SAFE Glossary Flashcards
1003
A Fannie Mae loan application form designed by Fannie Mae and Freddie Mac that is used by
lenders to obtain personal financial information from borrowers who apply for a mortgage loan
secured by a one-to-four-unit residential real estate. Also known as: Uniform Residential Loan
Application (URLA). It has been widely adopted by mortgage lenders as a standard loan
application form and is often pronounced “ten-oh-three.” Freddie Mac also uses the same
application form, referring to it as the Freddie Mac Form 65.
1031 Exchange
This allows resident and non-resident United States federal taxpayers to defer
capital gains and recaptured depreciation taxes when exchanging real or personal property held
for productive use in a trade, business, or for investment for like-kind real or personal property
held for productive use in a trade, business, or for investment. The tax otherwise paid in a
a traditional sale is deferred indefinitely until the replacement property is sold or another _________ is initiated.
4506-T
An IRS Form used to retrieve past tax returns, W-2, and 1099 transcripts that are on file with the
IRS. It is used to validate income documentation for underwriting and quality control purposes.
Abstract of Title
A concise statement, usually prepared for a mortgagee or purchaser of real property,
summarizing the history of a piece of loan, including all conveyances, interests, liens, and
encumbrances that affect title to the property. A good and merchantable abstract of title shows
clear and marketable title, rather than showing only the history of the property.
Acceleration Clause
A loan-agreement provision that requires the debtor to pay off the balance sooner than the due
date if some specified event occurs, such as failure to pay an installment or to maintain
insurance.
Accrued Interest
Interest that is earned but not yet paid. For example: If your payment is August 1, you are paying
interest for the previous month. Unlike rent, it is paid for the month, you are going to live in eh
apartment.
Acquisition Costs
The original cost of an asset
Adjustable Rate Mortgage (ARM) or Variable Rate Mortgage (VRM)
A mortgage in which the lender can periodically adjust the mortgage interest rate in accordance
with fluctuations in an external market index.
Adjusted Basis
Basis increased by capital improvements and decreased by depreciation deductions
Adjustment Interval
On an Adjustable Rate Mortgage (ARM), the time between changes in the interest rate and/or
monthly payment. Typically, one, three, or five years depending on the index.
Adjustment Period
Time between the adjustment dates for an Adjustable Rate Mortgage (ARM).
Affiliated Business Arrangement (ABA)
An arrangement in which a person refers a business to a real estate service involving a federally
related mortgage loan that has either an affiliate relationship with as little as 1% ownership
interest. Such persons directly or indirectly refer business to that provider and may influence the
selection of that provider. An MLO that is also a Licensed Real Estate Agent requires an
Affiliated Business Arrangement (AfBA) disclosure. AfBA is a violation of Section 8 of the Real
Estate Settlement Procedures Act (RESPA), if not disclosed to the borrower with three business
days of informing the borrower of the conflict of interest.
Agreement of Sale
An agreement that obligates someone to sell and may include a corresponding obligation for
someone else to buy
Alternative Documentation
A method of documenting a loan file by using information such as pay stubs, W-2 forms, tax
returns and bank stubs instead of waiting on verifications sent to third parties for confirmation of
statements made on the application.
Amortization
The act or result of gradually extinguishing a debt, such as a mortgage, usually by contributing
payments or principal each time a periodic interest payment is due.
Amortization Term
The length of time it will take to amortize the mortgage loan expressed in months. For example,
a 30-year mortgage is a 360-month amortization term
Annual Percentage Rate (APR)
The actual cost of borrowing money expressed in the form of an annualized interest rate.
Annuity
A fixed sum of money payable periodically, usually monthly or annually. These payments
terminate upon the death of the designated beneficiary. Also, a right, often acquired under a lifeinsurance con- tract, to receive fixed payments periodically for a specified duration.
Appraisal
The determination of what constitutes a fair price for something or how its condition can be
fairly stated at a point in time.
Appraisal Fee
A fee charged by a licensed certified appraiser to determine the fair market value
Appraiser
An impartial person who estimates the value of something such as real estate.
Appreciation
An increase in an asset’s value (often because of inflation)
Arbitration
A dispute-resolution process in which the disputing parties choose one or more neutral third
parties to make a final and binding decision resolving the dispute. A third party may be chosen
directly by mutual agreement, or indirectly by agreeing to have an arbitration organization select
the third party.
Adjustable Rate Mortgage Disclosure
Describes the features of the Adjustable Rate Mortgage (ARM) loan which must be presented to
the consumer within 3 days of application.
Adjustable Rate Mortgage Handbook (CHARM)
The consumer Handbook to Adjustable-Rate Mortgages must be presented within 3 days of
application.
Asbestos
A soft gray mineral that was used as a building material in the past. It is no longer in use but can
still be found in some older homes. When asbestos dust is inhaled it can cause serious diseases of
the lungs.
Assessed Value
The value of an asset as determined by an appraiser for tax purposes.
Assessment
Determination of the rate or amount of something, such as a tax or damages.
Assessor
An official who evaluates or makes assessments, especially for purposes of taxation
Asset
An owned item that has value.
Assignment
The transfer of rights or property.
Assignment of Mortgage
An assignment in which a mortgage lender or borrower transfers the mortgage to a third party.
Assumption (of Mortgage or Trust Deed)
The acquisition of real property coupled with the assumption of personal liability for debt
secured by that property. Assumption is not allowed by Fannie Mae, Freddie Mac or USDA.
FHA and VA do allow for assumptions in certain situations.
Assumption Fee
The fee paid to a lender when an assumption takes place. It is usually paid by the purchaser.
Balance Sheet
A statement of financial position as of the statement’s date, disclosing the value of assets,
liabilities, and equity.
Balloon Mortgage
A mortgage requiring periodic payments for a specified time and a lump-sum payment of the
outstanding balance at maturity. The minimum term for a _______ mortgage under HOEPA is
five (5) years.
Balloon Payment
A final loan payment that is usually much larger than the preceding regular payments. This
payment discharges the principal balance of the loan.
Basis Point
These are used in computing and calculating the interest rate in real estate transaction. One
______ point is equal to 1/100th of 1%, or 0.01%, and is used to denote the percentage change in a
financial instrument.
Bankruptcy
A statutory procedure by which a usually insolvent debtor obtains financial relief and undergoes
a judicially supervised reorganization or liquidation of the debtor’s assets for the benefit of
lenders. Chapter 11 or 13 remains on the credit report for 7 years, a Chapter 7 for 10 years.
Blanket Mortgage
A mortgage that covers an aggregation of property, or that secures indebtedness previously
existing in various forms. For example: a mortgage covering two or more properties that are
pledged to support a debt.
Bona fide
Made in good faith without fraud or deceit.
Borrower (Mortgagor)
Someone who mortgages property.
Bridge Loan
A short-term loan that uses the borrower’s equity to make a down payment on a new home. The
Bridge Loan will be paid upon the sale of the existing home.
Building Code
A law or regulation setting forth standards for the construction, maintenance, occupancy, use, or
appearance of buildings and dwelling units.
Buy-Down
Money paid by the buyer of a house to reduce the mortgage-interest payments.
Buy-Down Account for Temporary Buydowns
The account in which funds are held so they can be applied as each payment comes due for an
interest rate buy-down plan.
Buyer’s Broker/Agent
A real estate broker who acts as the agent of a purchaser of property. Statutes in many states
permit prospective buyers to retain a licensed real estate agent. In some states, a buyer’s broker is
treated as the subagent of the broker with whom the owner lists property for sale and not the
agent of the buyer.
Buyer’s Market
A market in which supply significantly exceeds demand, resulting in lower prices.
Call Option
An option to buy something at a fixed rate price even if the market rises; the right to require
another to sell.
Capacity
Gross income X the Debt to Income (DTI) ratio = the maximum mortgage and debt payments, the borrower can afford.
Cash Flow
The movement of cash through a business as a measure of profitability or liquidity.
Cashier’s Check
A check drawn by a bank payable to another person. This is evidence that the payee has
authorization from the bank for the amount of money represented by the check.
Certificate of Deposit
A banker’s certificate acknowledging the receipt of money and promising to repay the depositor.
Certificate of Eligibility
A certificate issued by the Department of Veterans Affairs (VA) certifying a veteran’s maximum
benefits for a VA loan.
Certificate of Occupancy
A document indicating that a building complies with zoning and building ordinances and is ready
to be occupied. It is often required before title can be transferred and the
building occupied.
Certificate of Reasonable Value (CRV)
An appraisal issued by the Department of Veterans Affairs (VA) showing the property’s fair
market value.
Certificate of Title
A document indicating the ownership of real or personal property. This document also identifies
any liens or other encumbrances.
Certificate of Veteran Status
Certificate given to veterans or reservists who have served 90 days of continuous active duty
(including training time), which enables veterans to obtain lower down payments on VA loans.
Chain of Title
The ownership history of a piece of land, from its first owner to the present one. For the holder to
have a good title, every prior negotiation must have been proper. If the necessary indorsement is
missing or forged, the chain of title is broken, and no later transferee can become a holder.
Change Orders
A modification of the original construction plans ordered by the property owner or general
contractor
Clear Title
A title free from any encumbrances, burdens, or other limitations. I.e. a good and marketable
title.
Civil Rights Act (1866)
Affirmed that all citizens are equally protected by the law. Enacted April 9, 1866.
Change Frequency
Change in the frequency of payment or interest rate of Adjustable Rate Mortgage (ARM).
Closing/Settlement
The final transaction between the buyer and seller whereby the conveyance of documents is
concluded, and the money and property are transferred.
Closing Agen
An agent who represents the buyer and seller in the negotiation and closing of real property
transactions by handling financial calculations and transfer of documents.
Closing Costs
The expenses that must be paid, usually in a lump sum at closing, apart from the purchase price
and interest. These may include taxes, title insurance, and attorney’s fees and any other cost
assessed to the borrower to obtain the loan
Closing Date
The date scheduled for the signing of the documents on the real estate transaction.
Closing Statement
A written breakdown of the costs involved in the real estate transaction, usually prepared by a
lender or an escrow agent.
Cloud on Title
A defect or potential defect in the owner’s title to a piece of land arising from some claim or encumbrance, such as a lien, an easement, or a court order.
Co-Borrower
Any borrower in addition to the primary borrower whose name appears on the application. The
co-borrower’s along with the borrower’s income, assets, liabilities, and credit history are
considered in determining creditworthiness.
Collateral
Property that is pledged as security against a debt, such as mortgage.
Combined Loan-to-Value (CLTV)
Ratio of the total mortgage liens against the property to the lesser of either the appraised value or
the sales price. On a refinance, it is first mortgage and the amount of the HELOC, or second
mortgage drawn divided by the value.
Commission
The fee paid to an agent for a transaction usually as a percentage of the money received from the
transaction.
Commitment
A binding offer by a lender to make a loan under certain terms or conditions to a borrower.
Includes the amount of the mortgage, the interest rate, and repayment terms.
Common Areas
The common areas (ex. hallways, lobby, workout facilities) that all tenants may use, though the
landlord retains control over and responsibility for it.
Community Reinvestment Act (1977)
Intended to encourage depository institutions to help meet the credit needs of the communities in
which they operate, including low to moderate income neighborhoods, consistent with safe and
sound banking operations.
Comparables
An abbreviation for “comparable properties” used in the appraisal process. These are
properties similar to the property under consideration. They have reasonably the same size,
location, and amenities and have recently been sold. They must be similar property, within one
mile of the subject property and no more than 6 months old. These help the appraiser determine the approximate fair market value of the subject property
Concession
The voluntary yielding to a demand for the sake of a settlement. In a real estate transaction,
something given up or agreed to in sale negotiations. For example, the sellers may agree to help
pay for closing costs.
Condition
A stipulation or prerequisite in a sales contract. If a court construes a contractual term to be a
condition, then its breach will entitle the party to whom it is made to be discharged from all
liabilities under the contract.
Condominium
A single real estate unit in a multi-unit development in which a person has both separate
ownership of a unit and a common interest, along with the development’s other owners, in the
common areas.
Conforming Loan
A mortgage loan meeting the guidelines and are under the maximum amount of loans that Fannie
Mae and Freddie Mac are legally allowed to buy.
Construction Mortgage
A mortgage used to finance a construction project.
Consumer Financial Protection Bureau (CFPB)
An independent federal agency that regulates consumer financial products and services. The
Bureau protects consumers by restricting unfair and deceptive business practices, by promoting
financial education, taking consumer complaints, and enforcing federal consumer-financialprotection laws. It was established by the Dodd-Frank Act in 2010 and began operating in 2011.
Consumer Reporting Agency (Credit Bureau)
An independent firm that collects, compiles and reports the credit activities of individuals which
is made available, for a fee, to lenders or credit issuing entities investigating the creditworthiness
of those applying for credit. Consumers may also access reports from each of the three major
reporting agencies for free as required by law.
Contingency Clause
A clause within the sales contract stating that a certain condition must be met before a contract is
legally binding, and the sale can close. Real estate contracts often have a specific date by which
the contingency must be met. E.g. The buyer will often include an inspection contingency,
requiring the home to be inspected for physical damages or problems before the sales contract is
binding. The buyer will have the right to rescind if the contingency is not met.
Conventional Mortgage
A mortgage which the borrower gives a voluntary lien to the mortgage lender or other financial
institution. These mortgages, which feature a fixed periodic payment and interest throughout the
mortgage term, are typically used for home financing.
Conversion Clause/Option
A provision in an Adjustable Rate Mortgage (ARM) which allows the loan to be converted from
an ARM to a fixed-rate mortgage at specified times during the term. Usually allowed at the end
of the first adjustment period. Also known as a Convertible ARM.
Conveyance
The voluntary transfer of property.
Cooperative (Co-op) Project
A project in which a corporation holds the title to a residential property and sells shares to
individual buyers, who then receive a proprietary lease as their title.
Counteroffer
An offeree’s new offer that varies the terms of the original offer and that ordinarily rejects and
terminates the original offer. A late or defective acceptance is considered a counteroffer.
Covenants
A formal agreement or promise to perform, or not perform, a particular act.
Credit
One’s ability to borrow money
Credit History
Information in the files of a credit bureau regarding an individual’s debts and repayments (or
non-repayments).
Credit Life Insurance
Life insurance on a borrower, usually in a consumer installment loan, in which the amount due is
paid if the borrower dies.
Credit Report
A credit bureau’s report on a person’s financial status, usually including the approximate
amounts and locations of a person’s bank accounts, charge accounts, loans, other debts, billpaying habits, defaults, bankruptcies, foreclosures, marital status, occupation, income, and
lawsuits. It may indicate a High, Middle or Low Credit Score.
Credit Score
Statistically derived numeric expression of a person’s creditworthiness that is used by lenders to
assess the likelihood that the individual will repay their debts.
Lender
One who gives credit for money or goods.
Creditworthy
Financially sound enough that a lender will extend credit in the belief that default is unlikely
Debt
Liability on a loan.
Debt-to-Income Ratio
The percentage of verified gross monthly income divided into total payments for monthly
housing expenses, alimony, child support, car payments, and other installment debts, and
payments on revolving or open- ended accounts such as credit cards.
Deed
A legal document that is signed and delivered from the seller to the borrower showing ownership
of property.
Deed-in-Lieu of Foreclosure
Deed in which the mortgagor conveys all interest in the property to the mortgagee to satisfy a
loan that is in default to avoid foreclosure proceedings. A written settlement agreement will
always accompany deed-in-lieu. The lender waives the right to collect any deficiency based on a promissory note.
Deed of Trust
A deed conveying the title of real property to a trustee as security until the grantor repays a loan.
This type of deed resembles a mortgage. It is an alternative to a mortgage preferred by lenders
because it is faster and cheaper to foreclose.
Default
The omission or failure to perform a legal or contractual duty, especially the failure to pay a debt
when due.
Delinquency
A debt that is overdue in payment.
Department of Veterans Affairs (VA)
The cabinet-level department of the federal government responsible for operating programs that
benefit veterans of military service and their families. It is headed by the Secretary of Veterans
Affairs.
Depreciation
A reduction in the value or price of something, specifically, a decline in an asset’s value because
of use, wear, obsolescence, or age.
Discount Point
A fee equal to 1 percent of the loan amount that is prepaid interest on the mortgage loan. The
more points, the lower the interest rate. These can only be used to reduce the interest
rate. Borrowers can typically pay from 0-4 points. Tax-deductible.
Dodd-Frank Wall Street Reform & Consumer Protection Act
A 2010 federal statute that promotes the financial stability of the United States by improving
account- ability and transparency in the financial system. The statute affects nearly every federal
agency with jurisdiction over finance or consumer protection, and nearly every segment of the
financial-services industry.
Down Payment
A portion of the purchase price paid in cash (or its equivalent) at the time the sale agreement is
executed.
Due-on-Sale Clause
A mortgage provision that gives a lender the option to accelerate the debt if the borrower
transfers any part of the mortgaged real estate without the lender’s consent.
Earnest Money Deposit
A deposit paid (often in escrow) by a prospective buyer to show a good-faith intention to
complete the transaction, and ordinarily forfeited if the buyer defaults. It is generally a
percentage of the purchase price and it rarely exceeds 10 percent.
Easement
An interest in land owned by another person, consisting of the right to use or control the land, or
an area above or below it, for a specific limited purpose. E.g., an ingress and egress ________ for
the right to access the land through the land of another. Unlike a lease or license, an ______ may last forever, but it does not give the holder the right
to possess, take from, improve upon, or sell the land.
Primary Recognized Easements
These are primary recognized _________:
-A right-of-way.
• A right of entry for any purpose relating to the dominant estate.
• A right to support of land and buildings.
• A right of light and air.
• A right to water.
• A right to do some act that would otherwise amount to a nuisance; and
• A right to place or keep something on the servient estate.
dominant estate
The land benefitting from an easement
servient estate
The land burdened by an easement
Economic Obsolescence
Obsolescence that results from external economic factors, such as decreased demand or changed
governmental regulations.
Effective Interest Rate
The actual annual rate, which incorporates compounding when calculating interest, rather than
the stated rate or coupon rate.
Eminent Domain
The inherent power of a governmental entity to take privately owned property and convert it to
public use, subject to reasonable compensation for the taking
Employer-Assisted Housing
A program in which an employer assists its employees in purchasing homes by helping with the
down payment, closing costs, or monthly payments.
Encroachment
An interference with or intrusion onto another’s property.
Encumbrance
A claim or liability that is attached to property and that may lessen its value, such as a lien or
mortgage. It cannot defeat the transfer of possession, but it remains after the property or right is transferred.
Entitlement
An absolute right to a benefit granted immediately upon legal requirement
Equal Credit Opportunity Act (ECOA/Regulation B)
A federal statute that prohibits lenders from discriminating against credit applicants based on
race, color, religion, national origin, age, sex, or marital status with respect to any aspect of a
credit transaction
Equitable Mortgage
A transaction that has the intent but not the form of a mortgage, and that a court of equity will
treat as a mortgage.
Equity
The amount by which an interest in property exceeds secured claims or liens. The difference
between the value of the property and all encumbrances on it
Escrow
A legal document or property delivered by a promisor to a third party to be held by that third
party for a given amount of time or until the occurrence of a condition at which time the third
party is to hand over the document or property to the promiser.
Escrow Account
A bank account generally held in the name of the depositor and an escrow agent that is
returnable to the depositor or paid to a third person on the fulfillment of specified conditions.
Escrow Agent
The third-party depositary of an escrow. An escrow holder is not a common-law agent because
the holder does not act subject to the control of the parties to the escrow agreement.
Escrow Agreement
The instruction given to the third-party depositary of an escrow
Escrow Contract
The contract among buyer, seller, and escrow holder, setting forth the rights and responsibilities
of each.
Eviction
The act or process of legally dispossessing a person of land or rental property.
Exclusive Right-to-Sell Listing
The right to sell a principal’s products or to act as the seller’s real estate agent to the exclusion of
all others, including the owner. The listing agreement upon which the broker gets commission
even if seller is the one who sells the house during the agreement period or for a certain period
thereafter.
Exclusive Agency Listing
A listing giving one agent the right to be the only person, other than the owner, to sell the
property during a specified period. A listing agreement upon which the broker does not get a
commission if the seller sells the property themselves.
Executor
A person named by a testator to carry out the provisions of the testator’s will.
Fair and Accurate Credit Transactions Act (FACT Act) 2003
A 2003 amendment to the federal Fair Credit Reporting Act providing free annual credit reports
to consumers and establishing measures intended to help prevent identity theft. One of the Act’s
better-known and more heavily litigated provisions prohibits merchants from printing the
expiration date or more than the last five digits of the card number on a point-of-sale credit card
or debit card receipts.
Fair Credit Reporting Act (FCRA/Regulation V)
A 1970 federal statute that regulates disclosure and use of consumer-credit information and ensures the right of consumers to have access to and to correct their credit reports. Many states
have enacted similar statutes.
Fair Housing Act (FHA)
A 1968 federal statute that prohibits discrimination based on race, sex, religion, family status, or
national origin in the sale or rental of a dwelling, especially in the refusal to sell or rent
Fair Market Value
The price that a seller is willing to accept and a buyer is willing to pay on the open market and in
an arm’s-length transaction, the point at which, supply and demand intersect.
Fannie Mae/Freddie Mac Loan Limit
The loan limits as set by FHFA for Fannie Mae and Freddie Mac loans. These numbers are
higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. They change yearly.
Federal National Mortgage Association (Fannie Mae/FNMA)
A privately owned and managed corporation chartered by the U.S. government that provides a
secondary mortgage market for the purchase and sale of conventional conforming mortgages
Federal Home Loan Mortgage Corporation (Freddie Mac/FHLMC)
A corporation that purchases both conventional conforming first mortgages from members of the
Federal Reserve System and other approved banks.
Federal Housing Administration (FHA)
An agency in the U.S. Department of Housing and Urban Development responsible for
facilitating ___ mortgage lending by insuring mortgage loans on houses meeting the agency’s
standards. The ____ was created in 1934.
Federal Reserve System (FRS)
The central bank that sets credit and monetary policy by fixing the reserves to be maintained by
depository institutions, determining the discount rate charged by Federal Reserve Banks, and
regulating the amount of credit that may be extended on any security. The Federal Reserve
System was established by the Federal Reserve Act of 1913. It incorporates 12 central banks
supervised by a Board of Governors whose members are appointed by the President and
confirmed by the Senate
Fee Simple
An interest in land that, being the broadest property interest allowed by law, endures until the
current holder dies without heirs.
FHA Mortgage
A mortgage that is insured fully or partially by the Federal Housing Administration (FHA).
FHA Mortgage Insurance
Current Federal Housing Administration (FHA) upfront mortgage insurance premiums are 1.75
percent of the loan size. If an FHA-backed mortgage is used for a purchase mortgage and your
loan size is $300,000, then your upfront Mortgage Insurance Premium (MIP) will be $5,250. The
renewal premium varies by FHA product, generally .85 x mortgage amount divided by 12 = the
monthly premium added to the monthly payment
Firm Commitment
A promise from a lender to make a mortgage loan.
First Mortgage
A mortgage that is senior to all other mortgages or liens on the same property.
First-Time Home Buyer
An individual who has had no ownership in a principal residence during the 3-year period ending
on the date of purchase of the property. This includes a spouse. If either meets the test, they are
considered first-time homebuyers.
A single parent who has only owned with a former spouse while married.
Fixed Installment
The monthly payment due on a mortgage loan which includes both principal and interest
Fixed Period Adjustable Rate Mortgag
An adjustable rate mortgage with an initial fixed interest rate period. After the fixed interest rate
expires, the interest rate starts to adjust based on an index plus a margin. The amount by which
the interest rate can adjust after the fixed period is usually subject to an interest rate cap.
Fixed-Rate Mortgage (FRM)
A mortgage with an interest rate that remains the same over the life of the mortgage regardless of market conditions
Flood Certification Fee
Fee issued to the client which covers the cost of the assessment and is included in closing costs
and fees.
Flood Insurance
Insurance that indemnifies against a loss caused by a flood. This type of insurance is often sold
privately but subsidized by the federal government. Maximum coverage is $250,000.
Floor
On an ARM loan, the margin is the floor and the lowest the interest rate can go over the life of
the loan
Forbearance
The act of refraining from enforcing a right, obligation, or debt. Permitting one to retain a loan of
money after it has become due and payable is forbearing it. Forbearance, within the meaning of
usury laws, is the giving of further time for the return of payment of money after the date upon
which it became due.
Foreclosure
A legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the
mortgagee) either to gain title or to force a sale to satisfy the unpaid debt secured by the
property.
Forfeiture
A destruction or deprivation of some estate or right because of the failure to perform some
contractual obligation or condition. When a condition is not likely to occur until the obligee has
relied on the expected exchange by, for example, performing or preparing to perform, a nonoccurrence of the condition results in the obligee’s loss of its reliance interest when the obligee
loses the right to that exchange. This loss of reliance interest is often described as this.
Fully Amortized Mortgage
A mortgage in which the mortgagor pays the interest as well as a portion of the principal in the
periodic payment. At maturity, the periodic payments will have completely repaid the loan. Also
known as a self- liquidating mortgage. For example, 360 P&I payments on a 30-year loan will
pay the loan in full
General Contractor
Someone who contracts for the completion of an estate project, including purchasing all
materials, hiring and paying subcontractors, and coordinating all the work.
General Warranty Deed
A seller promises that there are no defects in the title that arose or were created while the seller
owned the property or while anyone prior to the seller owned the property.
Gift Letter
A letter to the lender from the donor stating a gift of money has been made to the buyer to
purchase a specific property. The gift must come an immediate blood relative and no evidence of
repayment required.
Good Faith Estimate
Gives you an estimate of the costs of the mortgage loan. A form that lists basic information about
the terms of a mortgage for which the applicant has applied. If the applicant applied for a
mortgage before October 3, 2015, or if the applicant is applying for a reverse mortgage or
HELOC, they will receive a Good Faith Estimate (GFE).
Government Mortgage
Mortgage insured by a government entity, such as Federal Housing Administration (FHA),
Veteran’s Administration (VA) or Rural Housing Service (RHS – USDA loans).
Government National Mortgage Association (Ginnie Mae/GNMA)
A federally owned corporation in the U.S. Department of Housing and Urban Development
responsible for guaranteeing mortgage-backed securities composed of FHA insured or VA
guaranteed mortgage loans. The Association purchases, on the secondary market, residential
mortgages originated by local lenders; it then issues federally insured securities backed by these
mortgages.
Graduated Payment Mortgage (GPM)
A mortgage whose initial payments are lower than its later payments. The payments are intended
to gradually increase, as the borrower’s income increases over time. This type of mortgage may
result in negative amortization.
Grace Period
An extra period of time allowed for taking some required action (such as making payment) without incurring the usual penalty for being late. Article 9 of the Uniform Commercial Code
(UCC) provides for a 20-day grace period after the collateral is received. During that time a
purchase-money security interest must be perfected to have priority over any conflicting security
interests.
Gramm-Leach-Bliley Act (GLB) 1999 – Regulation P
A federal statute that repealed both parts of the Glass-Stegall Act prohibiting combinations
among banking, securities, and insurance companies, as well as related conflict-of-interest
provisions for such companies’ officers, directors, and employees. The Act also regulates the
collection, disclosure, use, and protection of consumers’ nonpublic personal information.
Gross Monthly Income
The total amount of a person’s income before taxes.
Ground Rent
Rent paid by a tenant under a long-term lease for the use of undeveloped land, usually for the
construction of a commercial building.
Growing-Equity Mortgage (GEM)
A mortgage that is fully amortized over a significantly shorter term than the traditional 30-year
mortgage, with increasing payments each year.
Guarantee
Assumption of the liability of another’s debts in the event of default.
Guarantee Mortgage
A mortgage that is guaranteed by a third party.
Guaranty
A promise to answer for the payment of some debt, or the performance of some duty, in case of
the failure of another who is liable in the first instance.
Hazard Insurance
Insurance that protects property owners against damage caused by fires, severe storms,
earthquakes, or other natural events. It will also protect the borrower against liability for
someone that is injured on the property. If the specific event is covered within the policy, the
property owner will receive compensation to cover the cost of any damage incurred.
Home Equity Loan
A line of bank credit given to a homeowner, using the homeowner’s equity in the home as
collateral.
Home Inspection
A non-invasive visual examination of a residential dwelling, performed for a fee, which is
designed to identify observed material defects within specific components of said dwelling.
Home Mortgage Disclosure Act of 1975 (HMDA/Regulation C)
This regulation provides the public loan data that can be used to assist in determining whether
financial institutions are serving the housing needs of their communities, public officials in
distributing public-sector investments to attract private investment to areas where it is needed,
and in identifying possible discriminatory lending patterns. The regulation applies to certain
financial institutions, including banks, savings associations, credit unions, and other mortgage
lending institutions. Mortgage Brokers are exempt.
Homeowner’s Insurance
Insurance that covers both damage to the insured’s residence and liability claims made against
the insured, especially those arising from the insured’s negligence.
Homeowner’s Warranty (HOW)
A warranty and insurance program that, among other coverage, insures a new home for ten years
against major structural defects. The program was developed by the Home Owners Warranty
Corporation, a subsidiary of the National Association of Home Builders. Builders often provide
this type of coverage and may states provide similar warranty protection by statute.
Home Ownership and Equity Protection Act (HOEPA) 1994
It was enacted in 1994 as an amendment to the Truth-In-Lending Act (TILA) to address
abusive practices in refinances and closed end home equity loans with high interest rates or high
fees.
Housing and Urban Development (HUD)
The cabinet-level department of the federal government responsible for overseeing programs that
are concerned with housing needs and fair-housing opportunities, and with improving and
developing the country’s communities. Established in 1965, headed by the Secretary of Housing
and Urban Development.
Housing Code
A law or regulation setting standards for the construction, maintenance, occupancy, use, or
appearance of buildings and dwelling units.
Housing Expenses-to-Income Ratio
A ratio comparing housing expenses to before-tax income that is used by lenders to qualify
borrowers for a mortgage. The housing expense measure includes mortgage principal, interest
payments, property taxes, hazard insurance, mortgage insurance, and association fees. The limit
for housing is generally 28 percent of the expense-to-income ratio on manually underwritten
conventional conforming loans.
HUD-1 Settlement Statement
Standard form at closing which is used to itemize services and fees charged to the borrower by
the lender or broker when applying for a loan for the purpose of purchasing or refinancing real
estate. This form is used only for Reverse Mortgages and HELOC’s since TRID was
implemented
Hybrid Loan
It performs like a fixed and adjustable rate loan. It has a fixed rate for an initial period before
turning into an Adjustable Rate Mortgage (ARM). These initial periods are offered in 3, 5, 7, or
10-year terms
Impound
The portion of a monthly mortgage payment that is earmarked to pay property taxes and
property- insurance premiums.
Income Property
Property that produces income, such as 1- 4 family rental property.
Index
A number, usually expressed in the form of a percentage or ratio, commonly used in ARM
moans, High Cost and High-Priced loans.
Indexed Rate
Also, referred to as the Fully Indexed Rate. An interest rate charged on loans to borrowers that is
calculated by taking the sum of a benchmark index and a specified margin. The indexed rate is
used to calculate the interest rate on an ARM.
Individual Retirement Account (IRA)
A savings or brokerage account to which a person may contribute up to a specified amount of
earned income each year. The contributions, along with any interest earned in the account, are
not taxed until the money is withdrawn after a participant reaches the age of 59 1/2 (or before
then, if a 10 percent penalty is paid).
Inflation
A general increase in prices coinciding with a fall in the real value of money
Initial Interest Rate
The interest rate that applies on the first day of the loan’s term.
Inquiry
A request for a copy of your credit report by a lender or other business, often when you fill out a
credit application and/or request more credit
Insolvency
is a term for when an individual or organization can no longer meet its financial
obligations with its lender(s) as debts become due.
Installment
A periodic partial payment of a debt.
Installment Debt
A loan that is repaid by the borrower in regular installments. It is generally repaid
in equal monthly payments that include interest and a portion of principal.
Interest
is the charge for the privilege of borrowing money
Interest Accrual Rate
The rate of interest that is added to the principal of a financial instrument between cash payments
of that interest.
Interest Rate Buy Down Plan
Arrangement that allows the seller to deposit money to an account, from which the money is released each month to reduce the mortgagor’s monthly payments during the early years of the
mortgage
Interest Rate Ceiling (Cap)
The maximum interest rate that a financial institution can charge a borrower for an Adjustable Rate Mortgage (ARM) or loan according to the contractual terms of the mortgage loan.
Interest Rate Change Date
Date upon which the rate of interest is subject to change.
Interest Rate Floor
The minimum interest rate allowed according to the contractual terms of the mortgage loan.
Interim Financing
A short-term loan secured to cover certain major expenditures, such as construction costs, until
permanent financing is obtained.
Investment Property
Any asset purchased to produce a profit, whether from income or resale.
Investor
A buyer of a security or other property who seeks to profit from it without exhausting the
principal.
Joint Liability
Liability shared by two or more parties
Joint Tenancy
A tenancy with two or more co-owners who are not spouses on the date of acquisition and have
identical interests in a property with the same right of possession. It differs from a
tenancy in common because each joint tenant has a right of survivorship to the other’s share (in
some states, this right must be clearly expressed in the conveyance – otherwise, the tenancy will
be presumed to be a tenancy in common).
Judgment Lien
A lien imposed on a judgment debtor’s nonexempt property. This lien gives the judgment lender
the right to attach the judgment debtor’s property.
Jumbo Mortgage
A mortgage loan in a principal amount that exceeds the dollar limits for Fannie Mae, Freddie
Mac or government loans.
Junior Mortgage
A mortgage that is subordinate to another mortgage on the same property. A junior mortgage is
also known as a second lien. Common 2nd liens are HELOC’s or 2nd Mortgages
Keogh Plan
A tax-deferred retirement program developed for the self-employed. This plan is also known as
an H.R. 10 plan, after the House of Representatives bill that established the plan.
Late Charge
An additional fee assessed on a debt when a payment is not received by the 15th of the month in
which the payment is due.
Lender (Mortgagee)
A person or entity from which money is borrowed.
Lease-Purchase Option
A rent-to-own purchase plan under which the buyer takes possession of the property with the
first payment and takes ownership with the final payment. Such a lease is usually treated as an
installment sale. Under a capital lease, the lessee is responsible for paying taxes and other
expenses on the property.
Liabilities
Financial obligations in a specified amount. Any debt including an IRS lien,
Liability Insurance
provides the insured party with protection against claims resulting from
injuries and damage to people and/or property. These policies cover both legal costs
and any payouts for which the insured party would be responsible if found legally liable.
Intentional damage and contractual liabilities are generally not covered in these types of policies.
Lien
A legal right or interest that a lender has in another’s property. This lasts until a debt or duty that
it secures is satisfied. Typically, the lender does not take possession of the property on which the _____ has been obtained.
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.
Lifetime Rate Cap
For an Adjustable Rate Mortgage (ARM), a limit on the amount that the interest rate can increase
or decrease over the life of the mortgage.
Liquid Asset
An asset that is readily convertible into cash, such as a marketable security, a note, or an account
receivable.
Loan
An act of lending.
Loan Application Fee
A fee the buyer pays to a lender when applying for a mortgage.
Loan Discount Points
Prepaid interest on the mortgage loan. The more points paid, the lower the interest rate.
Typically, borrowers can pay for 0-4 points. 1% of the loan amount is a Discount Point. Discount
points can only be used for the reduction of interest rate
Loan Origination
The process by which a borrower applies for a new loan, and a lender processes that application.
Origination generally includes all the steps from taking a loan application up to disbursal of
funds.
Loan Origination Fee
A fee charged by a lender to cover the administrative costs of making a loan.
Loan Servicing/Administration
The process by which a company collects interest, principal, and escrow payments from a
borrower.
Loan-to-Value Ratio (LTV)
The ratio between the amount of a mortgage loan and the value of the property pledged as
security for the mortgage, usually expressed as a percentage. For example, an $80,000 loan on
property worth $100,000 results in a loan-to-value ratio of 80 percent - which is usually the
highest ratio that lenders will agree to without requiring the debtor to buy mortgage insurance on
a conventional conforming loan
Lock
A guarantee that the lender will deliver a specific combination of interest rate and points if the
mortgage closes by a specified date.
Lock-In-Rate
A mortgage application interest rate that is established and guaranteed for a specified period.
London Interbank Offered Rate (LIBOR)
A daily compilation by the British Association of the rates that major international banks charge
each other for large-volume, short-term loans of Eurodollars, with monthly maturity rates
calculated out to one year. These daily rates are used as the underlying interest rates for
derivative contracts in currencies other than the euro.
Low-Down-Payment Feature
A feature of some mortgages that can be fixed rate or ARM loans, that helps you buy a home
with a low-down payment, may require mortgage insurance over 80% LTV
Manufactured Housing
A type of prefabricated housing that is largely assembled in factories and then transported to
sites of use. They are 320 square feet or more when assembled and built on a permanent chassis
designed to be used as a dwelling with or without a permanent foundation. Manufactured homes
are connected to the required utilities, and have within them plumbing, heating, air-conditioning,
and electrical systems.
Margin
The yield an investor wants to earn over the life of the loan. It is also the lowest the rate can go
on an ARM loan.
Marketable Title
A title that a reasonable buyer would accept because it appears to lack any defect and covers the entire property that the seller has purported to sell.
Maturity Date
The date when a debt falls due, such as a debt on a promissory note or bond.
Mechanic’s Lien
A statutory lien that secures payment for labor or materials supplied in improving, repairing, or
maintaining real or personal property.
Merged Credit Report
A credit report that contains information from at least three credit bureaus. Any duplicate entries
are combined to provide a concise summary of outstanding liabilities and credit history.
Mixed Use Property
Commercial and Residential uses at the same time
Modification
A process where the terms of a payment are modified outside the original terms of the contract
agreed to by the lender and borrower.
Money Market Account
An interest-bearing account at a bank or other financial institution. Such an account usually pays
interest competitive with money-market funds but allows a limited number of transactions per
month.
Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and interest. When a
mortgage is negatively amortized, the monthly fixed installment does not include any amount for
principal reduction and does not cover all the interest. The loan balance therefore increases
instead of decreasing.
Monthly Housing Expense
The sum of a homeowner’s monthly mortgage principal and interest payments, plus, hazard
insurance premiums, property taxes, and homeowner’s association fees.
Mortgage
A conveyance of title to property that is given as a voluntary lien for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the
stipulated terms. This conveyance is a lien against the property. Also refers to the instrument
specifying the terms of such a transaction. The loan on which such a transaction is based. In
essence any real-property security trans- action, including a deed of trust.
Mortgage Banker
An individual or organization that originates real estate loans for a fee, resells them to other
parties, and may service the monthly payments.
Mortgage Broker
An individual or organization that markets mortgage loans and brings lenders and borrowers
together. A mortgage broker does not underwrite, fund or service mortgage loans.
Mortgage Disclosure Improvement Act (MDIA) 2008
Enacted to ensure that consumers receive good faith estimates of Truth-In-Lending-Act (TILA)
disclosures at the beginning of the application process and to provide sufficient time for
consumers to review the disclosures before consummation can take place.
Mortgage Insurance (MI)
Insurance that protects the lender in the case the borrower goes into default.
Mortgage Insurance Premium (MIP)
An insurance policy used in FHA loans, ensuring the lender if the borrower goes into default and
is not allowed to be cancelled during the life of the loan. The FHA assesses either an “upfront”
_____ at the time of closing, or an annual ____ that is calculated every year and paid in 12
installments.
Mortgage Life Insurance
A form of insurance specifically designed to protect a repayment mortgage. If the policyholder
were to die while the mortgage life insurance was in force, the policy would pay out a capital
sum that will be just sufficient to repay the outstanding mortgage.
Mortgage Loan
A loan secured by a mortgage or deed of trust on real property.
Mortgage Note
A note evidencing a loan for which real property has been offered as security
Mortgage Rate
The rate of interest charged by a mortgage lender
Multifamily Mortgage
A residential mortgage on a dwelling that is designed to house more than four families, such as
an apartment complex
Multiple Listing Service (MLS)
A listing stating the agent will allow other agents to try to sell the property. Under this
agreement, the original agent gives the selling agent a percentage of the commission or some
other stipulated amount.
Mutual Funds
An investment company that invests its shareholders’ money in a diversified selection of
securities.
Negative Amortization
When a mortgage allows the borrower to make minimum payments that are less than the entire
amount of interest owed, the unpaid interest is deferred by adding it to the loan balance. Also
known as a deferred interest.
Net Effective Income
The amount of after-tax income produced by a specific asset or group of assets, calculated by
subtracting federal income tax from gross income.
Net Monthly Income
Take home pay after taxes and payroll deductions.
Net Worth
A measure of one’s wealth, usually calculated as the excess of total assets over total liabilities
Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage by another
borrower without the prior approval of the lender.
Non-Conforming Loan
Any loan that does not Fannie Mae or Freddie Mac lending requirements. Reasons include the
loan amount is higher than the conforming loan limit, lack of sufficient credit, the unorthodox
nature of the use of funds, or the collateral backing it
Non-Discharge Debt
A debt, such as one for delinquent taxes, that is not released through bankruptcy.
Non-Liquid Asset
A type of asset that is not easily turned into cash. Real estate is considered a non-liquid asset.
Note
A written promise by one party to pay money to another party.
Notice of Default (NOD)
A notification given to a borrower stating that they have not made their payments by the
predetermined deadline or is otherwise in default on the mortgage contract.
Offer
A price given at which one is ready to buy or sell to another party.
Office of Comptroller Currency
A U.S. federal agency that serves to charter, regulate, and supervise the national banks and
federal branches and agencies of foreign banks. Headed by the Comptroller of the Currency.
Office of Thrift Supervision (OTS)
An office in the U.S. Department of the Treasury responsible for regulating and examining thrift
institutions to ensure that they are financially sound.
One Year Adjustment Rate Mortgage
A loan with a fixed rate for the first year that has a rate that changes yearly for the remaining life
of the loan. Borrower is qualified at the highest the rate can over the life of the loan.
Open House
An occasion when real estate offered for sale can be viewed by prospective buyers without an
appointment.
Option Contract
An agreement between a buyer and seller that gives the purchaser of the option the right to buy
or sell a particular asset at a later date at an agreed upon price.
Original Principal Balance
The amount the borrower owes the lender on the funding date of the loan.
Origination Fee
A fee charged by a lender for preparing and processing a loan.
Owner Financing
A loan provided by the seller of a property or business to the purchaser.
Owner-Occupied Property
A form of housing tenure where a person owns the home in which he or she lives.
Partial Payment
A payment for less than the full amount claimed by the lender.
Payment Cap
A clause found in an Adjustable Rate Mortgage (ARM) contract that limits the possible increase
in the loan’s interest rate to a certain amount each year. The cap is usually defined in terms of
rate, but the dollar amount of the principal and interest payment can be capped as well.
Payment Change Date
The date when a new monthly payment amount takes effect.
Per Diem Interest
The pro-rated amount of interest due for remaining days in a month. Calculated and paid at loan
closings. Principal X Interest rate / 360 for a conventional and 365 for government = per
day/diem interest.
Periodic Payment Cap
A restriction on how much payments can increase or decrease over a single adjustment period.
Permanent Loan
A long-term mortgage loan. In real estate projects, it is obtained after completion of construction,
usually to repay the short-term construction loan.
Personal Property
Any movable or intangible thing that is subject to ownership and not classified as real property.
Appraiser cannot give any value ot personal property, nor can you lend on personal property
Planned Unit Development (PUD)
A land area zoned for a single-community subdivision with flexible restrictions on residential,
commercial, and public uses.
Power of Attorney
An instrument granting someone authority to act as agent or attorney-in-fact for the grantor. An
ordinary power of attorney is revocable and automatically terminates upon the death or
incapacity of the principal.
Preliminary Title Report
A report prepared prior to issuing a policy of title insurance that shows the ownership of a
specific parcel of land, together with the liens and encumbrances thereon which will not be
covered under a subsequent title insurance policy
Pre-Approval
An evaluation of a potential borrower by a lender that determines whether the borrower qualifies
for a loan from the lender, or the maximum amount that the lender would be willing to lend.
Credit, income and assets are verified. Not a loan commitment.
Prepaid Expenses
A type of asset that arises on a balance sheet because a business made payment for goods and
services to be received.
Prepayment
The satisfaction of a debt or installment payment before its official due date. A prepayment can
be for the entire balance or for any upcoming payment that is paid in advance of the date for
which the borrower is contractually obligated to pay it.
Prepayment Penalty
A clause in a mortgage contract that says if the mortgage is prepaid within a certain time, a
penalty will be assessed. The penalty is usually based on percentage of the remaining mortgage
balance or a certain number of months’ worth of interest. None of the agency products allow
prepayment penalties.
Pre-Qualification
An initial evaluation of the credit worthiness of a potential borrower that is used to determine the
estimated amount that the person can afford to borrow. Credit is looked at and income and asset
information is not verified, information is based on borrower’s information, not a commitment.
Predatory Lending
Unscrupulous actions carried out by a lender to entice, induce, and/or assist a borrower in taking
a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the
borrower in a lower credit rated loan to the benefit of the lender.
Primary Mortgage Market
The national market in which mortgages are originated.
Prime Rate
The interest rate that a commercial bank holds out as its lowest rate for short-term loans to its
most creditworthy borrowers (usually large corporations). This rate, which can vary slightly from
bank to bank, often dictates other interest rates for various personal and commercial loans.
Principal
The amount of a debt, investment, or other fund, not including interest, earnings, or profits.
Principal, Interest, Taxes, and Insurance (PITI)
The components of a monthly mortgage payment.
Profit and Loss Statement
A financial statement that summarizes the revenues, costs, and expenses that a business incurred
during a given period.
Promissory Note
is a note that details money borrowed from a lender and the repayment structure. The document holds the borrower accountable for paying back the money (plus interest, if any). An agreement to borrow money with the condition that if it is not
paid back to the lender then the security, which is usually an asset or property, is turned over to
the lender.
Property Tax
A tax levied on the owner of the property. The tax is based on the property’s value. Local
governments often impose property taxes to finance school districts, municipal projects, etc.
Purchase/Sales Agreement
A sales contract in which ownership of property is transferred from a seller to a buyer for a fixed
sum at a fixed date.
Purchase Money Mortgage (PMM)
A mortgage that a buyer gives the seller when the property is conveyed to secure the unpaid
balance of the purchase price.
Qualifying Guidelines
Criteria used to determine eligibility for a loan.
Qualifying Rate
The interest rate used in calculating the initial mortgage payment in qualifying a borrower
Qualifying Ratios
Ratio of debt to income and housing expense to income that is used by mortgage lenders to
determine a borrower’s creditworthiness for certain loan amounts.
Quality Control
A process used to make sure that companies participating in the issuance of mortgages comply
with all state and national laws related to those mortgages
Quitclaim Deed
A deed that serves to transfer the title but offers no promises about the quality of that title
Radon
A naturally occurring radioactive gas found in some buildings. It may cause health problems.
Ratified Sales Contract
A sales contract in which an offer has been made and accepted, and the contract has been signed
and initialed by all parties involved.
Realtor
A real estate agent who is a member of the National Association of Realtors.
Real Estate Agent/Broker
One who is engaged on behalf of another (usually on a commission) to negotiate contracts
relating to property in which he or she has no custodial or proprietary interest.
Real Estate Settlement Procedures Act (RESPA/Regulation X)
A federal statute that requires lenders to provide home buyers with information about known or
estimated settlement costs.
Real Property
Land and anything growing on, attached to, or erected on it. It can be either
corporeal (soil and buildings) or incorporeal (easements).
Reclamation
The act or an instance of improving the value of economically useless land by physically
changing the land, such as irrigating a desert.
Reconveyance
The restoration or return of something to a former owner or holder.
Recorder
The government official who keeps the public records affecting real property, such as deeds,
liens, and judgments.
Recording
It was put in place to require the prior purchaser to record their purchase so
that a subsequent purchaser can search for prior purchases to determine whether they should buy
the land
Refinance
When a business or person revises a payment schedule for repaying debt. The debt payment
would be reduced because the interest rate is reduced, or the term is extended.
Rehabilitation Mortgage
A mortgage that covers the costs of rehabilitating a property. Some rehabilitation mortgages
allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.
Remaining Term
The original term of the loan after the number of payments made has been subtracted.
Rent with Option to Buy
A contractual provision by which an owner of realty enters an agreement with another allowing
the latter to rent the property upon signing the lease with the option to buy the property at the end
of the lease term, usually for a reduced rate.
Repayment Plan
An arrangement by which a borrower agrees to make additional payments to pay down past due
amounts while still making regularly scheduled payments.
Replacement Cost
The cost of a substitute asset that is equivalent to an asset currently held. A property is destroyed,
what would the replacement cost be based on today’s costs of materials. The new asset has the
same utility but may or may not be identical to the one replaced
Rescission
A party’s unilateral unmaking of a contract for a legally sufficient reason, such as the other
party’s material breach, or a judgment rescinding the contract. It allows the borrowers
and owners of a property have a three (3) day period after closing to rescind (cancel) the
transaction on primary owner-occupied property only.
Restriction
A limitation placed on the use or enjoyment of property.
Reverse Annuity Mortgage (RAM)
A mortgage in which the lender disburses money over a long period to provide regular income to the borrower, and in which the loan is repaid in a lump sum when the borrower dies or when the
property is sold.
Revolving Debt
Open-ended accounts, usually with variable interest rates, pre-determined credit limits and
payments that are calculated as a percentage of the unpaid balance.
Credit cards, home equity lines of credit (HELOC) and personal lines of credit are all examples
of revolving debt
Right of First Refusal
A potential buyer’s contractual right to meet the terms of a third party’s higher offer. For
example, if Beth has a right of first refusal on the purchase of Sam’s house of $290,000, and if
Terry offers to buy the house for $300,000, then Beth can match this offer and prevent Terry
from buying it.
Rural Housing Service (RHS)
An agency in the U.S. Department of Agriculture responsible for making or guaranteeing loans
for rural housing.
Sale-Leaseback
The sale of property on the understanding, or with the express option, that the seller may lease
the property from the buyer, usually immediately after the sale.
Satisfaction of Mortgage
The complete payment of a mortgage. Also, can refer to a discharge signed by the mortgagee or
mortgage holder indicating that the property subject to the mortgage is released or that the
mortgage debt has been paid and the mortgage conditions have been fully satisfied.
Second Mortgage
A mortgage that is junior to a first mortgage on the same property, but that is senior to any later
mortgage.
Secondary Mortgage Market
The national market in which existing mortgages are bought and sold, usually on a package
basis.
Section 203(k) Loans
Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase of a
house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation
of their existing home.
Secure and Fair Enforcement Act (SAFE Act) 2008
Designed to enhance consumer protection and reduce fraud through the setting of minimum
standards for the licensing and registration of state-licensed mortgage loan originators. Mortgage
loan originators who work for an insured depository or its owned or controlled subsidiary that is
regulated by a federal banking agency, or for an institution regulated by the Farm Credit
Administration, are registered. All non-financial mortgage loan originators are registered and
licensed by the states.
Secured Loan
A loan that is secured by property. Also known as a collateral loan.
Security
Collateral given or pledged to guarantee the fulfillment of an obligation, especially that a lender
will be repaid (usually with interest) any money or credit extended to a debtor
Seller Carry Back
When a seller acts as the bank or lender and carries a second mortgage on the subject property,
which the buyer pays down each month.
Seller Take-Back
When a seller wants to close a sale of real estate but the buyer is not yet able to fully fund the
purchase, the parties can close the sale with the seller taking from the buyer a purchase money
note and mortgage in lieu of an all-cash payment.
Service Members Civil Relief Act
Offers protections for service members, and sometimes their family members. Examples include:
reduced interest rates, postponement of foreclosures, deferred income taxes, eviction prevention,
protection against default judgments, postponed civil court matters, protection for small-business
owners, termination of lease agreements, prevention of repossession of property, life insurance
coverage protection, and suspension of professional liability insurance. This Act protects activeduty service members, including National Guard and reserve members, who have been activated
by the federal government. Many of these protections extend to the family of service members.
Servicing
The administration of a mortgage loan, including the collection of payments, release liens,
payment of the investor that bought the loan and property insurance and taxes. Servicing is
usually performed by the lender or the lender’s agent, for a fee.
Rescission
A party’s unilateral unmaking of a contract for a legally sufficient reason, such as the other
party’s material breach, or a judgment rescinding the contract. It allows the borrowers
and owners of a property have a three (3) day period after closing to rescind (cancel) the
transaction on primary owner-occupied property only.
Restriction
A limitation placed on the use or enjoyment of property.
Reverse Annuity Mortgage (RAM)
A mortgage in which the lender disburses money over a long period to provide regular income to the borrower, and in which the loan is repaid in a lump sum when the borrower dies or when the
property is sold.
Revolving Debt
Open-ended accounts, usually with variable interest rates, pre-determined credit limits and
payments that are calculated as a percentage of the unpaid balance.
Credit cards, home equity lines of credit (HELOC) and personal lines of credit are all examples
of revolving debt
Right of First Refusal
A potential buyer’s contractual right to meet the terms of a third party’s higher offer. For
example, if Beth has a right of first refusal on the purchase of Sam’s house of $290,000, and if
Terry offers to buy the house for $300,000, then Beth can match this offer and prevent Terry
from buying it.
Rural Housing Service (RHS)
An agency in the U.S. Department of Agriculture responsible for making or guaranteeing loans
for rural housing.
Sale-Leaseback
The sale of property on the understanding, or with the express option, that the seller may lease
the property from the buyer, usually immediately after the sale.
Satisfaction of Mortgage
The complete payment of a mortgage. Also, can refer to a discharge signed by the mortgagee or
mortgage holder indicating that the property subject to the mortgage is released or that the
mortgage debt has been paid and the mortgage conditions have been fully satisfied.
Second Mortgage
A mortgage that is junior to a first mortgage on the same property, but that is senior to any later
mortgage.
Secondary Mortgage Market
The national market in which existing mortgages are bought and sold, usually on a package
basis.
Section 203(k) Loans
Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase of a
house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation
of their existing home.
Secure and Fair Enforcement Act (SAFE Act) 2008
Designed to enhance consumer protection and reduce fraud through the setting of minimum
standards for the licensing and registration of state-licensed mortgage loan originators. Mortgage
loan originators who work for an insured depository or its owned or controlled subsidiary that is
regulated by a federal banking agency, or for an institution regulated by the Farm Credit
Administration, are registered. All non-financial mortgage loan originators are registered and
licensed by the states.
Secured Loan
A loan that is secured by property. Also known as a collateral loan.
Security
Collateral given or pledged to guarantee the fulfillment of an obligation, especially that a lender
will be repaid (usually with interest) any money or credit extended to a debtor
Seller Carry Back
When a seller acts as the bank or lender and carries a second mortgage on the subject property,
which the buyer pays down each month.
Seller Take-Back
When a seller wants to close a sale of real estate but the buyer is not yet able to fully fund the
purchase, the parties can close the sale with the seller taking from the buyer a purchase money
note and mortgage in lieu of an all-cash payment.
Service Members Civil Relief Act
Offers protections for service members, and sometimes their family members. Examples include:
reduced interest rates, postponement of foreclosures, deferred income taxes, eviction prevention,
protection against default judgments, postponed civil court matters, protection for small-business
owners, termination of lease agreements, prevention of repossession of property, life insurance
coverage protection, and suspension of professional liability insurance. This Act protects activeduty service members, including National Guard and reserve members, who have been activated
by the federal government. Many of these protections extend to the family of service members.
Servicing
The administration of a mortgage loan, including the collection of payments, release liens,
payment of the investor that bought the loan and property insurance and taxes. Servicing is
usually performed by the lender or the lender’s agent, for a fee.
Simple Interest
The interest paid on the principal only and not on accumulated interest.
Single-Family Properties
An individual, freestanding, unattached dwelling unit, typically built on a lot larger than the
structure itself, also includes attached properties that are for single families
Soft Second Loan
A loan in which its entirety, or a portion of it, can be forgiven or deferred for a period by the
lender when certain conditions are met.
Special Warranty Deed
Seller promises that there were no defects in title that arose or were created while seller owned
the property. This does not make promises about defects arising while someone prior to the seller
owned the property.
Standard Payment Calculation
The method used to determine the monthly payment required to repay the remaining balance of a
mortgage, in substantially equal installments over the remaining term of the mortgage, at the
current interest rate.
Statute of Frauds
The requirement that certain kinds of contracts be memorialized in writing and signed by the
party to be charged, with sufficient content to evidence the contract.
Trustee
Someone who stands in as fiduciary or confidential relation to another, especially one who,
having legal title to property, holds it in trust for the benefit of another and owes a fiduciary duty
to that beneficiary.
Truth-in-Lending Act (TILA/Regulation Z)
A 1968 federal statute enacted as the first subchapter of the Consumer Credit Protection Act to
safeguard consumers in the use of credit by (1) requiring full disclosure of the terms of loan
agreements, including finance charges, (2) restricting the garnishment of wages, and (3)
regulating the use of credit cards.
Underwriting
The act of reviewing all income, asset and credit documents, to determine if the information
meets the investor requirements
Unsecured Loan
A loan that is issued and supported only by the borrower’s creditworthiness, rather than by a type
of collateral. It is obtained without the use of property as collateral for the loan. Borrowers
generally must have high credit ratings to be approved for an unsecured loan.
Usury
The charging of an illegal rate of interest as a condition to lending money
Veterans Administration (VA) Mortgage
mortgage that is guaranteed by the Veterans Administration
Verification of Deposit (VOD
A statement of a borrower’s account history and status, given by financial institutions or
investment companies.
Verification of Employment (VOE)
A process used by banks and mortgage lenders to review the employment history of a borrower,
to determine the borrower’s job stability and cross-reference income history with that stated on
the Uniform Residential Loan Application.
Verification of Mortgage (VOM)
Documentation of a borrower’s mortgage payment history that is often required when applying
for a loan. In mortgage lending, the VOM is also used to verify the existing balance and monthly
payments, and to check for any late payments on the account.
Verification of Rent (VOR)
A form used in mortgage lending to verify monthly rents paid and late payments, if any.
Walk-Through
A clause in a sales contract that allows the buyer to examine the property being purchased at a
specified time immediately before the closing.
Warehouse Fee
A charge to a borrower when a mortgage banker or other small lender must borrower money on a
short-term basis to loan money on mortgage loans. If the interest rate on the short-term loan is
too large to make money on the spread, the mortgage banker will charge a warehouse fee to
cover its costs until it can assemble enough loans in its virtual warehouse and sell them to
someone else making enough money to pay off its short-term loans.
Title Insurance
An agreement to indemnify against loss arising from a defect in the title to real property, usually
issued to the buyer of the property by the title company that conducted the search.
Title Search
An examination of the public records to determine whether any defects or encumbrances exist in
a given property’s chain of title. A title search is typically conducted by a title company or a real
estate lawyer at a prospective buyer’s or mortgagee’s request.
Trade Equity
Equity that results from a buyer giving an existing property as trade for all or part of the down
payment on the subject property.
Transfer Tax
Imposed on the transfer of property, especially by will, inheritance, or gift.
Treasury Index
An index based on the auctions of U.S. Treasury bills or on the U.S. Treasury’s daily yield curve,
which is used in determining mortgage rates for mortgages with an unfixed component.
Total Expense Ratio
Total payments including the mortgage payment divided by the total verified Income.
Warranty
A covenant by which the grantor in a deed promises to secure to the grantee the estate conveyed
in the deed, and pledges to compensate the grantee if the grantee is evicted by someone having
better title. The covenant is binding on the grantor’s heirs. Historically, a warrantor was expected
to turn over land, but cash compensation could be substituted.
Wraparound Mortgage
A second mortgage issued when a lender assumes the payments on the borrower’s low-interest
first mortgage (usually issued through a different lender) and lends additional funds. Such a
mortgage covers both the outstanding balance of the first mortgage and the additional funds
loaned.
Zoning Ordinance
A city ordinance that regulates the use to which land within various parts of the city may be put.
It allocates uses to the various districts of a municipality, by allocating residences to certain parts
and businesses to other parts. A comprehensive zoning ordinance usu. regulates the height of
buildings and the proportion of the lot area that must be kept free from buildings
