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Mortgage Terms Glossary
Abstract of Title
A written history of ownership of a parcel of land, summarizing the material parts of any occurrence affecting title of said land.
Acceleration Clause
A common provision of mortgage which allows the holder to demand the entire outstanding mortgage balance due and payable in the event of a
breach of the mortgage contract.
Accept
An "accept" finding on the LP (Loan Prospector)feedback certification indicates that the borrower's credit risk has been evaluated by LP and
found to be acceptable. The seller (AHM) will not be required to repurchase the loan in the event of a loan default, provided all of the information used by LP in its evaluation was true, complete and
accurate.
Acceptance
An offeree's consent to enter into a contract and be bound by the terms of the offer.
Access Rights
A right to ingress and egress from one's property; may be implied or expressed.
Accommodation Party
A person who lends his name to guarantee a loan for another by signing a note, bill or other negotiable instrument; the endorser becomes the
guarantor of the loan and is therefore responsible for its repayment.
Accrued Interest
Interest accrued for the period of time elapsed since interest was last paid.
Acknowledgment
A formal declaration attached to or part of an instrument, made before a fully authorized officer (usually a notary public) by the person who
has executed that instrument, the execution being a free act and deed.
Acquisition Loan
See Land Acquisition Loan.
Acre
A unit of measure of land, 43,560 square feet.
Action of Quiet Title
A court action to remove any interest or claim in or title to real property; to remove a cloud on title.
Act of God
An event which causes damage by nature such as a flood, earthquake or winds, an occurrence which was not caused by man.
Addendum
An agreement or list that is added to a contract, agreement or other document such as a letter of intent. FHA and VA require that an addendum be
added to or incorporated in a sales contract, if it is written prior to the appraisal.
Adjourn
When a scheduled closing date/settlement date passes without completing the signing of the mortgage documents and/or the disbursement of
funds.
Adjustable Rate Mortgage (ARM)
A mortgage loan or deed of trust, which allows the lender to adjust the interest rate in accordance with a specified index periodically, and as
agreed to at the inception of the loan. Also called a variable rate mortgage (VRM).
Adjusted Basis
The original cost of a property, plus the value of any expenditures for improvements to the property, minus any depreciation taken.
Adjustment Date
The date of periodic interest rate adjustments for an adjustable mortgage loan.
Ad Valorem Taxes
Real estate taxes on the assessed value of property.
Advance
In real estate, a partial disbursement of funds under a note. Most often used in connection with construction lending.
Adverse Action Notice
Written notification sent to the applicant advising of a refusal to grant credit in the amount or on the terms requested in an application.
The form currently used by AHM allows the applicant to see specific reasons for the denial of credit, if applicable, and if their application was denied due to information contained in their credit report, it allows the applicant to obtain a copy of the credit report directly from the credit bureau(s) free of charge.
Adverse Possession
The right by which someone occupying a piece of land acquires title against the real owner, if the occupant's possession has been actual,
continuous, hostile, visible and distinct for a statutory period.
Affidavit
A sworn statement in writing, usually requiring notarization.
Affiliate
A person or organization associated with another as a subsidiary or member.
Agent
One who legally represents another, called a principal, from whom express or implied authority has been derived.
Air Rights
The ownership of the right to use, control or occupy the airspace over a designated property, without the right to use the land surface.
Air Space
The space above the surface of land that is owned by the landowner and that may be divided and sold or leased to others.
Alienation
The transfer of title to real property from one owner to another. Alienation Clause A type of acceleration clause that demands payment of the
entire balance upon sale or other transfers of title; also called a "due-on-sale" clause.
Amenity
A feature that enhances property value. Examples are off-street reserved parking within a condominium community, the proximity of public
transportation, tennis courts or a swimming pool.
American Land Title Association (ALTA)
A national association of title insurance companies, abstractors and attorneys specializing in real property laws. The association speaks for
the title insurance and abstracting industry and establishes standard procedures and title policy forms.
A-Minus
"A-Minus" eligibility indicates that a borrower may have weak credit or limited capacity to take on additional credit, but still has the
potential to be an acceptable credit risk.
Amortization, Interest-only
Payment of debt in regular, periodic installments of interest only (as opposed to principal and interest only payments).
The principal amount borrowed is repaid in one payment. See Amortization, Normal.
Amortization, Negative
Payment of debt in regular, periodic installments generally of principal and interest.
It is possible, due to the nature of this type of amortization, that a loan payment is less than the interest alone due for that payment. In that situation, even though regular payments are made on time, the amount due (principal) increases. See Amortization, Normal
Amortization, Normal
Payment of debt in regular, periodic installments of principal and interest.
Each mortgage must provide through regular monthly payments the full amortization of the loan in no more than thirty (30) years. Amortization must commence no later than sixty
(60) days after final disbursement of the mortgage proceeds, except for interest only loans and negative amortizing loans on which the
amortization of the principal shall not be required.
Amortization Schedule
A table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made.
Amount Realized
The amount of money or fair market value of other property received in a sale or exchange.
Annual Mortgage Statement
A report prepared by the lender or servicing agent for the mortgagor, stating the amount of taxes, insurance and interest that was paid during
the year and the outstanding principal balance that remains.
Annual Percentage Rate (APR)
The actual rate of interest paid plus the items listed on the Good Faith Estimate as "prepaid finance charges"; the APR represents the
percentage of the total finance charge to the amount of the loan. The APR is disclosed to conform to federal truth-in-lending statues.
Annuity
Periodic fixed payments to be received for a specified period of time or for life, in consideration for prior lump sum or installment payments
made to the other party in the annuity contract.
Applicant
A prospective mortgage borrower.
Apportionment
A pro-rated division and distribution of prepaid or accrued taxes,
prepaid insurance premiums, prepaid rents and other income and expenses. When a property is sold, apportionment is used to distribute or collect funds due from the buyer and seller for income and expenses.
Appraisal
An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.
Appraiser
One qualified by education, training and experience to estimate the value of real and personal property.
Appreciation
An increase in value for any reason, except inflation.
Appurtenance
Anything belonging to or attached to land such as a barn, garage or easement, that is part of the property and is therefore included in a sale
or transfer.
APR
See Annual Percentage Rate
Arm's Length Transaction
A transaction in which the parties involved are entirely independent of each other, deal with each other as strangers, and have no reason for
collusion.
Arrears
The situation in which mortgage interest and real estate taxes are paid at or after the end of the period for which they are levied. Late
payment is also described as being in arrears.
Asbestos
An isolative fire and heat resistant material commonly used in insulation and roofing.
Assemblage
The process of acquiring adjacent parcels of land to confirm into a single site for development.
Assessed Valuation
The value that a taxing authority places upon real property that becomes the
base for computing local property taxes.
Assessment
A value factor assigned to real property and used to determine real property taxes; the process of reaching the assessed valuation.
Also, an add-on tax to raise money for a special purpose.
Assessment Rolls
The public record of taxable property.
Assessor
A public official who appraises taxable property
to reach its assessed valuation or base on which taxes are calculated.
Asset
A property or right owned, tangible or intangible, that has monetary value and is capable of providing future
benefits to its owner.
Assignee
One who receives ownership of or interest in property.
Assignment
The transfer of ownership, rights or interest in property, as in a mortgage, lease or deed of trust.
Assignment of Lease
A mortgage clause that passes control of leases on an income producing property to the lender. Often a condition to making a loan to ensure, in
the case of mortgage default, that any continuing income from the property goes directly to the lender.
Assignment of Mortgage
A document that evidences the transfer of a mortgage from one party to another.
Assignment of Rents
A transfer to the mortgagee of the right to collect rents from tenants in the event of default by the property owner.
Assignor
One who transfers to another ownership or interest in property.
Assumptions
An agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust. The lender must usually approve
the buyer (new debtor) before releasing the seller (existing debtor) from the liability.
Assumption of Mortgage
A buyer's acceptance of primary liability for payment of an existing note secured by a mortgage or deed of trust. The seller remains secondarily
liable unless specifically released by the lender.
Attached Housing
Residences that are constructed having common walls.
Attachment
The act of taking property by judicial order into the custody of the court as security for payment of a judgment in an impending suit.
Attorney-in-Fact
The agent who is granted authorization to perform specific acts on behalf of the principal.
Autolock
AHM's automated lock-in system accessed thru UniFi.
Automatic Lender
A VA program that enables eligible single-family lenders to conduct the processing and closing of VA single-family loan applications without
VA's prior review. The VA is, however, responsible for performing the appraisal report of all VA loans including those performed via the Automatic Lender program.
Automatic Underwriter
Technology based automated loan underwriting systems used to help expand access to mortgage finance for qualified borrowers.
The most prevalent are FNMA's Desktop Underwriter (DU) and FHLMC's Loan Prospector (LP).
Average Life of a Mortgage
A statistic used to determine the true yield of a mortgage. For example, a 30-year mortgage is said to have an average life of 12 years.
Investors base the yield of a mortgage on the average life as opposed to the original term.
Backup Offer
A secondary offer to buy property although the first offer has been accepted, useful in case the first offer fails.
Balance Sheet
A report of the financial position of a business at a specific point in time, showing its assets, liabilities and owner's equity.
Balloon Mortgage
A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a
lump sum at a specified date, usually at the end of the term.
Balloon Payment
The unpaid principal amount of a mortgage or other long term loan due on a specified date in a lump sum.
Bankrupt
A person, firm or corporation who, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a
court appointed trustee for the protection of creditors. Bankruptcy may be declared under one of several chapters of the federal bankruptcy code: Chapter 7, which covers reorganization of bankrupt businesses;
Chapter 11, which covers reorganization of bankrupt businesses; Chapter 12, which covers certain farm bankruptcies; and Chapter 13, which covers workouts of debts by individuals.
Basis
The cost of a property, including improvements, refinancing costs, closing costs and similar costs, less depreciation. Basis is used for
tax purposes to calculate any profit or loss realized on sale of a property. This profit is subject to capital gains tax.
Basis Point
One one-hundredth of one percent. Used to describe changes in yield on alternative debt instruments including mortgages.
Bedroom Community
A suburban residential area where most residents commute to neighboring metropolitan areas to work.
Before-Tax Income
Gross income minus all expenses except income taxes.
Beneficiary
A person who benefits from a life insurance policy, will, contract or deed of trust. In the latter case, the lender is the beneficiary.
Betterment
An improvement, replacement or maintenance which results in a higher asset valuation.
Bill of Sale
A receipt signed by a seller that certifies a transfer to title.
Binder
Temporary hazard or title insurance granted prior to the issuance of a permanent policy.
In real estate, a preliminary agreement between a buyer and seller which includes the price and terms of the contract.
Block
A square or rectangular portion of a city or town enclosed by streets. Often used as part of a subdivision legal description.
Bona Fide
A Latin term meaning "in good faith", without fraud.
Book Value
The capitalized cost of an asset, less depreciation taken for accounting purposes, based on the method used for the computing of depreciation
over the useful life of the asset. The actual value of an asset after deducting depreciation and all liabilities is the net book value.
Borrower
A mortgagor who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.
Break-Even Point
The point at which occupancy income is equal to all required expenses and debt service. Used to determine the amount of cash flow
necessary to operate a residential or commercial property.
Broker
An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating contracts between
them.
Building Code
Regulations based on safety and health standards that govern design, construction and materials used in construction.
Building Permit
Written authorization from a local government for the construction of a new building or for extension repairs or improvements on an existing
structure.
Building Residual
A method of real estate appraisal used to determine the value of a building when the land value is known.
Built-Ins
Permanent, immovable appliances or similar features.
Bump
The cost imposed by the investor for additional risk factors, such as occupancy or loan-to-value ratio. Bumps can apply to both the interest
rate and to the pricing.
Business Day
A business day for the application process will be defined as Monday through Friday and will exclude any Federal holiday in which we are not
open for business.
Buy-Down Mortgage
A mortgage with a below-market interest rate made by a lender in return for an interest rate subsidy in the form of additional discount points
paid by the builder, seller or buyer.
Buyer's Market
Economic conditions in which the supply of housing exceeds demand. Sellers may be forced to make substantial price concessions.
CAIVRS
The Credit Alert Interactive Voice Response System. This system holds information on borrower and/or co-borrower past default, claim,
judgment and foreclosure records on government loans. Adverse performance on a government loan may result in a borrower(s) being ineligible for a HUD insured loan.
Call Provision
In a mortgage or deed of trust, a condition that gives the right to demand or "call in" the demand of the obligation in the event of a breach of
specified terms or conditions. In bonds, the issuer's right to redeem the bond before maturity.
Cancellation Clause
In a lease or other contract, a provision detailing conditions under which each party may terminate the agreement.
Caps (Interest)
Consumer safeguards that limit the amount the interest rate on an adjustable-rate mortgage may change per year and/or over the life of the loan.
Caps (Payment)
Consumer safeguards that limit the amount the monthly payments on an adjustable-rate mortgage may change.
Carryback Financing
An agreement in which the seller takes back a note for part of the purchase price secured by a junior mortgage, wrap-around mortgage or contract
for deed.
Cash Out Refinancing
When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding on the existing mortgage
being refinanced and all or a portion of the equity is converted to cash.
Caution
A "Caution" finding on the LP (Loan Prospector) feedback certification indicates that the borrower's credit risk has been evaluated by LP and
found to be unacceptable. The loan must be fully underwritten according to guidelines, and the seller (AHM) can be asked to repurchase the loan in the event of a loan default.
Caveat Emptor
Latin for "let the buyer beware". This term signifies that the seller offers goods "as-is", with no warranty.
Certificate of Completion
A document issued by an appraiser stating that construction is completed in accordance with the terms, conditions, approved plans and according
to specifications.
Certificate of Eligibility
A document issued by the Veterans Administration that verifies a veteran's eligibility for a VA mortgage guarantee.
Certificate of Occupancy
Written authorization given by a local municipality that allows a newly completed or substantially renovated structure to be inhabited.
Certificate of Reasonable Value (CRV)
A document issued by the Veterans Administration that establishes the maximum value and loan amount for a VA guaranteed mortgage.
Certificate of Sale
An affidavit issued to the buyer of real property at a judicial or tax sale which guarantees the deed of the parcel purchased pending court
confirmation.
Certificate of Title
A confirmation written by a title attorney or company stating that the title to a parcel of real property is legally vested in the present
owner.
Chain of Title
A chronology of documents which have transferred title to a parcel of real property from the original owner to the present owner.
Chattel
Personal property.
Chattel Mortgage
An agreement between a secured party and a debtor creating a security interest in personal property.
Clear Title
Unencumbered title to real property, free of liens or defects. Also, "free and clear".
Closed-End Mortgage
A mortgage under which the mortgagor is prohibited from borrowing additional funds under the same mortgage.
Closed Period
The interval of time under a mortgage during which the loan cannot be prepaid.
Closing
In real estate, the delivery of a deed, financial adjustments, the signing of notes and the disbursement of funds necessary to consummate a sale
or loan transaction.
Closing Costs
Fees paid to effect the closing of a mortgage, such as an origination fee, discount points, title insurance fees, survey fees and attorney's
fees.
Closing Statement
Financial disclosures giving an account of all funds received and expected at closing, including escrow deposits for taxes, hazard insurance and
mortgage insurance. All FHA, VA and most Conventional financing loans use a uniform settlement statement called the "HUD-1". Some equity loan products use a settlement statement called the "HUD-1A".
Cloud on Title
Any outstanding claim or encumbrance which, if valid, would affect or impair title. It can be removed by a quitclaim deed, release or
court action.
Collateral
Property pledged as security for a debt, for example, real estate pledged as security for a mortgage.
Color of Title
An act that indicates good title but, in fact, contains some defect.
Commingling
Funds separately owned and/or accounted for but pooled in a single account.
Commission
An agent's compensation for negotiating a real estate or loan transaction often expressed as a percentage of the selling price.
Commitment
An agreement, often in writing between a lender and a borrower, to loan money at a future date, subject to specified conditions. In
secondary marketing, an agreement in writing, between a lender and an investor to buy and sell mortgages under specific terms.
Common Area
An area owned by the owners or tenants of a complex or subdivision for the common use of tenants.
Community Association
A group composed of property owners that serve to protect and maintain a neighborhood or commonly owned properties.
Community Property
In some states, form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate
property of either spouse.
Co-Mortgagor
A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets and debts are combined with the
mortgagor's for underwriting and ratio analysis purposes. The co-mortgagor's name must appear on the FHA firm commitment and the mortgage or deed of trust.
For full guarantee under the VA's program, the co-mortgagor must be either a spouse or another eligible veteran.
Comparables
Properties used for comparative purposes in the appraisal process that have similar characteristics to the subject property.
Completion Bond
A bond furnished by a contractor to guarantee completion of construction.
Compliance Inspection Report (CIR)
A report given a lender by a designated compliance inspector indicating whether construction or repairs conform to conditions established by
prior inspection.
Compound Interest
Interest computed on both original and accrued interest.
Concession
A discount or other inducement given by a landlord or seller to a prospective tenant or buyer to induce them to sign a lease or purchase
property.
Concurrent Mortgage
A second mortgage funded by AHM and closed simultaneously with the first mortgage (also AHM). Also commonly called a "piggyback loan," a common
example is an 80% first mortgage with a 10% second mortgage. After closing, the borrower will have 2 separate loans with 2 separate payments. The second mortgage can be either an installment loan or a
line of credit.
Condemnation
The taking of private property for public use under the right of eminent domain with just compensation paid the owner.
Conditional Commitment
During HUD/FHA mortgage insurance processing, it indicates the satisfactory completion of technical processing involving the estimated cost of
the project, the "as-is" value to the site, a detailed estimate of operating expenses and taxes, supportable costs, the financial and credit capacity of sponsors, financial requirements and mortgage amounts.
Conditions and Restrictions
Limitations on the use of land and resulting penalties for failure to comply. Commonly used by land sub dividers on newly plotted areas.
Condominium
A form of property ownership whereby the purchaser receives title to the unit and a proportionate interest in common areas.
Condominium Declarations
The basic condominium documents that must be registered by the originating property owner prior to the conveyance of the first unit sold.
The declaration thoroughly describes the entire condominium entity, including each unit and all common areas and specifies essential elements of ownership that permanently govern its operation. Also known as a master deed.
Conforming Mortgage Loan
Mortgage loan that meets all requirements (size, type and age) to be eligible for purchase or securitization by Fannie Mae or Freddie Mac.
Consideration
Something of value offered and accepted in exchange for a promise without which a contract is unenforceable.
Constant Payments
A periodic payment of a fixed amount that includes interest and principal.
As the loan amount reduces, the portion of the payment applied to the principal increases. Standard home mortgages are constant payment loans.
Construction Costs
All costs incurred in the completion of a construction project, including land, labor, overhead and builder's profit.
Contiguous
Adjoining.
Contingency
A clause in a contract that requires the completion of a certain act or the occurrence of a certain event before the contract is binding.
Contingency Reserve
A reserve account in which funds are held until certain specified conditions are satisfied.
Conventional Financing
In real estate, mortgage financing which is not insured or guaranteed by a government agency such as HUD/FHA, VA or the Farmers Home
Administration.
Convertible Mortgage
A type of adjustable rate mortgage that may be converted to a fixed rate mortgage at specified intervals during a predetermined time
period. In income property lending, a mortgage in which lender provided funds convert to equity ownership after a predetermined period of time.
Convey
The act of transferring title to real property from one party to another.
Conveyance
The document, such as a deed, lease or mortgage, used to effect a transfer.
Cooling-Off Period
A period of time, provided by law or by contract, during which a party to a contract can back out of a contract legally.
Cooperative
In real estate, a form of multiple ownership in which a corporation or business trust entity holds title to a property, (usually an apartment
complex) and grants occupancy rights to shareholder tenants through proprietary leases. Also called a co-op.
Corporation
A business entity owned by a group of owners called stockholders. A corporation is considered an artificial person under law.
Correlation
The final step in the appraisal process where the appraiser considers three estimates of value derived from cost, income and market data
approaches. The correlation process weighs the influence of each method in relation to the specific property type and final estimate of value.
Correspondent
A specialized type of mortgage banker whose function is limited to the origination of mortgage loans that are sold to other mortgage bankers or
investment bankers.
Co-Signer
One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only personal
liability and has no ownership interest in the property; his/her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower.
Cost Approach to Value
A valuation approach in which the value of a property is determined by computing the replacement value of improvements, depreciation and the
value of the land.
Counter Offer
To make an offer to finance on terms that are different from those originally requested by the applicant.
Coupon Credit
The UniFi term for a credit given to the borrower at closing, the amount of which can be a cost to the branch or loan officer that requested the
credit, depending on circumstances.
Covenant
A legally enforceable promise or restriction in a mortgage. For example, the borrower may covenant to keep the property in good repair and
adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default as defined by the mortgage, and can be the basis for foreclosure.
CRA (Certified Review Appraiser)
The highest professional designation awarded to appraiser members of the National Association of Review Appraisers and Mortgage Underwriters.
Credit Rating
A rating given to a person or company that established creditworthiness based upon present financial condition, experience and past credit
history.
Credit Report
A report to a prospective lender on the credit standing of a prospective borrower, used to aid in the determination of creditworthiness.
Cubage (Cubic Feet)
An appraisal method using the cost approach.
The front or width of the building is multiplied by the depth of the building and by the height, figured from the basement floor to the outer surfaces of the walls and roof. The total cubic measurement is then multiplied by a cost per factor to obtain the appraisal figure.
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