Federal Trade Commission ftc.gov


The Real Estate Marketplace Glossary: 

How to Talk the Talk 

Buying 

a home can be 

exciting. It also can 

be somewhat daunting, even 

if you’ve done it before. You will deal 

with mortgage options, credit reports, loan 

applications, contracts, points, appraisals, change 

orders, inspections, warranties, walk-throughs, settlement 

sheets, escrow accounts, recording fees, insurance, taxes...the list 

goes on. No doubt you will hear and see words and terms you’ve 

never heard before. Just what do they all mean?

The Federal Trade Commission, the agency that promotes competition 

and protects consumers, has prepared this glossary to help you 

better understand the terms commonly used in the real estate 

and mortgage marketplace. 

Annual Percentage Rate (APR): The cost of Appraisal: A professional analysis used 

a loan or other financing as an annual rate. to estimate the value of the property. This 

The APR includes the interest rate, points, includes examples of sales of similar propbroker fees and certain other credit charges erties. 

a borrower is required to pay. 

Appraiser: A professional who conducts an 

Annuity: An amount paid yearly or at other analysis of the property, including examples 

regular intervals, often at a guaranteed of sales of similar properties in order to deminimum amount. Also, a type of insurance velop an estimate of the value of the proppolicy in which the policy holder makes erty. The analysis is called an “appraisal.” 

payments for a fixed period or until a stated 

age, and then receives annuity payments Appreciation: An increase in the market 

from the insurance company. value of a home due to changing market 

conditions and/or home improvements. 

Application Fee: The fee that a mortgage 

lender or broker charges to apply for a Arbitration: A process where disputes are 

mortgage to cover processing costs. settled by referring them to a fair and neutral third party (arbitrator). The disputing 

A
 Glossary


parties agree in advance to agree with 

the decision of the arbitrator. There is 

a hearing where both parties have an 

opportunity to be heard, after which the 

arbitrator makes a decision. 

Asbestos: A toxic material that was 

once used in housing insulation and 

fireproofing. Because some forms of asbestos have been linked to certain lung 

diseases, it is no longer used in new 

homes. However, some older homes may 

still have asbestos in these materials. 

Assessed Value: Typically the value 

placed on property for the purpose of 

taxation. 

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

Asset: Anything of monetary value that 

is owned by a person or company. Assets include real property, personal 

property, stocks, mutual funds, etc. 

Assignment of Mortgage: A document 

evidencing the transfer of ownership of a 

mortgage from one person to another. 

Assumable Mortgage: A mortgage loan 

that can be taken over (assumed) by the 

buyer when a home is sold. An assumption of a mortgage is a transaction in 

which the buyer of real property takes 

over the seller’s existing mortgage; the 

seller remains liable unless released by 

the lender from the obligation. If the 

mortgage contains a due-on-sale clause, 

the loan may not be assumed without 

the lender’s consent. 

Assumption: A homebuyer’s agreement 

to take on the primary responsibility 

for paying an existing mortgage from a 

home seller. 

Assumption Fee: A fee a lender charges 

a buyer who will assume the seller’s existing mortgage. 

Automated Underwriting: An automated process performed by a technology application that streamlines the 

processing of loan applications and 

provides a recommendation to the lender 

to approve the loan or refer it for manual 

underwriting. 

B

Balance Sheet: A financial statement 

that shows assets, liabilities, and net 

worth as of a specific date. 

Balloon Mortgage: A mortgage with 

monthly payments often based on a 

30-year amortization schedule, with 

the unpaid balance due in a lump sum 

payment at the end of a specific period 

of time (usually 5 or 7 years). The mortgage may contain an option to “reset” 

the interest rate to the current market 

rate and to extend the due date if certain 

conditions are met. 

Balloon Payment: A final lump sum 

payment that is due, often at the maturity date of a balloon mortgage. 

Bankruptcy: Legally declared unable to 

pay your debts. Bankruptcy can severely 

impact your credit and your ability to 

borrow money. 

Before-tax Income: Income before taxes 

are deducted. Also known as “gross income.” 

Biweekly Payment Mortgage: A mortgage with payments due every two weeks 

(instead of monthly). 

Bona fide: In good faith, without fraud. 

Bridge Loan: A short-term loan secured 

by the borrower’s current home (which 

is usually for sale) that allows the proceeds to be used for building or closing 

on a new house before the current home 

is sold. Also known as a “swing loan.” 
Glossary 


Broker: An individual or firm that acts 

as an agent between providers and users 

of products or services, such as a mortgage broker or real estate broker. See 

also “Mortgage Broker.” 

Building Code: Local regulations that 

set forth the standards and requirements for the construction, maintenance 

and occupancy of buildings. The codes 

are designed to provide for the safety, 

health and welfare of the public. 

Buydown: An arrangement whereby 

the property developer or another third 

party provides an interest subsidy to 

reduce the borrower’s monthly payments 

typically in the early years of the loan. 

Buydown Account: An account in 

which funds are held so that they can be 

applied as part of the monthly mortgage 

payment as each payment comes due 

during the period that an interest rate 

buydown plan is in effect. 

Cap: For an adjustable-rate mortgage 

(ARM), a limitation on the amount the 

interest rate or mortgage payments may 

increase or decrease. See also “Lifetime 

Payment Cap,” “Lifetime Rate Cap,” “Periodic Payment Cap,” and “Periodic Rate 

Cap.” 

Capacity: Your ability to make your 

mortgage payments on time. This depends on your income and income 

stability (job history and security), your 

assets and savings, and the amount of 

your income each month that is left over 

after you’ve paid for your housing costs, 

debts and other obligations. 

Cash-out Refinance: A refinance transaction in which the borrower receives 

additional funds over and above the 

amount needed to repay the existing 

mortgage, closing costs, points, and any 

subordinate liens. 

Certificate of Deposit: A document issued by a bank or other financial institution that is evidence of a deposit, with the 

issuer’s promise to return the deposit plus 

earnings at a specified interest rate within 

a specified time period. 

Certificate of Eligibility: A document issued by the U.S. Department of Veterans 

Affairs (VA) certifying a veteran’s eligibility 

for a VA-guaranteed mortgage loan. 

Chain of Title: The history of all of the 

documents that have transferred title to 

a parcel of real property, starting with the 

earliest existing document and ending 

with the most recent. 

Change Orders: A change in the original 

construction plans ordered by the property owner or general contractor. 

Clear Title: Ownership that is free of 

liens, defects, or other legal encumbrances. 

Closing: The process of completing a 

financial transaction. For mortgage 

loans, the process of signing mortgage 

documents, disbursing funds, and, if 

applicable, transferring ownership of 

the property. In some jurisdictions, closing is referred to as “escrow,” a process 

by which a buyer and seller deliver legal 

documents to a third party who completes 

the transaction in accordance with their 

instructions. See also “Settlement.” 

Closing Agent: The person or entity that 

coordinates the various closing activities, 

including the preparation and recordation 

of closing documents and the disbursement of funds. (May be referred to as an 

escrow agent or settlement agent in some 

jurisdictions.) Typically, the closing is conducted by title companies, escrow companies or attorneys. 

Closing Costs: The upfront fees charged 

in connection with a mortgage loan transaction. Money paid by a buyer (and/or 

seller or other third party, if applicable) 

C
 Glossary


to effect the closing of a mortgage loan, 

generally including, but not limited to 

a loan origination fee, title examination 

and insurance, survey, attorney’s fee, 

and prepaid items, such as escrow deposits for taxes and insurance. 

Closing Date: The date on which the 

sale of a property is to be finalized and a 

loan transaction completed. Often, a real 

estate sales professional coordinates the 

setting of this date with the buyer, the 

seller, the closing agent, and the lender. 

Closing Statement: See “HUD-1 Settlement Statement.” 

Co-borrower: Any borrower other than 

the first borrower whose name appears 

on the application and mortgage note, 

even when that person owns the property jointly with the first borrower and 

shares liability for the note. 

Collateral: An asset that is pledged as 

security for a loan. The borrower risks 

losing the asset if the loan is not repaid 

according to the terms of the loan agreement. In the case of a mortgage, the 

collateral would be the house and real 

property. 

Commission: The fee charged for services performed, usually based on a 

percentage of the price of the items sold 

(such as the fee a real estate agent earns 

on the sale of a house). 

Commitment Letter: A binding offer from your lender that includes the 

amount of the mortgage, the interest 

rate, and repayment terms. 

Common Areas: Those portions of a 

building, land, or improvements and 

amenities owned by a planned unit 

development (PUD) or condominium 

project’s homeowners’ association (or 

a cooperative project’s cooperative corporation) that are used by all of the 

unit owners, who share in the common 

expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other 

recreational facilities, as well as common 

corridors of buildings, parking areas, 

means of ingress and egress, etc. 

Comparables: An abbreviation for “comparable properties,” which are used as a 

comparison in determining the current 

value of a property that is being appraised. 

Concession: Something given up or 

agreed to in negotiating the sale of a 

house. For example, the sellers may 

agree to help pay for closing costs. 

Condominium: A unit in a multiunit 

building. The owner of a condominium 

unit owns the unit itself and has the 

right, along with other owners, to use 

the common areas but does not own the 

common elements such as the exterior 

walls, floors and ceilings or the structural systems outside of the unit; these 

are owned by the condominium association. There are usually condominium association fees for building maintenance, 

property upkeep, taxes and insurance 

on the common areas and reserves for 

improvements. 

Construction Loan: A loan for financing the cost of construction or improvements to a property; the lender disburses payments to the builder at periodic 

intervals during construction. 

Contingency: A condition that must be 

met before a contract is legally binding. 

For example, home purchasers often 

include a home inspection contingency; 

the sales contract is not binding unless 

and until the purchaser has the home 

inspected. 

Conventional Mortgage: A mortgage 

loan that is not insured or guaranteed 

by the federal government or one of its 

agencies, such as the Federal Housing 

Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the 
Glossary 


Rural Housing Service (RHS). Contrast 

with “Government Mortgage.” 

Conversion Option: A provision of some 

adjustable-rate mortgage (ARM) loans 

that allows the borrower to change the 

ARM to a fixed-rate mortgage at specified times after loan origination. 

Convertible ARM: An adjustable-rate 

mortgage (ARM) that allows the borrower 

to convert the loan to a fixed-rate mortgage under specified conditions. 

Cooperative (Co-op) Project: A project 

in which a corporation holds title to a 

residential property and sells shares to 

individual buyers, who then receive a 

proprietary lease as their title. 

Cost of Funds Index (COFI): An index that is used to determine interest 

rate changes for certain adjustable-rate 

mortgage (ARM) loans. It is based on the 

weighted monthly average cost of deposits, advances, and other borrowings 

of members of the Federal Home Loan 

Bank of San Francisco. 

Counter-offer: An offer made in response to a previous offer. For example, 

after the buyer presents their first offer, 

the seller may make a counter-offer with 

a slightly higher sale price. 

Credit: The ability of a person to borrow money, or buy goods by paying 

over time. Credit is extended based on a 

lender’s opinion of the person’s financial 

situation and reliability, among other 

factors. 

Credit Bureau: A company that gathers information on consumers who use 

credit. These companies sell that information to lenders and other businesses 

in the form of a credit report. 

Credit History: Information in the files 

of a credit bureau, primarily comprised 

of a list of individual consumer debts 

and a record of whether or not these 

debts were paid back on time or “as 

agreed.” Your credit history is called a 

credit report when provided by a credit 

bureau to a lender or other business. 

Credit Life Insurance: A type of insurance that pays off a specific amount of 

debt or a specified credit account if the 

borrower dies while the policy is in force. 

Credit Report: Information provided by 

a credit bureau that allows a lender or 

other business to examine your use of 

credit. It provides information on money 

that you’ve borrowed from credit institutions and your payment history. 

Credit Score: A numerical value that 

ranks a borrower’s credit risk at a given 

point in time based on a statistical evaluation of information in the individual’s 

credit history that has been proven to be 

predictive of loan performance. 

Creditor: A person who extends credit 

to whom you owe money. 

Creditworthy: Your ability to qualify for 

credit and repay debts. 

D

Debt: Money owed from one person or 

institution to another person or institution. 

Debt-to-Income Ratio: The percentage of gross monthly income that goes 

toward paying for your monthly housing expense, alimony, child support, car 

payments and other installment debts, 

and payments on revolving or open-ended accounts, such as credit cards. 

Deed: The legal document transferring 

ownership or title to a property 

Deed-in-Lieu of Foreclosure: The 

transfer of title from a borrower to the 

lender to satisfy the mortgage debt and 

avoid foreclosure. Also called a “voluntary conveyance.” 
 Glossary


Deed of Trust: A legal document in 

which the borrower transfers the title to 

a third party (trustee) to hold as security 

for the lender. When the loan is paid in 

full, the trustee transfers title back to 

the borrower. If the borrower defaults on 

the loan the trustee will sell the property 

and pay the lender the mortgage debt. 

Default: Failure to fulfill a legal obligation. A default includes failure to pay on 

a financial obligation, but also may be a 

failure to perform some action or service that is non-monetary. For example, 

when leasing a car, the lessee is usually 

required to properly maintain the car. 

Delinquency: Failure to make a payment when it is due. The condition of a 

loan when a scheduled payment has not 

been received by the due date, but generally used to refer to a loan for which 

payment is 30 or more days past due. 

Depreciation: A decline in the value of 

a house due to changing market conditions or lack of upkeep on a home. 

Discount Point: A fee paid by the borrower at closing to reduce the interest 

rate. A point equals one percent of the 

loan amount. 

Down Payment: A portion of the price 

of a home, usually between 3-20%, not 

borrowed and paid up-front in cash. 

Some loans are offerend with zero downpayment. 

Due-on-Sale Clause: A provision in a 

mortgage that allows the lender to demand repayment in full of the outstanding balance if the property securing the 

mortgage is sold. 

E

Earnest Money Deposit: The deposit to 

show that you’re committed to buying 

the home. The deposit usually will not 

be refunded to you after the seller accepts your offer, unless one of the sales 

contract contingencies is not fulfilled. 

Easement: A right to the use of, or access to, land owned by another. 

Employer-Assisted Housing: A program 

in which companies assist their employees in purchasing homes by providing 

assistance with the down payment, closing costs, or monthly payments. 

Encroachment: The intrusion onto 

another’s property without right or permission. 

Encumbrance: Any claim on a property, 

such as a lien, mortgage or easement. 

Equal Credit Opportunity Act (ECOA): 

A federal law that requires lenders to 

make credit equally available without 

regard to the applicant’s race, color, religion, national origin, age, sex, or marital 

status; the fact that all or part of the applicant’s income is derived from a public 

assistance program; or the fact that the 

applicant has in good faith exercised any 

right under the Consumer Credit Protection Act. It also requires various notices 

to consumers. 

Equity: The value in your home above 

the total amount of the liens against 

your home. If you owe $100,000 on your 

house but it is worth $130,000, you 

have $30,000 of equity. 

Escrow: An item of value, money, or 

documents deposited with a third party 

to be delivered upon the fulfillment of 

a condition. For example, the deposit 

by a borrower with the lender of funds 

to pay taxes and insurance premiums 

when they become due, or the deposit of 

funds or documents with an attorney or 

escrow agent to be disbursed upon the 

closing of a sale of real estate. 

Escrow Account: An account that a 

mortgage servicer establishes on behalf 

of a borrower to pay taxes, insurance 
Glossary 


premiums, or other charges when they 

are due. Sometimes referred to as an 

“impound” or “reserve” account. 

Escrow Analysis: The accounting that 

a mortgage servicer performs to determine the appropriate balances for the 

escrow account, compute the borrower’s 

monthly escrow payments, and determine whether any shortages, surpluses 

or deficiencies exist in the account. 

Eviction: The legal act of removing 

someone from real property. 

Exclusive Right-to-Sell Listing: The 

traditional kind of listing agreement under which the property owner appoints 

a real estate broker (known as the listing broker) as exclusive agent to sell the 

property on the owner’s stated terms, 

and agrees to pay the listing broker a 

commission when the property is sold, 

regardless of whether the buyer is found 

by the broker, the owner or another 

broker. This is the kind of listing agreement that is commonly used by a listing broker to provide the traditional full 

range of real estate brokerage services. 

If a second real estate broker (known as 

a selling broker) finds the buyer for the 

property, then some commission will be 

paid to the selling broker. 

Exclusive Agency Listing: A listing 

agreement under which a real estate 

broker (known as the listing broker) acts 

as an exclusive agent to sell the property for the property owner, but may be 

paid a reduced or no commission when 

the property is sold if, for example, the 

property owner rather than the listing 

broker finds the buyer. This kind of listing agreement can be used to provide 

the owner a limited range of real estate 

brokerage services rather than the traditional full range. As with other kinds 

of listing agreements, if a second real 

estate broker (known as a selling broker) 

finds the buyer for the property, then 

some commission will be paid to the 

selling broker. 

Executor: A person named in a will and 

approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will. 

F

Fair Credit Reporting Act (FCRA): A 

consumer protection law that imposes 

obligations on (1) credit bureaus (and 

similar agencies) that maintain consumer credit histories, (2) lenders and other 

businesses that buy reports from credit 

bureaus, and (3) parties who furnish 

consumer information to credit bureaus. 

Among other provisions, the FCRA limits 

the sale of credit reports by credit bureaus by requiring the purchaser to have 

a legitimate business need for the data, 

allows consumers to learn the information on them in credit bureau files (including one annual free credit report), 

and specifies procedure for challenging 

errors in that data. 

Fair Market Value: The price at which 

property would be transferred between 

a willing buyer and willing seller, each 

of whom has a reasonable knowledge of 

all pertinent facts and is not under any 

compulsion to buy or sell. 

Fannie Mae: A New York stock exchange company. It is a public company 

that operates under a federal charter 

and is the nation’s largest source of 

financing for home mortgages. Fannie 

Mae does not lend money directly to 

consumers, but instead works to ensure that mortgage funds are available 

and affordable, by purchasing mortgage 

loans from institutions that lend directly 

to consumers. 

Fannie Mae-Seller/Servicer: A lender 

that Fannie Mae has approved to sell 

loans to it and to service loans on Fannie Mae’s behalf. 

Fannie Mae/Freddie Mac Loan Limit: 

The current 2006 Fannie Mae/Freddie 
 Glossary


Mac loan limit for a single-family home 

is $417,000 and is higher in Alaska, 

Guam, Hawaii, and the U.S. Virgin 

Islands. The Fannie Mae loan limit is 

$533,850 for a two-unit home; $645,300 

for a three-unit home; and $801,950 for 

a four-unit home. Also referred to as the 

“conventional loan limit.” 

Federal Housing Administration 

(FHA): An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages 

and loans made by private lenders. 

FHA-Insured Loan: A loan that is insured by the Federal Housing Administration (FHA) of the U.S. Department of 

Housing and Urban Development (HUD). 

First Mortgage: A mortgage that is the 

primary lien against a property. 

First-Time Home Buyer: A person with 

no ownership interest in a principal 

residence during the three-year period 

preceding the purchase of the security 

property. 

Fixed-Period Adjustable-Rate Mortgage: An adjustable-rate mortgage (ARM) 

that offers a fixed rate for an initial 

period, typically three to ten years, and 

then adjusts every six months, annually, 

or at another specified period, for the 

remainder of the term. Also known as a 

“hybrid loan.” 

Fixed-Rate Mortgage: A mortgage with 

an interest rate that does not change 

during the entire term of the loan. 

Flood Certification Fee: A fee charged 

by independent mapping firms to identify properties located in areas designated 

as flood zones. 

Flood Insurance: Insurance that compensates for physical property damage 

resulting from flooding. It is required for 

properties located in federally designated 

flood hazard zones. 

Foreclosure: A legal action that ends 

all ownership rights in a home when the 

homebuyer fails to make the mortgage 

payments or is otherwise in default under the terms of the mortgage. 

Forfeiture: The loss of money, property, 

rights, or privileges due to a breach of a 

legal obligation. 

Fully Amortized Mortgage: A mortgage 

in which the monthly payments are designed to retire the obligation at the end 

of the mortgage term. 

G

General Contractor: A person who 

oversees a home improvement or construction project and handles various 

aspects such as scheduling workers and 

ordering supplies. 

Gift Letter: A letter that a family member writes verifying that s/he has given 

you a certain amount of money as a gift 

and that you don’t have to repay it. You 

can use this money towards a portion 

of your down payment with some mortgages. 

Good-Faith Estimate: A form required 

by the Real Estate Settlement Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, 

for specific settlement services the borrower is likely to incur in connection 

with the mortgage transaction. 

Government Mortgage: A mortgage 

loan that is insured or guaranteed by a 

federal government entity such as the 

Federal Housing Administration (FHA), 

the U.S. Department of Veterans 

Affairs (VA), or the Rural Housing 

Service (RHS). 

Government National Mortgage 

Association (Ginnie Mae): A government-owned corporation within the U.S. 

Department of Housing and Urban De-
Glossary 


velopment (HUD) that guarantees securities backed by mortgages that are 

insured or guaranteed by other government agencies. Popularly known as 

“Ginnie Mae.” 

Gross Monthly Income: The income 

you earn in a month before taxes and 

other deductions. It also may include 

rental income, self-employed income, 

income from alimony, child support, 

public assistance payments, and retirement benefits. 

Ground Rent: Payment for the use of 

land when title to a property is held as 

a leasehold estate (that is, the borrower does not actually own the property, 

but has a long-term lease on it). 

Growing-Equity Mortgage (GEM): 

A fixed-rate mortgage in which the 

monthly payments increase according 

to an agreed-upon schedule, with the 

extra funds applied to reduce the loan 

balance and loan term. 

H

Hazard Insurance: Insurance coverage that compensates for physical 

damage to a property from fire, wind, 

vandalism, or other covered hazards 

or natural disasters. 

Home Equity Conversion Mortgage 

(HECM): A special type of mortgage 

developed and insured by the Federal 

Housing Administration (FHA) that 

enables older home owners to convert 

the equity they have in their homes 

into cash, using a variety of payment 

options to address their specific financial needs. Sometimes called a “reverse mortgage.” 

Home Equity Line of Credit 

(HELOC): A type of revolving loan, 

that enables a home owner to obtain 

multiple advances of the loan proceeds at his or her own discretion, up 

to an amount that represents a specified 

percentage of the borrower’s equity in 

the property. 

Home Inspection: A professional inspection of a home to determine the 

condition of the property. The inspection should include an evaluation of the 

plumbing, heating and cooling systems, 

roof, wiring, foundation and pest infestation. 

Homeowner’s Insurance: A policy that 

protects you and the lender from fire or 

flood, which damages the structure of 

the house; a liability, such as an injury 

to a visitor to your home; or damage to 

your personal property, such as your 

furniture, clothes or appliances 

Homeowner’s Warranty (HOW): Insurance offered by a seller that covers 

certain home repairs and fixtures for a 

specified period of time. 

Homeowners’ Association: An organization of homeowners residing within a 

particular area whose principal purpose 

is to ensure the provision and maintenance of community facilities and 

services for the common benefit of the 

residents. 

Housing Expense Ratio: The percentage of your gross monthly income that 

goes toward paying for your housing 

expenses. 

HUD-1 Settlement Statement: A final 

listing of the closing costs of the mortgage transaction. It provides the sales 

price and down payment, as well as the 

total settlement costs required from the 

buyer and seller. 

Hybrid Loan: An adjustable-rate mortgage (ARM) that offers a fixed rate for 

an initial period, typically three to 

ten years, and then adjusts every six 

months, annually, or at another specified period, for the remainder of the 

term. 
10 Glossary


I

Income Property: Real estate developed 

or purchased to produce income, such 

as a rental unit. 

Index: A number used to compute 

the interest rate for an adjustable-rate 

mortgage (ARM). The index is generally 

a published number or percentage, such 

as the average interest rate or yield on 

U.S. Treasury bills. A margin is added to 

the index to determine the interest rate 

that will be charged on the ARM. This 

interest rate is subject to any caps on 

the maximum or minimum interest rate 

that may be charged on the mortgage, 

stated in the note. 

Individual Retirement Account (IRA): 

A tax-deferred plan that can help you 

build a retirement nest egg. 

Inflation: An increase in prices. 

Initial Interest Rate: The original interest rate for an adjustable-rate mortgage 

(ARM). Sometimes known as the “start 

rate.” 

Inquiry: A request for a copy of your 

credit report by a lender or other business, often when you fill out a credit 

application and/or request more credit. 

Too many inquiries on a credit report 

can hurt your credit score; however, 

most credit scores are not affected by 

multiple inquiries from auto or mortgage 

lenders within a short period of time. 

Installment: The regular periodic payment that a borrower agrees to make to 

a lender. 

Installment Debt: A loan that is repaid 

in accordance with a schedule of payments for a specified term (such as an 

automobile loan). 

you. Interest is usually expressed as a 

percentage of the amount borrowed. 

Interest Accrual Rate: The percentage 

rate at which interest accumulates or 

increases on a mortgage loan. 

Interest Rate Cap: For an adjustablerate mortgage (ARM), a limitation on the 

amount the interest rate can change per 

adjustment or over the lifetime of the 

loan, as stated in the note. 

Interest Rate Ceiling: For an adjustable-rate mortgage (ARM), the maximum 

interest rate, as specified in the mortgage note. 

Interest Rate Floor: For an adjustablerate mortgage (ARM), the minimum interest rate, as specified in the mortgage 

note. 

Investment Property: A property purchased to generate rental income, tax 

benefits, or profitable resale rather than 

to serve as the borrower’s primary residence. Contrast with “second home.” 

J

Judgment Lien: A lien on the property 

of a debtor resulting from the decree of a 

court. 

Jumbo Loan: A loan that exceeds the 

mortgage amount eligible for purchase 

by Fannie Mae or Freddie Mac. Also 

called “non-conforming loan.” 

Junior Mortgage: A loan that is subordinate to the primary loan or first-lien 

mortgage loan, such as a second or third 

mortgage. 

K

Interest: The cost you pay to borrow Keogh Funds: A tax-deferred retiremoney. It is the payment you make to ment-savings plan for small business 

a lender for the money it has loaned to owners or self-employed individuals who 
Glossary 11


L

have earned income from their trade or 

business. Contributions to the Keogh 

plan are tax-deductible. 

Late Charge: A penalty imposed by the 

lender when a borrower fails to make a 

scheduled payment on time. 

Lease-Purchase Option: An option 

sometimes used by sellers to rent a 

property to a consumer, who has the option to buy the home within a specified 

period of time. Typically, part of each 

rental payment is put aside for the purpose of accumulating funds to pay the 

down payment and closing costs. 

Liabilities: A person’s debts and other 

financial obligations. 

Liability Insurance: Insurance coverage 

that protects property owners against 

claims of negligence, personal injury or 

property damage to another party. 

LIBOR-Index: An index used to determine interest rate changes for certain 

adjustable-rate mortgage (ARM) plans, 

based on the average interest rate at 

which international banks lend to or 

borrow funds from the London Interbank Market. 

Lien: A claim or charge on property for 

payment of a debt. With a mortgage, 

the lender has the right to take the title 

to your property if you don’t make the 

mortgage payments. 

Lifetime Cap: For an adjustable-rate 

mortgage (ARM), a limit on the amount 

that the interest rate or monthly payment can increase or decrease over the 

life of the loan. 

Liquid Asset: A cash asset or an asset 

that is easily converted into cash. 

Loan Origination: The process by which 

a loan is made, which may include taking a loan application, processing and 

underwriting the application, and closing the loan. 

Loan Origination Fees: Fees paid to 

your mortgage lender or broker for processing the mortgage application. This 

fee is usually in the form of points. One 

point equals one percent of the mortgage 

amount. 

Loan-To-Value (LTV) Ratio: The relationship between the loan amount 

and the value of the property (the lower 

of appraised value or sales price), expressed as a percentage of the property’s 

value. For example, a $100,000 home 

with an $80,000 mortgage has an LTV of 

80 percent. 

Lock-In Rate: A written agreement 

guaranteeing a specific mortgage interest rate for a certain amount of time. 

Low-Down-Payment Feature: A feature 

of some mortgages, usually fixed-rate 

mortgages, that helps you buy a home 

with a low down payment. 

M

Manufactured Housing: Homes that 

are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of 

Housing and Urban Development (HUD). 

Manufactured homes may be singleor multi-section and are transported 

from the factory to a site and installed. 

Homes that are permanently affixed to 

a foundation often may be classified as 

real property under applicable state law, 

and may be financed with a mortgage. 

Homes that are not permanently affixed 

to a foundation generally are classified 

as personal property, and are financed 

with a retail installment sales agreement. 
1 Glossary


Margin: A percentage added to the index 

for an adjustable-rate mortgage (ARM) to 

establish the interest rate on each adjustment date. 

Market Value: The current value of your 

home based on what a purchaser would 

pay. An appraisal is sometimes used to 

determine market value. 

Maturity Date: The date on which a 

mortgage loan is scheduled to be paid in 

full, as stated in the note. 

Merged Credit Report: A credit report 

issued by a credit reporting company 

that combines information from two or 

three major credit bureaus. 

Modification: Any change to the terms 

of a mortgage loan, including changes to 

the interest rate, loan balance, or loan 

term. 

Money Market Account: A type of investment in which funds are invested in 

short-term securities. 

Mortgage: A loan using your home as 

collateral. In some states the term mortgage is also used to describe the document you sign (to grant the lender a lien 

on your home). It also may be used to 

indicate the amount of money you borrow, with interest, to purchase your 

house. The amount of your mortgage 

often is the purchase price of the home 

minus your down payment. 

Mortgage Broker: An individual or firm 

that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes 

loan applications and may process 

loans. A mortgage broker also may close 

the loan. 

Mortgage Insurance (MI): Insurance 

that protects lenders against losses 

caused by a borrower’s default on a 

mortgage loan. MI typically is required 

if the borrower’s down payment is less 

than 20 percent of the purchase price. 

Mortgage Insurance Premium (MIP): 

The amount paid by a borrower for 

mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private 

mortgage insurance (PMI) company. 

Mortgage Lender: The lender providing 

funds for a mortgage. Lenders also manage the credit and financial information 

review, the property and the loan application process through closing. 

Mortgage Life Insurance: A type of 

insurance that will pay off a mortgage if 

the borrower dies while the loan is outstanding; a form of credit life insurance. 

Mortgage Rate: The interest rate you 

pay to borrow the money to buy your 

house. 

Mortgagee: The institution or individual 

to whom a mortgage is given. 

Mortgagor: The owner of real estate who 

pledges property as security for the repayment of a debt; the borrower. 

Multifamily Mortgage: A mortgage loan 

on a building with five or more dwelling 

units. 

Multifamily Properties: Typically, 

buildings with five or more dwelling 

units. 

Multiple Listing Service (MLS): A 

clearinghouse through which member 

real estate brokerage firms regularly and 

systematically exchange information 

on listings of real estate properties and 

share commissions with members who 

locate purchasers. The MLS for an area 

is usually operated by the local, private 

real estate association as a joint venture 

among its members designed to foster 

real estate brokerage services. 

Mutual Funds: A fund that pools the 

money of its investors to buy a variety of 

securities. 
Glossary 1


N

Negative Amortization: An increase in 

the balance of a loan caused by adding 

unpaid interest to the loan balance; this 

occurs when the payment does not cover 

the interest due. 

Net Monthly Income: Your take-home 

pay after taxes. It is the amount of 

money that you actually receive in your 

paycheck. 

Net Worth: The value of a company or 

individual’s assets, including cash, less 

total liabilities. 

Non-Liquid Asset: An asset that cannot 

easily be converted into cash. 

Note: A written promise to pay a specified amount under the agreed upon 

conditions. 

Note Rate: The interest rate stated on a 

mortgage note, or other loan agreement. 

O

Offer: A formal bid from the home buyer 

to the home seller to purchase a home. 

Open House: When the seller’s real 

estate agent opens the seller’s house to 

the public. You don’t need a real estate 

agent to attend an open house. 

Original Principal Balance: The total 

amount of principal owed on a mortgage 

before any payments are made. 

Origination Fee: A fee paid to a lender 

or broker to cover the administrative 

costs of processing a loan application. 

The origination fee typically is stated in 

the form of points. One point is one percent of the mortgage amount. 

Owner Financing: A transaction in 

which the property seller provides all or 

part of the financing for the buyer’s purchase of the property. 

Owner-Occupied Property: A property 

that serves as the borrower’s primary 

residence. 

P

Partial Payment: A payment that is less 

than the scheduled monthly payment on 

a mortgage loan. 

Payment Change Date: The date on 

which a new monthly payment amount 

takes effect, for example, on an adjustable-rate mortgage (ARM) loan. 

Payment Cap: For an adjustable-rate 

mortgage (ARM) or other variable rate 

loan, a limit on the amount that payments can increase or decrease during 

any one adjustment period. 

Personal Property: Any property that is 

not real property. 

PITI: An acronym for the four primary 

components of a monthly mortgage 

payment: principle, interest, taxes, and 

insurance (PITI). 

PITI Reserves: A cash amount that a 

borrower has available after making a 

down payment and paying closing costs 

for the purchase of a home. The principal, interest, taxes, and insurance (PITI) 

reserves must equal the amount that the 

borrower would have to pay for PITI for a 

predefined number of months. 

Planned Unit Development (PUD): A 

real estate project in which individuals 

hold title to a residential lot and home 

while the common facilities are owned 

and maintained by a homeowners’ association for the benefit and use of the 

individual PUD unit owners. 

Point: One percent of the amount of the 

mortgage loan. For example, if a loan 
1 Glossary


is made for $50,000, one point equals 

$500. 

Power of Attorney: A legal document 

that authorizes another person to act 

on one’s behalf. A power of attorney can 

grant complete authority or can be limited to certain acts and/or certain periods of time. 

Pre-Approval: A process by which a 

lender provides a prospective borrower 

with an indication of how much money 

he or she will be eligible to borrow when 

applying for a mortgage loan. This process typically includes a review of the 

applicant’s credit history and may involve the review and verification of income and assets to close. 

Pre-Approval Letter: A letter from a 

mortgage lender indicating that you 

qualify for a mortgage of a specific 

amount. It also shows a home seller that 

you’re a serious buyer. 

Pre-Qualification: A preliminary assessment by a lender of the amount it will 

lend to a potential home buyer. The process of determining how much money a 

prospective home buyer may be eligible 

to borrow before he or she applies for a 

loan. 

Pre-Qualification Letter: A letter from 

a mortgage lender that states that you’re 

pre-qualified to buy a home, but does 

not commit the lender to a particular 

mortgage amount. 

Predatory Lending: Abusive lending 

practices that include making mortgage loans to people who do not have 

the income to repay them or repeatedly 

refinancing loans, charging high points 

and fees each time and “packing” credit 

insurance onto a loan. 

Prepayment: Any amount paid to reduce the principal balance of a loan 

before the scheduled due date. 

Prepayment Penalty: A fee that a borrower may be required to pay to the 

lender, in the early years of a mortgage 

loan, for repaying the loan in full or prepaying a substantial amount to reduce 

the unpaid principle balance. 

Principal: The amount of money borrowed or the amount of the loan that 

has not yet been repaid to the lender. 

This does not include the interest you 

will pay to borrow that money. The 

principal balance (sometimes called the 

outstanding or unpaid principal balance) 

is the amount owed on the loan minus 

the amount you’ve repaid. 

Private Mortgage Insurance: Insurance for conventional mortgage loans 

that protects the lender from loss in the 

event of default by the borrower. See 

Mortgage Insurance 

Promissory Note: A written promise to 

repay a specified amount over a specified period of time. 

Property Appreciation: See “Appreciation.” 

Purchase and Sale Agreement: A document that details the price and conditions for a transaction. In connection 

with the sale of a residential property, 

the agreement typically would include: 

information about the property to be 

sold, sale price, down payment, earnest 

money deposit, financing, closing date, 

occupancy date, length of time the offer 

is valid, and any special contingencies. 

Purchase Money Mortgage: A mortgage 

loan that enables a borrower to acquire 

a property. 

Q

Qualifying Guidelines: Criteria used to 

determine eligibility for a loan. 
Glossary 1


R

Qualifying Ratios: Calculations that are 

used in determining the loan amount 

that a borrower qualifies for, typically 

a comparison of the borrower’s total 

monthly income to monthly debt payments and other recurring monthly 

obligations. 

Quality Control: A system of safeguards 

to ensure that loans are originated, underwritten and serviced according to the 

lender’s standards and, if applicable, the 

standards of the investor, governmental 

agency, or mortgage insurer. 

Radon: A toxic gas found in the soil 

beneath a house that can contribute to 

cancer and other illnesses. 

Rate Cap: The limit on the amount an 

interest rate on an adjustable-rate mortgage (ARM) can increase or decrease 

during an adjustment period. 

Rate Lock: An agreement in which an 

interest rate is “locked in” or guaranteed 

for a specified period of time prior to 

closing. See also “Lock-in Rate.” 

Ratified Sales Contract: A contract 

that shows both you and the seller of 

the house have agreed to your offer. This 

offer may include sales contingencies, 

such as obtaining a mortgage of a certain type and rate, getting an acceptable 

inspection, making repairs, closing by a 

certain date, etc. 

Real Estate Professional: An individual 

who provides services in buying and 

selling homes. The real estate professional is paid a percentage of the home 

sale price by the seller. Unless you’ve 

specifically contracted with a buyer’s 

agent, the real estate professional represents the interest of the seller. Real 

estate professionals may be able to refer 

you to local lenders or mortgage brokers, 

but are generally not involved in the 

lending process. 

Real Estate Settlement Procedures 

Act (RESPA): A federal law that requires 

lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as 

well as information during the life of the 

loan regarding servicing and escrow accounts. RESPA also prohibits kickbacks 

and unearned fees in the mortgage loan 

business. 

Real Property: Land and anything 

permanently affixed thereto — including 

buildings, fences, trees, and minerals. 

Recorder: The public official who keeps 

records of transactions that affect real 

property in the area. Sometimes known 

as a “Registrar of Deeds” or “County 

Clerk.” 

Recording: The filing of a lien or other 

legal documents in the appropriate public record. 

Refinance: Getting a new mortgage with 

all or some portion of the proceeds used 

to pay off the prior mortgage. 

Rehabilitation Mortgage: A mortgage 

loan made to cover the costs of repairing, improving, and sometimes acquiring 

an existing property. 

Remaining Term: The original number 

of payments due on the loan minus the 

number of payments that have been 

made. 

Repayment Plan: An arrangement by 

which a borrower agrees to make additional payments to pay down past due 

amounts while still making regularly 

scheduled payments. 

Replacement Cost: The cost to replace 

damaged personal property without a 

deduction for depreciation. 
1 Glossary


Rescission: The cancellation or annulment of a transaction or contract by 

operation of law or by mutual consent. 

Borrowers have a right to cancel certain 

mortgage refinance and home equity 

transactions within three business days 

after closing, or for up to three years in 

certain instances. 

Revolving Debt: Credit that is extended 

by a creditor under a plan in which 

(1) the creditor contemplates repeated 

transactions; (2) the creditor may impose a finance charge from time to time 

on an outstanding unpaid balance; and 

(3) the amount of credit that may be extended to the consumer during the term 

of the plan is generally made available to 

the extent that any outstanding balance 

is repaid. 

Right of First Refusal: A provision in 

an agreement that requires the owner 

of a property to give another party the 

first opportunity to purchase or lease 

the property before he or she offers it for 

sale or lease to others. 

Rural Housing Service (RHS): An 

agency within the U.S. Department of 

Agriculture (USDA), which operates a 

range of programs to help rural communities and individuals by providing loan 

and grants for housing and community 

facilities. The agency also works with 

private lenders to guarantee loans for 

the purchase or construction of singlefamily housing. 

S

Securities: A financial form that shows 

the holder owns a share or shares of a 

company (stock) or has loaned money to 

a company or government organization 

(bond). 

Sale-Leaseback: A transaction in which 

the buyer leases the property back to 

the seller for a specified period of time. 

Second Mortgage: A mortgage that has 

a lien position subordinate to the first 

mortgage. 

Secondary Mortgage Market: The market in which mortgage loan and mortgage-backed securities are bought and 

sold. 

Secured Loan: A loan that is backed by 

property such as a house, car, jewelry, 

etc. 

Security: The property that will be given 

or pledged as collateral for a loan. 

Securities: Financial forms that shows 

the holder owns a share or shares of a 

company (stocks) or has loaned money 

to a company or government organization (bonds). 

Seller Take-Back: An agreement in 

which the seller of a property provides 

financing to the buyer for the home purchase. See also “Owner Financing.” 

Servicer: A firm that performs servicing 

functions, including collecting mortgage 

payments, paying the borrower’s taxes 

and insurance and generally managing 

borrower escrow accounts. 

Servicing: The tasks a lender performs 

to protect the mortgage investment, 

including the collection of mortgage 

payments, escrow administration, and 

delinquency management. 

Settlement: The process of completing a loan transaction at which time the 

mortgage documents are signed and 

then recorded, funds are disbursed, and 

the property is transferred to the buyer 

(if applicable). Also called closing or escrow in different jurisdictions. See also 

“Closing” 

Settlement Statement: A document 

that lists all closing costs on a consumer 

mortgage transaction. 
Glossary 1


Single-Family Properties: One- to 

four-unit properties including detached 

homes, townhouses, condominiums, and 

cooperatives, and manufactured homes 

attached to a permanent foundation and 

classified as real property under applicable state law. 

Soft Second Loan: A second mortgage 

whose payment is forgiven or is deferred 

until resale of the property. 

Servicemembers Civil Relief Act: A 

federal law that restricts the enforcement of civilian debts against certain 

military personnel who may not be able 

to pay because of active military service. 

It also provides other protections to certain military personel. 

Subordinate Financing: Any mortgage 

or other lien with lower priority than the 

first mortgage. 

Survey: A precise measurement of a 

property by a licensed surveyor, showing legal boundaries of a property and 

the dimensions and location of improvements. 

Sweat Equity: A borrower’s contribution 

to the down payment for the purchase of 

a property in the form of labor or services rather than cash. 

T

Taxes and Insurance: Funds collected 

as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s, or funds paid by 

the borrower for, state and local property taxes and insurance premiums. 

Termite Inspection: An inspection to 

determine whether a property has termite infestation or termite damage. In 

many parts of the country, a home must 

be inspected for termites before it can be 

sold. 

Third-Party Origination: A process by 

which a lender uses another party to 

completely or partially originate, process, underwrite, close, fund, or package a mortgage loan. See also “Mortgage 

Broker.” 

Title: The right to, and the ownership 

of, property. A title or deed is sometimes 

used as proof of ownership of land. 

Title Insurance: Insurance that protects lenders and homeowners against 

legal problems with the title. 

Title Search: A check of the public records to ensure that the seller is the legal owner of the property and to identify 

any liens or claims against the property. 

Trade Equity: Real estate or assets 

given to the seller as part of the down 

payment for the property. 

Transfer Tax: State or local tax payable 

when title to property passes from one 

owner to another. 

Treasury Index: An index that is used 

to determine interest rate changes for 

certain adjustable-rate mortgage (ARM) 

plans. It is based on the results of auctions by the U.S. Treasury of Treasury 

bills and securities. 

Truth-In-Lending Act (TILA): A federal law that requires disclosure of a 

truth-in-lending statement for consumer 

credit. The statement includes a summary of the total cost of credit, such as 

the annual percentage rate (APR) and 

other specifics of the credit. 

Two- to Four- Family Property: A 

residential property that provides living space (dwelling units) for two to 

four families, although ownership of the 

structure is evidenced by a single deed; 

a loan secured by such a property is 

considered to be a single-family mortgage. 
1 Glossary


U

Underwriting: The process used to determine loan approval. It involves evaluating the property and the borrower’s 

credit and ability to pay the mortgage. 

Uniform Residential Loan Application: A standard mortgage application 

you will have to complete. The form 

requests your income, assets, liabilities, 

and a description of the property you 

plan to buy, among other things. 

Unsecured Loan: A loan that is not 

backed by collateral. 

V

Veterans Affairs (U.S. Department 

of Veterans Affairs): A federal government agency that provides benefits to 

veterans and their dependents, including health care, educational assistance, 

financial assistance, and guaranteed 

home loans. 

VA Guaranteed Loan: A mortgage loan 

that is guaranteed by the U.S. Department of Veterans Affairs (VA). 

W

Walk-Through: A common clause in a 

sales contract that allows the buyer to 

examine the property being purchased 

at a specified time immediately before 

the closing, for example, within the 24 

hours before closing. 

Warranties: Written guarantees of the 

quality of a product and the promise to 

repair or replace defective parts free of 

charge. 

Federal Trade Commission 

ftc.gov