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Mortgage Definitions

This list is provided for reference only. Each state has their own real estate laws and terms. You have a right to understand all terms of any contract you sign, and you have the right to seek the advice of an attorney or other professional counsel in any real estate transaction.

This list is not all-inclusive. If you have a specific question about any real estate term please email us at: loans@sfpcu.org.

Electronic mail is not secure, and confidential or personal information should not be communicated in this manner.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z


A  

Abstract 
A summary; an abridgment. Before the use of photostatic copying public records were kept by abstracts of recorded documents.

Abstract of Title
A compilation of the recorded documents relating to a parcel of land, from which an attorney may give an opinion as to the condition of title. Still in use in some states, but giving way to the use of title insurance.

Acre
A measure of land equal to 43,560 square feet.

Acknowledgment
Formal declaration before a public official that one has signed a document. Prior to recording real estate legal documents such as grant deeds and deeds of trust, a Notary Public acknowledges the person's signature on the document.

Action to Quiet Title
A court action to establish ownership to real property. Although technically not an action to remove a cloud on a title, the two actions are usually referred to as "Quiet Title" actions.

Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate is not fixed for the life of the loan. These mortgages adjust periodically based on an index that changes with market conditions. The rate of interest is the sum of the index plus a margin ( the margin remains fixed for the life of the loan). Most ARMs have periodic interest rate and payment caps as well as life cap. ARM's may also be referred to as AML's or VRM's.

Agent
Person authorized to act on behalf of another in dealings with third parties.

Agreement of Sale
An agreement between parties for the sale of real estate. In some states it is synonymous with a Purchase Agreement or Land Contract. In Texas it is known as an Earnest Money Contract.

Alienation Clause
Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred, sometimes contingent upon other occurrences such as transfer of ownership of secured property.

American Land Title Association
Title policy that assures lenders have the proper rights as the beneficiary on a mortgage loan.

Amortize
Gradual payment of a debt through regular installments that cover both interest and principal.

Annual Percentage Rate(APR)
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.

Appraisal and credit report fees
These fees are generally collected by the lender and paid to outside companies performing the services.

Appraised Value
An option of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.

Appraisal Report
Estimate of real estate value, presumably by an expert. An appraisal evaluates the property at a given time based on facts regarding the location, improvements, neighborhood, and comparable sales. Generally, the value is based on three approaches: cost, market, and income.

Appreciation
Increase in value or worth of property.

Arrears
Payment made after its due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.

"as is"
A clause that is used sometimes in the transfer of property. It means that the present property is being transferred with no guarantee or warranty provided by the seller.

Assessment Base
The total assessed value of all property in a given assessment district.

Assessed Valuation
Value place on property as a basis for levying property taxes; not identical with appraised or market value.

Assignment
Transfer of a contract from one party to another.

Assumability
When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to the new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home.

Assumption
New owner takes over an the responsibility of repaying an existing mortgage. Both FHA and VA loans are fully assumable. Some adjustable rate mortgages may be partially assumable, but the new owners may be required to re-qualify for the loan.

Assumption of Mortgage
Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust.

Attached Home
A home that has one or more common walls adjoining another home. Condominiums and row houses are attached homes.

B

Balloon Note
A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "Balloon" is due at maturity.

Balloon Payment
The final payment of a mortgage which is larger than the regular payment; it usually extinguishes the debt.

Bankruptcies
A court action to restructure debt.

Beneficiary
The lender named on the mortgage note.

Binder
Preliminary agreement of sale, usually accompanied by earnest money (term also used with property insurance).

Blanket Mortgage
A mortgage covering more than one property of the mortgage.

Bond
A debt instrument in the capital markets. The US government, corporations, and municipalities use bonds to raise money. Bonds can also be backed by real estate loans and the payments from mortgages.

Bridge Financing
A form of interim loan, generally made between a short term loan and a long term loan, when the borrower needs to have more time before taking on long term financing.

British Thermal Unit (B.T.U.)
Unit of heat required to raise one pound of water one degree Fahrenheit.

Broker
A person that represents another for a fee in real estate transactions. Mortgage brokers help consumers locate suitable real estate loans and are paid a fee for their services.

Buydown
An interest rate buydown is the temporary reduction of the rate of interest or the monthly payments borrowers pay to the lender. The shortfall between the rate on the note and initial payment made by the borrower is usually paid by a third party such as a seller or builder.

Buyer's Broker
Agent who takes the buyer as a client, and is obligated to represent their interest above all others, and owes specific fiduciary duties to the buyer.

C

Cap
Caps are used on adjustable rate mortgages (ARMs) to limit the interest rate and/or the payment. Most ARMs have a periodic cap that is around 2% per year and a life cap of around 5%-6% over the life of the loan. Payment only caps sometimes create negative amortization where the principal balance of the loan increases rather than decreases over time.

Capital Gain
Taxable profit on the sale of an appreciated asset.

Caveat Emptor
A legal term meaning "let buyer beware".

Certificate of Eligibility
A certificate obtained by a veteran from a Veteran's Administration office which states that the veteran is eligible for a V.A. insured loan..

Certificate of Occupancy
Document issued by a local governmental agency that states a property meets the local building standards for occupancy.

Certificate of Reasonable Value (CRV)
An appraisal of property for the purpose of insurance by the Veteran's Administration.

Certified Copy
A true copy, attested to be true by the officer holding the original.

Cestui Que Trust
One having an equitable interest in property, legal title being vested in trustee.

Chain of Title
The chronological order of conveyancing of a parcel of land, from the original owner to the present owner.

Chattel
Personal property.

Closing
Conclusion of a real estate sale, where the title of the property is transferred to the new owners and funds are transferred to the appropriate parties (seller, old lender, real estate broker, etc.).

Closing Agent
A third neutral party that facilities the closing of a real estate transaction. The closing agent can be an escrow company, title company, or attorney.

Closing Cost
Expenses incurred by the buyer/borrower and the seller in a real estate or mortgage transaction. There can be non-recurring cost that include points, appraisal fees, etc. that are a one time charge or recurring cost such as taxes and insurance that incur while the new buyer/borrower owns the real estate.

Closing Statement
Statement prepared for the buyer and seller itemizing all of the cost of a real estate transaction.

Cloud on Title
An invalid encumbrance on real property, which if valid, would affect the rights of the owner.

Co-Maker
Equally responsible for repayment as the borrower.

Commission
Fee paid for a broker or other entity for services rendered. Real estate brokers and mortgage brokers receive a commission for the services they provide; a real estate broker secures a buyer for a property that is for sale and a mortgage broker secure a mortgage loan for the buyer to finance the purchase of a property. Commissions are generally paid as a percentage of the sales price in a real estate transaction or the loan amount in mortgage transaction.

Commitment
A written promise to make or insure a loan for a specified amount and on specified items.

Comparables
Properties used as comparisons to determine the value of a specified property.

Conditional Commitment
A lenders promise to issue a loan subject to certain conditions. Generally, the lender will not fund the loan until the conditions have been met.

Conditional Offer
Purchase offer in which the buyer proposes to purchase only after certain occurrences (sale of another home, finding a loan commitment, etc.)

Condominium
A structure of two or more units, the interior space of which are individually owned.

Consideration
Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration.

Construction Loan
Short term financing of real estate construction. Generally followed by the long term financing called a "take out" loan, issued upon completion of improvements.

Contingency
Condition which must be satisfied before the buyer can consummate the purchase of a property. Contingency are generally outlined in the purchase contract between the buyer and seller.

Contract of Sale
A purchase transaction in which the buyer receives possession of the property, but the seller retains title.

Conventional Loan
A mortgage loan that is not guaranteed or insured by the government. FHA and VA loans are not conventional loans. Convertible ARMs: ARMs that have a provision allowing the borrower to convert the mortgage to a fixed rate term. The conversion feature is outlined in the mortgage note and has certain restrictions.

Conventional Mortgage
A loan neither insure by the FHA nor guaranteed by the VA.

Conversion Clause
A provision in some ARMs that allows you to change the ARM to a fixed-rate loan at some point during the term. Usually the conversion is allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rate then prevailing for fixed-rate mortgages. The conversion feature may be available at extra cost.

Cost Plus Contract
A building contract setting the builder's profit at a set percentage of actual cost of labor and materials.

Contract Sales Price
The full purchase price as stated in the contract.

Cost Basis
Accounting figure that includes original cost of property plus certain expenses to purchase, money spent on permanent improvements and other cost, minus any depreciation claimed on tax returns over the years.

County
A division within a state, usually encompassing one or more cities or towns.

Customer
Typically, the buyer, as opposed to the principal (seller).

D

Declaration of Restrictions
A set of restrictions filed by a subdivider to cover an entire tract or subdivision.

Deed of Trust/Mortgage
An instrument given by the borrower to a third party (trustee) vesting title to the property in the trustee as security for the borrower's repayment of the mortgage loan.

Deed of Trust Rider
The document required by the lender to be recorded along with the security instrument for an ARM.

Deed Restriction
Provision placed in a deed to control use and occupancy of the property by future owners.

Default
Failure to make mortgage payment or violates other provision of the mortgage note.

Deficiency Judgment:
Personal claim against the debtor, when foreclosed property does not yield enough at the sale to pay off the loans and interest against it.

Defective Title
Title to a negotiable instrument obtained by fraud. Title to real property which lacks some of the elements necessary to transfer good title.

Depreciation
Decrease in value to real property improvements caused by deterioration or obsolescence..

Devise
Real Estate left by will.

Devisee
One to whom real estate is given by will.

Devisor
A testator who leaves real estate.

Direct Endorsement
A lender that can complete the processing and closing of an FHA loan without prior approval from FHA.

Direct Reduction Mortgage
An amortized mortgage. One on which principal and interest being computed on the remaining balance.

Discount
A loan funded below par (100%). Lenders or investors will fund loans at a discount in order increase the overall yield on the note.

Discount
In an ARM with an initial discount, the lender gives up a number of percentage points of interest to give you a lower rate and lower payments for part of the mortgage term. After the discount period, the ARM rate will probably go up depending on the index rate.

Disbursements
Payments made during the course of an escrow or at closing.

Documentary Tax Stamps
Stamps, affixed to a deed, showing the amount of transfer tax.

Dower
The rights of a widow to a portion of her deceased husband's property.

Down payment
Cash to be paid by the buyer at closing to consummate a real estate transaction.

Dragnet Clause
A clause in a mortgage or deed of trust which places the real estate as security for existing debts between the parties.

E

Earnest Money
Cash to be paid by the buyer at closing.

Easement
A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another.

Eminent Domain
A government right to acquire private property for public use by condemnation, and the payment of just compensation.

Encroachment
Construction onto the property of another, wall, fence, etc.

Encumbrance
Unauthorized intrusion of a building or improvement onto another's land. A claim, line charge, attached to and binding real property.

Equity
The difference between the market value of the property and the homeowners mortgage debt.

Escrow
It can be the delivery of a deed by a grantor to a third party for delivery to the grantee upon the occurrence of a contingent event. Escrows include funds given to a third party to be held until a specific occurrence; may refer to earnest money deposit; can also include a lender collecting and paying the taxes and insurance on behalf of the borrower.

Escrow Payment
That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes mortgage insurance, hazard insurance, lease payments, and other items as they become due, also known as "impounds" in some state.

Escrow Reimbursement
An assumption or wrap loan transaction, the buyer reimburses the seller for the current balance of his escrow (or impounded) funds.

Estimated Closing Cost Statement
The statement which lists the financial settlement between buyer and seller, and also the cost each must pay. A separate statement for buyer and seller is sometimes prepared.

Exclusive Agency
Listing agreement in which only the listing office can sell the property and keep the commission. If the owner sells the house, the listing office would not receive any commission.

Exclusive Right-to-Sell
Listing agreement under which the owner promises to pay a commission if the property is sold during the listing period by anyone, even the owner.

F

Fannie Mae (FNMA)
Fannie Mae (Federal National Mortgage Association/FNMA): FNMA is one of the major secondary market investors that purchases loans from mortgage companies and other depository institutions. The company is private corporation and its stock is traded on the New York Stock Exchange.

Federal Home Board
The board which oversees the Federal Home Loan Bank systems.

Federal Home Loan Bank
Provides liquidity to supervised financial service companies such as savings and loans and credit unions. The bank system has several districts.

Federal Home Loan Board
The board which charters and forbids discrimination in the sale.

Federal Home Loan Mortgage Corporation (FHLMC/Freddie Mac)
A government sponsored agency that is also a publicly traded company on the New York Stock Exchange that purchases mortgage loans from mortgage bankers and financial depository institutions. FHLMC is a major secondary market investor.

Federal Housing Administration
A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

Federal National Mortgage Association
See Fannie Mae.

Federal Reserve Bank
The regulatory agency for many commercial banks and bank holding companies. Sets monetary policy for the country and provides liquidity for supervised financial institutions.

Federal Tax Lien
A lien attached to property for nonpayment of a federal tax.

Federal Tax Return
The U.S. government's method to identify individual and company's annual tax responsibility. The tax returns identify the income and taxes.

Fee Simple
Highest possible degree of ownership of land. The estate allows owners to unrestricted powers to dispose of property, and which can be left by will or inherited.

Fiduciary
A person in a position of trust or responsibility with specific duties to act in the best interest of the client. Real estate brokers and mortgage brokers are fiduciaries.

Financial Depositor Institutions
Banks, savings and loans or credit unions.

First Mortgage
Mortgage holding priority over the claims of subsequent lenders against the same property.

Fixture
Personal property that has become part of the real estate.

Foreclosure
A proceeding in or out of court, to extinguish all rights, title, and interest, of the owner(s) of a property in order to sell the property and satisfy a lien against it.

Freddie Mac
Federal Home Loan Mortgage Corporation. A federal Agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System, and the Federal Home Loan Bank System.

Full Disclosure
Revealing all the known facts which may affect the decision of a buyer or tenant.

G

General Lien
A lien such as a tax lien or judgement lien which attaches to all property of the debtor rather than the lien of, for example, a trust deed, which attaches only to a specific property.

Government National Mortgage Association (GNMA/Ginnie Mae)
A government owned agency that acts as a secondary market conduit for FHA and VA loans. GNMA guarantees the timely principal and interest payments to investors..

Grandfather Clause
The clause in a law permitting the continuation of a use, business, etc., which, when was permissible but, because of a change in the law is now not permissible.

Ground Rent
Rent paid for vacant land, If the property is improved, ground rent is the portion attributable to the land only.

H

Hazard Insurance
Insurance on a property against fire and similar risk.

Heirs and Assigns
An association of people who won homes in a given area for the purpose of importing or maintaining the quality of the area.

Homeowners Association
An association of people who own homes in a given area for the purpose of improving or maintaining the quality of the area.

Homeowner's Policy
Policy which expands the insurance for a homeowner. It may include theft, liability, earthquake, etc.

Homeowners or Maintenance Fees 
Payments made by property owner(s) of a condominium or a unit in PUD to the homeowners' association for expenses incurred in upkeep of the common areas.

Housing and Urban Development (HUD)
The federal government agency that oversees FHA.

HUD 1
A closing document required by HUD that outlines the settlement cost of a loan. The closing agent generally prepares the document and buyer receives it shortly after the loan is closed.

I

Impound Account
Account held by a lender for payment of taxes, insurance, or other.

Incidental Recording, Delivery, Wire, etc., Fees
Other cost that are incurred when a real estate loan is closed.

Independent Contractor
The term is most important as used to describe the relationship of broker and salesperson, employee or independent contractor. If employee, the broker must withhold income tax and pay social security, provide workmen's compensation, and may be liable for some negligent acts of the sales person while on the job. All of this is avoided by the broker if salesperson is an independent contractor.

Index 
A published rate or benchmark measure of current interest rate levels used to calculate periodic changes in rates charged on adjustable rate mortgages. You should ask your lender how the index for any ARM you are considering has change in recent years, and where it is reported.

Installment Sale 
A tax term used to describe a sale which is usually accomplished by use of a land contract.

Insured Mortgage
A mortgage insured against loss to the mortgagee in the event of default and failure of the mortgaged property to satisfy the balance owing plus cost of foreclosure.

Interest Payment Notification (1098)
A federal tax form that lenders use at year end to notify borrowers of the interest that was paid on their mortgage over the last year.

Interest Rate
The percentage of an amount of money which is paid for its use for a specified time.

Investment Property
A property that is a not occupied by the owner and in most cases receives income off the property.

J

Joint and Several
A liability which allows the creditor to sue any one of the debtors or sue all together.

Joint Tenancy
An undivided interest in property, taken by two or more joint tenants. The interests must equal, accruing under the same conveyance, and beginning at the same time. Upon death of a joint tenant the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Judgement
The decision of a court of law. Money judgements, when recorded, become a lien on real property of the defendant.

Junior Mortgage
A mortgage subordinate to another mortgage.

L

Land Contract
Installment plan for buying a house. It is used as an alternate to obtaining a loan from a traditional source such as a mortgage banker or savings and loan.

Late Charge
A penalty for failure to pay an installment on time.

Lease with Option to Purchase
A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.

Legal Description
An expanded and unique description of a property that is used on legal documents such as deeds and deeds of trust. Recorded documents generally require a legal description.

Lender
A general term encompassing all mortgages, and beneficiaries under deeds of trust.

Lenders Instructions
A document that lenders prepare for the closing agent that outlines the requirements for loan closing.

Letter of Intent
A formal method of stating that a prospective developer, buyer or lessee, is interested in property.

Liber
A latin word for book.

Lien
An encumbrance against property for money, either voluntary or involuntary.

Life Estate
An estate in real property for the life of a living person. The estate then reverts back to the grantor or on to a third party.

Limited Partnership
A partnership consisting of one or more general partners who conduct the business and are responsible for losses, and one or more special partners, contributing capital and liable only to the amount contributed.

Lis Pendens
A notice that litigation is pending on a property.

Listing Agreement
Agreement between a property owner and a real estate owner, authorizing the broker to find a buyer for the property. If the sale is consummated, the listing broker will be paid a fee.

Loan Discount/Premium Fees
Fees that borrowers pay (sometimes seller will pay for borrower) that adjust to the yield requirement of the investor. Loan discount denotes an investor yield requirement higher than the note rate. Loan premium denotes an investor yield requirement lower than the note rate.

Loan Lock
Guarantee that the borrower will receive the rate in effect at the time of loan application.

Loan Officer
A person that helps borrowers through the loan selection, processing and closing a mortgage loan. Loan officers can be paid a commission or salary for their services and can work for mortgage brokers, mortgage bankers, or depository institutions.

Loan Origination Fees
The cost to obtain a loan that is paid to the originating lender or broker.

Loan Package
The information given to the lender regarding the borrower and the property necessary to decide to give or not to give the loan.

Loan Ratio
The amount of a loan to the value or selling price of real property.

Loan Servicing
The loan serving is the function of collecting loan payments, managing the property tax and insurance escrows, foreclosing on defaulted loans, and remitting payments to the investor/beneficiary.

Loan-to-Value Ratio
The ratio of the mortgage loan amount to the properties appraised value (or the selling price whichever is less).

M

Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value
The most likely price a given property will bring if widely exposed on the market, assuming fully informed buyer and seller.

Marketable Title
Title that is free of liens, clouds on title and legal defects effecting the property

Mechanics Lien
A lien created by statue for the purpose of securing priority of payment for the price of value of work performed and materials furnished in construction of repair of improvements to land, and which attached to the land as well as the improvements.

Mortgage
A lien or claim against real property given as security for a loan.

Mortgage Broker
A professional that helps consumers through the loan selection, processing, and closing a mortgage loan. Most mortgage brokers have access to a wide range of mortgage products through many mortgage lenders. Mortgage brokers are paid a fee by the borrower when a suitable mortgage is found and closed.

Mortgage Guaranty Insurance Corporation (MGIC)
A private corporation which, for a fee, insures mortgage loans similar to FHA and VA insurance, although not insuring as great a percentage of the loan.

Mortgage or Deed of Trust
Written pledge of real property given by the mortgagor to secure a debt. Should be recorded in the County Recorders Office.

Mortgagee
The lender of money or the receiver of the mortgage document.

Mortgage Insurance
Insurance required for loans with a loan ratio above 80.01%.

Mortgage Note
The document outlining the amount of the debt, the terms and payments, the interest rate, margins and caps for ARMs, the name of the lender and the borrower, and any other material item required by the lender.

Mortgage Warehousing
A funding facility, such as a commercial bank, that is used by mortgage companies to fund loans which are then sold to an investor shortly thereafter. The mortgage notes are used as collateral for this interim financing.

Mortgagor
The borrower of money or the giver of the mortgage document.

N

Negative Amortization
Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results if monthly payments are not high enough to cover the interest due.

Non-conforming Loan
Also known as jumbo loans. Loans that are above the loan limits set by FNMA and FHLMC.

Nonconforming Use
A property which does not conform to the zoning of an area.

Note
A written promise to repay a certain sum of money on specified terms

O

Office of Comptroller Currency
A federal government regulatory agency that oversees some commercial banks.

Office of Thrift Supervision
A federal government regulatory agency that oversees savings and loans.

Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually, as to the assets of the mortgage.

Origination Fee
A fee or charge for work involved in the evaluation, preparation and submission of a proposed mortgage loan.

Owner of Record
The owner of a property that has a deed indicating his ownership that has been recorded at the local municipality.

Owners Policy
Title insurance for the owner of property, rather than a lienholder.

P

Package Mortgage
Mortgage covering both real and personal property.

Paper
A mortgage, deed of trust, or land contract, which is given instead of cash.

Partial Release
A release of a portion of property covered by a mortgage.

Permanent Mortgage
A mortgage on completed construction on the same property under one mortgage or trust deed.

PITI
Abbreviation for principal, interest, taxes and insurance, often lumped together in a monthly mortgage payment.

Plat
A map or chart of a lot, subdivision or community, showing boundary lines, buildings and easements.

PMI
Abbreviation for private mortgage insurance: insurance issued by a company, which insures the lender against loss in the event that the borrower defaults on the mortgage.

Points
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $100,000, one point is means you pay $1000 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield of the mortgage and to cover loan closing costs. These points are usually collected at closing and may be paid by the borrower or the home seller, or may be split between them. Points describe some of the cost of obtaining a loan. They are used to describe the origination fees charged by the originating lender or broker. They are also used to describe the discount fees charged by lenders to increase the overall yield. A point is equal to 1% of the loan amount.

Portfolio Loan
Loans made by a bank, savings and loan, or credit union that keeps the loans as an investment.

Prepaid interest
Prepaid interest is the interest charged to borrowers at loan closing to pay for the cost of borrowing for a partial month. For example, if a loan closed on the 15th of the month, and the 1st payment is due 45 days later, the lender will charge 15 days of prepaid interest.

Prepayment
Full payment of the principal before the due date; occurs when a property is sold or the borrower refinances the existing loan.

Prepayment Penalty
Charge levied by the lender for paying off a mortgage loan before its maturity date.

Insurance Mortgage Primary
Insurance which insures the upper portion of a mortgage loan thereby reducing the lenders risk to principal loss in the event of a borrowers default. The insurance coverage allows lenders to make higher loan-to-value ratios (95% LTV).

Primary Mortgage Market
The process of obtaining a real estate loan, including the consumer's completion of a loan application form, validation of the credit and property information, loan underwriting by the lender and closing of the mortgage loan.

Primary Residence
Considered the permanent location of residency.

Principal
An entity that hires and pays an agent to perform a service; the seller in a real estate transaction is the principal. Also, the outstanding amount on a loan is the principal.

Private Mortgage Insurance (PMI)
Insurance similar to FHA or VA insurance, insuring part of the first mortgage or deed of trust, enabling a lender to make a conventional loan of a higher percentage of the property value.

Processing, Underwriting and Document Fees
Charges for the lender's services associated with making the loan.

Property Tax
A tax levied by the local municipality or county on real and personal property.

Property Tax Prorations
Expenses such as taxes that are divided to the date of settlements between buyer and seller at closing. Interest is sometimes prorated when a mortgage loan is closed.

Prorate
To divide in proportionate shares, such as taxes, insurance, rent, or other items.

Planned Unit Development (PUD)
A housing development where there is a homeowners association and common areas owned by the homeowners.

Purchase Money Mortgage
A mortgage given by the buyer to the seller as part of the purchase consideration, as opposed to a hard money mortgage.

Q

Quit Claim Deed A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property.

R

Real Estate
Land and anything permanently affixed to the land, and those things attached to the building.

Realtor
Registered name for a member of the National Association of Realtors.

Realtor Associate
Salesperson associated with a broker who is member of a Board of Realtors.

Recital
Setting forth in a deed or other writing some explanation for the transaction.

Recourse
The right of the holder of note secured by a mortgage or deed of trust to look personally to the borrower or endorser for payment.

Redlining
The practice of refusing to provide loans or insurance in a certain neighborhood.

Refinancing
The repayment of a debt from the proceeds of a new loan using the same property as security.

Reissuerate
A charge for a title insurance policy if a previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

REIT (Real Estate Investment Trusts)
A method in investing real estate in a group, with certain tax advantages.

Recision of Contract
Annulling a contract and placing the parties to it in a position as if there had not been a contract.

Release
An instrument releasing property from the lien of the mortgage, judgment, etc.

RESPA (Real Estate Settlement Procedures Act)
A federal statute requiring disclosure of certain costs in the sale of residential improved property which is to be financed by a federally insured lender.

Revenue Stamps
Formerly federal tax on a sale of real property. Canceled and replaced by state tax stamps.

Reverse Mortgage
A special program for the elderly that provides income until death. Payment requirements are arranged through the increase in the principal amount of the loan.

S

Second Home
Commonly known as a vacation home. This home is not rented and is occupied by the owners occasionally.

Secondary Financing
A loan secured by a mortgage or trust deed, which lien is junior to another mortgage or trust deed.

Secondary Market
The buying and selling of mortgage notes between sophisticated investors such as pension funds, commercial banks, savings and loans, and wall street firms.

Secondary Market Investor
An entity, such as FNMA or FHLMC, that buys mortgage loans for investment or sells them again to another secondary market investor. Secondary market investors do not service loans and do not collect payments from borrowers.

Secondary Mortgage MARKET
The buying and selling of first mortgages of trust deeds by banks, insurance companies, government agencies, and other mortgagees.

Security
Real or personal property pledged by a borrower, as additional protection for the lender's interest.

Seller's Broker
Agent who takes the seller as a client, is legally obligated to a set of fiduciary duties, and is required to put the seller's interests above all others.

Septic System
A sewage system, whereby waste is drained through pipes and a tile field into a septic tank.

Set Back Ordinance
Regulates the distance from the lot line to the point where improvements may be constructed.

Settlement Cost, a HUD Guide
This booklet gives an overview of the lending process and is required by HUD. It is provided to consumers after the loan application is completed.

Settlement Statement
A statement prepared by broker, escrow, or lender, giving a complete breakdown of the cost of involved in a real estate transaction.

Sheriff's Deed
A deed given at the sheriff's sale in foreclosure of a mortgage.

Signed Sealed and Delivered
A phrase indicating that everything necessary to convey has been done by the grantor.

Single Family Detached Home
A residential home that is not attached physically to another home.

Specific Performance
Lawsuit requesting that a contract be exactly carried out, usually asking that the seller be ordered to convey the property as previously agreed.

Standard Uniform Application
An application developed by FNMA and FHLMC that is widely used in the mortgage industry.

State and Local Housing Programs
Unique housing finance programs to assist first time home buyers and low to moderate housing groups. Each state and local group has different sets of criteria.

Statutory Lien
An involuntary lien, includes tax liens, judgement liens, mechanic liens, etc.

Substitute of Trustee
A document which is recorded to change the trustee under the deed of trust.

Survey
Map made by a licensed surveyor who measures that land and charts its boundaries, improvements and relationship to the property surrounding it.

T

Tax Lien
Lien for nonpayment of taxes.

Tax Sale
Public sale of property at auction by governmental authority, after a period of non payment of property taxes.

Tenancy by the Entirety
A form of ownership by husband and wife whereby each owns the entire property. In event of death of one, the survivor owns the property without probate.

Time is of the Essence
Legal phrase in a contract, requiring punctual performance of all obligations.

Title
Often used interchangeably with the word ownership. It indicates the accumulation of all rights in property by the owner and others.

Title, Escrow and Closing Agent Fees
These companies charge various fees for their services..

Title Insurance 
An insurance policy which protects the insured (purchaser and lender) against loss arising from defects in title.

Title Search 
A review of the public records to make sure that no adverse claims affect the value of the title.

Truth in Lending Statement (Regulation Z)
A federal government regulation that provides details of the cost of obtaining a mortgage loan. Lenders must provide this shortly after the loan application has been completed.

V

Vendee
The buyer.

Vendor 
The seller.

Veterans Administration
The agency which guarantees a veteran's mortgage so that a lender is willing to make the loan with little or no down payment.

W

Warranty Deed
Most valuable type of deed, in which the grantor makes formal assurance of title.

W2 Form 
Income tax form that is provided by employers to employees that states the income and taxes paid in a calendar year.

 
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