1003: Uniform Residential Loan
Abstract Title: A written history of
the ownership of a parcel of land.
Acceleration Clause: Allows the lender
to speed up the rate at which your loan comes
due or even to demand immediate payment of the
entire outstanding balance of the loan should
your default on you loan.
Adjustable Rate Mortgage (ARM):
A mortgage in which the interest rate is
adjusted periodically based on a pre-selected
Adjustment Interval: On an adjustable
rate mortgage, the time between changes in the
interest rate and/or monthly payment, typically
one, three or five years, depending on the loan
Amortization: Refers to the principal
portion of the loan payment and the portion
going to interest for each payment. In the
beginning of a mortgage loan, more of the
monthly payment goes toward interest than
principal. Towards the end of the loan, the
opposite is true. A fully amortized loan will be
completely paid off at the end of the loan term.
Annual Percentage Rate (APR):
An interest rate reflecting the cost of a
mortgage as a yearly rate. This rate is likely
to be higher than the stated note rate or
advertised rate on the mortgage because it takes
into account points and other closing costs. The
APR allows homebuyers to compare different types
of mortgages based on the annual cost for each
Appraisal: An estimate of the value of
real property made by a qualified professional
called an appraiser. An appraisal will be needed
to determine the value of real property in order
to reassure the lender there is sufficient
collateral to recoup their loss if the borrower
Assumption: An agreement between buyer
and seller where the buyer takes over the
payments on an existing mortgage from the
seller. This must be approved by the lender and
be allowed by the note, which was originally
signed by the seller.
Back-End Ratio: This refers to the
debt-to-income ratio calculated using principal,
interest, taxes, insurance and consumer credit
obligations divided by gross monthly income. It
is expressed as a percentage.
Balloon: Usually a short-term
fixed-rate loan, which involves small payments
for a certain period of time and one large
payment for the remaining amount of the
principal at a time specified in the contract.
It typically has a conditional right to
Beneficiary: The entity funding the
loan. This is the entity to which the loan is
Buy Down: When the borrower pays a fee
(included in the loan amount) to temporary lower
the interest rate during the first few years of
the loan. While the payments are initially low,
they will increase when the interest rate
increases. A buy down is used in situations when
the borrowers reasonably expect their income to
increase from their present situation.
Cap: The highest rate that an
adjustable rate mortgage may reach. It can be
expressed as the actual rate or as the amount of
change allowed above the start rate. For
example, a 7.5 % start rate with a 6% rate
change cap would have a maximum interest rate
cap of 13.5%.
Cash Out: Any funds disbursed directly
to the borrower.
Certificate of Occupancy: A certificate
issued by local city government to a builder,
stating that the building is in proper condition
to be occupied.
Certified Copy: A true copy, attested
to be true by the officer holding the original.
It should have an authorized stamp and signature
stating that it is a true copy.
Closing: The meeting between the buyer,
seller and lender or their agents, where the
property and funds legally change hands. Also
called a settlement.
Closing Costs: Usually include an
origination fee, discount points, appraisal fee,
title search and insurance, survey, taxes, deed
recording fee, credit report charge and other
costs assessed at settlement. The costs of
closing usually are about 3 percent to 6 percent
of the total mortgage amount.
Commission: An agent�s or broker�s
fee for bringing the principals together and
helping to negotiate a real estate transaction,
a percentage of the sales price or flat fee.
Commitment: An agreement in writing,
between a lender and a borrower to loan money at
a future date subject to the completion of
paperwork or compliance with stated conditions.
Comp / Comparable: A property with the
same basic characteristics as the property
someone is attempting to find the value of
(usually a real estate appraiser.) It should
have been sold recently and be as similar as
Condominium: A property owned as a
group, with rights to occupy specific units of
the structure. An overseeing board, often
referred to as a Homeowners Association, governs
Construction Loan: A short-term interim
loan for financing the cost of construction. The
lender advances funds to the builder at periodic
intervals as the work progresses.
Consumer Credit: Credit owed by an
individual, not secured by real estate.
Contingency: A condition that must be
met for a contract or a commitment to remain
Conventional Loan: A mortgage not
insured by FHA or guaranteed by the VA or
Farmers Home Administration (FMHA).
Conversion Clause: A provision in some
ARMs, (Adjustable Rate Mortgages) that allow
borrowers to change the ARM to a fixed-rate loan
at some point during the loan term.
Credit Ratio: The ratio, expressed as a
percentage, which results when a borrower�s
monthly payment obligation on long-term debts is
divided by their net effective income or
gross monthly income (Conventional loans).
Credit Report: A documented history of
a buyers past credit performance.
Credit Score: The score given to an
individual to determine their credit worthiness.
These scores come from Experian, Equifax and
TransUnion. The range is 350 to 850.
Debt Ratio: The customer�s monthly
obligations divided by their monthly gross
income. See also Back End Ratio.
Deed: The legal document which conveys
the title to a property.
Deed of Trust: A document which pledges
real property to secure a debt. In some cases a
deed of trust can replace a mortgage.
Default: Failure to meet legal
obligations in a contract, specifically, failure
to make the monthly payments on a mortgage.
Delinquency: Failure to make agreed to
monthly payments on time.
Department of Veterans Affairs: An
independent agency of the federal government
which guarantees long-term, low- or no-down
payment mortgages to eligible veterans. (VA)
Derog Letter: A letter written by the
borrower giving an explanation for any
Derog: This is short for derogatory and
refers to negative credit items.
Discharge: Following a completed
bankruptcy proceeding, discharged debts are no
longer owed or collectable. Lenders require
copies of the discharge papers on any prior
Discount Points: Pre-paid interest
assessed at closing by the lender. Each point is
equal to 1 percent of the loan amount (e.g. two
points on a $100,000 mortgage would cost
Dismissal: If a bankruptcy is dropped
without being completed, a Bankruptcy Dismissal
document will be needed to proceed with the
loan. Either the court or the debtor can prompt
Down Payment: Money paid to make up the
difference between the purchase price and
Due-On-Sale Clause: A provision in a
mortgage or deed of trust that allows the lender
to demand immediate payment of the balance of
the mortgage if the mortgage holder sells the
Earnest Money: Money given by a buyer
to a seller as part of the purchase price to
bind a transaction or assure payment. It is
typically held in a trust account and credited
toward the purchase price at closing.
Easements: An interest in property,
owned by another that entitles the holder to a
specific limited use or privilege, such as the
right to cross or to build adjoining structures
on the property. Utility companies may have
easements on a property for access or to allow
the placements of wires or equipment.
Encroachment: A fixture of a piece of
property that intrudes on another�s property.
Equal Credit Opportunity Act (ECOA):
A federal law that requires lenders and other
creditors to make credit equally available
without discrimination based on race, color,
religion, national origin, age, sex, marital
status or receipt of income from public
Equity: The difference between the fair
market value and current indebtedness, also
referred to as the owner�s interest.
Escrow Instructions: Instructions to
the escrow agent from the lendergiving the
parameters and contingencies involved in the
transaction and agreed upon by both parties.
Escrow Waiver: The request for a
borrower to pay their own taxes and insurance
separate from their mortgage paymen
Escrow: Refers to a neutral third-party
who carries out the instructions of both the
buyer and seller to handle all the paperwork of
settlement or �closing.� Escrow may also
refer to an account held by the lender into
which the homebuyer pays money for tax or
Fannie Mae: See Federal National
Farmers Home Administration (FMHA):
Provides financing to farmers and other
qualified borrowers who are unable to obtain
Federal Home Loan Mortgage Corporation (FHLMC):
Also called Freddie Mac, is an agency wholly
owned by the United States government that
purchases pools of conventional mortgages from
insured depository institutions and HUD-approved
Federal Housing Administration (FHA):
A division of the Department of Housing and
Urban Development. Its main activity is the
insuring of residential mortgage loans made by
private lenders. FHA also sets standards for
underwriting the mortgages they are willing to
Federal National Mortgage Association (FNMA):
Also known as Fannie Mae. A tax-paying
corporation created by Congress that purchases
and sells conventional residential mortgages as
well as those insured by FHA or guaranteed by
VA. This institution, which provides funds for
one in seven mortgages, makes mortgage money
more available and more affordable.
FHA: See Federal Housing
FHA Loan: A loan insured by the Federal
Housing Administration open to all qualified
home purchasers. While there are limits to the
size of FHA loans, they are generous enough to
handle moderate-priced homes almost anywhere in
FHA Mortgage Insurance: An upfront
premium which can be included in the loan amount
along with a monthly premium that guarantees the
loan with the FHA.
Federal Home Loan Mortgage Corporation.
Fixed-Rate Mortgage: A mortgage on
which the interest rate is set for the term of
Flood Insurance: A mandatory insurance
for some borrowers whose property is built in a
designated flood zone.
Federal National Mortgage Association.
Foreclosure: A legal procedure in which
property securing debt is sold by the lender to
pay a defaulting borrower�s debt.
Free and Clear: This means the property
is completely paid for and has no liens
GFE: Good Faith Estimateof borrowers
Ginnie Mae: See Government National
Government National Mortgage Association (GNMA):
Also known as Ginnie Mae, provides sources of
funds for residential mortgages insured or
guaranteed by the FHA or VA.
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.
Gross Monthly Income: The total amount
the borrower earns per month, before any
expenses like taxes and social security are
Guarantee: A promise by one party to
pay a debt or perform an obligation contracted
by another if the original party fails to pay or
perform according to a contract.
Hazard Insurance: A form of insurance
in which the insurance company protects the
insured from specified losses, such as fire,
windstorm and the like. It would not cover
earthquake, riot or flood damage.
Homestead: The dwelling (house and
contiguous land) of the head of the family. Some
states grant statutory exemptions, protecting
homestead property (usually to a set maximum
amount) against the rights of the creditors.
Property tax exemptions are also available in
Housing Expenses-to-Income Ratio: The
ratio, expressed as a percentage, which results
when a borrower�s housing expenses are divided
by their net effective income
HUD-1 Form: See Real Estate Settlement
Impound: That portion of a borrower�s
monthly payments held by the lender or servicer
to pay for taxes, hazard insurance, or other
items as they become due. Also known as
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
Interest: A charge paid for the use of
Investor: Institutions that buy pools
of mortgages for investment purposes.
Income Property: Real estate that is
owned for investment purposes and not used as
the owner�s residence.
Jumbo Loan: A loan which is larger than
the limits set by the Federal National Mortgage
Association and the Federal Home Loan Mortgage
Corporation. Because jumbo loans cannot be
funded by these two agencies, they usually carry
a higher interest rate.
Leasehold Estate: A kind of real estate
ownership where the homeowner does not hold
title to the land but has use of the property
subject to the terms of the lease.
Legal Description: A method of
geographically locating a piece or parcel of
land, which is acceptable in a court of law.
LIBOR: London InterBank Offered Rate.
LIBOR is the base interest rate paid on deposits
between banks in the Eurodollar market.
Lien: A claim upon a piece of property
for the payment or satisfaction of a debt or
Loan Committee: Generally the
Loan Risk: The rate category assigned
to the loan, which estimates the probable risk
of delinquency or loss in the future.
Loan-To-Value Ratio (LTV):
The relationship between the amount of the
mortgage loan and the appraised value of the
property expressed as a percentage.
Margin: The number of percentage points
the lender adds to the index rate to calculate
the ARM interest rate at each adjustment.
Market Value: The highest price that a
buyer would pay and the lowest price a seller
would accept on a property. Market value may be
different from the price a property could
actually be sold for at a given time.
Mortgage Escrow Accounts: The account
established by the lender to pay taxes and
insurance on behalf of the borrower.
Mortgage: A contract in which a
borrower�s property is pledged as security for
a loan that is to be repaid on an installment
Mortgage Insurance: Money paid to
insure the mortgage when the down payment is
less than 20 percent. See Private Mortgage
Insurance or FHA Mortgage Insurance.
Mortgage Note: A written promise to pay
a debt at a stated interest rate during a
specified term. The agreement is secured by real
Mortgagee: The lender in a mortgage
Mortgagor: The borrower in a mortgage
Negative Amortization: Amortization is the
schedule established to pay an installment loan
within a fixed amount of time. The payment
consists of principal and interest. Negative
amortization occurs when the monthly payments do
not cover all of the interest cost. The interest
cost that isn�t covered is added to the unpaid
principal balance. This means that even after
making many payments, a borrower may owe more
than was owed at the beginning of the loan.
Net Effective Income: The borrower�s
gross income minus federal income tax.
Non-Assumption Clause: Statements in
the mortgage contract forbidding the assumption
of the mortgage without the prior approval of
Non-Owner Occupied: A property not used
as a residence by the owner of the property.
Notary Public: A person, designated by
the state, who can certify the identity of a
person when signing various documents.
Note: Short for promissory note. This
document gives the parameters of the loan and
legally obligates the borrower to pay back the
Obligations: Any debt or recurring
payment the borrower is obligated to pay,
including mortgage payments.
Origination Fee: The fee charged by a
lender to generate a mortgage loan, usually
computed as a percentage of face value of the
loan. This fee can sometimes be waived by
agreeing to take a higher interest rate.
Owner Financing: A purchase in which
the seller provides all or part of the
Owner Occupied: Designation given to
property used as the owner�s primary
Owners Policy: A policy of the title
insurance that protects the buyer against
problems with the title.
P & I (Principal
and Interest): This refers to the principal and
interest portions of the monthly mortgage
P & L / Profit and Loss: A statement of
a business�s gross income, cost of goods,
operating costs and net profit or loss.
P.I.T.I.: Principal, interest, taxes
and insurance. The complete monthly cost
associated with financing a property. It can
also be referred to as PITIM, which includes
mortgage insurance as well.
P.U.D.: Planned Unit Development.
Property owned as a group, where individuals own
the specific piece of land and structure they
occupy, but also have a divided interest in a
common area. A board, often referred to as a
Homeowners Association, will govern the
Piggy Back Loan: Financing obtained,
subordinate to the first mortgage, to facilitate
closing the first mortgage. Also known as
Mortgage Insurance): A way for lenders and the
borrowers to insure their exposure on the loan
to no less than 20% equity in a property.
Points: A point is equal to one percent
of the of the loan amount.
Power of Attorney: An authority by
which one person enables another to act on his
or her behalf. Power of attorney can be limited
to specific areas or be general in some cases.
Pre-Approval: The buyer has actually
begun the application process and an underwriter
has approved their income, funds and credit. The
pre-approval is contingent upon the material
statements of the application being accurate
when the loan is actually underwritten. The
lender will state any other conditions in the
Preliminary Title Report: The title
report generated at the beginning of the
application process. It tells the mortgage
company what liens are on the property and gives
advice as to what will need to be done to gain
clear title prior to recording the trust deed.
Prepaid Interest Charge: The portion of
interest, collected at loan closing, which
covers the time period between funding and the
beginning of the first 30-day period covered by
the first payment. For example, if the loan
closed on 2/15, the first payment due on 4/1
would pay interest from 3/1 to 4/1. The prepaid
interest would cover the period from 2/15 to
Prepaids: Expenses necessary to create
an escrow account or to adjust the seller�s
existing escrow account. Can include taxes,
hazard insurance, private mortgage insurance and
Prepayment Penalty: A fee charged for
an early repayment of debt. Prepayment penalties
are allowed in some form (but not necessarily
imposed) in 36 states and the District of
Prepayment: A privilege in a mortgage
permitting the borrower to make payments in
advance of their due date.
Pre-Qualified: Buyer has discussed
their financial situation with a loan
professional. No attempt has been made to verify
the validity of any of the borrower�s
information. Pre-qualification is only an
indication of what the buyer should qualify for.
Principal: The amount of debt, not
counting interest, left on a loan.
Private Mortgage Insurance (PMI):
Insurance carried on a mortgage when less than a
20% down payment is presented. PMI refers to
loans purchased by Fannie Mae or Freddie Mac.
FHA loans have a different type of mortgage
Purchase Agreement: The agreement made
between the buyer and seller of a property,
containing the purchase price, terms and
contingencies of the sale.
Quit Claim: A deed operating as a
release; intended to pass any title, interest or
claim, which the grantor may have in the
property, but not containing any warranty of a
valid interest or title to the grantor.
Rate Float: An unlocked loan subject to
rate fluctuations caused by the market.
Rate Lock: A commitment by the lender
to fund a loan at a particular interest rate
Ratios: How a buyer�s housing expense
and debt picture relates to their income.
Real Estate Settlement Procedures Act (RESPA):
RESPA is a federal law that allows consumers to
review information on known or estimated
settlement costs once after application and once
prior to or at settlement. The law requires
lenders to furnish information after application
Real Estate Settlement Statement: Final
settlement statement often referred to as the
HUD-1 form, used to itemize buyer, seller,
broker and lender charges and credits at
A real estate broker or sales associate holding
active membership in a local real estate board
affiliated with the National Association of
Rescission: The cancellation of a
contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to
cancel a contract in some cases once it is
signed if the transaction uses equity in the
home as security.
Reconveyance: A release of lien filed
with the county recorder by the trustee.
Recording Fees: Money paid to the
lender for recording a home sale with the local
authorities, thereby making it part of the
Refi: Slang for refinance, or a new
mortgage on a property that does not change
Request for Reconveyance: Verification
given by the beneficiary to the trustee that the
conditions of the lien have been fulfilled and
request that the lien be canceled.
Reverse Annuity Mortgage (RAM):
A form of mortgage in which the lender makes
periodic payments to the borrower using the
borrower�s equity in the home as security.
Also called a reverse mortgage and is overseen
by the FHA.
S.I. / Statement of Information: The
form a borrower fills out for the title company
giving further identification of the customer.
This allows the title company to eliminate debts
and liens owed by people with similar names.
Second Mortgage: A mortgage which is
entered after the primary loan. It�s called a
second due to it being recorded in the second
lien position to the first mortgage. See also
Secondary Financing: Financing
obtained, subordinate to the first mortgage, to
facilitate closing the first mortgage. Also
known as a �piggyback� loan for purchases.
Secondary financing can be obtained to extract
Servicing: All the steps and operations
performed to keep a loan in good standing, such
as collection of payments, payment of taxes,
insurance, property inspections and the like.
Settlement Costs: See Closing Costs.
Settlement: See Closing.
Submission: This refers to a complete
loan application package submitted for approval
to the underwriting department.
Subordination Agreement: The agreement
detailing the contingencies of subordination,
filed with the county recorder. If a primary
loan is refinanced without paying off a second
lien loan, the second lien loan must agree to
return to secondary standing.
Survey: A measurement of land prepared
by a registered land surveyor showing the
location of the land with reference to known
points, its dimensions, and the location and
dimensions of any building.
Suspended: The underwriter cannot yet
approve or deny the loan. More information is
Term Mortgage: See Balloon Payment
Title: A document that gives evidence
of an individual�s ownership of property.
Title Insurance: The insurance policy
insuring the lender and the borrower there are
no deficiencies in the title report. Any claim
arising from a lien other than that disclosed is
payable by the title insurance company.
Title Search: An examination of
municipal records to determine the legal
ownership of property. Usually performed by a
Trust Deed: The Trust Deed attaches the
note as a lien on the property. This is the
document that conveys the ability to collect
from the proceeds of the property.
A federal law requiring disclosure of the Annual
Percentage Rate to homebuyers shortly after they
apply for the loan.
Underwriting: The process of evaluating
a loan application to determine the risk
involved for the lender (based on credit,
employment, assets and other factors decided by
VA: Veterans Administration.
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
VA Mortgage Funding Fee: A premium of
up to 2 percent (depending on the size of the
down payment) paid on a VA-backed loan. On a
$75,000 30-year fixed-rate mortgage with no down
payment, this would amount to $1,406 either paid
at closing or added to the amount financed.
Variable Rate Mortgage (VRM):
See Adjustable Rate Mortgage.
Verification of Deposit (VOD):
A document signed by the borrower�s financial
institution verifying the status and balance of
their financial accounts.
Verification of Employment (VOE):
A document signed by the borrower�s employer
verifying their position and salary.
Zoning: The division of a city or
county by legislative regulations into areas
(zones) specifying the uses allowable for the
real property in these areas.