4506T – A Government tax form that may be required to be signed prior to closing.  This allows the lender to check your income tax records with the IRS to verify your income.
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Acceleration Clause - Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.  The bank can "Accelerate" on a mortgage when you don't follow through with your agreement, like making payments on a timely basis.
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Additional Principal Payment - A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due. (Go to calculator CALC)
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Adjustable-Rate Mortgage (ARM) - A mortgage with an interest rate that changes during the life of the loan.  They start with an interest rate that is fixed for a period of time.  The fixed rate can be from 1 month to 10 years (according to your contract).  Then the interest rate adjustment is calculated by adding an Index rate and margin to give an actual interest rate for the next contracted period of time. When the Index rate changes, so does your interest rate, and your payment.  ARM mortgages have built-in caps to protect the borrower from extreme payment changes.  For a general rule of thumb, ARM Mortgages have lower interest rates than Fixed Rate Mortgages which make it easier to qualify for a mortgage.  Some lenders are now offering Conversion Clauses.
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Adjustment Period - The period of time an ARM mortgage where the interest rate is scheduled to change.  They are required to give you at least 30 days notification of the change (or no change) of the interest rate.
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Amortization – A schedule showing the gradual repayment of a mortgage loan. When shown in a schedule, is shows both principal and interest payments each month until the total principal balance is zero (or balance at the end of the period requested).
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Amortization Term - The length of time required to amortize the mortgage loan.  For example, for a 30-year mortgage, the Amortization Term is 360 months.
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Appraisal – the act or process of developing an opinion of real estate value.  The properties include:  Vacant lot, single family residence (SFR, which includes condominium, townhouse, 1 story detached home and 2 story detached home), 2 to 4 units multiple family homes (duplex, triplex and quadplex).  
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Appraiser - one who is expected to perform valuation services competently and in a manner that is independent, impartial and objective on a property being appraised.
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APR - The Annual Percentage Rate of a mortgage as calculated on the Truth and Lending Statement.  The APR calculates all other costs that are included into the loan to come up with the actual interest rate you are charged on the INITIAL balance of the mortgage. Often you will see that the APR rate is higher than what you are actually given.  This is because of the added costs you "rolled into" the loan.  If no costs were added in, then the rate should be equal to the actual interest rate you were charged.  It should never be less.
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Assignment - The transfer of a mortgage from one person to another.
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Assumable - When you have an assumable mortgage clause, it means the mortgage can be transferred from the seller to the new buyer.  The new borrower is generally required to have a credit review and lenders may charge a fee for the assumption.  If a mortgage contains a due-on-sale (Acceleration) clause, the mortgage may not be assumed by the new buyer.  Most loans in today's market are NOT assumable.
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Balloon Mortgage - This is generally a fixed mortgage payment that amortizes like the standard term (say 30 year term).  The difference in this mortgage is it stipulates the mortgage will not be held for any longer than a specified term and the balance must be paid off in full by that date (say in 5 years).  The last payment is what ever balance is due.
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Biweekly Payment Mortgage - A plan to pay one half of your mortgage payment every two weeks (instead of the standard monthly payment schedule). The 26 biweekly payments are based off a standard 30-year fixed-rate mortgage.  This equals to one extra payment per year.  The result for the borrower is a substantial savings in interest and the mortgage payments reducing an average of 7 years off the standard 30 year mortgage.
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Bridge Loan - Also known as "swing loan", it is loan that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold.
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Buydown - When the homebuyer pays an up front fee paid to the lender to reduce the interest rate being charged on the mortgage.  Buydowns can be used for both fixed and adjustable rate mortgages and are generally discussed in terms of Points.
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Cap - Limits how much the interest rate can increase on an ARM mortgage.  There are two numbers you need to understand and they are generally written as a 2/6 cap.  It shows the borrower you have a 2% increase/decrease cap annually while the second number (6) is the total maximum interest rate increase.  So in this case it is maximized at a 6% increase from your original interest rate for the life of the loan.  Sometimes, they add an additional number (for example 6/2/6) designating the adjustment period. In this case, the increase can happen every 6 months.  The caps typically only protect you from your payment increases but do not limit the amount of interest the lender is earning and may cause negative amortization.
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Certificate of Eligibility - A document issued by the federal government (Department of Veterans Affairs) certifying a veteran's eligibility for a VA mortgage.
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Certificate of Reasonable Value (CRV) - The VA requires an appraisal on the house and issues a document that establishes the maximum value and loan amount for a VA mortgage.
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Closing - This is the time when you are finalizing the sale (or refinance) of a property. The buyer/owner signs the mortgage documents and pays closing costs per the settlement statement (HUD-1) and the seller receives his proceeds.
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Closing Costs - These are expenses over and above the price of the property that are incurred when the financing or refinancing of a mortgage occurs. Closing costs normally include an appraisal fee, origination fees, bank fees, charges for title insurance, title/escrow company fees government fees, and escrows for taxes insurance, etc.  Closing costs will vary according to the area country as well as what lender was used.
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Conversion Clause - A provision in an ARM allowing the loan to be converted to a fixed-rate during a set timeframe.  The conversion feature may have a fee attached to it.  Specific requirements may be needed to qualify for the conversion during that set timeframe, one being that there are no late payments during the mortgage qualification period.
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Credit Report - A detailed report of an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's credit worthiness.  Also Click here to read "All About Credit".
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Debt Ratio – is a financial ratio a lender uses to determine the eligibility of a borrower.  This ratio allows a borrower to have enough to live on after paying for housing, installment type payments (automobile) and credit card payments.  Click here for full explanation.
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Deed of Trust - The document used in some states instead of a mortgage. Title is conveyed to a trustee as collateral security for payment of the debt. The trustee then has the right to sell the land to pay the debt in the event of default.  Many land developers use this type of Mortgage to sell land.
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Default - It's the failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
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Delinquency - To be delinquent, you have failed to make mortgage payments on time.
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Equity - The amount of financial interest in a property. Equity is the difference between the appraised value of the property and the balance on the mortgage.
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Equity Line of Credit - An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time and is secured by your property.
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Escrow - It typically means money that is set aside for the down payment you placed on a Purchase Contract.  This money should be held in a third parties care.   This escrow account will be disbursed at closing or if the contract becomes invalid or cancelled.  If you default on your side of the contract, this money may be used as compensation for other party’s troubles.  Also see Reserves.
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Fixed Rate – Is an interest rate that remains the same for the life of the loan.
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HUD-1 Statement - A document that provides an itemized listing of all funds that are payable at closing.  Items that appear on the statement include real estate commissions and closing costs. The totals at the bottom of the HUD-1 statement show the seller's net proceeds and the buyer's net payment at closing for a purchase.  A refinance also lists all closing costs, but there are no Real Estate commissions and there would be no seller's net proceeds.
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Index - The index is a published measure of interest rate used in determining the actual interest rate of an ARM mortgage or Equity line of credit.  Some index rates tend to be higher than others and some more volatile (changes faster).
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Initial Interest Rate - This refers to the original interest rate of the mortgage at the time of closing and is in an adjustable rate mortgage.
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Installment - The regular periodic (typically monthly) payment that a borrower agrees to make to a lender.
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Interest - The fee that is charged for borrowing money.
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Interest Rate Ceiling - For an adjustable-rate mortgage, the maximum interest rate that can be charged, as specified in the mortgage note.
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Interest Rate Floor - For an adjustable rate mortgage, the minimum interest rate that can be charged, as specified in the mortgage note.

Late Charge - The penalty a borrower must pay when a payment is not made on the due date. The late charge is generally assessed 15 days after the contracted due date.
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Lease-Purchase - An alternative financing option that allows low and moderate income home buyers to lease a home with an option to buy at a future date.  Each month's rent payment consists of a standard rental fee plus an extra amount that accumulates in a savings account for a down-payment. Generally the rental fee must be within the market guidelines and is generally determined by the appraiser at time of purchase.
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Line of Credit - An agreement by a bank or other financial institution to extend credit up to a certain amount for a certain time and is generally secured by your property.
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Liquid Asset - an asset that is easily converted into cash.  A Good rule of thumb is it must be converted within 24 hours like a check, but not a car.
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Loan - A sum of borrowed money (principal) that is generally repaid with interest.
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Loan-to-Value (LTV) Percentage - The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
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Lock-In Period - The guarantee of an interest rate for a specified period of time by a lender for the purchase or refinance of a property.  The lender must have this money set aside solely for the purpose of your mortgage and can not allocate that to anyone else.
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Margin - The number of percentage points the lender adds to the index rate to calculate the ARM or Equity Line of Credit interest rate at each adjustment period.  This is the profit built into the interest rate for the bank.
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Mortgage - A legal document that pledges a property to the lender as security for payment of a debt.
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Mortgage Insurance - A contract that insures the lender against loss caused by a mortgagee's (your) default on a mortgage.  Mortgage insurance can be issued by a private company (PMI) or by a government agency (MI).  This calculation will be part of the debt ratio.  It is required by the Lender if you have a mortgage over 80% of the appraised value.  In other words, if you have a property that is worth $100,000, and you borrow more than $80,000 (80% of $100,000) then the lender requires this insurance policy.  The reason for the insurance is to reduce the risk in case of default (foreclosure) to the bank.  If a foreclosure happens, the bank can recover losses up to the value of the policy.   
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Mortgage Life Insurance - A type of term life insurance in the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
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Negative Amortization - Negative amortization means that monthly payments are not large enough to pay the interest due on your mortgage.  The interest cost that isn't recovered for the banks interest, the difference is added to the unpaid principal balance.  This means that even after making many payments, you could owe more than you did at the beginning of the loan.
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Net Worth - The value of all of a person's assets, including cash - LESS any outstanding liabilities.
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Note - A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
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Origination Fee - A fee paid to a broker for processing a loan application.  The origination fee is stated in the form of points. One point = 1 percent of the mortgage amount.
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Owner Financing - A purchase transaction in which the party selling the property provides all or part of the financing.
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PITI or PITIMIHOA - The Principal, Interest, Taxes, and Insurance (PITI) are four components of a monthly mortgage payment.  Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage.  Interest is the fee charged for borrowing money. Taxes and Insurance refer to the monthly cost of property taxes and homeowners insurance, and may be paid into an escrow account each month. Principal, Interest, Taxes, Insurance Mortgage Insurance, and Homeowners Association payment (PITIMIHOA). These are all added together to determine your housing costs, or what your total monthly payment will be for debt ration purposes. Homeowners Association payments are paid separately from your monthly mortgage payment.
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Points - A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000, one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower, the home seller, split between them, or even added to the mortgage.
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Prepayment Penalty - A fee that may be charged to a borrower who pays off a loan before it is due. These penalties generally have a period of time at the beginning of the loan (generally 1-5 years) to assure the investor/lender a return on investment.
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Pre-Approval - The process of determining how much money you will be eligible to borrow before you apply for a loan. This is always subject to receiving final documents that match what was used at the beginning of the process.
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Principal - The amount borrowed or remaining unpaid balance of your mortgage.
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Real Estate Settlement Procedures Act (RESPA) - A federal consumer protection law that requires lenders to give borrowers advance notice of specific closing costs, terms and disclosures.
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Recording - The placing of the details of a properly executed legal document (such as a deed, a mortgage note, a satisfaction of mortgage, etc) as part of public record in the registrar's office of the state.
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Reserves – Is a special fund account that is set up by the bank to pay for future disbursements. This is typically used for taxes and/or insurance on the property and the initial account balances will be detailed at closing on the HUD-1 Statement. It is actually the borrower’s money but they do not have access to the account until the mortgage is paid in full. The lender is required to evaluate these accounts annually to meet the guidelines for these accounts.
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Security - The property (for mortgages) that will be pledged as collateral for a loan.
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Step Mortgage - The initial starting interest rate starts low and increases 1% at the end of the first year and may adjust another 1% at the end of the second year. Then is remains fixed for the remainder of the loan term. The Step Mortgage allows the borrower to qualify at below market rates so they can qualify to borrow more now and when your income increases, you will be able to continue making the newer and higher payment later. They may use other names for this type of mortgage.
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Truth-in-Lending - A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the contractual as well as the annual percentage rate and other charges.
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Underwriting - The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves a checklist of qualifications that is required to process the loan so an analysis of the borrower's creditworthiness and the quality of the property itself meets guidelines.
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VA Mortgage - A mortgage that is guaranteed by the Department of Veterans Administration
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Variable Rate Mortgage - See ARM.
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"Wrap Around" Mortgage - A mortgage that includes the remaining balance on an existing first mortgage PLUS an additional amount requested by the mortgagor or seller. Full payments on both mortgages are made to the "Wrap Around" mortgagee (or seller), who then forwards the payments on the first mortgage to the first mortgagee.
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