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.
