Glossary of Terms

expanded Glossary: A - C

A


Abstract of Title
A written history of ownership to a specific area of land. An abstract of title covers the period from the original source of title to the present time and summarizes all subsequent documents that have been recorded against that area.

ACH (Automated Clearing House)
Electronic system that debits an authorized bank account and electronically transfers funds scheduled for remittance.

Acquisition Costs
Costs of acquiring property other than purchase price, for example, attorney fees, title insurance, and lender's fees.

Acquisition Loan
A loan made for the purpose of purchasing land only. This does not include improvements on or to the land.

Addendum
An agreement or list added to a contract, agreement, or other document. FHA and VA loans require an addendum be added to a sales contract (the offer) if it is written before the appraisal is done.

Additional principal payment
When a customer pays more than the scheduled payment amount, typically made to reduce the remaining balance on the loan.

Adjustable rate mortgage (ARM)
A mortgage with an interest rate that adjusts at scheduled dates based on a pre-selected index.

Adjusted Gross Income
A person's total income, as reported on his or her IRS 1040 tax return form, after allowable contributions, deductions, and expenses.

Adjustment period
The period of time between the adjustment dates for an adjustable-rate mortgage (ARM).

Affiliates
Companies related by common ownership or control.

Agreement/Offer
An agreement between a buyer and seller of a property that states the price and terms of the sale. Also known as a "purchase contract."

Agricultural Property
Unimproved property available for farming activities.

Alimony
Periodic payments made under a divorce decree or a written separation agreement toward the support of a former spouse.

ALTA
See American Land Title Association.(next item)

American Land Title Association (ALTA)
A national association of title insurance companies, abstractors, and attorneys specializing in real property law. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title policy forms.

Amortization
Gradual payment of a debt in regular, periodic installments of combined principal and interest over a specified period of time.

Amortization schedule
A mortgage payment timetable showing the amount of each payment that's applied to both principal and interest, and the remaining balance after each payment.

Annual percentage rate (APR)
The cost to borrow money expressed as a yearly percentage. For mortgage loans, excluding home equity lines of credit, it includes the interest rate plus other charges or fees. For home equity lines, the APR is just the interest rate.

Applicant
A prospective borrower who has completed an application.

Application
A collection of data a customer provides (verbally, electronically, or on a printed form) to a mortgage lender that includes required information to begin the home loan process.

Application Fee
Money paid toward estimated initial mortgage processing expenses, such as appraisal and credit report.

Appraisal
A report that states an estimate or an opinion of the property value as determined by a qualified person known as an appraiser. The term also refers to the process for obtaining the estimate.

Appraised value
An opinion of value reached by a qualified person known as an appraiser based upon knowledge, experience, and a study of pertinent data.

Appraiser
A person qualified to estimate the value of real estate and personal property.

Appreciation
An increase in the value of property due to a positive improvement to the property or to real estate in the area. Commonly used to describe an increase in value through inflation.

APR (Annual Percentage Rate)
The cost to borrow money expressed as a yearly percentage. For mortgage loans, excluding home equity lines of credit, it includes the interest rate plus other charges or fees. For home equity lines, the APR is just the interest rate.

ARM (Adjustable rate mortgage)
A mortgage with an interest rate that adjusts at scheduled dates based on a pre-selected index.

Arm's-Length Transaction
Legal slang meaning that there existed no special relationship between the parties involved in a transaction which would contaminate the result.

As Separate Property
Ownership in real property that is to be specifically excluded from community property.

Assessed valuation
The value a taxing authority places on real estate or personal property for taxation purposes.

Assessment
A tax/charge against a property representing the homeowner's share of the cost for new projects and improvements in an area, including sidewalks, speed bumps, public utilities, or other special projects.

Assumable mortgage
An existing mortgage that can be taken over by the buyer when a home is sold.

Attorney fee
A fee charged by a real estate lawyer for title research, contract review, and other services.

Automated underwriting
The electronic review of a mortgage application for loan approval.

B


Balloon mortgage
A mortgage that typically has a lower interest rate and smaller monthly payments but does not fully pay off the principal balance over the term of the loan. For this reason, the customer must make a lump-sum payment at the end of the term to cover the remaining principal.

Balloon Payment
A large lump-sum payment due at the end of some types of mortgages, home equity lines of credit, or home equity loans.

Bankruptcy
A legal proceeding in which a borrower who owes more than his or her assets may be discharged from repaying his or her debts. Although this may affect a borrower's personal liability for a mortgage debt, it would not affect the mortgage lien.

Biweekly mortgage
A mortgage with payments due every two weeks, totaling 26 payments a year.

Borrower
A person who receives funds in the form of a loan with an obligation to repay the principal balance with interest.

Borrower Paid Mortgage Insurance (BPMI)
Insurance in which the cost of the mortgage insurance is added to the monthly mortgage payment. Borrowers have the right to request a cancellation of BPMI when the loan-to-value ratio reaches 80% of the original value. When the loan-to-value ratio reaches 78% of the original value, BPMI will be automatically terminated.

Break-Even Point
The point at which a revenue or gain is equal to total expenses.

Buydown
Money paid by a person (builder, seller, etc.) to reduce the monthly payment amount for a home loan, either for the entire loan term or for an initial period of years.

C


Cash-out refinancing
When a portion of the equity from a home refinance is converted to funds for the borrower to use.

Cash reserve
Cash that a borrower will have after the loan closing. Cash reserves may be required as part of the loan process, so the borrower has financial flexibility after the closing.

Cash to close
Cash the borrower will use to pay the closing costs for getting a mortgage.

Certificate of Occupancy
Written authorization given by a local municipality that allows a newly completed or substantially renovated structure to be lived in.

Changed Circumstance
A situation that requires the lender to provide a revised Loan Estimate or Closing Disclosure before closing, that describes any changes in fees or other loan terms.

Closing
Typically, the final step in obtaining a home loan. The closing includes delivering a deed, signing loan documentation, and disbursing funds necessary to complete the sale and loan transaction. Also known as "settlement."

Closing agent/settlement agent
Usually an attorney or title agency representative who oversees the loan closing and witnesses signing of the closing documents.

Closing Costs
Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination charge, discount points, and fees for required third-party services, taxes, and government recording fees.

Closing date
The date your loan is finalized.

Closing Disclosure
A document provided to customers at least 3 business days before closing that shows the actual terms and costs of the loan. These costs may include hazard and/or mortgage insurance premiums and escrow deposits for property taxes.

Closing Statement
A form used at closing that gives an account of the funds received and paid at the closing, including the sales price, closing costs, escrow deposits for taxes, hazard insurance, and mortgage insurance.

CLTV
The combined loan-to-value (CLTV) ratio is calculated when financing a home with a first mortgage and a home equity line of credit. For example, if your first mortgage is 70% of your home's value and your home equity line of credit is 10% of your home's value, your CLTV ratio is 80%.

Co-borrower(s)
Additional named borrower(s) whose income contributes to qualifying for a loan and who is equally obligated to repay the principal balance with interest.

Collateral
Property used to help secure a home loan, such as the home itself. If the loan isn't repaid by the borrower, the lender can take possession of the home.

Collection
The process used by mortgage servicing companies to bring a past-due mortgage current and to file foreclosure notices, if necessary.

Commitment (Loan)
A binding pledge made by the lender to the borrower to make a loan, at certain (or maximum) loan terms within a given period of time for a given purpose, subject to various stated conditions.

Commitment letter
A lender's formal letter to a potential customer that states the terms and conditions under which the lender agrees to lend money to that customer.

Comparable properties
Recently sold properties with similar characteristics that are used to help determine a fair market value of another property for sale.

Compensating Factors
Positive characteristics of a borrower's credit, employment, or savings history which may be used to offset high debt-to-income ratios in the underwriting process.

Concession
A discount or incentive a seller gives to a prospective buyer to encourage him or her to purchase a property.

Conforming loan
A mortgage that conforms to the guidelines set by the Federal National Mortgage Association (also known as "Fannie Mae") or the Federal Home Loan Mortgage Corporation (also known as "Freddie Mac"). These mortgages are eligible for sale and delivery to these government-sponsored organizations.

Contingency
A condition that must be met before a contract is legally binding.

Conventional mortgage
A conventional mortgage is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs).

Convertible ARM
An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Cooperative
A building of two or more dwelling units that is owned by a corporation made up of people in the building. The right to occupy a unit is obtained by buying shares of stock in the corporation and signing an occupancy agreement known as a "proprietary lease".

Covenant
A clause in a contract that, if violated, can result in legal action.

Credit Limit
The maximum amount a customer is approved to borrow for a home equity line of credit.

Credit report
A report provided by an independent agency detailing an individual's credit history.

Credit reporting
The process of sharing your credit activity to one of the three credit reporting agencies.

Credit reporting agency
An agency that collects information about your credit accounts and uses it to produce your credit report and calculate your credit score.

Credit score
A three-digit number that indicates your creditworthiness that is based on information provided by your creditors and lenders.