original principal balance
The total amount of principal owed on a mortgage before
any payments are made.
On a government loan the loan origination fee is one
percent of the loan amount, but additional points may be charged which
are called "discount points." One point equals one percent of the loan
amount. On a conventional loan, the loan origination fee refers to the
total number of points a borrower pays.
A property purchase transaction in which the property
seller provides all or part of the financing.
A payment that is not sufficient to cover the scheduled
monthly payment on a mortgage loan. Normally, a lender will not accept
a partial payment, but in times of hardship you can make this request
of the loan servicing collection department.
The date when a new monthly payment amount takes effect
on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage
(GPM). Generally, the payment change date occurs in the month
immediately after the interest rate adjustment date.
capFor an adjustable-rate mortgage
where the interest rate and the minimum payment amount fluctuate
independently of one another, this is a limit on the amount that
payments can increase or decrease during any one adjustment period.
periodic rate capFor 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.
Any property that is not real property.
This stands for principal, interest, taxes and insurance.
If you have an "impounded" loan, then your monthly payment to the
lender includes all of these and probably includes mortgage insurance
as well. If you do not have an impounded account, then the lender
still calculates this amount and uses it as part of determining your
A cash amount that a borrower must have on hand after
making a down payment and paying all closing costs for the purchase of
a home. The principal, interest, taxes, and insurance (PITI) reserves
must equal the amount that the borrower would have to pay for PITI for
a predefined number of months.
unit development (PUD)A type of ownership where
individuals actually own the building or unit they live in, but common
areas are owned jointly with the other members of the development or
association. Contrast with condominium, where an individual actually
owns the airspace of his unit, but the buildings and common areas are
owned jointly with the others in the development or association.
pointA point is 1 percent of the
amount of the mortgage.
A legal document that authorizes 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-approvalA loosely used term which is
generally taken to mean that a borrower has completed a loan
application and provided debt, income, and savings documentation which
an underwriter has reviewed and approved. A pre-approval is usually
done at a certain loan amount and making assumptions about what the
interest rate will actually be at the time the loan is actually made,
as well as estimates for the amount that will be paid for property
taxes, insurance and others. A pre-approval applies only to the
borrower. Once a property is chosen, it must also meet the
underwriting guidelines of the lender. Contrast with
prepaymentAny 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. In each case,
prepayment means payment occurs before the loan has been fully
prepayment penaltyA fee that may be charged to a
borrower who pays off a loan before it is due.
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. The
information provided to the loan officer may have been presented
verbally or in the form of documentation, and the loan officer may or
may not have reviewed a credit report on the borrower.
The interest rate that banks charge to their preferred
customers. Changes in the prime rate are widely publicized in the news
media and are used as the indexes in some adjustable rate mortgages,
especially home equity lines of credit. Changes in the prime rate do
not directly affect other types of mortgages, but the same factors
that influence the prime rate also affect the interest rates of
principalThe amount borrowed or remaining
unpaid. The part of the monthly payment that reduces the remaining
balance of a mortgage.
principal balanceThe outstanding balance of
principal on a mortgage. The principal balance does not include
interest or any other charges. See remaining balance.
interest, taxes, and insurance (PITI)The four components of a
monthly mortgage payment on impounded loans. Principal refers to the
part of the monthly payment that reduces the remaining balance of the
mortgage. Interest is the fee charged for borrowing money. Taxes and
insurance refer to the amounts that are paid into an escrow account
each month for property taxes and mortgage and hazard insurance.
private mortgage insurance (MI)Mortgage insurance that is
provided by a private mortgage insurance company to protect lenders
against loss if a borrower defaults. Most lenders generally require MI
for a loan with a loan-to-value (LTV) percentage in excess of 80
promissory noteA written promise to repay a
specified amount over a specified period of time.
A meeting in an announced public location to sell
property to repay a mortgage that is in default.
Planned Unit Development (PUD)
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 PUD unit owners.
A written contract signed by the buyer and seller stating
the terms and conditions under which a property will be sold.
money transactionThe acquisition of property
through the payment of money or its equivalent.
Calculations that are used in determining whether a borrower can
qualify for a mortgage. There are two ratios. The "top" or "front"
ratio is a calculation of the borrower’s monthly housing costs
(principle, taxes, insurance, mortgage insurance, homeowner’s
association fees) as a percentage of monthly income. The "back" or
"bottom" ratio includes housing costs as will as all other monthly
A deed that transfers without warranty
whatever interest or title a grantor may have at the time the
conveyance is made.
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.
real estate agent
A person licensed to negotiate and
transact the sale of real estate.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires
lenders to give borrowers advance notice of closing costs.
Land and appurtenances, including
anything of a permanent nature such as structures, trees, minerals,
and the interest, benefits, and inherent rights thereof.
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.
The public official who keeps records of
transactions that affect real property in the area. Sometimes known as
a "Registrar of Deeds" or "County Clerk."
The noting in the registrar’s office of
the details of a properly executed legal document, such as a deed, a
mortgage note, a satisfaction of mortgage, or an extension of
mortgage, thereby making it a part of the public record.
The process of paying off one loan with
the proceeds from a new loan using the same property as security.
The amount of principal that has not yet
been repaid. See principal balance.
The original amortization term minus the
number of payments that have been applied.
Insurance that protects a landlord
against loss of rent or rental value due to fire or other casualty
that renders the leased premises unavailable for use and as a result
of which the tenant is excused from paying rent.
An arrangement made to repay delinquent
installments or advances.
replacement reserve fund
A fund set aside for replacement of common property in a
condominium, PUD, or cooperative project -- particularly that which
has a short life expectancy, such as carpeting, furniture, etc.
A credit arrangement, such as a credit
card, that allows a customer to borrow against a preapproved line of
credit when purchasing goods and services. The borrower is billed for
the amount that is actually borrowed plus any interest due.
right of first
A provision in an agreement that
requires the owner of a property to give another party the first
opportunity to purchase or lease the property before he or she offers
it for sale or lease to others.
ingress or egress
The right to enter or leave designated
In joint tenancy, the right of survivors
to acquire the interest of a deceased joint tenant.
A technique in which a seller deeds
property to a buyer for a consideration, and the buyer simultaneously
leases the property back to the seller.
A mortgage that has a lien position
subordinate to the first mortgage.
The buying and selling of existing
mortgages, usually as part of a "pool" of mortgages.
A loan that is backed by collateral.
The property that will be pledged as
collateral for a loan.
An agreement in which the owner of a
property provides financing, often in combination with an assumable
An organization that collects principal
and interest payments from borrowers and manages borrowers’ escrow
accounts. The servicer often services mortgages that have been
purchased by an investor in the secondary mortgage market.
The collection of mortgage payments from
borrowers and related responsibilities of a loan servicer.
See HUD1 Settlement Statement
A housing development that is created by
dividing a tract of land into individual lots for sale or lease.
Any mortgage or other lien that has a
priority that is lower than that of the first mortgage.
A drawing or map showing the precise
legal boundaries of a property, the location of improvements,
easements, rights of way, encroachments, and other physical features.
Contribution to the construction or
rehabilitation of a property in the form of labor or services rather
tenancy in common
As opposed to joint tenancy, when there
are two or more individuals on title to a piece of property, this type
of ownership does not pass ownership to the others in the event of
A process by which a lender uses another
party to completely or partially originate, process, underwrite,
close, fund, or package the mortgages it plans to deliver to the
secondary mortgage market.
A legal document evidencing a person's
right to or ownership of a property.
A company that specializes in examining
and insuring titles to real estate.
Insurance that protects the lender
(lender's policy) or the buyer (owner's policy) against loss arising
from disputes over ownership of a property.
A check of the title records to ensure
that the seller is the legal owner of the property and that there are
no liens or other claims outstanding.
Any means by which the ownership of a
property changes hands. Lenders consider all of the following
situations to be a transfer of ownership: the purchase of a property
"subject to" the mortgage, the assumption of the mortgage debt by the
property purchaser, and any exchange of possession of the property
under a land sales contract or any other land trust device.
State or local tax payable when title passes from one owner to
An index that is used to determine
interest rate changes for certain adjustable-rate mortgage (ARM)
plans. It is based on the results of auctions that the U.S. Treasury
holds for its Treasury bills and securities or is derived from the
U.S. Treasury's daily yield curve, which is based on the closing
market bid yields on actively traded Treasury securities in the
over-the-counter market. [Top]
A federal law that requires lenders to
fully disclose, in writing, the terms and conditions of a mortgage,
including the annual percentage rate (APR) and other charges.
An adjustable-rate mortgage (ARM) that
has one interest rate for the first five or seven years of its
mortgage term and a different interest rate for the remainder of the
A property that consists of a structure
that provides living space (dwelling units) for two to four families,
although ownership of the structure is evidenced by a single deed.
A fiduciary who holds or controls
property for the benefit of another.
A mortgage that is guaranteed by the
Department of Veterans Affairs (VA).
Having the right to use a portion of a
fund such as an individual retirement fund. For example, individuals
who are 100 percent vested can withdraw all of the funds that are set
aside for them in a retirement fund. However, taxes may be due on any
funds that are actually withdrawn.
An agency of the federal government that
guarantees residential mortgages made to eligible veterans of the
military services. The guarantee protects the lender against loss and
thus encourages lenders to make mortgages to veterans.