Vocabulary I

Question 1

acceleration clause

Answer 1

A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for
accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

Question 2

adjustable-rate mortgage (ARM)

Answer 2

A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

Question 3

adjustment date

Answer 3

The date the interest rate changes on an adjustable-rate mortgage.

Question 4

annual percentage rate (APR)

Answer 4

This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using
your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan.

Question 5

application

Answer 5

The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.

Question 6

appraised value

Answer 6

An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on
comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

Question 7

appraiser

Answer 7

An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work
directly for mortgage lenders, most are independent.

Question 8

appreciation

Answer 8

The increase in the value of a property due to changes in market conditions, inflation, or other causes.

Question 9

assessed value

Answer 9

The valuation placed on property by a public tax assessor for purposes of taxation.

Question 10

assessment

Answer 10

The placing of a value on property for the purpose of taxation.

Question 11

assessment

Answer 11

The placing of a value on property for the purpose of taxation.

Question 12

assessor

Answer 12

A public official who establishes the value of a property for taxation purposes.

Question 13

asset

Answer 13

Items of value owned by an individual. Assets that can be quickly converted into cash are considered “liquid assets.” These include bank accounts, stocks, bonds,
mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

Question 14

assignment

Answer 14

When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

Question 15

assumable mortgage

Answer 15

A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.

Question 16

assumption

Answer 16

The term applied when a buyer assumes the seller’s mortgage.

Question 17

balloon mortgage

Answer 17

A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Question 18

balloon payment

Answer 18

The final lump sum payment that is due at the termination of a balloon mortgage.

Question 19

bill of sale

Answer 19

A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down
payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

Question 20

bond market

Answer 20

Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and
down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.

Question 21

bridge loan

Answer 21

Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge
loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders
now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.

Question 22

buydown

Answer 22

Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the
remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment.
These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another
reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

Question 23

cap

Answer 23

Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that
payment can change each year, and that limit is also referred to as a cap.

Question 24

cash-out refinance

Answer 24

When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred
to as a “cash out refinance.”

Question 25

certificate of deposit

Answer 25

A time deposit held in a bank which pays a certain amount of interest to the depositor.

Question 26

certificate of deposit index

Answer 26

One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

Question 27

Certificate of Reasonable Value (CRV)

Answer 27

Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

Question 28

chain of title

Answer 28

An analysis of the transfers of title to a piece of property over the years.

Question 29

clear title

Answer 29

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

Question 30

closing

Answer 30

This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.

Question 31

closing costs

Answer 31

Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid
just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance.
A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the
borrower within three days of receiving a home loan application.

Question 32

closing statement

Answer 32

See Settlement Statement.

Question 33

collateral

Answer 33

In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed
of trust.

Question 34

collection

Answer 34

When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.

Question 35

commission

Answer 35

Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan
officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors
generally earn the largest commissions, followed by lenders, then the others.

Question 36

common area assessments

Answer 36

In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to
maintain the property and common areas.

Question 37

common areas

Answer 37

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

Question 38

common law

Answer 38

An unwritten body of law based on general custom in England and used to an extent in some states.

Question 39

community property

Answer 39

In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special
circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.

Question 40

comparable sales

Answer 40

Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as “comps.”

Question 41

condominium

Answer 41

A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the
unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.

Question 42

condominium conversion

Answer 42

Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Question 43

construction loan

Answer 43

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

Question 44

contingency

Answer 44

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

Question 45

contract

Answer 45

An oral or written agreement to do or not to do a certain thing.

Question 46

convertible ARM

Answer 46

An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

Question 47

cooperative (co-op)

Answer 47

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving
each resident the right to occupy a specific apartment or unit.

Question 48

cost of funds index (COFI)

Answer 48

One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings,
borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

Question 49

credit repository

Answer 49

An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being
considered for credit.

Question 50

debt

Answer 50

An amount owed to another.

Question 51

deed-in-lieu

Answer 51

Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu.
Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in lieu
may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

Question 52

deed of trust

Answer 52

Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.