Whether you are buying a home or refinancing, applying for a mortgage is a big step. Use our Mortgage Terms Glossary to help understand every step of the process. Our glossary of mortgage loan terminology defines a variety of terms used by loan officers and real estate professionals.

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401(k)/403(b): Investment plans allowing employees to set aside tax-deferred income for retirement or emergency purposes. 401(k) investment plans are provided by private corporation employers. 403(b) plan is a retirement plan for university, civil government, and not-for-profit employees. Some plans allow for loans against the accumulated monies and this loan is an acceptable sources of down payments for most types of loans.

401(k)/403(b) loan: Some 401(k)/403(b) plan administrators allow for loans against the monies accumulated. Loans against 401K plans are an acceptable source of down payment for most types of loans. The Tax-Deferred 403(b)Plan Loan Program provides you with access to your 403(b)Plan money before retirement. And because the money is borrowed, rather than withdrawn, it isn’t subject to income taxes or early distribution penalties.
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Abstract of Title: A summary of public records pertaining to the title of a specific piece of property. The title insurance company or an attorney reviews the abstract of title to determine whether there are any title defects needing correction before a buyer can purchase it.

Abstract: Notes made by a title examiner based on his examination of the land records. These notes provide a concise summary of transactions affecting the property.

Abutting: The joining, reaching, or touching of an adjoining property. Abutting pieces of property share a common boundary.

Acceleration: The right of the lender to demand the immediate repayment of a mortgage loan balance upon either the default of the borrower, or by using the right vested in the Due-on-Sale Clause which demands immediate loan repayment if the home is sold.

Acceleration clause: Clause in the mortgage allowing the lender to demand payment immediately due and payable upon a noted event, such as the borrower defaulting on the loan or transfering title to another individual without informing lender.

Accidental Agency: See Implied Agency.

Accounting: An agent is obligated to account for all property or money belonging to the principal entrusted to that agent. See also Fiduciary Duties.

Accretion: Addition to land through natural causes, such as the building up of an island through volcanic activity or the building up of a beach through natural wave action.

Acknowledgement: A Declaration made by a person to a public official authorized to take acknowledgements, or a notary public, that the instrument was executed by him as a free and voluntary act.

Acre: Land equal to 43,560 square feet.

Action to quiet title: A court action to establish ownership to real property. Although technically not an action to remove a cloud on a title, the two actions are usually referred to as "Quiet Title" actions.

Ad Valorem: Designates an assessment of taxes against property.

Adjustable rate mortgage: A mortgage where the interest rate is adjusted periodically based on a pre-selected index. This is also sometimes known as the renegotiable rate mortgage or the variable rate mortgage.

Adjusted basis: The cost of a property plus the value of any capital expenditures for upgrades to the property minus any depreciation taken.

Adjustment date: The date that the interest rate changes on an adjustable-rate mortgage.

Adjustment period or interval: The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Adjustments: Money that the buyer and sellers credit each other at the time of closing.

Administator/Administratrix: A person appointed by a court to settle the estate of a deceased person who dies without a will. Also see Executor/Executrix.

Adverse Possession: The right of an occupant of land to acquire title against the real owner, where possession has been actual, continuous, hostile, visible, and distinct for the statutory period.

Affidavit: Written statement signed and sworn before an authorized person.

Affordability Analysis: An analysis of a buyer's ability to afford the purchase of a home. Reviews income, debts and available funds, and considers the type of mortgage being considered, the likely closing costs, and the area where you want to purchase a home.

Agency: A relationship in which the agent is given the authority to act on behalf of another person (principal). In real estate transactions, usually the seller is the principal, and the broker is the agent. In an agency relationship, the principal delegates to the agent the right to act on his or her behalf in business transactions and to exercise some discretion while so acting. The agent has a fiduciary relationship with the principal and owes to that principal the duties of Loyalty, Obedience, Disclosure, Confidentiality, Reasonable Care and Diligence, and Accounting. Also see Buyer's Broker, Exclusive Buyer's Broker, Seller's Broker.

Agreement: A meeting of minds. A change to the correct or alteration to the original document or agreement without modifying its principal essence or real meaning.

Agreement of Sale: A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. Usually (but not always) secured by the payment of earnest money. In some states it is known as a Purchase Agreement, Land Contract, or Earnest Money Contract.

Alienation Clause: A clause in a mortgage which gives the lender the right to call the entire loan balance due if the property is sold also known as due-on-sale clause.

Amenities: Nonmonetary benefits and satisfactions derived from property ownership, such as a pleasant view, pride in home ownership, etc.

Amortization: The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the amount applied to principal increases, the interest portion decreases as the loan balance decreases.

Amortization schedule: A schedule or table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. In addition, it shows the gradual decrease of the loan balance until it reaches zero.

Amortization Term: The length of time required to amortize the mortgage loan expressed as a number of months. For example, 480 months is the amortization term for a 40-year fixed-rate mortgage.

Amortized Mortgage: A mortgage which requires periodic payments which include both interest and principal. Also see Self Amortized Loan.

Annual Percentage Rage (APR): The interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate because it takes into account points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Antitrust Laws: Federal and state laws prohibiting, among other things, monopolies, monopolistic practices, restraint of trade, and price fixing.

Application: An initial statement of personal and financial information which is required to approve a loan.

Application Fee: Fees that are paid upon application. Charges for property appraisal and a credit report are usually included in the application fee.

Appointed Agency: Agency relationship where the Broker appoints one agent in the office to represent the seller and another agent in the same office to represent the buyer. Also known as Split Agency, Designated Agency. Prior relationships or conversations between the 2 agents appointed could possibly create a conflict of interest.

Appraisal: An opinion by a licensed appraiser of the fair market value of a property.

Appraisal fee: The charge for estimating the value of property offered as security.

Appraised Value: An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. An appraisal is based primarily on comparable sales.

Appraiser: An individual qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation: An increase in the value or worth of property.

Approved attorney: An attorney authorized by a title insurance company to handle closings and render title opinions.

Appurtenance: Anything attached to the land or used with it that passes to the new owner(s).

Arrears: A payment made after it is due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.

Asking price: The price placed on property for sale.

Assessment: A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assessment base: The total assessed value of all property in a given assessment district for a specific purpose, such as a sewer or street lights.

Assessed value: The value placed on a property by a public tax assessor for purposes of taxation.

Assessor: A local government official who determines the value of the property for taxation purposes.

Asset: Any possession that has value in an exchange.

Assign: To transfer interest.

Assignee: One who receives an assignment or transfer of rights. An assignment of a contract transfers the right to buy property.

Assignment: The transfer of a mortgage from one person to another.

Assignor: The one who assigns to another person.

Assumability: When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to the new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home.

Assumable mortgage: A mortgage that can be assumed by the buyer when property is sold. Usually, the borrower must "qualify" in order to assume the loan.

Assumption: The term applied when a buyer assumes the seller’s mortgage.

Assumption fee: The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Assumption of Mortgage: The transfer of title to property to a grantee wherein he assumes liability for payment of an existing note secured by a mortgage against the property.

Attached homes: A home that has one or more common walls adjoining another home. Condominiums and row houses are attached homes.

Attachment: The legal method by which a debtor's property is placed in the custody of the law and held as security pending outcome of a creditor's suit.

Attorney in fact: A type of agency relationship where one person holds a power of attorney allowing him to execute legal documents on behalf of another, noted as the principal. Decisions made by the attorney in fact are binding on the principal.

Attorney's Opinion of Title: An instrument written and signed by the attorney who examines the abstract of title, stating his opinion as to whether a seller may convey legal title.

Auction: A public sale of property to the highest bidder.
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Ballon Mortgage: A loan amortized over a longer period than the term of the loan. Usually this refers to a thirty-year amortization and a five year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.

Ballon Payment: The final lump sum payment that is due at the end of the balloon mortgage term period.

Bankruptcy: A court action to restructure debt. The most common for an individual is a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts.

Basis: Original cost of property plus value of any improvements put on by the seller minus the depreciation taken by the seller.

Beneficiary: The lender named on the mortgage note. One entitled to the proceeds of property held in trust, also proceeds of wills, insurance policies, or trusts.

Bill of sale: A written instrument given to pass title to personal property from a seller to a buyer.

Binder (Purchase): Same as 'Agreement of Sale'.

Binder (title commitment): A report issued by a title insurance company setting forth the condition of title and setting forth conditions under which the title company will issue a title insurance policy.

Biweekly Mortgage: A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time.

Biweekly Payment Mortgage: A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest than if monthly payments were made.

Blanket Mortgage: One mortgage on at least two pieces of real property.

Blockbusting: The illegal practice of inducing panic selling in a neighborhood by making representations of the entry of members of a minority group. See Panic Peddling and Fair Housing.

Bond Market: The bond market primarily includes government-issued securities and corporate debt securities, and facilitates the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing.

Borrower (Mortgagor): The borrower of money for a mortgage.

Breach of Contract: Without having a legal (possibly contractual) basis, one of the parties to a contract fails to perform according to the contract.

Bridge Financing: A financial agreement, generally made between a short term loan and a long term loan, where the borrower needs to have more time before taking on long term financing.

Bridge Loan: A loan that 'bridges' the gap between the purchase of a new home and the sale of the borrower's current home. The borrower's current home is used as collateral and the money is used to close on the new home before the current home is sold.

Broker: An individual who acts as a agent in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge or receive a commission for their services.

Brokerage: A real estate brokerage brings together parties interested in buying, selling, exchanging, or leasing real property. A fee is attached for this service.

BTU (British Thermal Unit): Unit of heat required to raise one pound of water one degree Fahrenheit.

Building code: Legal regulations that specify construction standards.

Building line (Setback): A line fixed at a certain distance from the sides of a lot beyond which no structure can project. Also see Setback.

Bundle of Rights: The real property rights which arise by reason of the ownership of the physical real estate; the right to use it, to sell it, to mortgage it, to lease it, to enter it, to give it away, etc, subject to legal restrictionsl.

Buydown: A reduction in the interest rate or monthly payments accomplished by payment of an additional fee. The reduced interest rate may hold for all or part of the loan term.

Buyer's Broker (Buyer's Agent): An agent who represents only the buyer in a transaction. An 'Exclusive Buyer's Broker' conducts his/her business by representing buyers only.
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Call option: Similar to the acceleration clause.

Cap: The maximum allowable interest rate increase for adjustable rate mortgages.

Capital: Money available for use in financing the day-to-day activities of a business.

Capital Gain: Increased funds gained on the sale of an appreciated asset.

Capitalization Rate: The ratio of property income to the market value of the property.

Caps (interest): Limit to the amount the interest rate on an adjustable rate mortgage which may change per year and/or the life of the loan.

Caps (payment): Limit on the amounts that monthly payments on an adjustable rate mortgage may change.

Cash flow: The amount of money received in period of time from an income-producing property less expenses of the property.

Cash out: The amount of money received above your original mortgage amount due to the equity in the property when refinancing your current mortgage.

Cash out refinance: A refinance giving the owner a higher amount than the current loan balance.

Caveat Emptor: A legal term meaning "let the buyer beware".

CCCS: Consumer Credit Counseling Services (CCCS) is a debt management service. This service, or others like it, noted on your credit report can be viewed as a negative mark on your credit until it is removed.

Ceiling: The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of deposit: A time deposit held in a bank which pays a certain amount of interest to the depositor.

Certificate of deposit index: A value used for determining interest rate changes on some adjustable rate mortgages; it is an average of what banks are paying on certificates of deposit.

Certificate of eligibility: A document which entitles qualified veterans to guaranteed VA loans for mobile homes, homes and business.

Certificate of occupancy: A written authorization given by a local government that allows a newly completed or substantially completed structure meets the local building standards to be inhabited.

Certificate of reasonable value: A document issued by the Department of Veterans Affairs (VA) establishing the maximum loan amount for a VA mortgage.

Certificate of title: A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner.

Certificate of veteran status: A document given to veterans or reservists who have served 90 days of continuous active duty.

Certified copy: A document copy attested (or certified) to be true by the officer holding the original.

Cestui que trust: Literally means the person for whose benefit the trust is created.

Chain of title: The succession of title ownership to real property from the present owner back to the original owner at some distant time.

Change frequency: The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Channeling: An illegal practice of directing people to or away from certain areas or neighborhoods because of minority status.

Charge-off: Used to describe when a lender has given up on your default and subsequently writing the debt off for tax or other book keeping purposes. This is noted on your credit report.

Chattel: Property, other than real estate, owned by an individual. Also called personal property.

Clear title: A land title that doesn't have any liens (including a mortgage) against it.

Client: Person (or other entity such as a company) who employs an agent. Typically in real estate transactions the seller is a client of the listing agent. A Client is also known as the Principal.

Closing: The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement.

Closing costs: These are expenses - over and above the price of the property - that are incurred by buyers and sellers when transferring ownership of a property. Closing costs can include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge, etc. The cost of closing is usually about 3% to 6% of the mortgage amount.

Closing statement: A detailed written summary of the financial settlement of a real estate transaction, showing all charges and credits made, and all cash received and paid out.

Cloud on title: An expression meaning that a claim on a property prevents the tansfer of a clear title when the property is sold.

Co-borrower: An additional individual who is both obligated on the loan and is on title to the property.

COFI: A measure of how much interest a financial institution must pay for money it borrows from savers in the form of deposits, or from other lenders such as a Federal Home Loan Bank.

Collateral: Something of value deposited with a lender as a pledge to insure repayment of a loan.

Collections: The process of resolving a delinquent, or past due, mortgage loan including, when necessary, proceeding with foreclosure.

Co-maker: Equally responsible party, with the principal borrower, for repayment of a loan/dept.

Commingling: An unlawful practice of combining or mixing client's funds with the agent's own funds.

Commission: An amount, usually a percentage of the property sales price, that is collected by a real estate professional as a fee for negotiating the transaction.

Commitment: A written promise between a lender and borrower to make or insure a loan for a specified amount and items.

Common area assessments: They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned development that are generally used to maintain the property and common areas.

Common areas: Those portions of a building, land, and amenities owned or managed by a planned development or homeowners' association that are used by all of the unit owners.

Common law: The body of law developed first in England from judicial decisions shaped by custom and precedent, but not written in any formal statute.

Community property: In some states property acquired during a couple's marriage that is considered to be owned jointly unless specifically acquired as separate property of either spouse.

Community Reinvestment Act (CRA): The federal law which requires federally regulated lenders to describe the geographical market area they serve. Deposits from that area are to be reinvested in that area whenever practical, and requires financial institutions to meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods.

Comparables: Properties which are similar to a particular property and are used to establish a value for that property.

Compound interest: Interest which is computed on the principal and any unpaid accumulated interest. Also see Simple interest.

Condemnation: The legal process for taking over privately owned property for public use, through due process under the right of eminent domain, with compensation to the owner.

Condominium: A form of real estate, usually a dwelling with individual ownership of separate portions of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.

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

Condominium hotel: A condominium project that has rental or registration desks, short-term occupancy units, food, telephone and daily cleaning services. The project is operated as a commercial hotel even though the units are individually owned.

Confidentiality: The obligation to safeguard the principal's lawful confidences and secrets. Therefore, a real estate broker or agent must keep confidential any information that may weaken principal's bargaining position.

Construction loan: A short-term, interim loan for financing the cost of construction. The lender makes payments (called draws) to the builder usually at specified intervals of completed work.

Consumer Reporting Agency: An agency that obtains data from a credit repository to prepare reports used by lenders to determine a potential borrower's credit history.

Contingency: Before a contract is binding, a dependent (or contingent) event must be satisfied, for example, before a contract is binding the buyer must sell his property.

Contingent fee: Any fee that is earned upon the occurence of some specified event; for example. listing contracts usually specify that the listing agent will be paid a fee at closing.

Contract: A binding agreement between two or more persons or entities by which rights to specific goods, services or actions are acquired/exchanged by the parties to the contract.

Contract for deed: A written agreement between the seller and buyer of a piece of property, whereby the buyer receives title to the property only after making a determined number of payments.

Contract for Exchange of Real Estate: A contract for the sale of real estate in which the consideration is paid wholly or partly in real property instead of cash.

Contract for sale: The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Contract sales price: The full purchase price as stated in the contract.

Conventional loan: A mortgage loan other than one insured or guaranteed by a government agency such as the FHA.

Convention mortgage: Refers to home loans other than government loans (VA and FHA).

Conversion clause: A provision allowing a ARM loan to be converted to a fixed-rate loan at some point during the term, usually at the end of the first adjustment period.

Convertable ARMs: ARMs that can be converted to a fixed rate term loan. Certain restrictions may apply.

Conveyance: A document, such as a deed, used to effect a transfer of property from one owner to another.

Cooperating agent: A real estate agent who sells a property. The selling agent may be the subagent or listing agent of the seller or a buyer's agent.

Cooperative housing: An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors.

Cost approach to value: An estimate of value based on current construction costs plus land value, less depreciation. See also Income Approach to Value and Market Approach to Value.

Cost basis: Accounting that includes original cost of property plus certain expenses such as money spent on permanent improvements and other costs, minus any depreciation claimed on tax returns over the years.

COFI (Cost of funds index): One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans.

Cost plus contract: A building contract which sets the builder's profit as a agreed upon percentage of the actual cost of labor and materials.

Counter offer: An offer made in response to a previous offer.

County: A division within a state, usually having within it one or more cities or towns.

Covenant: The part of a loan agreement that sets forth constraints as to what the borrower will and will not do regarding the property pledged as collateral for the loan.

Credit: An agreement in which a borrower receives something of value in exchange for a promise to compensate the lender at a future date.

Credit history: A record of an individual's repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.

Credit limit: The maximum amount that you can borrow.

Credit report: A record that lists all past and present debts and the timeliness of their repayment, and documents an individual's credit history.

Credit repository: An organization that gathers financial and public records information about the payment records of individuals who are being considered for credit.

Credit risk score: A statistical summary of the information contained in a consumer's credit report. A well known credit risk score is the FICO score, which is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report.

Creditor: A person to whom money is owed.

Cul-de-Sac: A dead end street which widens sufficiently at the end to permit an automobile to make a "U" turn.

Customer: A buyer who is working with an agent who represents the seller. The term may also define a seller who is working with an agent who represents the buyer.
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Debenture: Debt instrument evidencing the holder's right to receive interest and principal installments from the named debtor.

Debt service: the payments of principal and interest by a borrower to a lender.

Debt-service ratio: The measurement of debt payments to gross household income.
Debt-to-income ratio: The ratio, expressed as a percentage, resulting from dividing a borrower's monthly payment obligation on long-term debts is by his gross monthly income. See
housing expenses-to-income ratio.

Deceptive Trade Practices Act: Part of the federal Consumer Protection Act made specifically applicable to real estate in 1975, specifically prohibiting a lengthy number of false, misleading and deceptive acts or practices.

Declaration of restrictions: A set of restrictions filed by a subdivider to cover an entire tract or subdivision.

Dedication: An owner of private property gives said property for some public use, as the dedication of land for streets, schools, etc.

Deed: A formal written instrument by which title to real property is transferred from one person to another.

Deed of trust: A deed establishing a trust. It is used in some loan transactions in place of a mortgage. In a trust deed the property on which money has been lent is conveyed as collateral to a trustee, who holds it in trust for the benefit of the holder(s) of the loan notes.

Deed restriction: A limitation written into a deed limiting or restricting the use of the real property.

Deed-in-lieu: Short for "deed in lieu of foreclosure." This conveys title to the lender when the borrower is in default and wants to avoid foreclosure.

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

Defeasanse: A provision in a deed or in a separate instrument which, being performed, renders the instrument void.

Defective title: Title to real property missing some of the elements necessary to be a good/legal transfer title.

Deferred interest: When a monthly payment is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.

Deficiency judgment: Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the loan(s) and accrued interest.

Delinquency: Failure of a borrower to make payments on time; this can lead to foreclosure.

Delivery: The actual transfer of the deed, or an act of a seller showing intent to make a deed effective.

Department of Veterans Affairs (VA): An independent agency of the federal government that guarantees long-term, low or no-down payment mortgages to eligible veterans.

Deposit: A deposit made by the buyer as evidence of good faith in offering to purchase real estate and to secure performance of the contract.

Depreciation: Decrease in value to real property or improvements caused by deterioration, obsolescence, or economic factors.

Derogs: Derogatory credit history entries. From several various causes, these usually have a negative result on a credit report.

Descent: Property is acquired through inheritance laws when there is no will.

Designated agency: Agency relationship where the Broker appoints one agent in the office to represent the seller and/or another agent in the same office to represent the Buyer.

Devise: A transfer of real estate by will or last testament.

Devisee: One to whom real estate is given by will or last testament.

Devisor: A testator who leaves real estate.

Direct endorsement: A lender who can complete the processing and closing of an FHA loan without having prior approval from the FHA.

Direct reduction mortgage: An amortized mortgage in which principal and interest are computed on the remaining balance.

Disbursements: Payments made during the course of an escrow or at closing.

Disclosure: An agent is under obligation to disclose to the client all known relevant and material information that pertains to the scope of the agency.

Discount (ARM): An ARM with an initial discount, a lower number of percentage points of interest to provide a lower rate and lower payments for part of the mortgage term. After the discount period, the ARM rate will probably increase depending on the index rate.

Discount points: The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $200,000 mortgage would equal $4,000).

Discount rate: The interest rate the Federal Reserve System charges on a loan that it makes to a bank.

Dispossess: To remove a person from his or her real property by lawful means, including, if necessary, the use of force.

Documentary tax stamps: A form of tax in some states that requires a revenue stamp to be affixed to documents transferring title to real property.

Dower: The rights of a widow to some or all of her deceased husband's property.

Down payment: Money paid as a portion of the property purchase price that is paid in cash and is not part of the mortgage loan amount.

Dragnet clause: A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet.

Dual agency: Dual agency occurs when a real estate agent is representing both buyer and seller in the same transaction. Conflict of interest may arise from such an arrangement.

Due on sale: A clause in a mortgage agreement providing that, if the borrower sells, transfers, or, in some instances, encumbers the property, the lender has the right to demand the outstanding balance in full.

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 or transfers auy interest in the property.

Duress: Forcing action or inaction against a person's desire not to go in that direction.
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Earnest money: A deposit made by the buyer as evidence of good faith in offering to purchase property and to secure performance of the contract. Usually held by a title company in an escrow account.

Earnest money contract: See Agreement of Sale.

Earnest money deposit: A deposit made by the potential property purchaser to show that he or she is serious about purchasing the property.

Easement: A right held by one person to make specific, limited use of land owned by another person, such as a right of way for utilities.

Economic Obselescence: The property loses value due to external cause or events e.g., a sewer plant is built next door to the subject property; aka Functional Obsolescence.

Effective age: An official estimate, ususally by an appraiser, of the physical condition of a building. The actual age of a building may be different than its effective age.

Effective interest rate: For loans, the effective rate is the stated interest rate plus fees and charges prorated over the estimated life of the mortgage, usually ten years.

Emblements: Crops to which a tenant who cultivated the land is entitled by agreement with the owner.

Eminent domain: The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is a basis for condemnation proceedings.

Encroachment: An object which invades a portion of a property belonging to someone esle.

Encumbrance: A claim attached to real property, such as a lien, mortgage or unpaid taxes.

Endorsement: Writing one's name on a negotiable instrument, or on a paper attached to it, by which the signer transfers ownership of the instrument to another party.

Entitlement: A legal obligation on the federal government to make payments to a person, business, or governmental unit that meets the rules set in law.

Equal credit opportunity act: Federal law which prohibits creditors from certain forms of discrimination, such as race, gender, age, religion, etc.

Equal treatment: It is illegal for a person's treatment of another to be discriminatory, or tend to exclude or otherwise harm members of a minority group, or have discriminatory impact.

Equity: The difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

Escalator clause: The clause in a contract permitting adjustments of the payments based on an economic index that neither party to the agreement controls, such as an increase in the cost of living index,.

Escheat: The reversion of property to the state in the event the owner thereof dies without leaving a will (intestate) and has no heirs to whom the property may pass by lawful descent, or when the property is abandoned for a period of time.

Escrow: Temporary deposit, with a third party, of money to be delivered upon the fulfillment of a condition, such as the funds needed for such expenses as property taxes.

Escrow account: An account that holds money safely until needed to satisfy some obligation.

Escrow analysis: An annual analysis performed to make sure an adeuate amount of money is being collected to cover anticipated expenditures.

Escrow disbursements: The use of escrow funds to pay real estate taxes, property insurance, mortgage insurance, and other property expenses as they become due.

Escrow payment: The part of a mortgagor’s monthly payment, above the mortgage principal and interest, that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Escrow reimbursement: In an assumption or wrap loan transaction, the buyer reimburses the seller for the current balance of his escrow/impound funds.

Estate: The sum total of all the real property and personal property owned by an individual.

Estate at will: Possession of property at the discretion of the owner.

Estate for years: Tenant has rights in real property for a designated number of years.

Estimate of value: An appraisal (the appraised value).

Estimated closing costs statement: The statement which lists the financial settlement between buyer and seller and the costs each must pay. A separate statement for buyer and seller is sometimes prepared.

Estoppel: An impediment to a law of action, whereby one is forbidden to contradict or deny one's own previous statement or act.

Et ux: Abbreviation for "et uxor", meaning "and wife".

Eviction: 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.

Exclusive agency: The practice of representing either the buyer or the seller in a transaction. Owes Fiduciary Duties to the party he represents.

Exclusive buyer agency: The practice of representing only buyers and never sellers in a transaction.

Exclusive buyers broker/agent: The practice of representing only buyers and never sellers in a transaction. The company never lists a seller's property and thus never has a seller as a client. Agents never accept subagency that is offered by a seller's agent.

Exclusive listing: A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Exclusive rights to sell: A Listing Agreement which gives the listing agent the right to sell the property for a specified time, with the right to collect a commission if the property is sold by anyone, including the owner, during the listing period.

Exclusive seller agency: The practice of representing only sellers and never buyers in a transaction.

Executor or Executrix: A person named in a will to carry out its terms and administer the estate.
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Facilitator: An agent who assists the parties to a potential real estate transaction in communication, interposition, and negotiation, between or among them, without being an advocate for any interest. Does not represent any of the parties to the transaction.

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 housing laws: Federal, state, and local laws, particularly Title VIII of the 1968 Civil Rights Act, Title VI of the Civil Rights Act of 1964, and the Civil Rights Act of 1866, which forbid discrimination because of race, sex, color, religion, or national origin, in the selling or renting of homes or apartments, and in other specified transactions.

Fair market value: The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA): The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. FNMA was established for the purpose of purchasing loans from primary lenders (mortgage companies). FNMA is a private corporation and its stock is traded on the New York Stock Exchange. FNMA buys VA, FHA, and conventional mortgages from primary lenders.

Farmers Home Administration (FmHA): Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Bank: Provides liquidity to supervised financial service companies, such as savings and loans and credit unions. The bank system has several districts.

Federal Home Loan Board: The board which charters and regulates federal savings and loan associations, as well as controlling the system of Federal Home Loan Banks.

Federal Home Loan Mortgage Corporation (FHLMC), aka "Freddie Mac": Is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.

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 approved private lenders. FHA also sets standards for underwriting mortgages.

Federal Reserve Bank: The regulatory agency for certain commercial banks and bank holding companies. Sets monetary policy for the country and provides liquidity for supervised financial institutions.

Federal tax lien: A lien attached to property for nonpayment of a federal tax.

Fee simple: The greatest possible interest a person can have in real estate.

Fee simple estate: The most complete form of ownership of real property absolute ownership. Commonly used to to denote a property where the owner has undivided title to the land on which the property is situated.

FHA loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. These loans are generous enough to handle moderately-priced homes almost anywhere in the country.

FHA mortgage: A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

FHA mortgage insurance: Requires a fee paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments.
Fiduciary Duties: A broker or agent always owes these duties to the person they are representing: Loyalty, Obedience, Disclosure, Confidentiality, Reasonable Care and Diligence, and Accounting. These duties are inherent in all agency relationships and enforced by all courts of law in the US.

Firm commitment: A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

First mortgage: The primary lien against a property.

Fixed rate mortgage: The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

Fixture: Personal property that becomes real property when attached in a permanent manner to real estate.

Flood insurance: Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Foreclosure: A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Fraud: A misstatement of a material fact made with intent to deceive or made with reckless disregard of the truth, and which actually does deceive.

Front foot: One linear foot (12 inches) along the street side of a lot.

Full disclosure: Revealing all the known facts which may affect the decision of a buyer or tenant.

Fully amortized ARM: An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
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General lien: A lien that includes all the property owned by a debtor, rather than a specific property. Also see Specific Lien.

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. A general warranty deed offers the most protection of any deed.

Ginnie Mae: See GNMA (Government National Mortgage Association)

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

Good faith estimate: A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Government survey method: A system of land description (not used in Texas) which uses meridians (north and south lines) and base lines (east and west lines). Areas include quadrangles (24 miles on each side), townships (6 miles on each side), and sections (1 mile on each side).

Grace period: A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Graduated payment mortgage (GPM): 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.

Grandfather clause: The clause in a law permitting the continuation of a use, business, etc., which, when was permissible but, because of a change in the law is now not permissible.

Grantee: A person to whom real estate is conveyed (the buyer).

Grantor: A person conveying real estate by deed (the seller).

Gross debt service: The amount of money needed to pay principal, interest and taxes, and sometimes energy costs. If the dwelling unit is a condominium, all or a portion of common fees are excluded, depending on what expenses are covered.

Gross income: For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Gross lease: A property lease where the landlord pays charges regularly incurred by the owner, such as taxes, insurance, utilities, and repairs.

Ground rent: Rent paid for vacant land. If the property is improved, ground rent is the portion attributable to the land only.

Growing equity mortgage (GEM): A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.

Guarantee mortgage: A mortgage that is guaranteed by a third party.
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Habendum clause: The "to have and hold" clause which defines or limits the quantity of the estate granted in the premises of the deed.

Hazard insurance: A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Heirs and Assigns: (1) An heir is one who receives property from someone who has died. One who might inherit or succeed to an interest in a property under the rules of law applicipable when a property owner dies. (2) Assigns: A person or persons to whom a property right is transferred.

Hereditaments: Property, personal and real, capable of being inherited.

Holographic will: Will written entirely in the testator's handwriting but has not been witnessed.

Home equity conversion mortgage (HECM): Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.

Home equity line of credit: A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home equity loan: A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible.

Home inspection: A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

Homeowner's fees: Also known as maintenance fees. Payments made by property owner(s) of a condominium or a unit in PUD (Planned Unit Development) to the homeowners' association for expenses incurred in upkeep of the common areas.

Homeowner's insurance: An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Homeowner's warranty: A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period.

Homestead: Land, and the improvements thereon, designated by the owner as his homestead and, therefore, protected by state law from forced sale by certain creditors of the owner. Not applicable in all states.
Housing expenses-to-income ratio: The ratio, expressed as a percentage, resulting from dividing a borrower's housing expenses by his gross monthly income. Also see
debt-to-income ratio.

HUD 1: Settlement statement mandated by the US Department of Housing and Urban Development.

HUD-1 statement: A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing.
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Implied agency: Any agency relationship that is indicated by the words and/or actions of the agent or principal rather than by written agreement also called accidental agency. See for a more detailed description.

Impound account: Account held by a lender for payment of taxes, insurance, or other expenses. Sometimes called Escrow Account.

Improvements: Valuable additions to the land, such as buildings, fences, roads, etc., which increase the value of the property.
Income approach to value: An estimate of value based on the monetary returns that a property can be expected to generate capitalization. Also see Cost Approach to Value and Market Approach to Value.

Index: A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Indexed rate: The sum of the published index plus the margin. For example if the index were 7% and the margin 1.75%, the indexed rate would be 8.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.

Initial interest rate: This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."

Inspection clause: A stipulation in an offer to purchase that makes the sale contingent on the findings of a home inspector.

Installment sale: A tax term used to describe a sale which is usually accomplished by use of a land contract, contract for deed, agreement of sale, conditional sales contract, or installment contract.

Insurable title: A title which a title company will insure.

Insured mortgage: A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

Interest: The fee charged for using another's money or credit. It is expressed as a percentage rate over a period of time.

Interest accrual rate: The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest rate buydown plan: An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.

Interest rate ceiling: For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest rate floor: For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Interim financing: A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Intermediary: A broker who acts as an Intermediary in a transaction does not represent either party. He may not do anything that would give any party to the transaction an advantage over any other party.

Intestate: Legal designation of a person who has died without leaving a valid will.

Intimidation: As defined in the fair housing laws, it is the illegal act of coercing, intimidating, threatening, or interfering with a person in exercising or enjoying any right granted or protected by federal, state or local fair housing laws.
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Joint and several: A liability which allows the creditor to sue any one of the debtors or sue all together.

Joint tenancy: A form of ownership where two or more people have an undivided interest in a property, with the right of survivorship. Upon the death of one owner, his/her interest passes to the remaining owners and not to the heirs or the devises of the deceased.

Judgement: The official and authentic decision of a court of justice concerning the respective rights and claims of the parties to an action or suit. Money judgments, when recorded, become a lien on real property of the defendant.

Judgements (Tax liens or General liens): These are usually at the end of your account histories, and while they don't always necessarily damage your credit rating, they can really impair your ability to borrow money.

Judicial foreclosure: A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

Jumbo loan: A loan which is larger (more than $240,000 as of 1/1/99) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Jumbo loans cannot be funded by these two agencies.
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Laches: Delay or negligence in asserting one's rights.

Late charge: A penalty for failure to pay an installment on time.

Late mortgage payments: Mortgage payments are the most critical account on your credit history. Less than 12 months history leaves your credit report kind of thin, good history boosts your overall rating, and any 'lates' really hurt your credit rating, even if it's on rental property. Mortgage 'lates' stay on your credit report for seven years.

Late pays: The most common "derog" is related to late payment history. The more late pays you have the worse your report is. Or if you have one or two accounts that show a severe delinquency record, you have some bad credit.

Latent defect: Hidden structural defects and flaws.

Lease with option to purchase: A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.

Leasehold estate: A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Lease-purchase mortgage loan: An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.

Legal description: A description of a specific parcel of real estate acceptable to the courts in that state, and which allows an independent surveyor to locate and identify it.

Lender: A company, institution or person that loans money with the intention of a full repayment of the debt. Most commonly, this debt is repaid with interest.

Less favorable treatment: Any time a person is treated differently on the basis of race, sex, religion, color, familial status, disability, or national origin, either by action or inaction, in the selling or leasing of real property, is a violation of the Fair Housing Laws.

Lessee: Individual (tenant) leasing property.

Lessor: One who leases property to a tenant.

Leverage: The use of borrowed funds to finance an investment and to magnify the rate of return.

Liabilities: A person's financial obligations. Liabilities include long-term and short-term debt.

Liability insurance: Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner’s insurance policy.

Lien theory state: States where here legal title of mortgaged property resides with the mortgagor (borrower), with the mortgage as a lien against the property.

Lien: An encumbrance against property for money, either voluntary or involuntary.

Life estate: An interest in real property for the life of a living person. The interest then reverts back to the grantor or on to a third party. (This is useful for investors who want to purchase a property they believe will be more valuable in the future.)

Lifetime payment cap: For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lis pendens: A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

Listing agreement: The legal agreement between the listing agent/broker and the vendor, setting out the services to be rendered, describing the property for sale, and stating the terms of payment.

Loan history: Having a proven track record goes a long way toward qualifying for a new mortgage. Many second mortgage lenders won't make a loan, or they limit the loan amount, for people who haven't had at least a 12-month mortgage rating in the past 12 months.

Loan package: The complete package of information given to the lender regarding the borrower and the property which the lender uses to evaluate the financial state of the borrower and the property.

Loan servicing: After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

Loan ratio (Loan-to-value ratio): The ratio of the mortgage loan amount to the properties appraised value (or the selling price whichever is less). If you purchase a property for $100,000 and make a $20,000 down payment the loan to value ratio will be 80%.

Lock in: A commitment you obtain from a lender assuring you a particular interest rate or feature or a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Lock-in period: The time period during which the lender has guaranteed an interest rate to a borrower.

Loyalty: One of the most fundamental fiduciary duties an agent owes to the principal. The duty obligates a real estate broker to act at all times, solely in the best interests of the principal, excluding all other interests, including that of the broker.
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Margin: An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.
Market approach to value: An estimate of value based on the actual sales prices of comparable properties. Also see Cost and Income Approach to Value.

Market value: The price that a willing buyer and a willing seller, both given full information, and neither under pressure to act, would agree upon. Also known as Fair Market Value.

Marketable title: Title which can be readily marketed to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

Maturity: The date on which the principal balance of a loan becomes due and payable.

Mechanic's lien: A lien created by statue for the purpose of securing priority of payment for the price of value of work performed and materials furnished in construction of repair of improvements to land, and which attached to the land as well as the improvements.

Metes and bounds: A system of land description using distance (metes) and angles/compass directions (bounds), beginning and ending at the same point. See Government Survey Method and Recorded Plat Method.

Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage insurance premium: It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.

Misrepresentation: A false statement, or concealment, of material fact with the intention of inducing action of another.

Monument: A fixed object or point, either natural or man-made, used in making a survey.

Mortgage contract: A contract providing security for the repayment of a loan, registered against property, with stated rights and remedies in the event of default. Lenders consider both the property and financial worth of the borrower in deciding whether to make a mortgage loan.

Mortgage loan: A loan secured by the collateral of specified real estate property which obliges the borrower to make a predetermined series of payments. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges (in some states), and special assessments.

Mortgage broker: An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.

Mortgage guaranty insurance corporation (MGIC): A private corporation which, for a fee, insures mortgage loans similar to FHA and VA insurance, although not insuring as great a percentage of the loan.

Mortgage insurance: Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance (PMI), FHA mortgage insurance.

Mortgage life and disability insurance: A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in the event of disability. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. In the case of disability insurance, the insurance will make the mortgage payment for a specified amount of time during the disability.

Mortgage loan: A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgage note: A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the actual amount of the debt and the manner in which it shall be paid.

Mortgage warehousing: A process whereby a mortgage company will hold loans which would ordinarily be sold, in order to sell at a lower discount later. These are used as collateral security with a bank to borrow additional money to loan.

Mortgagee: The lender of money or the receiver of the mortgage document.

Mortgagor: The borrower in a mortgage agreement.

Multidwelling units: Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multiple listing service (MLS): A system by which a number of real estate firms share information about homes that are for sale.
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Negative amortization: Occurs when your monthly payments are not large enough to pay all the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan. A danger of negative amortization is that the home buyer could end up owing more than the original loan.

Net effective income: The borrower's gross income minus federal income tax.

Net listing: A price, which must be expressly agreed upon, below which the owner will not sell the property and at which the broker will not receive a commission.

No cash-out refinance: A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is caculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage.

No-cost loan: Almost all lenders offer loans at "no points." You will find the interest rate on a "no points" loan is approximately a quarter percent higher than on a loan where you pay one point.

Non-assumption clause: A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

Nonconforming use: A property which does not conform to the zoning of an area.

Note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Note rate: The interest rate stated on a mortgage note.

Notice of default: A formal written notice to a borrower that a default has occurred and that legal action may be taken.
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Obsolescence: A loss in value of real property caused by changes either internal or external to the property.

One-year adjustable: Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.

Open end mortgage: A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually, as to the assets of the mortgage.

Open house: An opportunity for prospective buyers to view a house.

Open listing: A listing under which the principal (owner) reserves the right to list his property with other brokers.

Option: The right to purchase property within a definite time at a specified price. There is no obligation to purchase, but the seller is obligated to sell if the option holder exercise the right to purchase. For the option to be valid, it must include consideration.

Origination fee: The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property.

Owner financing: A property purchase transaction in which the property seller provides all or part of the financing.

Owners title police: Title insurance for the owner of property. Insurance to defend the owner against enforcement of any liens or encumberances against the property that were in place prior to the issuance of the policy.
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Package mortgage: Mortgage covers real and personal property.
Panic peddling: An illegal practice of creating panic selling in a neighborhood by asserting the prospective entry of members of a minority group.

Partial payment: A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

Participating agent: The real estate agent selling the property. The selling agent may be (1)the subagent or listing agent of the seller, (2)a buyer's agent, or (3)a dual agent.

Party wall: Wall erected on the property line for the use of both properties.

Payment change date: The effective date of a new monthly payment amount takes on an adjustable-rate mortgage (ARM) or graduated-payment mortgage (GPM).

Percentage lease: Lease in which all or part of rental is a specified percentage of gross income from total sales made upon the premises.

Periodic payment: A limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic rate cap: For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

Permanent loan: A long term mortgage, usually ten years or more. Also called an "end loan."

Permanent mortgage: A mortgage on completed construction on the same property under one mortgage or trust deed.

Personal property: Any property that is not real property.

Physical deterioration: The value loss to real property due to the action of the elements and old age. Physical deterioration can be either curable or incurable.

PITI: Principal, Interest,Taxes and Insurance. The amount of the monthly payment (principal, interest, plus an amount to be placed into the escrow (impound) account.

Planned unit development: A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual unit owners.

Pledged account mortgage: Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

PMI: Private Mortgage Insurance similar to FHA or VA insurance, insuring part (normally the top 20%) of the first mortgage or deed of trust, enabling a lender to make a conventional loan of a higher percentage of the property value.

Pocket listing: An agent lists a property for sale and does not enter it into the MLS system for several days, keeping it in his "pocket" so other agents will not know the property is for sale.

Point/points: Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Police power: The authority of a government to adopt and enforce law governing the use of real estate based on the need to promote public safety, health, and general welfare.

Power of attorney: A legal document authorizing another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-approval: Determining how much money you will be eligible to borrow before you apply for a loan.

Prepaid 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: Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure.

Prepayment clause: A mortgage Statement of the terms upon which the mortgagor (borrower) may pay the entire or stated amount on the mortgage principal at some time prior to the due date.

Prepayment penalty: A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-qualification: This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings.

Primary mortgage market: Lenders who originate loans and makes funds available directly to the borrowers.

Prime rate: The interest, or discount rate charged by a commercial bank to its largest and strongest customers.

Principal: The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal balance: The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.

Promissory note: A written promise to repay a specified amount over a specified period of time.

Property tax: A tax levied on both real and personal property.

Pro-rate: To divide or distribute proportionally. At closing, various expenses such as taxes, insurance, interest, rents, etc. are prorated between the seller and buyer.

Public auction: A meeting in an announced public location to sell property to repay a mortgage that is in default.

Purchase agreement: A written contract signed by the buyer and seller stating the terms and conditions that a property will be sold.

Purchase money transaction: The acquisition of property through the payment of money or its equivalent.

Purchase offer: A document that lists the price, terms and conditions that a buyer is willing to purchase a property.
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Qualify: To meet a mortgage lender's approval requirements.

Qualifying ratios: Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

Quit claim deed: A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land.
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Rate lock: A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

Ready, willing and able: A buyer who is prepared to buy on the and has the financial capacity to do so.

Real estate agent: A person licensed to negotiate and transact the sale of real estate.

Real estate board: A non profit organization representing local real estate agents/brokers and salespeople, which provides services to its members. The board usually maintains and operates the Multiple Listing Service in the community.

Real estate inspector: Individual or company who is trained and qualified to inspect property.

Real estate settlement procedure act (RESPA): A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real Estate Transaction Standard (RETS): XML specification for exchanging real estate transaction information.

Real estate/property: Vacant land or land with improvements and the rights to own or use them.

REALTOR: A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.

Realty: Refers to land and buildings and other improvements from a physical standpoint.

Reasonable care and diligence: An agent, competent real estate professional, is obligated to use reasonable care and diligence when pursuing the principal's affairs.

Receiver: Court-appointed custodian who controls property for the court, until the final disposition of the matter before the court.

Recission: The cancellation of a contract. For mortgage refinancing, the homeowner is given 3 days by law to cancel a contract once it is signed provided the transaction uses equity in the home as security.

Recital: With a deed or other writing, setting forth some explanation for the transaction.

Recorded: A written document that has been entered into the public records filed with the County Recorder's office.

Recorder: The public official who retains records of transactions that deal with real property in the area.

Recording fees: Money paid to the lender for recording a home sale with the proper authorities, thereby making the record of the home sale part of the public records.

Recording: The written record of title to real property is entered in the public records, thereby giving constructive notice to the public.

Recourse: The right of the holder of a note to look personally to the borrower or endorser for payment of the note secured by a mortgage or deed of trust.

Recovery fund: A fund controled by a state Real Estate Commission. Upon court order due to illegal acts of licensees, the fund is used to reimburse the public for monetary loss.

Redlining: The illegal practice of refusing or limiting mortgage loans in certain neighborhoods on the basis of racial or ethnic composition.

Refinance: Getting a new mortgage loan on a property already owned.

Regulation Z: Truth in lending law by the Federal Reserve System requiring lenders to provide full disclosure of the terms of the loan, including expressing interest rates as an annual percentage rate.

Reissuerate: A charge, usually less than the original, for a title insurance policy if a previous policy on the same property was issued within a specified period.

Real Estate Investment Trusts (REIT): A method of investing, with cetatin tax advantages, in real estate with a group.

Release: To relinquish an interest or claim to a piece of property.

Renegotiable rate mortgage: A loan in which the interest rate is periodically adjusted.

Repayment plan: An agreement made to repay delinquent installments or advances.

Repossession: The act of re-acquiring property, voluntarily surrendered or not, mainly as a result of non-payment of agreed compensation.

Real Estate Settlement Procedures Act (RESPA): A federal law dealing with the procedures for a real estate closing. It requires disclosure of certain costs in the sale of improved residential property.

Restrictions: Limitations on the occupancy or use of real estate contained in a deed or in local ordinances pertaining to land use.

Reverse mortgage: A special type of loan available to equity-rich, older owners. Repayment is not necessary until the borrower sells the property or moves into a retirement community.

Revolving debt/liability: A credit arrangement that allows a customer to borrow against a preapproved line of credit when purchasing services and goods.

Right of first refusal: An agreement provision that requires the owner of a property to give one party the first opportunity to purchase or lease the property before the property is offered for sale or lease to another.

Right of egress or ingress: The right to enter or leave designated properties.

Right of survivorship: The right of survivor(s) to obtain the interest of a deceased joint tenant.
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Sales contract: A written agreement giving the terms of a sale agreed to by both seller and buyer.

Sale-leaseback: A procedure in which a seller, for consideration, deeds property to a buyer whereupon the buyer concurrently leases the property back to the seller.

Satisfaction of mortgage: This is a document issued by the mortgagee when the mortgage loan is paid in full.

Second mortgage: An additional mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary financing: Assistance provided for downpayment purposes.

Secured loan: A loan backed by collateral.

Security: Property pledged as collateral for a loan.

Self amortized loan: A loan which will end the debt by the systematic payments of combined principal and interest. At the end of the loan period, the balance will be zero.

Seller carry-back: The seller of the property carries a second trust deed and note against the property.

Selling agent: A real estate agent who sells a property.

Septic system: A sewage system where waste is drained through conduits into a septic tank.

Servicer: An organization which collects principal and interest payments from borrowers and manages their escrow accounts.

Servicing a loan: The ongoing process of collecting a monthly mortgage payment, including accounting for and payment of the yearly tax and/or homeowners insurance bills.
Setback: The distance between a building and the property lines to be in accordance with local zoning ordinances or deed restrictions.

Settled account: An delinquent account on which one gets a creditor to settle for less than full payoff.

Settlement statement: A prepared statement prepared giving a complete breakdown of costs involved in a real estate sale transaction.

Shared appreciation mortgage: A mortgage where a borrower receives a below-market interest rate in return for which the lender receives a portion of the future appreciation in the value of the property.

Sheriff's deed: The deed given at a sheriff's sale in foreclosure of a mortgage.

Simple interest: Interest computed only on the principal balance.

Special warranty deed: A deed in which the grantor guarantees the title only against defects arising during the period of his or her occupancy and ownership of the property.

Special lien: A claim that only affects or applies to a certain property or group of properties.

Specific performance suit: A legal action brought by either a seller or buyer to enforce compliance to the terms of a contract.

Split agency: Agency relationship where both the agent representing the buyer and the agent representing the seller or in the same office.

Square footage: The area in square feet of a building or tract of land.

Standard payment calculation: The method used to calculate the monthly payment required to repay the remaining balance of a mortgage in relatively equal installments over the remaining period of the mortgage.

Statute of frauds: The law which requires (in part) that all contracts transferring real estate, or for the leasing of real estate for more than one year, must be written to be enforceable.

Statutory year: A total of 360 days composed of twelve 30-day months.

Steering: The illegal practice of directing members of minority groups, racial or otherwise, away from or to certain areas or neighborhoods

Step-rate mortgage: A loan that allows a gradual increase in the interest rate during the first few years (i.e., 5 years) of the loan, and then remains constant for the remainder of the load period.

Subagent: One who is employed by a person already acting as an agent. Typically a salesperson licensed under a broker (agent) who is employed under the terms of a listing agreement.

Subdivision: A housing development that is created by segmenting a tract of land into smaller lots for sale or lease.

Subordinate financing: A mortgage or lien that has a priority that is lower than that of the first mortgage.

Substitute of trustee: A legal recorded document to change the trustee under the deed of trust.

Substitution principle: The principle which indicates that a buyer will pay no more for a property than the cost of an equally desirable alternative property.

Survey: Demonstrating the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

Sweat equity: Equity created by a buyer performing work on a property he is purchasing.
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Tax lien: A claim against assets filed by a taxing authority against property of a person who owes back taxes.

Tax sale: After a period of nonpayment of property taxes, the property can be sold at a public sale of property at auction by a governmental authority.

Tenancy by the entirety: Ownership whereby the husband and wife each owns the entire property. In event of death of one, the survivor owns the property without probate.

Tenancy in common: Property ownership in which two or more people have an undivided interest in property, without survivorship rights. That is, upon death of one of the owners, his interest passes to his heir(s) or designatee(s).

Tenement: Everything that may be occupied by a tenant holding lease rights.

Term: The actual life of a mortgage, at the end of which the mortgage becomes due and payable.

Third-party organization: Any outside company with which the lender contracts to provide morgage processing services.

Time is of the essence: A contract clause which makes failure to perform by a specified date a violation or material breach of the contract.

Timeshare: An arrangement under which a purchaser receives an interest in real property and the right to use specified accommodations and/or amenities for a specified period and on a recurring basis.

Title: A legal document setting forth a person's ownership of property.

Title company: A company that provides title insurance policies and title examination.

Title insurance: Insurance to protect a lender or owner against loss in the event of a property ownership dispute.

Title search: The examination of official records for the property's title history to determine the 'chain of title' and the current status of title, including such concerns as owner, legal description, property taxes due, encumbrances, judgments or other liens.

Torrens system: A system of the registration of interests in land in which documents are closely regulated, monitored, and examined by the recording authority to ensure that they are correct and that title is transferred without flaw.

Total expense ratio: The total obligations, including monthly housing expenses plus other monthly debts, as a percentage of gross monthly income.

Townhouse: A dwelling unit usually with two or three levels, and shared walls.

Transaction fee: A fee charged each time you draw on a home equity credit line.

Transfer of ownership: The ownership of a property changes hands.

Transfer tax: Tax payable when title passes from one owner to another.

Treasury index: An index that is used to determine interest rate changes for certain adjustable rate mortgages.

Trustee: The person who manages assets owned by a trust under the terms of the trust document, to safeguard the trust and distribute trust income or principal as directed by the document.

Two-step mortgage: A mortgage where the borrower receives a below-market interest rate for a specified number of years and then receives a new interest rate adjusted (within certain limits) to current market conditions.
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Underwriting: The process by which a lender decides whether a potential creditor is creditworthy and should receive a loan.

Undisclosed dual agency: A relationship, illegal in all states, where the real estate agent is the agent of both the buyer and seller in a transaction, but without the knowledge and informed consent of both parties.

Usury: Charging more than the rate of interest allowed by law.
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VA: The Veterans Administration, a federal agency which guarantees loans made to qualified veterans on approved properties.

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: A mortgage guaranteed by the VA.

Variable rate mortgage: Same as adjustable rate mortgage (ARM).

Vendee: The one buying the property.

Vendor: The one selling the property.

Verification of deposit: A document signed by the borrower's financial institution verifying the status and balance of the borrower's financial accounts.

Verification of employment: A document signed by the borrower's employer verifying the borrower's employment.

Vested: Having the rights of ownership, although enjoyment of those rights may be delayed until a future date.

Void: Having no legal force.

Voidable: A document which appears valid and enforceable, but may be declared invalid by one of the parties.
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Waiver: A voluntary or intentional relinquishment of a known claim or right.

Warehouse fee: When the prime rate of interest is higher on short term loans than on mortgage loans, a mortgage firm can have an economic loss. This loss is offset by charging a warehouse fee.

Wraparound mortgage: A refinanced home loan where the balances on all mortgages are combined into one loan.

Writ of execution: A writ to put in force the sentence or judgement that the law has given.

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Zero lot line: The construction of a structure on any of the boundary lines of a lot. A structure is usually built on the front line, such as a store built to the sidewalk.

Zoning: Regulatory government agencies manage the physical development of land and the uses of individual properties.

What is a seller concession?

A set dollar amount or percentage of the purchase price (3% or 6% usually) that a seller agrees to give the buyer towards closing costs. This can help to lower the amount of money required to close and/or reduce mortgage payments since the concession can also be used to buy down the mortgage.


How to negotiate a seller concession

The best way is to indicate early on that a seller concession will be requested - negotiate the �net price� first - and then add on the seller concession. It is important to point out that the seller will receive nothing less, and the buyer will in essence pay nothing more.


How to calculate a seller concession

The net price represents the contract price, minus the concession. When using a 6% concession therefore the net price is 94% of the contract price. If the agreed to net price is say $300,000, then the contract price would be $319,149 (300,000/94*100), and the amount of the concession $19,149.


What if the lender or the appraiser does not accept this?

Every mortgage lender accepts seller concessions, but lending criteria apply. A good way to go is to use a 6% seller concession, which may need to be reduced if the property does not appraise at the contract price, or if there are lending restrictions.

Buyers may qualify for more!

If the concession is used to buy down the mortgage, buyers may qualify for more (as much as 50% more!) since they can often be qualified at the lower rate!

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