GLOSSARY of Real Estate terms

Acceleration clause – A clause in your mortgage that allows the
lender to demand payment of the outstanding loan balance for
various reasons. The most common reasons for accelerating a
loan are borrower defaults or title transfers to another individual
without the lender’s approval.

Amortization schedule – A table that shows the amount of each
payment applied toward both the principal and the interest over
the life of the loan. The schedule also shows the reduction of the
loan balance until it reaches zero.

Assessed value – The valuation a public tax assessor places on a
property for taxation purposes.

Assumable mortgage – A mortgage that can be assumed by the
buyer when a home is sold. Usually, the borrower must “qualify”
in order to assume the loan.

Automatic Clearing House or “ACH” – A secure electronic
payment transfer system connecting U.S. financial institutions.
Automated Payment Program using the ACH system,
allowing you to make your mortgage payment each month on a
designated day without having to write and send a paper check.

Borrower – A person or persons using someone else’s money or
funds to purchase a home. May be used interchangeably with the
terms “mortgagor” or “debtor”.

Co-Borrower – An additional individual, who is obligated on
the loan and the title to the property.

Collection – Efforts made by the lender when loan payments
fall behind.

Credit Counseling – Counseling to help improve and build
good credit. A credit counselor can provide credit education,
confidential budget and debt counseling, debt repayment
programs and financial management education.

Credit Report – A file maintained by a credit bureau that
contains information about a person, such as where the person
works and lives, what money has been borrowed and how
payments have been made. The report also contains public
record information, such as whether the person has filed
for bankruptcy.

Deed of Trust – A recorded legal document that pledges real
property in order to secure a mortgage loan.

Default – A failure to meet a payment or fulfill a credit obligation.

Delinquency – Failure to make mortgage payments when
mortgage payments are due. For most mortgages, payments are
due on the first day of the month. Even though the mortgage
company might not charge a late fee for a number of days, the
payment is still considered to be late and the loan delinquent.
When a loan payment is more than 30 days late, most lenders
report the late payment to one or more credit bureaus.

Equity – A homeowner’s financial interest in a property. Equity
is the difference between the fair market value of the property
and the amount still owed on its mortgage and other liens.

Escrow account – An account used to pay local real estate
taxes, homeowner’s insurance, and if applicable, private
mortgage insurance or mortgage insurance premium,
as required at the closing.

Escrow analysis – Once each year, your lender will perform
an escrow analysis to make sure the company is collecting the
correct amount of money for the anticipated expenditures.

Escrow disbursements – The use of the escrow funds to pay
real estate taxes, hazard insurance, mortgage insurance and
other property expenses as they become due.

Eviction – The lawful removal of an occupant from real property.

Fees – The money a homeowner pays the financial institution
for a service, such as a maintenance fee for the account or a
“bounced check” fee for checks written on accounts that do not
have enough money to cover them.

Flood insurance – Compensates for physical damage resulting
from flooding. This type of insurance is required for properties
located in federally designated flood areas.

Foreclosure – A legal action that terminates all ownership
rights in a home when the homeowner fails to make the
mortgage payments or is otherwise in default under the terms
of the mortgage.

Home inspection – A thorough inspection by a professional
that evaluates the structural and mechanical condition of a
property. A satisfactory home inspection is often included as a
contingency by the purchaser.

Homeowner’s association (HOA) – A nonprofit association
that manages the common areas of a planned unit development
(PUD) or condominium project. In a condominium project, the
HOA has no ownership interest in the common elements. In a
PUD project, the HOA holds the title to the common elements.
May also be referred to as POA - Property Owners Association.

Homeownership education classes – Courses that provide
information about the mortgage approval process, qualifying for
a loan, the importance of establishing a strong credit reputation,
selecting a home that is affordable over the long term, financing
and closing processes, avoiding mortgage delinquencies, defaults
and foreclosures.

Homeowner’s insurance – An insurance policy that combines
personal liability insurance and hazard insurance coverage for a
dwelling and its contents.

Interest – The amount charged to borrow money. This is the
amount the lender charges to lend the money, and it is usually
expressed as a percentage of the amount borrowed.

Late payments – Loan or credit payments that do not reach
the lender or creditor on or before the payment due date. The
indication of late payments on a credit report are damaging to
one’s credit report.

Late Charge – The penalty a borrower must pay when a
payment is made a stated number of days beyond the due date.
On the first deed of trust, this is usually fifteen days.

Lender – The person or entity providing credit or a loan to a
borrower at specific terms and conditions. This term is used
interchangeably with “creditor.”

Loan – A sum of borrowed money (principal) that is generally
repaid with interest.

Loan servicing – The company to whom payments are made
“services” your loan. This means they process payments,
send statements, manage the escrow account, make collection
efforts on delinquent loans, ensure that insurance and property
tax payments are made on the property, handle pay-offs and
assumptions and provide a variety of other services.

Loan-to-value (LTV) – The percentage relationship between
the amount of the loan and the appraised value.

Modification – Occasionally, a lender will agree to modify the
terms of a mortgage without requiring the owner to refinance.
If any changes are made, it is called a modification. If the loan
is in default, and the borrower can afford to make regular
monthly payments, a lender could offer a modification to prevent
a foreclosure.

Mortgagee – The lender in a mortgage agreement.

Mortgage Insurance (MI) – Insurance that covers the lender
against some of the losses incurred as a result of a default on a
home loan. Mortgage insurance is usually required in one form
or another on all loans that have a loan-to-value ratio greater
than 80 percent. Also, FHA and certain first-time homebuyer
programs require mortgage insurance regardless of the LTV.

Mortgagor – The borrower in a mortgage agreement.

Note – A legal document that obligates a borrower to repay
a mortgage loan at a stated interest rate during a specified
time period.

Note rate – The interest rate stated on the mortgage note.

Notice of default – A formal written notice to a borrower that a
default has occurred and that legal action might be taken.

Original principal balance – The total amount of principal
owed on a mortgage before any payments are made.

Optional Insurances – Financial protections specially designed
to pay one’s mortgage if something unexpected happens. This
insurance pays the principal balance in the case of death or loss
of employment.

Partial payment – A payment that is not sufficient to cover
the scheduled monthly payment on a mortgage loan. Normally
a lender will not accept a partial payment without prior
arrangements, but in times of hardship homeowners can request
this of the loan servicing collection or loss mitigation department.

PITI – This stands for principal, interest, taxes and insurance.

Prepayment – Any amount paid to reduce the principal balance
of a loan before the due date. Prepayment in full also occurs
when a property is sold, the owner decides to pay off the loan
in full or a foreclosure occurs. In each case, prepayment means
payment occurs before the loan has been fully amortized.

Prepayment penalty – A fee that may be charged to a borrower
who pays off a loan before it is due.

Predatory lending – Abusive lending practices that include
making a mortgage loan to an individual who does not have the
income to repay; financing the highest possible loan amount
without regard to the payment ability of the borrower; hiding
or not explaining fees, costs or rates being charged; imposing
excessive fees or packing extras into the loan such as credit life or
disability insurance; falsifying information on the loan application;
inflating real estate appraisals to get the loan approved; and
lending in connection with home improvement scams.

Principal – The amount borrowed or remaining unpaid. The
part of the monthly payment that reduces the remaining balance
of a mortgage.

Title – A legal document evidencing a person’s right to or
ownership of a property.