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Mortgage Dictionary

- Numbers -

1003 / Uniform Residential Loan Application (URLA)

The form number assigned to the loan application all potential borrowers must complete to apply for a home loan. This application is commonly referred to as the "1003." See also Loan Application.

2 - 4 Unit Property

A property that consists of a structure that provides living space for two to four families, although a single mortgage or deed of trust evidences ownership of the structure.

30-day Lates, 60-day Lates, Etc.

Designations of the severity of mortgage delinquency. A mortgage payment is considered 30 days late when two payments are due. A mortgage payment is considered 60 days late when three payments are due.

3 C's of Credit

Lenders consider three factors when reviewing a credit application: credit, capacity and collateral. Credit is the borrower's proven willingness to repay a debt. Capacity is the borrower's financial ability to repay a debt. Collateral refers to the property used to secure a loan transaction.

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Abstract of Judgment

A summary of the essential provisions of a court judgment that, when recorded in the county recorder's office, creates a lien upon the property (both presently owned and subsequently acquired) of the debtor in that county.

Abstract of Title

A history of a property's title record used in some states to prepare the preliminary or title commitment report. An abstract of title lists anyone who has ever had a claim to the property, past and present. Some states require mortgage lenders to obtain a complete abstract of title. However, most states condense the abstract into a document called either the preliminary or title commitment, which lists only current claims to the property.

Acceleration Clause

A provision in a mortgage that allows the holder to demand the entire outstanding mortgage balance due and payable in the event of a breach of the mortgage contract.

Accrued Interest

The interest earned for the period of time that has elapsed since interest was last paid.

Addendum

An attachment to a contract, deed or other document that incorporates additional terms of information into the original.

Adjustable-Rate Mortgage (ARM)

A mortgage loan where the interest rate is not fixed for the entire term of the loan. The interest rate can change over time, based on movements of an index.

Adjustable-Rate Rider

A rider is an addition to a security instrument. The adjustable-rate rider outlines terms and conditions specific to an adjustable-rate loan. It must be recorded along with the security instrument at the county recorder's office. See also Security Instrument.

Adjustment Cap

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

Agent

A legal representative for another, usually called a principal.

Alimony

Periodic payments made under a divorce decree or a written separation agreement toward the support of a former spouse. Alimony may be taken as a deduction from adjusted gross income by the person who pays it, while the person who receives it must claim it as taxable income.

Amenity

Any feature that enhances property value. Examples are off-street parking within a condominium community, the proximity of public transportation, tennis courts or a swimming pool.

American Land Title Association (ALTA)

An organization composed of title insurance companies that has adopted certain insurance policy forms to standardize title insurance coverage on a national basis. See also Title Insurance.

Amortization

The gradual repayment of a mortgage by installments over the life of the loan.

Amortization Schedule

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

Annual Percentage Rate (APR)

The total yearly cost of a mortgage stated as a percentage of the loan amount. It includes the base interest rate, primary mortgage insurance and loan origination fee (points), commitment fees, prepaid interest, and other credit costs that may be paid by the borrower. Under the Truth in Lending Act, the APR must be disclosed and labeled.

Annuity

Fixed payments an individual receives for a lifetime or a specified number of years at consistent intervals. For example, a person may receive an annuity from a pension plan or from an investment.

Applicant

A prospective borrower who has completed an application. An application involves a series of steps, usually including the completion of documents a lender requires of those seeking a loan.

Application

A form used to record pertinent information about a prospective borrower and the proposed security. Standard application forms include FNMA/FHLMC 1003, HUD Form 92900-A and VA Form 26-1802a.

Appraisal

An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.

Appraised Value

An opinion reached by a licensed appraiser based upon knowledge, experience and the study of pertinent value.

Appraiser

One licensed and qualified by education, training and experience to estimate the value of real and personal property.

Appreciation

An increase in value of a house due to changes in market conditions or other causes. "As Is" Condition Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including all physical defects.

Assessed Value

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

Assignment of Lease

A mortgage clause that passes control of leases on an income-producing property to the lender. Often a condition to making a loan to ensure that, in case of mortgage default, any continuing income from the property goes directly to the lender.

Assumption of Mortgage

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

Attachment

A legal process whereby the judgment creditor may obtain a lien against the debtor's property. See also Lien.

Attorney Closing

This practice is prevalent in states where attorneys' opinions are used in place of title reports. Closings by attorneys follow much the same procedures as escrow closings. The lender delivers to the attorney the settlement statement and the net loan proceeds, as well as instructions for their use.

Attorney in Fact

A person given the legal authority to act on behalf of another under a signed Power of Attorney (POA).

Attorney's Opinion of Title (In Absence of a Title Company)

A statement issued by an attorney in states that don't use a preliminary title report or title commitment. All liens recorded against the property are disclosed in this statement. The attorney also advises on items that require completion to gain a clear title insurance policy before recording a security instrument.

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Back-End Debt Ratio

This refers to the borrower's debt ratio and is calculated using a borrower's total monthly payments due on credit obligations divided by the borrower's gross monthly income. It's expressed as a percentage. See also Debt Ratio.

Balloon Mortgage

A mortgage with regular principal and interest payments that at the end of the term do not fully pay off the balance due on the note. The remaining balance is then due in a lump sum payment.

Balloon Payment

A large payment due at the end of a loan contract. Equal to the remaining principal balance plus any interest and charges due.

Balloon/Reset Mortgage

A fixed-rate mortgage with a reset option at the balloon maturity date.

Bankruptcy (BK)

A person, firm or corporation who, through a court proceeding, is relieved from the payment of debt after the surrender of assets to a court-appointed trustee, for the protection of creditors. See also Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

Basis Point

One one-hundredth of one percent. Used to describe changes in yield on debt instruments, including mortgages. For example, 10 basis points equals 0.001.

Beneficiary

The entity or lender that funds the loan and to which the loan is owed.

Beneficiary's Demand

Written instructions by a beneficiary under a deed of trust or mortgage stating and demanding the amount necessary for payoff of a lien in full.

Borrower

One who borrows money and is responsible for repaying it to the lender. Also known as obligor. If the loan is secured by a mortgage, the borrower is known as a Mortgagor.

Borrower Savings

The monthly savings a person will experience by consolidating/paying off debt with a debt consolidation loan. Monthly savings equals current monthly payments less new monthly payments.

Broker

One who acts as an intermediary between parties to a transaction in exchange for a fee or commission.

Business for Self (BFS)

Persons who own their own business. Another term for self-employed.

Business License

A license that authorizes a business to operate and is typically required and issued by the city in which the business is located.

Buy-down

The reduction of monthly mortgage payments for a specified amount of time due to monies advanced up front by the seller, buyer or a third party.

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Cap

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

Capacity

A borrower's financial ability to repay debt. See the 3 Cs of Credit for more detailed information.

Capital

The accumulated wealth of a business or person; the actual net worth of a business or person represented by the amount by which the assets exceed the liabilities.

Capital Asset

Permanent property used to produce income, such as land, buildings and machinery.

Capital Gain

The taxable profit derived from the sale of a capital asset. Equals the sales price minus the total of sale costs and the adjusted basis (original cost plus capital additions minus accumulated depreciation).

Capital Loss

The loss derived from the sale of a capital asset. May be short-term or long-term.

Cash Equivalent Value

A method of calculating the appraised value of a property that considers sales and financing concessions when evaluating comparable property. There is no standard in the appraisal industry for measuring cash equivalent value, but investors and mortgage insurers sometimes insist that cash equivalency be incorporated in the appraised values.

Cash Market

A market where mortgage and/or mortgage-backed securities are bought and sold for immediate delivery and cash payment. Also called a spot market.

Cash Reserve

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

Cash-Out Explanation Letter

A handwritten, signed and dated letter provided by borrowers who are receiving cash from a refinanced loan transaction. The letter explains how they intend to use that cash. Generally used to verify that borrowers do not intend to use the cash to incur additional debt that will add to their monthly obligations and decrease disposable monthly income.

Cash-Out Refinance

A refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Ceiling

The highest interest rate that may be assessed or an adjustable-rate loan during the life of the loan based on the start rate and lifetime cap.

Certificate of Eligibility

A document issued by the Department of Veterans Affair that verifies a veteran's eligibility for a VA Loan guarantee.

Certificate of Occupancy (C/O)

A certificate issued by a local city government to the property owner stating that a building is in proper condition to be occupied.

Certificate of Reasonable Value (CRV)

A document issued by the Department of Veterans Affair that establishes the maximum value and loan amount for a VA guarantee mortgage.

Certified Copy

A copy of an original attested to be a true and exact duplicate of the original.

Change Date

This is a date established with an adjustable rate loan contract when a new interest rate will be assessed. Also known as an adjustment date.

Chapter 7 Bankruptcy

A Chapter 7 BK is a straight liquidation bankruptcy where the debtor submits all of his or her non-exempt assets to a trustee for liquidation; proceeds are disbursed to creditors.

Chapter 13 Bankruptcy

Chapter 13 BK is a debt reorganization plan where debts are repaid under a court-supervised repayment plan. Debtors submit part of their income for distribution among creditors. Also known as the wage-earner plan.

Charge-off

A delinquent credit account with a balance owed that was never fully satisfied and the creditor removed it from the books for accounting purposes even though the debtor still owes payment in full.

Child Support

Periodic court-ordered payments made under a divorce decree or a written separation agreement for the support of the children.

Civil Proceeding

A lawsuit or legal action between two or more parties, as opposed to a criminal proceeding.

Clear Title

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

Closing

A meeting between a lender and borrower or a buyer, seller and lender or their agents when the loan documents are signed and the funds legally change hands. Also known as a settlement.

Closing Agent

The party designated to conduct the loan closing and to ensure the mortgage or deed is recorded and the funds disbursed on time.

Closing Costs

Expenses (over and above the sale price of the property) incurred by buyers and sellers to effect the closing of a mortgage loan. Also known as settlement costs.

Closing Statement

A statement required by federal law (the Real Estate Settlement Procedures Act) that itemizes all changes imposed on the borrower and seller (if any) in connection with a mortgage-secured loan transaction. Also known as a Settlement Statement, HUD-1 or HUD-1A.

Co-Borrower

A second borrower on a loan who shares equal responsibility for repayment of the loan.

Co-Mortgagor

A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets and debts are combined with the mortgagor's for underwriting and ratio analysis purposes.

Co-Signer

One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property; his or her income and obligations are used in the underwriting process to reinforce the credit of the primary borrower.

Collateral

Property pledged by the borrower to secure the repayment of the loan. The lender's claim or lien appears on the title report for the property. See the 3 Cs of Credit for additional information.

Collection

The servicing procedure followed to bring a delinquent mortgage current and to file the required notices to begin foreclosure when necessary.

Combined Loan to Value (CLTV)

The total of all liens tied to the subject property divided by the lower of the appraised value or sales price of the property.

Combined Monthly Housing Expense

Monthly expenses for the individual's primary residence, which include rent or mortgage payments, other financing, hazard and flood insurance, mortgage insurance, real estate taxes, utilities and homeowner association dues.

Commercial Property

A property used for business purposes.

Commitment Fee

Any fee paid up front (usually by an individual builder or developer) to the lender for the purpose of holding mortgage funds for a specified date.

Commitment Letter

A written agreement between the lender and the borrower stating the terms under which the lender agrees to loan money to the borrower.

Comparables (Comps)

Properties used to determine the value of a specific property for comparative purposes in the preparation of an appraisal.

Compensating Factors

Positive characteristics about an applicant's credit, employment history, etc. that contribute to a loan being a sound risk or investment.

Concession

Special or unusual terms offered by the seller that may warrant the buyer paying a higher price for the property.

Condominium (Condo)

A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest in common areas of the project.

Condominium Association

An association of owners of condominium units.

Consumer Credit

Credit owed by an individual that is not secured by real estate.

Contingency

A condition that must be satisfied prior to a contract being legally binding.

Contract Rent

The actual rental payment specified in a lease agreement.

Conventional Loan

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

Conversion Clause

A provision in some Adjustable-Rate Mortgages (ARMs) that allows borrowers to change their adjustable rate to a fixed rate at some point during the term.

Conveyance

The document (such as a deed, lease or mortgage) used to affect a transfer of title to real property.

Corporation

An artificial person or legal entity created by or under the authority of the law of a state. May have limited liability, perpetual life, freely transferable shares and centralized management.

Cosmetic Repair

Repairs that improve the appearance of the property and are considered aesthetically pleasing to the eye.

Cost Approach to Value

A valuation approach in which the value of a property is determined by computing the replacement value of improvements, depreciation and the value of the land.

Coupon Book

A book of pre-printed coupons furnished to the borrower. One coupon is returned each month with a check or money order, enabling the mortgage servicer to identify the payment by name, loan number and type of loan.

Covenant

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

Covenants, Conditions and Restrictions (CC & Rs)

Limitations placed on the use and enjoyment of real property. Usually intended to maintain a certain look within a neighborhood and common in subdivisions, PUDs and condominium communities.

Credit Authorization Letter

A letter signed by the borrower that authorizes a lender to conduct a credit investigation.

Credit Bureau

A company that collects and organizes information about an individual's credit and payment habits. The three national credit bureaus are Experian, TransUnion and Equifax.

Credit Denial Letter

A letter that is sent to a credit applicant advising him or her that the application has been denied and the reason for the denial.

Credit Depth

The number of years a borrower has had established credit. This information shows up on the borrower's credit report.

Credit History

The history of whether the borrower has met financial obligations on time in the past.

Credit Length

The length of time a borrower has had established credit.

Credit Report

A report prepared by a credit bureau that provides a detailed account of a borrower's Credit History.

Credit Score/Rating

A numerical assessment assigned to the individual by credit bureaus that represents a measurement of the individual's overall credit rating. The scores are weighted and range from approximately 365 to 840. Low scores reflect a "high risk," while higher scores reflect a "lower risk." Each credit bureau has its own credit score system.

Creditor

An individual or entity to whom money is owed.

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Date Down Addendum An update to the preliminary title report/title commitment that reflects any changes to the title since the original title report was prepared. Same as an update addendum.

Debt Consolidation Loan A loan that combines debt obligations into one debt.

Debt Load The total amount of debt an individual currently owes.

Debt Ratio (DR) The percentage of an individual's gross monthly income allocated to pay the monthly installments on their debt owing. See also Back-End Debt Ratio and Front-End Debt Ratio.

Debtor One who is obligated to pay any liabilities.

Deed A legal document by which a property owner (grantor) conveys an ownership interest in real property to a grantee.

Deed in Lieu A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.

Deed of Reconveyance A document used to transfer legal title from the trustee back to the borrower after a debt secured by a deed of trust has been paid in full.

Deed of Trust A type of security instrument used in some states in place of a mortgage by which legal title is conveyed to one or more trustees to secure the repayment of a debt. Same as a Trust Deed.

Default A breach or nonperformance of the terms of a note or the covenants of a mortgage.

Deferred Maintenance

Repairs necessary to restore a property to good condition.

Deficiency Judgment A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan.

Delinquency Failure to make payment when due.

Demand A letter from a lender showing the total amount due to pay off a mortgage or trust deed, inclusive of unpaid principal, interest, impound amounts, prepayment penalty, etc. Also known as a demand for payoff request or beneficiaries demand letter.

Demand Feature A feature that defines circumstances under which the remaining principal and interest amount of the loan is due and payable on demand.

Depreciation

A decrease in value to real property improvements caused by age, deterioration or functional obsolescence.

Derogatory Explanation Letter

A borrower's written explanation to the lender explaining any derogatory information reported on the credit report.

Disbursements

Payments made on behalf of the borrower pursuant to the instructions on the HUD settlement statement.

Discharge

Following a completed bankruptcy proceeding, discharged debts are no longer enforceable. The individual has successfully completed the process and debtors are either paid in full or eliminated based on the plan.

Discount Point

Amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. One point is equal to 1% of the loan.

Disposition

See Final Disposition.

Divorce Decree

A document issued by the court that dissolves a marriage relation.

Docs

Abbreviation for mortgage loan documents.

Dower Rights

A common law interest that a wife acquires in her husband's property at the time of his death. Dower rights have been abolished in most states.

Down Payment

The difference between the purchase price and the mortgage amount for home purchase transactions.

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.

Duplex

A property that consists of a structure that provides living space for two families, although a single mortgage or deed of trust evidences ownership of the structure.

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Earnest Money

The cash deposit paid by the prospective buyer of real property, as evidence of good faith intentions to complete the purchase transaction.

Easement

A right to the limited use or enjoyment of land held by another. Also, an interest in land to enable sewer or other utility lines to be laid, or to allow access to a property.

Effective Age

Age of a structure based on its present condition rather than actual age. Takes into account rehabilitation and maintenance.

Effective Date

This is the date a new mortgage payment is effective–the month following the rate change date.

Encroachment

Generally, an improvement, such as a wall, fence or building, that extends onto the property of another.

Encumbrance

A claim, lien, charge or liability attached to and binding real property. Any right to, or interest in, land that may exist in one other than the owner, but that will not prevent the transfer of fee title subject to such encumbrances.

Endorse

The act of a payee or holder of a note, bill, check or other negotiable instrument, of assigning and transferring said instrument to another by signing the back of the instrument, with or without qualifications.

Endorsement

An addition to a title insurance policy that adds or subtracts coverage.

Engineer's Report

A report given by an engineer on the physical condition of the property and including any recommendations.

Entitlement

The amount the VA guarantees the lender if a veteran defaults on a VA home loan.

Equal Credit Opportunity Act (ECOA)

A federal law that prohibits lenders from discriminating on the basis of race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. Also called Regulation B.

Equitable Interest

An ownership interest in a property that is demonstrated by actions such as the payment of the current mortgage, property taxes or property insurance rather than by legal ownership.

Equity

The difference between fair market value and current indebtedness, sometimes called ownership interest or net ownership.

Equity Line of Credit

A combination of a line of credit and equity loan secured by real property. A maximum loan amount is established based on credit and equity. A mortgage is recorded against the potential borrower's property for said maximum loan amount. The potential borrower has the right to borrow, as needed, up to the amount of the credit line.

Escrow

The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

Escrow Analysis

The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance and other bills when due.

Escrow Instructions

For purchase transactions, instructions signed by both buyer and seller, that enable the escrow agent to carry out the procedures necessary to transfer real property, a business or other assignable interest.

Escrow Payment

The portion of the monthly mortgage payment reserved by the lender (or servicer) to pay taxes and insurance items when they come due.

Estate (Real Property)

Describes the extent and character of a person's rights and interest in real property. Two types of estates frequently financed by mortgage lenders are the fee simple and the leasehold estate. See also Fee Simple Estate and Leasehold Estate.

Exceptions to Guidelines

The consideration of approving a loan having characteristics that do not fit into a mortgage company's guidelines when it makes sense to do so.

Exceptions to Title

Claims against the property as of the date of the title report.

Experian (EXP)

A national credit bureau from which lenders can order credit reports.

External Obsolescence

Any influence negatively affecting a property's value that falls outside of the specific property site. An example of this would be a property located under an airport flight pattern.

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Face Amount (Life Insurance)

The amount the surviving party will receive in the event of death.

Fair Isaac Corporation (FICO)

Engineer Bill Fair and mathemetician Earl Isaac spent approximately 10 years studying millions of loans to create a computerized model that assesses the risk factor for a potential borrower. Credit bureaus assign numerical scores in order to measure a borrower's credit characteristics. See also Credit Score/Rating.

Fair Market Value

The price determined to convey title by the seller to the buyer where neither party is under any obligation to buy or sell and both parties have a reasonable knowledge of pertinent data.

Fannie Mae

Another name for the Federal National Mortgage Association (FNMA).

Federal Deposit Insurance Corporation (FDIC)

Originally established by the Banking Act of 1933 to protect depositors from loss. As a result of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the FDIC administers the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).

Federal Home Loan Bank Board (FHLBB)

Supervisory and regulatory agency for federally chartered savings and loan associations.

Federal Home Loan Mortgage Corporation (FHLMC) –Freddie Mac

An agency regulated by FHLBB that purchase conventional mortgages in the secondary market. This agency sells participation sales certificates secured by conventional mortgage loan pools. It also sells GNMA Bonds to raise funds to finance the purchase of mortgages.

Federal Housing Administration (FHA)

A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.

Federal National Mortgage Association (FNMA) – Fannie Mae

The nation's largest mortgage investor, created in 1968 by an amendment to Title III of the National Housing Act. This stockholder-owner corporation, a portion of whose board of directors is appointed by the President of the United States, supports the secondary market in mortgages on residential property.

Federal Tax Lien

A lien attaching to a property for nonpayment of a federal tax. A federal tax lien differs from other liens in that it's not automatically eliminated by a senior lien holder foreclosing on a mortgage or trust deed recorded before the tax lien.

Fee Simple Estate

An estate under which the owner is entitled to unrestricted powers to dispose of the property, and under which the property can be left by will or inherited. Commonly a synonym for ownership. See also Estate (Real Property).

FHA Loan

A mortgage that is insured by the Federal Housing Administration. Also referred to as a government mortgage.

Final Disposition

The "end" of the loan application process, which may happen via denial, withdrawal, incompleteness or funding.

Finance Charge

This is the amount of interest, prepaid finance charges, loan fees and certain insurance premiums the individual will pay over the life of the loan.

First Mortgage

A mortgage that has first claim to the secured property in the event of default.

First Position Lien

A secured claim against a property that will be the first claim to be repaid should the property owner someday declare bankruptcy or default on the secured loan.

Fiscal Year

The accounting year used by corporations for tax purposes. A fiscal year runs 12 months, but does not necessarily begin in January.

Fixed Income

Income of a specified and consistent value that is received at specified and consistent intervals. Types of fixed income include Social Security benefits, VA benefits, pension income, permanent disability benefits, welfare/aid income and child support/alimony.

Fixed-Rate Mortgage

A mortgage having a rate of interest that remains the same for the life of the mortgage.

Float

A borrower's decision not to lock an interest rate while a mortgage loan is being processed. A loan is considered to be a float until an interest rate is locked.

Flood Insurance

Insurance indemnifying against loss by flood damage. Required in federally designated Special Flood Hazard Areas. The insurance is private but federally subsidized.

Floor

The lowest an adjustable-rate mortgage rate can ever be during the life of the loan.

Floor Rate

The start rate on an adjustable-rate program.

Forbearance

A lender's act of refraining from taking legal action despite the fact a mortgage is in arrears. It's usually granted when a mortgagor makes a satisfactory arrangement by which the arrears will be paid at a future date.

Foreclosure

A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.

Form 1040, 1040A, 1040EZ–U.S. Individual Income Tax Return

The federal tax form used by all U.S. citizens and resident aliens to report their annual income to the federal government. The 1040 tax return must be accompanied by any applicable schedules, which provide line-item detail of various sources of income. Schedule A details itemized deductions. Schedule B details investment income. Schedule C details business income. Schedule D details capital gains/losses. Schedule E details supplemental income, such as rental income. Schedule F details farming profit/loss.

Form 1065–U.S. Partnership Return of Income

This federal tax information form is used to report annual income, gains, losses and deductions from the operation of a partnership to the federal government. A partnership does not pay tax on its income, but passes through any profits or losses to its partners. All partners must then include partnership items on their tax returns.

Form 1099

A document that reports to the federal government gross and net income earned by individuals who receive pension, Social Security or miscellaneous income, such as income from contract work. 1099s must be mailed to recipients by January 31 of each year for the previous year.

Form 1120 and 1120A–U.S. Corporation Income Tax Return

The federal tax form used to report the income, gains, losses, deductions, credits and to figure out the income tax liability of a corporation to the federal government.

Form 1120S–U.S. Income Tax Return for an S Corporation

The federal tax form used to report the income, gains, losses, and deductions of a domestic corporation that has elected to be an S corporation by filing form 2553, election by a Small Business Corporation, and whose election is in effect for the tax year.

Foster Care Agreement A document that designates an individual as the foster parent of a child. These agreements usually state the income the individual will receive for being a foster parent.

Freddie Mac

Another name for the Federal Home Loan Mortgage Corporation (FHLMC).

Free and Clear

Real property against which there are no liens, especially voluntary liens.

Front-End Debt Ratio

This refers to the debt ratio calculation using only principal, interest, tax and insurance divided by gross monthly income. It's expressed as a percentage. See also Debt Ratio.

Full Disclosure

In real estate, revealing all the known facts that may affect the decision of a buyer or tenant.

Fully Adjusted Rate

See Fully Indexed Rate.

Fully Indexed Rate

The fully indexed rate is equal to the rate index plus the loan's margin and is used with adjustable-rate mortgages. Example: If LIBOR is 6.50% and the margin on the loan is 4.00%, the fully indexed rate is 10.50%. Same as the Fully Adjusted Rate.

Functional Obsolescence

Anything about the design or construction of a property that negatively affects its value. An example of this would be a property with five bedrooms and only one bathroom.

Funding

The disbursement of loan funds, either by check or by wire transfer to the title company.

Funding Fee

A fee charged to the veteran on a VA loan to help recover any foreclosure costs. The veteran may finance the entire funding fee or pay it in cash.

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Garnishment

A legal proceeding under which a person's money is in control of another and is taken for payment of a debt. The amount that may be taken is set by statute and, in most states, a judgment is necessary before garnishment.

General Partnership

An organizational form consisting only of general partners in which income, gains, losses, deductions and credits are passed through to individual partners who pay tax on their income.

Gift Letter

A letter to the lender from the donor stating that a gift of money has been made to the buyer in order to purchase specific property. The relationship of the donor and buyer is stated, as well as the amount of the gift.

Ginnie Mae

Another name for the Government National Mortgage Association (GNMA), a federal agency within the department of Housing and Urban Development (HUD) that guarantees timely payment of the principal interest and mortgage-backed securities backed by FHA-insured and VA-guaranteed mortgages.

Grace Period

A period of time past the due date for a payment during which a payment may be made and not considered delinquent and no late penalty will be charged.

Graduated Payment Mortgage (GPM)

A mortgage loan in which the mortgage payments increase for a specified period of time and then level off.

Grandfather Clause

The clause in a law permitting the continuation of a use, business etc., which, when established, was permissible but, because of a change in the law, is now not permissible.

Grant Deed

A written instrument used to transfer or convey real property. A grant deed contains warranties against prior conveyances or encumbrances.

Grantee

One who receives property rights when a grant is made. Generally, the purchaser of real property.

Grantor

One who grants property or property rights to another.

Gross Income (Business)

The total income earned, either actual or estimated, from a business or property.

Gross Monthly Income (Borrower)

The total amount the borrower earns per month, before any expenses are deducted.

Gross Rental Income

The monthly rental income received before mortgage payments, taxes and insurance are deducted.

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Hazard Insurance

Insurance protecting real property against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy.

Holdback

A portion of a mortgage loan held back by the lender from the borrower until a contingency is met by the borrower. An example of a contingency would be repairs needed for a property's roof. Upon completion of the required repairs, the lender releases the held-back funds to the borrower. Same as Withhold.

Home Mortgage Disclosure Act (HMDA)

This act requires all mortgage companies to report selected information to the federal government about each application received. HUD (U.S. Department of Housing and Urban Development) uses HMDA to detect discrimination and identify trends in lending patterns.

Homeowners Insurance

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

Homeowners Warranty

A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is often provided by the builder or property seller as a condition of the sale.

Homeowners Association (HOA)

An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. Unpaid HOA dues can become a lien against a property.

Homeowners Association Dues

A monthly payment paid to the association for the maintenance and care of the common areas.

Homestead

Status provided to a homeowner's principal residence by some state statutes; protects a home against judgments up to specified amounts.

HUD-1 (or HUD-1A)

Final statement of the actual settlement costs of the loan and all other disbursements of a loan's proceeds. A federal requirement under RESPA. Same as a Settlement Statement.

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Impound Account

Account held by the lender for the payment of taxes, insurance or other periodic debts against real property.

Income

Cash flows or other benefits received. Examples are: salary, wages, overtime, commissions, child support, social security income, retirement benefits, interests and dividends.

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, which is then used to adjust the interest rate on an adjustable-rate mortgage. Examples include LIBOR, the Prime Rate and Treasury indices. The Wall Street Journal publishes index information.

Initial Adjustment Cap

This is the first rate adjustment on an adjustable rate mortgage loan.

Inquiries

An indication of credit investigations made by companies that are considering granting credit to a person who appears on the credit report.

Instructions to Title

A form that instructs the title company how to record a lien against a property and issue a title insurance policy. Same as Title Instructions.

Interest

Money charged over time for the use of money.

Interest Bearing

A form of interest calculation in which the loan is charged at a daily or monthly rate on the current outstanding balance.

Interest Rate

Percentage paid for the use of money, usually expressed as an annual percentage.

Investment Income

Money earned from investments of money, such as stock dividends and annuity payments.

Investment Property

A real estate property used for investment purposes. This property is typically rented.

Involuntary Lien

A lien imposed against property by law or legal action without the consent of an owner. Examples include taxes, special assessments, federal income tax liens, judgment liens, mechanics liens and materials liens. See also Lien.

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Joint Ownership

Legal title shared by two or more persons or entities. Examples are joint tenancy, tenancy in common and community property.

Joint Tenancy

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

Judgment

The decision of a court of law; debts resulting from a court order for payment. Money judgments, when recorded, become a lien against the defendant's property.

Judicial Foreclosure

A court-supervised foreclosure process used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of the court.

Jumbo Loan

A loan amount above the conforming loan limits.

Junior Liens

Liens or claims against a property that are secondary or inferior to the lien of the first mortgage. Also known as a Second Mortgage.

Jurat

A certificate attached to a document stating where, when, before whom and by whom the document was signed.

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K-1 Schedule

Tax schedule that must be distributed to each member of a partnership that reports the member's distribution of a profit or loss.

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Land

Undeveloped land.

Land Contract

An installment contract for sale with the buyer receiving equitable title and the seller retaining legal title.

Late Charge

An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.

Lease with Option to Purchase

A lease containing a clause that allows the tenant the right to purchase the property under specified conditions.

Leasehold

A tenant's right to occupy real estate during the term of the lease. This is a personal property interest.

Leasehold Estate

A kind of real estate ownership through which the property owner doesn't hold title to the property, but instead has use of the property subject to the terms of the lease. See also Estate (Real Property).

Legal Description

A method of geographically identifying a parcel of land that is acceptable in a court of law.

Legal Title

The manner in which property ownership is recorded with the county in which the property is located. See also Vesting.

Liabilities

The debts of a person or business.

LIBOR Index

An acronym for London Interbank Offered Rate, one of several published indices. It's the average rate of interest that major London banks charge as they lend to one another.

Lien

A secured financial interest or legal encumbrance on a property. For example, a secured loan appears as a lien on the property's title report. See also Voluntary Lien and Involuntary Lien.

Lien Position

The order in which liens will be repaid when the property is transferred to a new owner.

Lien Waiver

A waiver of mechanics lien rights; a document signed by a supplier or subcontractor stating that the firm has been compensated for its work, thereby giving up its right to file a claim against the property.

Lifetime Cap

This is the cap that limits how high an interest rate can increase over the life of an adjustable-rate mortgage loan . Example: start rate + 6% = lifetime cap.

Limited Liability Company (LLC)

An entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members are personally liable for its debts.

Line of Credit

A type of mortgage loan from which borrowers can write a check or draw funds. Some lines of credit are also balloon loans. Usually the borrower is given 5 to 10 years to use the line of credit. After this period, many lines of credit require the borrower to pay the loan in full. Others may require the loan to be paid in full over the next 10 to 15 years.

Liquid Assets

Cash or assets, such as checking/savings accounts, stocks and bonds, that are immediately convertible to cash.

Lis Pendens

A notice filed or recorded for the purpose of warning all persons that the title or right to the possession of certain real property is in litigation; literally "suit pending"; usually recorded so as to give constructive notice of pending litigation.

Loan Administration

A mortgage banking function that includes the receipt of payments, customer service, escrow administration, investor accounting, collections and foreclosures. Also know as Servicing.

Loan Amount

The amount of money originally borrowed when a loan is granted by a lender.

Loan Application (1003)

The form potential customers must complete to apply for a home loan. This application is commonly referred to as "the 1003" and is produced by the federal government. See also 1003 / URLA.

Loan Commitment

See Commitment Letter.

Loan Origination

The process by which a mortgage banker or direct lender brings into being a mortgage secured by real property.

Loan Risk

The risk category assigned to a loan, which estimates the probable risk of delinquency and loss in the future.

Loan Servicing

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

Loan Term

The loan term is the period of time over which the loan will be paid. First mortgage loans typically have terms of 30, 20 or 15 years.

Loan to Value Ratio/Percentage (LTV)

The loan amount in relationship to the appraised value (or sale price if it is lower) expressed as a percentage. Used by lenders to determine maximum loan amounts as set by law.

Lock-In

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.

Loss Payable Clause

A clause in an insurance policy listing the priority of claims in the event of destruction of the property insured. Generally, a mortgage or beneficiary under a deed of trust is the party appearing in the clause, and is paid up to the amount owed under the mortgage or deed of trust before the owner is paid.

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Machinery and Equipment

All tangible, fixed assets (tools, conveyors and other than personal property) other than real estate used in any way to facilitate any manufacturing, assembly or warehousing activity.

Maintenance

Procedures and expenditures necessary to keep a property in operating condition, such as repairs.

Mandatory Commitment

An agreement between buyer and seller for the purchase and sale of a specified mortgage product in which both parties are obligated to perform.

Margin

A constant number, set in the terms of the note, added to a rate index to compute the interest rate on an adjustable-rate mortgage. This fixed number is added to an index to determine the new interest rate when a new change period begins.

Market Approach to Value

In appraisal, a market value estimate of property based on actual prices paid in similar market transactions.

Market to Market

The process whereby the book value or collateral value of the security is adjusted to reflect current market value.

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.

Marketability

The probability of selling property at a specific time, price and terms.

Marketing

The actual selling of closed mortgage loans to investors and also the actual purchasing of funds for mortgage loan fundings at a future date.

Maturity

The termination of the period on the note.

Mechanics Lien

A lien created by state law for debts owed to a carpenter, contractor, plumber or other entity hired by the property's titleholder for services performed or materials provided to repair or improve the property.

Member Appraisal Institute (MAI)

The highest professional designation awarded by the American Institute of Real Estate Appraisers.

Merged Credit Profile (MPR)

A report combining credit information from as many as three different credit bureaus.

Metes and Bounds

The description on the deed of trust and other documents, which describes the location by boundaries and distances.

Mixed-Use Property

A property in which a portion is used for commercial or retail purposes and the other portion is used for residential purposes (for example, a multi-unit dwelling with the front unit used as a commercial store and the back unit used as a dwelling). A property can also be considered mixed use if different combinations of uses are present such as commercial/industrial or residential/industrial.

Modification Agreement

In the mortgage lending industry, a written directive to the title company to correct a typographical error on instructions to title.

Mortgage

A formal document executed by an owner of property, pledging that property as security for payment of a debt or performance of some other obligation; the security instrument.

Mortgage Backed Securities (MBS)

An investment instrument backed by mortgage loans as security. Ownership is evidenced by an undivided interest in a pool of mortgages or trust deeds. Income from the underlying mortgages is used to pay off the securities and provides a return on investments.

Mortgage Banker

A non-depository financial institution that specializes in originating and servicing loans.

Mortgage Broker

An individual or company that, for a fee, acts as an intermediary between borrowers and lenders.

Mortgage Insurance

See Private Mortgage Insurance.

Mortgage Insurance Certificate (MIC)

Certificate issued by HUD/FHA as evidence that a mortgage has been insured and that a contract of mortgage insurance exists between HUD/FHA and the lender incorporating the HUD/FHA regulations identified in the certificate.

Mortgage Insurance Premium (MIP)

The initial premium paid at closing to secure private mortgage insurance for a specified period of time.

Mortgage Late

More than one payment due at the same time the most recent payment is due.

Mortgage Margin

The set percentage the lender adds to the index value determining the interest rate of an Adjustable-Rate Mortgage (ARM).

Mortgage Note

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

Mortgagee

A lender in a mortgage agreement.

Mortgagor

The borrower in a mortgage transaction who pledges property as a security for a debt.

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Negative Amortization

The unpaid interest that is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of interest due.

Negative Cash Flow

A cash situation where the expenditures on an investment property exceed the income received.

Net Disposable Income

Money left after subtracting the principal, interest, taxes and insurance and all other obligations from the monthly net income. The surplus amount the borrower has available for living expenses after housing expenses are subtracted.

Net Income

The difference between adjusted gross income and operating expenses. May or may not include depreciation.

Net Rental Income

The monthly gross rental income minus the monthly mortgage payments, insurance, maintenance, taxes and other miscellaneous payments.

Net Worth

The value of all assets, including cash, less the total liabilities. Often used as an underwriting guideline to indicate creditworthiness and financial strength.

Net Yield

The gross yield of a mortgage loan after subtracting all costs, such as servicing fees and any loss reserves.

Non-Conforming Use

A property that doesn't conform to the present zoning of the area it's in.

Non-Owner Occupied

A property used as a residence by a renter/tenant instead of the owner of the property.

Non-Recurring Closing Costs

Fees and costs associated with the closing of a loan (title, appraisal, notary fees, etc.) that occur only once in the transaction and don't recur.

Nonconveyance

A lender's election to retain a property acquired through foreclosure rather than convey it to FHA loan or VA loan.

Notary Public

One who is authorized by the state or federal government to administer oaths and to attest to the authenticity of signatures.

Note

A general term used for any type of paper or document signed by a borrower that is an acknowledgment of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage or deed of trust, it is called a mortgage note and the mortgagee is named as the payee.

Notice of Default (NOD)

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

Notice of Recission

Borrowers' signed acknowledgment that they wish to cancel their loan. See also Notice of Right to Cancel.

Notice of Right to Cancel

Under Regulation Z, individuals must be notified that they are entering into a transaction that will result in a lien against their primary residence. This document explains that they have the right to cancel the transaction, at no cost, within three business days from the date of signing the closing documents on a loan.

Notification of Incompleteness Letter

A letter sent to an individual requesting additional information to continue with the loan application process.

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Obligations

Any debt or recurring payment the borrower is obligated to pay, except for mortgage payments.

Obsolescence

Condition or process of falling into disuse.

Offsite Improvement

Improvements outside the boundaries of a property, such as sidewalks and streets, that are acquired by a lender for reason of investment.

Operating Expenses

Expenditures necessary to maintain the real proprietor business and continue the production of income. Includes both fixed expenses and variable expenses but does not include debt service, depreciation or capital expenditure.

Origination

The actual process of creating both commercial and residential mortgages.

Origination Fee

A fee paid to a lender for processing a loan application. The fee is stated as a percentage of the mortgage amount.

Over-Improvement

An improvement, excessive in cost or size in relation to land value or value of surrounding improvements.

Owner Financing

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

Owner Occupied

Designation given to property used as the owner's residence.

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Par

The principal amount of a mortgage with no premium or discount.

Partnership

An agreement between two or more individuals or entities to go into business or invest together. Either partner may bind the other, within the scope of the partnership. Each partner is liable for all the partnership's debts.

Pay Stub

The portion of the paycheck the employee retains for his/her records. The pay stub verifies pay-period and year-to-date gross and net earnings.

Payment Change Date

On an adjustable rate mortgage, this is the date the new mortgage payment is effective after an interest rate change. It is usually the first day of the month following the interest rate change date.

Payment Schedule

This schedule outlines the number of payments due, the amount of each payment and the date payments are due.

Pension Award Letter

Documentation specifying the frequency and amount of pension payments an individual is eligible to receive.

Periodic Adjustment Cap

This cap limits how much the interest rate can change in the future on an adjustable-rate mortgage.

Piggyback Loan

See Secondary Financing.

Plaintiff

An individual or entity who files a legal action against another.

Planned Unit Development (PUD)

A single-family residence located in a community with association dues and other required monthly payments.

Plat Map

A map dividing a parcel of land into lots, as in a subdivision. For example, a title commitment report and an appraisal report will provide a plat map of the subject property, which shows the location of the property within the subdivision.

Point of Reference

A starting point used to put an individual's canceled checks or mortgage statements in chronological order by establishing either the date and amount of the last mortgage payment made or the date and amount of the next mortgage payment due.

Points

Each point is an amount equal to 1% of the principal amount of an investment or note.

Positive Cash Flow

An annual cash flow in which either the operating expenses are less than the total income generated by an investment or the operating expenses plus any annual debt service (mortgage payments) are less than the income generated.

Power of Attorney (POA)

An authority by which one person authorizes another to act on his or her behalf. A power of attorney can be limited to specific areas or can be general.

Preliminary Title Report (Prelim)

A report showing all current claims against a property before a sale or loan transaction and identifying those items that must be removed to obtain a first lien position. After completion of the transaction, a title insurance policy is issued. Same as a Title Commitment.

Prepaid Finance Charges

The finance charges charged at closing exclusive of interest. Examples include points, processing and application fees, and tax certification.

Prepaid Interest Charge

The portion of interest, added on at loan closing, that covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would retroactively pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.

Prepaids

Fees collected at closing to cover items such as setting up escrow accounts for property taxes, homeowners insurance and mortgage insurance premiums.

Prepayment Penalty

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

Prequalification

The process of determining how much money a prospective homebuyer will be eligible to borrow before he or she applies for a loan.

Primary Customer

The primary borrower on the loan.

Primary Residence

The property in which an individual resides the majority of the time.

Prime Rate Index

A rate index based on the prevailing rate that banks charge to lend money to corporations.

Principal

A legal representative for another.

Principal

The amount borrowed or remaining unpaid; also, that portion of the monthly payment that reduces the outstanding balance of a mortgage.

Principal and Interest (P&I)

This refers to the principal and interest portions of a monthly mortgage payment.

Principal, Interest, Taxes and Insurance (PITI)

The total of the monthly mortgage payment due, which includes all principal, interest, taxes and insurance.

Private Mortgage Insurance (PMI)

Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage.

Processing

The preparation of a mortgage loan application and supporting documents for underwriting and closing.

Profit and Loss Statement (P & L)

A statement documenting business revenues and expenses for a specified time period to establish whether a business gained a profit or suffered a loss.

Promissory Note

A written promise by the borrower to pay within a specified time a debt owed to the holder of the note under conditions mutually agreed upon.

Property Taxes

Generally, a tax levied on both real and personal property. The amount of the tax is dependent on the value of the property.

Prorate

To divide in proportionate shares costs such as taxes, insurance, rent or other items that buyer and seller share as of the time of closing, or another agreed upon time.

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.

Purchase Price

The asking price to purchase a particular property.

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Qualifying Ratios

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

Quitclaim Deed

A deed operating as a release; intended to pass any title, interest or claim that the grantor may have in the property, but not containing any warranty that such title is valid, nor containing any warranty or covenants for title.

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Radon

An invisible, odorless gas found in some homes that, in sufficient concentrations, may cause health problems.

Rate Change Date

On an adjustable rate loan, this is the date a new interest rate will be put into effect. This change can occur every 12 months, 36 months, 60 months, or 84 months depending on the terms of the note.

Rate Index

See Index.

Rate Lock

See Lock-In.

Re-Recording

The recording of a closing document for a second time to correct an error recorded.

Real Estate Owned (REO)

A property acquired by a lender usually through default and foreclosure or property acquired by a lender for reason of investment.

Real Estate Sales Professional

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

Real Estate Settlement Procedures Act (RESPA)

A federal consumer protection law that requires lenders to give borrowers advanced notice of closing costs.

Real Estate Taxes

The monthly taxes owed for a particular property.

Real Property

Land and all attachments to the land, such as buildings, crops or mineral rights. Ownership of real property can be divided into various types of interests and rights.

Rebuild Letter

A letter provided by the appropriate municipality stating that a structure on a specific property can be rebuilt as originally constructed in the case of damage or destruction.

Recission

The legal remedy for canceling a contract and restoring the parties to their original positions; a return to status quo.

Reconveyance (Recon)

An instrument used to transfer title from a trustee to the property owner when title is held as security for a debt. Most commonly used upon payment in full of a mortgage or trust deed.

Recording

The act of recording a document such as a deed or mortgage in a public registry thereby giving notice to future purchasers, creditors or other interested parties. Recording is controlled by statute and usually requires the witnessing and notarizing of an instrument to be recorded.

Recording Confirmation

Notification from the title company verifying that a lien has been recorded as instructed.

Recording Fees

The amount charged by a public records office to record the security instrument within the county.

Red-lining

The illegal practice of restricting lending to certain (prime property) areas of town.

Refinancing (Refi)

The process of paying off one loan with the proceeds for a new loan using the same property as security.

Regulation Z (Reg Z)

Federal Reserve regulation issued under the Truth in Lending Act. This regulation requires that a credit purchaser be advised in writing of all costs connected with the credit portion of the purchase.

Release of Liability

An agreement by the lender to terminate any personal obligation and debt due on a mortgage loan note. For example, the original borrower is released of liability when the new borrower takes over the mortgage payments.

Release of Lien

When a lien against the property is satisfied, the noteholder records a document that reflects the discharge of the obligation and releases the lien recorded against the property.

Release of Mortgage

A recordable instrument that transfers title from a mortgagee to the mortgagor when title is held as collateral security for a debt. Most commonly used upon payment in full of a mortgage.

Rent with Option to Buy

See Lease with Option to Purchase.

Rental Agreement

A contract used by property owners who rent their property to another individual. Rental agreements should state the amount of rent the owner will collect from the renter.

Request for Full Reconveyance

Written instructions provided by the beneficiary to the trustee to issue a deed of reconveyance when the conditions of obligation have been fulfilled.

Requirements to Be Met

Exceptions to be cleared and other actions that must be taken for a title company to issue a final title policy per the lender's instructions.

Rescind

To void or cancel in such a way as to treat the contract, or other object of the rescission, as if it never existed.

Resolution Trust Corporation (RTC)

An arm of the FDIC responsible for managing and resolving the affairs of insolvent savings and loan associations placed into receivership by the FDIC. This includes the liquidation, operation and sale of thrift institutions.

Rider

A rider is an addition to the security instrument.

Right of Survivorship

If one property owner dies, all ownership rights automatically belong to the surviving owner.

Room Rents

Income a homeowner receives from renting rooms in the same property in which they live.

Rural

A term used to describe a property's location. For example, rural properties are in remote locations, on non-paved access roads or streets with support services more than 10 miles away. Rural is also a term used to describe the country as opposed to the city.

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S-Corporation

Generally a small, start-up business with gains and losses passed through to the shareholders in proportion to each stockholder's percentage of business ownership. The income for the owners comes from W-2 wages (salaries) and is taxed at the individual rate.

Satisfaction of Mortgage

Discharge of an obligation by payment of the amount due, as on a mortgage, trust deed or contract, or payment of a debt awarded, such as a satisfaction of a judgment.

Savings and Loan Associations

Stock or mutual associations that are regulated by state or federal government. Deposits are traditionally reinvested into the residential loan market.

Schedule A (U.S. Income Tax Returns)–Itemized Deductions

This form is used to identify medical/dental, taxes paid, interest paid, gift, casualty/theft losses, job expenses, and other miscellaneous allowable deductions from your adjusted gross income.

Schedule A Title Commitment

A section of the preliminary title report/title commitment that lists the name of the proposed insured, amount of title insurance, estate or interest in the land, how legal title is vested and the legal description of the property.

Schedule B Title Commitment

A section of the Preliminary Title Report/Title Commitment that lists exceptions to title, if any.

Schedule B (U.S. Income Tax Returns)–Interest and Dividend Income

This form is used to record taxable interest or dividend income received in excess of $400.00; had a foreign account or received a distribution from, or were a grantor of, or transferor to a foreign trust; and/or claim the exclusion of interest from series EE U.S. savings bonds issued after 1989.

Schedule C (U.S. Income Tax Returns)–Profit and Loss from Business

This form is used to report income or loss from a business operated or profession practiced by a sole proprietor, or to report wages and expenses by a statutory employee.

Schedule D (U.S. Income Tax Returns)–Capital Gains and Losses

This form is used to report the sale or exchange of personal capital assets, gains from involuntary conversions of capital assets not held for business or profit, capital gain distributions not reported directly on Form 1040, and non-business bad debts. For example, personal capital assets would be personal house, furniture, car, stocks and bonds, Short-term capital gains and losses would be calculated on items held one year or less. Long-term capital gains and losses would be calculated on items held more than one year.

Schedule E (U.S. Income Tax Returns)–Supplemental Income and Loss

Part 1 of this form is used to report rental income and expenses. Examples are rental real estate, royalties, partnerships, S corporation, estates and trusts.

Schedule F (U.S. Income Tax Returns)–Profit or Loss from Farming

This form is used to report farm income and expenses.

Schedule SE (U.S. Income Tax Returns)–Self Employment Tax

This form is used to calculate tax due on net earnings from self-employment. Self-employment tax must be paid if net earnings of $400 or more were earned. The tax is comparable to the Social Security and Medicare tax withheld from an employee's wages.

Second Mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Secondary Financing

A loan secured by a second mortgage or trust deed of real property. Sometimes called a piggyback loan.

Secondary Market

The financial market where groups of loans are sold to investors. Primary mortgage lenders originate loans while the secondary market sells funded loans.

Secondary Mortgage Market

A process whereby lenders and investors buy and sell existing mortgages or mortgage-backed securities, thereby providing greater availability of funds for additional mortgage lending by banks, mortgage bankers and savings institutions.

Secondary Residence

A property used by a person as a second residence, not as an investment.

Section 32

A section of the federal Truth in Lending Act pertaining to high fee loans and the restrictions and compliance issues with which this type of loan transaction must comply.

Securitization

The process of pooling loans into mortgage-backed securities for sale into the secondary mortgage market.

Security Instrument

The security instrument is used to identify and encumber the real property used as collateral for the loan. It's notarized and then recorded with the county in which the property is located. Once recorded, it secures an interest in, or lien against, the property. The security instrument used is state-specific. Examples are deeds of trust, security deeds, trust deeds and mortgages.

Self-Employed Person

A person is considered self-employed if he or she: (1) carries on a trade or business as a sole proprietor; (2) is an independent contractor; (3) is a member of a partnership; (4) is in business for himself or herself in any other way.

Servicing

A mortgage banking function that includes the receipt of payments, customer service, escrow administration, investor accounting, collections and foreclosures. Also know as Loan Administration.

Servitude

A burden resting upon one estate for the benefit or advantage of another. An agreement granting limited permission to use the property. Same as land burden.

Settlement Statement

Final compilation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment. Also referred to as a HUD-1.

Shared Appreciation Mortgage (SAM)

A mortgage loan offered in some states that has a below-market interest rate. In return the lender receives a portion of the future appreciation in the value of the property.

Shipping

Packaging of closed mortgage loans, including the credit package and all supporting documents and all legal documents, to send to the investor for purchase.

Simple Interest

Interest computed on the unpaid principal balance of a loan, as opposed to compounded interest.

Single Family Residence (SFR)

A standard home with no common areas, no homeowners' dues or sharing of common walls. A home intended to be occupied by one family.

Site Analysis

The study of a specific land parcel to determine its suitability for a specific use. For example, if the study of the land parcel reveals that it should be used for industrial purposes, yet it's currently being used for residential purposes, then, upon review of the appraisal report, the reviewer would want to take this information into consideration when determining whether the loan's collateral is sound.

Slab

A concrete floor used as a foundation in homes without a basement.

Social Security Award Letter

Documentation specifying the frequency and amount of Social Security payments an individual is eligible to receive. Social Security Award Letters are re-issued annually.

Society of Real Estate Appraisers (SREA)

A professional association for appraisers with designations such as Senior Residential Appraiser (SRA), Senior Real Property Appraiser (SRPA), or Senior Real Estate Analyst (SREA).

Sole Ownership

Legal title in a single individual or an entity.

Sole Proprietorship

Ownership of a business, with no formal entity as a vehicle or structure. The sole proprietorship reports its tax information on Federal Tax Form 1040.

Spot Loans

Mortgage loans solicited by an originator/lender on an individual basis.

Standard Coverage Policy

A title insurance policy used in several states, not having as broad coverage as the nationally recognized American Land Title Association policies. See also American Land Title Association.

Standby Commitment

A commitment issued for a fee showing willingness to fund loans in the event that a permanent loan is not obtained or until market conditions are more favorable.

Start Rate

The initial interest rate charged on an adjustable-rate mortgage loan.

Statement of Information

A confidential form filled out by buyer or seller to help a title company determine whether any liens are recorded against either. Very helpful when people with common names are involved.

Subdivision

Land divided into a number of parcels for the purpose of sale. The land may be improved or unimproved.

Submission

A complete loan application package submitted to underwriting for loan approval.

Subordinate

A lien taking a legal title position junior to another lien that was recorded later. For example, if a mortgage lien was recorded in 1996, it can subordinate to a lien recorded in 1999. Subordination may apply not only to mortgages, but also to leases, real estate rights and any other type of debt instruments.

Subordination Agreement

An agreement by which a lienholder agrees to accept a lien position junior to that of a later-recorded lien. When a lienholder agrees to subordinate, a formal agreement must be drawn, signed and recorded to make it a legal transaction. Subordinations may apply not only to mortgages, but also to leases, real estate rights and any other types of debt interests.

Substitution of Trustee

A document that is recorded to change the trustee named in a deed of trust.

Suburban

Located in the area around a city. Usually residential with some small businesses.

Supplemental Taxes

Additional taxes assessed by the city and/or county on property. These taxes are in addition to any taxes impounded in an escrow account.

Surety Bond

Obligation of a guarantor to pay a second party upon default by a third party in the performance it owes to the second party.

Survey

A document prepared by a licensed surveyor that verifies the accuracy of a property's legal description, plat maps, easements or other information found in a title search.

Sweat Equity

Equity in a property that a borrower earns by completing certain improvements to the property.

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Tax Lien

A lien for outstanding or delinquent property, IRS or state taxes. Tax liens for delinquent property taxes are the most common and attach only to the property on which the taxes are unpaid. Property tax liens always take priority over other liens.

Temporary Disability Award Letter

A letter issued to employees who are awarded temporary disability benefits because they are unable to work due to medical disability. These employees are expected to return to work once they heal.

Temporary Worker

An individual who registers with a temporary employment agency to be placed on work assignments at companies on a temporary basis.

Tenancy by the Entirety

A type of joint ownership of property that provides rights of survivorship and is available only to a husband and wife.

Tenancy in Common

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

Title

A legal document evidencing a person's right to or ownership of a property.

Title Commitment

A written report showing all current claims against a property before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued. Same as a Preliminary Title Report.

Title Company

A company that specializes in examining and insuring titles.

Title in Lieu Of

See Deed in Lieu.

Title Instructions

A document that instructs a title company how to record a lien against a property and issue a title insurance policy. Same as Instructions to Title.

Title Insurance

Insurance against certain loss resulting from undisclosed defects of title to a specifically described parcel of real property.

Title Search

A review of all recorded documents affecting a specific piece of property to determine the present condition of claims against the property.

Total Monthly Income

Gross monthly income from all income sources, after appropriate deductions are taken.

Townhouse

A single family dwelling with a small lot that has exterior walls in common with other like units. Title is given individually with fractional title to common areas.

Tradeline

Credit items reported on a credit report.

Trust Deed

An instrument used in many states in place of a mortgage. Grants an interest in the property as collateral for a loan and, when recorded with the county, creates a lien having priority over later-filed mortgages or trust deeds. Same as a Deed of Trust.

Truth-in-Lending Disclosure

This disclosure is required by law under the federal Truth in Lending Act, which requires a full disclosure of a loan amount, finance charges and Annual Percentage Rate (APR).

Types of Security Instruments

In a real estate-secured transaction, the borrower and lender enter into a loan agreement that is legally documented or evidenced by a security instrument. This security instrument can be either a mortgage or a deed of trust. See also Mortgage and Deed of Trust.

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There are currently no definitions in this category.

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VA Loan

A loan made to a veteran that is guaranteed by the U.S. Department of Veterans Affairs. Also referred to as a government mortgage.

Vacancy Factor

A multiple by which gross monthly rental income is multiplied. The vacancy factor reduces the owner's monthly rental income to allow for months when units are vacant and the owner is not receiving full rental income.

Valuation

The estimating of value. See also Appraisal.

Variable Interest Rate

An interest rate that fluctuates as a result of changes in a controlling index rate. With adjustable-rate mortgages, there are usually maximums as to the frequency and amount of fluctuation.

Variable Rate Mortgage (VRM)

See Adjustable-Rate Mortgage (ARM).

Vendor

The seller of a piece of property.

Verification of Deposit (VOD)

Documentation that confirms that an individual has access to specified amounts of money through a bank or investment account.

Verification of Employment (VOE)

Documentation that confirms that an individual works in the job and for the employer listed on the loan application and receives a stream of income from this source. Verifications of Employment confirm the customer's position title, date of hire, employment type, hours of work per week, frequency of payment and salary.

Verification Of Mortgage (VOM)

Documentation that establishes an individual's mortgage payment history.

Vesting

Names of the borrowers and the manner in which they hold legal title to the property. May include marital status. See also Legal Title.

Veterans Affairs (VA)

An independent agency of the federal government created in 1930. The Servicemens Readjustment Act of 1944 authorizes the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan Guaranty program, which encourages mortgage lenders to offer long-term, low down payment financing to eligible veterans by guaranteeing the lender against loss. The VA attained Department status in March 1989.

Voluntary Lien

A secured financial interest in a property that is created by agreement between a creditor and the borrower. Basically, the borrower is agreeing to use the property as collateral for the loan. The most common example of a voluntary lien is the one created by a mortgage given for a home loan. See also Lien.

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W-2

A document that reports to the federal government income earned by salaried employees. This document reports employees' total gross income and withholdings made during the previous tax year. Employers must mail W-2s by January 31 of each year for the prior tax year.

Warranty Deed

A deed used in many states to convey fee title to real property. A deed in which the grantor or seller warrants or guarantees good title is being conveyed, as opposed to a quitclaim deed that contains no representation or warranty as to the quality of title being conveyed.

Whole Loan

The purchase of an entire mortgage loan in the secondary market as opposed to a participation or partial loan sale.

Wholesale Lender

A lender who works only with mortgage brokers and takes completed loan packages and underwrites them. Wholesale lenders offer mortgage brokers discounted pricing in return for the up-front work done by the mortgage broker.

Withhold

Portion of a loan held back by the lender until a condition is satisfied. This condition usually regards the appraisal and repairs to be made to the property, the condition of which secures the loan. Same as Holdback.

Working Capital

Liquid assets available to conduct daily business transactions. Money in a checking account is a primary example.

Wraparound Mortgage

The creation of a new subordinate lien, which includes the remaining balance on the existing note and adds in the additional amount borrowed.

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There are currently no definitions in this category.

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Year-End Statement

A report sent to the borrower each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

Yield

The effective yearly income accrued on a mortgage loan expressed as a percentage of the original price paid.

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Zoning

The division of a city or county by legislative regulations into areas specifying the permitted uses for the real property in these areas.

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