NOTE: There are many more terms and more complete definitions used in the Mortgage and Real Estate industries. For a more complete understanding, consult your local library. Additionally, interpretation of these terms may be different from state-to-state.

• Adjustable rate mortgage loan (ARM) - A type of alternative mortgage instrument in which the interest rate adjusts periodically according to a predetermined index and margin. This adjustment results in the mortgage payment either increasing or decreasing.
• Agreement for sale (SALES CONTRACT) - A written document in which the purchaser agrees to buy certain real estate (or personal property) and the seller agrees to sell under stated terms and conditions.
• Amortization - Repayment of a debt in equal installments of principal and interest, rather than interest-only payments.
• Annual percentage rate (APR) - A rate which represents the relationship of the total finance charge (interest, loan fees, point) to the amount of the loan.
• Application - A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.
• Appraisal - A report by a qualified person setting forth an opinion or estimate of value.
• Appraised value - An opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data.
• Appraiser - A person qualified by education, training, and experience to estimate the value of real and presonal property.
• Appreciation - An increase in value; the opposite of depreciation.
• Assessment - The process of placing a value on property for the strict purpose of taxation. may also refer to a levy against property for a special purpose, such as a sewer assessment.
• Balloon mortgage - A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at the end of the term.
• Balloon payment- The unpaid principal amount of a mortgagee or other long-term loan due at a certain date in he future, usually the amount that must be paid in a lump sum at the end of the term.
• Binder, insurance - A written evidence of temporary hazard or title coverage that only runs for a limited time and must be replaced by a permanent policy.
• Borrower - One who receives funds with the expressed or implied intention of repaying the loan in full.
• Caps - A limitation on the interest rate increase of either the periodic or lifetime rate or both for an adjustable rate mortgage.
• Certificate Of Occupancy (CO) - Written authorization given by a local municipality that allows a newly-completed or substantially-completed structure to be inhabited. The issuing of a CO means that: the home is SAFE, SOUND & SANITARY, and has matches the PLANS & SPECIFICATIONS given to the Appraiser at the beginning of the Loan Process.
• Certificate of title - A statement furnished by an abstract or title company or an attorney to a client stating that the title to real estate is legally vested in the present owner.
• Closing - The conclusion or consummation of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes and the disbursement of funds necessary to the sale or loan transaction.
• Closing costs - Expenses incidental to a sale of real estate, such as loan fees, title fees, appraisal fee, and others.
• Commission - An agent's fee for negotiating a real estate or loan transaction.
• Condominium - A form of ownership of real property. The owner receives title to a particular unit and a proportionate interest in certain common areas. A condominium generally defines each unit as a separately owned space to the interior surfaces of the perimeter wall, floors, and ceilings.
• Construction loan- A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses
• Conventional loan - A mortgage loan neither insured by FHA nor guaranteed by VA.
• Cosigner- A person who signs a legal instrument and therefore becomes individually and jointly liable for repayment or performance of an obligation.
• Credit report - A report to a prospective lender on the credit standing of a prospective borrower or tenant. Used to help determine creditworthiness.
• Deed - A written legal document which purports to transfer ownership of land from one party to another.
• Deposit (Earnest Money) - A sum of money given to bind a sale of real estate, or a sum of money given to assure payment or an advance of funds in the processing of a loan.
• Depreciation - A loss of value in real estate property brought about by age, physical deterioration, or functional or economic obsolescence. The opposite of appreciation.
• Downpayment (EARNEST MONEY) - Cash portion paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.
• Draw System - Scheduled payment of money to a builder during the phases of home construction. Between each draw, the appraiser must inspect the home to ensure that construction is proceeding as planned.
• Due-on-sale Clause - A type of acceleration clause, calling for a debt under a mortgage or deed of trust to be due in its entirety upon transfer of ownership of the secured property.
• Easement - right or interest in the land of another entitling the holder to a specific limited use, privilege or benefit such as laying a sewer, putting up electric power lines, or crossing the property.
• Eminent domain - The right of a government to take private property for public use upon payment of its fair value.
• Encumbrance - Anything that affects or limits the fee simple title to property, such as mortgages, leases, easements, or restrictions.
• Equity - In real estate, equity is the difference between Fair Market Value and current indebtedness, usually referring to the owner's interest.
• Escrow - A transaction in which a third party, acting as the agent for the buyer and the seller, carries out instructions of both and assumes the responsibilities of handling all the paperwork and disbursement of funds.
• Escrow payment - That portion of a mortgagor's monthly payment held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as impounds or reserves in some states.
• Exclusive right to sell (Listing) - A written contract giving a licensed real estate agent the exclusive right to sell a property for a specified time. The owner agrees to pay a full commission to the broker even though the owner may sell the property.
• Fair Market Value - The price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent data and neither of whom is under any compulsion to buy or sell.
• Federal Home Loan Mortgage Corporation (FHLMC) - a private corporation authorized by Congress to provide secondary mortgage market support for conventional mortgages. Also know as Freddie Mac.
• Federal Housing Administration (FHA) - A division of HUD. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA does not lend money.
• Federal National Mortgage Association (FNMA) - A privately owned corporation created by Congress to support the secondary mortgage market. Also known as Fannie Mae.
• Fee Simple - An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. The greatest interest a person can have in real estate.
• Fiduciary - A person in a position of trust and confidence for another.
• Firm commitment - A lender's agreement to make a loan to a specific borrower of a specific property.
• First mortgage - a mortgage having priority over all other voluntary liens against certain property.
• Foreclosure - An authorized procedure taken by a mortgage or lender under the terms of a mortgage or deed of trust for the purpose of having the property sold and the proceeds applied to the payment of a defaulted debt.
• Graduated Payment Mortgage - Residential mortgage which has monthly mortgage payments that start at a low level and increase at a predetermined rate.
• Hazard insurance- A contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards.
• Holdback - That portion of a loan commitment not funded until some additional requirement such as rental or completion is attained. In construction it is a percentage of the contractor's draw held back to provide additional protection for the interim lender, often in an amount equal to the contractor's profit.
• HUD - The Department of Housing and Urban Development, established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency. It is responsible for the implementation and administration of government housing and urban development programs.
• Index - An economic measurement that is used to measure periodic interest rate adjustments for an adjustable rate mortgage.
• Interest rate- The percentage of an amount of money which is paid for its use for a specified time. Usually expressed as an annual percentage.
• Investor - An person or institution investing in mortgages.
• Involuntary lien - A lien imposed against property without consent of an owner. Examples include taxes, special assessment, federal income tax liens, mechanics liens, and materials liens.
• Judgment lien - A lien upon the property of a debtor resulting from the decree of a court.
• Land contract - A contract ordinarily used in connection with the sale of property in cases where the seller does not wish to convey title until all or a certain part of the purchase price is paid by the buyer. This financing vehicle is often used when property is sold on a small down payment.
• Lease - A written document containing the conditions under which the possession and use of real or personal property are given by the owner to another for a stated period and for a stated consideration.
• Legal description - A property description recognized by law which is sufficient to locate and identify the property without oral testimony.
• Lessee (tenant) - The person(s) holding rights of possession and use of property under terms of a lease.
• Lessor (landlord) - The one leasing property to a lessee.
• Lic. Mortgage Broker - The licensed person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. A firm or individual bringing the borrower and lender together and receiving a commission. A mortgage broker does not retain servicing.
• Lien - A legal hold or claim of one person on the property of another as security for a debt or charge. The right given by law to satisfy a debt.
• Limited partnership - a partnership that consists of one or more general partners who are fully liable and one or more limited partners who are liable only for the amount of their investment.
• Loan - A sum of money loaned at interest to be repaid.
• Loan Processing - (1) A System by which a Buyer is evaluated for loan approval. The system compares the stated income, debt, savings and credit against documentation provided by the buyer (or alternative Federal documents). Calculations of Debt-To-Income, Loan-To-Value, Net Worth, Cash Reserves and Compensating Factors are used to develop and Underwriting Opinion. (2) The system of structuring a Buyer's financial situation and documentation in such a way that an Underwriting Opinion can be reached.
• Loan submission - a package of pertinent papers and documents regarding specific property or properties. It is delivered to a prospective lender for review and consideration for the purpose of making a mortgage loan.
• Loan-to-value ratio - The relationship between the amount of the mortgage loan and the appraised value of the security expressed as a percentage of the appraised value.
• Margin - The number of basis points a lender adds to the index to determine the interest rate of an adjustable rate mortgage.
• Metes and bounds - A description in a deed of the land location in which the boundaries are defined by directions and distances.
• Mortgage (Latin = `dead pledge') - A conveyance of an interest in real property given as security for the payment of a debt.
• Mortgage company - A private corporation whose principal activity is the origination and servicing of mortgage loans which are sold to other financial institutions.
• Mortgagee - a person or firm to whom property is conveyed as security for a loan made.
• Mortgage insurance - The function of mortgage insurance is to insure a mortgage lender against loss caused by a mortgagor's default. This insurance may cover a percentage of the mortgage loan depending on the type of mortgage insurance.
• Mortgage life insurance - A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.
• Mortgage note (NOTE) - A written promise to pay a sum of money at a stated interest rate during a specified term. It is secured by a mortgage.
• Mortgagor - One who borrows money, giving a mortgage or deed of trust on real property as security.
• Origination - The process of originating mortgages. Solicitation may be from individual borrowers, builders, or brokers.
• Origination fee - A fee or charge for the work involved in the evaluation, preparation, and submission of a proposed mortgage loan.
• Originator - A person who solicits builder, brokers, and others to obtain applications for mortgage loans. origination is the process by which the mortgage lender brings into being a mortgage secured by real property.
• PITI(principal, interest, taxes, and insurance) - The principal and interest payment on most loans is fixed for the term of the loan; the tax and insurance portion may be adjusted to reflect changes in takes or insurance costs.
• NOTE: In cases where the buyer puts down less than 20% of the Sales Price, Mortgage Insurance will be required as part of the Total Monthly Payment (PITI).
• Plans and specifications - Architectural and engineering drawings and specifications for construction of a building or project, including a description of materials to be used and the manner in which they are to be applied.
• Point - An amount equal to one percent of the mortgage loan. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan.
• NOTE: Basically, the borrower is offering the lender upfront money to get a lower interest rate. The upfront money is to compensate the lender for loss of yield (profit) on the loan because of the lower rate given to the borrower.
• Preclosing - A transaction preceding the formal closing, often used to settle outstanding issues (survey, pest inspection, hazard insurance, flood insurance (if required), with the formal closing shortly thereafter.
• Prepayment privilege - The right given a borrower to pay all or part of a debt prior to its maturity.
• Principal - Amount of debt, not including interest. The face value of a note, mortgage, etc.
• Principal balance - The outstanding balance of a loan.
• Private mortgage insurance (PMI) - Insurance written by a private company protecting the mortgage lender against loss by a mortgage default.
• Quitclaim deed - A deed that transfers (with no warranty) only such interest, title, or right a grantor may have at the time the conveyance is executed.
• Realtor - A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
• Reconveyance - The transfer of land from one person to the immediately preceding owner. It is used when the performance of debt is satisfied under the terms of a deed of trust.
• Redemption period - That period of time in those states where it is allowed in which a foreclosed mortgagor has to buy back his property by paying principal amount and interest and fees.
• Release of lien - An instrument discharging secured property from a lien.
• Right of survivorship - In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
• Right-of-way - A privilege operating as an easement upon land, whereby a land owner, by grant or agreement, gives another the right to pass over land. Also knows as easement.
• Sale-leaseback - A technique in which a seller deeds property to a buyer for a consideration and the buyer simultaneously leases the property back to the seller, usually on a long-term basis.
• Sales Contract - Another name for a sales agreement, purchase agreement, etc. Not to be confused with a land contract, which is a conditional sales contract.
• Satisfaction of mortgage - The recordable instrument given by the lender to evidence payment in full of the mortgage debt. Sometimes knows as a release deed.
• Secondary financing - 'Financing real estate with a loan, or loans, subordinate to a first mortgage or first trust deed.
• Secondary mortgage market- The market where existing mortgages are bought and sold. It contrasts with the primary mortgage market, where mortgages are just originated, and packaged for delivery to the secondary market.
• Servicing - The duties of the mortgage lender as a loan correspondent as specified in the servicing agreement for which a fee is received. Consists of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquency loan follow-up and loan analysis.
• Takeout commitment - A promise to make a loan at a future specified time. It is commonly used to designate a higher cost, shorter term, backup commitment as a support for construction financing until a suitable permanent loan can be secured.
• Tax lien - A claim against property for the amount of its due and unpaid taxes.
• Tenancy - A holding of real estate under any kind of right of title.
• Tenancy at will - A holding of real estate that can be terminated at the will of either the lessor or the lessee, usually with notice.
• Tenancy by entirety - The joint ownership of property by a husband and wife where both are viewed as one person under common law that provides for the right of survivorship.
• Tenancy in common - In law, the type of tenancy or estate created when real or personal property is granted, devised or bequeathed to two or more persons, in the absence of expressed words creating a joint tenancy. There is no right of survivorship.
• Term - The period of time between the commencement date an termination date of a note, mortgage, legal document, or the contract.
• Title - The evidence of the right to or ownership in property.
• Title insurance policy - A contract by which the insurer, usually a title insurance company, agrees to pay the insured a specified amount for any loss caused by defects (clouds) of title to real estate, wherein the insured has an interest as purchaser, mortgagee, or otherwise.
• Underwriting - The analysis and matching of risk to an appropriate rate and term.
• Unencumbered property - A property the title to which is free and clear.
• Usury - Charging more for the use of money than allowed by law.
• Variable rate mortgage - A mortgage agreement that allows for adjustment of the interest rate in keeping with a fluctuating market and terms agreed upon in the note.
• Warehousing - The holding of a mortgage on a short term basis pending either a sale to an investor or other long term financing.
• Warranty deed - A deed in which the grantor or seller warrants or guarantees that good title is being conveyed, as opposed to a quitclaim deed that contains no representation or warrant as to the quality of title being conveyed.
• Zoning - The act of city or county authorities specifying the type of use to which property may be put in specific areas.