Acceleration Clause - Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on you loan.

Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as a variable rate mortgage.

Adjustment Period - On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Amortization - Loan payments of equal, or nearly equal, amounts calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR) - An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account fees, points, and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal - An estimate of the value of property on a specific date, made by a qualified professional called an "appraiser." Some form of appraisal is required by a lender.

Balloon Payment - Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Buy-Down - When the lender and/or the homebuilder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially lower, they will increase when the subsidy expires.

Caps (Interest or Payment) - Consumer safeguards which limit the amount the interest rate or monthly payment on an adjustable rate mortgage may change per year and/or the life of the loan.

CC&R's - Covenants, Conditions, and Restrictions are limitations on the uses that may be made to a parcel of land. A serious violation of the CC&R's may result in the loss of title to the parcel.

Certificate of Reasonable Value (CRV) - A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Closing -The finalization of documents where the property and funds legally change hands. Also called settlement. All parties get a Closing Statement that accounts for all funds paid or received.

Closing Costs - Costs associated with a real estate transaction. They may include an origination fee, processing fee, discount points, appraisal fee, title search and policy, insurance, taxes, deed recording fee, credit report fee, and other costs assessed at settlement. Closing costs are usually about 3 percent to 5 percent of the mortgage amount.

Commitment - An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Construction Loan - A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Contingency - A condition that must be satisfied before a contract is binding. For example, a sales agreement may be contingent on the buyer securing financing.

Conventional Loan - A mortgage not insured by FHA or guaranteed by the VA.

Deed of Trust - In California this document is used in place of a mortgage to secure payment of a note. The Deed of Trust allows lenders to, relatively quickly and easily, obtain real property to satisfy a delinquent loan

Default - Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Delinquency - Failure to make payments on time. This can lead to default and foreclosure.

Due-On-Sale Clause - A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money - Down payment money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment. Included with a written offer to purchase, this shows good faith.

Equity - The difference between the fair market value of a property and total current indebtedness (liens) against that property. Also referred to as the owner's interest.

Escrow - A neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of closing and the distribution of funds. Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

Federal Home Loan Mortgage Corp. (FHMLC) - Also called "Freddie Mac," is a quasi-governmental agency that purchases conventional and FHA mortgages from insured depository institutions and HUD-approved mortgage bankers. Has strict loan guidelines.

Federal Housing Administration (FHA) - A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. While FHA loan guidelines are geared more for first-time buyers and are less strict, anyone can apply.

Federal National Mortgage Association (FNMA) - Also known as "Fannie Mae." A tax-paying corporation created by Congress that purchases and sells conventional residential mortgage as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Has strict loan guidelines.

Fixed Rate Mortgage - A mortgage on which the interest rate is set for the term of the loan.

FICO (Fair, Isaac Company) - A private company that developed a computer software program used by some credit bureaus that scores an individual's credit risk known as your credit score.

Foreclosure - A legal procedure in which property securing debt is sold by the lender to pay the defaulting borrower's debt.

Government National Mortgage Association (GNMA) - Also known as "Ginnie Mae," provides sources of funds for residential mortgages insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GMP) - A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Hazard Insurance - A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like. Required by lenders.

Home Inspection Report - Qualified inspector's report detailing a property's overall condition. Usually includes an evaluation of both the structural and mechanical conditions. Not required by a lender.

Impounds - That portion of a borrower's monthly payments held by the lender or servicer (impound account) to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Index - A published interest rate against which lenders measure the difference between the current interest rate on an ARM and that earned by other investments, which is then used to adjust the interest rate up or down on the ARM. Common indexes are one-year U.S.Treasury securities, 11th District Cost of Funds, and the LIBOR index, all published in the Wall Street Journal.

Investor - Money source for a lender. Insurance companies and pension funds are typical investors.

Jumbo Loan - A loan which is larger than the limits set by FNMA and FHMLC. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lien - A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan-to-value (LTV) - The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. (Ex. $200,000 value with $180,000 loan = 90% LTV)

Margin - The amount a lender adds to the index on an ARM to establish the ARM's interest rate.

Marketable Title - Title to a property that is free and clear of objectional liens or encumbrances.

Market Value - The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Mechanics Lien - In California, workmen who provide materials and/or labor to a property owner who is improving his property are entitled to use the real property to satisfy debt owed.

Mortgage Broker - An individual in the business of assisting in arranging funding for a client through many lending sources and programs. A mortgage broker does not loan the money himself. Mortgage brokers usually charge a fee or receive a commission for their services. (Click link for more)

Mortgagee - The lender.

Mortgage Insurance - Money paid to insure the mortgage when the down payment is less than 20 percent. Protects the lender in case of loss if borrower defaults, but the borrower pays for the policy. Can be dropped with a lower LTV. Many no down payment programs do not have mortgage insurance.

Mortgagor - The borrower

Multiple Listing Service (MLS) - Service performed by the Local Board of Realtors that provides necessary information to aid in the sale of homes. Used as a marketing tool by members to expose properties for sale to a wider market base.

Negative Amortization - Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

Origination Fee - A charge for work involved in evaluating, preparing, and submitting a mortgage loan
package to a lender or lenders. Computed as a percentage of the face value of the loan.

Piti - Principal, interest, taxes, and insurance. Also called monthly housing expense.

Points (Discount Points) - Essentially, money paid to a lender to lower your interest rate. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Power of Attorney - A legal document authorizing one person to act on behalf of another.

Prepaids - Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment - A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty - Fee charged for an early repayment of debt. Not allowed on FHA/VA loans.

Principal - The balance left on a loan, not counting interest.

Promissory Note - The borrower signs a note promising to repay the loan under the terms. Establishes personal liability for its repayment.

PUD (Planned Unit Developement) - A project or subdivision that consists of common property that is owned and maintained by an owners' association for the benefit and use of individual unit owners.

Recision - The cancellation of a contract. With respect to mortgage refinancing, the law gives the homeowner three mailing days from the date of signing to cancel a contract if the transaction uses equity in the home as security.

Recording Fees - Money paid to escrow for recording a home sale with the local authorities, there-by making it part of the public records.

RESPA - Real Estate Settlement Procedures Act is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information within three days after application only.

Servicing - All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes and insurance

Special Assessment - A legal charge against real estate by a public authority to pay costs for public improvements such as street lights, sidewalks, street improvements,etc. (Mello Roos)

Title - A document that gives evidence of an individual's ownership of property.

Title Insurance - A policy, usually issued by a title insurance company, which insures a homebuyer and lender against errors in the title search. The cost of the policy is related to the value of the property and is paid by the purchaser and/or seller.

Title Search - An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Truth-In-Lending - A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.

Underwriting - The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

VA Loan - A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee - A premium of up to 3 percent paid on a VA backed loan. Usually financed. The larger the down payment, if any, the lower the funding fee.

The accuracy of the information herein is deemed reliable but not guaranteed.

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