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Financial Glossary
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Additional Principal Payment
A payment by a borrower of more than the scheduled principal
amount due in order to reduce the remaining balance on the
loan.
Amortization
The gradual repayment of a loan by equal installments.
Amortization Schedule
A timetable for payment of a loan. An amortization schedule
shows how much of each payment as it is applied to interest and
principal the remaining balance after each payment.
Annual Percentage Rate (APR)
The APR takes into account various charges such as private
mortgage insurance and the origination fee, in addition to the base
interest rate. The APR is calculated by spreading these charges
over the life of the loan, which results in a higher rate than the
one shown on your Mortgage/Deed of Trust Note.
Application
Form used to apply for a loan.
Appraisal
A written analysis of the estimated value of real estate
prepared by a licensed Appraiser.
Appraised Value
An opinion of a property's fair market value based on the
appraiser's analysis of the property and recent sales in the
area.
Appraiser
A person licensed to evaluate real estate. (also see Appraised
Value)
Asset
Anything of monetary value that is owned by a person.
Assignment
The transfer of a loan from one person to another.
Assumable Loan
A loan that can be taken over (assumed) by a new owner when a
home is sold.
Assumption
The transfer of the seller's exisiting loan to the buyer. See
assumable loan.
Assumption Clause
A provision in an assumable loan that allows a buyer to assume
responsibility for the loan from the seller. The loan does not need
to be paid in full by the original borrower upon sale or transfer
of the property.
Attorney-in-Fact
One who has a power of attorney from another to execute
documents on behalf of another.
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Bankrupt
A person, firm, or corporation that through a federal court
process, is relieved from the payment of debts.
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Cash Out Refinance
A loan in which the proceeds exceed the total of the money
needed to repay the existing first loan and loan expenses.
Cash Reserve
An amount of money, usually equal to two or more monthly
payments of a mortgage, which a lender requires a borrower to have
after the closing of the mortgage.
Certificate of Completion
A document normally issued by an appraiser, which states that a
construction project is completed in accordance with the building
plans and specifications, which pertain to the project.
Certificate of Eligibility
A document issued by the Department of Veterans Affairs (VA)
citing eligibility for a VA loan.
Certificate of Occupancy
Written authorization given by a municipality which allows a
newly completed or remodeled structure to be inhabited.
Change Order
A change in the original plan of construction agreed to by a
general contractor and building owner or purchaser.
Clear Title
Title to a parcel of real estate, which is not encumbered or
"clouded" with defects or liens.
Closing
The time at which a transaction is final.
Closing Costs
Expenses (over and above the price of the property) incurred by
buyers and sellers in transferring ownership of a property.
Collateral
Real or personal property that guarantees the repayment of a
loan. The borrower risks losing the property if the loan is not
repaid.
Collection
The efforts used to bring a delinquent loan current and to the
filing of the necessary documents to proceed with foreclosure.
Commitment
An agreement, verbal or written, made by a lender to loan money
to a borrower subject to compliance with certain conditions. Also
referred to as a "loan approval" or "notification of loan
approval".
Construction Contract
An agreement between a general contractor and an owner which
sets forth the terms and conditions under which building shall
occur on a parcel of real estate, and provisions for the owner's
payment to the general contractor for such building.
Construction Loan
A short term or interim loan used for financing the cost of
construction, in which the lender advances funds at periodic
intervals as the construction progresses.
Construction Loan Agreement
A written agreement among a lender and a builder and/or owner in
which the specific terms of a contruction loan, including the
schedule of disbursements, are set forth.
Construction Loan Draw
The partial disbursement of the proceeds of a construction loan
based on the disbursement schedule in a construction loan agreement
and the process of completion of the project.
Consumer Reporting Agency
A firm that prepares reports that are used by brokers and
lenders to determine a potential borrower's credit history. The
firm may obtain data for reports from a credit repository and other
sources.
Contract
An oral or written agreement to do or not to do something.
Conventional Loan
A loan on residential real estate of 1 to 4 units and that is
not insured or guaranteed by the federal government.
Cost Estimate
A document which itemizes out the various costs of construction
of a structure by item. Also referred to as "cost breakdown".
Credit History
A report prepared by a credit reporting agency for a lender
which sets forth the credit standing of a prospective borrower,
which is used in the process of determining the borrower's credit
worthiness.
Creditor
A person to whom money is owed.
Credit Report
A report of an individual's credit history prepared by a credit
bureau and used by a broker or a lender in determining a loan
applicant's creditworthiness. (also see Credit Repository)
Credit Repository
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.
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Debt
An amount owed to another.
Deed
The legal document conveying title to a property.
Deed of Trust
The document used in some states instead of a mortgage.
Default
Failure to make loan payments in a timely fashion or to comply
with other covenants of a loan.
Delinquency
Failure to make loan payments when loan payments are due.
Demand Feature
A clause in a note, which entitles the mortgagee (lender) to
declare the note due and payable in full prior to its stated
maturity date.
Documents
Copies of account information, such as bank statements, profit
and loss statements, tax returns, paycheck stubs, retirement
letters and credit reports.
Down Payment
The part of the purchase price of real estate that the buyer
pays in cash and does not finance.
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Earnest Money Deposit
A deposit made by a potential homebuyer to show that he or she
is in earnest about buying the house.
Easement
A right of way giving someone, other than the owner, access to
or over a property.
Elevation
A scale architectural drawing showing a particular profile of a
structure.
Encumbrance
Anything that affects or limits the ownership to real estate,
such as loans, leases, easements or restricitons.
Equal Credit Opportunity Act (ECOA)
A federal law that prohibits lenders from discrimination based
on race, color, religion, national origin, age, sex, marital status
or receipt of income from public assistance programs.
Equity
Financial interest in real estate. Equity is the difference
between the value of the property and the amount owed.
Escrow
The holding of documents and money by a neutral third party
prior to closing; also, an account held by the lender into which a
homeowner pays money for taxes and insurance.
Escrow Company
An organization established to perform as an escrow
("settlement")
Escrow Impounds
A sum of money deposited at settlement and with each monthly
payment on a loan by a borrower for the purpose of paying future
real estate taxes and homeowner's and other insurance premiums.
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Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of
consumer credit reports to consumers and establishes procedures for
correcting mistakes.
Fair Market Value
The highest price that a willing buyer and willing seller would
complete a real estate sales transaction.
Fannie Mae
A privately-shareholder-owned corporation that is the nations's
largest supplier of home loans.
Federal Truth-In-Lending (TIL) Act
A federal law which requires lenders to disclose various
settlement costs associated with a loan, including an annual
percentage rate.
FICO Score
An acronym referring to "Fair Isaac Credit" ratings, which grade
consumers' credit rating with a numeric score.
Fixed Installment
Monthly payment due on a mortgage loan.
Fixed-Rate Loan
A loan in which the interest rate or payment does not change
during the course of the loan.
Forbearance
The act on the part of a lender (mortgagee) of refraining from
taking legal action despite a mortgage being in a state of
default.
Foreclosure
A forced sale of real estate at public auction with the proceeds
of the sale being applied to the remaining loan amount.
Freddie Mac (FHLMC)
The Federal Home Loan Mortgage Corporation; a quasi-governmental
agency chartered to purchase residential loans from federally
insured depository institutions and approved mortgage lenders.
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Good Faith Estimate
A disclosure required pursuant to the Real Estate Settlement
Procedures Act to be made by lenders to borrowers within three days
of a loan application. The Good Faith Estimate provides an estimate
of various settlement costs to be incurred by the borrower in
association with the applied for.
Grantee
The person or entity to who interest is conveyed in a legally
binding transaction.
Grantor
The person or entity conveying interest in a legally binding
transaction.
Gross Income
Total income before expenses are deducted. Generally refers to
an individual's income before deductions for income taxes and
social security, etc.
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Hazard Insurance
Insurance that covers for fire and certain physical damage to
real estate.
Home Owners Insurance
An insurance policy that combines liability coverage and hazard
insurance.
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Income Statement
A component of financial statements which sets forth the income,
expenses and net profit or loss of an individual or business entity
over some specified period of time. Also referred to as a "Profit
and Loss Statement".
Installment
The regular periodic payment that a borrower agrees to make to a
lender.
Interest Rates
The rate charged for the use of money usually expressed as a
percentage on an annual basis.
Interim Construction Financing
The financing provided from the time a construction project is
commenced until its completion or the settlement of a permanent
loan.
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Joint Tenancy
Joint ownership by two or more persons in which each person has
equal interest and rights in the property, including the full right
of survivorship.
Judgement
(1) Final determination (decree) by a court of the rights and
claims of the parties to a legal action. (2) A lien upon a parcel
of real estate resulting from a court's decree in a legal
action.
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Late Charge
An additional charge paid by a borrower as a penalty for failure
to pay a regular installment on a loan when due.
Legal Description
A property description recognized by law, which is sufficient to
locate and identify the property without oral testimony.
Lien
A legal hold or claim by one person or entity on the property of
another as security for a debt or charge. The right given by law to
satisfy a debt.
Loan Servicing
The act of collecting and applying regular payments, paying
insurance, and performing collection and foreclosure activities as
they relate to mortgage loans.
Loan Submission
The act of an originating lender presenting a completely
documented mortgage loan application file to an investor for the
purpose of obtaining the investor's commitment to purchase the
loan.
Loan to Value
The loan amount compared to the value of the property, normally
expressed as a percentage.
Loss Payee Clause
An insurance policy provision for payment of a claim to a person
or entitiy other than the named insured in the policy.
Lot
A measured parcel of land having fixed boundaries as shown on
the recorded plat.
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Mortgage
A legal document that ledges a property to the lender as a
security for payment of a debt.
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Note
A document that obligates a borrower to repay a loan. Minimally
stated are, interest rate, payment schedule and due date for a
specified period of time.
Notice of Default
A written notice to a borrower that the payment has not been
made and that legal action will be taken, if not remedied.
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Original Principal Balance
The total amount of principal owed on a loan that was originally
borrowed.
Origination Fee
A fee paid to a lender for processing a loan application; it is
stated as a percentage of the mortgage amount.
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Permanent Financing
A mortgage loan placed on a newly built property after
completion of construction.
Plans and Specifications
Drawings (floor plans and elevations) and material descriptions
for a building project.
Power of Attorney
A document that authorizes a person to act on another's behalf.
Can grant complete authority or limited/specified authority.
Prepayment
An additional amount paid to reduce the principal balance of a
loan.
Prepayment Penalty
A penalty that a lender may impose if a loan is paid off before
it is due.
Pre-Qualification
The process of determining how much money a prospective
homebuyer will be eligible to borrow before a loan is applied
for.
Prime Rate
An index used to adjust adjustable rate loans. The rate a bank
charges it's best customers.
Principal
The portion of a payment that goes to reduction of the loan
amount due.
Principal Balance
The balance remaining on a loan.
Promissory Note
A written promise to repay an amount over a specified time
period.
Purchase and Sale Agreement
A written contract signed by the buyer and seller stating the
terms and conditions under which a property will be sold.
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Qualifying Rate
Rate often used to qualify a borrower on adjustable rate loans
with low start rates. Based on the relevance that should payments
go up substantially borrower would be able to make the higher new
payment.
Qualifying Ratios
Guidelines used by lenders to determine how large a loan to
grant a homebuyer.
Quitclaim Deed
A deed which, when granted, relinquishes all interest, title or
claim to a property without representing the vaidity of or making
any warranties with regard to the title to the property.
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Rate Lock
A lenders commitment to a borrower or borrower's broker
guaranteeing a specified interest rate for a specified period of
time for a specified fee or price.
Real Estate Settlement Procedures Act (RESPA)
Consumer protection law that requires lenders to give borrowers
advance notice of all closing costs.
Recession
The required waiting period, 3 days for a refinance.
Recording
The notice published in the public records of legal documents
that affect specific real estate.
Refinance Transaction
The paying off of one loan with a new loan on the same real
estate.
Right of Rescission
A right extended to borrowers pursuant to law, which permits
them to cancel a mortgage refinance transaction within three
business days from the date the settlement documents were
executed.
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Secured Loan
A loan that is backed by something of value.
Security
The property that will be pledged as collateral for a loan.
Security Instrument
The mortgage or deed of trust evidencing the pledge of real
property as security for a mortgage note.
Subdivision
Land divided into a number of parcels for the purpose of its
sale, leasing or financing.
Survey
A drawing showing the precise legal boundaries of real estate,
the location of improvements, easements, rights of way,
encroachments.
Sweat Equity
Using labor to build or improve real estate rather than
cash.
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Term
The length of a loan (usually in months for purposes of loan
calculations).
Title
A document evidencing one's right to ownership of real
estate.
Truth in Lending
A federal law that requires lenders and brokers to fully
disclose, in writing, the terms and conditions of a loan, including
the annual percentage rate and charges.
Trustee
A third party, a fiduciary who holds property title for the
benefit of another.
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Underwriting
The process of evaluating a loan application and its supporting
documents to determine the risk to a lender in making a loan.
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Veterans Administration (VA)
An agency of the federal government created in 1930 pursuant to
the Servicemen's Readjustment Act, and authorized to provide a
variety of benefits to veterans, including the VA home loan
guaranty program.
VA Loan
A loan that is guaranteed by the Department of Veterans Affairs
(VA).
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Warranty Deed
A deed in which the grantor guarantees that good and
merchantable title is being conveyed.
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