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

Accredited Buyers Representative: A professional designation awarded by the Real Estate Buyer’s Agent Council to REALTORS® who specialize in representing buyers in real estate transactions.

Adjustable rate mortgage (ARM): A mortgage with an interest rate that changes over time based on an index.

Agency: The contractual relationship between a real estate agent and a client; the client is represented by the agent.

Amortization: The gradual repayment of a mortgage by installments.

Amortization schedule: A mortgage repayment timetable showing the amount of each payment applied to 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).

Appraisal: A professional estimate of the market value of a property.

Appreciation: An increase in the value of a property due to changes in market conditions.

APR: see annual percentage rate.

ARM: see adjustable rate mortgage.

Assessed value: The value placed upon a property by a public tax assessor for purposes of taxation.

Assumable mortgage: A mortgage that can be taken over (assumed) by the buyer when a property is sold.

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

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

Buyer’s agent, Buyer’s representative: A real estate agent who represents the buyer in a real estate transaction.

Cap: A provision of an adjustable rate mortgage limiting how much its interest rate may increase.

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

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

Closing: A meeting at which a sale is finalized; the buyer signs the mortgage and the closing costs are paid; also called “settlement.”

Closing costs: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property; also called “settlement costs.”

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

Condominium: A form of property ownership in which the homeowner holds title to an individual dwelling unit plus a share of common areas of a multiunit property.

Contingency: A condition that must be met before a contract is legally binding.

Convertible ARM: An adjustable rate mortgage that can be converted to a fixed rate mortgage under specified conditions.

Cooperative: A form of common property ownership in which the residents of an apartment building do not own their own units, but rather own shares in the corporation that owns the property.

Community Reinvestment Act (CRA): A federal law that requires federally chartered banks to demonstrate their commitment to making credit available and promoting affordable housing; it makes red lining illegal.

CRA: see Community Reinvestment Act.

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

Deed: The legal document conveying the title (ownership) of a property.

Deed of trust: The document used in some states instead of a mortgage. The title is conveyed to a trustee rather than to the borrower.

Default: Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.

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

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

Depreciation: A decline in the value of property; the opposite of appreciation.

Down payment: The part of the purchase price which the buyer pays in cash at closing and does not finance with a mortgage.

Due-on-sale clause: A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

Earnest money: A deposit given to the seller to show that a prospective buyer is serious about buying the house.

Easement: A right of way giving persons other than the owner access over a property.

ECOA: see Equal Credit Opportunity Act.

Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from denying mortgages on the basis of the borrower’s race, color, religion, national origin, age, sex, or familial status.

Equity: The difference between the market value of a property and the homeowner’s outstanding mortgage balance.

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

Fair Credit Reporting Act: A consumer protection law that sets up a procedure for correcting mistakes on one’s credit record.

Fair Market Value (FMV): Amount at which an asset would change hands between two parties who both have knowledge of the relevant facts.

FHA loan: A mortgage that is insured by the Federal Housing Administration.

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

Fixed rate mortgage (FRM): A mortgage in which the interest rate does not change during the entire term of the loan.

Flood insurance: Insurance required for properties in federally designated flood areas.

FMV: see fair market value.

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

Foreclosure: The process by which a mortgaged property may be repossessed by the lender and sold when a mortgage is in default.

FRM: see fixed rate mortgage.

FSBO: For sale by owner.

GEM: see growing equity mortgage.

GPM: see graduated payment mortgage.

Graduated payment mortgage: A mortgage that starts with low monthly payments which increase at a predetermined rate.

Growing equity mortgage (GEM): A fixed rate mortgage with non-fixed payments; additional payments are applied to the principal.

Hazard insurance: An insurance policy that covers liability and damage from hazards, e.g. fire, wind, vandalism, etc.

Home equity loan. A mortgage based on the borrower’s equity in the home.

Home inspection: An examination of a house by a professional inspector; the inspector reports on the condition of the home, describes any problems discovered, and explains how and why they occurred.

Homeowner insurance: An insurance policy that combines liability coverage and hazard insurance.

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

Installment sale: A real estate transaction in which the sales price is paid to the owner in installments.

Interest rate cap: A provision of an ARM limiting how much the interest rate may increase per adjustment period (see lifetime cap).

Interest: The fee charged for borrowing money; it is usually stated as a percentage.

Joint tenancy: A form of co-ownership giving each owner (tenant) equal interest and equal rights in the property, including the right of survivorship.

Late charge: The penalty which a borrower must pay when a payment is made after the due date.

Lien: A legal claim that must be paid when the property is sold.

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

Listing agent: see seller’s agent.

Loan servicing: Primarily, the collection of mortgage payments from borrowers; also performing related responsibilities.

Loan-to-value ratio (LTV): The relationship between the amount of a mortgage and the total value of the property.

Lock-in: A written agreement guaranteeing the homebuyer a specified interest rate for a specified time period.

LTV: see loan to value ratio.

Manufactured housing: Prefabricated homes that can range from simple trailers to large dwellings.

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

MID: Mortgage interest deduction on federal tax return.

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

Mortgage insurance: Required by lenders on some loans to protect them from a possible default.

Mortgage insurance premium (MIP): The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

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

Mortgagee: The lender.

Mortgagor: The borrower.

Multiple listing service (MLS): A service that combines agency listings of all available homes in an area into one directory or database.

NATIONAL ASSOCIATION OF REALTORS® (NAR): A trade association for real estate agents and brokers who become members by agreeing to abide  by the organization's code of ethics; Only members may call themselves REALTORS®.

Negative amortization: Payment terms under which the borrower’s monthly payments do not cover the interest due; as a result, the loan balance increases.

Negative equity: A situation in which the amount of principal owed on a mortgage is greater than the fair market value.

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

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

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

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

PITI: see principal, interest, tax, and insurance.

PMI: see private mortgage insurance.

Points: A one-time charge by the lender to increase the yield of the loan; a point is 1% of the amount of the mortgage.

Pre approval: A letter from a lender stating how much money the borrower can obtain.

Prepayment penalty: A fee 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 a loan is applied for.

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

Principal, interest, tax, and insurance (PITI): The components of a mortgage payment.

Private mortgage insurance (PMI): Insurance provided by nongovernmental insurers; it protects lenders against loss if a borrower defaults.

Qualifying ratios: Guidelines used by lenders to determine how much mortgage a homebuyer can afford.

Radon: A radioactive gas found in some homes; in sufficient concentrations, it can cause health problems.

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

Real Estate Settlement Procedures Act (RESPA): A federal consumer protection law that requires lenders to give borrowers advance notice of closing costs.

REALTOR®: A real estate professional who is a member of the NATIONAL ASSOCIATION OF REALTORS®; a registered trademark.

Real Estate Buyer’s Agent Council (REBAC): A professional trade association of real estate agents who represent property buyers in real estate transactions; it is affiliated with NAR.

RESPA: see Real Estate Settlement Procedures Act.

Sales contract: see purchase and sale agreement.

Second mortgage: A mortgage that is subordinated to the rights of the first mortgage holder.

Secondary mortgage market: The buying and selling of existing mortgages.

Seller take-back: An agreement in which the seller of a property provides financing often in combination with an assumed mortgage.

Seller’s agent: A real estate agent who represents the seller; also known as the listing agent.

Settlement sheet: The computation of costs payable at closing; it determines the seller’s net proceeds and the buyer’s net payment.

Survey: A drawing that shows the legal boundaries of a property.

Tenancy by the entirety: A type of joint ownership of property available only to a husband and wife.

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

Title Company: A company that specializes in insuring the title to a property.

Title: A legal document establishing the right of ownership.

Title insurance: Insurance to protect the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over title to a property.

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

Transfer tax: State or local tax payment when title is transferred from one owner to another.

Truth-in-lending: A federal law that requires lenders to fully disclose in writing the terms and conditions of a mortgage, including the APR and other charges.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender.

VA loan: A mortgage that is guaranteed by the Veterans Administration.

Walk through: A buyer’s final inspection of the home to determine if the conditions in the purchase agreement have been satisfied.