Mortgage Definitions
St Paul Regional Office
Regioinal Loan Center
Mortgage Definitions
Acquisition Cost: The total cost of purchasing an asset which includes closing costs and other transaction expenses added to the selling price.
Adjustable-Rate Mortgage: A mortgage that permits the lender to adjust its interest rate periodically on the basis of movement in the specified index. Also, used collectively to refer to ARMs and graduated-payment adjustable-rare mortgages (GPARMs). A type of adjustable-payment mortgage which has annual interest rate and monthly payment adjustments based on an index and a margin.
Amortization: Gradual reduction of the mortgage debt through periodic payments scheduled over the mortgage term. The spreading of the cost of certain assets over more than one accounting period.
Appraisal: A report that sets forth an estimate or opinion of value.
Appraised Value: An opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data.
Arrearage: The past due amounts to be repaid in accordance with the terms of a repayment plan.
Assumption: A method of selling real estate wherein the property purchaser agrees to take over the primary liability for payment of an existing mortgage.
Bankruptcy: A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. This affects the borrowerxs personal liability for a mortgage debt but not the lien of the mortgage.
Building Code: Local regulations based on safety and health standards that control design, construction, and materials used in construction.
Building Permit: A permit required by local governments before a building can be constructed or remodeled.
Bylaws: The legal documentation of a condominium or PUD project which provides for the establishment of the homeownerxs association, grants certain powers and authority to the board of directors, and indicates various rights and responsibilities of the unit owners.
Cash-Out Refinance Transaction: A refinancing transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points and the amount required to satisfy outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower received additional cash that can be used for any purpose.
Certificate of Eligibility: A document issued by the Department of Veterans Affairs to veterans which bears evidence of their eligibility for a VA-guaranteed mortgage loan.
Clear Title: Title which is not encumbered or burdened with defects.
Closing: The conclusion or consummation of a transaction. In real estate, closing includes the delivery of a deed, the signing of notes and security instruments, and the disbursement of funds necessary to the sale or loan transaction. Also, referred to as settlement.
Closing Costs: Money paid by the borrower to effect the closing of a mortgage loan, including an origination fee, title premiums, survey costs, attorneyxs fees, and prepaid items such as tax and insurance escrow payments.
Compromise Sale/Short Sale: If your property cannot be sold for an amount which is greater than or equal to what you owe on the loan, VA may pay a "compromise claim" for the difference to help you complete the sale. You must contact VA to discuss the situation and get prior approval for a sale with a compromise claim payment. Some mortgage companies are authorized by VA to approve a sale with a compromise claim.
Contingency: A condition upon which the enforcement of a contract is dependent.
Contract: An oral or written agreement made by the mutual consent of competent parties which the law recognizes as a duty.
Convey: The act of transferring title to real property from one party to another.
Conveyance: The written instrument by which title to real property is transferred from one party to another.
Credit Risk: The risk that an issuer of debt securities or a borrower may default on his obligation, or that payment may not be made upon sale of a negotiable instrument.
Debt-to-Income Ratios: Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a monthly housing expense-to-income ratio and a total obligations-to-income ratio.
Deed: A written instrument by which some degree of ownership interest in real estate is transferred from the grantor to a grantee.
Deed-in Lieu Foreclosure: A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure; also called a voluntary conveyance.
Deed of Trust: A conveyance (of real estate title) by a borrower to a trustee as collateral security for the payment of a debt with the condition that the trustee must reconvey the title to the borrower upon satisfaction of the debt or sell the collateral real estate and pay the debt to the lender in the event of a default. A deed to real property used in some states which serves the same purpose as a mortgage but involves three parties rather than two. The third party is a trustee who holds title to the real estate for the benefit of the lender. The borrower is referred to as the trustor and the lender as the beneficiary under a deed of trust. The trustee has the power to sell the property and pay the debt in the event of a deed of reconveyance.
Deficiency Judgment: A personal judgment created by court decree for the difference between the amount of the mortgage indebtedness and any lesser amount recovered from the foreclosure sale (the deficiency). The judgment is against any person who is liable for the mortgage debt.
Delinquency: The failure to make a mortgage payment or payments when due. Delinquency occurs when all or part of the borrowerxs monthly installment of principal, interest and, where applicable, escrow is unpaid after the due date.
Easement: Right or interest in land owned by another entitling the holder to a specific limited use, privilege, or benefit such as laying a sewer, putting up electric power lines or crossing the property.
Economic Life: The estimated period of time during which a property can be utilized profitably.
Egress: The right to leave a tract of land.
Encumbrance: Any interest in or claim on the land that limits the fee simple title to a property, such as a mortgage, lease, easement or restriction.
Equity: The interest or value that an owner has in a property in excess of any related mortgage indebtedness. The difference between the assets of an entity and its liabilities.
Escrow: Escrow includes all funds collected to cover expenses to be paid under the mortgage including, but not limited to, taxes, special assessments, ground rents and other charges that are or may become first liens on the mortgaged property, as well as property insurance premiums and mortgage insurance premiums. Amounts held by a mortgagee (or mortgageexs agent) that belong to the mortgagor but are collected to ensure future payment of items such as property taxes and insurance. It is also the deposit of funds with a neutral third party (the escrow agent) who is instructed to carry out the provisions of an agreement. The escrow agent carries out the instructions of the buyer, seller and lender and assumes responsibility for handling all paperwork and disbursing all funds.
Fee Simple: An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
FHA: FHA is the Federal Housing Administration. An FHA mortgage is a home mortgage that is fully insured by the FHA. FHA was established in 1934 to increase home ownership by providing an insurance program to safeguard lenders against borrower default. The FHA sets standards for property construction and credit underwriting, but it does not lend money, plan or build housing.
Fiduciary: A person who essentially holds the character of trustee and must carry out his or her duties in a manner which best serves the interest of the party for whom the fiduciary relationship is established.
Fixed-Rate Mortgage: A mortgage that provides for only one interest rate for the entire term of the mortgage is still considered a fixed-rate mortgage.
Forbearance: The act of refraining from taking legal action despite the fact that a mortgage is in arrears. It is usually granted only when a mortgagor makes a satisfactory arrangement by which the arrears will be paid at a future date.
Foreclosure: The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged 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. A legal procedure whereby property used as security for a debt is sold or the title is taken in order to satisfy the debt because of a default in payment or default of other terms of the mortgage.
Ginne Mae (GNMA): An abbreviation for the Government National Mortgage Association. GNMA was established by Congress in 1968 to administer a mortgage-backed securities program which channels new sources of funds into residential financing through the sale of privately issued securities backed by the full faith and credit of the United States.
Good Title: Title which is free from encumbrances such as liens, pending litigation and other such defects.
Grace Period: A period between the time an obligation is due and the time default actually occurs.
Habitable: Housing that is suitable for occupancy.
Hazard Insurance: Insurance coverage that compensates for physical damage by fire, wind, or other natural disasters to the property.
Home Equity Line-of-Credit Loan: A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her discretion, up to an amount that represents a specified percentage of the borrowerxs equity in the property.
Home Improvement Loan: A Home Improvement Loan (HIL) is a Home Mortgage to finance permanent improvements for energy conservation, solar installation, rehabilitation, modernization or addition.
Home Mortgage: A residential mortgage secured by a one-to-four-family property. A home mortgage is a mortgage secured by a first lien on real estate on which there is located a structure designed principally for residential use by one to four families.
Homeownerxs Insurance: Insurance coverage available for owner-occupied properties to protect against personal liability and physical property damages for a dwelling and its contents. A multiple peril insurance policy available to owners of private dwellings that covers the dwelling and contents in the case of fire or wind damage, theft, liability for property damage, and personal liability.
Housing Codes: Local government standards which specify minimum standards that a dwelling unit must meet.
HUD: The Department of Housing and Urban Development was established by Congress in 1965 and is responsible for the implementation and administration of government housing and urban development programs. The programs include community planning and development, housing production and mortgage insurance (FHA), secondary mortgage market activities (GNMA), and equal opportunity in housing.
Income: Excess of revenues over expenses.
Installment sales contract: An agreement to sell property wherein title to the property is conveyed to the buyer only after all installment payments have been made. The advantage to the seller of using a contract for deed rather than taking a mortgage from the buyer is that it is easier and faster to cancel a contract for deed in the event of buyer default than it is to foreclose on a mortgage. Also referred to as a contract for deed or a land contract.
Insurance: A means by which one party shifts and spreads the risk of a certain loss or disastrous event among a group of individuals.
Interest Rate Cap or Ceiling: The maximum mortgage interest rate that can accrue on a variable-rate mortgage.
Interest rate change interval: The period that elapses between interest rate change dates for an ARM/GPARM.
Interim Financing: Financing during the time from project commencement to closing for a permanent loan, usually in the form of a construction loan or development loan.
Interim Interest: Interest charged from the date of settlement (disbursement of funds) to the date on which interest will be paid through regular monthly installments.
Investment Property: A property that the borrower does not occupy as a primary residence or second home, regardless of whether the property generates income for the borrower.
Judgment: The final legal determination of rights between disputants by a court of competent jurisdiction.
Judgment Lien: A lien upon the property of a debtor resulting from the decree of a court.
Land Grant: A gift of land by the government.
Land Loan: Money loaned for purchase of raw land.
Late Charge: A penalty when a mortgage payment is made a stated number of days (usually a minimum of 15) after its due date.
Leasehold Mortgage: A loan to a tenant secured by a leasehold interest in a property.
Lien: A legal hold or claim of one person on the property of another as security for a debt or charge.
Lis Pendens: A notice filed in official county records for the purpose of serving constructive notice that some matter involving real property is in litigation.
Loan Package: An assemblage of eligible mortgages for inclusion in a GNMA II multiple-issuer pool, formed in connection with commitment authority to guarantee securities.
Loan-To-Value Percentage: The relationship between the unpaid principal balance of the mortgage and the value (or sales price, if it is lower) of a property.
Margin: The amount that is added to an index value to create the mortgage interest rate for an ARM/Graduated Payment.
Marketable Title: A marketable title is one that may be completely clear or have only minor objections that would not jeopardize the validity of the lien, and that a well-informed and prudent buyer of real estate would accept.
Maturity: the date on which a note or negotiable instrument is due and payable.
Mechanics Lien: A lien allowed by statute to contractors and laborers on buildings or other structures upon which work has been performed or material supplies, but for which payment has not been received. Before a title insurer will provide a clear title insurance policy on newly constructed property, it will require lien waivers from anyone who performed work on or delivered materials to the site to ensure that no mechanicsx liens will be filed.
Military Indulgence: One of our relief provisions that can be made available to a mortgagor who is about to enter or is in military service and whose ability to keep his or her mortgage current has been (or will be) materially affected by military service.
Modification: The act of changing any of the terms of the mortgage.
Mortgage: Collectively, the security instrument, the note, the title evidence, and all other documents and papers that evidence the debt. A Mortgage is a loan secured by a lien on real estate held in fee simple or on an acceptable leasehold estate. A loan made for the purpose of purchasing, building or rehabilitating real property, and secured by that property. A pledge of real property as collateral for payment of debt. The term is also used to describe both the mortgage (security instrument) and the promissory note evidencing the debt, which includes the terms of the debtxs repayment.
Mortgage Guaranty: Refers to the VA or FHA promise to pay the mortgagee, or substitute issuer, a specified percentage of the unpaid principal balance, interest, and certain foreclosure costs in the event a mortgage defaults.
Mortgage Interest Rate: The rate of interest in effect for the monthly installment due. For fixed-rate mortgages or for adjustable-rate mortgages that have an initial fixed-rate period, it is the rate in effect during that period. For adjustable rate mortgages after any initial fixed rate period, it is the sum of the applicable index and the mortgage margin (rounded as appropriate and subject to any per adjustment or lifetime interest rate ceilings).
Mortgagor: An individual, corporation, or partnership that borrows money from the lending institution (the mortgagee) in exchange for a mortgage on the property. A party which borrows money giving a mortgage or a deed of trust on real property as collateral (a debtor).
Multiple Listing Service (MLS): A marketing service in which many brokers pool their listings and establish procedures for sharing commissions.
No-cash-out refinance transaction: A refinancing transaction involving a Fannie Mae owned or securitized mortgage in which mortgage amount is limited to the outstanding unpaid principal balance of the existing first mortgage.
Note: The evidence of indebtedness for a mortgage loan. A note is the instrument evidencing the indebtedness secured by a security instrument that sets forth the amount the owner owes the lender and the manner in which the debt is to be satisfied. The note establishes the payment terms, conditions under which prepayments may be made, and the lenders rights in the event of default. A written agreement between the mortgagor and the mortgagee specifying the amount and terms of repayment for a loan.
Notice of Acceleration: A notice of acceleration is a written notice sent to the borrower notifying the borrower that (1) a default has not been cured, and (2) the servicer will accelerate the mortgage and call all sums due and payable if the default is not cured within 30 days of the notice.
Notice of Default: A formal written notice that a default has occurred and legal action may be taken as a result of the default. A notice of default is a written notice sent to the borrower stating that the borrower is in violation of the terms of the note and/or security instrument. The notice contains a time limit that the borrower has to cure or remedy the violation. When issued because of a delinquent monthly payment, this notice is usually sent out when the payment is 30 days delinquent.
Obligee: A person entitled to the performance of a duty.
Obligor: A person who owes a duty.
Originator: a person who solicits builders, brokers and others to obtain applications for mortgage loans.
Owners Title Policy: A policy insuring the owner of real estate against certain defects of title.
P & I: The abbreviation for principal and interest
Payment Change Date: The date on which the monthly payment changes for an ARM/Graduated Payment ARM; the effective date that a new amount is due from a borrower. It must fall in the month immediately preceding an interest rate change date (unless the ARM plan calls for the payments to change more frequently than the interest rate). For adjustable-rate mortgages (ARMs) the payment change date is each date, established in the note, on which the monthly payment could change.
Payment in Full: A payment by a borrower that pays off the total indebtedness of a mortgage loan before the maturity date.
Payoff: Payment in full of a loan at or before maturity.
Perfecting title: The elimination of any claims against title.
PITI: Abbreviation for principal, interest, taxes and insurance. In mortgage lending, it is common for the monthly mortgage payment to include not only the principal and interest payment on the loan, but an escrow amount for real estate taxes and hazard insurance as well.
Power of Attorney: A written instrument authorizing a person, the attorney in fact, to act as agent on behalf of another person to the extent indicated in the instrument.
Pre-payment clause: A section in a mortgage note which permits the borrower to pay without penalty the outstanding balance before the due date.
Real Estate Owned (REO): An REO is property acquired through foreclosure or deed-in-lieu of foreclosure. Includes the following (1) REO held for investment or (2) REO acquired in the settlement of loans.
Real Estate Settlement Procedure Act (RESPA): The Real Estate Settlement Procedures Act is a federal law covering mortgage loans made on one-to-four family residential property which requires lenders to provide loan applications with pertinent information regarding loan terms and fees so that the applicants may make an informed decision when choosing financing. The provisions of the act are implemented by the Department of Housing and Urban Development as Regulation X.
Redemption Period: The specified period in which a mortgagor can reclaim foreclosed property by making full payment of the mortgage debt, under a legally enforceable right of redemption in some states.
Refinance: The repayment of a debt from the proceeds of a new loan using the same property as security. This includes the current owners placement of financing on a property that is not currently mortgaged.
Reinstatement: The curing of a delinquency by paying all past-due installments to bring the mortgage to a current status.
Release of Liability: A formal agreement absolving a mortgagor from responsibility under a mortgage because another party has agreed to assume the mortgage obligations.
Repayment plan: An arrangement made to repay delinquent installments or advances.
Sales Contract: A written document in which the purchaser agrees to buy certain real estate (or personal property) and the seller agrees to sell under stated terms and conditions. Also called an agreement for sale, purchase agreement, or earnest money contract.
Settlement statement: An itemized list of the services provided and fees charged in connection with the purchase and/or financing of residential real estate. Under RESPA, the agent who will conduct the closing, or settlement, of such a transaction must provide a settlement statement to the parties involved. The format required under RESPA is referred to as a HUD-1 settlement statement.
Servicemen's Civil Relief Act (SCRA): A federal law that restricts enforcement of civilian debts against military personnel whose ability to pay has been severely hampered by entry into military service after the debt was incurred.
Streamlined Refinancing: An alternative documentation procedure that is specifically designed for xno cash-outx refinance transaction that allows lenders to use substitute documentation to verify the borrowers employment and income. It also relies on the lenders warranty of the property value instead of requiring a new appraisal report under certain circumstances.
Title: Evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift, or through foreclosure of a mortgage.
Title Insurance: A type of insurance that insures against defects in title that were not listed in the title report or abstract. A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to a parcel of real estate (wherein the insured has an interest as purchaser, mortgagee or otherwise), other than encumbrances, defects and matters specifically excluded by the policy.
Truth in Lending Act (TILA): The Truth in Lending Act is the common name given to the National Consumer Credit Protection Act, which requires lenders to make credit disclosures to individual borrowers for certain types of loans. The provisions of the act are implemented by the Federal Reserve Board as Regulation Z.
Warranty Deed: A deed guaranteeing that the grantor has good title, free and clear of all liens and encumbrances, and will defend the grantee against all claims.
