Glossary Of Terms A-D

Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. ARM loans are also known as the re-negotiable rate mortgage or the variable rate mortgage.

Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments. Amortization is the process of reducing principal and interest in equal installment payments at specific intervals over a set term. A fully amortizing loan payment has two parts with a portion of the payment applied to pay the accruing interest on the loan and the remainder applied to principal. Over time, the interest portion decreases and the amount applied to principal increases so that the loan is paid off in the specified term.

Annual Percentage Rate (A.P.R.)
Is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage because it takes into account points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

An estimate of the value of property made by a qualified professional called an “appraiser.”

Acronym for Annual Percentage Rate.

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.

Balloon Mortgage Payment
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Court proceedings to relieve the debts of an individual or business unable to pay its creditors.

One who receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Buy-DownWhen the borrower/homebuilder/home seller subsidize the mortgage by paying up front to lower the interest rate over the term of the mortgage or in some cased for a set period of time.

CAPS (Interest)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

CAPS (Payment)
Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

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

Certificate of Veteran Status
The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA insured loans.

Chapter 13 Bankruptcy
Chapter 13 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.

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

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.

The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called Settlement. At the closing all final loan documents and contracts are signed with a notary.

Closing Agent
The party designated to conduct the loan closing. This agent ensures that the mortgage or deed is recorded and that the funds are disbursed on time.

Closing Costs
Money paid by the borrower to affect the closing of a mortgage loan, including such costs as title insurance premiums, appraisal fees, lender fees, closing agent fees, recording fees, etc.

A 2nd borrower on a loan.

Combined Loan to Value
The total of all liens on the subject property divided by the appraised value of the property.

Community Property
Property owned equally by a husband and wife. This classification of property is only used in certain states.

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

Conforming Loan
Home loans that meet the specified guidelines set by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

Contract Sale or Deed
A contract between a purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional Loan
A mortgage that meets guidelines set by Fannie Mae and Freddie Mac relative to their standards for purchasing a given loan for resale into public debt markets. There are a variety of conforming loan types including fixed rate and adjustable rate loans. Generally conforming loans will carry lower interest rates than loans that do not meet the standardized guidelines.

The written instrument by which title to real property is transferred from one party to another.

Covenants, Conditions and Restrictions (C C & Rs)
Limitations placed on the use and enjoyment of real property. Usually intended to maintain a certain look within a neighborhood and is common in subdivisions, PUDS, or condominium communities.

Credit Bureau
A company that collects and organizes information about an individual’s credit and payment habits. The 3 national credit bureaus are Experian, TransUnion, and Equifax.

Credit Score
A numerical assessment assigned to the customer by credit bureaus that represents a measurement of the customer’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.

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

Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her gross monthly income.

The official written document conveying real property to a given owner. This is the document that is the official record of property ownership for public records.

Deed of Trust
A voluntary lien to secure a debt. A Deed of Trust deeds the property to a Trustee who has the right to foreclose on the property in the event of default on the Note the Deed of Trust secures. In many states, this document is used in place of a mortgage to secure the payment of a note.

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.

Department of Veteran Affairs (VA)
An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

Derog Letter
A letter written by the borrower that explains any derogatory information or reporting on the credit report.

Divorce Decree
An official document issued by a court that dissolves a marriage relationship.

Abbreviation for mortgage loan documents.