A provision of the loan contract that allows the lender to demand full payment of the loan if certain terms of the loan are not honored. For example, the lender could call the loan due if the borrower failed to make a payment or transferred the title of the house.

An adjustable-rate mortgage (ARM) has an interest rate that can change during the term of your loan. It may have an initial interest rate that is lower than a fixed-rate loan but it can change after a designated period of time and then adjusts to the current market interest rate.

The time between interest changes on an adjustable-rate mortgage is referred to as the adjustment interval. Typical intervals are one, three or five years.

Amortization simply means the loan is structured to have the debt gradually paid off by monthly payments of principal and interest over the term of the loan. The loan is paid in full with the last payment.

APR is an annual percentage rate that represents the complete annual cost of your mortgage loan. This means that, in addition to the interest charged on the loan, all other costs such as, discount points, appraisal and credit report fees, processing and document fees, are calculated into your APR or Annual Percentage Rate. Having Annual Percentage Rates on loans makes it easier for the consumer to compare the complete cost of similar loans.

A market value estimate of property made by a qualified appraiser.

An agreement made by the buyer and seller of a property in which the buyer takes over the rest of the loan balance at the terms of the original loan.

Balloon mortgages are not fully amortized loans (fully amortized means that your loan will be paid in full when you’ve made your last payment). Balloon loans have a fixed rate and monthly payment for typically, 5 or 7 years. At the end of this period the full amount of the loan is due in one large "balloon" payment.

This loan is generally used when the buyer of a new property hasn’t sold his home and needs to come up with money to finance a new property. The buyer borrows against the equity in his old home and pays this loan off when the old property sells.

On an adjustable-rate loan a cap limits the amount the interest rate can change either over the entire term of the loan or in one adjustment period.

This cap limits the amount a payment can change on an adjustable-rate loan.

The meeting in which property is transferred from the seller to the buyer. The loan is funded by the lender and all fees are paid

Closing costs are all fees over and above your loan amount and down payment that are associated with processing your loan. These fees are due at the time the property transfers from the seller to the buyer, or at the Closing. Closing costs may include, but are not limited to, title search fee, title insurance premiums, appraisal fee, recording fees, credit report charges, attorney fees or escrow fees, and discount points. Typically, they can be 2-3% of the cost of your home but can range from 1-8%.

A conforming loan is a loan which follows all the guidelines and mortgage limits used by Fannie Mae (Federal National Mortgage Association) or Freddie Mac (The Federal Home Loan Mortgage Corporation). These guidelines cover areas such as maximum loan amount, down payment, borrower credit, and borrower’s income. Most of the loans in the U.S. are conforming loans.

Conditions written in most home-purchase contracts that must be met before the closing. Examples of contingencies: home inspections need to be completed or the buyer needs to obtain the specified financing before the deal is final.

All loans that are not insured or guaranteed by the government.

A clause is in some adjustable-rate mortgages that gives the borrower the option to change to a fixed-rate mortgage after a specific time period.

This ratio compares the buyer's monthly expenses to the buyer's monthly income. All expenses are totaled and then divided by monthly income. Lenders use this figure as part of the qualifying process for the mortgage loan. If calculating only housing related expenses, lenders will usually not want the monthly payment to exceed 28% of monthly income. If calculating total expenses, such as credit cards, car loans, other outstanding loans, and the mortgage, lenders don’t like the payment to exceed 36% of monthly income.

A signed and sealed legal document which transfers title to real property.

Most often refers to borrower's failure to make monthly mortgage payments. A borrower is considered in default status after having missed two or more monthly payments.

Failure to pay the monthly payment by the due date. Status of delinquency precedes status of default.

Decrease in the value of property.

A partial payment buyer makes towards the purchase price of property that is not financed by a loan. Down payments are usually 5% to 20% of purchase price depending on type of loan.

If the borrower sells the property, this clause in the mortgage or deed of trust allows the lender to immediately demand full payment of the balance of the mortgage loan.

Money given by the buyer to the seller at the time of purchase agreement to show good faith. This is not the down payment but a small amount of the purchase price made to bind the transaction.

Any charge against property, such as a mortgage or lien, which can affect its title or limit its use.

The difference between the current market value of property and the amount owed on the mortgage loan.

After the buyer and the seller agree on a purchase price, there is a period in which important documents and money related to the sale of the home are held in an escrow account by an impartial third party escrow service. The loan is said to be “in escrow” during this time. At the closing, when the closing fees have been paid, the loan has been funded, and the property is transferred to the new owner, escrow is said to have closed.

See Federal National Mortgage Association

An agency of the U.S. Department of Agriculture that provides financing to farmers and other qualified applicants who are in need of special assistance.

A government-like agency in the secondary mortgage market that buys conventional mortgages from banks and HUD-approved mortgage lenders. It then sells these loans to investors and guarantees the repayment of the loans.

A division of the Department of Housing and Urban Development (HUD). FHA insures loans to home buyers thus enabling lenders to fund loans to first-time buyers and others who may otherwise have difficulty qualifying for a mortgage loan.

An institution in the secondary mortgage market that buys conventional, FHA and VA loans from banks and HUD-approved mortgage lenders. It then sells these loans to investors and guarantees the repayment of these loans.

A mortgage in which the interest rate remains the same for the entire term of the loan.

A legal procedure in which the lender sells property because the borrower could no longer pay the monthly payments (defaulted). The lender then pays the mortgage debt.

See Federal Home Loan Mortgage Corporation.

An estimate of the final closing costs to be paid at the time the loan is funded. Within three days of receiving your loan application, the lender must provide the borrower with this form.

A government agency (division of HUD) that insures the payment of principal and interest from FHA, VA and other qualifying loans issued by approved lenders.

A type of loan in which the payments will increase by a predetermined amount for a specified time and then no longer fluctuate. It could result in negative amortization. (This means that the monthly payments did not cover all the interest actually owed resulting in an outstanding loan balance even after all loan payments have been made.)

The buyer of real estate is called the grantee.

The seller of real estate is called the grantor.

The current market value of a home minus outstanding mortgage amount.

A reverse mortgage insured by the Federal Housing Administration (FHA) which allows older home owners to convert their home equity into cash.

Another name for a second mortgage taken out against existing equity in the home.

Fannie Mae's reverse mortgage program for home owners 62 or older.

A U.S. government agency that was formed to encourage housing development.

That part of the monthly mortgage payment that lenders hold in an impound account to pay for the various taxes and home insurance on their due dates.

A statistic formulated from the overall level of market interest rates. Lenders use this statistic to arrive at the interest rates for adjustable-rate mortgages.

Loan that is larger than the maximum amount allowed by Fannie Mae and Freddie Mac and usually has a higher interest rate. Also called a non-conforming loan.

A legal claim against a property for the purpose of securing payment of a debt.

The loan to value ratio, or LTV, is the amount of your loan compared to the appraised value of your property. You can arrive at this figure by dividing the loan amount by the appraised value of your property. Lenders will offer better loan programs and rates to borrowers with lower LTV ratios because their risk to default on the loan is lessened.

The amount that is added to the index to arrive at the interest rate for an adjustable-rate mortgage.

When payment is due on the loan.

A mortgage is simply a loan from a financial institution to purchase property. The mortgage consists of the principal (the amount of the loan being borrowed), the interest (the amount you pay to the lenders to borrow the money) and the term (the amount of time you have to repay the loan). The property goes back to the financial institution if the borrower is unable to make payments

If the down-payment is less than 20%, lenders may require mortgage insurance to protect against a defaulted loan.

Occurs when the monthly payments do not cover all the interest actually owed resulting in an outstanding loan balance even after all loan payments have been made.

Loans which do not meet the standards and limits of Fannie Mae or Freddie Mac. Also called Jumbo Loans.

Components of a mortgage payment: principal, interest, taxes and insurance.

Points are fees that lenders can charge to allow you to receive a lower interest rate. One point equals 1% of your loan amount. For example, on a $100,000 loan, one point would equal $1,000. The more points you pay, the greater the discount in your interest rate. Also known as discount points.

To be pre-approved for a mortgage loan means your lender gives you a written commitment to package a loan for you. You have filled out most of the loan application and your income, expenses, assets, and liabilities have been verified. You then receive a pre-approval certificate. This may help you negotiate a better price with the seller and also allows you to close very quickly.

A provision in a loan that allows the borrower to make extra payments or higher than required payments to pay off the loan sooner than original term.

A fee that the lender charges the borrower for early repayment of loan. It is recommended that the borrower avoids loans with prepayment penalties.

To be pre-qualified for a mortgage loan means that your income, assets and debts have been informally analyzed to estimate how much you can afford to spend on your home. It is not a commitment from the lender but is useful in knowing the range of homes you can afford.

Amount borrowed for a loan, less the interest.

Agreement between the seller and the buyer stating the purchase price and sale terms of purchase property.

Paying off an existing mortgage and replacing it with a new mortgage and new terms on same property.

A mortgage which allows older home owners to convert their home equity into cash. The home owner receives a check each month from the lender. This type of loan enables older home owners to get cash from their homes without having to sell or move.

See Closing Costs

A mortgage loan in which the lender receives a pre-determined portion of the future appreciation of the property in return for a fixed, below market interest rate.

The life of the loan, or the amount of time given by the lender to the borrower to make full payment of loan amount. Common loan terms are 15 or 30 years.

A document that shows the owner lawfully owns the property.

Insurance policy which protects against errors in the homeowner’s title.

Usually performed by a title company, the title search is done by examining county records to determine the legal ownership of the property.

The process of determining the credit risk of a potential homeowner by detailed analysis of the borrowers credit history, credit score, employment history, present salary, and assets.

Property free of any mortgages, liens, or other charges against it, making the title free and clear.

A VA (The Department of Veteran’s Affairs) loan is available to qualified veterans or reservists who are first or second time homebuyers. Advantages include: no down payment, lower interest rates, and a loan that can be assumed by a future qualified home buyer.

See adjustable-rate mortgage

A document signed by the borrower's bank, savings and loan, or other financial institution which verifies the account balance and financial status of borrower.

A document signed by borrower's employer which verifies his employment position, present salary, and probability of future employment.