co-signer is not on the security instrument and is only responsible for the debt. See also: Co-borrower

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.

A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Rules and restrictions governing the use of property.

Credit Bureau Company
A company that is engaged in the preparation of reports that are used by credit grantors to determine the credit and public records history of an individual. The agency obtains data for these reports from national repositories and other sources (e.g., TRW, TransUnion, Equifax, and public record data).

Credit Bureau Repository
An organization that compiles credit history data directly from lenders and creditors to build in-file credit reports for individuals; the main repositories are TRW, TransUnion, & Equifax.

Credit Report
A report detailing the credit history of a prospective borrower that's used to help determine borrower credit worthiness.

See: Certificate of Reasonable Value


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Debt-to-Income Ratio (D/I)
The ratio of the borrower's total monthly obligations, including housing expenses and recurring debts, to monthly income. It is used to determine the borrower's capacity to repay the mortgage and all other debts.

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.

A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

Deed of Trust
A document, used in many states in place of a mortgage, whereby a trustee pending repayment of the loan holds title to the property.

Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Failure to make payments as agreed in the loan agreement.

Department of Housing and Urban Development (HUD)
The U.S. government agency that administers FHA, GNMA and other housing programs.

A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

A decline in the value of property; the opposite of appreciation.

The amount by which the sales price of a note (or financial instrument) is below or less than its face value. The purpose of a discount is to adjust the yield upward either in lieu of interest or in addition to interest. Discount points are payable to the lender by the borrower or seller to increase the lender's effective yield. One point is equal to 1% of the loan.

Discount Points (or 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 points you pay, the lower the interest rate you get.

Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Down Payment
The amount of your home's purchase price you need to supply up front in cash to get your loan. For conventional loans, you should strive for a down payment that's at least 20% of your home's value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of your home's purchase price. (Note, however, that FHA and VA loans have different policies regarding insurance.)

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.

Dwelling divided into two units.


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Earnest Money
Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed.

A right of way giving persons other than the owner access to or over a property.

Economic Obsolescence
The loss of value due to changes outside the particular property affected (e.g., high power lines, busy streets, proximity to an airport or any other structure perceived to be less than desirable); also called economic depreciation.

Effective Age
An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective Rate
The effective rate is a consumer-oriented rate that takes into account the projected amount of time you tell us you will actually have the loan, as well as the specific costs, fees, and potential rate changes associated with it. The fees and costs are distributed over the time you plan to be in the house, allowing you to do an apples-to-apples comparison of a variety of loan types. The effective rate is not the APR. It is similar in that it factors in interest, mortgage insurance, and other fees (including points); however, the APR assumes that you keep your loan for the entire term, while the effective rate takes into account how long you tell us you plan to be in your house.

An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Environmental Hazard
Natural or man-made forces that may be hazardous to the health or safety of the homeowner. Examples include hazardous wastes, toxic substances, radon gas and materials containing asbestos. These types of hazards can adversely affect the value and marketability of the property.

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.

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.

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. See Bank Attorney

Escrow Collections
Funds collected by the servicer and set-aside in an escrow account to pay the borrower's property taxes, mortgage insurance, and hazard insurance.

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 portion 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. Known as "impounds" or "reserves" in some states.

The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

The lawful expulsion of an occupant from real property.

Examination of Title
The report on the title of a property from the public records or an abstract of the title.

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Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair Market Value
The price established in a free market between a buyer and seller in an arms-length transaction where neither one is compelled to buy or sell. In an appraisal, this is the final value derived after examining the Sales Comparison, Cost, and if applicable, Income approaches; sometimes referred to as "Market Value."

The Fair Access to Insurance Requirement Plan is a program established within a state to provide access to insurance for property owners in areas that are generally not insurable by most insurers; examples include specific beach and windstorm areas.

Fannie Mae
A common nickname for the Federal National Mortgage Association.

Fannie Mae's Community HomeBuyer's Program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate- income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase homebuyer education sessions.

Farmer's Home Administration (FmHA)
The government agency that guarantees mortgages secured by residential properties located in rural areas, concentrating on borrowers with income less than HUD's local median income for the area in which they reside. FmHA is now known as Rural Economic and Community Development.

Federal Deposit Insurance Corporation (FDIC)
Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system.

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Federal Housing Administration (FHA)
An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA's objectives is to ensure affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. FHA mortgage insurance requires a fee of up to 3.8 percent of the loan amount to be paid either at closing or added to each monthly payment, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.

Federal National Mortgage Association (FNMA or Fannie Mae)
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Fee Simple
The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner's designated heirs. Also known as fee simple absolute.

See Federal Housing Administration.

FHA Loans
Fixed- or adjustable-rate loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers. FHA loans typically permit borrowers to buy a home with a lower down payment than conventional loans. With FHA insurance, eligible buyers can purchase a home with a down payment as little as 3% of the appraised value or the purchase price, whichever is lower. FHA borrowers typically are required to participate in a face-to-face meeting with their lender or a government approved mortgage counselor prior to closing on a new mortgage loan. The current FHA loan limit is $169,050; however, FHA loan amount limits may vary by county.

Fifteen-Year Mortgage
A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less.

Fidelity Bond
An insurance bond that is obtained to protect against financial loss from dishonest acts of persons entrusted with authority to manage funds.

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. Fixed rate loans typically have 15-year or 30-year terms. With a fixed rate loan, you will have predictable monthly mortgage payments for as long as you have the loan.

Flood Insurance
Insurance that compensates for physical damage to a property by flood. Typically not covered under standard hazard insurance.

See: Farmer's Home Administration

See: Federal National Mortgage Association

The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.

The legal process by which a borrower in default under a mortgage or deed of trust, loses his/her interest in the mortgaged property; this process usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Freddie Mac
A common nickname for the Federal Home Loan Mortgage Corporation.

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General Warranty Deed
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Gift Funds
Funds donated to the borrower from certain eligible sources to assist the borrower in meeting closing costs. Generally, eligible sources are a relative, church, municipality, or nonprofit organization.

Ginnie Mae
Nickname for Government National Mortgage Association (GNMA).

Government National Mortgage Association (GNMA or Ginnie Mae)
A government organization that participates in the secondary market, buying, selling and guaranteeing FHA and VA loans.

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.

Graduated Payment Mortgage (GPM)
A mortgage that has initial monthly payments set at an amount lower than that required for full amortization of the debt. The payments are then increased by a specified percentage each year during the graduated payment period. At the end of the period, payments are in an amount that will fully amortize the mortgage.

That party in the deed who is the buyer or recipient.

That party in the deed who is the seller or giver.

Gross Income
Total income before taxes or expenses are deducted.



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