Acceleration

The right of the mortgagee(lender) to demand the immediate repayment of the mortgage loan balance uponthe default of the mortgagor (borrower), or by using the right vested in theDue-on-Sale Clause.

Adjustable rate mortgage (ARM)

Is a mortgage in which theinterest rate is adjusted periodically based on a preselected index. Alsosometimes known as the re-negotiable rate mortgage, the variable rate mortgageor the Canadian rollover mortgage.

Adjustment interval

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

Amortization

Means loan payment by equalperiodic payment calculated to pay off the debt at the end of a fixed period,including accrued interest on the outstanding balance.

Annual percentage rate (A.P.R.)

Is a interest rate reflectingthe cost of a mortgage as a yearly rate. This rate is likely to be higher thanthe stated note rate or advertised rate on the mortgage, because it takes intoaccount point and other credit cost. The APR allows home buyers to comparedifferent types of mortgages based on the annual cost for each loan.

Appraisal

An estimate of the value ofproperty, made by a qualified professional called an "appraiser".

Assessment

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

Assumption

The agreement between buyer andseller where the buyer takes over the payments on an existing mortgage from theseller. Assuming a loan can usually save the buyer money since this is anexisting mortgage debt, unlike a new mortgage where closing cost and new,probably higher, market-rate interest charges will apply.

Balloon (payment) mortgage

Usually a short-term fixed-rateloan which involves small payments for a certain period of time and one largepayment for the remaining amount of the principal at a time specified in thecontract.

Blanket Mortgage

A mortgage covering at leasttwo pieces of real estate as security for the same mortgage.

Borrower (Mortgagor)

One who applies for andreceives a loan in the form of a mortgage with the intention of repaying theloan in full.

Broker

An individual in the businessof assisting in arranging funding or negotiating contracts for a client buy whodoes not loan the money himself. Brokers usually charge a fee or receive acommission for their services.

Buy-down

When the lender and/or the homebuilder subsidized the mortgage by lowering the interest rate during the firstfew years of the loan. While the payments are initially low, they will increasewhen the subsidy expires.

Cash Flow

The amount of cash derived overa certain period of time from an income-producing property. The cash flowshould be large enough to pay the expenses of the income producing property(mortgage payment, maintenance, utilities, etc).

Caps (interest)

Consumer safeguards which limitthe amount the interest rate on an adjustable rate mortgage may change per yearand/or the life of the loan.

Caps (payment)

Consumer safeguards which limitthe amount monthly payments on an adjustable rate mortgage may change.

Certificate of Eligibility

The document given to qualifiedveterans which entitles them to VA guaranteed loans for homes, business, andmobile homes. Certificates of eligibility may be obtained by sending DD-214(Separation Paper) to the local VA office with VA form 1880 (request forCertificate of Eligibility).

Certificate of Reasonable Value (CRV)

An appraisal issued by theVeterans Administration showing the property's current market value

Certificate of veteran status

The document given to veteransor reservists who have served 90 days of continuous active duty (includingtraining time) It may be obtained by sending DD 214 to the local VA office withform 26-8261a (request for certificate of veteran status). This documentenables veterans to obtain lower down payments on certain FHA insured loans.

Closing

The meeting between the buyer,seller and lender or their agents where the property and funds legally changehands. Also called settlement. Closing costs usually include an originationfee, discount points, appraisal fee, title search and insurance, survey, taxes,deed recording fee, credit report charge and other costs assessed atsettlement. The cost of closing usually are about 3 percent to 6 percent of themortgage amount.

Commitment

A promise by a lender to make aloan on specific terms or conditions to a borrower or builder. A promise by aninvestor to purchase mortgages from a lender with specific terms or conditions.An agreement, often in writing, between a lender and a borrower to loan moneyat a future date subject to the completion of paper work or compliance withstated conditions.

Construction loan

A short term interim loan topay for the construction of buildings or homes. These are usually designed toprovide periodic disbursements to the builder as he progresses.

Contract sale or deed:

A contract between purchaserand a seller of real estate to convey title after certain conditions have beenmet. It is a form of installment sale.

Conventional loan

A mortgage not insured by FHAor guaranteed by the VA.

Credit Report

A report documenting the credithistory and current status of a borrower's credit standing.

Debt-to-Income Ratio

The ratio, expressed as apercentage, which results when a borrower's monthly payment obligation onlong-term debts is divided by his or her gross monthly income. See housingexpenses-to-income ratio.

Deed of trust

Frankfurt am Main cheap hotelsIn many states, this documentis used in place of a mortgage to secure the payment of a note.

Default

Failure to meet legalobligations in a contract, specifically, failure to make the monthly paymentson a mortgage.

Deferred interest

When a mortgage is written witha monthly payment that is less than required to satisfy the note rate, the unpaidinterest is deferred by adding it to the loan balance. See negative amortization.

Delinquency

Failure to make payments ontime. This can lead to foreclosure.

Department of Veterans Affairs (VA)

An independent agency of thefederal government which guarantees long-term, low-or no-down payment mortgagesto eligible veterans.

Discount Point

See point.

Down Payment

Money paid to make up thedifference between the purchase price and the mortgage amount.

Due-on-Sale-Clause

A provision in a mortgage ordeed of trust that allows the lender to demand immediate payment of the balanceof the mortgage if the mortgage holder sells the home.

Earnest Money

Money given by a buyer to aseller as part of the purchase price to bind a transaction or assure payment.

Entitlement

The VA home loan benefit iscalled entitlement. Entitlement for a VA guaranteed home loan. This is alsoknown as eligibility.

Equal Credit Opportunity Act(ECOA)

Is a federal law that requireslenders and other creditors to make credit equally available withoutdiscrimination based on race, color, religion, national origin, age, sex,marital status or receipt of income from public assistance programs.

Equity

The difference between the fairmarket value and current indebtedness, also referred to as the owner'sinterest. The value an owner has in real estate over and above the obligationagainst the property.

Escrow

An account held by the lenderinto which the home buyer pays money for tax or insurance payments. Alsoearnest deposits held pending loan closing.

Fannie Mae

see Federal National Mortgage Association.

Farmers Home Administration (FmHA)

Provides financing to farmersand other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Bank Board (FHLBB)

The former name for theregulatory and supervisory agency for federally chartered savings institutions.Agency is now called the Office of Thrift Supervision

Federal Home Loan Mortgage Corporation (FHLMC) alsocalled "Freddie Mac"

Is a quasi-governmental agencythat purchases conventional mortgage from insured depository institutions andHUD-approved mortgage bankers.

Federal Housing Administration (FHA)

A division of the Department ofHousing and Urban Development. Its main activity is the insuring of residentialmortgage loans made by private lenders. FHA also sets standards forunderwriting mortgages.

Federal National Mortgage Association (FNMA) alsoknow as "Fannie Mae"

A tax-paying corporationcreated by Congress that purchases and sells conventional residential mortgagesas well as those insured by FHA or guaranteed by VA. This institution, whichprovides funds for one in seven mortgages, makes mortgage money more availableand more affordable.

FHA loan

A loan insured by the FederalHousing Administration open to all qualified home purchasers. While there arelimits to the size of FHA loans ($155,250 as of 1/1/96), they are generous enough to handlemoderately-priced homes almost anywhere in the country.

FHA mortgage insurance

Requires a fee (up to 2.25percent of the loan amount) paid at closing to insure the loan with FHA. Inaddition, FHA mortgage insurance requires an annual fee of up to 0.5 percent ofthe current loan amount, paid in monthly installments. The lower the downpayment, the more years the fee must be paid.

FHLMC

The Federal Home Loan MortgageCorporation provides a secondary market for savings and loans by purchasingtheir conventional loans. Also known as "Freddie Mac."

Firm Commitment

A promise by FHA to insure amortgage loan for a specified property and borrower. A promise from a lender tomake a mortgage loan.

Fixed Rate Mortgage

The mortgage interest rate willremain the same on these mortgages throughout the term of the mortgage for theoriginal borrower.

FNMA

The Federal National MortgageAssociation is a secondary mortgage institution which is the largest singleholder of home mortgages in the United States. FNMA buys VA, FHA, andconventional mortgages from primary lenders. Also known as "FannieMae."

Foreclosure

A legal process by which thelender or the seller forces a sale of a mortgaged property because the borrowerhas not met the terms of the mortgage. Also known as a repossession ofproperty.

Freddie Mac

See Federal Home Loan Mortgage Corporation.

Ginnie Mae

See Government National Mortgage Association.

Government National Mortgage Association (GNMA)

Graduated Payment Mortgage (GPM)

A type of flexible-paymentmortgage where the payments increase for a specified period of time and thenlevel off. This type of mortgage has negative amortization built into it.

Guaranty

A promise by one party to pay adebt or perform an obligation contracted by another if the original party failsto pay or perform according to a contract.

Hazard Insurance

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

Housing Expenses-to-Income Ratio

The ratio, expressed as apercentage, which results when a borrower's housing expenses are divided byhis/her gross monthly income. See debt-to-income ratio.

Impound

That portion of a borrower'smonthly payments held by the lender or servicer to pay for taxes, hazardinsurance, mortgage insurance, lease payments, and other items as they becomedue. Also known as reserves.

Index

A published interest rateagainst which lenders measure the difference between the current interest rateon an adjustable rate mortgage and that earned by other investments (such asone- three-, and five-year U.S. Treasury security yields, the monthly averageinterest rate on loans closed by savings and loan institutions, and the monthlyaverage costs-of-funds incurred by savings and loans), which is then used toadjust the interest rate on an adjustable mortgage up or down.

Interim Financing

A construction loan made duringcompletion of a building or a project. A permanent loan usually replaces thisloan after completion.

Investor

A money source for a lender.

Jumbo Loan

A loan which is larger (morethan $214,600 as of 1/1/97) thanthe limits set by the Federal National Mortgage Association and the Federal Home LoanMortgage Corporation. Because jumbo loans cannot be funded by thesetwo agencies, they usually carry a higher interest rate.

Lien

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

Loan-to-Value Ratio

The relationship between theamount of the mortgage loan and the appraised value of the property expressedas a percentage.

Margin

The amount a lender adds to theindex on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value

The highest price that a buyerwould pay and the lowest price a seller would accept on a property. Marketvalue may be different from the price a property could actually be sold for ata given time.

MIP (Mortgage Insurance Premium)

It is insurance from FHA to thelender against incurring a loss on account of the borrower's default.

Mortgage Insurance

Money paid to insure themortgage when the down payment is less than 20 percent. See private mortgageinsurance, FHA mortgage insurance.

Mortgagee

The lender.

Mortgagor

The borrower or homeowner.

Negative Amortization

Occurs when your monthlypayments are not large enough to pay all the interest due on the loan. Thisunpaid interest is added to the unpaid balance of the loan. The danger ofnegative amortization is that the home buyer ends up owing more than theoriginal amount of the loan.

Net Effective Income

The borrower's gross incomeminus federal income tax.

Non Assumption Clause

A statement in a mortgagecontract forbidding the assumption of the mortgage without the prior approvalof the lender. Note: The signed obligation to pay a debt, as a mortgage note.

Office of Thrift Supervision (OTS)

The regulatory and supervisoryagency for federally chartered savings institutions. Formally known as Federal Home Loan BankBoard.

Origination Fee

The fee charged by a lender toprepare loan documents, make credit checks, inspect and sometimes appraise aproperty; usually computed as a percentage of the face value of the loan.

Permanent Loan

A long term mortgage, usuallyten years or more. Also called an "end loan."

PITI

Principal, Interest, Taxes andInsurance. Also called monthly housing expense.

Pledged account Mortgage (PAM):

Money is placed in a pledgedsavings account and this fund plus earned interest is gradually used to reducemortgage payments.

Points (loan discount points)

Prepaid interest assessed atclosing 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 $2,000).

Power of Attorney

A legal document authorizingone person to act on behalf of another.

Prepaid Expenses

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

Prepayment

A privilege in a mortgagepermitting the borrower to make payments in advance of their due date.

Prepayment Penalty

Money charged for an earlyrepayment of debt. Prepayment penalties are allowed in some form (but notnecessarily imposed) in many states.

Primary Mortgage Market

Lenders making mortgage loansdirectly to borrower's such as savings and loan associations, commercial banks,and mortgage companies. These lenders sometimes sell their mortgages into thesecondary mortgage markets such as to FNMA or GNMA, etc.

Principal

The amount of debt, notcounting interest, left on a loan.

Private Mortgage Insurance (PMI)

In the event that you do nothave a 20 percent down payment, lenders will allow a smaller down payment - aslow as 5 percent in some cases. With the smaller down payment loans, however,borrowers are usually required to carry private mortgage insurance. Privatemortgage insurance will usually require an initial premium payment and mayrequire an additional monthly fee depending on you loan's structure.

Realtor

A real estate broker or anassociate holding active membership in a local real estate board affiliatedwith the National Association of Realtors.

Recision

The cancellation of a contract.With respect to mortgage refinancing, the law that gives the homeowner threedays to cancel a contract in some cases once it is signed if the transactionuses equity in the home as security.

Recording Fees

Money paid to the lender forrecording a home sale with the local authorities, thereby making it part of thepublic records.

Refinance

Obtaining a new mortgage loanon a property already owned. Often to replace existing loans on the property.

Renegotiable Rate Mortgage

A loan in which the interestrate is adjusted periodically. See adjustable rate mortgage.

RESPA

Short for the Real EstateSettlement Procedures Act. RESPA is a federal law that allows consumers toreview information on known or estimated settlement cost once after applicationand once prior to or at a settlement. The law requires lenders to furnish theinformation after application only.

Reverse Annuity Mortgage (RAM)

A form of mortgage in which thelender makes periodic payments to the borrower using the borrower's equity inthe home as Satisfaction of Mortgage: The document issued by the mortgagee whenthe mortgage loan is paid in full. Also called a "release ofmortgage."

Second Mortgage

A mortgage made subsequent toanother mortgage and subordinate to the first one.

Secondary Mortgage Market

The place where primarymortgage lenders sell the mortgages they make to obtain more funds to originatemore new loans. It provides liquidity for the lenders. Security.

Servicing

All the steps and operations alender performs to keep a loan in good standing, such as collection ofpayments, payment of taxes, insurance, property inspections and the like.

Settlement/Settlement Costs

See closing/closing costs.

Shared Appreciation Mortgage (SAM)

A mortgage in which a borrowerreceives a below-market interest rate in return for which the lender (oranother investor such as a family member or other partner) receives a portionof the future appreciation in the value of the property. May also apply tomortgage where the borrowers shares the monthly principal and interest paymentswith another party in exchange for part of the appreciation.

Simple Interest

Interest which is computed onlyon the principle balance.

Survey

A measurement of land, preparedby a registered land surveyor, showing the location of the land with referenceto know points, its dimensions, and the location and dimensions of anybuildings.

Sweat Equity

Equity created by a purchaserperforming work on a property being purchased.

Title

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

Title Insurance

A policy, usually issued by atitle insurance company, which insures a home buyer against errors in the titlesearch. The cost of the policy is usually a function of the value of theproperty, and is often borne by the purchaser and/or seller. Policies are alsoavailable to protect the lender's interests.

Title Search

An examination of municipal recordsto determine the legal ownership of property. Usually is performed by a titlecompany.

Truth-In-Lending

A federal law requiringdisclosure of the Annual Percentage Rate to home buyers shortly after theyapply for the loan. Also known as Regulation Z.

Two-Step Mortgage

A mortgage in which theborrower receives a below-market interest rate for a specified number of years(most often seven or 10), and then receives a new interest rate adjusted(within certain limits) to market conditions at that time. The lender sometimeshas the option to call the loan due with 30 days notice at the end of seven or10 years. Also called "Super Seven" or "Premier" mortgage.

Underwriting

Thedecision whether to make a loan to a potential home buyer based on credit,employment, assets, and other factors and the matching of this risk to anappropriate rate and term or loan amount.

USURY

Interest charged in excess ofthe legal rate established by law.

VA Loan

A long-term, low-or no-downpayment loan guaranteed by the Department of Veterans Affairs. Restricted toindividuals qualified by military service or other entitlements.

VA Mortgage Funding Fee

A premium of up to 1-7/8percent (depending on the size of the down payment) paid on a VA-backed loan.On a $75,000 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 theborrower's financial institution verifying the status and balance of his/herfinancial accounts.

Verification of Employment (VOE)

A document signed by theborrower's employer verifying his/her position and salary.

Warehouse Fee

Many mortgage firms must borrowfunds on a short term basis in order to originate loans which are to be soldlater in the secondary mortgage market (or to investors). When the prime rateof interest is higher on short term loans than on mortgage loans, the mortgagefirm has an economic loss which is offset by charging a warehouse fee.

Wraparound mortgage

Results when an existingassumable loan is combined with a new loan, resulting in an interest ratesomewhere between the old rate and the current market rate. The payments aremade to a second lender or the previous homeowner, who then forwards thepayments to the first lender after taking the additional amount off the top.