Real Estate Terminology
Terms
- A -
Abstract of Judgment
A summary of the essential provisions of a court judgment that, when recorded in the county recorder's
office, creates a lien upon the property (both presently owned and subsequently acquired) of the debtor
in that county.
Abstract of Title
A history of a property's title record used in some states to prepare the preliminary or title commitment
report. An abstract of title lists anyone who has ever had a claim to the property, past and present. Some
states require mortgage lenders to obtain a complete abstract of title. However, most states condense the
abstract into a document called either the preliminary or title commitment, which lists only current claims to
the property.
Acceleration Clause
A provision in a mortgage that allows the holder to demand the entire outstanding mortgage balance due
and payable in the event of a breach of the mortgage contract.
Accrued Interest
The interest earned for the period of time that has elapsed since interest was last paid.
Addendum
An attachment to a contract, deed or other document that incorporates additional terms of information into
the original.
Adjustable-Rate Mortgage (ARM)
A mortgage loan where the interest rate is not fixed for the entire term of the loan. The interest rate can
change over time, based on movements of an index.
Adjustable-Rate Rider
A rider is an addition to a security instrument. The adjustable-rate rider outlines terms and conditions
specific to an adjustable-rate loan. It must be recorded along with the security instrument at the county
recorder's office. See also Security Instrument.
Adjustment Cap
A provision of an ARM limiting how much the interest rate or mortgage payments may increase.
Agent
A legal representative for another, usually called a principal.
Alimony
Periodic payments made under a divorce decree or a written separation agreement toward the support of
a former spouse. Alimony may be taken as a deduction from adjusted gross income by the person who
pays it, while the person who receives it must claim it as taxable income.
Amenity
Any feature that enhances property value. Examples are off-street parking within a condominium
community, the proximity of public transportation, tennis courts or a swimming pool.
American Land Title Association (ALTA)
An organization composed of title insurance companies that has adopted certain insurance policy forms
to standardize title insurance coverage on a national basis. See also Title Insurance.
Amortization
The gradual repayment of a mortgage by installments over the life of the loan.
Amortization Schedule
A timetable for repayment of a mortgage showing the amount of each payment applied to the interest and
principal and the remaining balance.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage stated as a percentage of the loan amount. It includes the base
interest rate, primary mortgage insurance and loan origination fee (points), commitment fees, prepaid
interest, and other credit costs that may be paid by the borrower. Under the Truth in Lending Act, the APR
must be disclosed and labeled.
Annuity
Fixed payments an individual receives for a lifetime or a specified number of years at consistent intervals.
For example, a person may receive an annuity from a pension plan or from an investment.
Applicant
A prospective borrower who has completed an application. An application involves a series of steps,
usually including the completion of documents a lender requires of those seeking a loan.
Application
A form used to record pertinent information about a prospective borrower and the proposed security.
Standard application forms include FNMA/FHLMC 1003, HUD Form 92900-A and VA Form 26-1802a.
Appraisal
An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.
Appraised Value
An opinion reached by a licensed appraiser based upon knowledge, experience and the study of
pertinent value.
Appraiser
One licensed and qualified by education, training and experience to estimate the value of real and
personal property.
Appreciation
An increase in value of a house due to changes in market conditions or other causes.
"As Is" Condition
Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including
all physical defects.
Assessed Value
The valuation placed upon property by a public tax assessor for purposes of property taxation.
Assignment of Lease
A mortgage clause that passes control of leases on an income-producing property to the lender. Often a
condition to making a loan to ensure that, in case of mortgage default, any continuing income from the
property goes directly to the lender.
Assumption of Mortgage
The transfer of the seller's existing mortgage to the buyer.
Attachment
A legal process whereby the judgment creditor may obtain a lien against the debtor's property. See also
Lien.
Attorney Closing
This practice is prevalent in states where attorneys' opinions are used in place of title reports. Closings
by attorneys follow much the same procedures as escrow closings. The lender delivers to the attorney
the settlement statement and the net loan proceeds, as well as instructions for their use.
Attorney in Fact
A person given the legal authority to act on behalf of another under a signed Power of Attorney.
Attorney's Opinion of Title (In Absence of a Title Company)
A statement issued by an attorney in states that don't use a preliminary title report or title commitment. All
liens recorded against the property are disclosed in this statement. The attorney also advises on items
that require completion to gain a clear title insurance policy before recording a security instrument.
- B -
Back-End Debt Ratio
This refers to the borrower's debt ratio and is calculated using a borrower's total monthly payments due
on credit obligations divided by the borrower's gross monthly income. It's expressed as a percentage.
See also Debt Ratio.
Balloon Mortgage
A mortgage with regular principal and interest payments that at the end of the term do not fully pay off the
balance due on the note. The remaining balance is then due in a lump sum payment.
Balloon Payment
A large payment due at the end of a loan contract. Equal to the remaining principal balance plus any
interest and charges due.
Balloon/Reset Mortgage
A fixed-rate mortgage with a reset option at the balloon maturity date.
Bankruptcy (BK)
A person, firm or corporation who, through a court proceeding, is relieved from the payment of debt after
the surrender of assets to a court-appointed trustee, for the protection of creditors. See also Chapter 7
Bankruptcy and Chapter 13 Bankruptcy.
Basis Point
One one-hundredth of one percent. Used to describe changes in yield on debt instruments, including
mortgages. For example, 10 basis points equals 0.001.
Beneficiary
The entity or lender that funds the loan and to which the loan is owed.
Beneficiary's Demand
Written instructions by a beneficiary under a deed of trust or mortgage stating and demanding the amount
necessary for payoff of a lien in full.
Borrower
One who borrows money and is responsible for repaying it to the lender. Also known as obligor. If the
loan is secured by a mortgage, the borrower is known as a Mortgagor.
Borrower Savings
The monthly savings a person will experience by consolidating/paying off debt with a debt consolidation
loan. Monthly savings equals current monthly payments less new monthly payments.
Broker
One who acts as an intermediary between parties to a transaction in exchange for a fee or commission.
Business for Self (BFS)
Persons who own their own business. Another term for self-employed.
Business License
A license that authorizes a business to operate and is typically required and issued by the city in which
the business is located.
Buy-down
The reduction of monthly mortgage payments for a specified amount of time due to monies advanced up
front by the seller, buyer or a third party.
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Cap
A provision of an ARM limiting how much the interest rate or mortgage payments may increase or
decrease.
Capacity
A borrower's financial ability to repay debt. See the 3 Cs of Credit for more detailed information.
Capital
The accumulated wealth of a business or person; the actual net worth of a business or person
represented by the amount by which the assets exceed the liabilities.
Capital Asset
Permanent property used to produce income, such as land, buildings and machinery.
Capital Gain
The taxable profit derived from the sale of a capital asset. Equals the sales price minus the total of sale
costs and the adjusted basis (original cost plus capital additions minus accumulated depreciation).
Capital Loss
The loss derived from the sale of a capital asset. May be short-term or long-term.
Cash Equivalent Value
A method of calculating the appraised value of a property that considers sales and financing
concessions when evaluating comparable property. There is no standard in the appraisal industry for
measuring cash equivalent value, but investors and mortgage insurers sometimes insist that cash
equivalency be incorporated in the appraised values.
Cash Market
A market where mortgage and/or mortgage-backed securities are bought and sold for immediate delivery
and cash payment. Also called a spot market.
Cash Reserve
A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first
two mortgage payments.
Cash-Out Explanation Letter
A handwritten, signed and dated letter provided by borrowers who are receiving cash from a refinanced
loan transaction. The letter explains how they intend to use that cash. Generally used to verify that
borrowers do not intend to use the cash to incur additional debt that will add to their monthly obligations
and decrease disposable monthly income.
Cash-Out Refinance
A refinance transaction in which the borrower receives additional cash that can be used for any purpose.
Ceiling
The highest interest rate that may be assessed or an adjustable-rate loan during the life of the loan based
on the start rate and lifetime cap.
Certificate of Eligibility
A document issued by the Department of Veterans Affair that verifies a veteran's eligibility for a VA Loan
guarantee.
Certificate of Occupancy (C/O)
A certificate issued by a local city government to the property owner stating that a building is in proper
condition to be occupied.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affair that establishes the maximum value and loan
amount for a VA guarantee mortgage.
Certified Copy
A copy of an original attested to be a true and exact duplicate of the original.
Change Date
This is a date established with an adjustable rate loan contract when a new interest rate will be
assessed. Also known as an adjustment date.
Chapter 7 Bankruptcy
A Chapter 7 BK is a straight liquidation bankruptcy where the debtor submits all of his or her non-exempt
assets to a trustee for liquidation; proceeds are disbursed to creditors.
Chapter 13 Bankruptcy
Chapter 13 BK is a debt reorganization plan where debts are repaid under a court-supervised repayment
plan. Debtors submit part of their income for distribution among creditors. Also known as the wage-
earner plan.
Charge-off
A delinquent credit account with a balance owed that was never fully satisfied and the creditor removed
it from the books for accounting purposes even though the debtor still owes payment in full.
Child Support
Periodic court-ordered payments made under a divorce decree or a written separation agreement for the
support of the children.
Civil Proceeding
A lawsuit or legal action between two or more parties, as opposed to a criminal proceeding.
Clear Title
A title that is clear of liens and legal questions as to ownership of the property.
Closing
A meeting between a lender and borrower or a buyer, seller and lender or their agents when the loan
documents are signed and the funds legally change hands. Also known as a settlement.
Closing Agent
The party designated to conduct the loan closing and to ensure the mortgage or deed is recorded and the
funds disbursed on time.
Closing Costs
Expenses (over and above the sale price of the property) incurred by buyers and sellers to effect the
closing of a mortgage loan. Also known as settlement costs.
Closing Statement
A statement required by federal law (the Real Estate Settlement Procedures Act) that itemizes all changes
imposed on the borrower and seller (if any) in connection with a mortgage-secured loan transaction. Also
known as a Settlement Statement, HUD-1 or HUD-1A.
Co-Borrower
A second borrower on a loan who shares equal responsibility for repayment of the loan.
Co-Mortgagor
A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets
and debts are combined with the mortgagor's for underwriting and ratio analysis purposes.
Co-Signer
One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A
co-signer assumes only personal liability and has no ownership interest in the property; his or her income
and obligations are used in the underwriting process to reinforce the credit of the primary borrower.
Collateral
Property pledged by the borrower to secure the repayment of the loan. The lender's claim or lien appears
on the title report for the property. See the 3 Cs of Credit for additional information.
Collection
The servicing procedure followed to bring a delinquent mortgage current and to file the required notices to
begin foreclosure when necessary.
Combined Loan to Value (CLTV)
The total of all liens tied to the subject property divided by the lower of the appraised value or sales price
of the property.
Combined Monthly Housing Expense
Monthly expenses for the individual's primary residence, which include rent or mortgage payments, other
financing, hazard and flood insurance, mortgage insurance, real estate taxes, utilities and homeowner
association dues.
Commercial Property
A property used for business purposes.
Commitment Fee
Any fee paid up front (usually by an individual builder or developer) to the lender for the purpose of
holding mortgage funds for a specified date.
Commitment Letter
A written agreement between the lender and the borrower stating the terms under which the lender
agrees to loan money to the borrower.
Comparables (Comps)
Properties used to determine the value of a specific property for comparative purposes in the preparation
of an appraisal.
Compensating Factors
Positive characteristics about an applicant's credit, employment history, etc. that contribute to a loan being
a sound risk or investment.
Concession
Special or unusual terms offered by the seller that may warrant the buyer paying a higher price for the
property.
Condominium (Condo)
A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an
interest in common areas of the project.
Condominium Association
An association of owners of condominium units.
Consumer Credit
Credit owed by an individual that is not secured by real estate.
Contingency
A condition that must be satisfied prior to a contract being legally binding.
Contract Rent
The actual rental payment specified in a lease agreement.
Conventional Loan
Any mortgage that is not insured or guaranteed by the federal government.
Conversion Clause
A provision in some Adjustable-Rate Mortgages (ARMs) that allows borrowers to change their adjustable
rate to a fixed rate at some point during the term.
Conveyance
The document (such as a deed, lease or mortgage) used to affect a transfer of title to real property.
Corporation
An artificial person or legal entity created by or under the authority of the law of a state. May have limited
liability, perpetual life, freely transferable shares and centralized management.
Cosmetic Repair
Repairs that improve the appearance of the property and are considered aesthetically pleasing to the eye.
Cost Approach to Value
A valuation approach in which the value of a property is determined by computing the replacement value
of improvements, depreciation and the value of the land.
Coupon Book
A book of pre-printed coupons furnished to the borrower. One coupon is returned each month with a
check or money order, enabling the mortgage servicer to identify the payment by name, loan number and
type of loan.
Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in
foreclosure.
Covenants, Conditions and Restrictions (CC&Rs)
Limitations placed on the use and enjoyment of real property. Usually intended to maintain a certain look
within a neighborhood and common in subdivisions, PUDs and condominium communities.
Credit Authorization Letter
A letter signed by the borrower that authorizes a lender to conduct a credit investigation.
Credit Bureau
A company that collects and organizes information about an individual's credit and payment habits. The
three national credit bureaus are Experian, TransUnion and Equifax.
Credit Denial Letter
A letter that is sent to a credit applicant advising him or her that the application has been denied and the
reason for the denial.
Credit Depth
The number of years a borrower has had established credit. This information shows up on the
borrower's credit report.
Credit History
The history of whether the borrower has met financial obligations on time in the past.
Credit Length
The length of time a borrower has had established credit.
Credit Report
A report prepared by a credit bureau that provides a detailed account of a borrower's Credit History.
Credit Score/Rating
A numerical assessment assigned to the individual by credit bureaus that represents a measurement of
the individual's overall credit rating. The scores are weighted and range from approximately 365 to 840.
Low scores reflect a "high risk," while higher scores reflect a "lower risk." Each credit bureau has its
own credit score system.
Creditor
An individual or entity to whom money is owed.
- D -
Date Down Addendum
An update to the preliminary title report/title commitment that reflects any changes to the title since the
original title report was prepared. Same as an update addendum.
Debt Consolidation Loan
A loan that combines debt obligations into one debt.
Debt Load
The total amount of debt an individual currently owes.
Debt Ratio (DR)
The percentage of an individual's gross monthly income allocated to pay the monthly installments on their
debt owing. See also Back-End Debt Ratio and Front-End Debt Ratio.
Debtor
One who is obligated to pay any liabilities.
Deed
A legal document by which a property owner (grantor) conveys an ownership interest in real property to
a grantee.
Deed in Lieu
A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.
Deed of Reconveyance
A document used to transfer legal title from the trustee back to the borrower after a debt secured by a
deed of trust has been paid in full.
Deed of Trust
A type of security instrument used in some states in place of a mortgage by which legal title is conveyed
to one or more trustees to secure the repayment of a debt. Same as a Trust Deed.
Default
A breach or nonperformance of the terms of a note or the covenants of a mortgage.
Deferred Maintenance
Repairs necessary to restore a property to good condition.
Deficiency Judgment
A court order to pay the balance owed on a loan if the proceeds from the sale of the security are
insufficient to pay off the loan.
Delinquency
Failure to make payment when due.
Demand
A letter from a lender showing the total amount due to pay off a mortgage or trust deed, inclusive of
unpaid principal, interest, impound amounts, prepayment penalty, etc. Also known as a demand for payoff
request or beneficiaries demand letter.
Demand Feature
A feature that defines circumstances under which the remaining principal and interest amount of the loan
is due and payable on demand.
Depreciation
A decrease in value to real property improvements caused by age, deterioration or functional
obsolescence.
Derogatory Explanation Letter
A borrower's written explanation to the lender explaining any derogatory information reported on the
credit report.
Disbursements
Payments made on behalf of the borrower pursuant to the instructions on the HUD settlement statement.
Discharge
Following a completed bankruptcy proceeding, discharged debts are no longer enforceable. The individual
has successfully completed the process and debtors are either paid in full or eliminated based on the plan.
Discount Point
Amount payable to the lending institution by the borrower or seller to increase the lender's effective yield.
One point is equal to 1% of the loan.
Divorce Decree
A document issued by the court that dissolves a marriage relation.
Docs
Abbreviation for mortgage loan documents.
Dower Rights
A common law interest that a wife acquires in her husband's property at the time of his death. Dower
rights have been abolished in most states.
Down Payment
The difference between the purchase price and the mortgage amount for home purchase transactions.
Due-on-Sale Clause
A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the
property securing the mortgage.
Duplex
A property that consists of a structure that provides living space for two families, although a single
mortgage or deed of trust evidences ownership of the structure.
- E -
Earnest Money
The cash deposit paid by the prospective buyer of real property, as evidence of good faith intentions to
complete the purchase transaction.
Easement
A right to the limited use or enjoyment of land held by another. Also, an interest in land to enable sewer or
other utility lines to be laid, or to allow access to a property.
Effective Age
Age of a structure based on its present condition rather than actual age. Takes into account rehabilitation
and maintenance.
Effective Date
This is the date a new mortgage payment is effective–the month following the rate change date.
Encroachment
Generally, an improvement, such as a wall, fence or building, that extends onto the property of another.
Encumbrance
A claim, lien, charge or liability attached to and binding real property. Any right to, or interest in, land that
may exist in one other than the owner, but that will not prevent the transfer of fee title subject to such
encumbrances.
Endorse
The act of a payee or holder of a note, bill, check or other negotiable instrument, of assigning and
transferring said instrument to another by signing the back of the instrument, with or without qualifications.
Endorsement
An addition to a title insurance policy that adds or subtracts coverage.
Engineer's Report
A report given by an engineer on the physical condition of the property and including any
recommendations.
Entitlement
The amount the VA guarantees the lender if a veteran defaults on a VA home loan.
Equal Credit Opportunity Act (ECOA)
A federal law that prohibits lenders from discriminating on the basis of race, color, religion, national origin,
age, sex, marital status or receipt of income from public assistance programs. Also called Regulation B.
Equitable Interest
An ownership interest in a property that is demonstrated by actions such as the payment of the current
mortgage, property taxes or property insurance rather than by legal ownership.
Equity
The difference between fair market value and current indebtedness, sometimes called ownership interest
or net ownership.
Equity Line of Credit
A combination of a line of credit and equity loan secured by real property. A maximum loan amount is
established based on credit and equity. A mortgage is recorded against the potential borrower's property
for said maximum loan amount. The potential borrower has the right to borrow, as needed, up to the
amount of the credit line.
Escrow
The holding of documents and money by a neutral third party prior to closing; also, an account held by the
lender (or servicer) into which a homeowner pays money for taxes and insurance.
Escrow Analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide
sufficient funds to pay taxes, insurance and other bills when due.
Escrow Instructions
For purchase transactions, instructions signed by both buyer and seller, that enable the escrow agent to
carry out the procedures necessary to transfer real property, a business or other assignable interest.
Escrow Payment
The portion of the monthly mortgage payment reserved by the lender (or servicer) to pay taxes and
insurance items when they come due.
Estate (Real Property)
Describes the extent and character of a person's rights and interest in real property. Two types of
estates frequently financed by mortgage lenders are the fee simple and the leasehold estate. See also
Fee Simple Estate and Leasehold Estate.
Exceptions to Guidelines
The consideration of approving a loan having characteristics that do not fit into a mortgage company's
guidelines when it makes sense to do so.
Exceptions to Title
Claims against the property as of the date of the title report.
Experian (EXP)
A national credit bureau from which lenders can order credit reports.
External Obsolescence
Any influence negatively affecting a property's value that falls outside of the specific property site. An
example of this would be a property located under an airport flight pattern.
- F -
Face Amount (Life Insurance)
The amount the surviving party will receive in the event of death.
Fair Isaac Corporation (FICO)
Engineer Bill Fair and mathemetician Earl Isaac spent approximately 10 years studying millions of loans to
create a computerized model that assesses the risk factor for a potential borrower. Credit bureaus
assign numerical scores in order to measure a borrower's credit characteristics. See also Credit
Score/Rating.
Fair Market Value
The price determined to convey title by the seller to the buyer where neither party is under any obligation
to buy or sell and both parties have a reasonable knowledge of pertinent data.
Fannie Mae
Another name for the Federal National Mortgage Association (FNMA).
Federal Deposit Insurance Corporation (FDIC)
Originally established by the Banking Act of 1933 to protect depositors from loss. As a result of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the FDIC administers the
Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).
Federal Home Loan Bank Board (FHLBB)
Supervisory and regulatory agency for federally chartered savings and loan associations; this agency
also oversees the FSLIC and FHLMC.
Federal Home Loan Mortgage Corporation (FHLMC) –Freddie Mac
An agency regulated by FHLBB that purchase conventional mortgages in the secondary market. This
agency sells participation sales certificates secured by conventional mortgage loan pools. It also sells
GNMA Bonds to raise funds to finance the purchase of mortgages.
Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD) that provides
mortgage insurance for residential mortgages and sets standards for construction and underwriting. The
FHA does not lend money, nor does it plan or construct housing.
Federal National Mortgage Association (FNMA) – Fannie Mae
The nation's largest mortgage investor, created in 1968 by an amendment to Title III of the National Housing
Act. This stockholder-owner corporation, a portion of whose board of directors is appointed by the
President of the United States, supports the secondary market in mortgages on residential property.
Federal Tax Lien
A lien attaching to a property for nonpayment of a federal tax. A federal tax lien differs from other liens in
that it's not automatically eliminated by a senior lien holder foreclosing on a mortgage or trust deed
recorded before the tax lien.
Fee Simple Estate
An estate under which the owner is entitled to unrestricted powers to dispose of the property, and under
which the property can be left by will or inherited. Commonly a synonym for ownership. See also Estate
(Real Property).
FHA Loan
A mortgage that is insured by the Federal Housing Administration. Also referred to as a government
mortgage.
Final Disposition
The "end" of the loan application process, which may happen via denial, withdrawal, incompleteness or
funding.
Finance Charge
This is the amount of interest, prepaid finance charges, loan fees and certain insurance premiums the
individual will pay over the life of the loan.
First Mortgage
A mortgage that has first claim to the secured property in the event of default.
First Position Lien
A secured claim against a property that will be the first claim to be repaid should the property owner
someday declare bankruptcy or default on the secured loan.
Fiscal Year
The accounting year used by corporations for tax purposes. A fiscal year runs 12 months, but does not
necessarily begin in January.
Fixed Income
Income of a specified and consistent value that is received at specified and consistent intervals. Types of
fixed income include Social Security benefits, VA benefits, pension income, permanent disability benefits,
welfare/aid income and child support/alimony.
Fixed-Rate Mortgage
A mortgage having a rate of interest that remains the same for the life of the mortgage.
Float
A borrower's decision not to lock an interest rate while a mortgage loan is being processed. A loan is
considered to be a float until an interest rate is locked.
Flood Insurance
Insurance indemnifying against loss by flood damage. Required in federally designated Special Flood
Hazard Areas. The insurance is private but federally subsidized.
Floor
The lowest an adjustable-rate mortgage rate can ever be during the life of the loan.
Floor Rate
The start rate on an adjustable-rate program.
Forbearance
A lender's act of refraining from taking legal action despite the fact a mortgage is in arrears. It's usually
granted when a mortgagor makes a satisfactory arrangement by which the arrears will be paid at a
future date.
Foreclosure
A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.
Form 1040, 1040A, 1040EZ–U.S. Individual Income Tax Return
The federal tax form used by all U.S. citizens and resident aliens to report their annual income to the
federal government. The 1040 tax return must be accompanied by any applicable schedules, which
provide line-item detail of various sources of income. Schedule A details itemized deductions. Schedule B
details investment income. Schedule C details business income. Schedule D details capital gains/losses.
Schedule E details supplemental income, such as rental income. Schedule F details farming profit/loss.
Form 1065–U.S. Partnership Return of Income
This federal tax information form is used to report annual income, gains, losses and deductions from the
operation of a partnership to the federal government. A partnership does not pay tax on its income, but
passes through any profits or losses to its partners. All partners must then include partnership items on
their tax returns.
Form 1099
A document that reports to the federal government gross and net income earned by individuals who
receive pension, Social Security or miscellaneous income, such as income from contract work. 1099s
must be mailed to recipients by January 31 of each year for the previous year.
Form 1120 and 1120A–U.S. Corporation Income Tax Return
The federal tax form used to report the income, gains, losses, deductions, credits and to figure out the
income tax liability of a corporation to the federal government.
Form 1120S–U.S. Income Tax Return for an S Corporation
The federal tax form used to report the income, gains, losses, and deductions of a domestic corporation
that has elected to be an S corporation by filing form 2553, election by a Small Business Corporation, and
whose election is in effect for the tax year.
Foster Care Agreement
A document that designates an individual as the foster parent of a child. These agreements usually state
the income the individual will receive for being a foster parent.
Freddie Mac
Another name for the Federal Home Loan Mortgage Corporation (FHLMC).
Free and Clear
Real property against which there are no liens, especially voluntary liens.
Front-End Debt Ratio
This refers to the debt ratio calculation using only principal, interest, tax and insurance divided by gross
monthly income. It's expressed as a percentage. See also Debt Ratio.
Full Disclosure
In real estate, revealing all the known facts that may affect the decision of a buyer or tenant.
Fully Indexed Rate
The fully indexed rate is equal to the rate index plus the loan's margin and is used with adjustable-rate
mortgages. Example: If LIBOR is 6.50% and the margin on the loan is 4.00%, the fully indexed rate is
10.50%. Same as the Fully Adjusted Rate.
Functional Obsolescence
Anything about the design or construction of a property that negatively affects its value. An example of
this would be a property with five bedrooms and only one bathroom.
Funding
The disbursement of loan funds, either by check or by wire transfer to the title company.
Funding Fee
A fee charged to the veteran on a VA loan to help recover any foreclosure costs. The veteran may
finance the entire funding fee or pay it in cash.
- G -
Garnishment
A legal proceeding under which a person's money is in control of another and is taken for payment of a
debt. The amount that may be taken is set by statute and, in most states, a judgment is necessary before
garnishment.
General Partnership
An organizational form consisting only of general partners in which income, gains, losses, deductions
and credits are passed through to individual partners who pay tax on their income.
Gift Letter
A letter to the lender from the donor stating that a gift of money has been made to the buyer in order to
purchase specific property. The relationship of the donor and buyer is stated, as well as the amount of
the gift.
Ginnie Mae
Another name for the Government National Mortgage Association (GNMA), a federal agency within the
department of Housing and Urban Development (HUD) that guarantees timely payment of the principal
interest and mortgage-backed securities backed by FHA-insured and VA-guaranteed mortgages.
Grace Period
A period of time past the due date for a payment during which a payment may be made and not
considered delinquent and no late penalty will be charged.
Graduated Payment Mortgage (GPM)
A mortgage loan in which the mortgage payments increase for a specified period of time and then level
off.
Grandfather Clause
The clause in a law permitting the continuation of a use, business etc., which, when established, was
permissible but, because of a change in the law, is now not permissible.
Grant Deed
A written instrument used to transfer or convey real property. A grant deed contains warranties against
prior conveyances or encumbrances.
Grantee
One who receives property rights when a grant is made. Generally, the purchaser of real property.
Grantor
One who grants property or property rights to another.
Gross Income (Business)
The total income earned, either actual or estimated, from a business or property.
Gross Monthly Income (Borrower)
The total amount the borrower earns per month, before any expenses are deducted.
Gross Rental Income
The monthly rental income received before mortgage payments, taxes and insurance are deducted.
- H -
Hazard Insurance
Insurance protecting real property against loss caused by fire, some natural causes, vandalism, etc.,
depending on the terms of the policy.
Holdback
A portion of a mortgage loan held back by the lender from the borrower until a contingency is met by the
borrower. An example of a contingency would be repairs needed for a property's roof. Upon completion
of the required repairs, the lender releases the held-back funds to the borrower. Same as Withhold.
Home Mortgage Disclosure Act (HMDA)
This act requires all mortgage companies to report selected information to the federal government about
each application received. HUD (U.S. Department of Housing and Urban Development) uses HMDA to
detect discrimination and identify trends in lending patterns.
Homeowners Insurance
An insurance policy that combines personal liability coverage and hazard insurance coverage for a
dwelling and its contents.
Homeowners Warranty
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is
often provided by the builder or property seller as a condition of the sale.
Homeowners Association (HOA)
An association of people who own homes in a given area, formed for the purpose of improving or
maintaining the quality of the area. Unpaid HOA dues can become a lien against a property.
Homeowners Association Dues
A monthly payment paid to the association for the maintenance and care of the common areas.
Homestead
Status provided to a homeowner's principal residence by some state statutes; protects a home against
judgments up to specified amounts.
HUD-1 (or HUD-1A)
Final statement of the actual settlement costs of the loan and all other disbursements of a loan's
proceeds. A federal requirement under RESPA. Same as a Settlement Statement.
- I -
Impound Account
Account held by the lender for the payment of taxes, insurance or other periodic debts against real
property.
Income
Cash flows or other benefits received. Examples are: salary, wages, overtime, commissions, child
support, social security income, retirement benefits, interests and dividends.
Index
A published interest rate against which lenders measure the difference between the current interest rate
on an adjustable-rate mortgage and that earned by other investments, which is then used to adjust the
interest rate on an adjustable-rate mortgage. Examples include LIBOR, the Prime Rate and Treasury
indices. The Wall Street Journal publishes index information.
Initial Adjustment Cap
This is the first rate adjustment on an adjustable rate mortgage loan.
Inquiries
An indication of credit investigations made by companies that are considering granting credit to a person
who appears on the credit report.
Instructions to Title
A form that instructs the title company how to record a lien against a property and issue a title insurance
policy. Same as Title Instructions.
Interest
Money charged over time for the use of money.
Interest Bearing
A form of interest calculation in which the loan is charged at a daily or monthly rate on the current
outstanding balance.
Interest Rate
Percentage paid for the use of money, usually expressed as an annual percentage.
Investment Income
Money earned from investments of money, such as stock dividends and annuity payments.
Investment Property
A real estate property used for investment purposes. This property is typically rented.
Involuntary Lien
A lien imposed against property by law or legal action without the consent of an owner. Examples include
taxes, special assessments, federal income tax liens, judgment liens, mechanics liens and materials liens.
See also Lien.
- J -
Joint Ownership
Legal title shared by two or more persons or entities. Examples are joint tenancy, tenancy in common and
community property.
Joint Tenancy
A form of co-ownership giving each tenant equal interest and equal rights in the property, including the
right of survivorship.
Judgment
The decision of a court of law; debts resulting from a court order for payment. Money judgments, when
recorded, become a lien against the defendant's property.
Judicial Foreclosure
A court-supervised foreclosure process used in some states that is handled as a civil lawsuit and
conducted entirely under the auspices of the court.
Jumbo Loan
A loan amount above the conforming loan limits.
Junior Liens
Liens or claims against a property that are secondary or inferior to the lien of the first mortgage. Also
known as a Second Mortgage.
Jurat
A certificate attached to a document stating where, when, before whom and by whom the document
was signed.
- K -
K-1 Schedule
Tax schedule that must be distributed to each member of a partnership that reports the member's
distribution of a profit or loss.
- L -
and
Undeveloped land.
Land Contract
An installment contract for sale with the buyer receiving equitable title and the seller retaining legal title.
Late Charge
An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment
when due.
Lease with Option to Purchase
A lease containing a clause that allows the tenant the right to purchase the property under specified
conditions.
Leasehold
A tenant's right to occupy real estate during the term of the lease. This is a personal property interest.
Leasehold Estate
A kind of real estate ownership through which the property owner doesn't hold title to the property, but
instead has use of the property subject to the terms of the lease. See also Estate (Real Property).
Legal Description
A method of geographically identifying a parcel of land that is acceptable in a court of law.
Legal Title
The manner in which property ownership is recorded with the county in which the property is located.
See also Vesting.
Liabilities
The debts of a person or business.
LIBOR Index
An acronym for London Interbank Offered Rate, one of several published indices. It's the average rate of
interest that major London banks charge as they lend to one another.
Lien
A secured financial interest or legal encumbrance on a property. For example, a secured loan appears as
a lien on the property's title report. See also Voluntary Lien and Involuntary Lien.
Lien Position
The order in which liens will be repaid when the property is transferred to a new owner.
Lien Waiver
A waiver of mechanics lien rights; a document signed by a supplier or subcontractor stating that the firm
has been compensated for its work, thereby giving up its right to file a claim against the property.
Lifetime Cap
This is the cap that limits how high an interest rate can increase over the life of an adjustable-rate
mortgage loan . Example: start rate + 6% = lifetime cap.
Limited Liability Company (LLC)
An entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of
the members are personally liable for its debts.
Line of Credit
A type of mortgage loan from which borrowers can write a check or draw funds. Some lines of credit
are also balloon loans. Usually the borrower is given 5 to 10 years to use the line of credit. After this
period, many lines of credit require the borrower to pay the loan in full. Others may require the loan to be
paid in full over the next 10 to 15 years.
Liquid Assets
Cash or assets, such as checking/savings accounts, stocks and bonds, that are immediately convertible
to cash.
Lis Pendens
A notice filed or recorded for the purpose of warning all persons that the title or right to the possession of
certain real property is in litigation; literally "suit pending"; usually recorded so as to give constructive
notice of pending litigation.
Loan Administration
A mortgage banking function that includes the receipt of payments, customer service, escrow
administration, investor accounting, collections and foreclosures. Also know as Servicing.
Loan Amount
The amount of money originally borrowed when a loan is granted by a lender.
Loan Application (1003)
The form potential customers must complete to apply for a home loan. This application is commonly
referred to as "the 1003" and is produced by the federal government. See also 1003 / URLA.
Loan Origination
The process by which a mortgage banker or direct lender brings into being a mortgage secured by real
property.
Loan Risk
The risk category assigned to a loan, which estimates the probable risk of delinquency and loss in the
future.
Loan Servicing
The collection of mortgage payments from borrowers and the related responsibilities of a loan servicer.
Loan Term
The loan term is the period of time over which the loan will be paid. First mortgage loans typically have
terms of 30, 20 or 15 years.
Loan to Value Ratio/Percentage (LTV)
The loan amount in relationship to the appraised value (or sale price if it is lower) expressed as a
percentage. Used by lenders to determine maximum loan amounts as set by law.
Lock-In
A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed
within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Loss Payable Clause
A clause in an insurance policy listing the priority of claims in the event of destruction of the property
insured. Generally, a mortgage or beneficiary under a deed of trust is the party appearing in the clause,
and is paid up to the amount owed under the mortgage or deed of trust before the owner is paid.
- M -
Machinery and Equipment
All tangible, fixed assets (tools, conveyors and other than personal property) other than real estate used
in any way to facilitate any manufacturing, assembly or warehousing activity.
Maintenance
Procedures and expenditures necessary to keep a property in operating condition, such as repairs.
Mandatory Commitment
An agreement between buyer and seller for the purchase and sale of a specified mortgage product in
which both parties are obligated to perform.
Margin
A constant number, set in the terms of the note, added to a rate index to compute the interest rate on an
adjustable-rate mortgage. This fixed number is added to an index to determine the new interest rate when
a new change period begins.
Market Approach to Value
In appraisal, a market value estimate of property based on actual prices paid in similar market transactions.
Market to Market
The process whereby the book value or collateral value of the security is adjusted to reflect current
market value.
Market Value
The highest price a buyer would pay and the lowest price a seller would accept on a property. Market
value may be different from the price a property could actually be sold for at a given time.
Marketability
The probability of selling property at a specific time, price and terms.
Marketing
The actual selling of closed mortgage loans to investors and also the actual purchasing of funds for
mortgage loan fundings at a future date.
Maturity
The termination of the period on the note.
Mechanics Lien
A lien created by state law for debts owed to a carpenter, contractor, plumber or other entity hired by the
property's titleholder for services performed or materials provided to repair or improve the property.
Member Appraisal Institute (MAI)
The highest professional designation awarded by the American Institute of Real Estate Appraisers.
Merged Credit Profile (MPR)
A report combining credit information from as many as three different credit bureaus.
Metes and Bounds
The description on the deed of trust and other documents, which describes the location by boundaries
and distances.
Mixed-Use Property
A property in which a portion is used for commercial or retail purposes and the other portion is used for
residential purposes (for example, a multi-unit dwelling with the front unit used as a commercial store and
the back unit used as a dwelling). A property can also be considered mixed use if different combinations
of uses are present such as commercial/industrial or residential/industrial.
Modification Agreement
In the mortgage lending industry, a written directive to the title company to correct a typographical error
on instructions to title.
Mortgage
A formal document executed by an owner of property, pledging that property as security for payment of
a debt or performance of some other obligation; the security instrument.
Mortgage Backed Securities (MBS)
An investment instrument backed by mortgage loans as security. Ownership is evidenced by an
undivided interest in a pool of mortgages or trust deeds. Income from the underlying mortgages is used to
pay off the securities and provides a return on investments.
Mortgage Banker
A non-depository financial institution that specializes in originating and servicing loans.
Mortgage Broker
An individual or company that, for a fee, acts as an intermediary between borrowers and lenders.
Mortgage Insurance Certificate (MIC)
Certificate issued by HUD/FHA as evidence that a mortgage has been insured and that a contract of
mortgage insurance exists between HUD/FHA and the lender incorporating the HUD/FHA regulations
identified in the certificate.
Mortgage Insurance Premium (MIP)
The initial premium paid at closing to secure private mortgage insurance for a specified period of time.
Mortgage Late
More than one payment due at the same time the most recent payment is due.
Mortgage Margin
The set percentage the lender adds to the index value determining the interest rate of an Adjustable-Rate
Mortgage (ARM).
Mortgage Note
A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period
of time; the mortgage note is secured by a mortgage.
Mortgagee
A lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage transaction who pledges property as a security for a debt.
- N -
Negative Amortization
The unpaid interest that is added to the mortgage principal in a loan where the principal balance increases
rather than decreases because the mortgage payments do not cover the full amount of interest due.
Negative Cash Flow
A cash situation where the expenditures on an investment property exceed the income received.
Net Disposable Income
Money left after subtracting the principal, interest, taxes and insurance and all other obligations from the
monthly net income. The surplus amount the borrower has available for living expenses after housing
expenses are subtracted.
Net Income
The difference between adjusted gross income and operating expenses. May or may not include
depreciation.
Net Rental Income
The monthly gross rental income minus the monthly mortgage payments, insurance, maintenance, taxes
and other miscellaneous payments.
Net Worth
The value of all assets, including cash, less the total liabilities. Often used as an underwriting guideline to
indicate creditworthiness and financial strength,
Net Yield
The gross yield of a mortgage loan after subtracting all costs, such as servicing fees and any loss
reserves.
Non-Conforming Use
A property that doesn't conform to the present zoning of the area it's in.
Non-Owner Occupied
A property used as a residence by a renter/tenant instead of the owner of the property.
Non-Recurring Closing Costs
Fees and costs associated with the closing of a loan (title, appraisal, notary fees, etc.) that occur only
once in the transaction and don't recur.
Nonconveyance
A lender's election to retain a property acquired through foreclosure rather than convey it to FHA loan or
VA loan.
Notary Public
One who is authorized by the state or federal government to administer oaths and to attest to the
authenticity of signatures.
Note
A general term used for any type of paper or document signed by a borrower that is an acknowledgment
of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage or deed of
trust, it is called a mortgage note and the mortgagee is named as the payee.
Notice of Default (NOD)
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Notice of Recission
Borrowers' signed acknowledgment that they wish to cancel their loan. See also Notice of Right to Cancel.
Notice of Right to Cancel
Under Regulation Z, individuals must be notified that they are entering into a transaction that will result in a
lien against their primary residence. This document explains that they have the right to cancel the
transaction, at no cost, within three business days from the date of signing the closing documents on a
loan.
Notification of Incompleteness Letter
A letter sent to an individual requesting additional information to continue with the loan application process.
- O -
Obligations
Any debt or recurring payment the borrower is obligated to pay, except for mortgage payments.
Obsolescence
Condition or process of falling into disuse.
Offsite Improvement
Improvements outside the boundaries of a property, such as sidewalks and streets, that are acquired by
a lender for reason of investment.
Operating Expenses
Expenditures necessary to maintain the real proprietor business and continue the production of income.
Includes both fixed expenses and variable expenses but does not include debt service, depreciation or
capital expenditure.
Origination
The actual process of creating both commercial and residential mortgages.
Origination Fee
A fee paid to a lender for processing a loan application. The fee is stated as a percentage of the
mortgage amount.
Over-Improvement
An improvement, excessive in cost or size in relation to land value or value of surrounding improvements.
Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.
Owner Occupied
Designation given to property used as the owner's residence.
- P -
Par
The principal amount of a mortgage with no premium or discount.
Partnership
An agreement between two or more individuals or entities to go into business or invest together. Either
partner may bind the other, within the scope of the partnership. Each partner is liable for all the
partnership's debts.
Pay Stub
The portion of the paycheck the employee retains for his/her records. The pay stub verifies pay-period
and year-to-date gross and net earnings.
Payment Change Date
On an adjustable rate mortgage, this is the date the new mortgage payment is effective after an interest
rate change. It is usually the first day of the month following the interest rate change date.
Payment Schedule
This schedule outlines the number of payments due, the amount of each payment and the date payments
are due.
Pension Award Letter
Documentation specifying the frequency and amount of pension payments an individual is eligible to
receive.
Periodic Adjustment Cap
This cap limits how much the interest rate can change in the future on an adjustable-rate mortgage.
Piggyback Loan
See Secondary Financing.
Plaintiff
An individual or entity who files a legal action against another.
Planned Unit Development (PUD)
A single-family residence located in a community with association dues and other required monthly
payments.
Plat Map
A map dividing a parcel of land into lots, as in a subdivision. For example, a title commitment report and an
appraisal report will provide a plat map of the subject property, which shows the location of the property
within the subdivision.
Point of Reference
A starting point used to put an individual's canceled checks or mortgage statements in chronological order
by establishing either the date and amount of the last mortgage payment made or the date and amount of
the next mortgage payment due.
Points
Each point is an amount equal to 1% of the principal amount of an investment or note.
Positive Cash Flow
An annual cash flow in which either the operating expenses are less than the total income generated by
an investment or the operating expenses plus any annual debt service (mortgage payments) are less
than the income generated.
Power of Attorney (POA)
An authority by which one person authorizes another to act on his or her behalf. A power of attorney
can be limited to specific areas or can be general.
Preliminary Title Report (Prelim)
A report showing all current claims against a property before a sale or loan transaction and identifying
those items that must be removed to obtain a first lien position. After completion of the transaction, a title
insurance policy is issued. Same as a Title Commitment.
Prepaid Finance Charges
The finance charges charged at closing exclusive of interest. Examples include points, processing and
application fees, and tax certification.
Prepaid Interest Charge
The portion of interest, added on at loan closing, that covers the time period between funding and the
beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15,
the first payment due on 4/1 would retroactively pay interest from 3/1 to 4/1. The prepaid interest would
cover the period from 2/15 to 2/28.
Prepaids
Fees collected at closing to cover items such as setting up escrow accounts for property taxes,
homeowners insurance and mortgage insurance premiums.
Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
Prequalification
The process of determining how much money a prospective homebuyer will be eligible to borrow before
he or she applies for a loan.
Primary Customer
The primary borrower on the loan.
Primary Residence
The property in which an individual resides the majority of the time.
Prime Rate Index
A rate index based on the prevailing rate that banks charge to lend money to corporations.
Principal
A legal representative for another.
Principal
The amount borrowed or remaining unpaid; also, that portion of the monthly payment that reduces the
outstanding balance of a mortgage.
Principal and Interest (P&I)
This refers to the principal and interest portions of a monthly mortgage payment.
Principal, Interest, Taxes and Insurance (PITI)
The total of the monthly mortgage payment due, which includes all principal, interest, taxes and insurance.
Private Mortgage Insurance (PMI)
Insurance written by a private company protecting the mortgage lender against financial loss occasioned
by a borrower defaulting on the mortgage.
Processing
The preparation of a mortgage loan application and supporting documents for underwriting and closing.
Profit and Loss Statement (P & L)
A statement documenting business revenues and expenses for a specified time period to establish
whether a business gained a profit or suffered a loss.
Promissory Note
A written promise by the borrower to pay within a specified time a debt owed to the holder of the note
under conditions mutually agreed upon.
Property Taxes
Generally, a tax levied on both real and personal property. The amount of the tax is dependent on the
value of the property.
Prorate
To divide in proportionate shares costs such as taxes, insurance, rent or other items that buyer and seller
share as of the time of closing, or another agreed upon time.
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.
Purchase Price
The asking price to purchase a particular property.
- Q -
Qualifying Ratios
Guidelines applied by lenders to determine how large a loan to grant a homebuyer.
Quitclaim Deed
A deed operating as a release; intended to pass any title, interest or claim that the grantor may have in the
property, but not containing any warranty that such title is valid, nor containing any warranty or
covenants for title.
- R -
Radon
An invisible, odorless gas found in some homes that, in sufficient concentrations, may cause health
problems.
Rate Change Date
On an adjustable rate loan, this is the date a new interest rate will be put into effect. This change can
occur every 12 months, 36 months, 60 months, or 84 months depending on the terms of the note.
Re-Recording
The recording of a closing document for a second time to correct an error recorded.
Real Estate Owned (REO)
A property acquired by a lender usually through default and foreclosure or property acquired by a lender
for reason of investment.
Real Estate Sales Professional
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA)
A federal consumer protection law that requires lenders to give borrowers advanced notice of closing
costs.
Real Estate Taxes
The monthly taxes owed for a particular property.
Real Property
Land and all attachments to the land, such as buildings, crops or mineral rights. Ownership of real
property can be divided into various types of interests and rights.
Rebuild Letter
A letter provided by the appropriate municipality stating that a structure on a specific property can be
rebuilt as originally constructed in the case of damage or destruction.
Recission
The legal remedy for canceling a contract and restoring the parties to their original positions; a return to
status quo.
Reconveyance (Recon)
An instrument used to transfer title from a trustee to the property owner when title is held as security for
a debt. Most commonly used upon payment in full of a mortgage or trust deed.
Recording
The act of recording a document such as a deed or mortgage in a public registry thereby giving notice to
future purchasers, creditors or other interested parties. Recording is controlled by statute and usually
requires the witnessing and notarizing of an instrument to be recorded.
Recording Confirmation
Notification from the title company verifying that a lien has been recorded as instructed.
Recording Fees
The amount charged by a public records office to record the security instrument within the county.
Red-lining
The illegal practice of restricting lending to certain (prime property) areas of town.
Refinancing (Refi)
The process of paying off one loan with the proceeds for a new loan using the same property as
security.
Regulation Z (Reg Z)
Federal Reserve regulation issued under the Truth in Lending Act. This regulation requires that a credit
purchaser be advised in writing of all costs connected with the credit portion of the purchase.
Release of Liability
An agreement by the lender to terminate any personal obligation and debt due on a mortgage loan note.
For example, the original borrower is released of liability when the new borrower takes over the
mortgage payments.
Release of Lien
When a lien against the property is satisfied, the noteholder records a document that reflects the
discharge of the obligation and releases the lien recorded against the property.
Release of Mortgage
A recordable instrument that transfers title from a mortgagee to the mortgagor when title is held as
collateral security for a debt. Most commonly used upon payment in full of a mortgage.
Rental Agreement
A contract used by property owners who rent their property to another individual. Rental agreements
should state the amount of rent the owner will collect from the renter.
Request for Full Reconveyance
Written instructions provided by the beneficiary to the trustee to issue a deed of reconveyance when the
conditions of obligation have been fulfilled.
Requirements to Be Met
Exceptions to be cleared and other actions that must be taken for a title company to issue a final title
policy per the lender's instructions.
Rescind
To void or cancel in such a way as to treat the contract, or other object of the rescission, as if it never
existed.
Resolution Trust Corporation (RTC)
An arm of the FDIC responsible for managing and resolving the affairs of insolvent savings and loan
associations placed into receivership by the FDIC. This includes the liquidation, operation and sale of thrift
institutions.
Rider
A rider is an addition to the security instrument.
Right of Survivorship
If one property owner dies, all ownership rights automatically belong to the surviving owner.
Room Rents
Income a homeowner receives from renting rooms in the same property in which they live.
Rural
A term used to describe a property's location. For example, rural properties are in remote locations, on
non-paved access roads or streets with support services more than 10 miles away. Rural is also a term
used to describe the country as opposed to the city.
- S -
S-Corporation
Generally a small, start-up business with gains and losses passed through to the shareholders in
proportion to each stockholder's percentage of business ownership. The income for the owners comes
from W-2 wages (salaries) and is taxed at the individual rate.
Satisfaction of Mortgage
Discharge of an obligation by payment of the amount due, as on a mortgage, trust deed or contract, or
payment of a debt awarded, such as a satisfaction of a judgment.
Savings and Loan Associations
Stock or mutual associations that are regulated by state or federal government. Deposits are traditionally
reinvested into the residential loan market.
Schedule A (U.S. Income Tax Returns)–Itemized Deductions
This form is used to identify medical/dental, taxes paid, interest paid, gift, casualty/theft losses, job
expenses, and other miscellaneous allowable deductions from your adjusted gross income.
Schedule A Title Commitment
A section of the preliminary title report/title commitment that lists the name of the proposed insured,
amount of title insurance, estate or interest in the land, how legal title is vested and the legal description of
the property.Schedule B Title Commitment
A section of the Preliminary Title Report/Title Commitment that lists exceptions to title, if any.
Schedule B (U.S. Income Tax Returns)–Interest and Dividend Income
This form is used to record taxable interest or dividend income received in excess of $400.00; had a
foreign account or received a distribution from, or were a grantor of, or transferor to a foreign trust;
and/or claim the exclusion of interest from series EE U.S. savings bonds issued after 1989.
Schedule C (U.S. Income Tax Returns)–Profit and Loss from Business
This form is used to report income or loss from a business operated or profession practiced by a sole
proprietor, or to report wages and expenses by a statutory employee.
Schedule D (U.S. Income Tax Returns)–Capital Gains and Losses
This form is used to report the sale or exchange of personal capital assets, gains from involuntary
conversions of capital assets not held for business or profit, capital gain distributions not reported directly
on Form 1040, and non-business bad debts. For example, personal capital assets would be personal
house, furniture, car, stocks and bonds, Short-term capital gains and losses would be calculated on items
held one year or less. Long-term capital gains and losses would be calculated on items held more than
one year.
Schedule E (U.S. Income Tax Returns)–Supplemental Income and Loss
Part 1 of this form is used to report rental income and expenses. Examples are rental real estate,
royalties, partnerships, S corporation, estates and trusts.
Schedule F (U.S. Income Tax Returns)–Profit or Loss from Farming
This form is used to report farm income and expenses.
Schedule SE (U.S. Income Tax Returns)–Self Employment Tax
This form is used to calculate tax due on net earnings from self-employment. Self-employment tax must be
paid if net earnings of $400 or more were earned. The tax is comparable to the Social Security and
Medicare tax withheld from an employee's wages.
Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Secondary Financing
A loan secured by a second mortgage or trust deed of real property. Sometimes called a piggyback loan.
Secondary Market
The financial market where groups of loans are sold to investors. Primary mortgage lenders originate
loans while the secondary market sells funded loans.
Secondary Mortgage Market
A process whereby lenders and investors buy and sell existing mortgages or mortgage-backed
securities, thereby providing greater availability of funds for additional mortgage lending by banks,
mortgage bankers and savings institutions.
Secondary Residence
A property used by a person as a second residence, not as an investment.
Section 32
A section of the federal Truth in Lending Act pertaining to high fee loans and the restrictions and
compliance issues with which this type of loan transaction must comply.
Securitization
The process of pooling loans into mortgage-backed securities for sale into the secondary mortgage
market.
Security Instrument
The security instrument is used to identify and encumber the real property used as collateral for the loan.
It's notarized and then recorded with the county in which the property is located. Once recorded, it
secures an interest in, or lien against, the property. The security instrument used is state-specific.
Examples are deeds of trust, security deeds, trust deeds and mortgages.
Self-Employed Person
A person is considered self-employed if he or she: (1) carries on a trade or business as a sole
proprietor; (2) is an independent contractor; (3) is a member of a partnership; (4) is in business for
himself or herself in any other way.
Servicing
A mortgage banking function that includes the receipt of payments, customer service, escrow
administration, investor accounting, collections and foreclosures. Also know as Loan Administration.
Servitude
A burden resting upon one estate for the benefit or advantage of another. An agreement granting limited
permission to use the property. Same as land burden.
Settlement Statement
Final compilation of costs payable at closing that determines the seller's net proceeds and the buyer's net
payment. Also referred to as a HUD-1.
Shared Appreciation Mortgage (SAM)
A mortgage loan offered in some states that has a below-market interest rate. In return the lender
receives a portion of the future appreciation in the value of the property.
Shipping
Packaging of closed mortgage loans, including the credit package and all supporting documents and all
legal documents, to send to the investor for purchase.
Simple Interest
Interest computed on the unpaid principal balance of a loan, as opposed to compounded interest.
Single Family Residence (SFR)
A standard home with no common areas, no homeowners' dues or sharing of common walls. A home
intended to be occupied by one family.
Site Analysis
The study of a specific land parcel to determine its suitability for a specific use. For example, if the study
of the land parcel reveals that it should be used for industrial purposes, yet it's currently being used for
residential purposes, then, upon review of the appraisal report, the reviewer would want to take this
information into consideration when determining whether the loan's collateral is sound.
Slab
A concrete floor used as a foundation in homes without a basement.
Social Security Award Letter
Documentation specifying the frequency and amount of Social Security payments an individual is eligible
to receive. Social Security Award Letters are re-issued annually.
Society of Real Estate Appraisers (SREA)
A professional association for appraisers with designations such as Senior Residential Appraiser (SRA),
Senior Real Property Appraiser (SRPA), or Senior Real Estate Analyst (SREA).
Sole Ownership
Legal title in a single individual or an entity.
Sole Proprietorship
Ownership of a business, with no formal entity as a vehicle or structure. The sole proprietorship reports
its tax information on Federal Tax Form 1040.
Spot Loans
Mortgage loans solicited by an originator/lender on an individual basis.
Standard Coverage Policy
A title insurance policy used in several states, not having as broad coverage as the nationally recognized
American Land Title Association policies. See also American Land Title Association.
Standby Commitment
A commitment issued for a fee showing willingness to fund loans in the event that a permanent loan is not
obtained or until market conditions are more favorable.
Start Rate
The initial interest rate charged on an adjustable-rate mortgage loan.
Statement of Information
A confidential form filled out by buyer or seller to help a title company determine whether any liens are
recorded against either. Very helpful when people with common names are involved.
Subdivision
Land divided into a number of parcels for the purpose of sale. The land may be improved or unimproved.
Submission
A complete loan application package submitted to underwriting for loan approval.
Subordinate
A lien taking a legal title position junior to another lien that was recorded later. For example, if a mortgage
lien was recorded in 1996, it can subordinate to a lien recorded in 1999. Subordination may apply not only
to mortgages, but also to leases, real estate rights and any other type of debt instruments.
Subordination Agreement
An agreement by which a lienholder agrees to accept a lien position junior to that of a later-recorded lien.
When a lienholder agrees to subordinate, a formal agreement must be drawn, signed and recorded to
make it a legal transaction. Subordinations may apply not only to mortgages, but also to leases, real estate
rights and any other types of debt interests.
Substitution of Trustee
A document that is recorded to change the trustee named in a deed of trust.
Suburban
Located in the area around a city. Usually residential with some small businesses.
Supplemental Taxes
Additional taxes assessed by the city and/or county on property. These taxes are in addition to any taxes
impounded in an escrow account.
Surety Bond
Obligation of a guarantor to pay a second party upon default by a third party in the performance it owes
to the second party.
Survey
A document prepared by a licensed surveyor that verifies the accuracy of a property's legal description,
plat maps, easements or other information found in a title search.
Sweat Equity
Equity in a property that a borrower earns by completing certain improvements to the property.
- T -
Tax Lien
A lien for outstanding or delinquent property, IRS or state taxes. Tax liens for delinquent property taxes
are the most common and attach only to the property on which the taxes are unpaid. Property tax liens
always take priority over other liens.
Temporary Disability Award Letter
A letter issued to employees who are awarded temporary disability benefits because they are unable to
work due to medical disability. These employees are expected to return to work once they heal.
Temporary Worker
An individual who registers with a temporary employment agency to be placed on work assignments at
companies on a temporary basis.
Tenancy by the Entirety
A type of joint ownership of property that provides rights of survivorship and is available only to a
husband and wife.
Tenancy in Common
A type of joint ownership in a property without rights of survivorship.
Title
A legal document evidencing a person's right to or ownership of a property.
Title Commitment
A written report showing all current claims against a property before a sale or loan transaction. After
completion of the transaction, a title insurance policy is issued. Same as a Preliminary Title Report.
Title Company
A company that specializes in examining and insuring titles.
Title Instructions
A document that instructs a title company how to record a lien against a property and issue a title
insurance policy.
Title Insurance
Insurance against certain loss resulting from undisclosed defects of title to a specifically described parcel
of real property.
Title Search
A review of all recorded documents affecting a specific piece of property to determine the present
condition of claims against the property.
Total Monthly Income
Gross monthly income from all income sources, after appropriate deductions are taken.
Townhouse
A single family dwelling with a small lot that has exterior walls in common with other like units. Title is
given individually with fractional title to common areas.
Tradeline
Credit items reported on a credit report.
Trust Deed
An instrument used in many states in place of a mortgage. Grants an interest in the property as collateral
for a loan and, when recorded with the county, creates a lien having priority over later-filed mortgages or
trust deeds. Same as a Deed of Trust.
Truth-in-Lending Disclosure
This disclosure is required by law under the federal Truth in Lending Act, which requires a full disclosure
of a loan amount, finance charges and Annual Percentage Rate (APR).
Types of Security Instruments
In a real estate-secured transaction, the borrower and lender enter into a loan agreement that is legally
documented or evidenced by a security instrument. This security instrument can be either a mortgage or a
deed of trust. See also Mortgage and Deed of Trust.
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VA Loan
A loan made to a veteran that is guaranteed by the U.S. Department of Veterans Affairs. Also referred to
as a government mortgage.
Vacancy Factor
A multiple by which gross monthly rental income is multiplied. The vacancy factor reduces the owner's
monthly rental income to allow for months when units are vacant and the owner is not receiving full rental
income.
Valuation
The estimating of value. See also Appraisal.
Variable Interest Rate
An interest rate that fluctuates as a result of changes in a controlling index rate. With adjustable-rate
mortgages, there are usually maximums as to the frequency and amount of fluctuation.
Vendor
The seller of a piece of property.
Verification of Deposit (VOD)
Documentation that confirms that an individual has access to specified amounts of money through a bank
or investment account.
Verification of Employment (VOE)
Documentation that confirms that an individual works in the job and for the employer listed on the loan
application and receives a stream of income from this source. Verifications of Employment confirm the
customer's position title, date of hire, employment type, hours of work per week, frequency of payment
and salary.
Verification Of Mortgage (VOM)
Documentation that establishes an individual's mortgage payment history.
Vesting
Names of the borrowers and the manner in which they hold legal title to the property. May include marital
status. See also Legal Title.
Veterans Affairs (VA)
An independent agency of the federal government created in 1930. The Servicemens Readjustment Act
of 1944 authorizes the agency to administer a variety of benefit programs designed to facilitate the
adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan
Guaranty program, which encourages mortgage lenders to offer long-term, low down payment financing
to eligible veterans by guaranteeing the lender against loss. The VA attained Department status in March
1989.
Voluntary Lien
A secured financial interest in a property that is created by agreement between a creditor and the
borrower. Basically, the borrower is agreeing to use the property as collateral for the loan. The most
common example of a voluntary lien is the one created by a mortgage given for a home loan. See also
Lien.
- W -
W-2
A document that reports to the federal government income earned by salaried employees. This document
reports employees' total gross income and withholdings made during the previous tax year. Employers
must mail W-2s by January 31 of each year for the prior tax year.
Warranty Deed
A deed used in many states to convey fee title to real property. A deed in which the grantor or seller
warrants or guarantees good title is being conveyed, as opposed to a quitclaim deed that contains no
representation or warranty as to the quality of title being conveyed.
Whole Loan
The purchase of an entire mortgage loan in the secondary market as opposed to a participation or partial
loan sale.
Wholesale Lender
A lender who works only with mortgage brokers and takes completed loan packages and underwrites
them. Wholesale lenders offer mortgage brokers discounted pricing in return for the up-front work done
by the mortgage broker.
Withhold
Portion of a loan held back by the lender until a condition is satisfied. This condition usually regards the
appraisal and repairs to be made to the property, the condition of which secures the loan. Same as
Holdback.
Working Capital
Liquid assets available to conduct daily business transactions. Money in a checking account is a primary
example.
Wraparound Mortgage
The creation of a new subordinate lien, which includes the remaining balance on the existing note and
adds in the additional amount borrowed.
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Year-End Statement
A report sent to the borrower each year. The report shows how much was paid in taxes and interest
during the year, as well as the remaining mortgage loan balance at the end of the year.
Yield
The effective yearly income accrued on a mortgage loan expressed as a percentage of the original price
paid.
- Z -
Zoning
The division of a city or county by legislative regulations into areas specifying the permitted uses for the
real property in these areas.
Abstract of Judgment
A summary of the essential provisions of a court judgment that, when recorded in the county recorder's
office, creates a lien upon the property (both presently owned and subsequently acquired) of the debtor
in that county.
Abstract of Title
A history of a property's title record used in some states to prepare the preliminary or title commitment
report. An abstract of title lists anyone who has ever had a claim to the property, past and present. Some
states require mortgage lenders to obtain a complete abstract of title. However, most states condense the
abstract into a document called either the preliminary or title commitment, which lists only current claims to
the property.
Acceleration Clause
A provision in a mortgage that allows the holder to demand the entire outstanding mortgage balance due
and payable in the event of a breach of the mortgage contract.
Accrued Interest
The interest earned for the period of time that has elapsed since interest was last paid.
Addendum
An attachment to a contract, deed or other document that incorporates additional terms of information into
the original.
Adjustable-Rate Mortgage (ARM)
A mortgage loan where the interest rate is not fixed for the entire term of the loan. The interest rate can
change over time, based on movements of an index.
Adjustable-Rate Rider
A rider is an addition to a security instrument. The adjustable-rate rider outlines terms and conditions
specific to an adjustable-rate loan. It must be recorded along with the security instrument at the county
recorder's office. See also Security Instrument.
Adjustment Cap
A provision of an ARM limiting how much the interest rate or mortgage payments may increase.
Agent
A legal representative for another, usually called a principal.
Alimony
Periodic payments made under a divorce decree or a written separation agreement toward the support of
a former spouse. Alimony may be taken as a deduction from adjusted gross income by the person who
pays it, while the person who receives it must claim it as taxable income.
Amenity
Any feature that enhances property value. Examples are off-street parking within a condominium
community, the proximity of public transportation, tennis courts or a swimming pool.
American Land Title Association (ALTA)
An organization composed of title insurance companies that has adopted certain insurance policy forms
to standardize title insurance coverage on a national basis. See also Title Insurance.
Amortization
The gradual repayment of a mortgage by installments over the life of the loan.
Amortization Schedule
A timetable for repayment of a mortgage showing the amount of each payment applied to the interest and
principal and the remaining balance.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage stated as a percentage of the loan amount. It includes the base
interest rate, primary mortgage insurance and loan origination fee (points), commitment fees, prepaid
interest, and other credit costs that may be paid by the borrower. Under the Truth in Lending Act, the APR
must be disclosed and labeled.
Annuity
Fixed payments an individual receives for a lifetime or a specified number of years at consistent intervals.
For example, a person may receive an annuity from a pension plan or from an investment.
Applicant
A prospective borrower who has completed an application. An application involves a series of steps,
usually including the completion of documents a lender requires of those seeking a loan.
Application
A form used to record pertinent information about a prospective borrower and the proposed security.
Standard application forms include FNMA/FHLMC 1003, HUD Form 92900-A and VA Form 26-1802a.
Appraisal
An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.
Appraised Value
An opinion reached by a licensed appraiser based upon knowledge, experience and the study of
pertinent value.
Appraiser
One licensed and qualified by education, training and experience to estimate the value of real and
personal property.
Appreciation
An increase in value of a house due to changes in market conditions or other causes.
"As Is" Condition
Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including
all physical defects.
Assessed Value
The valuation placed upon property by a public tax assessor for purposes of property taxation.
Assignment of Lease
A mortgage clause that passes control of leases on an income-producing property to the lender. Often a
condition to making a loan to ensure that, in case of mortgage default, any continuing income from the
property goes directly to the lender.
Assumption of Mortgage
The transfer of the seller's existing mortgage to the buyer.
Attachment
A legal process whereby the judgment creditor may obtain a lien against the debtor's property. See also
Lien.
Attorney Closing
This practice is prevalent in states where attorneys' opinions are used in place of title reports. Closings
by attorneys follow much the same procedures as escrow closings. The lender delivers to the attorney
the settlement statement and the net loan proceeds, as well as instructions for their use.
Attorney in Fact
A person given the legal authority to act on behalf of another under a signed Power of Attorney.
Attorney's Opinion of Title (In Absence of a Title Company)
A statement issued by an attorney in states that don't use a preliminary title report or title commitment. All
liens recorded against the property are disclosed in this statement. The attorney also advises on items
that require completion to gain a clear title insurance policy before recording a security instrument.
- B -
Back-End Debt Ratio
This refers to the borrower's debt ratio and is calculated using a borrower's total monthly payments due
on credit obligations divided by the borrower's gross monthly income. It's expressed as a percentage.
See also Debt Ratio.
Balloon Mortgage
A mortgage with regular principal and interest payments that at the end of the term do not fully pay off the
balance due on the note. The remaining balance is then due in a lump sum payment.
Balloon Payment
A large payment due at the end of a loan contract. Equal to the remaining principal balance plus any
interest and charges due.
Balloon/Reset Mortgage
A fixed-rate mortgage with a reset option at the balloon maturity date.
Bankruptcy (BK)
A person, firm or corporation who, through a court proceeding, is relieved from the payment of debt after
the surrender of assets to a court-appointed trustee, for the protection of creditors. See also Chapter 7
Bankruptcy and Chapter 13 Bankruptcy.
Basis Point
One one-hundredth of one percent. Used to describe changes in yield on debt instruments, including
mortgages. For example, 10 basis points equals 0.001.
Beneficiary
The entity or lender that funds the loan and to which the loan is owed.
Beneficiary's Demand
Written instructions by a beneficiary under a deed of trust or mortgage stating and demanding the amount
necessary for payoff of a lien in full.
Borrower
One who borrows money and is responsible for repaying it to the lender. Also known as obligor. If the
loan is secured by a mortgage, the borrower is known as a Mortgagor.
Borrower Savings
The monthly savings a person will experience by consolidating/paying off debt with a debt consolidation
loan. Monthly savings equals current monthly payments less new monthly payments.
Broker
One who acts as an intermediary between parties to a transaction in exchange for a fee or commission.
Business for Self (BFS)
Persons who own their own business. Another term for self-employed.
Business License
A license that authorizes a business to operate and is typically required and issued by the city in which
the business is located.
Buy-down
The reduction of monthly mortgage payments for a specified amount of time due to monies advanced up
front by the seller, buyer or a third party.
- C -
Cap
A provision of an ARM limiting how much the interest rate or mortgage payments may increase or
decrease.
Capacity
A borrower's financial ability to repay debt. See the 3 Cs of Credit for more detailed information.
Capital
The accumulated wealth of a business or person; the actual net worth of a business or person
represented by the amount by which the assets exceed the liabilities.
Capital Asset
Permanent property used to produce income, such as land, buildings and machinery.
Capital Gain
The taxable profit derived from the sale of a capital asset. Equals the sales price minus the total of sale
costs and the adjusted basis (original cost plus capital additions minus accumulated depreciation).
Capital Loss
The loss derived from the sale of a capital asset. May be short-term or long-term.
Cash Equivalent Value
A method of calculating the appraised value of a property that considers sales and financing
concessions when evaluating comparable property. There is no standard in the appraisal industry for
measuring cash equivalent value, but investors and mortgage insurers sometimes insist that cash
equivalency be incorporated in the appraised values.
Cash Market
A market where mortgage and/or mortgage-backed securities are bought and sold for immediate delivery
and cash payment. Also called a spot market.
Cash Reserve
A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first
two mortgage payments.
Cash-Out Explanation Letter
A handwritten, signed and dated letter provided by borrowers who are receiving cash from a refinanced
loan transaction. The letter explains how they intend to use that cash. Generally used to verify that
borrowers do not intend to use the cash to incur additional debt that will add to their monthly obligations
and decrease disposable monthly income.
Cash-Out Refinance
A refinance transaction in which the borrower receives additional cash that can be used for any purpose.
Ceiling
The highest interest rate that may be assessed or an adjustable-rate loan during the life of the loan based
on the start rate and lifetime cap.
Certificate of Eligibility
A document issued by the Department of Veterans Affair that verifies a veteran's eligibility for a VA Loan
guarantee.
Certificate of Occupancy (C/O)
A certificate issued by a local city government to the property owner stating that a building is in proper
condition to be occupied.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affair that establishes the maximum value and loan
amount for a VA guarantee mortgage.
Certified Copy
A copy of an original attested to be a true and exact duplicate of the original.
Change Date
This is a date established with an adjustable rate loan contract when a new interest rate will be
assessed. Also known as an adjustment date.
Chapter 7 Bankruptcy
A Chapter 7 BK is a straight liquidation bankruptcy where the debtor submits all of his or her non-exempt
assets to a trustee for liquidation; proceeds are disbursed to creditors.
Chapter 13 Bankruptcy
Chapter 13 BK is a debt reorganization plan where debts are repaid under a court-supervised repayment
plan. Debtors submit part of their income for distribution among creditors. Also known as the wage-
earner plan.
Charge-off
A delinquent credit account with a balance owed that was never fully satisfied and the creditor removed
it from the books for accounting purposes even though the debtor still owes payment in full.
Child Support
Periodic court-ordered payments made under a divorce decree or a written separation agreement for the
support of the children.
Civil Proceeding
A lawsuit or legal action between two or more parties, as opposed to a criminal proceeding.
Clear Title
A title that is clear of liens and legal questions as to ownership of the property.
Closing
A meeting between a lender and borrower or a buyer, seller and lender or their agents when the loan
documents are signed and the funds legally change hands. Also known as a settlement.
Closing Agent
The party designated to conduct the loan closing and to ensure the mortgage or deed is recorded and the
funds disbursed on time.
Closing Costs
Expenses (over and above the sale price of the property) incurred by buyers and sellers to effect the
closing of a mortgage loan. Also known as settlement costs.
Closing Statement
A statement required by federal law (the Real Estate Settlement Procedures Act) that itemizes all changes
imposed on the borrower and seller (if any) in connection with a mortgage-secured loan transaction. Also
known as a Settlement Statement, HUD-1 or HUD-1A.
Co-Borrower
A second borrower on a loan who shares equal responsibility for repayment of the loan.
Co-Mortgagor
A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets
and debts are combined with the mortgagor's for underwriting and ratio analysis purposes.
Co-Signer
One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A
co-signer assumes only personal liability and has no ownership interest in the property; his or her income
and obligations are used in the underwriting process to reinforce the credit of the primary borrower.
Collateral
Property pledged by the borrower to secure the repayment of the loan. The lender's claim or lien appears
on the title report for the property. See the 3 Cs of Credit for additional information.
Collection
The servicing procedure followed to bring a delinquent mortgage current and to file the required notices to
begin foreclosure when necessary.
Combined Loan to Value (CLTV)
The total of all liens tied to the subject property divided by the lower of the appraised value or sales price
of the property.
Combined Monthly Housing Expense
Monthly expenses for the individual's primary residence, which include rent or mortgage payments, other
financing, hazard and flood insurance, mortgage insurance, real estate taxes, utilities and homeowner
association dues.
Commercial Property
A property used for business purposes.
Commitment Fee
Any fee paid up front (usually by an individual builder or developer) to the lender for the purpose of
holding mortgage funds for a specified date.
Commitment Letter
A written agreement between the lender and the borrower stating the terms under which the lender
agrees to loan money to the borrower.
Comparables (Comps)
Properties used to determine the value of a specific property for comparative purposes in the preparation
of an appraisal.
Compensating Factors
Positive characteristics about an applicant's credit, employment history, etc. that contribute to a loan being
a sound risk or investment.
Concession
Special or unusual terms offered by the seller that may warrant the buyer paying a higher price for the
property.
Condominium (Condo)
A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an
interest in common areas of the project.
Condominium Association
An association of owners of condominium units.
Consumer Credit
Credit owed by an individual that is not secured by real estate.
Contingency
A condition that must be satisfied prior to a contract being legally binding.
Contract Rent
The actual rental payment specified in a lease agreement.
Conventional Loan
Any mortgage that is not insured or guaranteed by the federal government.
Conversion Clause
A provision in some Adjustable-Rate Mortgages (ARMs) that allows borrowers to change their adjustable
rate to a fixed rate at some point during the term.
Conveyance
The document (such as a deed, lease or mortgage) used to affect a transfer of title to real property.
Corporation
An artificial person or legal entity created by or under the authority of the law of a state. May have limited
liability, perpetual life, freely transferable shares and centralized management.
Cosmetic Repair
Repairs that improve the appearance of the property and are considered aesthetically pleasing to the eye.
Cost Approach to Value
A valuation approach in which the value of a property is determined by computing the replacement value
of improvements, depreciation and the value of the land.
Coupon Book
A book of pre-printed coupons furnished to the borrower. One coupon is returned each month with a
check or money order, enabling the mortgage servicer to identify the payment by name, loan number and
type of loan.
Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in
foreclosure.
Covenants, Conditions and Restrictions (CC&Rs)
Limitations placed on the use and enjoyment of real property. Usually intended to maintain a certain look
within a neighborhood and common in subdivisions, PUDs and condominium communities.
Credit Authorization Letter
A letter signed by the borrower that authorizes a lender to conduct a credit investigation.
Credit Bureau
A company that collects and organizes information about an individual's credit and payment habits. The
three national credit bureaus are Experian, TransUnion and Equifax.
Credit Denial Letter
A letter that is sent to a credit applicant advising him or her that the application has been denied and the
reason for the denial.
Credit Depth
The number of years a borrower has had established credit. This information shows up on the
borrower's credit report.
Credit History
The history of whether the borrower has met financial obligations on time in the past.
Credit Length
The length of time a borrower has had established credit.
Credit Report
A report prepared by a credit bureau that provides a detailed account of a borrower's Credit History.
Credit Score/Rating
A numerical assessment assigned to the individual by credit bureaus that represents a measurement of
the individual's overall credit rating. The scores are weighted and range from approximately 365 to 840.
Low scores reflect a "high risk," while higher scores reflect a "lower risk." Each credit bureau has its
own credit score system.
Creditor
An individual or entity to whom money is owed.
- D -
Date Down Addendum
An update to the preliminary title report/title commitment that reflects any changes to the title since the
original title report was prepared. Same as an update addendum.
Debt Consolidation Loan
A loan that combines debt obligations into one debt.
Debt Load
The total amount of debt an individual currently owes.
Debt Ratio (DR)
The percentage of an individual's gross monthly income allocated to pay the monthly installments on their
debt owing. See also Back-End Debt Ratio and Front-End Debt Ratio.
Debtor
One who is obligated to pay any liabilities.
Deed
A legal document by which a property owner (grantor) conveys an ownership interest in real property to
a grantee.
Deed in Lieu
A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.
Deed of Reconveyance
A document used to transfer legal title from the trustee back to the borrower after a debt secured by a
deed of trust has been paid in full.
Deed of Trust
A type of security instrument used in some states in place of a mortgage by which legal title is conveyed
to one or more trustees to secure the repayment of a debt. Same as a Trust Deed.
Default
A breach or nonperformance of the terms of a note or the covenants of a mortgage.
Deferred Maintenance
Repairs necessary to restore a property to good condition.
Deficiency Judgment
A court order to pay the balance owed on a loan if the proceeds from the sale of the security are
insufficient to pay off the loan.
Delinquency
Failure to make payment when due.
Demand
A letter from a lender showing the total amount due to pay off a mortgage or trust deed, inclusive of
unpaid principal, interest, impound amounts, prepayment penalty, etc. Also known as a demand for payoff
request or beneficiaries demand letter.
Demand Feature
A feature that defines circumstances under which the remaining principal and interest amount of the loan
is due and payable on demand.
Depreciation
A decrease in value to real property improvements caused by age, deterioration or functional
obsolescence.
Derogatory Explanation Letter
A borrower's written explanation to the lender explaining any derogatory information reported on the
credit report.
Disbursements
Payments made on behalf of the borrower pursuant to the instructions on the HUD settlement statement.
Discharge
Following a completed bankruptcy proceeding, discharged debts are no longer enforceable. The individual
has successfully completed the process and debtors are either paid in full or eliminated based on the plan.
Discount Point
Amount payable to the lending institution by the borrower or seller to increase the lender's effective yield.
One point is equal to 1% of the loan.
Divorce Decree
A document issued by the court that dissolves a marriage relation.
Docs
Abbreviation for mortgage loan documents.
Dower Rights
A common law interest that a wife acquires in her husband's property at the time of his death. Dower
rights have been abolished in most states.
Down Payment
The difference between the purchase price and the mortgage amount for home purchase transactions.
Due-on-Sale Clause
A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the
property securing the mortgage.
Duplex
A property that consists of a structure that provides living space for two families, although a single
mortgage or deed of trust evidences ownership of the structure.
- E -
Earnest Money
The cash deposit paid by the prospective buyer of real property, as evidence of good faith intentions to
complete the purchase transaction.
Easement
A right to the limited use or enjoyment of land held by another. Also, an interest in land to enable sewer or
other utility lines to be laid, or to allow access to a property.
Effective Age
Age of a structure based on its present condition rather than actual age. Takes into account rehabilitation
and maintenance.
Effective Date
This is the date a new mortgage payment is effective–the month following the rate change date.
Encroachment
Generally, an improvement, such as a wall, fence or building, that extends onto the property of another.
Encumbrance
A claim, lien, charge or liability attached to and binding real property. Any right to, or interest in, land that
may exist in one other than the owner, but that will not prevent the transfer of fee title subject to such
encumbrances.
Endorse
The act of a payee or holder of a note, bill, check or other negotiable instrument, of assigning and
transferring said instrument to another by signing the back of the instrument, with or without qualifications.
Endorsement
An addition to a title insurance policy that adds or subtracts coverage.
Engineer's Report
A report given by an engineer on the physical condition of the property and including any
recommendations.
Entitlement
The amount the VA guarantees the lender if a veteran defaults on a VA home loan.
Equal Credit Opportunity Act (ECOA)
A federal law that prohibits lenders from discriminating on the basis of race, color, religion, national origin,
age, sex, marital status or receipt of income from public assistance programs. Also called Regulation B.
Equitable Interest
An ownership interest in a property that is demonstrated by actions such as the payment of the current
mortgage, property taxes or property insurance rather than by legal ownership.
Equity
The difference between fair market value and current indebtedness, sometimes called ownership interest
or net ownership.
Equity Line of Credit
A combination of a line of credit and equity loan secured by real property. A maximum loan amount is
established based on credit and equity. A mortgage is recorded against the potential borrower's property
for said maximum loan amount. The potential borrower has the right to borrow, as needed, up to the
amount of the credit line.
Escrow
The holding of documents and money by a neutral third party prior to closing; also, an account held by the
lender (or servicer) into which a homeowner pays money for taxes and insurance.
Escrow Analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide
sufficient funds to pay taxes, insurance and other bills when due.
Escrow Instructions
For purchase transactions, instructions signed by both buyer and seller, that enable the escrow agent to
carry out the procedures necessary to transfer real property, a business or other assignable interest.
Escrow Payment
The portion of the monthly mortgage payment reserved by the lender (or servicer) to pay taxes and
insurance items when they come due.
Estate (Real Property)
Describes the extent and character of a person's rights and interest in real property. Two types of
estates frequently financed by mortgage lenders are the fee simple and the leasehold estate. See also
Fee Simple Estate and Leasehold Estate.
Exceptions to Guidelines
The consideration of approving a loan having characteristics that do not fit into a mortgage company's
guidelines when it makes sense to do so.
Exceptions to Title
Claims against the property as of the date of the title report.
Experian (EXP)
A national credit bureau from which lenders can order credit reports.
External Obsolescence
Any influence negatively affecting a property's value that falls outside of the specific property site. An
example of this would be a property located under an airport flight pattern.
- F -
Face Amount (Life Insurance)
The amount the surviving party will receive in the event of death.
Fair Isaac Corporation (FICO)
Engineer Bill Fair and mathemetician Earl Isaac spent approximately 10 years studying millions of loans to
create a computerized model that assesses the risk factor for a potential borrower. Credit bureaus
assign numerical scores in order to measure a borrower's credit characteristics. See also Credit
Score/Rating.
Fair Market Value
The price determined to convey title by the seller to the buyer where neither party is under any obligation
to buy or sell and both parties have a reasonable knowledge of pertinent data.
Fannie Mae
Another name for the Federal National Mortgage Association (FNMA).
Federal Deposit Insurance Corporation (FDIC)
Originally established by the Banking Act of 1933 to protect depositors from loss. As a result of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the FDIC administers the
Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).
Federal Home Loan Bank Board (FHLBB)
Supervisory and regulatory agency for federally chartered savings and loan associations; this agency
also oversees the FSLIC and FHLMC.
Federal Home Loan Mortgage Corporation (FHLMC) –Freddie Mac
An agency regulated by FHLBB that purchase conventional mortgages in the secondary market. This
agency sells participation sales certificates secured by conventional mortgage loan pools. It also sells
GNMA Bonds to raise funds to finance the purchase of mortgages.
Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD) that provides
mortgage insurance for residential mortgages and sets standards for construction and underwriting. The
FHA does not lend money, nor does it plan or construct housing.
Federal National Mortgage Association (FNMA) – Fannie Mae
The nation's largest mortgage investor, created in 1968 by an amendment to Title III of the National Housing
Act. This stockholder-owner corporation, a portion of whose board of directors is appointed by the
President of the United States, supports the secondary market in mortgages on residential property.
Federal Tax Lien
A lien attaching to a property for nonpayment of a federal tax. A federal tax lien differs from other liens in
that it's not automatically eliminated by a senior lien holder foreclosing on a mortgage or trust deed
recorded before the tax lien.
Fee Simple Estate
An estate under which the owner is entitled to unrestricted powers to dispose of the property, and under
which the property can be left by will or inherited. Commonly a synonym for ownership. See also Estate
(Real Property).
FHA Loan
A mortgage that is insured by the Federal Housing Administration. Also referred to as a government
mortgage.
Final Disposition
The "end" of the loan application process, which may happen via denial, withdrawal, incompleteness or
funding.
Finance Charge
This is the amount of interest, prepaid finance charges, loan fees and certain insurance premiums the
individual will pay over the life of the loan.
First Mortgage
A mortgage that has first claim to the secured property in the event of default.
First Position Lien
A secured claim against a property that will be the first claim to be repaid should the property owner
someday declare bankruptcy or default on the secured loan.
Fiscal Year
The accounting year used by corporations for tax purposes. A fiscal year runs 12 months, but does not
necessarily begin in January.
Fixed Income
Income of a specified and consistent value that is received at specified and consistent intervals. Types of
fixed income include Social Security benefits, VA benefits, pension income, permanent disability benefits,
welfare/aid income and child support/alimony.
Fixed-Rate Mortgage
A mortgage having a rate of interest that remains the same for the life of the mortgage.
Float
A borrower's decision not to lock an interest rate while a mortgage loan is being processed. A loan is
considered to be a float until an interest rate is locked.
Flood Insurance
Insurance indemnifying against loss by flood damage. Required in federally designated Special Flood
Hazard Areas. The insurance is private but federally subsidized.
Floor
The lowest an adjustable-rate mortgage rate can ever be during the life of the loan.
Floor Rate
The start rate on an adjustable-rate program.
Forbearance
A lender's act of refraining from taking legal action despite the fact a mortgage is in arrears. It's usually
granted when a mortgagor makes a satisfactory arrangement by which the arrears will be paid at a
future date.
Foreclosure
A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.
Form 1040, 1040A, 1040EZ–U.S. Individual Income Tax Return
The federal tax form used by all U.S. citizens and resident aliens to report their annual income to the
federal government. The 1040 tax return must be accompanied by any applicable schedules, which
provide line-item detail of various sources of income. Schedule A details itemized deductions. Schedule B
details investment income. Schedule C details business income. Schedule D details capital gains/losses.
Schedule E details supplemental income, such as rental income. Schedule F details farming profit/loss.
Form 1065–U.S. Partnership Return of Income
This federal tax information form is used to report annual income, gains, losses and deductions from the
operation of a partnership to the federal government. A partnership does not pay tax on its income, but
passes through any profits or losses to its partners. All partners must then include partnership items on
their tax returns.
Form 1099
A document that reports to the federal government gross and net income earned by individuals who
receive pension, Social Security or miscellaneous income, such as income from contract work. 1099s
must be mailed to recipients by January 31 of each year for the previous year.
Form 1120 and 1120A–U.S. Corporation Income Tax Return
The federal tax form used to report the income, gains, losses, deductions, credits and to figure out the
income tax liability of a corporation to the federal government.
Form 1120S–U.S. Income Tax Return for an S Corporation
The federal tax form used to report the income, gains, losses, and deductions of a domestic corporation
that has elected to be an S corporation by filing form 2553, election by a Small Business Corporation, and
whose election is in effect for the tax year.
Foster Care Agreement
A document that designates an individual as the foster parent of a child. These agreements usually state
the income the individual will receive for being a foster parent.
Freddie Mac
Another name for the Federal Home Loan Mortgage Corporation (FHLMC).
Free and Clear
Real property against which there are no liens, especially voluntary liens.
Front-End Debt Ratio
This refers to the debt ratio calculation using only principal, interest, tax and insurance divided by gross
monthly income. It's expressed as a percentage. See also Debt Ratio.
Full Disclosure
In real estate, revealing all the known facts that may affect the decision of a buyer or tenant.
Fully Indexed Rate
The fully indexed rate is equal to the rate index plus the loan's margin and is used with adjustable-rate
mortgages. Example: If LIBOR is 6.50% and the margin on the loan is 4.00%, the fully indexed rate is
10.50%. Same as the Fully Adjusted Rate.
Functional Obsolescence
Anything about the design or construction of a property that negatively affects its value. An example of
this would be a property with five bedrooms and only one bathroom.
Funding
The disbursement of loan funds, either by check or by wire transfer to the title company.
Funding Fee
A fee charged to the veteran on a VA loan to help recover any foreclosure costs. The veteran may
finance the entire funding fee or pay it in cash.
- G -
Garnishment
A legal proceeding under which a person's money is in control of another and is taken for payment of a
debt. The amount that may be taken is set by statute and, in most states, a judgment is necessary before
garnishment.
General Partnership
An organizational form consisting only of general partners in which income, gains, losses, deductions
and credits are passed through to individual partners who pay tax on their income.
Gift Letter
A letter to the lender from the donor stating that a gift of money has been made to the buyer in order to
purchase specific property. The relationship of the donor and buyer is stated, as well as the amount of
the gift.
Ginnie Mae
Another name for the Government National Mortgage Association (GNMA), a federal agency within the
department of Housing and Urban Development (HUD) that guarantees timely payment of the principal
interest and mortgage-backed securities backed by FHA-insured and VA-guaranteed mortgages.
Grace Period
A period of time past the due date for a payment during which a payment may be made and not
considered delinquent and no late penalty will be charged.
Graduated Payment Mortgage (GPM)
A mortgage loan in which the mortgage payments increase for a specified period of time and then level
off.
Grandfather Clause
The clause in a law permitting the continuation of a use, business etc., which, when established, was
permissible but, because of a change in the law, is now not permissible.
Grant Deed
A written instrument used to transfer or convey real property. A grant deed contains warranties against
prior conveyances or encumbrances.
Grantee
One who receives property rights when a grant is made. Generally, the purchaser of real property.
Grantor
One who grants property or property rights to another.
Gross Income (Business)
The total income earned, either actual or estimated, from a business or property.
Gross Monthly Income (Borrower)
The total amount the borrower earns per month, before any expenses are deducted.
Gross Rental Income
The monthly rental income received before mortgage payments, taxes and insurance are deducted.
- H -
Hazard Insurance
Insurance protecting real property against loss caused by fire, some natural causes, vandalism, etc.,
depending on the terms of the policy.
Holdback
A portion of a mortgage loan held back by the lender from the borrower until a contingency is met by the
borrower. An example of a contingency would be repairs needed for a property's roof. Upon completion
of the required repairs, the lender releases the held-back funds to the borrower. Same as Withhold.
Home Mortgage Disclosure Act (HMDA)
This act requires all mortgage companies to report selected information to the federal government about
each application received. HUD (U.S. Department of Housing and Urban Development) uses HMDA to
detect discrimination and identify trends in lending patterns.
Homeowners Insurance
An insurance policy that combines personal liability coverage and hazard insurance coverage for a
dwelling and its contents.
Homeowners Warranty
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is
often provided by the builder or property seller as a condition of the sale.
Homeowners Association (HOA)
An association of people who own homes in a given area, formed for the purpose of improving or
maintaining the quality of the area. Unpaid HOA dues can become a lien against a property.
Homeowners Association Dues
A monthly payment paid to the association for the maintenance and care of the common areas.
Homestead
Status provided to a homeowner's principal residence by some state statutes; protects a home against
judgments up to specified amounts.
HUD-1 (or HUD-1A)
Final statement of the actual settlement costs of the loan and all other disbursements of a loan's
proceeds. A federal requirement under RESPA. Same as a Settlement Statement.
- I -
Impound Account
Account held by the lender for the payment of taxes, insurance or other periodic debts against real
property.
Income
Cash flows or other benefits received. Examples are: salary, wages, overtime, commissions, child
support, social security income, retirement benefits, interests and dividends.
Index
A published interest rate against which lenders measure the difference between the current interest rate
on an adjustable-rate mortgage and that earned by other investments, which is then used to adjust the
interest rate on an adjustable-rate mortgage. Examples include LIBOR, the Prime Rate and Treasury
indices. The Wall Street Journal publishes index information.
Initial Adjustment Cap
This is the first rate adjustment on an adjustable rate mortgage loan.
Inquiries
An indication of credit investigations made by companies that are considering granting credit to a person
who appears on the credit report.
Instructions to Title
A form that instructs the title company how to record a lien against a property and issue a title insurance
policy. Same as Title Instructions.
Interest
Money charged over time for the use of money.
Interest Bearing
A form of interest calculation in which the loan is charged at a daily or monthly rate on the current
outstanding balance.
Interest Rate
Percentage paid for the use of money, usually expressed as an annual percentage.
Investment Income
Money earned from investments of money, such as stock dividends and annuity payments.
Investment Property
A real estate property used for investment purposes. This property is typically rented.
Involuntary Lien
A lien imposed against property by law or legal action without the consent of an owner. Examples include
taxes, special assessments, federal income tax liens, judgment liens, mechanics liens and materials liens.
See also Lien.
- J -
Joint Ownership
Legal title shared by two or more persons or entities. Examples are joint tenancy, tenancy in common and
community property.
Joint Tenancy
A form of co-ownership giving each tenant equal interest and equal rights in the property, including the
right of survivorship.
Judgment
The decision of a court of law; debts resulting from a court order for payment. Money judgments, when
recorded, become a lien against the defendant's property.
Judicial Foreclosure
A court-supervised foreclosure process used in some states that is handled as a civil lawsuit and
conducted entirely under the auspices of the court.
Jumbo Loan
A loan amount above the conforming loan limits.
Junior Liens
Liens or claims against a property that are secondary or inferior to the lien of the first mortgage. Also
known as a Second Mortgage.
Jurat
A certificate attached to a document stating where, when, before whom and by whom the document
was signed.
- K -
K-1 Schedule
Tax schedule that must be distributed to each member of a partnership that reports the member's
distribution of a profit or loss.
- L -
and
Undeveloped land.
Land Contract
An installment contract for sale with the buyer receiving equitable title and the seller retaining legal title.
Late Charge
An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment
when due.
Lease with Option to Purchase
A lease containing a clause that allows the tenant the right to purchase the property under specified
conditions.
Leasehold
A tenant's right to occupy real estate during the term of the lease. This is a personal property interest.
Leasehold Estate
A kind of real estate ownership through which the property owner doesn't hold title to the property, but
instead has use of the property subject to the terms of the lease. See also Estate (Real Property).
Legal Description
A method of geographically identifying a parcel of land that is acceptable in a court of law.
Legal Title
The manner in which property ownership is recorded with the county in which the property is located.
See also Vesting.
Liabilities
The debts of a person or business.
LIBOR Index
An acronym for London Interbank Offered Rate, one of several published indices. It's the average rate of
interest that major London banks charge as they lend to one another.
Lien
A secured financial interest or legal encumbrance on a property. For example, a secured loan appears as
a lien on the property's title report. See also Voluntary Lien and Involuntary Lien.
Lien Position
The order in which liens will be repaid when the property is transferred to a new owner.
Lien Waiver
A waiver of mechanics lien rights; a document signed by a supplier or subcontractor stating that the firm
has been compensated for its work, thereby giving up its right to file a claim against the property.
Lifetime Cap
This is the cap that limits how high an interest rate can increase over the life of an adjustable-rate
mortgage loan . Example: start rate + 6% = lifetime cap.
Limited Liability Company (LLC)
An entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of
the members are personally liable for its debts.
Line of Credit
A type of mortgage loan from which borrowers can write a check or draw funds. Some lines of credit
are also balloon loans. Usually the borrower is given 5 to 10 years to use the line of credit. After this
period, many lines of credit require the borrower to pay the loan in full. Others may require the loan to be
paid in full over the next 10 to 15 years.
Liquid Assets
Cash or assets, such as checking/savings accounts, stocks and bonds, that are immediately convertible
to cash.
Lis Pendens
A notice filed or recorded for the purpose of warning all persons that the title or right to the possession of
certain real property is in litigation; literally "suit pending"; usually recorded so as to give constructive
notice of pending litigation.
Loan Administration
A mortgage banking function that includes the receipt of payments, customer service, escrow
administration, investor accounting, collections and foreclosures. Also know as Servicing.
Loan Amount
The amount of money originally borrowed when a loan is granted by a lender.
Loan Application (1003)
The form potential customers must complete to apply for a home loan. This application is commonly
referred to as "the 1003" and is produced by the federal government. See also 1003 / URLA.
Loan Origination
The process by which a mortgage banker or direct lender brings into being a mortgage secured by real
property.
Loan Risk
The risk category assigned to a loan, which estimates the probable risk of delinquency and loss in the
future.
Loan Servicing
The collection of mortgage payments from borrowers and the related responsibilities of a loan servicer.
Loan Term
The loan term is the period of time over which the loan will be paid. First mortgage loans typically have
terms of 30, 20 or 15 years.
Loan to Value Ratio/Percentage (LTV)
The loan amount in relationship to the appraised value (or sale price if it is lower) expressed as a
percentage. Used by lenders to determine maximum loan amounts as set by law.
Lock-In
A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed
within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Loss Payable Clause
A clause in an insurance policy listing the priority of claims in the event of destruction of the property
insured. Generally, a mortgage or beneficiary under a deed of trust is the party appearing in the clause,
and is paid up to the amount owed under the mortgage or deed of trust before the owner is paid.
- M -
Machinery and Equipment
All tangible, fixed assets (tools, conveyors and other than personal property) other than real estate used
in any way to facilitate any manufacturing, assembly or warehousing activity.
Maintenance
Procedures and expenditures necessary to keep a property in operating condition, such as repairs.
Mandatory Commitment
An agreement between buyer and seller for the purchase and sale of a specified mortgage product in
which both parties are obligated to perform.
Margin
A constant number, set in the terms of the note, added to a rate index to compute the interest rate on an
adjustable-rate mortgage. This fixed number is added to an index to determine the new interest rate when
a new change period begins.
Market Approach to Value
In appraisal, a market value estimate of property based on actual prices paid in similar market transactions.
Market to Market
The process whereby the book value or collateral value of the security is adjusted to reflect current
market value.
Market Value
The highest price a buyer would pay and the lowest price a seller would accept on a property. Market
value may be different from the price a property could actually be sold for at a given time.
Marketability
The probability of selling property at a specific time, price and terms.
Marketing
The actual selling of closed mortgage loans to investors and also the actual purchasing of funds for
mortgage loan fundings at a future date.
Maturity
The termination of the period on the note.
Mechanics Lien
A lien created by state law for debts owed to a carpenter, contractor, plumber or other entity hired by the
property's titleholder for services performed or materials provided to repair or improve the property.
Member Appraisal Institute (MAI)
The highest professional designation awarded by the American Institute of Real Estate Appraisers.
Merged Credit Profile (MPR)
A report combining credit information from as many as three different credit bureaus.
Metes and Bounds
The description on the deed of trust and other documents, which describes the location by boundaries
and distances.
Mixed-Use Property
A property in which a portion is used for commercial or retail purposes and the other portion is used for
residential purposes (for example, a multi-unit dwelling with the front unit used as a commercial store and
the back unit used as a dwelling). A property can also be considered mixed use if different combinations
of uses are present such as commercial/industrial or residential/industrial.
Modification Agreement
In the mortgage lending industry, a written directive to the title company to correct a typographical error
on instructions to title.
Mortgage
A formal document executed by an owner of property, pledging that property as security for payment of
a debt or performance of some other obligation; the security instrument.
Mortgage Backed Securities (MBS)
An investment instrument backed by mortgage loans as security. Ownership is evidenced by an
undivided interest in a pool of mortgages or trust deeds. Income from the underlying mortgages is used to
pay off the securities and provides a return on investments.
Mortgage Banker
A non-depository financial institution that specializes in originating and servicing loans.
Mortgage Broker
An individual or company that, for a fee, acts as an intermediary between borrowers and lenders.
Mortgage Insurance Certificate (MIC)
Certificate issued by HUD/FHA as evidence that a mortgage has been insured and that a contract of
mortgage insurance exists between HUD/FHA and the lender incorporating the HUD/FHA regulations
identified in the certificate.
Mortgage Insurance Premium (MIP)
The initial premium paid at closing to secure private mortgage insurance for a specified period of time.
Mortgage Late
More than one payment due at the same time the most recent payment is due.
Mortgage Margin
The set percentage the lender adds to the index value determining the interest rate of an Adjustable-Rate
Mortgage (ARM).
Mortgage Note
A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period
of time; the mortgage note is secured by a mortgage.
Mortgagee
A lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage transaction who pledges property as a security for a debt.
- N -
Negative Amortization
The unpaid interest that is added to the mortgage principal in a loan where the principal balance increases
rather than decreases because the mortgage payments do not cover the full amount of interest due.
Negative Cash Flow
A cash situation where the expenditures on an investment property exceed the income received.
Net Disposable Income
Money left after subtracting the principal, interest, taxes and insurance and all other obligations from the
monthly net income. The surplus amount the borrower has available for living expenses after housing
expenses are subtracted.
Net Income
The difference between adjusted gross income and operating expenses. May or may not include
depreciation.
Net Rental Income
The monthly gross rental income minus the monthly mortgage payments, insurance, maintenance, taxes
and other miscellaneous payments.
Net Worth
The value of all assets, including cash, less the total liabilities. Often used as an underwriting guideline to
indicate creditworthiness and financial strength,
Net Yield
The gross yield of a mortgage loan after subtracting all costs, such as servicing fees and any loss
reserves.
Non-Conforming Use
A property that doesn't conform to the present zoning of the area it's in.
Non-Owner Occupied
A property used as a residence by a renter/tenant instead of the owner of the property.
Non-Recurring Closing Costs
Fees and costs associated with the closing of a loan (title, appraisal, notary fees, etc.) that occur only
once in the transaction and don't recur.
Nonconveyance
A lender's election to retain a property acquired through foreclosure rather than convey it to FHA loan or
VA loan.
Notary Public
One who is authorized by the state or federal government to administer oaths and to attest to the
authenticity of signatures.
Note
A general term used for any type of paper or document signed by a borrower that is an acknowledgment
of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage or deed of
trust, it is called a mortgage note and the mortgagee is named as the payee.
Notice of Default (NOD)
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Notice of Recission
Borrowers' signed acknowledgment that they wish to cancel their loan. See also Notice of Right to Cancel.
Notice of Right to Cancel
Under Regulation Z, individuals must be notified that they are entering into a transaction that will result in a
lien against their primary residence. This document explains that they have the right to cancel the
transaction, at no cost, within three business days from the date of signing the closing documents on a
loan.
Notification of Incompleteness Letter
A letter sent to an individual requesting additional information to continue with the loan application process.
- O -
Obligations
Any debt or recurring payment the borrower is obligated to pay, except for mortgage payments.
Obsolescence
Condition or process of falling into disuse.
Offsite Improvement
Improvements outside the boundaries of a property, such as sidewalks and streets, that are acquired by
a lender for reason of investment.
Operating Expenses
Expenditures necessary to maintain the real proprietor business and continue the production of income.
Includes both fixed expenses and variable expenses but does not include debt service, depreciation or
capital expenditure.
Origination
The actual process of creating both commercial and residential mortgages.
Origination Fee
A fee paid to a lender for processing a loan application. The fee is stated as a percentage of the
mortgage amount.
Over-Improvement
An improvement, excessive in cost or size in relation to land value or value of surrounding improvements.
Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.
Owner Occupied
Designation given to property used as the owner's residence.
- P -
Par
The principal amount of a mortgage with no premium or discount.
Partnership
An agreement between two or more individuals or entities to go into business or invest together. Either
partner may bind the other, within the scope of the partnership. Each partner is liable for all the
partnership's debts.
Pay Stub
The portion of the paycheck the employee retains for his/her records. The pay stub verifies pay-period
and year-to-date gross and net earnings.
Payment Change Date
On an adjustable rate mortgage, this is the date the new mortgage payment is effective after an interest
rate change. It is usually the first day of the month following the interest rate change date.
Payment Schedule
This schedule outlines the number of payments due, the amount of each payment and the date payments
are due.
Pension Award Letter
Documentation specifying the frequency and amount of pension payments an individual is eligible to
receive.
Periodic Adjustment Cap
This cap limits how much the interest rate can change in the future on an adjustable-rate mortgage.
Piggyback Loan
See Secondary Financing.
Plaintiff
An individual or entity who files a legal action against another.
Planned Unit Development (PUD)
A single-family residence located in a community with association dues and other required monthly
payments.
Plat Map
A map dividing a parcel of land into lots, as in a subdivision. For example, a title commitment report and an
appraisal report will provide a plat map of the subject property, which shows the location of the property
within the subdivision.
Point of Reference
A starting point used to put an individual's canceled checks or mortgage statements in chronological order
by establishing either the date and amount of the last mortgage payment made or the date and amount of
the next mortgage payment due.
Points
Each point is an amount equal to 1% of the principal amount of an investment or note.
Positive Cash Flow
An annual cash flow in which either the operating expenses are less than the total income generated by
an investment or the operating expenses plus any annual debt service (mortgage payments) are less
than the income generated.
Power of Attorney (POA)
An authority by which one person authorizes another to act on his or her behalf. A power of attorney
can be limited to specific areas or can be general.
Preliminary Title Report (Prelim)
A report showing all current claims against a property before a sale or loan transaction and identifying
those items that must be removed to obtain a first lien position. After completion of the transaction, a title
insurance policy is issued. Same as a Title Commitment.
Prepaid Finance Charges
The finance charges charged at closing exclusive of interest. Examples include points, processing and
application fees, and tax certification.
Prepaid Interest Charge
The portion of interest, added on at loan closing, that covers the time period between funding and the
beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15,
the first payment due on 4/1 would retroactively pay interest from 3/1 to 4/1. The prepaid interest would
cover the period from 2/15 to 2/28.
Prepaids
Fees collected at closing to cover items such as setting up escrow accounts for property taxes,
homeowners insurance and mortgage insurance premiums.
Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
Prequalification
The process of determining how much money a prospective homebuyer will be eligible to borrow before
he or she applies for a loan.
Primary Customer
The primary borrower on the loan.
Primary Residence
The property in which an individual resides the majority of the time.
Prime Rate Index
A rate index based on the prevailing rate that banks charge to lend money to corporations.
Principal
A legal representative for another.
Principal
The amount borrowed or remaining unpaid; also, that portion of the monthly payment that reduces the
outstanding balance of a mortgage.
Principal and Interest (P&I)
This refers to the principal and interest portions of a monthly mortgage payment.
Principal, Interest, Taxes and Insurance (PITI)
The total of the monthly mortgage payment due, which includes all principal, interest, taxes and insurance.
Private Mortgage Insurance (PMI)
Insurance written by a private company protecting the mortgage lender against financial loss occasioned
by a borrower defaulting on the mortgage.
Processing
The preparation of a mortgage loan application and supporting documents for underwriting and closing.
Profit and Loss Statement (P & L)
A statement documenting business revenues and expenses for a specified time period to establish
whether a business gained a profit or suffered a loss.
Promissory Note
A written promise by the borrower to pay within a specified time a debt owed to the holder of the note
under conditions mutually agreed upon.
Property Taxes
Generally, a tax levied on both real and personal property. The amount of the tax is dependent on the
value of the property.
Prorate
To divide in proportionate shares costs such as taxes, insurance, rent or other items that buyer and seller
share as of the time of closing, or another agreed upon time.
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.
Purchase Price
The asking price to purchase a particular property.
- Q -
Qualifying Ratios
Guidelines applied by lenders to determine how large a loan to grant a homebuyer.
Quitclaim Deed
A deed operating as a release; intended to pass any title, interest or claim that the grantor may have in the
property, but not containing any warranty that such title is valid, nor containing any warranty or
covenants for title.
- R -
Radon
An invisible, odorless gas found in some homes that, in sufficient concentrations, may cause health
problems.
Rate Change Date
On an adjustable rate loan, this is the date a new interest rate will be put into effect. This change can
occur every 12 months, 36 months, 60 months, or 84 months depending on the terms of the note.
Re-Recording
The recording of a closing document for a second time to correct an error recorded.
Real Estate Owned (REO)
A property acquired by a lender usually through default and foreclosure or property acquired by a lender
for reason of investment.
Real Estate Sales Professional
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA)
A federal consumer protection law that requires lenders to give borrowers advanced notice of closing
costs.
Real Estate Taxes
The monthly taxes owed for a particular property.
Real Property
Land and all attachments to the land, such as buildings, crops or mineral rights. Ownership of real
property can be divided into various types of interests and rights.
Rebuild Letter
A letter provided by the appropriate municipality stating that a structure on a specific property can be
rebuilt as originally constructed in the case of damage or destruction.
Recission
The legal remedy for canceling a contract and restoring the parties to their original positions; a return to
status quo.
Reconveyance (Recon)
An instrument used to transfer title from a trustee to the property owner when title is held as security for
a debt. Most commonly used upon payment in full of a mortgage or trust deed.
Recording
The act of recording a document such as a deed or mortgage in a public registry thereby giving notice to
future purchasers, creditors or other interested parties. Recording is controlled by statute and usually
requires the witnessing and notarizing of an instrument to be recorded.
Recording Confirmation
Notification from the title company verifying that a lien has been recorded as instructed.
Recording Fees
The amount charged by a public records office to record the security instrument within the county.
Red-lining
The illegal practice of restricting lending to certain (prime property) areas of town.
Refinancing (Refi)
The process of paying off one loan with the proceeds for a new loan using the same property as
security.
Regulation Z (Reg Z)
Federal Reserve regulation issued under the Truth in Lending Act. This regulation requires that a credit
purchaser be advised in writing of all costs connected with the credit portion of the purchase.
Release of Liability
An agreement by the lender to terminate any personal obligation and debt due on a mortgage loan note.
For example, the original borrower is released of liability when the new borrower takes over the
mortgage payments.
Release of Lien
When a lien against the property is satisfied, the noteholder records a document that reflects the
discharge of the obligation and releases the lien recorded against the property.
Release of Mortgage
A recordable instrument that transfers title from a mortgagee to the mortgagor when title is held as
collateral security for a debt. Most commonly used upon payment in full of a mortgage.
Rental Agreement
A contract used by property owners who rent their property to another individual. Rental agreements
should state the amount of rent the owner will collect from the renter.
Request for Full Reconveyance
Written instructions provided by the beneficiary to the trustee to issue a deed of reconveyance when the
conditions of obligation have been fulfilled.
Requirements to Be Met
Exceptions to be cleared and other actions that must be taken for a title company to issue a final title
policy per the lender's instructions.
Rescind
To void or cancel in such a way as to treat the contract, or other object of the rescission, as if it never
existed.
Resolution Trust Corporation (RTC)
An arm of the FDIC responsible for managing and resolving the affairs of insolvent savings and loan
associations placed into receivership by the FDIC. This includes the liquidation, operation and sale of thrift
institutions.
Rider
A rider is an addition to the security instrument.
Right of Survivorship
If one property owner dies, all ownership rights automatically belong to the surviving owner.
Room Rents
Income a homeowner receives from renting rooms in the same property in which they live.
Rural
A term used to describe a property's location. For example, rural properties are in remote locations, on
non-paved access roads or streets with support services more than 10 miles away. Rural is also a term
used to describe the country as opposed to the city.
- S -
S-Corporation
Generally a small, start-up business with gains and losses passed through to the shareholders in
proportion to each stockholder's percentage of business ownership. The income for the owners comes
from W-2 wages (salaries) and is taxed at the individual rate.
Satisfaction of Mortgage
Discharge of an obligation by payment of the amount due, as on a mortgage, trust deed or contract, or
payment of a debt awarded, such as a satisfaction of a judgment.
Savings and Loan Associations
Stock or mutual associations that are regulated by state or federal government. Deposits are traditionally
reinvested into the residential loan market.
Schedule A (U.S. Income Tax Returns)–Itemized Deductions
This form is used to identify medical/dental, taxes paid, interest paid, gift, casualty/theft losses, job
expenses, and other miscellaneous allowable deductions from your adjusted gross income.
Schedule A Title Commitment
A section of the preliminary title report/title commitment that lists the name of the proposed insured,
amount of title insurance, estate or interest in the land, how legal title is vested and the legal description of
the property.Schedule B Title Commitment
A section of the Preliminary Title Report/Title Commitment that lists exceptions to title, if any.
Schedule B (U.S. Income Tax Returns)–Interest and Dividend Income
This form is used to record taxable interest or dividend income received in excess of $400.00; had a
foreign account or received a distribution from, or were a grantor of, or transferor to a foreign trust;
and/or claim the exclusion of interest from series EE U.S. savings bonds issued after 1989.
Schedule C (U.S. Income Tax Returns)–Profit and Loss from Business
This form is used to report income or loss from a business operated or profession practiced by a sole
proprietor, or to report wages and expenses by a statutory employee.
Schedule D (U.S. Income Tax Returns)–Capital Gains and Losses
This form is used to report the sale or exchange of personal capital assets, gains from involuntary
conversions of capital assets not held for business or profit, capital gain distributions not reported directly
on Form 1040, and non-business bad debts. For example, personal capital assets would be personal
house, furniture, car, stocks and bonds, Short-term capital gains and losses would be calculated on items
held one year or less. Long-term capital gains and losses would be calculated on items held more than
one year.
Schedule E (U.S. Income Tax Returns)–Supplemental Income and Loss
Part 1 of this form is used to report rental income and expenses. Examples are rental real estate,
royalties, partnerships, S corporation, estates and trusts.
Schedule F (U.S. Income Tax Returns)–Profit or Loss from Farming
This form is used to report farm income and expenses.
Schedule SE (U.S. Income Tax Returns)–Self Employment Tax
This form is used to calculate tax due on net earnings from self-employment. Self-employment tax must be
paid if net earnings of $400 or more were earned. The tax is comparable to the Social Security and
Medicare tax withheld from an employee's wages.
Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Secondary Financing
A loan secured by a second mortgage or trust deed of real property. Sometimes called a piggyback loan.
Secondary Market
The financial market where groups of loans are sold to investors. Primary mortgage lenders originate
loans while the secondary market sells funded loans.
Secondary Mortgage Market
A process whereby lenders and investors buy and sell existing mortgages or mortgage-backed
securities, thereby providing greater availability of funds for additional mortgage lending by banks,
mortgage bankers and savings institutions.
Secondary Residence
A property used by a person as a second residence, not as an investment.
Section 32
A section of the federal Truth in Lending Act pertaining to high fee loans and the restrictions and
compliance issues with which this type of loan transaction must comply.
Securitization
The process of pooling loans into mortgage-backed securities for sale into the secondary mortgage
market.
Security Instrument
The security instrument is used to identify and encumber the real property used as collateral for the loan.
It's notarized and then recorded with the county in which the property is located. Once recorded, it
secures an interest in, or lien against, the property. The security instrument used is state-specific.
Examples are deeds of trust, security deeds, trust deeds and mortgages.
Self-Employed Person
A person is considered self-employed if he or she: (1) carries on a trade or business as a sole
proprietor; (2) is an independent contractor; (3) is a member of a partnership; (4) is in business for
himself or herself in any other way.
Servicing
A mortgage banking function that includes the receipt of payments, customer service, escrow
administration, investor accounting, collections and foreclosures. Also know as Loan Administration.
Servitude
A burden resting upon one estate for the benefit or advantage of another. An agreement granting limited
permission to use the property. Same as land burden.
Settlement Statement
Final compilation of costs payable at closing that determines the seller's net proceeds and the buyer's net
payment. Also referred to as a HUD-1.
Shared Appreciation Mortgage (SAM)
A mortgage loan offered in some states that has a below-market interest rate. In return the lender
receives a portion of the future appreciation in the value of the property.
Shipping
Packaging of closed mortgage loans, including the credit package and all supporting documents and all
legal documents, to send to the investor for purchase.
Simple Interest
Interest computed on the unpaid principal balance of a loan, as opposed to compounded interest.
Single Family Residence (SFR)
A standard home with no common areas, no homeowners' dues or sharing of common walls. A home
intended to be occupied by one family.
Site Analysis
The study of a specific land parcel to determine its suitability for a specific use. For example, if the study
of the land parcel reveals that it should be used for industrial purposes, yet it's currently being used for
residential purposes, then, upon review of the appraisal report, the reviewer would want to take this
information into consideration when determining whether the loan's collateral is sound.
Slab
A concrete floor used as a foundation in homes without a basement.
Social Security Award Letter
Documentation specifying the frequency and amount of Social Security payments an individual is eligible
to receive. Social Security Award Letters are re-issued annually.
Society of Real Estate Appraisers (SREA)
A professional association for appraisers with designations such as Senior Residential Appraiser (SRA),
Senior Real Property Appraiser (SRPA), or Senior Real Estate Analyst (SREA).
Sole Ownership
Legal title in a single individual or an entity.
Sole Proprietorship
Ownership of a business, with no formal entity as a vehicle or structure. The sole proprietorship reports
its tax information on Federal Tax Form 1040.
Spot Loans
Mortgage loans solicited by an originator/lender on an individual basis.
Standard Coverage Policy
A title insurance policy used in several states, not having as broad coverage as the nationally recognized
American Land Title Association policies. See also American Land Title Association.
Standby Commitment
A commitment issued for a fee showing willingness to fund loans in the event that a permanent loan is not
obtained or until market conditions are more favorable.
Start Rate
The initial interest rate charged on an adjustable-rate mortgage loan.
Statement of Information
A confidential form filled out by buyer or seller to help a title company determine whether any liens are
recorded against either. Very helpful when people with common names are involved.
Subdivision
Land divided into a number of parcels for the purpose of sale. The land may be improved or unimproved.
Submission
A complete loan application package submitted to underwriting for loan approval.
Subordinate
A lien taking a legal title position junior to another lien that was recorded later. For example, if a mortgage
lien was recorded in 1996, it can subordinate to a lien recorded in 1999. Subordination may apply not only
to mortgages, but also to leases, real estate rights and any other type of debt instruments.
Subordination Agreement
An agreement by which a lienholder agrees to accept a lien position junior to that of a later-recorded lien.
When a lienholder agrees to subordinate, a formal agreement must be drawn, signed and recorded to
make it a legal transaction. Subordinations may apply not only to mortgages, but also to leases, real estate
rights and any other types of debt interests.
Substitution of Trustee
A document that is recorded to change the trustee named in a deed of trust.
Suburban
Located in the area around a city. Usually residential with some small businesses.
Supplemental Taxes
Additional taxes assessed by the city and/or county on property. These taxes are in addition to any taxes
impounded in an escrow account.
Surety Bond
Obligation of a guarantor to pay a second party upon default by a third party in the performance it owes
to the second party.
Survey
A document prepared by a licensed surveyor that verifies the accuracy of a property's legal description,
plat maps, easements or other information found in a title search.
Sweat Equity
Equity in a property that a borrower earns by completing certain improvements to the property.
- T -
Tax Lien
A lien for outstanding or delinquent property, IRS or state taxes. Tax liens for delinquent property taxes
are the most common and attach only to the property on which the taxes are unpaid. Property tax liens
always take priority over other liens.
Temporary Disability Award Letter
A letter issued to employees who are awarded temporary disability benefits because they are unable to
work due to medical disability. These employees are expected to return to work once they heal.
Temporary Worker
An individual who registers with a temporary employment agency to be placed on work assignments at
companies on a temporary basis.
Tenancy by the Entirety
A type of joint ownership of property that provides rights of survivorship and is available only to a
husband and wife.
Tenancy in Common
A type of joint ownership in a property without rights of survivorship.
Title
A legal document evidencing a person's right to or ownership of a property.
Title Commitment
A written report showing all current claims against a property before a sale or loan transaction. After
completion of the transaction, a title insurance policy is issued. Same as a Preliminary Title Report.
Title Company
A company that specializes in examining and insuring titles.
Title Instructions
A document that instructs a title company how to record a lien against a property and issue a title
insurance policy.
Title Insurance
Insurance against certain loss resulting from undisclosed defects of title to a specifically described parcel
of real property.
Title Search
A review of all recorded documents affecting a specific piece of property to determine the present
condition of claims against the property.
Total Monthly Income
Gross monthly income from all income sources, after appropriate deductions are taken.
Townhouse
A single family dwelling with a small lot that has exterior walls in common with other like units. Title is
given individually with fractional title to common areas.
Tradeline
Credit items reported on a credit report.
Trust Deed
An instrument used in many states in place of a mortgage. Grants an interest in the property as collateral
for a loan and, when recorded with the county, creates a lien having priority over later-filed mortgages or
trust deeds. Same as a Deed of Trust.
Truth-in-Lending Disclosure
This disclosure is required by law under the federal Truth in Lending Act, which requires a full disclosure
of a loan amount, finance charges and Annual Percentage Rate (APR).
Types of Security Instruments
In a real estate-secured transaction, the borrower and lender enter into a loan agreement that is legally
documented or evidenced by a security instrument. This security instrument can be either a mortgage or a
deed of trust. See also Mortgage and Deed of Trust.
- V -
VA Loan
A loan made to a veteran that is guaranteed by the U.S. Department of Veterans Affairs. Also referred to
as a government mortgage.
Vacancy Factor
A multiple by which gross monthly rental income is multiplied. The vacancy factor reduces the owner's
monthly rental income to allow for months when units are vacant and the owner is not receiving full rental
income.
Valuation
The estimating of value. See also Appraisal.
Variable Interest Rate
An interest rate that fluctuates as a result of changes in a controlling index rate. With adjustable-rate
mortgages, there are usually maximums as to the frequency and amount of fluctuation.
Vendor
The seller of a piece of property.
Verification of Deposit (VOD)
Documentation that confirms that an individual has access to specified amounts of money through a bank
or investment account.
Verification of Employment (VOE)
Documentation that confirms that an individual works in the job and for the employer listed on the loan
application and receives a stream of income from this source. Verifications of Employment confirm the
customer's position title, date of hire, employment type, hours of work per week, frequency of payment
and salary.
Verification Of Mortgage (VOM)
Documentation that establishes an individual's mortgage payment history.
Vesting
Names of the borrowers and the manner in which they hold legal title to the property. May include marital
status. See also Legal Title.
Veterans Affairs (VA)
An independent agency of the federal government created in 1930. The Servicemens Readjustment Act
of 1944 authorizes the agency to administer a variety of benefit programs designed to facilitate the
adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan
Guaranty program, which encourages mortgage lenders to offer long-term, low down payment financing
to eligible veterans by guaranteeing the lender against loss. The VA attained Department status in March
1989.
Voluntary Lien
A secured financial interest in a property that is created by agreement between a creditor and the
borrower. Basically, the borrower is agreeing to use the property as collateral for the loan. The most
common example of a voluntary lien is the one created by a mortgage given for a home loan. See also
Lien.
- W -
W-2
A document that reports to the federal government income earned by salaried employees. This document
reports employees' total gross income and withholdings made during the previous tax year. Employers
must mail W-2s by January 31 of each year for the prior tax year.
Warranty Deed
A deed used in many states to convey fee title to real property. A deed in which the grantor or seller
warrants or guarantees good title is being conveyed, as opposed to a quitclaim deed that contains no
representation or warranty as to the quality of title being conveyed.
Whole Loan
The purchase of an entire mortgage loan in the secondary market as opposed to a participation or partial
loan sale.
Wholesale Lender
A lender who works only with mortgage brokers and takes completed loan packages and underwrites
them. Wholesale lenders offer mortgage brokers discounted pricing in return for the up-front work done
by the mortgage broker.
Withhold
Portion of a loan held back by the lender until a condition is satisfied. This condition usually regards the
appraisal and repairs to be made to the property, the condition of which secures the loan. Same as
Holdback.
Working Capital
Liquid assets available to conduct daily business transactions. Money in a checking account is a primary
example.
Wraparound Mortgage
The creation of a new subordinate lien, which includes the remaining balance on the existing note and
adds in the additional amount borrowed.
- Y -
Year-End Statement
A report sent to the borrower each year. The report shows how much was paid in taxes and interest
during the year, as well as the remaining mortgage loan balance at the end of the year.
Yield
The effective yearly income accrued on a mortgage loan expressed as a percentage of the original price
paid.
- Z -
Zoning
The division of a city or county by legislative regulations into areas specifying the permitted uses for the
real property in these areas.
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