Balance sheet
A financial statement that shows assets, liabilities and net worth as of a specific date.

Balloon mortgage
A mortgage that has level monthly payments that are insufficient to fully amortize the principal and interest within the term of the loan. With a balloon mortgage, a lump sum payment ("Balloon Payment") is due at maturity.

Balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy
A proceeding in a federal court in which a debtor, who owes more than his or her assets, can relieve the debts by transferring his or her assets to a trustee.

Before-tax income
Income before taxes are deducted.

Beneficiary
The person designated to receive the income from a trust, estate or a deed of trust.

Binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly payment mortgage
A mortgage that requires payments 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 that would be required, and they are usually drafted directly from the borrower's bank account. The result for the borrower is a substantial savings in interest.

Blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Breach
A violation of any legal obligation.

Bridge loan
A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as a "swing loan."

Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

C

Call option
A provision in the mortgage agreement that gives the lender the right to call, or request, the mortgage due and payable at the end of a specified period, for any reason.

Cap
A provision in an adjustable-rate mortgage (ARM) agreement that limits how much the interest rate or mortgage payments may increase.

Capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Certificate of Eligibility
A document issued by the Department of Veterans Affairs which states that a veteran is eligible for a long-term, low or no down payment mortgage issued by the federal government.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of title
A statement provided by an abstract company, title company or attorney, stating that the title to real estate is legally held by the current owner.

Chain of title
The chronological order of the title's transfer from the original owner to the present owner.

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

Clear title
A title that is free of liens or legal questions as to ownership of the property.

Closer
Your closer is your legal contact at a mortgage company. Your closer is responsible for reviewing and
clearing your title work and any other legal documentation applicable to your mortgage. Once your title is clear
and your underwriter has issued a clear to close, your closer will arrange for a closing.

Closing
The meeting between the buyer, seller and lender in which the property and funds legally change hands. Also called "Settlement."

Closing cost item
A fee that a homebuyer must pay at closing for a single service, tax or product (ie. origination fees and attorney's fees). Many closing cost items are included as numbered items on the HUD-1 statement.

Closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs consist of individual closing cost items, such as an origination fee, an attorney's fee, taxes, an amount placed in escrow and charges for obtaining title insurance and a survey. Closing costs will vary according to the geographical location of the property and are usually between 2 and 6 percent of the mortgage amount. For more detailed information, visit our closing costs page.

Closing statement
Also referred to as the HUD1, it is the final statement of costs incurred to close on a loan or to purchase a home.

Cloud on title
Any conditions found during the title search that adversely affect the title to real estate. Clouds on title usually cannot be removed except by a quitclaim deed or court action.

Co-borrower
A person who signs a promissory note (mortgage) along with the borrower. A co-borrower's signature guarantees that the loan will be repaid, because the borrower and the co-borrower are equally responsible for the repayment. Also referred to as a co-maker or co-signor.

Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection
The efforts used to make a delinquent mortgage current and to file the notices needed to proceed with foreclosure.

Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment letter
See Mortgage Commitment Letter.

Common areas
Those portions of a building, land and amenities that are owned (or managed) by a planned unit development (PUD)/condominium project's homeowners association (or a cooperative project's cooperative corporation) and used by all of the unit owners who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Community Home Improvement Mortgage Loan
An alternative financing option that allows low to moderate income homebuyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

Community property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Comparables
An abbreviation for "comparable properties." Comparables are recently sold properties with traits similar to those of the property being purchased, ie. similar size, in a nearby location, with similar amenities. These properties can be used as a base comparison to help the appraiser determine the approximate fair market value of the property being purchased.

Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project and the exclusive use of certain limited common areas.

Condominium conversion
The changing of a rental property (two or more units) to the condominium form of ownership. Physical changes, as well as paperwork, may be necessary to conform to building and safety codes.

Conforming mortgage loan
Any loan that meets the criteria and limits set forth by the largest buyers of loans,

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

Contingency
A condition that must be met before a contract is legally binding. For example, homebuyers often include a contingency that specifies that the contract is not binding until they obtain a satisfactory home inspection report from a qualified home inspector.

Contract
An agreement between two or more people, or entities, that creates or modifies a legal commitment.

Conventional mortgage
A mortgage that is not insured or guaranteed by the federal government agency.

Convertibility clause
A provision in some adjustable-rate mortgage (ARM) agreements that allows the borrower to change the ARM to a fixed-rate mortgage at specified time frames after loan origination. The borrower will likely pay a higher rate or more points to have this option.

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

Cooperative (co-op)
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. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation, which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Corporate relocation
Arrangements under which an employer moves an employee to another location as part of the employer's normal course of business, or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Cost of funds index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

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

Credit bureau
An agency that keeps your credit record on file. See also

Credit history
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Officer
A credit officer has the authority to approve or decline a loan on the behalf of the lender. The credit officer is "behind-the-scenes" and you will not directly speak with him or her. Instead, the credit officer uses the documentation that your underwriter collects from you and decides whether or not your loan is approved.

Credit report
A report of an individual's credit history prepared by a credit bureau, reporting agency or repository and used by a lender in determining a loan applicant's credit worthiness.

Credit reporting agency
Company that collects information from several credit repositories, merges all the information and reports it in one form - merged credit report.

Credit Repository
An organization that gathers, records, updates and stores financial information on an individual's credit history and reports it in one form - in-file credit report.

D

Debt
An amount owed to another.

Deed
The legal document conveying title to a property.

Deed-in-lieu
A deed given by a borrower to the lender to avoid foreclosure proceedings.

Deed of trust
The document used in some states, instead of a mortgage, to secure the repayment of money borrowed.

Default
Failure to repay a loan on a timely basis or otherwise meet the terms of a commitment or agreement.

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

Departmentof Veteran's Affairs
An independent agency of the federal government that guarantees long-term, low or no down payment mortgages to eligible veterans.

Deposit
Money given in advance to show intention to complete the purchase of a property. Search Deposit Rates.

Depreciation
A decline in the value of property due to wear and tear, adverse changes in a neighborhood, or any other reason.

Disclosures
Information that must be given to consumers about their financial dealings.

Documentation
A list of documents that you will be required to provide when submitting a loan application. See our Required Documents page.

Down payment
The part of the purchase price of a property that the buyer pays, usually in cash, and is not included in the loan amount. The difference between the cost of the property and the loan amount.

Due-on-sale clause
A provision in a mortgage, or deed of trust, that allows the lender to demand immediate repayment of the mortgage balance if the borrower sells the property.

E

Earnest Money Deposit
See Good Faith Deposit.

Escrow
Refers to a third neutral party who carries out the instructions of both the buyer and the seller to handle all closing paperwork. May also refer to an account held by the lender into which the homebuyer makes tax and/or insurance payments.

F

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
A quasi-governmental agency that purchases conventional mortgages 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 private lenders. FHA also sets standards for underwriting mortgages.

FHA Loan
A loan insured by the Federal Housing Administration that is open to all qualified home purchasers. Although there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.

FHA Mortgage Insurance
Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount.

Federal National Mortgage Association (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 makes mortgage money more available and more affordable.

Fixed Rate Loan
A loan with the same interest rate and monthly payment over the life of the loan.

Float Period
The float period refers to the time between when you accept a loan and when you lock in your rate. During this time the interest rate and points on your loan will fluctuate with the market until you lock.

Foreclosure
A legal proceeding in which the default borrower is extinguished of all rights, title and interest on the underlying property.

G

Good Faith Deposit
A sum of money given to demonstrate intention to complete the purchase. With regard to mortgages, it is the sum of money given to demonstrate intention to complete the loan, a show of good faith.

Good Faith Estimate
An estimate of charges that a borrower is likely to incur in connection with a settlement.

H

Home Equity Loan
Sometimes referred to as a second mortgage or borrowing against your home. The loan allows you to tap into your home's built-up equity, which is the difference between the amount your home could be sold for, and the amount that you still owe. Homeowners often use a home-equity loan for home improvements, to pay for a new car, or to finance their child's college education. A home-equity loan is a good way to borrow money for two main reasons: 1.) the interest rate is usually one of the lowest loan rates a borrower can get and 2.) the interest you pay on the loan is usually tax-deductible. But taking out a home-equity loan also means the lender can take possession of the home if the loan isn't repaid.

U.S. Department of Housing and Urban Development (HUD)
Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

I

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 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-rate mortgage.

Interest
A charge paid for borrowing money. Interest is usually expressed as a percentage of the amount borrowed, or interest rate.

Interest Rate
The annual rate of interest on the loan, expressed as a percentage of 100.

J

Jumbo Loan
A loan that 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.

K

L

Lender
Any licensed person or entity advancing funds that are to be repaid. Also known as a mortgagee.

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

Liquid Assets
Cash or assets that can be immediately converted to cash.

Loan Amount
The amount of debt, not including interest.

Loan Officer
Your loan officer is your personal guide throughout the mortgage process. He or she will help you to identify your needs, select a loan program, complete the application process, offer advice and answer any questions you may have.

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraisal value of the property, expressed as a percentage.

Lock Period
A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Generally, lock periods range from 30 days to over 90 days.

M

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

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.

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

Minimum Down Payment
Minimum down payment is the amount of money you are required to put down at closing. If the minimum is 10%, you must make a down payment of at least $10,000 on a $100,000 house.

Monthly Payment
The amount paid each month towards the principal and interest amount of a loan. The monthly payment may or may not include taxes and insurance.

Mortgage
A loan for a house. Also referred to as a lien or claim against real property.

Mortgage Broker
A person, or entity, that specializes in loan originations and receives a commission for matching borrowers with lenders. The mortgage broker performs some or most of the loan processing functions such as taking loan applications, ordering credit reports, appraisals and title reports. Typically, the mortgage broker does not underwrite the loan and generally does not use its own funds for closing.

Mortgage Commitment Letter
A formal offer from a bank, or other lending institution, which states the terms under which it agrees to advance mortgage funds to a homebuyer.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent.

Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD. These payments help defray the cost of the FHA mortgage insurance program and provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages, this represents an annual rate of one-half of 1 percent paid by the borrower on a monthly basis.

N

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

No Documentation Mortgage
A no-documentation, or "no-doc", mortgage is a specialty loan product that generally requires a down payment of at least 5% to 30% of the home purchase price. No-doc mortgages are generally a wise choice for self-employed people, those who do not wish to verify their income and those with a brief or blemished credit history, or no credit at all. The benefits of a no-doc mortgage include a shorter application process, since you are not required to provide income, employment or asset documentation, as well as a streamlined approval, because there is little subsequent verification. However, no-doc mortgages generally will be at slightly higher interest rates.

Non-conforming Loan
A conventional home mortgage that does not meet the criteria of Fannie Mae or Freddie Mac for various reasons including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a higher rate and/or points.

O

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

P

Piggyback Loan
An alternative to private mortgage insurance, also known as a second trust loan. The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home's value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a piggyback loan with as little as a 5% down payment.

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

Points
The amount of prepaid interest you will be assessed at closing. Each point is equal to 1 percent of the loan amount (i.e. two points on a $100,000 mortgage would cost $2,000).

Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date. Allows the borrower to pay the loan off sooner and save on interest. Not all mortgage agreements allow for prepayment, and some lenders will charge a fee for early repayment of debt, see Prepayment Premium.

Prepayment Premium
Money charged for early repayment of debt if the original mortgage commitment does not allow for prepayment. Prepayment premiums are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
In the event that a borrower does not have at least a 20% down payment lenders will allow a smaller down payment - sometimes as low as 5%. With these loans, borrowers are required to carry private mortgage insurance. PMI usually requires an initial premium payment, and may require an additional monthly fee, depending on your loan structure.

Processing
Processing is the steps a lender takes to gather borrower information for underwriting. Processing includes getting the credit report, appraisal, verification of employment, assets, etc.

Q

Qualification
Qualification is the initial process to verify that a borrower has enough cash and sufficient income to purchase a home. Qualification is not an approval because it does not include a credit check. Qualified borrowers can be turned down if they have poor credit history.

R

Rate
In lending, the amount of interest on the loan expressed as an interest rate or annual percentage rate (APR) of the principal.

Rate/Point Options
These options are all the combinations of interest rate and points that are offered on a particular loan. Usually, paying more points lowers interest rates.

Real Estate Broker
A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property but generally represents the owner.

Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Rescind
To cancel a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract once it is signed if the transaction uses equity in the home as security.

Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Refinancing
The process of the same borrower paying off one loan with the proceeds from another loan.

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

S

T

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

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

Title Insurance
A policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a percentage of the value of the property, and is often purchased by the buyer and/or seller.

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

Truth-in-Lending
A federal law requiring disclosure of the Annual Percentage Rate, finance charge and several other pieces of information related to the loan. This disclosure allows you to compare the total cost of a loan from lender to lender. The disclosure is provided shortly after an application is received and again at closing.

U

Underwriting
The analysis of risk involved in granting a mortgage loan to a particular borrower and the process by which a lender determines whether the risk is acceptable. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.

Underwriter
Your underwriter is the liaison between you and the credit officer. The underwriter is responsible for reviewing and verifying all your documents and information and submitting it to a credit officer.

V

Veteran Affairs (VA) Loan
A mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. All veterans, and those currently serving in the military, are eligible for a VA loan, which is commonly characterized by a lower down payment than other types of loans.

W

X

Y

Z