Homeownership Glossary of Terms

Acceleration clause

A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Adjustable living expenses

Expenses you can change, such as costs of groceries, utilities, telephone.

Adjustable rate mortgage loan (ARM)

Mortgage loans with interest rates that go up and down. The rate is usually based on indexes tied to the nation’s economy.


The process of paying off a loan by a schedule of payments over a fixed time period.

Amortization schedule

A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Annual percentage rate (APR)

The cost of a borrower’s credit as a yearly rate. Defined by the federal Truth in Lending Act, it includes finance charges as well as the contractual interest rate.


An estimate of a property’s fair market value by a licensed professional. Lenders take the appraisal into account when deciding whether or not to make loans.


An increase in the value of a house due to changes in market conditions or other causes.

Assessed value

The valuation placed upon property by a public tax assessor for purposes of taxation.


Something of value that you own. An asset could be a car, a retirement fund, stocks or bonds, or even a valuable piece of furniture.

Assumable mortgage

A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.


The transfer of the seller’s existing mortgage to the buyer.


When a person is declared by a court to be unable to pay her or his debts, that person is in bankruptcy. That person must then turn over any money or properties to a trustee, a person whom the court appoints, for management.

Billing cycle

The date a bill is sent out and the payment due. Some bills are sent out on the first of the month, some on the fifteenth, some on other dates.


A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.

Building permit

A written permit that must be purchased from the local government by anyone doing remodeling or rehabbing work on a property.

Buyer’s agent

A real estate agent who works for the buyer of a house, not the seller.


A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

Capital gains tax

A tax owed for selling something at a price that is more than the price the owner bought it for.

Capital loss

What a homeowner has if he sells his home for less money than he paid for it.

Cash reserve

A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.

Clear title

A title that is free of liens and legal questions as to ownership of the property.


The meeting during which all the papers are signed (the loan is “closed”) and the house keys are turned over to the new homebuyer. Also called “settlement”.

Closing costs

Money paid by borrowers and sellers to close a mortgage loan. This normally includes origination fees, points, title insurance, survey and attorneys’ fees, and prepaid items such as insurance and taxes. Also called “settlement costs”.

Collateral or security

Property that backs up a loan. If the borrower does not pay back the loan as agreed, the lender can take the collateral. A house is collateral for a mortgage loan. A house gives security to a mortgage loan.

Collection agencies

Private businesses, hired by creditors, that try to get borrowers to make payments that are overdue.


The fee a real estate agent is paid for helping to sell a house. Usually it is based on the purchase price of the home.

Commitment letter

A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.


An item in a real estate sales contract stating that the contract is good only in certain cases—for instance, only if the buyer obtains financing at a certain rate or only if the seller replaces the shingles on the roof. The contingencies must be written in the contract.

Conventional mortgage

Any mortgage that is not insured or guaranteed by the federal government.


A person who signs loan documents, such as a mortgage note with another person. The co-signer is responsible for making payments, if the borrower does not.


If a seller does not like a buyer’s offer, the seller can reject the offer and can make a new offer.


A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

Credit bureau

Also called “credit reporting agency”. A company that keeps track of people’s debts and how they repay them. The three main credit bureaus are TRW, Equifax, and Trans Union.

Credit history

The record of a person’s payment of debt, over years’ time. That record is kept by three national credit bureaus that send it to businesses, lenders, and creditors, as well as to credit-holders upon request.

Credit rating

A credit bureau’s ranking of the way a person has repaid her debts. A lender uses a loan applicant’s credit rating to decide whether or not to make the loan.

Credit report

A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining an applicant’s creditworthiness.


Any person or company that lends money (extends credit).


A person with good credit, whom a lender judges will repay a loan, is creditworthy.

Daily interest

The amount of interest the borrower pays the lender calculated on a daily basis. It equals the annual interest rate divided by 360 or 365 and multiplied by the amount of the loan. Also called “per diem interest”.


To subtract an amount from income that is being taxed. Homeowners can deduct interest they pay on their mortgage loans, points they pay at settlement, home improvements, and related items.


The legal document conveying title to a property.

Deed of trust

A document used in some localities in place of a mortgage agreement. The deed of trust places the title to the subject property into trust for the lender during the term of the loan.


The failure of a borrower to make payments on a loan or in some other way fail to fulfill the terms of a note, mortgage, or loan agreement.


A loan in which a payment is overdue but not yet in default.


Cash paid to the seller when a formal sales contract is signed.


A decline in the value of property; the opposite of “appreciation.”

Discount points

See Points.

Discretionary spending

Spending on optional or nonessential goods or services, as opposed to essential items (e.g., food, clothing and shelter).

Down payment

Money the borrower has to pay “up front,” (usually 5% to 20% of the amount of a loan.)

Due-on-sale clause

A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

Earnest money

Money a person puts down to show that he/she is serious about buying a certain house. Also called “good-faith deposit.”


A right of way giving persons other than the owner limited access to or over a property.

Equal Credit Opportunity Act

A federal law that says creditors cannot discriminate against borrowers because of race, color, religion, national origin, sex, marital status, age, and receipt of public assistance.


Equity is the difference between the house’s market value and the amount the homeowner owes on the mortgage loan.

Equity loan

A loan based on the borrower’s equity in his or her home. The equity is used as collateral.


Funds held in a separate bank account for a specific purpose. Lenders often hold a borrower’s money in escrow and then pay the borrower’s property taxes and insurance when they come due.

Fair Credit Billing Act

A federal law that gives a borrower the right to question credit card bills from companies other than banks. The law lays out a process for a borrower to follow if a credit card bill is wrong, or appears to be wrong.

Fee simple

In this type of homeownership, the house and the land it sits on are owned by one person (or family).

FHA loan

A mortgage that is insured by the Federal Housing Administration.


To supply money for a purchase. A lender can finance homeownership with a mortgage loan.


Money that a financial company lends to a buyer for making a purchase, such as home financing.

First mortgage

The mortgage that has first claim in the event of default.

Fixed expenses or fixed payments

Expenses or payments that usually stay the same from month to month, such as rent, a car loan, a student loan, insurance, or child support.

Fixed-rate mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

Flood insurance

Insurance required for properties in federally designated flood areas.


The lender’s postponement of foreclosure to give the borrower time to catch up on overdue payments.


The process of the lender taking a property when the borrower has defaulted on the loan. The lender then sells the property to recoup its loss on the unpaid loan.

Good faith estimate

A lender is required to give an estimate of a borrower’s closing costs to the borrower within three business days of the loan application.

Graduated payment

A mortgage loan with monthly payments that start at a lower amount and then increase slowly over the next several years. The monthly payments then stay the same at the higher amount.

Gross income

The total amount of money that a person receives, before taxes and other deductions. This income may include funds from a job or jobs; interest or dividends; alimony; disability payments; or public assistance.

Hazard insurance

Insurance that compensates for a loss on a specific property due to damages caused by fire, vandalism, theft, storm damage and certain other natural disasters.

Home inspector

A licensed professional who looks at all parts of a house and evaluates its condition.

Homeowner’s insurance

An insurance policy that combines liability coverage and hazard insurance.

Homeowner’s warranty

A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Housing expense ratio

The percentage of a person’s gross monthly income that it takes to pay a mortgage loan payment plus interest, property taxes, and insurance. Lenders use this ratio to decide whether or not to make mortgage loans.


Anything done to a house that increases its value, such as adding a sun porch or modernizing a kitchen.


When a house is remodeled or rehabbed, it must be inspected by an inspector from the local government to be sure all work is done properly.

Installment debt

Debts or accounts that are paid off in monthly payments, or installments, such as credit card accounts.


A charge that a borrower pays to a lender to borrow money. Usually it is a percentage of the amount of the loan.

Interest rate cap

A provision of an ARM limiting how much interest rates may increase per adjustment period. See also Lifetime cap.


An item, such as a house, on which money is spent in the hope of getting money or other benefits back in return.

Joint tenancy

A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.


A decision given by a judge or court that says a person has to pay another person a certain amount of money.

Late charge

The penalty a borrower must pay when a payment is made after the due date. – www.baltimorehousing.org Baltimore City Office of Homeownership Rev. 03/2008 19 19

Lease-purchase mortgage loan

An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy, and with each month’s rent payments consisting of PITI payments on the first mortgage, plus an extra amount that is earmarked for a savings account in which money for a down payment accumulates.


A legal claim on a property that must be paid before a property can be sold. Lifetime cap

A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Listing agent

A real estate agent who lists a house for sale. The listing agent represents the seller of the house.


A computerized pool of information, shared by real estate agents that list houses for sale. Also called Multiple Listing Service or MLS.

Loan commitment

See Commitment letter.

Loan servicing

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan to value ratio (LTV)

The loan balance on a house compared to the appraised value of a house. In making a mortgage loan, a lender uses the LTV to show that a house is worth more than the loan amount. This is important because, if the homeowner does not make payments on the mortgage loan, the bank gets the house in return, as payment.


A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.


The set percentage the lender adds to the index rate to determine the interest rate of an ARM.


The date when an agreement or obligation runs out.

Monthly housing costs

The total of a homeowner’s mortgage loan payment and expenses for utilities, general home repair, and upkeep.

Mortgage agreement

A document signed by a borrower and a lender giving the lender the right to take the borrower’s house if the borrower does not repay the loan.

Mortgage banker

A company that originates mortgages exclusively for resale in the secondary market.

Mortgage broker

A company that for a fee matches borrowers with lenders.

Mortgage insurance premium (MIP)

The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

Mortgage insurance

See Private mortgage insurance.

Mortgage note

A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.


A legal document that pledges a property to the lender as security for payment of a debt.


The lender in a mortgage agreement.


The borrower in a mortgage agreement.

No Documentation Loan

A loan for which no loan documentation, including tax information, proof income, or credit reports is required.

Nontraditional credit history

A record of credit performance shown with receipts, bills and check stubs from payments to landlords, utility companies, child-care providers, and others. A method for loan applicants who do not have a credit history from, for example, car-loan or credit card payments.


A document on which a borrower promises to repay a loan. Also called “promissory note.”

Notice of default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.


A purchase proposal to the seller of a house, telling the amount a certain buyer would pay for the house and other conditions that would have to be met before the proposed house sale.


The process that a lender goes through to get complete and correct information about a loan applicant’s income and credit.

Origination fee

A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount, or points.

Owner financing

A purchase in which the seller provides all or part of the financing.

Payment cap

A provision of some ARMs limiting how much a borrower’s payments may increase regardless of how much the interest rate increases; may result in negative amortization.


Stands for principal, interest, taxes, and insurance, which are the components of a monthly mortgage payment.

Point or points

A one-time charge the lender adds to a mortgage loan. A point is 1% of the mortgage loan amount.

Prepayment penalty

A fee charged to a borrower who pays off a loan before it is due.


The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.


The outstanding balance of a loan, not counting interest or any other charges.

Private mortgage insurance (PMI)

Insurance provided by nongovernmental insurers that protect lenders against loss if a borrower defaults.

Property inspection

The examination of a house by a licensed inspector to see if its structure is sound and if its mechanical systems, such as plumbing and heating, are working.

Purchase and sale agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Qualifying ratios

Guidelines applied by lenders to determine how large a loan to grant a homebuyer.


A radioactive gas found in some homes that in sufficient concentrations could cause health problems.

Real estate agent

A person licensed to negotiate and transact the sale of real estate on behalf of the owner.


The process of paying off one loan with the proceeds from a new loan secured by the same property.

Settlement attorney

A lawyer who organizes the closing on a house sale, by preparing necessary papers, paying fees, and conducting the settlement meeting between seller and buyer.

Settlement sheet

The computation of costs payable at closing which determines the seller’s net proceeds and the buyer’s net payment.


A detailed description of the size, shape, materials, and other details of a building or remodeling project.


A measurement of land by a registered surveyor.

Survey Map

A drawing or map showing a property’s boundaries, any places the property may have been improved or changed, rights of way, and other physical features.


A professional who checks the boundaries of a property. Tax assessor

A government employee who determines a property value for tax purposes.

Tenancy by entirety

A type of joint ownership of property available only to a husband and wife.

Tenancy in common

A type of joint ownership in a property without right of survivorship.


The length of time in which a loan is to be repaid. A 30-year mortgage loan has a 30-year term.


All conditions placed on a loan, including the interest rate, any finance charges, and the length of the loan.


Proof of ownership of a property. A clean title is one that shows no liens against it.

Title company -A company that specializes in insuring title to property.

Title insurance

Insurance that compensates the insured a specific amount for any loss caused by defects of title to real estate.

Title search

A check of public title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Total monthly debt

The total amount of credit card, car loan, and other debt payments a person must pay each month. Used to figure out debt-to-income ratios.

Total monthly income

The amount of money that comes into a household every month from a job or jobs, interest or dividends, alimony, disability payments, and public assistance. A lender uses the total monthly income figure to decide how much house payment a loan applicant can afford. Also called “gross monthly income.”

Transfer tax

State or local tax payable when title passes from one owner to another.


The process of analyzing a borrower’s finances and credit in order to decide whether or not to make a loan. The underwriter is the person who has authority to approve a loan.

Unsecured credit

Any credit that is not secured by property (such as a house). A credit card is unsecured credit, while a mortgage loan is secured.

VA loans

A loan that is guaranteed by the Veterans Administration.


The process of making sure or verifying that all of a borrower’s loan application information is accurate.


A county or city law stating the types of use to which properties can be

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