H - Z


Glossary of Terms

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Hazard Insurance
A form of insurance that protects the insured property against physical damage such as fires, tornadoes, earthquakes, etc. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal to the amount of the mortgage loan.

Home Equity Line of Credit (HELOC)
A real estate loan, usually in a subordinate position, that allows a borrower to borrow against equity in real estate owned with specific limitations. This is an open end loan that permits the borrower to repay and re-borrow the funds available.

Home Equity Loan
A mortgage on the borrower's principal residence, usually for the purpose of making home improvements or consolidating debt. This is a closed-end loan repayable in accordance with a fixed schedule.

Home Owners Association (HOA)
A nonprofit association, whose directors and officers are elected by the unit owners of a condominium or PUD project; primary responsibilities are to manage the common areas, expenses and services of the project.

Homeowners Insurance
A form of insurance that protects the insured property against loss from theft, liability and most common disasters. Also referred to as hazard insurance.

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

Housing Debt-to-Income Ratio
The sum of all monthly housing mortgage expenses such as principal, interest, taxes and insurance (PITI), homeowners dues, private mortgage insurance and any special assessments as a percentage of gross qualifying income.

See Housing and Urban Development

HUD-1 Uniform Settlement Statement
A standard form, which itemizes the closing costs, associated with purchasing a home or refinancing a loan.

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Impound 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 impound account funds on behalf of the borrower when they become due. (Also known as Escrow Account.)

A published interest rate compiled from other indicators such as U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan organizations. Mortgage lenders use the index figure to establish rates on adjustable rate mortgages (ARMs).

Initial Rate
The rate charged during the first interval of an ARM loan.

Individual Retirement Account (IRA)
An account that can be established by individuals who meet IRS qualifications to build retirement funds, deferring the tax liability until funds are withdrawn. Under permitted circumstances, they may deduct their annual contributions from their taxable income.

Installment Debt
Borrowed money that is repaid in successive payments, usually at regular intervals.

Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed.

Interest Rate
The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money. See also: Annual Percentage Rate

Interest Rate Cap
Consumer safeguards that limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. 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.

Interest Only Loan
A loan with periodic payments of interest only. The principal amount is due in lump sum(s) upon maturity or intervals.


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Joint Liability
Liability shared among two or more people, each of whom is liable for the full debt.

Joint Tenancy
A form of ownership of property giving each person equal interest in the property, including rights of survivorship.

Jumbo Loan
A loan that is for a larger dollar amount than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.

Junior Mortgage
A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first.


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A retirement plan for self-employed individuals. Similar to an IRA, contributions may be deductible and the tax liability is deferred until the funds are withdrawn; sometimes known as HR 10 plans.


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Late Charge
Penalty paid by a borrower when a payment is made after the due date.

Lease Purchase Agreement
An agreement whereby the buyer signs a property lease with the intention of purchasing it at a specified price on specified date thereafter.

The bank, mortgage company, or mortgage broker offering the loan.

LIBOR (London Interbank Offered Rate)
The interest rate charged among banks in the foreign market for short term loans to one another. A common index for ARM loans.

A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes, or a court judgment lien, or a mechanics lien for unpaid debt to a contractor.

Lien Search
A search on the seller and the co-op corporation to determine if there are any liens, loans or  judgments which may have an effect on your ownership of the unit.

Lifetime cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Cash or cash equivalents that a borrower has accumulated or the ability to readily convert other assets or investments into cash; a.k.a. cash reserves.

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

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 process, or the fee may be in addition to these charges.

Loan Origination Fee
Fee charged by a lender to cover administrative costs of processing a loan.

Loan-to-Value Ratio (LTV)
The relationship expressed as a percentage, between the amount of the proposed loan and a property's appraised value or purchase price. For example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value.

Lock or Lock-In
A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time. See: Rate Lock Policy


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The amount a lender adds to the index of an adjustable rate mortgage to establish an interest rate. For example, a margin of 1.50 added to a 7 percent index establishes an interest rate of 8.50 percent. The margin remains the same throughout the loan.

Marketable Title
A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Market Value
A price or price range generally acknowledged to be the accepted amount that a buyer would be willing to pay and a seller would be willing to accept for a property at a given time. Properties often sell above or below market value due to special circumstances in the market or on the part of a buyer or seller.

A legal instrument in which a lien on real property is granted as security for the repayment of a loan. In some states, a deed of trust is used rather than a mortgage.

Mortgage Banker
An individual or company that originates and/or services mortgage loans.

Mortgage Broker
An intermediary between a borrower and a lender. A broker's expertise is to help borrowers find financing that they might not otherwise find themselves.

Mortgage Disability Insurance
A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.

Mortgage Commitment
A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a property.

Mortgage Insurance
Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

Mortgage Loan
A loan for which real estate serves as collateral to provide for repayment in case of default.

Mortgage Note
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.

Mortgage (Open-End)
A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.

The lender.

The borrower.


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Negative Amortization
A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan's principal. The borrower may end up owing more than the original amount of the mortgage.

Net Rental Income
The remaining income generated by an investment property after deducting all mortgage related expenses, including HOA fees (if applicable) and operating expenses from the gross rental income.

Net Worth
The amount by which an individual's assets (or assets of a business) exceed total liabilities.

Non-assumption Clause
In a mortgage contract, a statement that disallows a new buyer to assume a mortgage payment without the approval of the lender.

Non-conforming Loan
A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines either because the loan amount is too high or FNMA/FHLMC underwriting or other criteria are not met. Jumbo loans are non-conforming.

Non-permanent Resident Alien
A non-U.S. citizen who resides in the United States on a temporary basis on a government-issued work visa.

Non-resident Alien
A non-U.S. citizen who resides outside of the United States.

Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.

Notice of Default
Written notice to a borrower that default has occurred and that legal action may be taken.


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Open-End Mortgage
See: Mortgage (Open-End)

Origination Fee
The amount charged by a lender to originate and close a mortgage loan. Origination fees are usually expressed in points.


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Payment Cap
Consumer safeguards that limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.

Payment to Income (P/I) Ratio
The ratio of the borrower's total housing payment (principal, interest, taxes, insurance, HOA fees, special assessments, and subordinate financing) that is used to measure the borrower's capacity to manage the housing expense; also known as "housing debt-to-income ratio."

Per Diem Interest
Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.)

Permanent Buy-Down
A permanent reduction to the interest rate for the life of the loan. The funds for the buy-down may come from the borrower, lender, seller or a third party.

Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment.

Planned Unit Development (PUD)
A real estate project in which each unit owner has title to a residential lot and building and a non-exclusive easement on the common areas of the project.

Charges levied by the lender based on the loan amount. Each point is one percent of the loan amount; for example, two points of a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point.

Power of Attorney
Legal document authorizing one person to act on behalf of another.

Prepaid Interest
Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.

Prepaid Items
Items that generally must be paid for at the time of closing and are generally recurring charges. Prepaid items may include the following: first year premiums for hazard, flood and mortgage insurance, as applicable to the transaction; prorated interest; any special assessments which must be prepaid (i.e., water/sewer connection, etc.); escrow accounts for any of the above.

The borrower's ability to make full or partial payments on a loan's principal before they are due. Paying a mortgage in full or in part before it is due may incur a penalty if so specified in the mortgage's prepayment clause.

Tentative establishment of a borrower's qualification for a mortgage loan amount of a specific amount or ability to make monthly payments at a certain level, based solely on debt-to-income ratios. Pre-qualification is an estimate only and is subject to debt and income verification, credit history, property appraisal and other factors.

Prime Rate
The interest rate designated by a lender as its prime rate and which serves as a basis for the interest rate charged to certain customers.

The amount of the mortgage loan, not counting interest.

Private Mortgage Insurance (PMI)
Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

To proportionally divide amounts owed by the buyer and the seller at closing.

Purchase Agreement
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.


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As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts, income and other factors.

Qualifying Ratios
The percentage of payment to income (P/I) and debt-to-income (D/I) that is used to measure the borrower's capacity to repay the mortgage debt.

Quitclaim Deed
A deed that transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.


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Real Estate Settlement Procedures Act (RESPA)
A federal law that requires lenders to provide mortgage loan borrowers with information of known or estimated settlement costs.

Real Property
Land and any improvements permanently affixed to it, such as buildings.

A real estate agent or broker who is a member of the National Association of Realtors.

Monies paid from the lender/broker towards the borrower's non-recurring closing costs which include appraisals, application fees, underwriting fees, processing fees, and title.

Recognition Agreement
An agreement by the co-op that recognizes specific rights of lenders who finance the acquisition of interests in a co-op project.

The transfer of property back to the owner when a mortgage loan is fully repaid.

The act of entering documents concerning title to a property into the public records.

Recording Fee
Money paid to an agent for entering the sale of a property into the public records.

Retirement of an existing debt from the proceeds of a new loan, using the same collateral as security.

Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The language of the covenant, the intent of the parties, and the law in the State where the land is situated govern the determination whether a covenant runs with the land or is personal. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the US Supreme Court.)

Rental Income
Income generated by renting property to a tenant.

Reverse Annuity Mortgage (RAM)
A mortgage in which the borrower receives periodic payments from the lender who uses the borrower's equity in the home as security.

Sometimes referred to as "cash reserves" or "post closing reserves"; this is the amount of liquid assets the borrower has remaining after completion of the mortgage loan transaction and payment of any other debt(s) that had to be satisfied in order for the borrower to qualify for the loan. See: Liquidity

Resident Alien
A non-U.S. citizen who is granted most of the rights of a U.S. citizen, including permanent residency in the United States. Resident Alien status is usually evidenced by a "Green Card."

Residential Mortgage Credit Report
This report is prepared only at the request of your mortgage lender. This report utilizes information from at least two of the three national credit bureaus and information provided on your loan application. The report contains verified and updated credit history, employment and residence information, as well as public record information.

Revolving Debt
A debt that does not have a fixed payment, although repayment is usually a percentage of the outstanding balance and made at regular intervals; most common are credit cards issued by banks or department stores.

Right to Rescission
Under the provisions of the Truth-in-Lending Act, the borrower's right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage.


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Sales Agreement
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Second Mortgage
A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term.

Second/Vacation Home
A second home/vacation home that is occupied by the borrower for some portion of the year for his/her exclusive use and enjoyment but which is suitable for year-round occupancy. It cannot be subject to a mandatory rental pool and the borrower does not intend to use the property for income producing purposes.

Secondary Market
A market in which investors like GNMA, FHLMC, FNMA and private organizations buy large numbers of mortgages from the primary lenders and either hold them in a portfolio or package them for sale to others. By selling loans in the secondary market, lenders obtain the funds needed to make new loans.

Self-employed Borrower
A borrower whose income is derived from a business in which he/she has an ownership interest of 25% or more.

The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, interest, taxes and insurance, as well as keeping the borrower informed of any changes in the status of the loan.

Settlement (or Closing)
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).

Settlement Costs
Also known as closing costs, these costs are for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees.

Shared Appreciation Mortgage (SAM)
A loan in which a lender offers a below market interest rate in exchange for a portion of the future appreciation of the property.

Special Assessments
A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.

Special Lien
A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended on that person's behalf. In some localities it is called "particular" lien or "specific" lien. See: Lien

Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.

An area of land that is platted and sub-divided into individual lots.

A physical measurement of property done by a registered professional showing the boundaries, dimensions and location of any buildings as well as easements, rights of way, roads, etc.

Sweat Equity
Value added to a property in the form of labor or services of the owner rather than cash.


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As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Tax Impound
Money paid to and held by a lender for annual tax payments.

Tax Lien
Claim against a property for unpaid taxes.

Tax Sale
Public sale of property by a government authority as a result of non-payment of taxes.

Temporary Buy-downs
A loan on which the interest rate has been "bought down" for a temporary period of time at the beginning of the loan by escrowing funds at the time of closing, which will be applied to the total monthly mortgage payment as each becomes due.

An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

A formal document establishing ownership of property.

Title Company
A company that insures title to property.

Title Search
Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.

An architectural type of construction; a row house on a small lot that has exterior limits common to other similar units; title to the unit and its lot is vested in the individual owner with a fractional interest in common areas, if any.

Transfer Tax
Tax paid when title passes from one owner to another.

A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

The Truth-in-Lending Act requires lenders to disclose the cost of credit and other loan terms to consumers, and also provides a 3 day right of rescission on refinancing of owner occupied primary residences.


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Financing Statement required by the lender when you are financing a co-op. It is filed in the county in which the co-op is located.

A professional who approves or denies a loan to a potential homebuyer based on the homebuyer's credit history, employment history, assets, debts, property appraisal and other factors such as loan guidelines.

In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.

Interest charged in excess of the legal rate established by law.

Uniform Settlement Statement
A standard document prescribed by the Real Estate Settlement Procedures Act disclosing all costs paid in connection with the settlement of a real estate transaction. Also called a HUD-1.


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Variable Rate
Interest rate that changes periodically in relation to an index.

Verification of Deposit (VOD)
Document signed by the borrower's bank or other financial institution verifying the borrower's account balance and history.

Verification of Employment (VOE)
Document signed by the borrower's employer verifying the borrower's position and salary.

Veterans Administration (VA)
The federal agencies responsible for the VA loan guarantee program as well as other services for eligible veterans. In general, qualified veterans can apply for home loans with no down payment and a mortgage insurance premium of 1 percent of the loan amount.


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Voluntary relinquishment or surrender of some right or privilege.

An inspection of a property by the prospective buyer prior to closing on a mortgage.

Warranty Deed
A document protecting a homebuyer against any and all claims to the property.

Wraparound Mortgage
A junior mortgage taken back by the seller for the amount of the properties purchase price less the buyer's down payment. The existing loan is retained and combined with a new, larger loan and the interest rate is set somewhere between the old rate and the current market rate. A typical wraparound is an interest only loan with a 5-year balloon or less.


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The ratio of investment income to the total amount invested over a given period of time; also known as "return on investment" or ROI.

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The ability of local governments to specify the use of property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.

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