At RiteWay mortgages we believe that all our clients should educate them self’s when making the biggest 
investment of there lives, so we have provided a Glossary to enhance your knowledge. Our glossary of mortgage terminology defines a variety of terms used by loan officers and real estate professionals. Add our Mortgage Terms Glossary to your Favorites for quick look-ups throughout your mortgage application process.
11th District Cost of Funds
A monthly cost-of-funds index (COFI) reflecting the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts. The 11th district covers Arizona, California and Nevada. The index is published on the last day of the month and reflects the cost of funds for the prior month.
A
Acceleration clause
The clause in a mortgage or trust deed that stipulates the entire debt is due immediately if the mortgage defaults under the terms of the contract.
Acquisition cost
Under an FHA loan, the purchase price or appraised value of the property plus the estimated closing costs.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage
Adjustment _date
The date the interest rate changes on an ARM (adjustable rate mortgage)
Adjustment Interval
For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years
Adjusted book basis
The purchase price of a property plus any capital improvements less accrued depreciation, if any, to the date of the sale
Amortization
Literally to “kill off” (root: mort) the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment
Annual Percentage Rate (APR)
A figure that states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points, and any other add-on loan fees and costs. As a result the APR is invariably higher for the rate of interest that the lender quotes for the mortgage but gives a more accurate picture of the likely cost of the loan. Keep in mind, however, that most mortgages are not held for their full 15 or 30 year terms, so the effective annual percentage rate is higher than the quoted APR because the points and loan fees are spread out over fewer years
Annuity
A series of income payments of receipts over a period of years
Application
A mortgage application requires borrowers to submit information regarding their income, savings, assets, debts, and more
Application Fee
The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs
Appraisal
The determination of property value based on recent sales information of similar properties
Assessment
Determining a property’s value for the purpose of taxation
Assumable Loan
These loans may be passed on from a seller of a home to the buyer. The buyer “assumes” all outstanding payments
Assumption
Buying property and assuming the responsibility of the exiting mortgage
Appreciation
Increases in property value due to fluctuations in the market, inflation, et al
Asset
Valuable items, encumbered or not, owned by a person, corporation, or entity
Assumable Mortgage
A mortgage that provides for a buyer to “assume” all outstanding payments when a home is sold. The buyer usually must meet qualification standards to assume a loan
B
Balloon Mortgage
Behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single “balloon” payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time
Balloon Payment
The final lump sum that is paid at the end of the balloon mortgage
Bankruptcy
A tactic that individuals use to relieve themselves of debts and/or liabilities when they are no longer able to repay. The most common form of individual bankruptcy is a Chapter 7, when an individual frees himself from most of his/her debts. Borrowers who have undergone bankruptcy usually cannot qualify for “A” paper loans until after two years after declaration and a re-establishment of credit
Best Faith Estimate
An estimate of the total costs for securing a real estate loan, that is given to borrowers prior to closing
Bill of Sale
A written document that transfers a title to personal property
Biweekly Mortgage
Mortgage loan payments that requires a payment twice monthly, yielding thirteen payments per year instead of twelve. This significantly reduces the time a principal is paid off
Blanket Mortgage
A mortgage secured by the pledging of more than one property or collateral
Book Value
Acquisition costs less any accrued depreciation
Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services
Bridge Loan
An equity loan secured to solve short-term financing problem
Budget Mortgage
A mortgage that includes a portion for taxes and insurance as well as principal and interest
Buydown
Allows loans to be made at less-than-market interest rates by paying front-end discounts. The interest rate is brought down for a temporary period, usually from one to three years. In order to acquire this discount, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. After the discount period, the payment is calculated as the note rate
C
Callable Debt
A debt security in where the issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity date
Caps
A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime.
Loans like the 3/1 and 5/1 adjustable which have an initial fixed period are quoted with 3 numbers as in 3/2/6 which would mean that the first adjustment may be as much as 3%, subsequent adjustments are capped at 2% each, and the lifetime cap is 6%.
Two-Step loans are quoted with a single cap, which is the amount by which the loan may adjust at its single adjustment date.
Carryback Loan
A loan in which a seller agrees to finance a buyer in order to complete a property sale.
Certificate of Eligibility
A veteran’s evidence of entitlement for a VA-guaranteed loan.
Certificate of Reasonable Value (CRV)
An appraisal that has been performed on a property that is being paid for a VA loan. After the property has been appraised, the Veterans Administration issues a CRV
Clear Title
A title that is free of liens or any legal question as to the ownership of the property
Closing
Final arrangements to transfer title of property as well as allocate charges and credits
Closing Costs
Closing costs are fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges. All closing costs are separated into “non-recurring,” and “pre-paid.” Non-recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate
Cloud
An outstanding claim or encumbrance, that, if valid, would affect or impair the owner’s property title
Collateral
Property, real or personal, pledged as a security to back up a promise. In a home loan, the property is considered collateral that can be revoked if loan is not repaid according to the terms of the mortgage or deed of trust
Commitment
A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home
Conforming Loan
A loan for up to and including $417,000 in the continental United States (Alaska and Hawaii limits are higher)
Construction Loan
A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses
Conventional Mortgage
A mortgage loan that is obtained without any additional guarantees for repayment, such as FHA insurance, VA guarantees, or private insurance. This is usually given at an 80% loan-to-value ratio
Conversion
The right of a borrower to convert an adjustable or balloon loan into a fixed loan. The Conversion Option column on Moving.com balloon tables indicates the right of a borrower to convert this balloon loan. The possible options are as follows.
Credit Loan
A credit loan is a mortgage that is issued on only the financial strength of a borrower, without great regard for collateral
Credit-Loss Ratio
The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation
Credit Rating
Borrowers are rated by lenders according to the borrower’s credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower’s payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower’s credit, and different lenders may assign different grades to the same borrower
Credit-Related Expenses
The sum of foreclosed property expenses plus the provision for losses
Credit-Related Losses
The sum of foreclosed property expenses plus charge-offs
Credit Report
A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here
D
Debt-to-Income Ratio (DTI)
The ratio of aggregate monthly debt to aggregate monthly income
Deed
A legal document which affects the transfer of ownership of real estate from the seller to the buyer
Deed of Trust
Synonymous to a mortgage. A deed of trust or mortgage is obtained, depending on the state in which the borrower will reside
Default
The failure to make payments on a loan
Delinquency
Late- or non-payments of principal, interest, taxes, or insurance
Deposit
A lump sum given in advance as security. A deposit is always paid of a larger amount to be paid in the future. In mortgage and real estate terms, this is called the “earnest money deposit.”
Depreciation
In real estate and mortgage terms, the decline in the property value
Discount
Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market
Discount Points
A term used in government subsidized loans, such as FHA and VA loans. Refers to any “points” (one percent of the loan amount) paid in addition to the one percent loan origination fee
Down Payment
Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed
E
Earnest Money Deposit
A deposit made by a potential home buyer to show that they are serious about purchasing the property
Easement
Giving other persons, other than the owner, access to a property
Eminent Domain
The government right to take private property for public use depended on the payment of its fair market value
Encumbrance
Any lien against a property or any restriction it its use, such as an easement; a right or interest in a property held by one who is not the legal owner
Equal Credit Opportunity Act (ECOA)
The act declaring the elimination of discrimination on the basis of age, sex, and race in finance
Equity
The difference between the current market value of a property and the principal balance of all outstanding loans
Escalator Clause
A clause in a loan providing for increases in payments or interest based on pre-determined schedules or on a specific economic index, such as the consumer price index
Escrow
A third party agent that receives, holds, and/or disburses certain funds or documents upon the performance of certain conditions. For example, an earnest money deposit is put into escrow until the transaction is closed. Only then can the seller receive the deposit
Escrow Account (impound account)
An account that a borrower can hold with a lender once a purchase transaction is closed. This requires borrowers to pay more than the principal and interest each month. The overage is put into escrow, which the lender uses to pay items like property taxes and homeowner’s insurance when they are due. This eliminates the actual number of payments that a homeowner has to worry about, but not the amount that has to actually be paid
Escrow Analysis
An analysis performed by a lender each year to escrow account holders to ensure that the correct amount of money is being collected to cover anticipated payments
Escrow Fee
These costs cover the preparation and transmission of all home purchased-related documents and funds. Escrow fees range from several hundred to over a thousand dollars, based on the purchase price of your home. Not all states require funds to be put into escrow accounts for closing
Estate
The ownership interest an individual holds in real property. This is also the sum total of all the real property and personal property owned by an individual at time of death
Eviction
The legal removal of real property occupants for unlawful actions carried out by those occupants
F
Fair Credit Reporting Act
A law that protects consumer that regulates the reporting of consumer credit by agencies and establishes procedures for correcting errors on an individual record
Fannie Mae (FNMA)
The Federal National Mortgage Association is a congressionally chartered, shareholder-owned company. This organization is the nation’s largest supplier of home mortgage funds
Fannie Mae’s Community Home Buyer’s Program
A program that offers flexible underwriting guidelines to subsidize a low- to moderate-income family’s purchase of a home. The program usually decreases the total amount of cash needed to purchase a home
Federal Housing Administration (FHA)
An agency under the U.S. Department of Housing and Urban Development (HUD), it insures loans made by approved lenders to qualified borrowers, in accordance with its regulations
Fees
Up-front costs associated with a loan. Clicking on the word VIEW shown under the “Fees Detail” column on the quotes results page will display detailed information about the financial institution’s fees and requirements pertaining to that rate
Fee Simple
The best title that one can obtain; unqualified and conveys the highest bundle of rights
FHA Loan
A government-backed mortgage loan supported by the US FHA and the Department of Housing and Urban Development (HUD)
Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation
Firm Commitment
A lender’s agreement to provide a loan to a specific borrower on a specific property
First Mortgage
A mortgage that has priority over other mortgages
Fixed-Rate Mortgage
A mortgage where the interest rate does not change for the life of the loan
Float
Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrower’s responsibility to lock his or her rate before (or at) closing, choosing to float is considered risky and may result in a higher interest rate. Request information from your lender regarding lock procedures
Forbearance
The postponement for a limited time of a portion or all the payments on a loan when a borrower is delinquent
Foreclosure
A legal procedure in which real estate is sold by the lender to pay a defaulting borrower’s debt
401(k)/403(b)
An investment plan sponsored by employers that allows individuals to set aside tax-deferred income for retirement or emergency purposes. A 401(k) applies to private corporations, while a 403(b) applies to non-profit organizations
401(k)/403(b) loan
A loan that can be taken against the amount accumulated in the 401(k)/403(b) plans, if so allowed by the plan administrator. Loans against these plans are an acceptable source of down payment for most types of other loans
G
Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a loan closing
Government Loan
A type of mortgage insured by the FHA (Federal Housing Authority), VA (Veteran’s Administration), or RHS (Rural Housing Authority)
Government National Mortgage Association (Ginny Mae)
Provides funds for government loans and takes over special assistance and liquidation functions of Fannie Mae
Grace Period
A time allowed, usually 15 days, for making late payments without a penalty
Grantee
The person to whom an interest in real property is conveyed
Grantor
The person conveying an interest in real property
Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan
H
Hard-Money Mortgage
Cash loan to a borrower
Hazard Insurance
A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and certain other natural causes
Home Equity Conversion Mortgage (HECM)
Also known as the reverse annuity mortgage. This mortgage provides that instead of making payments to a lender, the lender makes payments to the individual. Older homeowners are able to convert home equity into cash this way, in the form of monthly payments. Borrowers don’t qualify on the basis of income, but on the value of his or her home. Such a loan does not have to be repaid until the borrower no longer occupies the property
Home Equity Line of Credit
A mortgage loan in second position that allows a borrower to obtain cash drawn against home equity, up to a certain amount
Home Inspection
A thorough assessment by a professional regarding the structural and mechanical condition of a property
Homeowner’s Insurance
An insurance policy that combines personal liability insurance and hazard insurance for a home and its contents
Homeowner’s Warranty
An insurance policy that is purchased by a buyer that covers certain repairs, should they be necessary over a certain period
Housing Ratio
The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio
HUD
Department of Housing and Urban Development; regulates Fannie Mae and Ginny Mae
Hybrid Financing
The joining together of two forms of finance, such as combining a convertible loan with a participation loan, under which the lender has the right at loan maturity to convert the debt to a 50 percent ownership in the property
