Glossary of Real Estate Terms

Shopping for a home or mortgage? If you are one of the tens of thousands of today's home shoppers, you probably have discovered that real estate and mortgage lending have languages all their own. For the unprepared, this new terminology can be quite confusing.



Terms You Should Know

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1003 Application
An industry standard form used to apply for a mortgage.
401(k)/403(b)
These are employer sponsored investment plans that allow individuals to set aside tax-deferred income for retirement. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations. These plans frequently have an employer matching component.
401(k)/403(b) loan
Some plans allow for loans against the money that you have accumulated in the plan. The borrowed money must be repaid to avoid serious penalty charges and all interest payments are deposited into the plan as well.

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Abatement
A reduction or decrease. This usually applies to a decrease of assessed value of ad valorem taxes after the assessment.
Acceleration Clause
Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on you loan.
Acceptance
An offeree’s consent to enter into a contract and be bound by the terms of the offer.
Acre
A measure of land equal to 43,560 square feet.
Ad Valorem Tax
According to value. A tax imposed on the value of a property which is typically based on the local government’s valuation of the property.
Additional Principal Payment
A payment made on a mortgage for more than the scheduled principal amount due in order to reduce the remaining outstanding balance on the loan.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically, based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Adjusted Basis
The original cost of a property plus the value of any capital expenditures for improvements to the property less any depreciation taken.
Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Interval
The time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.
Adjustment Period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
Administrator
A person appointed by a probate court to administer the estate of a person who died.
Affordability Analysis
A detailed analysis of a borrower’s ability to afford the purchase of a home. An affordability analysis takes into consideration income, liabilities, available funds, the type of mortgage being applied for, the location of the property, and the closing costs.
Amendment
A clause to modify, add to, or correct a part of an agreement without changing the principal idea or essence.
Amenity
A feature of a property that enhances its attractiveness or that increases the occupant’s or user’s satisfaction although the feature is not essential to the property’s use. Amenities can include scenic views, proximity to bodies of water, swimming pools, and/or recreational facilities.
Amortization
Means loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Amortization Schedule
A timetable for repayment of a loan. An amortization schedule shows the amount of each payment applied to interest and principal and the remaining balance after each scheduled payment.
Amortization Term
The amount of time required to amortize the loan. The amortization term is normally expressed as a number of months.
Annual Percentage Rate (APR)
An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.
Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser."
Appraised Value
An estimated value of a property's fair market value based on an appraiser's knowledge, experience, and analysis of the property.
Appraiser
A qualified person, trained to estimate the value of real and personal property.
Appreciation
An increase in the value of an asset due to changes in market conditions or other causes.
Assessed Value
The valuation placed on property by a public tax assessor for the purposes of taxation.
Assessment
The process of placing a value on an asset for the strict purpose of taxation.
Assessor
A public official who establishes the value of a property for taxation purposes.
Asset
Anything of monetary value that is owned by a person. Assets include real estate, bank accounts, stocks, bonds, mutual funds, loans owed to the person, etc.
Assignment
The transfer of a mortgage from one legal entity (person, corporation, etc.)to another.
Assumable Mortgage
A mortgage that can be transferred ("assumed") to the new buyer when a home is sold.
Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money. Since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charge will apply.
Assumption Clause
A provision in an assumable mortgage that allows a buyer to transfer responsibility for the mortgage from the seller.

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Balance Sheet
A financial statement that shows assets, liabilities, and net worth for an entity (person, corporation, etc.) as of a specific date.
Balloon (Payment) Mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Bankruptcy
A court proceeding in which a debtor who has more liabilities than his or her assets can relieve.
Basis Points
Used primarily to describe changes in yield or price on debt instruments including mortgages and mortgage-backed securities. One 100th of one percent.
Before Tax Income
Income before the deduction of taxes.
Beneficiary
The person designated as the recipient of the income from a trust, estate, or deed of trust.
Betterment
An improvement that increases the value of a property but not a repair or replacement that maintains the property’s value.
Bill of Sale
A written document that transfers the title of a property between two entities.
Binder
A preliminary agreement where a buyer offers to purchase a property and secures it by the payment of an earnest money deposit.
Biweekly Payment Mortgage
A mortgage that requires mortgage payments twice a month in order to reduce the outstanding debt. The result is that the borrower plays substantially less interest due to the shortened accrual periods.
Blanket Insurance Policy
A single policy that covers more than one piece of property or more than one person.
Blanket Mortgage
A mortgage that is secured by a multiple properties (usually in a co-op or condo).
Bridge Loan
A loan that is collateralized by the borrower's present home (which is usually for sale) and allows the proceeds to be used for closing on a new house before the present home is sold. When the present home is sold the proceeds are used to repay the Bridge Loan.
Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client, but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Budget
A detailed plan of income and expenses expected over a certain period of time and usually used for planning the purchase of large dollar items such as cars and homes.
Building Code
Local regulations that control the design, placement, materials, and standards used when constructing buildings.
Buydown
When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

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Call Option
A provision in the mortgage that gives the holder of the mortgage the right to call the mortgage due and payable at the end of a specified period.
Caps (Interest)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.
Caps (Payment)
Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.
Capital Expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.
Capital Improvement
Any permanent improvement to a property that adds to its value or useful life.
Carve Outs
Specific terms that a Lender will require the Borrower to personally guarantee for the life of the loan such as environmental, fraud, misappropriation of funds, and theft.
Cash Out Refinance
A transaction in which the borrower reduces the equity in the property to get cash back.
Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Occupancy
A document presented by the local government agency or building department certifying that a premise has been satisfactorily inspected and is in a condition suitable for occupancy.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
Certificate of Title
A statement provided by a title company or attorney stating that the title to a property is legally held by the current owner and free of encumbrances.
Chain of Title
The history of all the documents that transfer title to a parcel of property, starting with the earliest existing document and ending with the most current.
Change Frequency
The frequency of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Chapter 11
That portion of the Federal Bankruptcy code that deals with business reorganizations.
Chapter 7
That portion of the Federal Bankruptcy code that deals with business liquidations.
Clear Title
A title that is free of liens or legal questions as to ownership of the property.
Closing
The meeting between the buyer, seller and lender or their agents, where the property and funds legally change hands. Also called settlement.
Closing Cost Item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement.
Closing Costs
Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing are usually about 3 percent to 6 percent of the mortgage amount.
Coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.
Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
Collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
Co-Maker/Co-Borrower
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment.
Commercial Bank
A financial institution authorized to provide a variety of financial services, including consumer and business loans. Commercial banks may be members of the Federal Reserve System.
Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.
Commitment
An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.
Commitment Fee
A charge required by a lender to lock in specific terms on a loan at the time of Commitment.
Commitment Letter
An official notification from a Lender to a Borrower indicating that the Borrower's loan application has been approved. It will state in detail the terms and conditions of the prospective loan. A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.
Common Area
There are two components of the term "common area". If referred to in association with the Rentable/Usable or Load Factor calculation, the common areas are those areas within a building that are available for common use by all tenants or groups of tenants and their invitees (i.e. lobbies, corridors, restrooms, etc.).
Common Area Assessments
Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.
Common Areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
Common Law
An unwritten body of law based on general custom in England and used to an extent in the United States.
Community Land Trust Mortgage Loan
An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.
Community Property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
Comparables
Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold.
Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.
Condemnation
The process of taking private property, without the consent of the owner, by a governmental agency for public use through the power of eminent domain.
Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
Conduit
An entity which issues mortgage- backed securities backed by mortgages which were originated by other lenders.
Constant
Percentage of the original loan paid in equal annual payments that provides principal reduction and interest payments over the life of the loan.
Construction Loan
A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.
Consumer Reporting Agency
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Contract
An oral or written agreement to do or not to do a certain thing.
Contract Documents
The complete set of design plans and specifications for the construction of a building or of a building’s interior improvements. Working Drawings specify for the contractor the precise manner in which a project is to be constructed.
Conventional Mortgage
A mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FmHA).
Convertibility Clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.
Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.
Conveyance
Most commonly refers to the transfer of title to property between parties by deed. The term may also include most of the instruments by which an interest in real estate is created, mortgaged or assigned.
Cooperative (Co-Op)
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Corporate Relocation
Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.
Correspondent
A specialized type of mortgage banker whose function is limited to the origination of mortgage loans which are sold to other mortgage bankers or investment bankers under a specific commitment.
Cost Approach
A method of appraising real property whereby the replacement cost of a structure is calculated using current costs of construction.
Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Covenant
A written agreement inserted into deeds or other legal instruments stipulating performance or non-performance of certain acts or, uses or non-use of a property and/or land. A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
Credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit History
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit Life Insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.
Credit Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).
Credit Report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
Credit Repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
Creditor
A person to whom money is owed.
Cross-Collateralization
Net income shortfalls on one property are offset by excess cash flow from other properties in a pool of “crossed” loans. Significantly enhances a transaction from the viewpoint of investors and rating agencies.
Cumulative Discount Rate
The interest rate used in finding present values that when applied to the rental rate takes into account all landlord lease concessions and then expressed as a percentage of base rent.

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Debenture (Bond)
A long-term bond or note issued by governments and/or corporations and not secured by a mortgage or lien on any specific property. Since there is no specific property securing the debenture, the ability to repay the debt is based solely on the financial strength of the issuer.
Debt
An amount owed to another.
Debt Service
The periodic payment (monthly, quarterly, or annually) necessary to pay the interest and principal on a loan which is being amortized over a longer term (usually 25-30 years).
Debt Service Coverage Ratio (DSCR)
The relationship between the annual net operating income (NOI) of a property and the annual debt service of the mortgage loan on the property. Both Lenders and Investors calculate this ratio to assist them in determining the likelihood of the property generating enough income to pay the mortgage payments. From the lender's viewpoint, the higher the ratio, the better.
Dedicate
To appropriate private property to public ownership for a public use.
Deed
The legal document conveying title to a property.
Deed In Lieu Of Foreclosure
A deed given by an owner/borrower to a lender to satisfy a mortgage debt and avoid foreclosure.
Deed Of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note.
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
Deficiency Judgment
Imposition of personal liability on a borrower for the unpaid balance of mortgage debt after a foreclosure has failed to yield the full amount of the debt.
Delinquency
Failure to make payments on time. This can lead to foreclosure.
Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.
Deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
Depreciation
A decline in the value of property; the opposite of appreciation.
Discount Points
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).
Discount Rate
The rate of interest charged to banks who buy money from the Federal Reserve System. An increase in the rate not only discourages the banks from borrowing, but it also serves as a signal that interest rates are probably going to increase. Also, a compound interest rate used to convert expected future income into a present value income.
Dower
The rights of a widow in the property of her husband at his death.
Down Payment
Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans, and no money down up to 5 percent on FHA and VA loans.
Due-On-Sale Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
Due-On-Transfer provision
This terminology is usually used for second mortgages.

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Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Easement
A right of use over the property of another created by grant, reservation, agreement, prescription or necessary implication.
Effective Age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
Effective Gross
Income Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
Eminent Domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
Encroachment
An improvement that intrudes illegally on another’s property.
Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Endorser
A person who signs ownership interest over to another party. Contrast with co-maker.
Equal Credit Opportunity Act (ECOA)
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 difference between the fair market value and current indebtedness, also referred to as the owner's interest.
Equity Participation
The right of a Lender to a share in the gross profits, net profits or net proceeds in the event of a sale or refinance of a property on which the Lender has made a loan.
Escrow
Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyers pays money for tax or insurance payments.
Escrow Account
The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.
Escrow Agreement
A written agreement made between the parties to a contract and an escrow agent. The escrow agreement sets forth the basic obligations of the parties, describes the monies (or other things of value) to be deposited in escrow, and instructs the escrow agent concerning the disposition of the monies deposited.
Escrow Collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.
Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment
The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.
Estate
All the real property and personal property owned by an individual at time of death.
Eviction
The lawful expulsion of an occupant from real property.
Exclusive Listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.
Expense Ratio
A comparison of the operating expenses to potential gross income. This ratio can be compared over time and with that of other properties to determine the relative operating efficiency of the property considered.

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Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.
Fair Market Value
The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Also known as FMV. The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae (Federal National Mortgage Association - FNMA)
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Mortgage Corporation (FHLMC)
Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association – FNMA
Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
Fee Simple
The greatest possible interest a person can have in real estate.
FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.
FHA Mortgage Insurance
Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount to either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, the more years the fee must be paid.
Finance Charge
The amount paid for the privilege deferring payment of goods or services purchased, including any charges payable by the purchaser as a condition of the loan.
Finder's Fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.
Firm Commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.
First Mortgage
A mortgage that is the primary lien against a property. The holder of the first or senior mortgage has a priority right to payment in the event of default.
Fixed Installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
Fixed-Rate Mortgage
A mortgage on which the interest rate is set for the term of the loan.
Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Force Majeure
A force that cannot be controlled by the parties to a contract and prevents said parties from complying with the provisions of the contract. This includes acts of God such as a flood or a hurricane or, acts of man such as a strike, fire or war.
Foreclosure
A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt .
Forfeiture
The loss of money, property, rights, or privileges due to a breach of legal obligation.
Freddie Mac
A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
Fully Amortized Mortgage (Loan)
A loan that is fully repaid at maturity by periodic (monthly) reductions of the principal. The first part of each monthly payment covers interest on the outstanding debt as of the payment due date and the remainder of the payment is used to reduce the outstanding debt.

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General Contractor
The prime contractor who contracts for the construction of an entire building or project, rather than just a portion of the work.
Ginnie Mae
Provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
Government National Mortgage Association (GNMA)
Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
Government Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS).
Government National Mortgage Association (GNMA or Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae.
Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Grant
To bestow or transfer an interest in real property by deed or other instrument; either the fee or a lesser interest, such as an easement.
Grantee
One to whom a grant is made.
Grantor
The person making the grant.
Gross Monthly Income
The total amount the borrower earns per month, before any taxes or expenses are deducted.
Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.
Guarantee
A promise by one party to pay a debt or perform an obligation contracted by another, if the original party fails to pay or perform according to a contract.
Guarantee Mortgage
A mortgage that is guaranteed by a third party.
Guarantor
One who makes a guaranty.
Guaranty
Agreement whereby the guarantor undertakes collaterally to assure satisfaction of the debt of another or perform the obligation of another if and when the debtor fails to do so.

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Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).
Home Equity Conversion Mortgage (HECM or Reverse Mortgage)
A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs.
Home Equity Line of Credit (HELOC)
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 own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.
Home Inspection
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
Homeowners' Association
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project.
Homeowner's Insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
Homeowner's Warranty
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.
Housing Expense Rratio
The percentage of gross monthly income that goes toward paying housing expenses.
HUD Median Income
Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).
HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing.
HVAC
Heating, Ventilating and Air-Conditioning.

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Impound
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
Initial Interest Rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM).
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Installment Loan
Borrowed money that is repaid in equal payments, known as installments.
Insurable Title
A property title that a title insurance company agrees to insure against defects and disputes.
Insurance
A contract that provides compensation for specific losses in exchange for a periodic payment.
Interest
The fee charged for borrowing money.
Interest Rate
The rate of interest in effect for the monthly payment due.
Interest Rate Buy Down Plan
An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.
Interest Rate Ceiling
The maximum interest rate, as specified in the mortgage note.
Interest Rate Floor
The minimum interest rate, as specified in the mortgage note.
Internal Rate of Return (IRR)
The true annual rate of earnings on an investment.
Investment Property
A property that is not occupied by the owner.
Investor
Money source for a lender.
In-File Credit Report
An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.
IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund.

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Judgment
A decision made by a court of law.
Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.
Judicial Foreclosure
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
Jumbo Loan
A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Just Compensation
Compensation which is fair to both the owner and the public when property is taken for public use through condemnation (eminent domain).

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Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
Lease
A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
Legal Description
A geographical description identifying a parcel of land by government survey, metes and bounds, or lot numbers of a recorded plat including a description of any portion thereof that is subject to an easement or reservation.
Legal Owner
The term is in technical contrast to equitable owner. The legal owner has title to the property, although the title may actually carry no rights to the property other than as a lien.
Letter Of Credit
A commitment by a bank or other person, made at the request of a customer, that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit.
Letter Of Intent
A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding".
Liabilities
A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Lifetime Payment Cap
A limit on the amount that payments can increase or decrease over the life of the mortgage.
Lifetime Rate Cap
A limit on the amount that the interest rate can increase or decrease over the life of the loan.
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 to a specified borrower.
Liquid Asset
An asset held in cash or that is easily converted into cash.
Listing Agreement
An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan Origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.
Loan to Value (LTV) Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Lock In
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time.
Lock In Period
The time period during which the lender has guaranteed an interest rate to a borrower.
Lot
Generally, one of several contiguous parcels of land making up a fractional part or subdivision of a block, the boundaries of which are shown on recorded maps.
Lump-Sum Contract
A type of construction contract requiring the general contractor to complete a building or project for a fixed cost normally established by competitive bidding. The contractor absorbs any loss or retains any profit.

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Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value
The highest price a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
Marketable Title
A title which is free from encumbrances and could be readily sold..
Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
Maximum Financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product.
Merged Credit Report
A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of your credit.
Modification
The act of changing any of the terms of the mortgage.
Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.
Mortgage Broker
An individual or company that brings borrowers and lenders together, usually for a fee, for the purpose of loan origination.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent.
Mortgagee
The lender.
Mortgagor
The borrower or homeowner.
Multifamily Units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.
Multifamily Mortgage
A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

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Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyers ends up owing more than the original amount of the loan.
Net Worth
The value of all of a person's assets, including cash, minus all liabilities.
Net Effective Income
The borrower's gross income minus federal income tax.
No Cash Out Refinance
A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old, and other funds for the borrower's use as long as the amount does not exceed 1 percent of the principal amount of the new mortgage.
Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
Non-Liquid Asset
An asset that cannot easily be converted into cash.
Non-Recourse Loan
A loan which bars a lender from seeking a deficiency judgment against a borrower in the event of default. The borrower is not personally liable if the value of the collateral for the loan falls below the amount required to repay the loan.
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate
The interest rate stated on a mortgage note.
Notice of Default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.

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Original Principal Balance
The total amount of principal owed on a mortgage before any payments are made.
Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.
Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.

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Partial Payment
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.
Partial Taking
The taking of part (a portion) of an owner’s property under the laws of eminent domain.
Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM).
Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
Personal Property
Any property that is not real property.
PITI
Principal, interest, taxes, and insurance. Also called monthly housing expense.
PITI Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home.
Points
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).Power of Attorney A legal document that authorizes another person to act on one’s behalf.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Power Of Sale
Clause inserted in a mortgage or deed of trust giving the mortgagee (or trustee) the right and power, on default in the payment of the debt secured, to advertise and sell the property at public auction.
Pre-Foreclosure Sale
A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.
Prepaids
Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.
Prequalification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
Prime Rate
The interest rate that banks charge to their preferred customers.
Principal
The amount of debt, not counting interest.
Principal Balance
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.
Principal, Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent down payments, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.
Pro Rata
Proportionately; according to measure, interest, or liability.
Promissory Note
A written promise to repay a specified amount over a specified period of time.
Public Auction
A meeting in an announced public location to sell property to repay a mortgage that is in default.

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Qualifying Ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
Quitclaim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

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Radon
A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time.
Rate Improvement Mortgage
A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate during the early years of the mortgage term.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA)
RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.
Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Recorder
The public official who keeps records of transactions that affect real property in the area.
Recision
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract. In some cases, once it is signed if the transaction uses equity in the home as security.
Recording
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Renegotiable Rate Mortgage (RRM)
A loan in which the interest rate is adjusted periodically.
Recourse
The right of a lender, in the event of a default by the borrower, to recover against the personal assets of a party who is secondarily liable for the debt.
Rehab
An extensive renovation of a building or project which is intended to cure obsolescence of such building or project.
Remaining Balance
The amount of principal that has not yet been repaid.
Remaining Term
The original amortization term minus the number of payments that have been applied.
REO (Real Estate Owned)
Real estate that has come to be owned by a lender, including real estate taken to satisfy a debt. Includes real estate acquired through foreclosure.
Repayment Plan
An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions."
RESPA (Real Estate Settlement Procedures Act)
RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.
Right Of First Refusal
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
Right of Ingress or Egress
The right to enter or leave designated premises.
Right of Survivorship
The right of survivors to acquire the interest of a deceased joint tenant.
Rural Housing Service (RHS)
An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.

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Sale-Leaseback
An arrangement by which the owner occupant of a property agrees to sell all or part of the property to an investor and then lease it back and continue to occupy space as a tenant. Although the lease technically follows the sale, both will have been agreed to as part of the same transaction.
Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Secondary Mortgage Market
The buying and selling of existing mortgages.
Secured Loan
A loan that is backed by collateral.
Security
The property that will be pledged as collateral for a loan.
Servicer
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts.
Servicing
All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.
Setback
The distance from a curb, property line or other reference point, within which building is prohibited.
Setback Ordinance
Setback requirements are normally provided for by ordinances or building codes. Provisions of a zoning ordinance regulate the distance from the lot line to the point where improvements may be constructed.
Settlement (Closing)
The meeting between the buyer, seller and lender or their agents, where the property and funds legally change hands. Also called settlement.
Settlement Costs (Closing Costs)
Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing are usually about 3 percent to 6 percent of the mortgage amount.
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in return for which a lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.
Step-Rate Mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
Subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Subordinate Financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.
Sweat Equity
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

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Tax Base
The assessed valuation of all the real property that lies within the jurisdiction of a taxing authority, which is then multiplied by the tax rate or mill levy to determine the amount of tax due.
Tax Lien
A statutory lien, existing in favor of the state or municipality, for nonpayment of property taxes which attaches only to the property upon which the taxes are unpaid.
Tax Roll
A list or record containing the descriptions of all land parcels located within the county, the names of the owners or those receiving the tax bill, assessed values and tax amounts.
Term Mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract..
Title
A document that gives evidence of an individual's ownership of property.
Title Company
A company that specializes in examining and insuring titles to real estate.
Title Insurance
A policy, usually issued by a title Insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a fraction of the value of the property, and is often borne by the purchaser and/or seller.
Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Transfer of Ownership
Any means by which the ownership of a property changes hands.
Transfer Tax
State or local tax payable when title passes from one owner to another.
Treasury Index
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans based on the results of auctions that the U.S. Treasury holds for its Treasury bills.
Truth-in-Lending
A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.
Two Step Mortgage
A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10 years), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan, due within 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.

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Under Construction
When construction has started but the Certificate of Occupancy has not yet been issued.
Under Contract
A property for which the seller has accepted the buyer’s offer to purchase is referred to as being “under contract”.
Underwriting
The decision whether to make a loan to a potential homebuyers based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
Unencumbered
Describes title to property that is free of liens and any other encumbrances. Free and clear.
Unimproved Land
Most commonly refers to land without improvements or buildings but can also mean land in its natural state.
Unsecured Loan
A loan that is not backed by collateral.
Usable Square Footage
Usable Square Footage is the area contained within the demising walls of the tenant space and equals the Net Square Footage multiplied by the Circulation Factor.

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VA - Department of Veterans Affairs
An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.
VA Loan
A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
VA Mortgage Funding Fee
A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.
Variable Rate Mortgage (VRM)
A mortgage in which the interest rate is adjusted periodically, based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Variance
Refers to permission that allows a property owner to depart from the literal requirements of a zoning ordinance that, because of special circumstances, cause a unique hardship.
Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.

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Wraparound Mortgage
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

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Zoning
The division of a city or town into zones and the application of regulations having to do with the structural, architectural design and intended use of buildings within such designated zone.
Zoning Ordinance
Refers to the set of laws and regulations, generally, at the city or county level, controlling the use of land and construction of improvements in a given area or zone.

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