Glossary of Mortgage Terms

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
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Abstract of judgment A court document that states how much the loser of a lawsuit owes, and which creates a lien, or a claim on property, when filed with the county recorder where the property is owned.
Abstract of title A written history of all the transactions that bear on the title to a specific piece of land. An abstract of title covers the time from when the property was first sold to the present. Used by the title company to produce a title binder.
Accelerated cost recovery system Commonly referred to as ACRS (prounounced "acres"), a method of depreciating property rapidly for tax purposes. ACRS property is divided into classes and each class has a predetermined time period over which it may be depreciated. ACRS generally is used for property placed in service after 1980 and by Dec. 31, 1986. Subsequent property must be depreciated under the Modified Accelerated Cost Recovery System (MACRS).
Accelerated depreciation A bookeeping method that allows an owner to deduct a greater portion of the cost of depreciated property in the years right after it is bought.
Acceleration clause The section of a mortgage document that allows the lender to speed up the payment date in the event of a default, making the entire principal amount due.
Acceptance A property seller’s formal, written approval of a buyer’s offer.
Acquisition indebtedness A loan you get to build your house, a loan to buy your house or any loan you take out to substantially improve your home. Interest paid on such a loan is generally tax-deductible.
Acre 43,560 square feet. A plot of land 180 by 242 feet is one acre.
Acre foot The water or other material needed to cover an acre of land one foot deep. Equivalent to 325,851 gallons.
Active participation Just what it sounds like: taking an active role in the management of an enterprise. This is a determining factor for the IRS in rental real estate issues. The rules for active participation are much easier to meet than the material participation rules. An active participant may generally deduct up to $25,000 of rental real estate losses against other income. An active participant must not be a limited partner or own 10 percent or less of the property. See also Material Participation.
Actual age The years since a structure was built. Differs from effective age.
Ad valorem tax A tax based according to item value only, usually property tax based on the just or fair market value of the property.
Add-on interest Interest that is computed at the beginning of the loan, then added to the principal, so that all must be repaid, even if the loan is paid off early.
Addendum A change made to a contract.
Additional principal payment Extra money included with a loan payment to pay off the amount owed faster. Over time, this practice reduces the amount of interest paid.
Adjustable Rate Mortgage, or ARM Mortgage in which the rate of interest is adjusted based on a standard rate index. Most ARMs have caps on how much the interest rate may increase.
Adjusted basis The amount you use to determine your profit or loss from a sale or exchange of property. To determine your adjusted basis for an asset, start with the amount you originally paid, add your cost of improvements and assessments, then subtract deductions you have taken, such as depreciation and depletion.
Adjusted cost basis The amount paid for an item, plus the amount paid for improvements, minus losses and depreciation. When the owner sells the item, the difference between the sales price and the adjusted cost basis is the profit or loss.
Adjustment interval How often the loan's rate can be changed.
Adjustment period The time between changes in the interest rate in an adjustable-rate mortgage.
Administrator's deed A transfer of property arising from probate or terms of a will.
Adverse possession A means of getting title to land by using it without the objection of the title holder.
Adverse use Use of someone's property without permission.
Affirmation 1. A substitute for a legal oath, used by people who object to making oaths. 2. A debtor's agreement to continue paying certain dischargable debts after bankruptcy.
Agency A relationship between two parties -- a client and an agent -- in which the agent represents the client in transactions with a third party.
Agency closing The use of a title company to supervise the meeting where the property is transferred and mortgage is settled.
Agent A person who acts on behalf of another. In real estate, an agent is a person who conducts transactions on behalf of sellers and sometimes buyers.
Agreement of sale A document in which a property's buyer and seller approve the price and other terms of the transfer of title.
Alienation clause A requirement that the borrower pay the mortgage in full upon transfer of the property.
Allowances Money set aside by builders for ameneties, such as driveways, landscaping, carpeting and fixtures, that are standard but have optional designs.
Alternative mortgage A home loan that is not a standard fixed-rate mortgage.
Alternative mortgage products 7/23 and 5/25 mortgages with a one-time rate adjustment after seven years and five years, respectively. Also known as a hybrid mortgage or two-step mortgage.
Amenities Desirable features of a neighborhood, housing development or condominium, such as nearby parks, playgrounds, shuffleboard courts, swimming pools, community centers and bocce courts.
American Society of Home Inspectors An association of professionals who are paid to look at houses to find any problems.
Amortization The payment of a debt in installments over an agreed-upon period, during which principal and interest are paid off.
Amortization schedule A detailed table showing the amortization of a loan which includes the beginning principal amount, period payments, the interest portion of each payment, the principal reduction portion each payment, and the ending balance.
Amortization table Mathematical formula for calculating a borrower's monthly payments, based on the amount borrowed, the interest rate and the term of the loan.
Amortization term The time required to amortize (repay) a mortgage loan. The amortization term is usually expressed in months. A 30-year fixed-rate mortgage, for example, has an amortization term of 360 months.
Amount financed The principal that is financed. It could include the cost of the purchase and other items rolled into the payments.
Annual mortgagor statement A report sent to the borrower every year, detailing how much principal remains on the home loan and how much was paid in taxes and interest during the previous year.
Annual percentage rate (APR) A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing. There is no APR in an automobile lease; instead, the cost of money is expressed as the money factor. A standardized method of calculating the cost of a mortgage, stated as a yearly rate which includes such items as interest, mortgage insurance, and certain points or credit costs.
Anticipatory breach A notification that one party to a contract plans to renege, releasing the other party from having to fulfill its end of the agreement.
Application A document in which a prospective borrower details his or her financial situation to qualify for a loan.
Application fee What the lender charges to process the document in which a prospective borrower details his or her financial situation to qualify for a loan.
Appraisal An estimate of market value placed on all real property and mobile homes. There are two kinds of appraisals: mass appraisal, in which a community is valued for tax purposes; and fee appraisal, in which one property is appraised, often in comparison with other properties. Each is accomplished under a different set of rules and guidelines.
Appraisal fee What someone charges to deliver a professional opinion about how much a property is worth.
Appraisal report A detailed evaluation of the value of a property based on an inspection and a review of the values of nearby, comparable properties.
Appraised value An opinion of a property's fair market value, based on an appraiser's inspection and analysis of the property.
Appraiser A person qualified by education, training and experience to estimate the value of real property.
Appreciation An increase in the value of a property due to changes in market conditions or improvements to the property.
Arbitration A dispute-resolution method in which an impartial third party, agreed upon by all sides beforehand, makes a decision.
Architect One who designs buildings.
Architectural fees Compensation paid to a person who designs buildings.
Arpent An area equal to about 0.845 acres, traditionally used in France, Quebec and Louisiana. Nowadays, hectares and acres are more commonly used measurements of area.
As-is condition A stipulation that a property or item is sold in its current physical state, with no warranties.
Asbestos A fire-resistant element that once was commonly used for insulation. It poses a lung hazard.
Asking price The amount of money the seller requests for the property or item.
Assessed value The value of a property as determined by a public tax assessor for the purpose of taxation.
Assessment 1. A state or local government's determination of a property's worth for tax purposes. 2. A levy placed on a property, in addition to property tax, to pay for improvements such as sidewalks or street lighting.
Assessment rolls Lists of taxable property.
Asset case A bankruptcy proceeding in which there are non-exempt assets that might be available to pay the claims of creditors.
Assets Personal possessions of value, including cash, real estate and investments.
Assignor A person who transfers property to another.
Assumable mortgage A mortgage that a buyer can assume, or take over, from the seller of the property.
Assumption fee A lender's charge for updating records when a buyer takes responsibility for a mortgage from the seller.
Automatic payment An arrangement that authorizes periodic withdrawals to be made from a checking or savings account to pay bills, usually regular monthly payments such as for rent or mortgages.
Automatic stay An injunction that stops lawsuits, foreclosure, garnishments and all collection activity against the debtor the moment a bankruptcy petition is filed.
Automatic transfer An arrangement that moves money at certain specified times, often monthly, from an interest-bearing or savings account into a non-interest, usually checking, account for the payment of checks or other drafts.
Avigation easement An agreement that grants the right to fly airplanes over property, even if the practice causes damage, inconvenience, or loss of property value. Such an agreement usually restricts the property owner from building or growing anything over a specified height.
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Back title letter A document that a title insurance company gives to an attorney specifying condition of the title.
Back-end ratio or back ratio The sum of the house payment and all other monthly debt -- credit cards, car payments, student loans and the like -- divided by before-tax income. Traditionally, lenders were loath to extend borrowers' back-end ratios past 36 percent, but they often do now.
Back-to-back escrow A closing that is set up so that one party can finalize the purchase of one property and the sale of another at the same time.
Backup offer A bid for a property that the owner will consider if the current transaction falls through.
Balance sheet A report of financial condition, including assets, liabilities and net worth.
Balloon loan A loan in which the payments aren't set up to repay the loan in full by the end of the term. At the end comes the balloon payment -- one that is larger than the other, periodic payments and pays off the remaining principal.
Balloon mortgage A loan that has regular monthly payments which amortize over a stated term but call for a final lump sum (balloon payment) at the end of a specified term, or maturity date, such as 10 years.
Balloon payment A loan installment that is larger than the other, periodic payments and pays off the remaining principal.
Bank An institution that acts as a financial intermediary by receiving money from depositors and lenders and also lending to borrowers. A bank must be chartered and meet certain criteria. Chartering is done by the Comptroller of the Currency for national banks, by the Federal Reserve System for state member banks, by the Federal Deposit Insurance Corporation (FDIC) for insured banks, and by state regulatory agencies. Also referred to as a commercial bank.
Bank holding company A company that owns or controls one or more banks or companies associated with banking such as leasing companies, credit companies, etc. It is usually identified by the word Bancorp or Bancshares in the name. The Federal Reserve Board of Governors regulates all bank holding companies.
Banker's Year A 360 day year, used so the year can be divided into 12 equal months of 30 days each. This makes interest calculations simpler and more consistent.
Bankruptcy A legal proceeding that protects a debtor from legal action by some creditors. There are two basic ways of filing for personal bankruptcy. A Chapter 7 bankruptcy declaration gets rid of all debts (except some taxes and maybe alimony payments); Chapter 13 allows a borrower with a steady income to pay off bills over a 36- to 60-month period.
Bankruptcy Code The informal name for Title 11 of the United States Code (11 U.S.C. § 101 - 1330), the federal bankruptcy law.
Bankruptcy trustee A private individual or corporation appointed in all Chapter 7, Chapter 12, and Chapter 13 cases to represent the interests of the bankruptcy estate and the debtor's creditors.
Bargain sale Transfer of property or an item for less than market value.
Basis point One one-hundredth of a percentage point. The difference between 8.04 percent and 8.05 percent is one basis point.
Bearing wall A side of a structure that supports a roof or other parts of the structure.
Bedroom community A suburb in which most residents commute to the city to work.
Beneficiary One who benefits from an insurance policy, will or deed or trust.
Betterment An improvement or replacement that increases a property's value.
Bidding war Multiple, competing offers for a piece of property or item that escalate the price. Usually results in a happy seller.
Bilateral contract A legal agreement in which both parties promise to give each other something. A purchase agreement in which the buyer promises to give money and the seller promises to transfer property is a bilateral contract.
Bill of sale A document that spells out the transfer of property.
Bill presentment An online system that allows customers to receive and view the bill on a computer, and then pay the bill electronically. Users can pay their bills immediately and the money is transferred from the account.
Binder A temporary insurance contract that provides proof of coverage until a permanent policy can be issued.
Biweekly mortgage A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 biweekly payments are each equal to one-half of the monthly payment. The result for the borrower is a substantial reduction in interest payments because the mortgage is paid off sooner. See also prepayment plan.
Blanket insurance A policy that covers common areas of a co-op, condominium or a neighborhood governed by a homeowners association. Such a policy doesn't cover dwellings or contents of dwellings, but areas owned in common.
Blighted area An ugly, run-down neighborhood.
Blue-ribbon condition The state of a house or other item looking brand-new.
Blueprint The drawing of a structure by an architect or designer, used for construction and getting permits.
Board foot A measurement of lumber equivalent to 1 inch thick, 1 foot long, 1 foot wide.
Board of Equalization A government agency that hears appeals of property valuations and classifications. People typically appeal to a board of equalization because they believe their property has been assessed too highly, thus inflating their taxes unfairly.
Boilerplate Standard, routine language in legal documents.
Bona fide In good faith. In real estate, a bona fide purchaser or seller has the legal right to give or receive title.
Bond A debt instrument, issued for a period of at least one year that pays a fixed rate of interest for a specific period. A bond is an IOU from a corporation or government entity. Corporations and governments borrow money from investors by issuing bonds. Bonds represent debt, as opposed to stocks, which represent ownership in a company. Usually, the principal is repaid at the maturity date.
Book value The value of a property, item or company as a capital asset based on its cost plus any additions, subtracting depreciation.
Boot Cash or other property used in an exchange to make the values of property traded equal. For instance, if you trade in a delivery truck on a new model, the cash you pay in addition to your old truck is boot.
Borough In some states, an incorporated town. Also, one of five administrative units of New York City (Bronx, Brooklyn, Manhattan, Queens, Staten Island).
Borrow 1. To get a loan of money. 2. Sand, gravel or other material used for grading.
Borrow pit A hole from which topsoil, gravel or other material has been removed for use in a construction project.
Borrower One who gets a loan.
Boundary The line dividing adjacent properties.
Breach of contract Failure to abide by terms of a legal agreement without a legal excuse.
Breach of covenant Violation of a promise made in a contract or property deed.
Breach of warranty A determination that a seller cannot pass clear title of property to a buyer.
Break-even point The point at which expenses meet income or savings. In home finance, the break-even point often refers to the time it takes to recoup the costs of refinancing a loan or paying discount points.
Bridge loan A loan that "bridges" the gap between the purchase of a new home and the sale of the borrower's current home. The borrower's current home is used as collateral and the money is used to close on the new home before the current home is sold. Some are structured so they completely pay off the old home's first mortgage at the bridge loan's closing, while others pile the new debt on top of the old. They usually run for a term of six months.
Broker A person who earns a commission or fee for bringing together buyers and sellers of real estate, or borrowers and lenders of mortgages.
Broker premium Premium paid to mortgage broker as the "middleman" in the mortgage process between the lender and the borrower. Lenders offer brokers wholesale rates; brokers add a surcharge to cover the cost of underwriting to arrive at the rates charged to borrowers. See underwriter.
Brokerage The business or office of a broker, one who earns a commission or fee for bringing together buyers and sellers of real estate, or borrowers and lenders of mortgages.
Broom clean Ready to be cleaned and painted. The term does not mean immaculate or spotless or even necessarily clean.
Buffer strip 1. A strip of grass or legumes between a parcel and a stream, to protect the stream from runoff, especially runoff containing fertilizer. 2. Land separating two pieces of property.
Builder upgrades Refined features or materials that a builder offers for an extra charge.
Building and loan association A financial institution designed to help members finance real-estate transactions.
Building code Regulations that govern design and materials used in construction.
Building inspector A local government employee who enforces the building code and makes sure construction and renovation work is done properly.
Building moratorium A temporary or permanent halt on construction.
Built-ins Cabinets, ranges, ceiling fans and other items permanently attached to a structure, and which a buyer may assume will remain with the structure.
Bundle of rights A set of legal rights that an owner has regarding a property.
Business bankruptcy A bankruptcy case in which the debtor is a business or an individual involved in business and the debts are for business purposes.
Buy-down mortgage A home loan in which the lender charges below-market interest in exchange for discount points.
Buydown The process of trading money for a lower mortgage rate. The borrower "buys down" the interest rate on a mortgage by paying discount points up front. It can also be a mortgage in which an initial lump-sum payment is made to temporarily reduce a borrower's monthly payments during the first few years of a mortgage.
Buyer broker One who earns a commission from the buyer of a property in exchange for finding a seller and assisting in negotiation.
Buyer's market The condition when sellers significantly outnumber buyers, driving prices down.
Buyer's remorse A buyer's second thoughts after closing on a house or other purchase; anxiety that buying was the wrong thing to do.
Bylaws The written rules governing an organization such as a homeowners association.
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Call option A clause in a mortgage that gives the lender the right to request the balance at any time.
Cancellation clause A provision in a lease or other contract that spells out under what conditions the parties can call off the deal.
Cap The top limit on the amount the interest rate can increase during a single time period of an adjustable-rate mortgage. Every ARM has two caps: a periodic cap, which limits the periodic changes to the interest allowed in the loan agreement, and a lifetime cap, which governs the total increase that can be imposed during the life of the loan.
Capital Money that is used to make money; for example, to buy rental property or a business.
Capital expenditure The cost of making an improvement to a property.
Capital gains The profit that an owner makes when selling real estate or other property.
Capital gains tax A tax on profits from the sale of real estate or investments.
Capital improvement Any permanent structure or other asset added to a property that adds to its value.
Capitalization A way to estimate the value of a rental or commercial property using the rate of return on investment and the property's annual net operating income.
Capitalization rate The estimated percentage rate of return that a property will produce on the owner's investment.
Caps The maximum amount the interest rate can change annually or cumulatively over the life of an adjustable-rate mortgage. For example, if the caps are 2 percent annual and 6 percent life of loan, a mortgage with a first-year rate of 10 percent could rise to no more than 12 percent the second year, and no more than 16 percent over the entire loan term.
Caravan An outing in which a group of real-estate agents look at houses that have been listed for sale recently.
Carport A roofed parking area that lacks one or more walls.
Cash flow The money an investment produces after subtracting cash expenses from income.
Cash-out refinance The taking out of a new mortgage on the same property in which the amount borrowed is greater than the amount of the previous mortgage. The difference is taken out in cash.
Cashier's check A check drawn by a bank on itself, signed by a cashier or bank officer and payable to a third party named by the customer. An instrument used to guarantee funds are available. There is usually a fee associated with cashier's checks.
Caveat A warning or caution.
Caveat emptor Latin for "let the buyer beware." It means that the buyer of a property or item buys it at his or her risk.
Certificate of deposit index A table of interest rates paid on certificates of deposit that is used to determine interest-rate changes for adjustable-rate mortgages.
Certificate of eligibility A document that verifies that the bearer is eligible for a loan guaranteed by the Veterans Administration.
Certificate of occupancy Authorization by a local government giving permission for someone to live in or use a building that has just been constructed or renovated.
Certificate of sale An affidavit issued at a judicial or tax sale that entitles the buyer to the deed to the property purchased after court confirmation.
Certificate of title A statement provided by a title company or attorney stating that the title to the real estate or vehicle is legally held by the current owner.
Chain of title Legal records that trace ownership of a property from the most recent owner to the original owner.
Change frequency The scheduled period in which an adjustable-rate mortgage adjusts.
Change order A document defining an alteration of construction plans.
Chapter 11 A reorganization bankruptcy, usually involving a corporation or partnership. (A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in Chapter 11.)
Chapter 12 Chapter of the Bankruptcy Code designed to give special relief to a family farmer with regular income.
Chapter 13 The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)
Chapter 7 The chapter of the Bankruptcy Code providing for "liquidation," i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.
Chapter 9 Chapter of the Bankruptcy Code addressing the adjustments of debts of a municipality.
Chattel Personal property that can be moved.
Chattel mortgage A loan backed by movable personal property. It is seldom used anymore.
Circuit breaker An electical device that is used to turn power off and on in sectors of a building, and to limit the flow of electricity through a circuit for safety. In taxes, a credit to reduce property taxes for elderly and/or permanently disabled; state-financed property tax credit that decreases as an individual's income increases; usually elderly and/or permanently disabled qualify.
Classified property tax A local government's levy on real estate that varies depending on the use of the property. Usually, commercial property is taxed more heavily than residential property where a classified property tax exists.
Clear title Ownership of property that is free of all claims or disputed interests that would allow others to challenge the transfer of ownership.
Closed-end credit An agreement in which the borrower agrees to pay the loan plus any finance charges in full over a definite period. It usually applies to real estate and automobile loans.
Closing The meeting at which the sale of a property is completed. The buyer signs the lender agreement for the mortgage and pays closing costs and escrow amounts. The buyer and seller sign documents to transfer ownership of the property. Also known as the settlement.
Closing costs Expenses incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, escrow payments, and charges for title insurance. Lenders or Realtors® provide estimates of closing costs to prospective home buyers.
Closing statement A standard form that discloses costs at completion of the sale of real estate, including discount and origination points, settlement fees, title insurance, brokers’ fees and commissions and money set aside in escrow. Typically called a HUD-1 statement.
Cloud on title A claim on title to property that could impair the ability to transfer ownership.
CLTV Combined loan-to-value ratio. A person's overall mortgage debt load, expressed as a percentage of the home's fair market value. Someone with a $50,000 first mortgage and a $20,000 home equity loan secured against a $100,000 house would have a CLTV ratio of 70 percent.
Cluster development A doctrine by which a local government specifies the population density of a planned development, and the developer has the option of making some areas of the development more densely populated than others.
CM Short for compounding method. Used in Bankrate tables. These include: S--Simple interest. A--Compounded annually. H--Compounded semi-annually. Q--Compounded quarterly. M--Compounded monthly. D--Compounded daily.
Co-housing Also called cohousing, cooperative housing and community housing, an arrangement in which dwelling units have access to a shared space with a large kitchen, dining hall, laundry and children's play areas.
Co-maker Any party that co-signs a promissory note. All co-makers assume responsibility for the loan if any of the other co-signers renege.
Co-signer A person who signs a promissory note that is also signed by one or more other parties. All parties take responsibility for the debt if any of the others renege.
COFI Short for cost-of-funds-index. A yield index based upon the cost of funds to savings & loan institutions in the San Francisco Federal Home Loan Bank District. It is one of the indexes commonly used to set the rate of adjustable rate mortgages.
Collateral Property pledged as security to a debt. If the borrower fails to repay the loan, the lender may gain ownership of the collateral and sell it to recover the money.
Collection Steps a lender takes to bring a delinquent mortgage up to date or to begin the foreclosure process.
Combined loan-to-value ratio A person's overall mortgage debt load, expressed as a percentage of the home's fair market value. Someone with a $50,000 first mortgage and a $20,000 home equity loan secured against a $100,000 house would have a CLTV ratio of 70 percent.
Commercial bank A financial institution that provides a broad range of services, from checking and savings accounts to business loans and credit cards.
Commercial property A parcel in a district zoned for business.
Commingling The mixing of money from different sources so that the sources can't be distinguished.
Commission Compensation paid to a real-estate agent or mortgage broker. Often the commission is a percentage of the selling price or the amount borrowed.
Commitment An agreement, often written, in which a lender promises to lend money on certain terms for a specified period.
Commitment fee A sum paid by a borrower to a lender in exchange for a promise to lend money on certain terms for a specified period.
Commitment letter A formal offer by a lender stating the approved terms for lending money to a home buyer.
Common area In a condominium or housing development, property that is not owned by individuals but by all owners collectively.
Common area assessment A levy against individual unit owners in a condominium or planned unit development to pay for upkeep, repairs and improvements to the property's common areas, such as corridors, elevators, parking lots, swimming pools and tennis courts.
Common law Traditional, unwritten law based on English custom.
Common-interest development A housing area in which owners belong to a homeowners association that owns and maintains common areas.
Community bank A bank, often with branches, that is locally owned and operated, and is not part of a bank holding company. Also referred to as an independent bank.
Community property Possessions, real estate and profits that a husband and wife receive during the marriage, excluding gifts and inheritances. Upon divorce, community property is distributed equally. This legal concept is recognized in the states of Arizona, California, New Mexico, Idaho, Nevada, Texas and Washington.
Community Reinvestment Act A federal law that requires financial institutions to lend in areas where they take deposits, including in poor and minority neighborhoods.
Comparables or comps Refers to "comparable properties," which are used for comparative purposes in the appraisal process. Comps are recently sold properties that are similar in size, location and amenities to the home for sale. Comps help an appraiser determine the fair market value of a property.
Comparative market analysis A method of estimating a property's value by comparing the sales prices of similar properties that have sold recently.
Competent Legal ability to make decisions and enter into contracts.
Compound interest Interest that is determined by adding the interest earned in the current period to the principal and computing the next period's interest on this "compounded" total amount.
Compounding method Used in Bankrate tables. These include: S--Simple interest. A--Compounded annually. H--Compounded semi-annually. Q--Compounded quarterly. M--Compounded monthly. D--Compounded daily.
Comptroller of the Currency An officer of the Treasury Department who is responsible for chartering national banks and has primary supervisory authority over them.
Condemnation 1. Legal process in which a government acquires private property for public use. 2. A declaration by a government agency that a property is unfit for use.
Conditional commitment A promise by a lender to make a loan if the borrower meets certain requirements.
Condominium A type of property in which owners hold title to the space they occupy in a multi-unit dwelling. The property is divided between living units and common areas such as parking lots, driveways, elevators, and recreation areas such as playgrounds and swimming pools. Common areas are collectively owned by all owners.
Condominium conversion The process of converting rental apartments, which are leased by the occupants, into condominium units, which are owned by the occupants.
Confirmation Approval by the bankruptcy court of a plan of reorganization that has met the many requirements of code section 1129, Once approval is given, all of the debtors' pre-petition debts are discharged (eliminated) as provided by the plan.
Conforming loan A mortgage that meets the requirements to be eligible for purchase or securitization by one of the government-sponsored enterprises such as Fannie Mae, Freddie Mac and Ginnie Mae. Requirements include size of the loan, type and age.
Consent judgment A judge's legally binding approval of a written agreement by the parties of a lawsuit.
Consideration A thing of value that is negotiated as part of a contract.
Construction budget Money that the builder sets aside for building a structure.
Construction to permanent loan A loan that pays first for construction, then for a long-term, traditional mortgage, as distinct from a construction loan followed by a separate mortgage loan.
Consumer bankruptcy A bankruptcy case filed to reduce or eliminate debts that are primarily consumer debts.
Consumer credit Loans for personal or household use as opposed to business or commercial lending. Loans are generally unsecured, not backed by collateral.
Consumer Credit Counseling Service A service that offers counseling about how to work out a realistic budget and debt repayment plan and work with creditors. The goal is to ensure that debts are paid back over time.
Consumer debts Debts incurred for personal, as opposed to business, needs.
Consumer price index Also known as CPI. A measure of the cost of living determined by the Bureau of Labor Statistics.
Contiguous Adjoining or touching.
Contingency A condition that must be met before a contract is legally binding. For example, home buyers often include a contingency that specifies that the contract is not binding until after a satisfactory report from a qualified home inspector. See home inspection.
Contingent fee A charge that is paid if a specified event occurs.
Contract In real estate parlance, the contract is the legal document by which buyer and seller make offers and counteroffers. The real estate contract describes the property, includes or excludes items in the property, names the price, apportions the closing costs between the parties and sets forth a closing date. When buyer and seller agree on terms and sign the same document, the property is said to be "under contract." More formally known as agreement for sale, purchase agreement or earnest money contract.
Contract for deed An agreement for sale of property in which the buyer takes possession while making payments, but the seller holds title until full payment is made. Also called a land contract.
Contract to purchase A document in which a property's buyer and seller approve the price and other terms of the transfer of title. Also known as an agreement of sale, a purchase contract or a sale contract.
Contractor One who constructs or oversees constuction of a house or a large renovation.
Contractual lien A legal claim against property as a result of a voluntary contract, such as a mortgage.
Controlled growth A set of restrictions set by local government that governs the amount, type and density of new construction.
Conventional loan or conventional financing A mortgage that is not insured or guaranteed by a government agency such as the Federal Home Administration (FHA) or Veterans Administration (VA).
Conventional mortgage Usually refers to a fixed-rate, 30-year mortgage that is not insured by the FHA, Farmers Home Administration (FmHA) or Veterans Administration.
Conversion clause A provision that may appear in an adjustable-rate loan agreement allowing the loan to be changed to a fixed-interest rate loan, usually for an additional charge.
Convertible ARM An adjustable rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.
Convertible mortgage An adjustable-rate home loan which the borrower has the option at specified times of changing into a fixed-rate loan.
Conveyance A document that transfers title to property.
Conveyance tax A tax on the transfer of real property.
Cooperating broker A real-estate broker who finds a buyer for a property and initiates a negotiation and shares in a commission.
Cooperative mortgage A loan that allows the borrower to buy shares of a co-op.
Cooperative or co-op A type of multiple ownership in which a corporation owns property (usually an apartment building) and the occupants own shares in the corporation equal to their portion of the building.
Corporate relocation A situation in which an employer transfers an employee and pays moving expenses.
Corrective work Repairs or maintenance that a buyer requests be done on a house before closing.
Cost-of-funds index, or COFI A yield index based upon the cost of funds to savings & loan institutions in the San Francisco Federal Home Loan Bank District. It is one of the indexes commonly used to set the rate of adjustable rate mortgages.
Cost-plus contract An agreement in which a construction contractor receives a fee based on a percentage of all costs paid for labor and materials.
Counteroffer Rejection of a purchase offer by submission of another offer with different terms (such as price or closing date). A step in the negotiating process.
Coupon The interest rate on a bond. It's expressed as an annual percentage of the face value. A bond that pays 6 percent interest has a 6 percent coupon.
Covenant A promise made in a contract or property deed.
Creative financing An innovative or unusual way of structuring a home loan that allows the buyer to buy the house.
Credit Money that a lender gives to a borrower on condition of repayment over a certain period.
Credit bureau A company that collects and sells information about how people handle credit. It issues credit reports that list how individuals manage their debts and make payments, how much untapped credit they have available and whether they have applied for any loans. The reports are made available to individuals and to creditors who profess to have a legitimate need for the information. The three major national credit bureaus are Equifax, Experian (formerly TRW) and Trans Union.
Credit report A report that contains information about your borrowing habits and money-managing skills. Lenders use it to determine whether to approve a loan and to set the terms. A person with a good credit report is likely to get a better interest rate than someone with a poor credit report.
Credit reporting agency A company that collects and sells information about how people handle credit. It issues credit reports that list how individuals manage their debts and make payments, how much untapped credit they have available and whether they have applied for any loans. The reports are made available to individuals and to creditors who profess to have a legitimate need for the information. The three major national credit bureaus are Equifax, Experian (formerly TRW) and Trans Union.
Credit repository An antiquated term for a credit bureau.
Credit score A number, roughly between 300 and 800, that reflects the credit history detailed by a person's credit report. Lenders calculate this number with the assistance of computer systems as part of the process of assigning rates and terms to the loans they make.
Credit scoring system A numerical system designed to measure the likelihood that a borrower will repay a debt created by assigning scores to various characteristics connected to creditworthiness.
Credit union A nonprofit, cooperative financial institution owned and controlled by the people who use its services, usually a group such as employees in the same company or industry. Credit unions historically have been able to offer lower rates and fees and still operate in the black. Credit unions rely on a financial reserve to absorb unexpected losses from loan defaults or other financial setbacks, and the majority of credit unions carry federal deposit insurance that protects individual accounts up to a specified amount in the event the credit union fails.
Creditor One who is owed money.
Creditor meeting ("341 meeting") The meeting that takes place three to six weeks after the bankruptcy petition is filed, at which time the debtor may be questioned by the court-appointed trustee and the debtors' creditors about the information provided by the debtor on the bankruptcy petition.
Cul-de-sac A dead-end street, often with a broad circle at the end with houses arrayed around it; from the air a cul-de-sac looks like a lollipop.
Curable defect A problem with a property that can be remedied. Peeling paint is a curable defect, but location in a crime-ridden neighborhood is not.
Curb appeal The look of a house when viewed from the street.
Custom builder A contractor that constructs or remodels houses based on plans submitted by the client.
Custom home A house built according to plans from an architect hired by the owner.
Customer Identification File (CIF) A computerized central file of information about a bank’s customers that includes account and credit information.
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Days on the market The period between listing and sale, or listing and a property being taken off the market.
Debt Money one person or firm owes to another person or firm.
Debt consolidation The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. It's also called a consolidation loan.
Debt-to-income ratio The percentage of a person's monthly earnings used to pay off all debt obligations. Lenders consider two ratios, constructed in slightly different ways. The first, called the front-end ratio, the ratio of the monthly housing expenses – including principal, interest property taxes and insurance (PITI) is compared to the borrower's gross, pretax monthly income. In the back-end ratio, a borrower's other debts, such as auto loans and credit cards, are also figured in. Lenders usually take both into account and set an acceptable ratio, which might be expressed as 33/39. Some lenders, and some lending qualifying agencies such as FHA, take only the back-end ratio into account.
Debtor Technically, a person who has filed a petition for relief under the bankruptcy laws. More generally, anyone who owes.
Deductions Tax deductions are expenses the IRS allows you to subtract from your taxable income. If you have taxable income of $30,000 and deductions of $3,000, then you would figure how much tax you owe on the difference -- $27,000. Most deductions are reported by itemizing taxpayers on Schedule A, but some -- such as alimony payments, moving expenses, deductible IRA and Keogh contributions -- are found directly on the long Form 1040.
Deed A document that provides title to property and is filed with a country recorder.
Deed of trust A legal agreement that allows the lender to ask a title or escrow company to begin foreclosure proceedings on a property if the borrower stops paying the loan.
Default The condition that occurs when a consumer fails to fulfill the obligations set out in a loan or lease.
Delinquent mortgage A home loan in which the borrower has failed to make payments on time, as specified in the loan agreement.
Demand deposit A deposit that can be withdrawn at any time without advance notice. The most common type is the checking account.
Deposit Money given by a buyer when making a formal offer to bind the sale. Also called earnest money. It is also the term used for money placed in a bank or other financial institute.
Depreciation The gradual loss of value of a building or other property because of age or natural wear. Automobiles in particular depreciate steeply in their first few years. In taxes, this is the deduction you are allowed for the wearing away and expensing over time of such items as office equipment, vehicles, buildings and furniture. For tax purposes, the IRS determines the amount of time such material is expected to last, and you depreciate, or spread the cost of, the asset over its estimated useful life rather than deducting the entire cost in the year you got it.
Dimension plans Diagrams that show location of building outlines and other improvements on a lot, but which are not as detailed as blueprints.
Direct deposit An automatic deposit of wages or benefits to a customer's bank account.
Direct tax A tax that you pay directly, as opposed to indirect taxes, such as tariffs and business taxes. The income tax is a direct tax, as are property taxes. See also Indirect Tax.
Disclosure 1. A statement listing potential defects to a property, such as the possible existence of lead paint or radon. 2. A statement required by the Truth-in-Lending Act that requires the creditor to tell the debtor the annual percentage rate, finance charges and other terms of a loan.
Discount point A sum a borrower pays to a lender to decrease the interest rate of a mortgage. A point equals 1 percent of the loan amount.
Discount points A type of point (1 percent of a loan) paid by the borrower to reduce the interest rate.
Discount rate The interest rate at which financial institutions that are members of the Federal Reserve System (Fed) may borrow on a short-term basis directly to cover temporary deficiencies in the bank’s reserves. Banks borrow from the Fed as a last resort because frequent borrowing would raise concern by bank regulators.
Distressed property Property that is in poor condition, or whose owner is in poor financial condition.
DNR In Bankrate.com tables of rates, this indicates that the institution did not report the information requested.
Document needs list An inventory of papers a lender needs to underwrite a loan, usually including paycheck stubs, bank statements and tax returns.
Domicile A person's permanent residence.
Down payment The amount of a property's purchase price that the buyer pays in cash and does not finance with a mortgage.
Draw A payment, made periodically, to a construction contractor or subcontractor as work progresses. A draw is part of a construction loan.z
Draw period On a line of credit, the draw period is the fixed time when a borrower can make withdrawals from the account. Once the draw period expires, borrowers may be able to renew the credit line or may be required to pay the outstanding balance in full, or over time.
Dry rot A fungal decay that causes lumber to crumble.
Drywall Panels of gypsum plaster wrapped in thin cardboard and attached to the house framing to create interior walls.
Dual agency The condition of a real-estate agent or broker representing both parties in a transaction.
Due-on-sale clause A condition of a mortgage that states that the loan must be paid when the house is sold.
Duplex One building that contains two housing units.
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Early closing cost reimbursement Some line-of-credit lenders waive underwriting costs when a line is opened in anticipation of future profits. If a line is then closed early, these institutions impose those fees retroactively.
Early occupancy A condition in which the seller allows the buyer to move in before the sale is closed.
Earned and unearned income Two different sources of income: earned income comes from wages, salary or business profits; unearned income comes from sources such as interest, dividends, rental income and pension benefits.
Earned income All the money you earn. This includes any wages, salaries, tips, net earnings (if you're self-employed) and any other income received for personal services. Investment income, such as dividends and interest, is not counted as earned income. See also Unearned Income.
Earnest money Money given by a buyer when making a formal offer to demonstrate that the buyer is serious. Also called a deposit.
Earnest money deposit A deposit made by potential home buyers during negotiations with the seller. The sum shows a seller that a buyer is serious about purchasing the property.
Ease-purchase mortgage A financing option that allows a potential homebuyer to lease a property with the option to buy. Often constructed so the monthly rent payment covers the owner's first mortgage payment, plus an additional amount as a savings deposit to accumulate cash for a down payment. A seller may agree to a lease-purchase option if the housing market is saturated and the seller is having difficult selling the property.
Easement The right to enter or use someone else's property; for example, to build and maintain water, sewer and power lines.
Echeck An electronic version or representation of a paper check. The account holder writes an echeck using a computer or other type of electronic device and transmits the echeck to the payee electronically. Like paper checks, echecks are signed by the payer and endorsed by the payee. Rather than handwritten or machine-stamped signatures, however, echecks are affixed with digital signatures, using a combination of smart cards and digital certificates. The payee deposits the echeck, receives credit, and the payee's bank clears the echeck to the paying bank. The paying bank validates the echeck and then charges the check writer's account for the check.
Effective age An appraiser’s opinion of the physical condition of a building, regardless of its actual age.
Effective federal funds rate The average interest rate that federal funds actually trade at in a day. The federal funds rate will remain stable for months at a time, but the effective rate is a volatile one that will vary every business day.
EFT (Electronic funds transfer) The transfer of money between accounts by consumer electronic systems such as automated teller machines (ATMs), and electronic payment of bills.
Electronic check presentment Called ECP for short, it captures an electronic image of the check at the point of sale. The image, rather than the paper check, is then processed by banks and clearinghouses. The way it works is that a depositing bank sends the paying bank (or a Federal Reserve Bank) an electronic transmission containing the details of a check, such as the amount, account number and check number, that the depositing bank will be presenting later in the day or the following business day.
Eminent domain The constitutional right of a government to take private property for public use in exchange for "just compensation."
Employer-assisted housing An employer-lender partnership to help employees buy houses.
Empty nesters People whose children have grown up and moved out and who might be in the market for a smaller house.
Encroachment An improvement, such as a fence, that illegally extends onto another property or impedes the neighbor's use of that property.
Encumbrance A lien, charge or liability against a property.
End loan The final mortgage on a property, as opposed to a construction or other interim loan.
Environmental impact statement A government-required evaluation of how construction will affect the environment surrounding a site.
Equal Credit Opportunity Act A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity The value of a homeowner's unencumbered interest in real estate. Equity is the difference between the home's fair market value and the unpaid balance of the mortgage and any outstanding liens. Equity increases as the mortgage is paid down or as the property enjoys appreciation.
Errors and omissions insurance Malpractice insurance that protects architects, home inspectors and contractors from claims by clients for professional mistakes.
Escrow An account in which a neutral third party holds the documents and money in a real-estate transfer until all conditions of a sale are met. Also, an account in which money for property taxes and insurance is held until paid; money is added to the account every time a mortgage payment is made.
Escrow account An account in which money for property taxes and insurance is held until paid; money is added to the account every time a mortgage payment is made.
Escrow agent A neutral third party who holds the documents and money in a real-estate transfer until all conditions are met.
Escrow analysis A periodic examination of an escrow account to make sure that enough money is being taken from mortgage payments to pay all taxes, insurance and assessments.
Escrow closing The transfer of title to the buyer after all conditions of sale have been met.
Escrow company A neutral third party who holds the documents and money in a real-estate transfer until all conditions are met.
Escrow payment The portion of a homeowner's monthly mortgage payment that is held by the loan servicer to pay for taxes and insurance. Also known as reserves. The loan servicer holds the escrow funds separately from money meant to pay off principal and interest.
Estate All property one owns, including real estate, chattel and investments.
Eviction The act of kicking someone out of a property, usually for violating terms of a lease.
Examination of title A review of public records and title abstracts to determine the chain of ownership of a property.
Exclusive listing A legal agreement that gives one real-estate agent the right to sell a property for a specified period. The owner retains the right to sell the property himself or herself without paying the agent a commission.
Experian One of the Big Three credit bureaus, along with Equifax and Trans Union.
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Fair Credit Reporting Act A federal law that governs what credit bureaus can report and for how long. It outlines procedures for correcting errors in credit reports. It requires credit bureaus to furnish copies of consumers' credit reports at their request.
Fair Debt Collection Practices Act A federal law that prohibits certain methods of debt collection, such as harassment.
Fair Housing Act A federal law that prohibits discrimination in housing on the basis of race, color, religion, sex, national origin, family status and disability.
Fair market value The price an item would sell for, assuming the buyer and seller both have reasonable knowledge of the item's worth and are not under pressure to buy or sell. In real estate, to determine fair market value it is common to compare other similar properties sold near the same time as your property. Also called true market value or current market value.
Fannie Mae Nickname for Federal National Mortgage Association. It is a government-chartered non-bank financial services company and the nation's largest source of financing for home mortgages. It was started to make sure mortgage money is available in all areas of the country.
Farm Service Agency A branch of the U.S. Department of Agriculture that provides loan guarantees to farmers and residents of rural areas.
FDIC Federal Deposit Insurance Corp. An agency of the U.S. government that manages the bank insurance funds, which insure deposits at banks and other qualifying financial institutions up to $100,000 per account in interest and principal. FDIC insurance is mandatory for all nationally chartered banks and all banks that are members of the Federal Reserve System.
Fed Congress founded the Federal Reserve, the central bank of the United States, in 1913. It conducts the nation's monetary policy and regulates its banks in order to achieve a flexible and stable economy. The seven members of the Board of Governors of the Federal Reserve System are nominated by the President and confirmed by the Senate to serve 14-year terms. The chairman and the vice chairman of the board are named by the President from among the members and are confirmed by the Senate. They serve a term of four years.
Federal Advisory Council An advisory group consisting of one member elected from each of the 12 Federal Reserve Districts who meet with the Federal Reserve Board of Governors at least four times each year to make recommendations on business and financial matters.
Federal Deposit Insurance Corporation An agency of the U.S. government that manages the bank insurance funds, which insure deposits at banks and other, qualifying financial institutions up to $100,000 per account in interest and principal. FDIC insurance is mandatory for all nationally chartered banks and all banks that are members of the Federal Reserve System.
Federal Discount Rate The interest rate at which an eligible financial institution may borrow funds directly from a Federal Reserve bank. Banks whose reserves dip below the reserve requirement set by the Federal Reserve's board of governors use that money to correct their shortage. The board of directors of each reserve bank sets the discount rate every 14 days. It's considered the last resort for banks, which usually borrow from each other.
Federal funds rate The interest rate at which banks and other depository institutions lend money to each other, usually on an overnight basis. The law requires banks to keep a certain percentage of their customer's money on reserve, where the banks earn no interest on it. Consequently, banks try to stay as close to the reserve limit as possible without going under it, lending money back and forth to maintain the proper level.
Federal Home Loan Mortgage Corporation The former name of Freddie Mac. The government-sponsored enterprise buys mortgages from savings and loan associations, pools them with other loans and sells the debt to investors.
Federal Housing Administration (FHA) An agency of the U.S. Department of Housing and Urban Development (HUD) that insures residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money.
Federal National Mortgage Association The former name of Fannie Mae.
Federal Open Market Committee This 12-member committee meets eight times a year to set guidelines for the Federal Reserve regarding the sale and purchase of government securities in the open market. Its chief importance for consumers is that the FOMC can adjust the federal funds rate and the federal discount rate. Banks set their rates based on the FOMC's moves, and therefore the committee's actions effectively ratchet consumer interest rates upward or downward. The committee is comprised of the seven members of the Board of Governors; the president of the Federal Reserve Bank of New York, and four of the presidents of the other 11 reserve banks.
Federal Reserve Board Congress founded the Federal Reserve, the central bank of the United States, in 1913. It conducts the nation's monetary policy and regulates its banks in order to achieve a flexible and stable economy. The seven members of the Board of Governors of the Federal Reserve System are nominated by the President and confirmed by the Senate to serve 14-year terms. The chairman of the Board of Governors is Alan Greenspan. The chairman and the vice chairman of the board are named by the president from among the members and are confirmed by the Senate. They serve a term of four years.
Federal Reserve Board of Governors The seven-member governing board of the Federal Reserve System. Members are appointed by the president and confirmed by the Senate for their 14-year terms. The board supervises the activities of the Fed and, as the majority of the Federal Open Market Committee (FOMC), is principally responsible for the conduct of monetary policy.
Federal Reserve System The central banking system for the United States, known as the "Fed," was established by the Federal Reserve Act of 1913 and serves as the nation's central bank, issuing the nation's currency, conducting monetary policy through the regulation of the money supply and the cost of credit, facilitating the clearing of checks, providing short-term credit to member banks through the discount rate, regulating bank operations, approving interstate bank mergers, supervising bank holding companies, and providing oversight to international banking operations. It includes a seven-member Federal Reserve Board of Governors, 12 Federal Reserve Districts each with a Federal Reserve Bank (and 24 branch offices), the decision-making Federal Open Market Committee (FOMC), and the Federal Advisory Council consisting of an elected member from each Federal Reserve District that makes recommendations to the Board of Governors on business and financial matters.
Federal Savings and Loan Insurance Corporation A federal institution that insures deposits of federally chartered savings and loan associations.
Federal Trade Commission A federal agency that enforces antitrust and consumer protection laws, including the Truth-in-Lending Act, Fair Credit Billing Act, Fair Credit Reporting Act, Equal Credit Opportunity Act, Fair Debt Collection Practices Act and Home Ownership and Equity Protection Act.
Fee simple Outright ownership of real estate, free of any liens or other claims against title.
Fee simple defeasible A condition in which someone has outright ownership of real estate, free of any liens or other claims against title, but whose use of the property has restrictions.
FHA loan A residential mortgage from an approved lender and insured by the Federal Housing Administration. The down payment on an FHA loan usually is less than that for a conventional mortgage. The FHA does not lend money, but nominates approved lenders.
FHA mortgage A mortgage insured by the Federal Housing Administration (FHA).
Fiduciary A relationship in which one person places confidence in another in regard to a particular transaction or one's general affairs or business. The relationship is not necessarily formally or legally established as in a declaration of trust but can be one of moral or personal responsibility.
Fiduciary duty A requirement that a person in a position of trust, such as a banker, real-estate agent, or title agent, must act in good faith and honesty on behalf of a client.
Field changes Modifications made to a building on-site.
Filled land An area where ground level has been raised by adding soil or other material.
Finder's fee A sum paid for producing a buyer or seller.
Firm commitment A lender’s promise to lend money to a specific borrower on specified terms at a certain time.
First lien Primary claim by the lender for satisfaction of outstanding debt. A first mortgage creates a first lien.
First mortgage The primary home loan on a property, which has priority over all other claims to the title.
Five-Year Treasury Constant Maturity An index published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a five-year maturity. Yields on Treasury securities at constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market.
Fixed installment Periodic (usually monthly) payment on a loan whose sum does not vary.
Fixed time The time of year when the owner in a timeshare arrangement is scheduled to have occupancy.
Fixed-rate mortgage A mortgage in which the interest rate does not change during the entire term of the loan, most often 15 years or 30 years.
Fixed-rate option An option available on some home equity lines of credit which allows borrowers to fix the payments and interest on a portion of their balance. Customers usually can exercise the option a handful of times during the lives of their loans, and they may pay a fee for the privilege.
Fixer-upper A house that needs a lot of work and which sells for a discount.
Fixture Personal property that becomes real property when it is attached to a building. Examples include chandeliers, built-in bookcases and cabinets and drapery rods.
Flat fee A fixed charge that a broker requests instead of a commission.
Float The amount of time the bank takes to clear -- or reject (bounce) -- a check for payment; the time at which funds are debited from the issuer’s account.
Flood insurance A policy that pays the homeowner for damage caused by rising water. It does not reimburse the owner for falling water, such as rain falling through a hole in the roof, but pays for damage stemming from flooding.
Flood plain Land that is prone to inundation
Floor The minimum rate possible on a variable-rate loan or line of credit, after any initial introductory rate period. For example, on a credit card with the Prime rate as its index, no matter how low the Prime rate drops, the rate on the line may never decrease below the stated rate floor.
Florida room An enclosed porch built on the back or side of a house, sometimes air-conditioned.
FNMA 30 year Mortgage Commitment delivery 60 days FNMA is the Federal National Mortgage Association, commonly known as Fannie Mae. It purchases Federal Home Administration, Veterans Affairs and conventional mortgages from primary lenders and sells them to investors. The index measures mortgage commitments for delivery within 30 to 60 days; that is the required net yield on mortgage loans that lenders sell to FNMA, which in turn sells them to investors.
For Sale By Owner (FSBO) An arrangement by which a house's owner tries to sell the house without hiring a real-estate agent. Owners do this to avoid paying a commission.
Forbearance Delaying foreclosure, usually because the borrower has arranged to pay the amount in arrears.
Foreclosure The legal process by which a homeowner in default on a mortgage is deprived of interest in the property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Forfeiture Loss of property because of violation of law or contract.
Fraudulent transfers (conveyances) Transfer of property or an obligation made within one year before the filing date of the bankruptcy petition that was made with the intent to hinder, delay or defraud creditor(s).
Freddie Mac Formerly known as the Federal Home Loan Mortgage Corp., a government-sponsored enterprise that buys mortgages from savings and loan associations, pools them with other loans and sells the debt to investors.
Fresh start The characterization of a debtor's status after bankruptcy. i.e., free of most debts. (Giving debtors a fresh start is one purpose of the Bankruptcy Code.)
Front-end ratio or front ratio The percentage of monthly before-tax income that goes toward a house payment. The rule of thumb is that the front ratio shouldn't exceed 28.
FSLIC Federal Savings and Loan Insurance Corp. A federal institution that insures deposits of federally chartered savings and loan associations.
Full income verification A requirement for fully documented proof of income; loans of this type usually offer lower interest rates than no-income or "no-doc" verification loans.
Full market value In reference to property taxes, usually refers to the tax rate applied to 100 percent of the property's value. Also full cash value.
Fully amortized adjustable-rate mortgage A home loan whose interest rate can change, and whose amount is fully paid at the end of the term.
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General contractor The person or company that performs work on a construction project, hires subcontractors and suppliers, or both.
GFE (Good faith estimate) A written estimate of expected closing costs that a lender must provide a prospective homebuyer within three days of the homeowner submitting a mortgage loan application. Brokers and lenders are required by law to make as accurate an estimate as they can.
Gift In the context of mortgage banking, a gift is a bestowal of money that does not have to be repaid, and which is used for a down payment or closing costs. Lenders usually require a "gift letter" stating that the money won't have to be repaid.
Ginnie Mae Also known as the Government National Mortgage Association, a part of the federal Department of Housing and Urban Development that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies.
Government National Mortgage Association (GNMA) A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress in 1968, GNMA has responsibility for the special assistance loan program known as Ginnie Mae.
Grace period If the credit card user does not carry a balance, the grace period is the interest-free time a lender allows between the transaction date and the billing date. The standard grace period is usually between 20 and 30 days. If there is no grace period, finance charges will accrue the moment a purchase is made with the credit card. People who carry a balance on their credit cards have no grace period.
Graduated-payment mortgage (GPM) A home loan that starts out with smaller payments that gradually increase over the first few years, then remain fixed.
Gross income This is all the money, goods and property you receive during the year before you reduce it by using adjustments, deductions or exemptions. People who use the barter system have to include the value of whatever they've received in exchanged for services as part of their gross income.
Ground rent Amount a leaseholder pays periodically for use of land only.
Growing-equity mortgage A fixed-rate home loan in which payments are increased over a specified period, resulting in quicker payment of principal.
Guaranteed mortgage A home loan guaranteed by a government agency or other third party.
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Half-bath A room that contains a toilet and sink, but no tub or shower.
Hazard insurance Insurance coverage that compensates for physical damage to a property from natural disasters such as fire or other hazards. Depending where a piece of property is located, lenders may also require flood insurance or policies covering windstorms (hurricanes) or earthquakes.
Hectare An area equal to 100 meters by 100 meters
HELOC An acronym for home equity line of credit.
High-LTV equity loan A home equity loan that creates a total loan-to-value ratio of up to 125 percent or more. When the total principal of loans leaves homeowners with debt that exceeds the fair market value of the home, the interest paid on the portion of the loan above that value may not be tax deductible.
Historic preservation A movement to protect buildings with historic value from destruction or extensive renovation.
Historic structure A building listed in the National Register of Historic Places and certified as historic by the U.S. Secretary of the Interior.
Home equity The part of a home's value that the mortgage borrower owns outright; the difference between the fair market value of the home and the principal balances of all mortgage loans.
Home equity conversion mortgage A special type of mortgage, sometimes called a reverse mortgage, that enables older homeowners to convert the equity in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans or mortgages, a borrower does not qualify on the basis of income but on the value of the home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.
Home equity line of credit A home equity line of credit is an open-ended loan, paid as revolving debt, that is backed by the portion of the home's value that the borrower owns outright. Interest paid on a home equity line of credit is usually deductible.
Home inspection An inspection by a building professional that evaluates the structural and mechanical condition of a property. The inspection may reveal the need for repairs that the seller may have to complete before the sale of the house will go through. The buyer may also make the house sale contingent on a satisfactory inspection.
Home Ownership and Equity Protection Act A federal law designed to discourage predatory lending in mortgages and home equity loans.
Home warranty A policy that guarantees workmanship on construction of a home and functionallity of some appliances, and which pays for repairs for a specified period.
HomeKeeper Fannie Mae's adjustable rate conventional reverse mortgage, which allows older homeowners to borrow against the value of their homes and receive the proceeds according to the payment option they select. The amount available is based on the number of borrowers and their ages and the adjusted property value. Anyone 62 years of age or older who either owns his or her own home free and clear or has very low mortgage debt is eligible.
Homeowner's insurance An insurance policy that combines personal liability insurance and hazard insurance coverage for a residence and its contents.
Homeowners warranty A policy that guarantees workmanship on construction of a home and functionallity of some appliances, and which pays for repairs for a specified period.
Homestead Under some state laws, a property that carries specific privileges and tax advantages to someone who owns and occupies a house on the land.
Homestead exemption A property tax refund offered by some states and based on taxpayer's primary residence.
Household income The total income of all members of a household. An important yardstick used by lenders evaluating applications for joint credit.
Housing discrimination The illegal practice of discriminating against buyers or renters of dwellings on the basis of race, color, religion, national origin, sex, family status or disability.
Housing expense ratio The percentage of monthly before-tax income that goes toward a house payment. The rule of thumb is that it shouldn't exceed 28. Also known as the front ratio.
HUD-1 statement A document with an itemized listing of closing costs payable at the closing or settlement meeting when buying property. The closing costs can include a commission, loan fees and points, and sums set aside for escrow payments, taxes and insurance. It is signed by both the buyer and the seller, who may be paying some of the closing costs. The statement form is published by the Department of Housing and Urban Development (HUD).
Hybrid mortgage See alternative mortgage products.
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Impact fees Money that local government collects from housing developers to pay for services that residents will need, such as schools, parks, road improvements and sewerage.
Impound account An account in which money for property taxes and insurance is held until paid; money is added to the account every time a mortgage payment is made.
Impounds Money that is placed in an escrow account to pay for property taxes and insurance.
Income property Non-owner-occupied property that is rented to others.
Independent bank A bank that is locally owned and operated, and not associated with a bank holding company. Also referred to as a community bank.
Index A table of yields or interest rates being paid on debt (such as Treasury notes or bank deposits) that is used to determine interest-rate changes for adjustable-rate mortgages and other variable rate loans such as credit card debt. Some of the most common indices are: the one-year Treasury Constant Maturity Yield; the Federal Home Loan Bank (FHLB) 11th District Cost of Funds; prime rate as listed in the Wall Street Journal.
Indexed rate The sum of the published index plus the margin. For example, if the index were 9 percent and the margin 2.75 percent, the indexed rate would be 11.75 percent. Often, lenders charge less than the indexed rate the first year of an adjustable rate mortgage (ARM).
Infrastructure Basic installations that a community needs, such as schools, roads, water and electrical lines, power plants and communications systems.
Initial interest rate The starting percentage a borrower pays for the use of money on an adjustable-rate mortgage.
Inspection report The documentation of a thorough examination of a house's visible structural parts and systems, conducted before purchase.
Installment contract A purchase agreement in which the buyer makes a series of payments.
Insurable title Title that a title insurance company is willing to insure.
Insurance binder A written statement that warrants that an insurance policy will be issued on a property when title is transferred.
Interest 1. Money paid for a borrower’s use of money, calculated as a percentage of the money borrowed and paid over a specified time. 2. A right to, or share of, title to property.
Interest accrual rate Percentage a borrower pays for the use of money, usually expressed as an annual percentage.
Interest deduction Interest expense on a home loan that governments allows homeowners to subtract from their income before computing their income tax.
Interest rate The amount charged per year on a personal or home loan. The rate varies according to the type of loan. Or, the percentage of interest paid for money in deposit accounts, without regard to compounding, shown as an annual figure.
Interest rate buy-down plan A fixed-rate loan in which the borrower pays a fee for a lower rate in the first years (usually two years) of the loan. The rate later rises to its full fixed rate.
Interest rate cap A limit on how much a borrower’s percentage rate can increase or decrease at rate adjustment periods and over the life of the loan.
Interest rate ceiling Specified in the loan agreement, the highest percentage a lender can charge før an adjustable-rate mortgage.
Interest tax deduction Most mortgage holders can deduct all the interest paid on the loan in filing income tax. The deduction applies to people with just one mortgage on a primary residence, as well as those with a combination of loans. Within certain limits set by the IRS, points paid up front on a mortgage are usually deductible in the year the house was purchased.
Interest-only loan An advance of money in which the installments pay only the interest that accumulates on the loan balance. The loan balance does not decrease with the payments. Usually the interest-only payments last for a limited period, after which payments rise and the borrower begins paying principal in addition to interest.
Interstate banking Bank expansion across state lines through the use of bank holding companies and acquisitions of existing banks.
Investment property Real estate that generates income, such as an apartment building or a rental house.
Itemized deductions Expenses that can be deducted to reduce your income after your adjusted gross income before you calculate the tax you owe. Itemized deductions include medical expenses, taxes, deductible interest, charitable contributions, casualty and theft losses, unreimbursed employee expenses and miscellaneous deductions.
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Joint credit Issued to a couple based on both of their assets, incomes and credit reports. It generally results in a higher credit limit, but makes both parties responsible for repaying the debt.
Joint liability The responsibility of two or more people to repay a debt.
Joint Petition One bankruptcy petition filed by a husband and wife together.
Joint Tenancy Ownership by two people (usually spouses) in which each own an undivided interest in the entire peoperty. When one joint tennant dies, the other has the title to the entire property.
Judicial foreclosure A court judgment ordering that a property be sold to repay a debt.
Jumbo mortgage A jumbo mortgage is a home loan that exceeds the limits set by Fannie Mae and Freddie Mac ($322,700 this year; $484,050 in Alaska, Hawaii and the U.S. Virgin Islands). A jumbo mortgage will carry a higher interest rate than a conventional mortgage.
Junior mortgage A home loan than is subordinate to the primary loan, or first mortgage.
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Land contract An agreement for sale of property in which the buyer takes possession while making payments, but the seller holds title until full payment is made.
Late charge A fee imposed on a borrower for not paying on time.
Late payment A sum a borrower sends to a lender that is received past the date when it was due.
Late payment fee Charge imposed on a debtor for not paying on time.
Latent defect A deficiency in a piece of property that can’t be seen easily, such as termite damage or the presence of dangerous levels of radon.
Lease A written agreement in which the property owner allows a tenant to use property in exchange for rent, and for a specified period. Or, a written agreement in which a car dealer allows a consumer to use a vehicle in exchange for payments for a specified period.
Lease option A written agreement in which an owner allows an individual to use a property in exchange for rent, and also gives that individual the right to buy the property for a specified price within a specified period.
Lease-purchase mortgage A financing option that allows a potential home buyer to lease a property with the option to buy. Often constructed so the monthly rent payment covers the owner's first mortgage payment, plus an additional amount as a savings deposit to accumulate cash for a down payment. A seller may agree to a lease-purchase option if the housing market is saturated and the seller is having difficult selling the property.
Leasehold estate A tenant’s right to use a property for a fixed period.
Legal blemish A problem with a property, such as a lien on the title or a zoning violation.
Legal description A way of identifying a piece of property in writing that is accceptable to a court.
Lender Fees Lender and broker fees charged on the loan. These fees may vary from lender to lender. Fees such as underwriting, processing, administrative, lock, commitment, courier, etc., are included. Other closing costs such as title search/exam/insurance; prepaid insurance, taxes, interest; doc stamps, etc., are not included.
Lessee The person who signs a lease.
Lessor The person who grants a lease.
Letter of intent A formal notification that a buyer intends to buy property. It is not legally enforceable.
Leverage The use of a small amount of cash and a large loan to buy something.
Liabilities A borrower's debts and legal obligations.
Liability insurance A policy that protects owners against claims by other parties of negligence, personal injury or property damage.
LIBOR Rate LIBOR stands for London Inter Bank Offer Rate. It's the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London. It is a standard financial index used in U.S. capital markets and can be found in the Wall Street Journal. In general, its changes have been smaller than changes in the prime rate. It's an index that is used to set the cost of various variable-rate loans, including credit cards and adjustable-rate mortgages.
Lien A legal claim against property for payment of a debt or for services rendered. One who holds a lien has the right to sell the property to obtain the money, or to recover the money when the property is sold. Valid liens are filed with county recorder's offices.
Life cap A limit on how much a borrower’s percentage rate can increase or decrease over the term of the loan.
Life-cycle cost analysis A method of calculating a building’s expected operating and maintenance costs over its lifespan.
Lifetime rate cap In an adjustable rate mortgage (ARM), it limits the amount that the interest rate can increase or decrease over the life of the loan. See also caps.
Like-kind exchange A tax-deferred exchange of similar items you use in your business or hold for investment, not including securities and other indebtedness or interests such as stocks and bonds. The items must be the same type, but they do not need to be of the same grade or quality.
Line of credit A commitment by a financial institution to lend up to a specified maximum amount to a customer during a specified period of time.
Liquid assets Cash and other property that can be converted quickly and easily into cash.
Liquidated damages A sum specified in a purchase agreement that one party must pay the other in the event the contract is breached.
Liquidation A sale of a debtor's property, with the proceeds to be used for the benefit of creditors.
Liquidity The ability to convert assets to cash quickly, without significant losses.
Lis pendens A pending lawsuit; in real estate, the constructive notice filed in public records that a legal dispute exists over a piece of property.
Listing An authorization for an agent to market and sell a piece of property.
Listing inventories The dwellings for sale in a given market.
Live-work space A dwelling, such as a loft, in which the occupant both lives and conducts business.
Livery of seizin Under common law, the process of transferring title.
Load-bearing wall Any exterior wall, and any interior wall that supports its weight and the weight of other parts of the building above it.
Loan application A document in which a prospective borrower details his or her financial situation to qualify for a loan.
Loan application fee A sum charged by a lender for accepting a document in which a prospective borrower details his or her financial situation to qualify for a loan.
Loan commitment A lender’s promise to advance a specific sum on specific terms.
Loan origination The process by which a mortgage lender obtains a mortgage secured by real property. An origination fee is charged by the lender to process all the forms involved in obtaining a mortgage.
Loan processing fee A charge levied by a lender for accepting a loan application and gathering the supporting paperwork.
Loan term The period specified in the promissory note for a borrower to pay a loan, such as a mortgage. Most conventional mortgages have a loan term of 15 or 30 years.
Loan-to-value (LTV) ratio The ratio of the mortgage loan amount to the property's appraised value or selling price, whichever is less. For example, if a home is sold for $100,000 and the mortgage amount is $80,000, the house has an 80 percent LTV.
Local taxes In addition to federal and state taxes, those taxes imposed by local municipalities (such as a city or a county) for its government services.
Lock A lender's guarantee that the mortgage rate quoted will not change for a specific period. The borrower wants the lock to stay in effect until closing.
Lock-and-float Rate programs offered by companies that allow borrowers to lock in the current interest rate on a mortgage for a specified period of time, while also letting them "float" the rate down if market conditions improve before closing.
Lock-in A lender's guarantee that the mortgage rate quoted will not change for a specific period. The borrower wants the lock to stay in effect until closing.
Low-doc loan A mortgage that requires less verification of income or assets (or both) than a conventional loan. These low-documentation loans are designed for the entrepreneur or self-employed, for recent immigrants with money in foreign countries or for borrowers who cannot or choose not to reveal information about their incomes. You need a substantial down payment, excellent credit history and will usually pay a higher interest rate.
Low-documentation loan A mortgage that requires less verification of income or assets (or both) than a conventional loan. Low-documentation loans are designed for the entrepreneur or self-employed, for recent immigrants with money in foreign countries or for borrowers who cannot or choose not to reveal information about their incomes. You need a substantial down payment, excellent credit history and will usually pay a higher interest rate.
Low-down mortgages Mortgages with a low down payment, usually less than 10 percent. Fannie Mae and Freddie Mac design loan programs that spell out a set of standards for lenders. In recent years these government-chartered agencies have made low-down mortgages more available through programs such as Fannie Mae's Flexible 97 and Freddie Mac's Alt 97. The "97" refers to the amount of the home's value a lender will cover in a mortgage, leaving a low 3 percent down payment required.
Low-down-payment loan A mortgage or loan in which the buyer puts down a small down payment and borrows a very high percentage of the purchase price.
Lowball offer A way-below-market bid a buyer makes on a property or item.
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Maintenance fee A periodic assessment that residents pay to their homeowners or condominium association to pay for maintenance and repair of common areas.
Manufactured housing Factory-built home that can be placed temporarily or permanently upon land. Styles vary from modest trailers to dwellings that look like site-built houses.
Margin Expressed as percentage points, the amount that a lender adds to an index to arrive at the final interest rate. For example, if the index is 9 percent and the margin 2.75 percent, the final interest rate is 11.75 percent.
Market conditions Factors that affect the sales of homes in an area, such as interest rates, the unemployment rate, home appreciation, weather and time of year.
Market value The price at which a given property or product sells between a willing, unpressured buyer and seller who know all the pertinent facts about the property or product.
Master-planned community A large development that features neighborhoods, parks and other recreation areas, schools and shopping centers. There often is an entrance, sometimes guarded and gated.
Maturity The date on which the principal balance of a loan becomes due and payable. It also marks the date when a bond pays off its principal.
Maximum financing A mortgage made on a property in which the lender’s lowest permissible down payment has been made.
Mechanic's lien A legal claim against property for payment of services or goods provided by someone who performed work on the property.
Mechanical systems A house’s heating, cooling, plumbing and electrical apparatus.
Median price In a given area, the amount paid for a house in which half of the houses in that area sell for less and half sell for more.
Mediation A method of resolving a dispute using a neutral party (a "mediator") who actively works to resolve the differences. A mediator cannot make a binding decision, as opposed to an arbitrator, who can.
Member bank A commercial bank with membership in the Federal Reserve System, and which maintains reserve deposits in the Federal Reserve Bank in its district.
Merged credit report A summary of one's credit history from the big three credit bureaus: Equifax, Experian and Trans Union.
Metes and bounds A surveyor's legal description of a parcel of land, defined by measurements and angles.
Mill In reference to property taxes, a unit of taxation that equals 1/10th of one cent, or $1 on every $1,000 of taxable property value.
Mint condition A term describing a building or item that's just like new.
Mixed-income housing A neighborhood whose residents earn widely varying wages and salaries.
Modification A change in terms of the loan agreement.
Monthly periodic rate The interest rate factor used to calculate the interest charges on a monthly basis. The factor equals the yearly rate divided by 12. See periodic rate.
Monthly Treasury Average (1 year) An index determined by the monthly average of one-year Treasury bills.
Mortgage A legal agreement that uses property as collateral to secure payment of a debt. The legal agreement means that when a mortgage is on a house, the lender can take possession of the house if the borrower stops making payments.
Mortgage acceleration clause A provision of a loan agreement that lets a lender demand payment of the full balance under specified circumstances, such as sale of the property, default or refinancing.
Mortgage banker One who originates home loans, sells them to investors, services monthly payments and handles escrow. Some mortgage bankers sell their loans on the secondary market.
Mortgage broker An individual or company that brings borrowers and lenders together for the purpose of loan origination. Unlike a mortgage banker, brokers do not fund the loan but work on behalf of several lenders. Brokers typically require a fee or a commission for their services. See broker premium.
Mortgage criteria Mortgage and mortgage refinance tables include the rates, points and annual percentage rates (APR) lenders charge for a loan on a one-unit, single-family, owner-occupied residence by a new customer with good credit, average income and no other account relationship with the financial institution. An indication of good credit may be a FICO score of 650 to 719, two years tenure in your current home and position, paying all bills on time and not having a bankruptcy within the last two years. Loans and rates quoted are available to all applicants. Loan quotes do not include pre-payment penalties or negative amortization. Mortgage refinance tables do not include cash-out loans. Rates are good as of the survey date and may change without notice. The rate, terms and APR of the loan may vary based on a number of factors.
Mortgage insurance Mortgage insurance is a policy that insures the lender against loss should the homeowner default on a mortgage. Depending on the loan, the insurance can be issued by a government agency such as the Federal Housing Administration (FHA) or a private company. It is part of the monthly mortgage payment. See also private mortgage insurance (PMI).
Mortgage interest expense A tax term for interest paid on a loan secured by your home that is fully deductible, up to certain limits, when you itemize income taxes.
Mortgage life insurance A term policy that pays off the mortgage if the borrower dies.
Mortgage refinance A refinanced mortgage is one in which a borrower pays off an old loan with a new loan. People who refinance a mortgage usually do so to get a lower interest rate, lower their payments or to take cash out of their equity.
Mortgage-interest deduction Interest expense on a home loan that governments allow homeowners to subtract from their income before computing their income tax.
Mortgagee One who lends for the purchase of property, using the property as collateral to assure payment.
Mortgagor One who borrows for the purchase of property, using the property as collateral to secure payment.
Motivated buyer A prospective buyer who has a strong reason to buy, and quickly.
Motivated seller A home seller who has a strong reason to sell quickly, possibly because of an upcoming relocation or an impending default on a loan.
Move-in condition A house that is ready for a new occupant.
Multidwelling property Primarily a tax term denoting a piece of real estate with more than one dwelling, but having one property taxpayer. An example would be an apartment building.
Multifamily mortgage A loan to buy an apartment building in which the property is the collateral.
Multiple Listing Service (MLS) A database provided by the Board of Realtors that lists all properties in an area for sale or lease, excluding properties that are being sold directly by their owners without the aid of a real-estate agent.
Municipal housing inspector A government employee who visits houses under construction to verify that the contractors and subcontractors abide by building codes.
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National bank A bank chartered by the federal government and a mandatory member of the Federal Reserve System.
National Credit Union Association Created in 1970 to charter and supervise federal credit unions.
National Credit Union Share Insurance Fu Insures credit union deposits.
National Foundation for Consumer Credit A nonprofit organization that educates consumers about using credit wisely. The NFCC is the parent group for Consumer Credit Counseling Service.
NCUA National Credit Union Association: Created in 1970 to charter and supervise federal credit unions.
NCUSIF National Credit Union Share Insurance Fund: Insures credit union deposits.
Needs-based pricing An unrealistic method by which a seller decides how much to ask for a house. Instead of pricing the house based on prices paid recently for comparable properties, the seller bases the asking price on how much he or she paid for the house and any upgrades.
Negative amortization A gradual increase in mortgage debt that happens when the monthly payment does not cover the entire principal and interest due. The shortfall is added to the remaining balance to create "negative" amortization.
Net cash flow Incremental after-tax income plus depreciation expense resulting from investment.
Net income The amount left after taxes have been paid.
Net worth The total value of all assets, such as house, car, furniture and investments, minus all debts, such as mortgages and credit card bills.
NFCC The National Foundation for Consumer Credit is a nonprofit organization that educates consumers about using credit wisely. The NFCC is the parent group for Consumer Credit Counseling Service.
Niche banks Smaller banks that cater to particular communities or certain industries. These banks have been thriving in the fallout from mega-bank mergers.
NIMBY (Not In My Backyard) A term, usually used derisively by people who don't live in the affected vicinity, to describe residents' opposition to the introduction of something they don't want in their neighborhood, such as a group home, toxic waste incinerator or prison.
No cash-out refinance A home loan for a lower interest rate in an amount that does not exceed closing costs and the original mortgage’s outstanding principal.
No-doc or low-doc loan These no-documentation or low-documentation loans are designed for the entrepreneur or self-employed, for recent immigrants with money in foreign countries or for borrowers who cannot or choose not to reveal information about their incomes. You need a substantial down payment, excellent credit history and will usually pay a higher interest rate.
Non-assumption clause A provision of a home loan that prohibits the transfer of the mortgage to another borrower without the lender’s permission.
Non-liquid asset A possession that can't be transformed readily into cash. Stocks and bonds are liquid assets because they can be sold easily; a house is a non-liquid asset because it takes time to sell.
Non-recurring closing costs One-time fees paid at a real-estate settlement, including origination, appraisal, points, title insurance and credit report.
Nondischargeable debt A debt that cannot be eliminated in bankruptcy. Examples include some taxes and, usually, federally guaranteed education loans.
Nonresident alien A person who is not a permanent resident or a citizen of the United States, and who is generally taxed on income from U.S. sources.
Note The document giving evidence of mortgage indebtedness, including the amount and terms of repayment.
Note rate Percentage a borrower pays for the use of money, usually expressed as an annual percentage, as specified on a promissory document.
Notice of default A step in the foreclosure process in which the lender formally tells a court that the borrower is in arrears.
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Office of Comptroller of the Currency Known as OCC: Charters, regulates and supervises all national banks. It also supervises all federal branches and agencies of foreign banks.
Office of Thrift Supervision A bureau of the U.S. Treasury Department established in August 1989. OTS has the authority to charter federal Thrift Institutions and serves as the primary regulator of approximately 2,000 federal and state chartered thrifts.
One-year adjustable Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.
One-Year Treasury Constant Maturity An index published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a one-year maturity. Yields on Treasury securities at constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market.
Online banking Access by personal computer or terminal to bank information, accounts and certain transactions via the financial institution’s web site on the Internet. Also known as Internet banking.
Open house A selling tool in which a real-estate agent advertises a property for sale and invites people to visit without making an appointment.
Open listing A property that a number of brokers can market and sell for a commission.
Open-end credit A line of credit that may be used up to a set limit. Also called a charge account or revolving credit.
Option A legal agreement giving someone the right to buy, sell or lease a property or item at specified terms for a specified period.
Oral agreement A spoken, unwritten legal agreement, worth the paper it's printed on.
Original principal balance The amount borrowed.
Origination fee The fee a lender charges to process a loan. It usually includes the cost to prepare loan documents, check a borrower's credit history, inspect the property and sometimes conduct an appraisal.
OTS Short for Office of Thrift Supervision. A bureau of the U.S. Treasury Department established in August 1989. OTS has the authority to charter federal Thrift Institutions and serves as the primary regulator of approximately 2,000 federal and state chartered thrifts.
Owner financing A transaction in which the seller of a house provides all or part of the financing. Sellers may provide financing because they need to sell the property right away or they are having difficulty selling the house and want to provide financing as an incentive to a buyer.
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Passive activity An activity in which you do not materially participate. Real estate rentals and limited partnerships are examples of passive activities.
Passive loss Loss from a passive activity. Passive loss rules limit the amount of passive loss you can deduct to the total of your other income from passive activities.
Payment cap A contractual limit on the size of the monthly payment of an adjustable-rate mortgage or other variable rate loan.
PC banking A service that allows a bank customer to obtain account information and perform certain bank transactions through a personal computer.
Per-diem interest Interest that is charged daily; usually refers to the partial month's interest that the buyer pays on the mortgage covering the period from the day of closing to the end of the month.
Periodic rate The interest rate described in relation to a specific amount of time. The monthly periodic rate, for example, is the cost of credit per month; the daily periodic rate is the cost of credit per day.
Periodic rate cap In an adjustable-rate mortgage (ARM), it limits how much an interest rate can increase or decrease during any one adjustment period. See caps.
Personal loan A personal loan is a loan from a lender that is not secured by any property. Rates tend to be similar to those of credit cards, which are another type of unsecured loan. The personal loan rates quoted on Bankrate are for a $3,000 fixed-rate loan and a term of two years.
Personal property Chattel, or any movable, personal property that is not permanently attached to a house.
Personal property taxes Also called property taxes, can include real property, intangible or tangible property tax. Generally, everything that is not real estate is considered personal property. To differentiate between real property and personal property, the tax assessing official must consider the manner in which property is attached to or secured at the location.
PITI Stands for principal, interest, taxes, and insurance, which are the usual components of a monthly mortgage payment.
PITI reserves A cash amount that a homebuyer must have on hand after making a down payment and paying all closing costs. The reserves required by the lender must equal the amount a homebuyer would pay for principal, interest, taxes and insurance for a specified number of months.
Planned Unit Development (PUD) A type of real estate project that gives each unit owner title to a residential lot and building and a nonexclusive easement allowing access to the project's common areas. See common area assessment.
Plat A map that shows a parcel of land and how it is subdivided into individual lots. Plat maps also show the locations of streets and easements.
PMI Private mortgage insurance. A policy that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Although PMI protects the lender, it is paid monthly by the borrower. Private mortgage insurance usually is required if the down payment is less than 20 percent of the sale price.
Point A point equals 1 percent of a mortgage loan. Some lenders charge "origination points" to cover expenses of making a loan. Some borrowers pay "discount points" to reduce the loan's interest rate.
Portfolio lender A company that underwrites mortgage loans and keeps them on the books instead of selling them on the secondary market.
Possession The condition of having signed all the papers at closing and having received keys to the house.
Power of attorney A document in which the signer authorizes someone to conduct business in his or her name -- signing title documents and checks, for example.
Pre-approval This process goes a step further than pre-qualification. It means the lender has contacted the borrower's employer, bank and other places to verify all claims of earnings and assets. In return, the borrower receives a letter stating the lender is willing to grant a mortgage for a specified amount, within a limited period of time.
Pre-approval letter A document from a lender or broker, estimating how much a potential home-buyer could borrow, based on current interest rates and a preliminary look at credit history.
Pre-qualification An early evaluation by a lender of a potential home buyer's credit report plus earnings, savings and debt information. The home buyer gets a nonbinding estimate of the mortgage amount the borrower would qualify for, or how much house the borrower can afford. Buyers who pre-qualify can go a step further and seek pre-approval.
Pre-sold home A house that has been sold before it is built. The opposite of a house built on spec.
Prepaid expenses or prepaid items or prepaids Recurring costs such as taxes, insurance and interest that are paid at closing and which cannot be financed.
Prepaid interest Interest that a borrower pays before it is due, usually to save taxes.
Prepayment penalty A lender’s charge to the borrower for paying off the loan before the end of the term.
Prepayment plan Similar to a biweekly mortgage, but operated by a third party. In it, the borrower pays to the third party half the monthly mortgage payment every two weeks. At the end of the year, the plan operators typically take the extra money that results from the process and send lump sum payments to the participants' lenders. Instead of 12 monthly payments of $665, or $7,980 a year, on the 30-year mortgage, the borrower would make 26 biweekly payments of $332.50, or pay $8,645 annually. As a result, total interest would shrink by $34,130 and the loan term would shorten to less than 24 years.
Prime for life A type of line of credit loan coveted by consumers that fixes the interest at the prime rate for the life of the loan.
Prime rate The interest rate a bank charges its best or "prime" customers. Each bank will quote a prime lending rate. Many institutions quote prime rates established by large money center commercial banks. There is also a prime rate average listed in the Wall Street Journal that is an average of the largest commercial banks. The rate given to consumers on their loans is often based as the prime rate plus a certain percentage, which represents the lender's assessment of the risk in lending, plus its profit margin.
Principal 1. The amount of money borrowed. 2. The amount of money owed, excluding interest. 3. The client of a real-estate agent.
Principle of conformity The notion that a house will fetch a fair price if it is situated among houses of similar size, style and condition.
Principle of progression The notion that a smaller house's value will be enhanced if it is near larger, fancier houses.
Principle of regression The notion that the value of a larger or fancier house will be reduced if it is near smaller, lower-priced houses.
Private mortgage insurance (PMI) A policy that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Although PMI protects the lender, it is paid monthly by the borrower. Private mortgage insurance usually is required if the down payment is less than 20 percent of the sale price.
Probate sale Sale of property after the death of the owner, supervised by a court, with proceeds divided among creditors and heirs.
Production home A mass-produced house, built as part of a housing development.
Promissory note A written promise to repay a loan by a specified time.
Property report 1. A legal document prepared by a surveyor that illustrates the locations of all visible public and private improvements relative to property boundaries. 2. A legal disclosure that developers of timeshare properties are required to give to prospective buyers.
Property tax A levy by a state or local government on real estate and personal property whose amount varies depending on the property’s value.
Property tax deduction Property tax expense on a home loan that the federal government allows homeowners to subtract from their income before computing their income tax.
Property value The worth of a piece of real estate, based on the price a buyer and seller would negotiate.
Proprietary lease An agreement that gives a shareowner in a co-op the right to occupy a particular dwelling unit.
Prorate To divide equitably. In real estate, refers to how property taxes are divided between buyer and seller based on when the property changes hands.
Punch list A record of things that need to be fixed by the contractor or seller before the buyer takes possession.
Purchase agreement A document in which a property's buyer and seller approve the price and other terms of the transfer of title. Also known as an agreement of sale, a purchase contract or a sale contract.
Purchase contract A document in which a property's buyer and seller approve the price and other terms of the transfer of title. Also known as an agreement of sale or a sale contract.
Purchase option In real estate, an agreement under which a portion of monthly rent may be credited toward eventual purchase of the property. In automobiles, the portion of a lease that establishes the amount a lessee may pay the lessor at the end of the lease to purchase the vehicle. The price is usually the residual value.
Purchase-money mortgage A home loan that a borrower obtains to buy property, using the property as collateral for the loan.
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Qualifying ratios As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt. The first qualifying ratio, called the front ratio, is the percentage of monthly before-tax income that goes toward a house payment. The back ratio is the sum of the house payment and all other monthly debt -- credit cards, car payments, student loans and the like -- divided by before-tax income.
Quit claim deed The formal document by which a claim in property is denied. Often used to clear a cloud on title.
Quitclaim deed A document that transfers the grantor's interest in a title to property and is filed with a county recorder. It often is used among family members and can be used to clear up a gap in the chain of title.
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Radon A radioactive gas found in some homes that in sufficient concentrations can cause health problems. Many home inspections check for radon.
Rate Percentage a borrower pays for the use of money, usually expressed as an annual percentage.
Rate index A table of yields or interest rates being paid on debt (such as Treasury notes or bank deposits) that is used to determine interest-rate changes for adjustable-rate mortgages and other variable-rate loans.
Rate lock A lender's guarantee that the mortgage rate quoted will not change for a specific period. The borrower wants the lock to stay in effect until closing.
Rate-improvement mortgage A home loan that allows the borrower a one-time interest rate cut without paying refinancing charges.
Reaffirmation agreement An agreement by a Chapter 7 debtor to continue paying a dischargeable debt after the bankruptcy, usually to keep collateral or mortgaged property that would otherwise be subject to repossession.
Real estate agent A person who is licensed to represent a buyer or seller of land and the buildings and other improvements on it.
Real estate attorney A lawyer who specializes in the transfer of land and buildings and property tax issues.
Real estate broker A person who is licensed to represent a buyer or seller of land and the buildings and other improvements on it and collect commissions for the work. Most brokers have agents working for them and collect a portion of their commissions in exchange for providing office space, marketing and other overhead.
Real Estate Investment Trust Called a REIT. A trust that invests primarily in real estate and mortgages and passes income, losses and other tax items to its investors.
Real estate or real property Land and the buildings and other improvements on it.
Real Estate Settlement Procedures Act Known as RESPA. A consumer protection law that requires lenders to give homebuyers advance notice of closing costs, which are payable at the closing or settlement meeting. It outlaws kickbacks and illegal markups in costs.
Real property Permanent, nonmovable property, such as land and buildings.
Realtist A member of the National Association of Real Estate Brokers.
Realtor A real-estate agent or broker who is affiliated with the National Association of Realtors. "Real-estate agent" is a generic term and Realtor is a trademarked term.
Recession A prolonged period (popularly defined as two successive quarters) in which economic activity shrinks.
Reconveyance The transfer of title to the borrower after a mortgage has been paid fully.
Recorder A public official, usually at the county level, who keeps and maintains real-estate records.
Recording The filing of a document following the procedures to make it an official public record.
Recording fee A charge by a local government to file official records of a real-estate transaction.
Redemption Debtors may keep exempt secured property even though they owe money on it by paying the creditor the collateral value of the property rather than the amount of the debt. Note that in some cases the "value" of the collateral may be less than the amount owed on it. In these cases it may be advantageous for the debtor to redeem the property.
Redlining The illegal practice of lenders and insurance companies to deny policies, loans and other services to people because of their neighborhood or ethnicity.
Refinancing The repayment of a mortgage with another mortgage. Homeowners typically refinance to take advantage of lower interest rates or to transform equity into cash.
Regional bank A bank with a primary market in a regional or metropolitan area but takes deposits from throughout the state in which it is located. It is typically more expansive than a community bank, but more restrictive than a national financial institution.
Regulation Z A rule, enforced by the Federal Reserve Board and implementing the Truth-in-Lending Act, that requires lenders to disclose all credit-related costs including the annual percentage rate.
Rehabilitation mortgage or rehab mortgage A home loan that provides money for the purchase and reconstruction or improvement of a property.
REIT Short for Real Estate Investment Trust. A trust that invests primarily in real estate and mortgages and passes income, losses and other tax items to its investors.
Reliction An increase in the amount of land that occurs when a river or sea permanently withdraws.
Relocation benefits Money and other consideration that an employer gives to employees who move or are transferred at the company’s behest. Can include reimbursement for packing and moving, house-hunting trips, and temporary housing and storage.
Relocation company A business that specializes in providing help to employees who move for their employer.
Remaining balance Unpaid principal on a loan.
Remaining term The time it will take to pay off the rest of an installment loan as scheduled.
Rent loss insurance Hazard insurance that pays for a loss in rental value or rental income if damage causes the property to become unfit for habitation.
Renter's insurance A policy that pays for replacement of possessions but not for loss or damage to real estate.
Reorganization plan A Chapter 11 or 13 plan describing the terms by which the debtor intends to repay his debts, usually over a three- to five-year period.
Repayment period In a home equity line of credit, that portion of the life of the loan that follows the draw period. During the repayment period, the borrower cannot take out any more money, but must pay down the loan.
Repayment plan Modification of an existing loan after the borrower has been delinquent. Often used when the borrower misses payments but the lender does not foreclose.
Replacement cost The amount one would have to pay to rebuild and refurnish with materials and items of similar value.
Replacement reserve fund Money that is set aside by a homeowners association or condominium board to replace common property, such as playground equipment.
Repossession The taking back of property after a borrower has stopped making payments.
Resale value The sales price that would be negotiated by a willing seller and buyer for an existing home or property.
Rescission Cancellation of a contract by agreement of the parties.
Reserve fund Money that a homeowners or condominium association sets aside for major repairs and capital improvements.
Resident alien A person who is a legal permanent resident, but not a citizen, of the United States.
RESPA The Real Estate Settlement Procedures Act. A consumer protection law that requires lenders to give homebuyers advance notice of closing costs, which are payable at the closing or settlement meeting. It outlaws kickbacks and illegal markups in costs.
Restrictive covenant A clause in a deed that restricts the use of property for a period of time.
Restructured loan A mortgage in which basic terms -- such as interest rate, term and monthly payment -- have been changed to prevent foreclosure.
Return on investment The profit an investment generates, expressed as equity divided by cash flow.
Reverse mortgage A loan that allows an older homeowner to convert built-up equity into cash. The loan comes due when the owner dies, sells the house or moves out.
Revolving credit A line of credit that does not have a specified repayment schedule but may require a minimum payment to cover interest and contribute to paying off principal. Typical of credit card loans, checking account cash reserve or overdraft accounts that have pre-approved lines of credit.
Revolving line of credit An agreement to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it has been repaid. Most credit cards offer revolving credit.
Right of first refusal An agreement by an owner to give another party an opportunity to buy the property before it is offered to anyone else.
Right of rescission A provision of the federal Truth-in-Lending Act that allows a borrower to change his or her mind and cancel a loan within three days.
Roll in To include certain closing costs, such as origination and settlement fees, in the mortgage. Rolling in the fees results in lower out-of-pocket closing costs and higher monthly payments.
Roll-in loans A refinancing loan that rolls any closing costs or fees into the loan. These programs best serve people who have a reasonable amount of home equity, want to reduce their overall interest expense, and plan to stay in their homes. Most refinance programs also cap the allowable LTV at 97 percent, which means some borrowers won't have the option of rolling their costs in no matter what.
Rural Housing Service A U.S. Department of Agriculture program that provides financing to farmers and certain borrowers to purchase rural property when other funds are not available.
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Sale agreement A written contract signed by the buyer and the seller of a house stating the terms and conditions under which the property will be sold.
Sale contract A written agreement between buyer and seller that details price and other terms and conditions of sale.
Sale-leaseback A transaction in which the seller transfers the deed to the buyer, then rents the property from the new owner.
Savings and Loan Association A state or federally-chartered depository financial institution that was primarily a provider of home mortgages but since deregulation in the 1980s to offer services similar to a commercial bank.
Savings bank A type of depository financial institution, found mostly in the northeastern United States, that accepts consumer deposits and invests these funds primarily in residential mortgages and high-grade securities. Mutual savings banks are owned by their depositors, while stock savings banks issue common stock to the public.
Schematic designs Structural plans for a building’s mechanical systems, such as its plumbing and electrical functions.
Second mortgage A loan using a home's equity as collateral and which is subordinate to the original mortgage (i.e., the first mortgage has priority before all others).
Secondary mortgage market The trade in home loans that are bundled together and sold as securities to investors. It frees money so more people can get mortgages.
Secured debt A debt that is secured by a lien on debtor's property that may be taken by the creditor in case of nonpayment by the debtor. A common example is a mortgage loan.
Secured loan Borrowed money that is backed by collateral.
Security Property designated as collateral.
Seller broker One who earns a commission from the seller of a property in exchange for finding a buyer and assisting in negotiation.
Seller carryback A form of financing in which the seller of a property accepts a down payment and agrees to accept payments until the property is paid for.
Seller take-back More commonly called seller carryback: A form of financing in which the seller of a property accepts a down payment and agrees to accept payments until the property is paid for.
Seller's market The condition when buyers significantly outnumber sellers, driving prices up.
Semi-custom home A house in which the buyer cannot alter the layout, but can specify amenities such as type of cabinets and floor coverings.
Service charge Fees charged to customers for specific services or as a penalty for not meeting certain requirements such as insufficient funds in a checking account.
Servicer An organization that collects monthly mortgage principal and interest payments from home owners and manages escrow accounts for paying taxes and homeowners' insurance premiums. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Settlement See closing.
Settlement statement A document that details who has paid how much to whom.
Share certificate A certificate of deposit issued by a credit union that pays a specific dividend if held for a specific period. It's the credit union equivalent of a certificate of deposit. A penalty is usually assessed if all or any of the principal is withdrawn before maturity.
Shared-appreciation mortgage A home loan in which the lender offers a below-market interest rate in exchange for sharing in the profit when the home is sold.
Shared-equity partnership An arrangement in which one buyer lives in a home and the other has an ownership stake as an investment. The partners split the capital gain after the property is sold.
Simple interest Interest computed only on the principal balance, without compounding.
Special assessment A fee levied by a government or homeowners association to pay for improvements, repairs or other special needs.
Speculation home or spec home or built on spec A house built before a buyer has been found, on the assumption that one will be found.
Square footage The area within a building, calculated by measuring the rooms by length and width.
Standard payment calculation A method of figuring out how much monthly payments should be, based on the beginning loan balance, the term and the interest rate.
Starter home A dwelling that is relatively small and inexpensive and bought as a first home.
Statement A detailed record of transactions in a bank customer’s account(s) for a certain period, usually each month, which shows debits, credits, transfers, payroll deposits, account balance, check fees, service charges, ATM activity, etc..
Steering An illegal procedure in which a prospective buyer is shown properties in specific neighborhoods where the residents share the buyer's ethnicity.
Step-rate mortgage A fixed-rate home loan on which payments are lower at the beginning, typically for two years, and which then rise.
Subagent A real estate agent who finds a buyer for a property, and is not the property’s listing agent. The subagent usually earns a portion of the commission.
Subcontractor A person or company that does specialty work for a general contractor.
Subordinate loan A mortgage whose priority is below that of another mortgage; i.e., a second or third mortgage or a home-equity loan.
Subprime borrower A borrower with a less-than-perfect credit report due to late payments or a default on debt payments. Lenders often grade them based on the severity of past credit problems, with categories ranging from "A-" on down to "D" or lower.
Subprime mortgage A mortgage granted to a borrower considered subprime, that is, a person with a less-than-perfect credit report. Subprime borrowers have either missed payments on a debt or have been late with payments. Lenders charge a higher interest rate to compensate for potential losses from customers who may run into trouble or default.
Survey A precise measurement of a parcel's dimensions, relation to landmarks and location and dimensions of improvements.
Sweat equity The value of the work put into a house by its owner.
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Tax deduction An expense that governments allow you to subtract from your income before computing your income tax. People who don't take the standard deduction on federal income taxes can deduct the costs of mortgage interest and some loan points and property taxes.
Tax lien A claim, or obstacle, to the sale of property because of unpaid taxes. The property's title can't be transferred until liens are paid.
Tax sale A government sale of property to recover unpaid taxes.
Tax shelter An investment that is planned to result in tax-favored treatment. The IRS has placed restrictions on tax shelters where the principal purpose of the activity appears to be the avoidance or evasion of taxes or where the activity might result in more deductible expenses than the investors have at risk.
Tax stamps A levy by a state or local government on the change of ownership of real estate.
Tear-down condition A house that is bought so it can be razed to make room for a newer house; usually located in a spectacular setting.
Teaser rate Often called the introductory rate, it is the below-market interest rate offered to entice customers to switch credit cards or lenders.
Ten-Year Treasury Constant Maturity An index published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a 10-year maturity. Yields on Treasury securities at constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market.
Tenancy by the entirety Ownership by spouses in which each spouse owns an undivided interest in the entire property. When one spouse dies, the other has title to the entire property.
Tenants in common Ownership by two or more people in which each person owns an undivided interest in the entire property and all have equal rights to use the property. When one tenant in common dies, that person's interest may be sold, mortgaged or transferred to another in a will.
Term The time to the maturity of a loan or deposit, expressed in months or years.
The Fed Congress founded the Federal Reserve Board, the central bank of the United States, in 1913. It conducts the nation's monetary policy and regulates its banks in order to achieve a flexible and stable economy. The seven members of the Board of Governors of the Federal Reserve System are nominated by the President and confirmed by the Senate to serve 14-year terms. The chairman of the Board of Governors is Alan Greenspan. The chairman and the vice chairman of the board are named by the president from among the members and are confirmed by the Senate. They serve a term of four years.
Third-party originator One who takes all or part of the mortgage application and transfers or sells it to a lender.
Thrift A general term encompassing savings banks, savings and loan associations, and credit unions.
Time is of the essence A phrase inserted in contracts to require punctual performance.
Timeshare A form of multiple ownership of a piece of property in which each owner has access to the property for a period during the year. Most timeshares are vacation homes in resort areas.
Title Ownership of real property to the exclusion of anyone else's right to claim the property. Evidence of title is recorded in a deed and held in a county recorder's office. The terms "title" and "deed" often are used interchangably; strictly speaking, the deed is the document and the title is the ownership right that is recorded in the deed.
Title binder Written evidence of temporary title insurance coverage.
Title company A company that checks a property's title for liens and other obstacles to sale, fixes any clouds to title, supervises the closing transaction, and makes sure that money transfers in a purchase are processed correctly.
Title defect A legal claim by others to property, or the right to make demands upon an owner.
Title insurance A policy that guarantees that an owner properly has title to a property and can legally transfer title to someone else. Should a problem arise, the title insurer pays any legal damages.
Title search A check of public records to make sure that the owner of real property has the right to transfer ownership. A title search is designed to spot gaps in the chain of title, liens, problems with the legal description of the property, judgments against the owner, and the like.
Total expense ratio The percentage of monthly debt payments compared to total before-tax income.
Trade equity A swap of property, such as real estate or a car, as part of a down payment for other real estate.
Trading down Selling a more-expensive house to buy a less-expensive dwelling.
Trading up Selling a house to buy a more-expensive house.
Transfer tax A levy by a state or local government on the change of ownership of real estate.
Treasury bill or Treasury note Debt issued by the federal government and sold as a security.
Treasury index An index used to determine interest rate changes for certain adjustable rate mortgages (ARMs). It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
Trust account An account used by a real estate broker or escrow agent to handle earnest money, funds set aside for repairs and other money that the buyer and seller put up before closing.
Trustee A person who holds and manages assets for the benefit of beneficiaries.
Truth in Lending Act A federal law that requires lenders to provide certain information so borrowers can compare one loan to another. The most important facts lenders must provide are: finance charges in dollars and as an annual percentage rate (APR); the credit issuer or company providing the credit line and the size of the credit line; length of grace period, if any, before payment must be made; minimum payment required; any annual fees; and fees for credit insurance, if any.
Truth-in-Lending A federal law that requires lenders to disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Two-step mortgage A home loan in which the interest rate stays the same for a period (often the first five or seven years), then changes to another interest rate for the remainder of the loan period.
Two-Year Treasury Constant Maturity An index published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a two-year maturity. Yields on Treasury securities at constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market.
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U.S. Department. of Housing and Urban Development A federal department that formulates and enforces housing policy and oversees the Federal Housing Administration.
Underwriter A company or person undertaking the responsibility for issuing a mortgage. Underwriters analyze a borrower's creditworthiness and set the loan amount.
Underwriting The process by which a lender decides whether to lend money, based on the value of the property, the borrower's credit history and any other relevant factors.
Unearned income Income such as interest, dividends, capital gains or rents, as opposed to earned income, such as wages, tips and salaries.
Unrecorded deed A document that transfers title to property, but which is not filed with a county recorder.
Unsecured claim A claim or debt for which a creditor holds no special assurance of payment, unlike a mortgage or lien; a debt for which credit was extended based solely upon the creditor's assessment of the debtor's future ability to pay.
Unsecured loan An advance of money that is not secured by collateral.
Upgrades Options that allow buyers of newly built houses to select higher-quality floor coverings, cabinets, windows and other amenities for more money.
Upside-down A position that consumers find themselves in when the outstanding balance of a loan is higher than the current fair market value of the property purchased with the loan. In automobiles, it is most common in the early years of a lease or loan, when the car is depreciating rapidly but the balance owed remains very high. Also see depreciation.
Upzoning The process, often controversial, of changing the zoning in an area, usually to allow greater density or commercial use. Sometimes the term is used to mean the opposite -- changing the zoning in a broad area to limit growth and density.
Usury Illegal, excessive interest.
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VA loan A mortgage made by an approved lender and guaranteed by the Department of Veterans Affairs, often with a low down payment.
VA mortgage A loan backed by the Veterans Administration. It requires very low or no down payments and has less stringent requirements for qualification. Members of the U.S. armed forces are eligible for the loans under certain qualifying conditions. Contact the local VA office for information.
Variable interest rate Percentage that a borrower pays for the use of money, and which moves up or down periodically based on changes in other interest rates.
Variable-rate mortgage Home loan in which the interest rate is changed periodically based on a standard financial index. Also called an adjustable-rate mortgage.
Verification of employment Confirmation that a loan applicant is telling the truth about where he or she works and how much he or she makes.
Veterans Administration (VA) Now called the U.S. Department of Veterans Affairs, which overseas the VA loan program, a benefit to veterans that allows them to buy homes with no down payment.
Voluntary lien A legal claim against property for payment of a debt or for services rendered, and placed upon the property with the consent of the owner.
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Waiver The intentional and voluntary giving up of rights or claims.
Walk-through A buyer's final inspection of a property, usually on the day of closing or the day before.
Wall Street Journal prime rate The fluctuating prime rate published in the Wall Street Journal, which surveys several banks to arrive at its number.
Warranty 1. A document certifying clear title to real estate. 2. A guarantee from a dealer or a manufacturer that a vehicle or product will perform as expected or specified. An auto warranty usually covers specified mechanical problems for a set number of miles or period.
Warranty deed The gold standard in deeds for home buyers: It proclaims that the grantor warranties (guarantees) that the property has clear title and is being conveyed free of liens or encumbrances.
Workout A mortgage in which basic terms -- such as interest rate, term and monthly payment -- have been changed to prevent foreclosure.
Wraparound mortgage A refinanced home loan in which the balances on all mortgages are combined into one loan.
WSJ Prime Rate The initials stand for the Wall Street Journal, which surveys large banks and publishes the consensus prime rate. It's the most widely quoted measure of the prime rate, which is the rate at which banks will lend money to their most-favored customers. The prime rate will move up or down in lock step with changes by the Federal Reserve Board. For more, see prime rate.
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Zero-lot line Placement of a house on a lot so that one wall is on the property boundary.
Zoning Areas within a local government's jurisdiction in which certain types of land uses are allowed. For example, a zoning ordinance might permit houses but not factories in a neighborhood.
Zoning variance An exception allowed in a zoning ordinance, granted case-by-case by local government.