Bank of America Home Loans

A

Acceptance

A buyer or seller's agreement to enter into a contract and be bound by the terms of the offer.

Account Termination Fee

A fee that is often charged if you pay in full and terminate your home equity line of credit during the first five years. Paying down to a zero balance does not count as termination. See also: Prepayment Penalty

Additional Principal Payment

A payment made by a borrower of more than the scheduled principal amount due, in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Adjustable-Rate Mortgage (ARM)

A mortgage or home equity loan in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period, and over the life of the loan. Also called a variable-rate mortgage.

Adjustment Cap

A limit to how much a variable interest rate can go up or down in a single adjustment period.

Adjustment Date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period

The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Affordability Analysis

A preliminary analysis of a borrower's ability to afford the purchase of a home that takes into consideration factors such as income, liabilities, and available funds, as well as the type of home loan, the likely taxes and insurance for the home, and the estimated closing costs. See also: Prequalification

Amenity

A feature of real property that, while not essential to the property's use, enhances its attractiveness and increases the occupant or user's satisfaction. Natural amenities include: a pleasant or desirable location (near water, scenic views, etc.). Man-made amenities include: swimming pools, tennis courts, community buildings, and other recreational facilities.

Amortization

The gradual reduction in the principal amount owed on a debt. During the earlier years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal (unless there has been negative amortization).

Amortization Table

A timetable or schedule that gives you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you'll be repaying during your mortgage term.

Amortization Term

The amount of time required to amortize (pay off) the loan. The amortization term is expressed in months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.

Annual Adjustment Cap

A limit on how much the variable interest rate on a loan can increase or decrease each year.

Annual Fee

An annual amount you pay for having an open line of credit.

Annual Income

The total amount of income earned in one year. This does not need to include alimony, child support, or separate maintenance income unless you wish to have it considered as a basis of repaying this obligation.

Annual Percentage Rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing certain costs of loans.

Application Fees

Nonrefundable fees paid when you apply for your loan. These fees may include charges for a credit profile, a property appraisal, and so forth.

Appraisal Fee

The charge for estimating the value of property.

Appraisal or Appraised Value

An informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal. See also: Property Valuation

Appraiser

A person qualified by education, training, and experience to estimate the value of real estate.

Appreciation

An increase in the value of property over time. Important factors in a home's appreciation are its location and condition, and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount you can borrow for a home equity loan or line of credit.

Assessed Value

The value used to determine property taxes, based on a public tax assessor's opinion.

Assessment

The amount of tax due to local government. May also refer to the amount due to local government or to common owners of a property (e.g., a homeowners association) for a special payment to cover expenses for improvements or maintenance, such as new sewers or roads.

Assessment Rolls

A public record of the assessed value of property in the taxing jurisdiction.

Assessor

A public official who establishes the value of a property for taxation purposes.

Asset

Property or a possession of value that a lender may be willing to accept as collateral to secure repayment of debt. For example, real estate, stocks, mutual funds, cash, or automobiles.

Assignment

The method of transferring a right or contract, such as the terms of a loan, from one person to another.

Assumable Loan

When you sell your home, your buyer may be able to qualify to take over your existing mortgage at your current rate. This can be beneficial if interest rates have risen above the rate you're currently paying on your mortgage. The lower interest rate benefit may make your home more affordable to prospective homebuyers.

Assumption

The buyer's acceptance of liability for the seller's existing home loan. See also: Assumable Loan

Assumption Clause

A provision in an assumable loan that allows a buyer to assume responsibility for the home loan from the seller. The loan does not need to be paid in full by the original borrower (seller) upon sale or transfer of the property.

Assumption Fee

The fee paid to a lender (usually by the buyer) for the lender's agreement to start collecting payment from the buyer instead of the original borrower (seller).

Available Funds

The total amount of funds available to you from your own funds and/or other sources that can be used for your down payment and the closing costs associated with a loan.

B

Balance Sheet

A dated financial statement (in table form) that shows your assets, liabilities, and net worth.

Balloon Loan

A short-term loan with smaller payments for a certain period of time, and one or more large payments for the remaining principal amount, due at a specified time.

Balloon Payment

A lump-sum payment, which is larger than your regular periodic payment, that's paid at the end of your loan repayment period.

Bank-Owned Property

A property now owned by the lender as a result of the previous owner defaulting on the loan. Also known as a "foreclosure property" or a "real estate owned (REO) property."

Bankruptcy

A proceeding in Federal Court that alters or eliminates an eligible individual's obligations to repay some or all of his or her debts to creditors. Different chapters or types of bankruptcy exist. If a person files bankruptcy, this could negatively affect his or her credit.

Base Rate

The underlying interest rate that is used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans, and credit cards.

Basis Point

An amount equal to 1/100th of a percentage point. For example, a fee calculated as 50 basis points of $200,000 would be 0.50% or $1,000.

Bill of Sale

A written document that transfers title to personal property from seller to buyer.

Biweekly

Every other week. Some loans offer a biweekly payment option, which requires 26 half payments per year (amounting to one additional full payment each year). This option allows you to pay your loan off more quickly and to build equity faster. Sometimes there are costs associated with choosing this option.

Bond

An interest-bearing certificate of debt with a maturity date. A real estate bond is a written obligation that is usually secured by a mortgage or a deed of trust.

Breach

A violation of any legal obligation or contract.

Break Even Point

The point at which total income equals total expenses. Also used in connection with decisions related to purchasing discount points on a mortgage. Calculating the break even point will identify how many months it will take to recoup the costs associated with paying for the discount point amount under consideration. In other words, if $3,600 is paid toward discount points to "buy down" the interest rate, and the lowered rate would drop the mortgage payment by $100, it would take three years to break even on the choice to pay the amount toward discount points.

Bridge Loan

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower's present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. See also: Swing Loan

Broker

A third party who arranges funding or negotiates a contract between parties, but does not lend the money.

Budget

A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Building Code

Local regulations that specify minimum structural requirements for design of, construction of, and materials used in a home or office building. Building codes are based on safety and health standards.

Buydown

A buydown is the prepayment by a lender or homebuilder of a portion of the interest that will become due on your promissory note during the buydown period, thereby reducing your monthly payments. The buydown period may be one, two, or three years, during which time your monthly payments will increase annually, in accordance with a predetermined schedule, ending with the monthly payment specified in your note.

Buydown Account

An account in which funds are held so that they can be applied as part of the monthly loan payment, as each payment comes due during the period that an interest rate buydown plan is in effect. For example, if a seller agrees to help reduce a buyer's monthly payment during the first year of a loan, the seller may put money in a buydown account which is then paid to the lender each month to reduce the buyer's monthly payment. This is more commonly done through a buydown paid directly to the lender at closing.

C

Call Option

A provision in a loan that gives the lender the right to accelerate the debt, and require full payment of the loan immediately at the end of a specified period or for specified reason.

Cap

A limit on how much a variable interest rate can increase. Many adjustable-rate mortgages have both annual (or semiannual) rate caps and lifetime caps. They limit the amount your payments can increase in an adjustment period and over the life of the loan.

Capital

(1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

Capital Expenditure

The cost of an improvement made to extend the useful life of a property or to add to its value, such as adding a room. The cost of repairing a property is not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.

Capital Improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. See also: Capital Expenditure

Capitalized Cost

The amount financed under a lease agreement.

Cash Available for Closing

Borrower funds that are available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from specified sources, the borrower's cash available for closing does not include cash reserves or money from other sources.

Cash to Close

The amount a homebuyer needs in cash at the closing of the loan. Typically, this includes down payment and closing costs.

Cash-out Refinance

A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement, or any other purpose. The borrower effectively borrows against the home's available equity.

Ceiling

The maximum interest rate that can accrue on a variable rate loan or adjustable-rate mortgage (ARM).

Certificate of Eligibility

A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) loan.

Certificate of Reasonable Value (CRV)

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan, based on an approved appraisal.

Certificate of Title

A statement provided by an abstract company, Title Company, or attorney stating who holds title to real estate based on the public record.

Chain of Title

The history of all of the documents affecting title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Clear Title

Titles that are marketable and are free of liens or disputed legal questions as to ownership of the property.

Closing

The time and place, at which all documents for your loan are signed, dated, and notarized. See also: Settlement

Closing Costs

Fees paid at or prior to the closing of your loan. They may include attorneys' fees, as well as fees for preparing and filing a mortgage, and for taxes, title search, and insurance. They include the expenses incurred in obtaining the loan and in transferring the ownership of any collateral property from the seller to the buyer. Generally, closing costs are typically about 3% of the total loan amount. Also called settlement costs.

Closing Statement

An accounting of funds given to both buyer and seller before real estate is sold.

Cloud on Title

An outstanding claim or lien, revealed by a title search, that adversely affects the owner's title to real estate. Usually, clouds on title cannot be removed except by a quitclaim deed, release, or court action.

Co-Borrower

An additional person who assumes equal responsibility for repayment of a loan and is fully obligated under the terms of the loan. This person also has equal rights to the proceeds of the loan.

Coinsurance

A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

Collateral

An asset, such as a car or a home, used for securing the repayment of a loan. The borrower risks losing the asset if the loan is not repaid.

Collection

The efforts used to bring a delinquent loan current and, if necessary, to file legal papers and notices to proceed with foreclosure.

Combined Liens

The outstanding balance of all mortgages held on a property. Used to determine the total available equity when considering the appraised value of the property less total combined or outstanding liens.

Combined Loan-to-Value Ratio (CLTV)

The ratio between the unpaid principal amount of your first mortgage, plus your home equity loan (or your credit limit in the case of a line of credit) and the appraised value of your home. Expressed as a percentage.

Commission

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A broker commission is generally a percentage of the price of the property or loan.

Commitment Letter

A formal notification from a lender stating that the borrower's loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan. See also: Loan Commitment

Common Area Assessments

Payments required of individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

Common Areas

Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners association (or a cooperative project's cooperative corporation) that are used by all of the unit owners. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc. The unit owners share in the common expenses of their operation and maintenance.

Community Property

In some Western and Southwestern states, the law specifies that property acquired during a marriage is presumed to be owned jointly by the husband and wife unless acquired as separate property of one spouse or the other.

Comparables (Comps)

An abbreviation for "comparable properties" used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Compound Interest

Interest paid on the principal balance and on the accrued and unpaid interest.

Condemnation

(1) Declaration that a building is unfit for use or is dangerous and must be destroyed; (2) taking of private property for a public use (such as a park, street, or school) through an exercise of the right of eminent domain.

Condominium (or Condo)

A building or development with many housing units where each person owns his or her individual unit and shares an interest in the common areas and facilities of the entire project. You go through the same process of buying a condo as you do when buying a house, and have a deed to and a mortgage on your particular unit. You also pay property taxes on your unit.

Conforming Loan

A mortgage loan that has the standard features as defined by and is eligible for sale to Fannie Mae and Freddie Mac.

Construction Loan

A short-term, interim loan for financing the cost of home construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer Reporting Agency (or Bureau)

An organization that prepares reports that lenders use to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from creditors such as mortgage lenders, credit card companies, department stores, etc.

Contingency

A specified condition that the sales contract requirements must be satisfied before the home sale can occur. When buying a home, the two most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.

Contract

An oral or written agreement to do, or not to do, a certain thing.

Conventional Loan

A home loan that is not insured or guaranteed by the federal government. Can be for conforming or non-conforming loan amounts.

Convertibility Clause

A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed rate loan at specified times during the life of the loan.

Convertible ARM

An adjustable-rate mortgage (ARM) that can be converted to a fixed rate loan under specified conditions.

Cooperative (or Co-op)

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Co-Signer

A second person who signs a loan and assumes equal responsibility for payment of the loan, but receives no benefit from the loan proceeds.

Cost Benefit Analysis

A dollar-value analysis that compares the benefits of owning a home to the costs of owning a home. Some home ownership benefits may include: the tax breaks you may receive for the mortgage interest and property taxes you pay, and the appreciation that may occur in the value of your home over time (which builds your home equity). Home ownership costs may include: the interest you pay on the loan; closing costs (including any mortgage points), property taxes, homeowners insurance premiums, private mortgage insurance premiums, and maintenance costs including those associated with normal wear and tear or weathering on the property.

Cost of Funds Index (COFI)

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See also: Adjustable-Rate Mortgage (ARM)

Covenant

A promise in a mortgage or deed that requires or prevents certain uses of the property, that, if violated, may result in loss or foreclosure of the property.

Credit

An arrangement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit History

A record of an individual's debts and payment habits over time. It helps a lender determine whether or not a potential borrower is a good business risk.

Credit Limit

The maximum amount you can borrow under a line of credit.

Credit Report

A record of an individual's debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk.

Credit Reporting Agency (or Credit Bureau)

An organization that gathers, records, updates, and stores financial and public records of individuals who have been granted credit, and provides this information to lenders and other authorized users for a fee.

Credit Score

A number that rates the quality of an individual's credit. Lenders calculate this number, often with the assistance of computer systems, as part of the process of assigning rates and terms to the loans they make.

Creditor

A person or business from whom you borrow or to whom you owe money.

Creditworthiness

The likely ability of a borrower to repay debt.

Cumulative Interest

Total interest accrued.

Curtailment

A payment that reduces the principal balance of a loan.

D

Debt

An amount of money owed by one person, company, organization, or other entity to another.

Debt Consolidation

A single loan to pay off multiple debts, usually over a longer term. This is a popular use of home equity loan or line of credit.

Debt-to-Income Ratio

Debt-to-income ratio is the percentage of your gross monthly income (before taxes are taken out) that you pay toward debt (loans, credit cards, court-ordered payments), as well as your projected total monthly home payment. It also will include HOA dues and private mortgage insurance, if applicable.

Deed (Warranty or Quit-Claim)

A document that legally transfers ownership of real estate from a seller to a buyer. It's delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the borrower legally owns the real estate that is to secure the loan.

Deed of Trust

The document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.

Deed-in-Lieu

A deed given by a borrower to the lender to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

Default

Failure to make mortgage payments on time or to meet other terms of a loan. Default can lead to foreclosure.

Delinquency

Failure to make payments on time.

Depreciation

A decline in the value of property due to wear and tear or any other reason.

Disclosures

Information given to consumers about their loans.

Discount Points

Typically, it's an amount usually paid at closing to the lender in conjunction with a mortgage loan in order to lower or "buy down" the interest rate. One discount point equals one percentage point of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000. Negative points reflect the amount that will be credited to you and reduce the amount of closing costs you will pay. Also called mortgage points or points.

Document Drawn Date

The date on which your legal documents are prepared for closing.

Document Preparation Fee

Fee required to cover the cost of preparing the necessary documents for closing.

Down Payment

The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 5% and 20% of the sales price depending on many factors, including your loan, your lender, your credit history, and so forth.

Draw

The process of obtaining an advance against your available credit, under your line of credit.

Draw Period

The period during which a borrower can obtain advances from the available line of credit. At the end of the draw period, borrowers may be able to renew the credit line or be required to pay the outstanding balance in full or in monthly installments.

Due-on-Sale Provision

A provision in a mortgage home loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the loan.

Due-on-Transfer Provision

This terminology is usually used for second mortgages. See also: Due-on-Sale Provision

E

Easement

The right of way given to persons other than the owner, to access a property.

Effective Age

An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Eminent Domain

The right of a government to take private property for public use upon payment of fair compensation to the owner. Eminent domain is the basis for condemnation proceedings.

Employer-Assisted Housing

A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

Encroachment

An improvement that physically intrudes or trespasses on another's property.

Encumbrance

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, deeds, or restrictions.

Endorser

A person who signs a check or promissory note over to another party.

Equal Credit Opportunity Act (ECOA)

A federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity

The difference between the fair market value (appraised value) of your home and your outstanding mortgage balances and other liens.

Equity Gift

A friend or relative's financial contribution to a homebuyer's down payment that is not a loan. Must be accompanied by a "gift letter" confirming that the funds will not be repaid.

Escrow

An item of value, money, or documents deposited with a third party, to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender, of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent, to be disbursed upon the closing of a sale of real estate.

Escrow (or Impound) Account

The account in which a loan servicer holds the borrower's escrow payments prior to paying property expenses, such as property taxes or homeowners 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 Collections

Funds collected by the loan servicer and set-aside in an escrow account to pay borrower expenses such as property taxes, mortgage insurance, and hazard homeowners insurance.

Escrow Disbursements

The use of escrow funds to pay real estate taxes, homeowners insurance, mortgage insurance, and other property expenses as they become due.

Escrow Payment

The portion of a borrower's monthly payment that is held by the loan servicer to pay for taxes, hazard homeowners insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

Estate

The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction

A legal proceeding by a landlord to recover possession of real property from the tenant.

Examination of Title

The report on the title of a property from the public records or an abstract of the title.

Exclusive Listing

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner's right to sell the property alone without the payment of a commission.

F

Fair Credit Reporting Act (FCRA)

Congress passed this act to give consumers certain rights when dealing with consumer reporting agencies, or CRAs. CRAs are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit, or loans.

Fair Market Value

The likely selling price of a home between a willing buyer and a willing seller on the open market. In a mortgage or a home equity loan, the fair market value is usually determined by an appraisal.

Fannie Mae

Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.

Fee Simple

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA

An acronym for Federal Housing Administration, which is an agency of the Department of Housing and Urban Development. The FHA provides mortgage insurance for certain residential mortgages. It sets standards for underwriting these mortgages and for construction of homes secured by these mortgages.

FHA Home Loan

A mortgage home loan that is insured by the Federal Housing Administration (FHA). Also known as a government loan. FHA mortgage insurance protects the lender (not the borrower) if a borrower defaults on the FHA loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.

FICO

An acronym for Fair Isaac Company, Inc., which developed the mathematical formulas used to produce credit scores for assessing credit risk.

Finance Charge

The finance charge is the cost of consumer credit expressed as a dollar amount. It includes the amount of interest you will pay during the terms of the loan, origination points, and certain other items. Some closing costs are not treated as finance charges.

First Mortgage

A mortgage that is the senior lien against a property.

Fixed Installment

The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

Fixed-Rate Mortgage

A home loan with a predetermined fixed interest rate for the entire term of the loan.

Fixed-Rate Option (or Fixed-Rate Loan Option)

An option available on certain home equity lines of credit allowing borrowers to fix the payments and interest rate on all or a portion of their outstanding principal balance for a specific term. Customers may be charged a fee for this privilege.

Fixture

Personal property that becomes real property when attached in a permanent manner to real estate (such as a lighting fixture or an inground spa).

Flood Certification

A determination by a reputable source about whether property is located within a special flood hazard zone.

Flood Insurance

Insurance that protects against loss due to floods. When available, this type of insurance is required by law when a property is located within a special flood hazard zone.

Foreclosure

A legal procedure in which property securing a defaulted loan is sold by the lender in order to repay a borrower's loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.

Forfeiture

The loss of money, property, rights, or privileges due to a breach of legal obligation.

Freddie Mac

A government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.

Funding Date

The date on which the proceeds from a loan are available to or disbursed for the benefit of the borrowers.

G

Gift Funds

The funds a borrower receives that do not have to be paid back. The gift is often from a family member to be used towards a down payment on a home purchase.

Good Faith Estimate (GFE)

An itemized, detailed list of certain estimated costs associated with a home loan that the lender is required to provide to the borrower within three business days of the application.

Government Loan

A loan that is insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA), or the Rural Housing Service (RHS). The insurance protects the lender (not the borrower) if a borrower defaults on the loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.

Government National Mortgage Association (GNMA or Ginnie Mae)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan programs formerly administered by Fannie Mae.

Grantee

The person to whom an interest in real property is conveyed (e.g., the buyer).

Grantor

The person who conveys an interest in real property (e.g., the seller).

Gross Annual Income

The total amount of income from all sources (not just salary) that a borrower receives per year before deductions.

H

Home Equity Line of Credit (HELOC)

A line of credit secured by the equity in a borrower's residence. It is often used for home improvements, debt consolidation, and other major purchases or expenses. At closing, a credit limit is established. In most cases, the borrower can access the line of credit for the first ten years during the "draw period" by a variety of access devices, such as convenience checks, debit cards, and credit cards. The typical HELOC term is 25 years, a 10-year draw period followed by a 15-year repayment period.

Home Equity Loan

An installment loan secured by the equity in a borrower's residence. It can be used for home improvements, debt consolidation, and other major purchases or expenses. On the funding date, all of the principal is advanced for the benefit of the borrower(s). Often referred to as a "second mortgage."

Home Inspection

An inspection of the condition of a property. A third party conducts the inspection, which includes all major appliances and structural elements. If an inspector finds something wrong, and your sales contract allows you to, you can request that the seller pay for the repairs. If the seller refuses, and your sales contract allows you to, you may not have to proceed with the purchase of the home.

Home Payment

The total amount a homeowner spends on their home loan each month, including all required payments. This will consist of principal, interest, property taxes, and homeowners insurance (or PITI), plus any private mortgage insurance or homeowners association dues that may apply.

Homeowners Association

An organization of property owners that administers the rules and upholds the covenants of a subdivision, development, or condominium complex.

Homeowners Association Dues

Fees paid monthly to cover the maintenance and amenities of a condominium complex or neighborhood.

Homeowners Insurance

Insurance to protect your home against damage from fire, hurricanes, and other catastrophes. Usually, homeowners insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property.

Homeowners Warranty (HOW)

A type of insurance that covers repairs to specified parts of a house for a specific period of time. The builder or property seller as a condition of the sale may provide it, but homeowners can also purchase it.

Housing Expense Ratio

The percentage of gross monthly income that goes toward paying housing expenses.

HUD

An acronym for the U.S. Department of Housing and Urban Development. HUD is a government agency that is responsible for the implementation and administration of housing and urban development programs.

HUD-1 Settlement Statement

A closing document, which provides an itemized list of the credits and charges, for both the buyer and the seller, based on the contract terms.

I

Impound Account (or Escrow Account)

An account specifically set up by a lender to hold funds that are set aside for the payment of property taxes and insurance. These funds are held in escrow until disbursed on behalf of the borrower to the appropriate parties.

Index

When used in a mortgage note or credit agreement, a financial index is the measurement used to decide how much the annual percentage rate will change at the beginning of each adjustment period. Generally, the index plus or minus margin equals the new rate that will be charged, subject to any caps. Lenders use various financial index rates: London Interbank Offered Rate (LIBOR) and Treasury-Indexed ARMs (T-Bills).

Inflation Rate

The increase in price of consumer goods, usually expressed as a percentage over a specific period of time.

Initial Rate

The starting interest rate. Some people call this the "teaser rate", because it gives you low interest and low monthly payments at the beginning, but may adjust up at the next adjustment period (it will usually adjust even if the index doesn't go up, since it's lower than index plus margin for the initial period).

Insurance

A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insured Mortgage

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount. For government-insured loans, the insurance protects the lender (not the borrower) if a borrower defaults on the loan.

Interest

The charge paid for borrowing money.

Interest Rate

Cost for the use of a loan, usually expressed as a percentage of the loan, paid over a specific period of time. The interest rate does not include fees charged for the loan. See also: Annual Percentage Rate (APR)

Interest Rate Buydown Plan

A temporary buydown that gives a borrower a reduced monthly payment during the first few years of a home loan, and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.

Interest Rate Cap

A limit on how much the variable interest rate can increase at any one time. Many home loans have both annual (or semiannual) caps and lifetime caps, which limit the amount your payments can increase in an adjustment period and over the life of the loan. Many caps allow a rate increase of 2-5% over the starting interest rate in an adjustment period, i.e., a starting rate of 5.0% could increase to 7.0%, or depending on the loan guidelines, to 10.0%. Common lifetime caps are 6.0% over the life of the loan.

Interest-only Payments

Some lenders permit you to pay only the interest due on a loan for a portion of the loan term, which lowers your periodic payment during that period, but does not decrease your principal balance on the loan. Making interest-only payments will result in larger payments being due ("payment shock") at the end of the interest-only payment period. See also: Balloon Loan and Balloon Payment

Investment Property

Property that is purchased to generate rental income, or to be sold once it has appreciated in value.

J

Jumbo Loan

Also known as a nonconforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than typical conforming limits. Lenders may charge additional fees and place certain restrictions due to the large loan amounts.

L

Late Charge

The penalty charged to the borrower when a payment is made past the due date or any allowable grace period.

Lender

An individual or business entity making a loan.

Liabilities

A person's debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.

Liability Insurance

Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. See also: Homeowners Insurance

Lien

The legal claim of a creditor on a borrower's property, to be used as security for a debt.

Lien Holder

An individual or entity that has placed a lien on real property.

Lifetime Adjustment Cap

A limit on how much the variable interest rate can increase during the term of a loan.

Line of Credit

An agreement by a lender to extend credit up to a maximum amount for a specified time. In a home equity line of credit, the line of credit is secured by the borrower's home.

Liquid Asset

A cash asset or an asset that is easily converted into cash.

Liquidate

To sell assets for the purpose of accumulating cash.

Listing Price

The asking price of the home, or the price the home is listed for.

Loan Amount

The amount of debt, not including interest.

Loan Application

The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in conjunction with a request for credit.

Loan Commitment

A formal notification from a lender stating that the borrower's loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan.

Loan Origination

The process by which a mortgage lender makes a home loan and records a mortgage against the borrower's real property as security for repayment of the loan.

Loan Term

The period of time during which a loan must be repaid. For example, a 30-year fixed loan has a term of 30 years. Also called term. See also: Maturity Date

Loan-to-Value Ratio

The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. Expressed as a percentage.

Lock-in

A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Lock periods typically range from 30 days to more than 90 days. Generally, the longer the lock period, the more you pay in points or interest.

LTV

Loan-to-Value Ratio. The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. Expressed as a percentage.

M

Manufactured Housing

A structure that has been partially or entirely constructed at another location and moved onto the property (on a permanent foundation). A manufactured home may or may not be a mobile home.

Manufacturer's Rebate

Money you'll get back from the manufacturer if you buy a specific model and otherwise comply with the terms of the rebate program.

Margin

The number of percentage points the lender adds to or subtracts from the index rate to determine the interest rate.

Market Value

The likely selling price of a home between a willing buyer and a willing seller on the open market. In a mortgage or a home equity loan, the fair market value is usually determined by an appraisal. Also called fair market value.

Maturity Date

The day on which the outstanding principal, interest, and fees must all be repaid.

Minimum Payment

The minimum amount you must pay (usually monthly) on your account to avoid a delinquency. Some loans may permit a minimum payment of interest only. Other loans may require a minimum payment of principal and interest. Many other variations of minimum payments also exist.

Mobile Home

A type of residence that's built upon a wheeled chassis and can be transported from site to site.

Modular Home

A factory-built home that's erected on-site, with the appearance and characteristics of a site-built residence.

Money Market Account

A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

Monthly Payment

The amount paid each month toward the principal and interest amount of a loan. The monthly payment may or may not include taxes and insurance.

Mortgage

A legal document giving a lender a lien on real estate to secure repayment of a loan. Mortgage loans generally run from 10 to 30 years, after which the loan is required to be paid off. Also called deed of trust and/or security deed.

Mortgage Insurance

Insurance that protects the lender if you default on your loan. This insurance usually costs from 0.15% to 2.5% of the loan amount. If your down payment is less than 20%, most lenders will require you to get mortgage insurance. Also called private mortgage insurance (PMI).

Mortgage Points

Typically, it's an amount usually paid at closing to the lender in conjunction with a mortgage loan in order to lower the interest rate. One discount point equals one percentage point of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000. Negative points reflect the amount that will be credited to you and reduce the amount of closing costs you will pay. Also called discount points or points.

Mortgagee

The lender or other party named in the mortgage as the party who's entitled to receive repayment of the home loan.

Mortgagor

The borrower, or other party named in the mortgage as the party obligated to repay the home loan.

Multifamily Residence (Two to Four Units)

A residential property with two to four individual housing units (duplex, triplex, or quadplex).

N

Negative Amortization

The result when monthly payments don't cover all the interest due on the loan. The unpaid interest is added to the unpaid balance, which means the homebuyer will owe increasingly more than the original amount of the loan.

Net Cash Flow

The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expenses (principal, interest, taxes, insurance for the mortgage, homeowners association dues, leasehold payments, and subordinate financing payments).

Net Proceeds

The amount of money left over from the sale of your home after subtracting the outstanding loan balance plus transaction costs, which may include sales commissions, fees, closing costs, repairs, and prorated taxes.

Net Worth

The total value of a person's complete assets (including cash) and minus all liabilities.

No Closing Cost Loan

A loan in which the borrower(s) are not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.

Nonconforming Loan

A mortgage loan that's not eligible for sale to Fannie Mae and Freddie Mac due to nonstandard features. These loans are often sold on the secondary market to private investors or held in the lender's portfolio as an asset.

Nonowner Occupied

Properties in which the owner does not live.

Notarize

The act by a notary public who witnesses the signing of documents, authenticating the identity of the signer.

Note

A written agreement in which the signer promises to pay to a named person or company a specific sum of money at a specified date or on demand.

O

Origination Date

The date on which a loan was closed. See also: Closing

Origination Fee

A fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned (often 1%).

Outstanding Balance

The balance owed on a debt.

Owner Financing

A property purchase transaction in which the property seller provides all or part of the financing and takes back a security instrument.

Owner-occupied

A property that the owner occupies either as a principal residence or second home.

P

Payment

The periodic amount of money, to be paid by the borrower, to reduce the balance of a loan. Sometimes referred to as principal and interest or "P & I." Principal and interest accounts for the majority of your mortgage payment, but doesn't include escrow payments for taxes, insurance, mortgage insurance (if any) and any other costs that are paid monthly, or fees that periodically come due.

Payment Cap

A limit on how much a monthly payment can increase at any one time. Some adjustable-rate mortgages have payment caps in addition to annual (or semi-annual) interest rate caps and lifetime interest rate caps. Payment caps don't limit the amount of interest charged and may cause negative amortization. Also called a cap.

Payment Shock

A significant rise in a homeowner's monthly home payment, usually as the result of rising interest rates (in the case of an adjustable-rate loan) or the end of an interest-only introductory period.

Per Diem Interest

The amount of interest that accrues daily on a loan. This is calculated by multiplying the outstanding loan balance by the annual rate of interest, then dividing the result by 365.

Piggyback Loan

A combination of two loans. Example: A loan is made for 90% of the home price. 80% of the purchase price is supplied by a first mortgage and 10% by a second mortgage. The second mortgage is piggybacked on the first.

PITI

An acronym for principal, interest, taxes, and insurance. Also referred to as the monthly housing expense.

PMI

An acronym for private mortgage insurance. If your down payment is less than 20%, most lenders will require you to get private mortgage insurance. This is insurance that protects the lender if you default on your loan. This insurance usually costs from 0.15% to 2.5% of the loan amount. Also called mortgage insurance.

Points

Typically, it's an amount usually paid at closing to the lender in conjunction with a mortgage loan in order to lower the interest rate. One discount point equals one percentage point of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000. Negative points reflect the amount that will be credited to you and reduce the amount of closing costs you will pay. Also referred to as discount points or mortgage points.

Preapproval

A lender's conditional agreement to lend a specific amount on specific terms, to a homebuyer.

Preforeclosure Sale

A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property, typically for less than the amount that is owed to the lender.

Prepaid Expenses

The expenses that are usually paid in advance, such as escrows for taxes and insurance (which are paid at closing).

Prepaid Interest

The interim interest that's collected at closing of a first mortgage, covering the period from the date of disbursement to the start of the next payment period.

Prepayment Penalty

A penalty assessed by some lenders if a loan is paid off before the specified term. This is a lump-sum amount due and payable in addition to the loan balance, and is usually limited to the early years of a mortgage. A prepayment penalty is called a "hard" penalty if it applies when you sell or refinance your home or a "soft" penalty if it applies only to refinancing. Not all loans have prepayment penalties.

Prequalification

The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in order for the lender to preliminarily estimate how much loan the borrower may obtain for the purchase of a home. A prequalification is not a commitment to lend.

Primary Applicant

The applicant whose name appears first on the application.

Primary Residence

This is the home in which a borrower resides most of the time.

Prime Rate

The prime rate is the rate of interest publicly announced from time to time by Bank of America as its "prime rate." The prime rate is set by Bank of America based on various factors, including the bank's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Bank of America may price loans to its customers at, above, or below prime rate.

Principal

The amount of money borrowed on a loan.

Private Mortgage Insurance

See PMI.

Processing Fee

A fee charged to cover the administrative costs of processing a loan request.

Promissory Note

A written promise to repay a specified amount over a specified period of time.

Property Tax

A fixed percentage based on the appraised value of your home that you pay to the county in which the home is located. The specific percent varies dramatically from county to county in every part of the country. You pay this tax annually, semiannually, or as part of your monthly mortgage payments. Depending on when you actually close your loan, some of this property tax may be due at the time of closing. The local county assessor's office can give you the rate for your county.

Property Valuation

An informed estimate of the value of property often made in connection with an application for a loan secured by a home. A professional appraiser usually makes it.

Public Auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

PUD (Planned Unit Development)

A project or subdivision that includes common property that is owned and maintained by a homeowners association for the benefit and use of the individual PUD unit owners.

Purchase Agreement

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

Q

Qualifying Ratios

Calculations that are used to determine whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio, and total debt obligations as a percent of income ratio.

R

Rate

The rate of interest on a loan, expressed as a percentage.

Rate Cap

A limit on how much the interest rate can change, either per adjustment period or over the term of the loan.

Rate Reduction Option

A fixed-rate mortgage that includes a provision that gives the borrower an option to reduce the interest rate (without refinancing) at a later date. It is similar to a prearranged refinancing agreement, except that it does not require re-qualifying.

Real Estate Owned (REO) Property

A property now owned by the lender as a result of the previous owner defaulting on the loan. Also known as a "foreclosure property" or a "bank-owned property."

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts, and requires notice to borrowers when servicing of a home loan is transferred.

Reduced Documentation

A method used to determine income when qualifying a borrower for a loan. Borrower(s) provide their income, however no verification documentation is typically required.

Refinance

Paying off your existing loan with the proceeds from a new loan, generally using the same property as collateral, in order to take advantage of lower monthly payments, lower interest rates, or save on financing costs.

Refinancing

Paying off one loan with the proceeds from another loan, generally using the same property as collateral.

Rehabilitation Mortgage

A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.

Relocation

The process of moving one's residence from one location to another, often having to do with a change of employment.

Remaining Balance

The amount of principal that has not yet been repaid.

Remaining Term

The original amortization term minus the number of payments that have been applied.

Repayment Period

In a line of credit, the period when no advances of principal are available and during which the line must be fully repaid, according to the payment terms. In a home equity line of credit, the repayment period (typically 15 years) is the portion of the loan term that follows the draw period (typically 10 years).

Repayment Plan

An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are often called "relief provisions."

Request for Notice of Default

A recorded document that obligates the holder of the first mortgage lien to notify subordinate lien holders in the event of default by the borrower.

Rescission

The cancellation of a contract. In certain real estate-secured transactions that involve the refinance of a primary residence, applicants have three business days to cancel the transaction.

Reserves

The savings and investments a homebuyer will have after their loan closes which could be used to cover emergencies (such as unexpected home maintenance costs or job loss). In some cases, may also be a requirement for loan approval.

Revolving Line of Credit

A line of credit that allows up to the credit limit amount to be re-borrowed in repeated transactions once it's been repaid.

Right of First Refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Right of Ingress (or Egress)

The right to enter or leave designated premises.

Right of Survivorship

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Rural Housing Service (RHS)

An agency within the Department of Agriculture. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.

S

Savings Rate

The rate of return you receive on your investments, stated as a yearly percentage rate. Also called the rate of return.

Second Home

A property occupied part-time by a person in addition to his or her primary residence.

Second Mortgage

The traditional term for a home loan that's a subordinate lien and not a first mortgage, such as a home equity loan or line of credit.

Secondary Market

The market in which lenders and investors buy and sell existing mortgages or mortgage-backed securities, which in turn provides greater availability of funds to lenders for additional mortgage lending.

Secured Loans

Loans for which you've given the lender a lien on property such as an automobile, boat, other personal property, or real estate that will serve as collateral for the loan.

Security Interest

The legal right an owner gives to a lender to use the owner's property as collateral for repayment of a debt to either the owner or another borrower.

Settlement

The completion of a property's sale or purchase, or the completion of all steps necessary to receive the proceeds of and create an obligation to repay a loan. See also: Closing

Settlement Costs

Fees paid at, or prior to, the closing of your loan. They may include attorneys' fees, as well as fees for preparing and filing a mortgage, and for taxes, title search, and insurance. They include the expenses incurred in obtaining the loan and in transferring the ownership of any collateral property from the seller to the buyer. Generally, settlement costs are typically about 3% of the total loan amount. Also called closing costs.

Short Sale

A commonly used alternative to a foreclosure. If a homeowner can no longer afford to make mortgage payments and their home is worth less than they owe, a short sale allows them to sell the home to pay off the mortgage. In a short sale, the lender agrees to accept an amount less than is actually owed on the loan, based on a showing of financial hardship.

Single-Family Residence (SFR)

A detached individual housing unit. The property shares no common ground with neighboring properties and shares no wall or roof, but can be part of a planned unit development (PUD).

Sweat Equity

Contribution to the construction or rehabilitation of a property in the form of labor or services performed personally by the owner.

Swing Loan

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower's present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. See also: Bridge Loan

T

Tax Rate

The percentage of your income that you owe in income taxes.

Tax Savings

The amount you may save in taxes by itemizing deductions on income tax returns. Mortgage interest and property taxes are two expenses that you may realize tax savings on, since you may be able to deduct these expenses from your income. Always check with your tax advisor for advice on tax deductibility.

Tenancy in Common

A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy.

Term

The number of years it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule, and total interest paid over the life of the loan.

Third-Party Fees

Fees charged for services rendered by parties other than the borrower or the lender. Such fees may include appraisal, credit report, title, and flood certifications.

Title

Written evidence of ownership in property.

Title Company

The agency that will investigate a property's title (or deed) for discrepancies or undiscovered liens and that will issue title insurance to the lender after the title is deemed clear. Also see Title Insurance.

Title Insurance

Insurance that protects an interested party, either the owner or the lender, against defects that would affect legal ownership of the property.

Title Search

An examination of records used to determine the legal ownership of property and all liens and encumbrances on it. Usually performed by a title company or attorney.

Total Cash Required to Close

The total of all closing costs, points, prepaid expenses, down payment, and any other fees or adjustments due at closing.

Total Housing Expense

The total of all of your combined expenses due to the ownership of property, including: principal, interest, property taxes, homeowners insurance, mortgage insurance, homeowners association dues, and any special assessments.

Town Home

A type of residence that shares common walls with other dwellings.

Transaction Fee

The fee that may be charged each time you draw on your credit line.

Transfer of Ownership

Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.

Treasury Index

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See also: Adjustable-Rate Mortgage (ARM)

Trustee

A fiduciary that holds or controls property for the benefit of another.

Truth-in-Lending Act

A federal law requiring disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.

U

Underwriter

The person who approves or denies a home loan, based on the lender's underwriting and approval criteria.

Underwriting

The lender's process of deciding whether to make a loan to a potential borrower based on credit, employment, assets, and other factors, and the matching of this risk to an appropriate rate, term, and loan amount.

Unsecured Lines of Credit

Revolving line of credit that has no collateral pledged, typically accessed with a check or credit card.

Upfront Costs

The costs you must pay when applying for a loan. Typically these include loan application fees. Some lenders require some of your closing costs also be paid when you apply.

V

VA

An acronym for the Veterans Affairs, a branch of the federal government that provides home loan guarantees for qualified veterans of U.S. military forces.

Variable Rate

An interest rate that may fluctuate or change periodically, often in relation to an index, such as the prime rate or other criteria. Payments may increase or decrease accordingly.

W

What-if Analysis

An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.

Y

Year-End Statement

The report shows how much was paid in interest during the year, as well as the remaining mortgage loan balance at the end of the year. If the bank has an impound account for you, it will also show how much was paid and reserved in property taxes. If the bank does not have a property tax impound account, then tax details are not displayed on the report.