Mortgage Glossary

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One to four unit properties.

1010 Warning



Accident and Health Premium

A premium paid by a borrower for an insurance policy that insures continuance of mortgage payments in the event of a mortgagor’s disability or illness. These premiums may be collected as a part of a monthly mortgage payment and, if they are, they should be included as a cost on the Federal-in-Lending Disclosure Statement. On HUD-FHA and VA mortgages. however, failure to pay the premium cannot serve as a condition of default, so premiums should not be included as part of the mortgage payment or as obligations on the application for insurance or guaranty.

Acquistion Cost

In a HUD-FHA transaction, the sum of the price paid for the property + any costs of closing, repairs or financing (except discounts, if the transaction is not a refinance) properly paid by the borrower. Seller inducements, such as the seller paying closing costs, will be deducted from the acquisition cost. When the transaction is a refinance, all charges connected with the transaction can be included as long as the maximum mortgage amount of the property is not exceeded. In all transcations, the maximum mortgage amount may be increased by the amount of the MIP financed.


An addition to a written doument. In many, but not all, jurisdictions, notes and mortgages may be notified by addenda. This makes it possible to avoid striking out and adding language in the basic document to accomodate special program requirements.

Addendum to Additional Commitment

HUD Form 92800-5a. A three page form, one of which is retained by HUD, used to identify the general and specific conditions imposed in connection with the issuance of a Conditional Commitment. These conditions relate to the property and must be met before the mortgage can be insured.


A sworn statement in writing before a proper official, usually a Notary Public.

Affidavit of Eligibility

Used to confirm that the applicants for a mortgage to be insured under Section 245(b)of the National Housing Act meet the requirement that they have not owned a home within the most recent three years.


American Land Title Association. A national association of title insurance companies, abstractors and attorneys, specializing in real property law. The association speaks for the title insurance and abstracting industry and established standard procedures and title policy forms.


Gradual debt reduction. Normally, the reduction is made according to a predetermined schedule for installment payments. HUD-FHA and VA regulations require that the insured or guaranteed mortgages provide for amortization in equal monthly payments over the term of the loan, except that the payments of the early years of a Graduated Payment Mortgage may change from year to year, and those of an Adjustable Rate Mortgage may change from time to time, subject to certain restrictions.

Amortization Schedule

A table showing the amounts of principal and interest due at regular intervals and the unpaid balance of the loan is paid after each payment is made. Since interest is due on the actual unpaid balance rather than on the schedule balance, an amortization schedule can be misleading if the loan is either paid in advance or or delinquent. In practice, however, many lenders adhere to the amortization schedule even though it may not be technically accurate.

Annual Percentage Rate

A term used in the Truth-in-Lending Act to represent the percentage relationship of the total finance charge to the amount of the loan. Important in preparing the Federal Truth-in-Lending Disclosure Statement (Reg Z).s.

Application/FNMA 1003

A FNMA from used by all the lenders in obtaining data needed to process an FHA/VA home loan.

Application for Assistance under Section 235 of the National Housing Act HUD form 93100

The form is used as the borrower’s application for assistance under Section 235, a program in which HUD-FHA makes a part of the borrower’s monthly payment, as long as his/her income stays below a certain level. When completed by HUD and returned to the lender, it serves as a contract on the part of HUD to make the payments. Acts as a second Deed of Trust on the loan, which is paid off when the loan is paid off.

Application for Authority to Close Loans on an Automatic Basis (Nonsupervised) VA Form 26-8736

The form used by nonsupervised lenders to apply for approval to particiapte in VA’s “Automatic“ loan guaranty program.

Application for Commitment for Insurance under the National Housing Act (HUD) HUD Form 92900-1, VA Form 26-1802-a

The application form used to request approval of the borrower. It includes the information needed to evaluate the borrower’s credit worthiness and is accompanied by verifications

Application for Home Loan Guaranty (VA)

VA Form 26-1802a, HUD form 92900-1. See preceding item.

Application for Master Conditional Commitment

FHA Form 1322. The basic application for property appraisal and commitment when the application involves five or more properties on which one or more basic houses are to be constructed. The lots, houses and alternates are valued separately, then combined to produce individual values when applications for Firm Commitment are submitted.

Application for Property Appraisal Commitment (HUD) HUD Form 92800, VA Form 26-1805.

The basic appplication to HUD-FHA of VA, requesting appraisal of the property and determination of its eligibility for insurance or guaranty.


A prorated division and distribution of prepaid or accrued taxes, prepaid insurance premiums, prepaid rents, and other income and expenses between the buyer and seller. Apportionment usually occurs when a property is sold, and is the manner of determining the amounts due to and from each party. See also “Settlement Statement.“


A report made by a qualified person setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained. In conventional mortgages and in the HUD-FHA Direct Endorsement program, the lender recieves a copy of the appraisal showing the basis for the appraiser’s estimate. In VA cases and in HUD applications processed by HUD, the lender receives only a statement of the estimate of value, without any detailed supporting data.

Appraised Value

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


One qualified by education, training and experience to estimate the value or real estate and personal property. The estimate is based on a process in which the appraiser judges the facts discovered in an investigation of the property.

Arms’ Legnth Transaction

A transaction between a willing buyer and a willing seller with no undue influence imposed on either party and where there is no relationship between the parties except that of the specific transaction.


The person or corporation to whom an agreement or contract is assigned. One to whom real property, or interest in real property, is transferred or set over.


The transfer of a right or contract from one person to another. Mortgages and other security instruments regularly assigned from one investor to another and commitments by HUD-FHA to insure mortgages may be assigned by one originating lender to another before insurance.


One who transfers, assigns or sets over real proprty or an interest therein to another.

Associate Broker

A person who has qualified as a real estate broker but works for a principal broker licensed in the state.

Assumption Agreement

A written agreement by one party to pay an obligation originally incurred by another.

Assumtion Fee

The fee paid to a lender (usually by th epurchaser of real property) as compensation for the work involved in processing the assumption of a mortgage or as consideration for permitting an assumption.

Assumption of Mortgage

Assumption by a purchaser of the primary liability for payment of an existing mortgage or deed of trust. The seller remains secondarily liable unless specifically released by the lender. See also “Due on Sale“.


Balance Sheet

A statment of financial condition of a business organization showing assets, liabilities, capital, and including net worth as of a given date.


A person, firm or corporation who, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court appointed trustee, or referee, for the protection of creditors. In lieu of total relief from payment, the bankrupt may be required to make partial payments on a regular schedule.


The state of being bankrupt.

Basis Point

One one-hundredth of one percent. Used to describe the amount of change in yield in many debt instruments, including mortgages.


A mortgager who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.

Building Code

The local regulations that control design, construction, and materials used in construction. Building codes are usually based on safety and health standards.

Buydown Escrow Agreement

An unnumbered form, reproduced locally by lenders, used to formalize the terms of an escrow established to finance the reduced initial payments made available to the buyer by a buydown agreement. Before insurance of such a mortgage by HUD, such an agreement must have been executed by the seller, the buyer, the lender and the escrow agent.


Basic allowance for quarters – a non-taxable military income.


Basic allowance for substance – a non-taxable military income.



Bond Market

A securities system of exchanges similar to the stock market. THe price of bonds has direct impact on discount points on FHA and VA loans.



A system which realtors use, normally following their weekly meeting. They all pile into a bus and tramp through several of their most recent listings. This has been known to cause heart attacks among some hapless sellers.

Cash Out

A refinance in which the owner is getting money back (normally a higher-risk refi). To a realtor, it is jargon for a listing that will not carry financing behind an existing first or second, meaning the owner wants all the equity out.


The VA Certifiacte of Eligibility, establishing the vet’s eligibility for a VA loan and for the loan amount.


California Housing Finance Agency (a California lending program). Some lenders will buy communities for this program, which usually has lower rates. It offers low commissions to loan reps. It is very restrictive on buyer guidelines: the programs are usually for first time buyers only, mostly new housing, and is considered by processors to be a monumental pain.

Code Violation

Refers to building code violations on room additions and conversions noticed by appraisers. These often become closing conditions.


Listings on an appraisal of similar homes recently sold to establish the basis of the value set by the appraiser of the subject home.


The process of ascertaining the magnitude, worth or value of a capital good through the use of a rate that is believed to represent the proper relationship between that capital good or property and the net income it produces. In real estate appraisal, the process of converting anticipated future rents from the property into a present value.

Capitalization Accounting

An accounting method, employed principally by thrift institutions, in which all monthly mortgage payments are applied to reduce principal, and all disbursements or charges(such as interest and charges for taxes, insurance premiums, etc.) are added to principal, with interest computed periodically on the actual unpaid principal balance. HUD-FHA does not permit unpaid interest or late charges on delinquent accounts to be included in the amount used as a basis for computing interest.

Cash Flow

The spendable cash (income) from an income-producing property after deducting from gross income all operating expenses in debt service.

Certificate of Commitment for VA Loan Guaranty

VA Form 26-1866a. The form by which VA notifies the lender that an application has been found acceptable and will be guaranteed if any conditions imposed by VA have been met and the loan is closed within six months. Performs the same function as the HUD-FHA Firm Commitment.

Certificate of Deposit

A written document issued by a bank or other financial institution that is evidence of a deposit with the issuer’s promisse to return the deposit plus earnings at a specified rate of interest. Some Certificates of Deposit include restrictions on redemption before maturity which make them unacceptable as a source of funds for closing mortgage loans.

Certificate of Eligibility

VA Form 26-8320. Evidence that the veteran is eligible for VA loan guaranty benefits. The face of the form identifies the veteran. The reverse provides details on the status and extent of his/her eligibility.

Certificate of Loan Disbursement

VA Form 26-1876. A detailed listing of the charges paid by the veteran and the disposition made of the proceeds of the mortgage, prepared as a part of the closing and certified by the lender and by the veteran. Submitted with other closing documents when loan guaranty is requested.

Certificate of Occupancy

Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be occupied.

Certificate of Reasonable Value

VA Form 26-1843, HUD Form 92800-5. A document issued by the VA establishing a maximum value and loan amount for a mortgage to be guaranteed by VA. The CRV will also be accepted by HUD-FHA to establish the appraised value of the property for a mortgage to be insured by HUD-FHA.

Change Order

A change in the original plan of construction by a building owner or the general contractor. May or may not affect the appraised value of the completed property, but its impact must be evaluated.


Personal Property

Clear Title

Title not encumbered or burdened with defects. Marketable title.


The conclusion of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.

Closing Costs

Money paid by any party to the transaction to effect the closing of a mortgage loan. Does not include prepaid expenses, apportionments, and the like, but does not normally include an origination fee (almost always paid by the borrower), title insurance, survey, attorney fees, etc. In HUD-FHA transactions, all closing costs are added to the transactions, all closing costs are added to the appraised value of the property to establish the “FHA Value” on which the maximum insurable mortgage is based. Closing costs paid by the borrower are added to the sales price to establish “Acquisition Cost”.

Closing Statement

A financial disclosure giving an account of all funds received and expected at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance premiums for the escrow account. See also “HUD-1” and “Settlement Statement”.

Cloud on Title

Any conditions revealed by a title search that adversely affect the title to property. Usually they cannot be removed except by a quitclaim deed, release, or court action. HUD-FHA and VA will accept title to properties with existing clouds of a routine nature, specified in the regulations governing their various programs.

CMB (Certified Mortgage Banker)

The highest professioanl designation awarded to employees of member firms or individual members of the Mortgage Bankers Association of America.


(1) A sharing of insurance risk between insurer and insured depending on the relation of the amount of the policy and a specified percentage of the actual value of the property insured at the time of loss. (2) In mortgage insurance and guaranty programs, the sharing of risk between the lender and the insurer or guarantor following foreclosure of the mortgage, expressed in the form of either a dollar limit on the amount of guaranty settlement (VA), a limit on the settlement based on the percentage of the outstanding loan balance (private mortgage insurers), or a limit on settlement based on a percentage of loss after disposition of the property (HUD-FHA).


An agreement, often in writing, by one party to a transaction to perform a specific act at some future date, suject to compliance with certain conditions. The commitment may be by a lender to an individual borrower to make a loan, by a lender to a builder to provide long-term financing to future purchasers, by an insurer or guarantor to insure or guarantee a loan made by a lender, by an investor to purchase loans originated by a lender, etc.

Commitment Fee

Any fee paid by a potential borrower to a potential lender for the lender’s promise to lend money at a specified date in the future. The lender may or not expect to fund the commitment.


A second borrower, not the spouse of the principal borrower, who assumes equal responsibility for the debt and share in ownership of the property. Income and obligations of a co-mortgager are considered in the underwriting process as though s/he were the principal mortgager. Contrast with the “Co-Signer”.


An abbreviation for “comparable properties“ used for comparative purposes in the appraisal process. Facilities of reasonably the same size and location with similar amenities. Properties that have been sold recently and have characteristics similar to the propery under consideration, thereby indicating the fair market value of the subject property.

Compliance Report

HUD Form 92051. A report given to a lender by a designated compliance inspector indicating whether or not construction repairs comply with conditions established as a result with an earlier inspection or appraisal. CIR’s in other forms are typically used for the same purpose whenever a lender or some other agency has required repairs or improvements to an existing property or when a newly-constructed dwelling must be completed before the loan is closed.

Conditional Commitment

Any commitment that includes conditions. Specifically with respect to HUD-FHA transactions, HUD Form 92800-5 (VA Form 1843), a contractual agreement on the part of HUD-FHA to insure a mortgage on a specific property, with a specific amount, interest rate, and term, provided certain conditions stated in the commitment are met and an acceptable borrower is presented.

Conditional Commitment Requirements

A form reproduced locally by HUD-FHA offices and varying in content depending on local conditions. It lists the most common conditions imposed on Conditional Commitments, giving each a number (“VC-10,“ “VC-4“). Only the number of the condition is entered on the commitment itself, and the list is attached.

Conditional Sales Contract

A contract for the sale and delivery of property to a buyer, with the seller retaining title until the conditions of the contract, usually related to payment, have been met. Also known as “Sales Contract”.


A form of ownership of real property. The purchaser receives title to a particular unit and an undivided, or proportionate, interest in certain common areas. A condominium generally defines each unit as a separately owned space to the interior surfaces of the perimeter walls, floors and ceilings. Title to the common to the common areas is in terms of percentages and refers to the entire project less the separately-owned units.

Condominium Declaration

The basic condominium that must be registered by the originating property owner before conveyance of the first unit sold. This declaration thoroughly describes the entire condominium entity, including each unit and all common areas, and specifies essential elements of ownership that permanently govern its operation. Also known as the “Master Deed”.


The required element in all contracts by which a legal right or promise is exchanged for the act or promise of another promise.


One who agrees to assume the debt obligation if the principal borrower should default on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property. His/her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower, but they are not given equal weight with those of the principal borrower. They serve as compensating factors only. Contrast with “co-Mortgager”.



Contract of Sale

A contract between a purchaser and seller of real property to convey a title after certain conditions have been met and payments have been made. See also “Sales Contract”.

Conventional Loan

A mortage neither insured by HUD-FHA nor guaranteed by VA. See also “Guaranteed Loan” and “Insured Loan”.


The act of transferring title to real property from one party to another.


The document, such as a deed, lease or mortgage, used to effect a transfer.


A firm of multiple ownership of real estate in which a corporation or business trust entity holds title to a property and grants the occupancy rights to particular apartments or units to shareholders by means of propriety leases or similar arrangements.


A body of persons granted a charter legally recognizing them as separate entity (legal person) having its own rights, priveleges, and liabilities distinct from those of its members.


The final step in the appraisal process, iin which the appraiser considers the three estimates of of value derived from the cost, income, and market data approaches. The correlation process weighs the influence of each in relation to th etype of property and the final estimate of value.


A mortgage banker who services mortgage loans as a representative or agent or agent for the owner or the mortgage or investor. Also applies to the mortgage banker’s role as originator or mortgage loans for an investor. In the latter sense, HUD-FHA restricts correspondents from acting on behalf of other than mortgagees approved by HUD-FHA as supervised lenders and from acting as correspondent for more than one institution at time.

Cost Approach to Value

A method in which the value of the property is derived by estimating the replacement cost of the improvement, deducting there from the estimated depreciation, then adding the value of the land as estimated by use of the market data approach. Also called “physical indication of value”.

Coupon Rate

The annual interest rate on a debt instrument. More generally, the annual interest rate on any indebtedness. In mortgage banking, the term is used to describe the contract interest rate on the face of the note or bond.

Credit Rating

A rating given to a person or company to establish credit wothiness based on present financial condition, experience, and past credit history.

Credit Report

A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

CRA(Certified Review Appraiser)

The highest professional designation awarded to appraiser members of the National Association of Review Appraisers and Mortgage Underwriters.

Custodial Accounts

Bank accounts used for the deposit of funds belonging to others. See also “Escrow Account”.


DD 214

Discharge papers issued by an armed service branch when a veteran leaves active duty.

Debt Service

The periodic payment of principal and interest on mortgage loans.


A document by which the ownership of land is transferred from one party to another.

Deed of Trust

In some states, the document used in place of a mortgage. A type of security instrument conveying title in trust to a third party covering a particular piece of property. It is used to secure the payment of a note. A conveyance of the title to land to a trustee as collateral security for the payment of a debt with the condition that the trustee will reconvey the title on payment of the debt, and with power of the trustee to sell the property and pay the debt in the event of a default on the part of the debtor.

Department of Housing and Urban Development (HUD)

A department of the federal government under whose auspices the FHA is operated. HUD was established to provide cohesive control over those governmental programs designed primarily to provide housing and the services and facilities essential to the improvement of housing standards and conditions. As of the signing of the 1983 Housing Bill, HUD no longer sets the interest rate on FHA loans, with the exception of Section 235. The Secretary of HUD still sets a maximum interest rate for all VA loans. This department also includes community planning and development, low-rent public housing, equal opportunity in housing, and research and technology.


(1) A sum of money given to bind a sale of real estate. (2) A sum of money given to assure payment or an advance of funds in the procesing of a loan. Also known as “Earnest Money“.

Deposit Receipt

A form used to accept the earnest money that binds an offer to purchase real propetry. In many transactions, the deposit receipt is included in the sales contract.

Description of Materials

HUD Form 92005. A form used to indicate construction specifications and list materials to be used in constructing properties which are to be the security for HUD-FHA insured mortgages.

Direct Endorsement

A method by which the lender appraises, approves and closes a loan without submitting any documentation to FHA until the time of request for insurance. A lender must be approved by the FHA as a Direct Endorsement Lender before being allowed to operate in this manner.


In loan originations, a discount refers to an amount withheld from loan proceeds by a lender. In secondary market sales, a discount is the amount by which the sale price of a note is less than its face value. In both instances, the purpose of a discount is to adjust the yield upward, either in lieu of interest or in addition to interest. The rate or amount of discount depends on money market conditions, the credit of the borrower, and the rate or terms of the note. Borrowers are prohibited from paying discounts associated with VA mortgages, unless the transaction is a refinance. The discount points may be paid by any other party on a VA transaction. Interest rates and discounts are now freely negotiable with respect to HUD-FHA transactions. See also “Point”.

Documentary Stamp

A form of tax imposed in some states on the transfer of real property.


Disbursement of a portion of the loan proceeds, usually at a predetermined point in the construction or rehabilitation schedule, to pay for work already completed. The balance of the proceeds is retained until th next schedule draw, or until completion of the construction or rehabilitation work, to protect the lender against the contractor’s failure to complete the work as scheduled.

Due-on-Sale Clause

Clause included in a deed of trust which causes the note to become due and payable if title in the property is transferred. This clause prevents assumptions and is present in most conventional deeds of trusts. FHA loans never contain a due-on-sale clause. VA loans are assumable by another person with VA entitlement unless the original borrower’s entitlement remains tied up in the loan.

Dwelling Unit

The living quarters occupied, or intended for occupancy, by a household.


Earnest Money

See “Deposit”.


DEFINITIONEqual Credit Opportunity Act. ECOA is a federal law which requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Effective Gross Income (Personal)

Normal annual income including overtime, before deductions, that is regular or guaranteed. It may be from more than one source. Salary is generally the principal source, but other income may be significant and stable, and thus qualify. Effective Gross Income is used as the basis for borrower qualification by most conventional lenders and private mortgage insurers. Contrast with “Net Effective Income”.

Effective Rate

The actual rate of return to the investor. It may vary from the contract rate for a variety of reasons. See also “Yield”.


A writing on a negotiable by which title to property mentioned therein is assigned and transferred. A notation added to an instrument after execution to change or clarify its contents. In insurance, coverage may be restricted or enlarged by endorsing a policy. In HUD-FHA loans, a notation formerly placed on the note and mortgage by HUD-FHA evidencing that the mortgage is insured under the National Housing Act. Although notes and mortgages are no longer actually endorsed, the separate Mortgage Insurance Certificate, when completed by HUD-FHA, serves the same purpose. See “Mortgage Insurance Certificate”.


(1) A transaction in which a third party, acting as the agent for the buyer and seller, carries out instructions for both and assumes the responsibilities of handling all the paperwork and disbursement of funds in a transfer of title and mortgage loan transaction. Escrows may also be established for any purpose, at any time, as, for example, in the administration of funds set aside to effect a “buydown“ agreement among seller, buyer and lender. (2) Funds included in the monthly mortgage payment to accumulate amounts necessary to pay property taxes, insurance premiums, etc., in the future are held in escrow, but the lender often acts as the escrow agent, especially if the lender is a depositary institution.

Escrow Account

The segregated trust account in which escrow funds are held. The term is also used to describe the accounting for such funds.

Escrow Agent

The person or organization having a fiduciary responsibilty to both the buyer and the seller, or other parties, to see that the terms of the purchase, sale, loan, or other agreement are carried out.

Escrow Agreement for Postponed Exterior On-Site Improvements

VA Form 26-1849. A three-party agreement, involving the seller, the lender and the purchaser, used to guarantee the completion of certain on-site improvements, such as landscaping, which for any reason could not be completed before loan closing and which VA has determined can be delayed.

Escrow Company

A corporation established to act as an escrow agent.

Escrow Contract

An agreement among the parties (lender, buyer and seller; buyer and seller) and the escrow agent specifying the rights and duties of each.

Escrow Costs

In a loan closing involving an escrow account, all the costs of the buyer and seller individually that rae associated with the purchase, sale or financing of real property. They include, but not limited to, prorating of agreed items such as taxes and rents, the cost of title insurance policies, the cost of credit reporting, recording fees, and escrow fees. See also“Closing Costs“ and “Settlement Costs”.

Escrow Fees

Fees charged by the escrow agent for services. Can never be paid by the vet.

Escrow Payment

That portion of a mortgagor’s monthly payment held by the lender to pay taxes, insurance premiums, lease payments, and other items as they come due. Also known as “impounds”.

Evidence of Insurance

A certificate which is evidence of the policy in effect for the full term. A requirement of the warehouse bank and the investor.


In legal descriptions, that portion of land to be deleted or excluded. The term is often used in a different sense to mean an objection to title or encumbrance on title.


To complete, finish, or, in real estate deeds, to sign, seal and deliver.

Existing Construction

In HUD-FHA transactions, a house that was not approved by HUD-FHA or VA before the beginning of construction, but which has been completed more than one year.

Existing, Less than One Year Old

In HUD-FHA transactions, a house that was not approved by HUD-FHA or VA before the beginning of construction and is less than one year old. Reduced mortgage amounts are applied to these properties.


Fannie Mae

Federal National Mortgage Association

Farmer’s Home Administration (FmHA)

A governement agency within the Department of Agriculture that operates under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers in communities of less than 25,000 who are unable to obtain these loans else here. The agency makes loans with funds borrowed from the US Treasury.

Federal Home Loan Bank Board (FHLBB)

A regulatory and supervisory agency for federally chartered savings institutions. It oversees the operations of the Federal Savings and Loan Insurance Corporation (FSLIC) and the Federal Home Loan Mortgage Corporation (FHLMC).

Federal Home Loan Mortgage Corporation (FHLMC, “Freddie Mac”)

A private corporation authorized by Congress. It sells participation sales certificates secured by pools of conventional mortgage loans, their principal and interest guaranteed by the federal government through FHLMC. It also sells Government National Mortgage Association bonds to raise funds to finance the purchase of mortgages.

Federal Housing Administartion (FHA)

A government agency established by the federal government in 1934 through the National Housing Act to foster home ownership by providing insurance protection to private lenders who provide mortgage insurance financing to home owners. Note that the FHA is an INSURING agency, a federal MGIC if you will. The FHA does not make an FHA loan, it merely insures loans made by lenders. The FHA operates under the auspices of the Department of Housing and Urban Development (HUD). The FHA insures fixed rate, assumable loans according to terms established between the mortgagor and mortgagee, and also offers an excellent Adjustable Rate Mortgage. FHA loans have no prepayment penalty.

Federal National Mortgage Association (FNMA, “Fannie Mae”)

A private, quasi-government corporation that is organized to provide secondary mortgage assistance for residential housing through the purchase of eligible FHA-insured/VA-guaranteed mortgages. Fannie Mae’s function is to buy FHA/VA mortgages and leave the servicing in the hands of the originating lender. Mortgages thus purchased are sold to permanent private investors whenever the market permits. Fannie Mae’s is directed by Congress and has three separate functions: 1) to provide a secondary market for federally underwritten loans; 2) to assist in financing selected types of mortgages originated under special housing programs; and 3) to assist in management and liquidation of mortgages held or acquired by contract under its previous charter.

Federal Truth-in-Lending Disclosure Statement (Reg Z)

A form designed and reproduced locally by lenedrs to comply with disclosure requirements of the Federal Truth in Lending Act..

Fee Simple

The greatest possible interest a person can have in real estate.

FHA Case Number

The number used to identify a HUD-FHA mortgage in HUD’s records. It is a 12-digit number, in three sections (XXX-XXXXXX-XXX). The first three digits identify the HUD-FHA office in whose jurisdiction the property is located and theo ffice responsible for processing the application. The six or seven center digits are assigned serially by the HUD-FHA office, in the order in which applications are received. The final three digits identify the program under which the mortgage is insured. In some cases, this is the same as the section of the National Housing Act, but there are many variations. The central six digits are expanded to seven when HUD’s automated processing system is in use.

FHA Value

The value established by FHA as the basis for determining the maximum mortgage that may be insured on a specific property. It includes the appraised value of the property and the HUD-FHA estimate of required closing costs. See also “Appraised Value,” “Closing Costs” and “loan-to-Value Ratio”.

Firm Commitment

FHA terminology for mortgage commitment. An agreement to insure a loan on a specific property, for a specific borrower, at a maximum amount, interest rate and term. In HUD-FHA transactions, the Firm Commitment is conditioned on compliance with requirements imposed by the conditional commitment with respect to the property, and other conditions imposed by the Firm Commitment itself, usually with respect to the borrower or to the transaction as a whole.

First Mortgage

A real estate loan that creates a primary lien against real property.

First-Time Home Buyer

In most government programs, a person applying for mortgage insurance or guaranty who has not owned real estate during the three years immediately preceding the date of the application. There are some exceptions. For example a person who sold a home to move to a distant community might qualify as a first-time home buyer in the new community.


General and Specific Conditions for VA Certificate of Reasonable Value

VA Form 26-1843p. A form that accompanies the CRV and specifies the conditions related to the property that must be met before VA will guarantee the loan. Some conditions are general in nature and apply to all cases, while others are specific to the property identified in the CRV.

Gift Affadivit

An unnumbered, locally-produced form, standardized locally by most HUD-FHA and VA offices. When an appliacnt intends to rely upon a gift to meet settlement requirements, both HUD-FHA and VA require evidence that the funds are truly a gift, from someone who could logically be expected to make the gift, and that repayment is neither required nor expected. Some offices also require verification that the donor actually has the funds on deposit.

GI Loan

Colloquial term used to describe a mortgage loan guaranteed by the VA.

Governmental National Mortgage Association (GNMA, “Ginnie Mae”)

A corporate entity of the United States government within the Department of Housing and Urban Development (HUD). Ginnie Mae’s operations are financed by the US Treasury and by private capital. All benefits of its operation are passed on to the government. Ginnie Mae is authorized to conduct: 1) special assistance mortgages; 2) management and liquidation functions to manage and liquidate its portfolio of mortgages; 3) trustee for participation certificate sales; and 4) guarantor of mortgage-backed securities.

GNMA Mortgage-Backed Securities

Securities guaranteed by GNMA that are issued by mortgage bankers, commercial banks, savings and loan associations, savings banks, and other institutions. The GNMA security holder is protected by the “full faith and credit of the United States.“ GNMA securities are backed by pools of HUD-FHA, VA or FmHA mortgages.


The person to whom an interest in real estate is conveyed.


The person conveying an interest in real property.

Ground Lease

A contract for the rental of land, usually on a long-term basis. Improvements on land that is leased are said to be subject to a ground lease or ground rent.

Ground Rent

The earnings of improved property allocated to the ground itself after allowance is made for earnings of the improvement. Also, payment for the use of the land in accordance with the terms of a ground lease.

Guaranteed Loan

A loan guaranteed by VA, FmHA, or any other interested party.


A promise by one party to pay a debt or perform an obligation contracted by another in the event that the original obligor fails to pay or perform as contracted. A guaranty is usually distinguished from insurance primarily by the absence of the payment of any premium.


Hazard Insurance

A contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards.

Home Energy Checklist

VA Form 26-1803. A form attached to a CRV or conditional commitment describing areas of the structure which might be altered to provide energy savings. The form also makes recommendations for specific improvements.

Home Loan

A mortgage loan secured by a residence for one, two, three or four families. Also known as the “single family mortgage,“ even though the property may be designed for more than one family.

Homeowners Association

An organization of homeowners residing within a particular development. The organization’s major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Homeowners Policy

A multiple-peril hazard insurance policy commonly called a package “policy.” It is available to owners of private dwellings and covers the dwelling and contents in the case of loss due to specific hazards enumerated in the policy. It generally provides insurance against loss due to personal liability related to the property.

Housing Code

Local standards that ensure that maintenance and improvements of housing meet accepted standards and are adequate for occupancy. Generally, the property standards imposed by lenders, insurers and guarantors of mortgage loans exceed those of local housing codes, and evidence of compliance is not required. Compliance with code is required on the appraisal when an addition has been made into the original structure, or when the structure has been substantially modified (as in the case of the conversion of a garage to a room).

HUD-1 (Settlement Statement)

A government form that is essentially a closing statement. Required on closings of all federally related mortgages.



That portion of the mortgagor’s monthly payment held by the lender to pay taxes, insurance premiums, lease payments and other items as they come due. See also “Escrow Account” and “Escrow Payment”.

Improved Land

Land having utilties, roads or other improvements.


Those additions to raw land that normally increase its value, such as buildings, streets and sewers.

Income and Expense Related to Rental Properties

An unnumbered form, produced locally by many HUD-FHA offices, used to provide details permitting an analysis of the net income available to an applicant from rental properties other than the subject property. Even where a prescribed format for providing this information does not exist, it must be provided with the application for Firm Commitment in some form.

Income and Expense Statement

The actual or estimated schedule of income and expense items reflecting net gain or loss during a specific period. Used in evaluating the income of self-employed persons.

Income Approach to Value

See “Capitalization”.


The regular periodic payment that a borrower agrees to make the mortgage.

Installment Note

A note requiring periodic payment of a specified sum to satisfy a debt.

Institutional Lender

A financial institution that invests in mortgages and carries them in its own portfolio. Mutual savings banks, life insurance companies, commercial banks, pension and trust funds, and savings and loan associations are examples.


A contract for indemnification against loss.

Insured Closing Letter

A document issued by a title insurance company in connection with a to-be-issued title insurance policy. It protects a mortgagee that is forwarding funds to a title insurance company’s agent or pproved attorney against an embezzelment of funds or a failure to follow specific closing instructions.

Interim Loan

Lender and builder jargon. It refers to a construction loan, done on a draw system. The laon allows for the house to be built, with the loan paid off at the end of construction (hopefully). If you are doing the end loan for the buyer, you will hear from the builder six months after completion what s/he thinks of interim loans.

Investment Property

Any property held as a rental or used purely for sale. Not for owner-occupancy.

Insured Loan

A property improvement or manufactured housing loan insured by HUD-FHA under Title I of the National Housing Act. Sometimes improperly used to mean any loan or mortgage insured by HUD-FHA or a private mortgage insurer.

Insured Mortgage

A mortgage insured by HUD-FHA under any title of the National Housing Act other than Title I.


Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share or title in property.

Interest Factor

The decimal equivalent of an interest rate on a unit for a period of time. Computed as (interest rate + basic year) x days accrued.


The holder of a mortgage or the permanent lender for whom the mortgage banker services the loan. Any person or institution that invests in mortgages.



Jargon for money paid by a lender to a realtor or unlicensed originator for a loan referral or lead. ILLEGAL on FHA and VA loans.


Land Acquisition Loan

A loan that provides the mortgagor funds to acquire land.


Owner or lessor of real property.

Late Charge

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


A written document containing the conditions under which the posession and use of real and/or personal property are given by the owner to another for a stated period and for a stated consideration.


An estate or interest in an estate in real property held by virtue of a lease.

Leasehold Mortgage

A loan to a lessee secured by a leasehold interest in the property. Where a ground leasse exists, any mortgage on the property in which title is subject to the ground lease is a leasehold mortgage.

Legal Description

A property recognized by law, which is sufficient to locate and identify the property without oral testimony.


One holding rights of posession and use of property under a lease.


One who owns property and leases it to a lessee.

Level Payment Mortgage

A mortgage that provides for a constant, fixed payment at periodic intervals during its term. Part of each payment is credited to interest with the balance of the payment used to reduce the principal.


A legal hold or claim of one person on the property of another as security for a debt or charge. The right given by law to satisfy debt.

Life of Loan

Contract term in years of a mortgage.

Limited Common Area

Common areas assigned to a specific owner for personal private use.

Limited Partnership

A partnership that consists of one or more general partners who are fully liable and one or more limited partners who are liable only for the amount of their investment.


A written authorization to sell or lease real estate.

Loan Analysis

VA Form 26-6393. Used by VA as a work sheet to analyze the data submitted in the Application for Home Loan Guaranty.

Loan Submission

A package of pertinent papers and documents regarding specific property or properties. It is delivered to a delivered to a prospective for review and consideration for the purpose of making a mortgage loan.

Loan-to-Value Ratio

(1) The relationship between the amount of the mortgage loan and the appraised value of the security, expressed as a percentage of the appraised value. (2) IN HUD-FHA transactions, the relationship between the amount of the mortgage loan and “FHA value,“ which is the sum of the appraised value of the property and the estimated closing costs.

Loan Verification

An unnumbered, locally-produced form used to request verifications of obligations where the creditor refuses to provide information to credit bureaus and is not identified by the applicant as a depository holding funds of the applicant.

Loss Payable Clause

A special clause which is part of a hazard insurance policy, naming the party or parties to whom payment would be made in the event of collection.


Leave and Earnings Statement (a military pay stub).

LHG Number

The number assigned by VA on all appraisals, which ultimately becomes the veteran’s loan number with VA.

Line Quality Processor

A processor who makes decisions on quality and strategy with files. The processor is not a clerk or secreatry; rather, s/he interprets regulations and deals authoritatively with loan officers and realtors.


A contract between a real estate broker or an agent and a seller. Used between agents in jargon form, e.g., “I sold Sue’s listing,“ meaning “I sold the home.” This can also be a form taken during the listing presentation to be turned in to the multiple listing service for reprinting in the MLS book.

Listing Office

The office in a two-office deal that actually listed the home.

Loan Correspondent

A designation by HUD. A capacity allowing a loan company to originate and process FHA loans fo rsubmission to up to three sponsoring supervised lenders, normally banks or savings and loans. The sponsor must do all underwriting and funding and is responsible for the actions of the correspondents. Correspondents typically are smaller companies, often at the mercy of their unsympathetic sponsors.



Mutual mortgage insurance. Also known as Mortgage Insurance Premium, or MIP.

MAI (Member, appraisal Institute)

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

Manufactured House

See “Modular House” and “Mobile Home”.

Marketable Title

A title that may not be completely clear, but has only minor objections that a well-informed and prudent buyer of real estate would accept. In mortgage insurance and guaranty programs that require conveyance of title to the insurer or guarantor in exchange for settlement of a claim, marketable title is generally required.

Market Approach to Value

In appraising, the market value estimate is predicted upon actual prices paid in market transactions. It is a process of correlation and analysis of similar recently sold properties. The reliability of this technique is depended upon: 1) the degree of comparability of each property with each property; 2) the time of sale; 3) the verification of the sale dates; 4) the absence of unusual conditions affecting the sale; and 5) the terms of the sale. Where the validity of an appraiser’s estimate of the value of the property is questioned, the burden is generally on the questioning party (usually the lender) to identify properties that are more closely match the subject property in each of these areas in support of the appeal.

Market Value

The highest price that the buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Master Mortgage

A standard form mortgage recorded in the public record to help reduce recording fees as a mortgage documents become more complex. Individual mortgages thereafter refer to the record and the master mortgage for the printed language to be incorporated in them, and only the material that varies from the master mortgage, such as the description of the property and the specific terms of the transaction, need be recorded separately.


The terminating or due date of a note, time draft, bill of exchange or bond. The date on which a time instrument of indebtedness becomes due and payable.

Minimum Property Standards

HUD-FHA regulations that set forth minimum acceptable technical standards for properties that are to the security for insured mortgages.


See “Mortgage Insurance Premium”.

Mobile Home

A factory-assembled residence consisting of one or more modules, in which a chassis and wheels are an integral part of the structure and can be made ready for occupancy without removing the chassis and/or wheels. See also “Modular House”.

Modular House

A factory-assembled residence built in units or sections transported to a permanent site and erected on a foundation. The term excludes mobile homes. See also “Mobile Home”.


A convenience of an interest in real property given as security for the payment of a debt. In its simplest form, a mortgage permits foreclosure if the debt is not paid, but the foreclosure is usually a judicial proceeding, in court. After foreclosure, the property is then sold, usually by an officer of the court, to satisfy the debt.

Mortage Backed Securities

Bond-type investment securities representing an undivided interest in a pool of mortgages or trust deeds. Income form the underlying mortgages is used to pay off the securities.

Mortgage Banker

Mortgage bankers supply a secondary money market to the real estate industry and maintain a steady flow of money throughout the country. Institutional investors buy notes and mortgages from mortgage bankers, but the mortgage banker generally continues to service the mortgages. Mortgage bankers typically receive 3/8 of 1 percent of the mortgage loan amount for the loan servicing.

Mortgage Banking

The packaging of mortgage loans secured by real property to be sold to a permanent investor with servicing retained for the life of the loan for a fee. The organization, sell and servicing of loans by a firm or individual. The investor-corresspondent system is the foundation of the mortgage banking industry.

Mortgage Broker

A firm or individual who brings the borrower and leneder together, receiving a commission if a sale is the resulting product. A mortgage broker does not retain servicing.

Mortgage Credit Analysis Worksheet

HUD Form 92900-WS. A worksheet used bu HUD-FHA to analyze the applicants eligibility for an insured mortgage. In most jurisdictions, HUD promises faster processing of applicants if the worksheet is prepared in duplicate by the lender before the application for Firm Commitment is submitted.

Mortgage Credit Condition

A condition imposed by HUD-FHA on the Firm Commitment as a condition for insuring the mortgage. Common conditions have been pre-printed locally by most HUD-FHA offices on what are known as “MC Sheets“. Each such condition is numbered, and the number of the condition (“MC-101,“ “MC-109,“ etc.) rather than its full text is entered on the Firm Commitment.

Mortgage Discount

The difference between the principle amount of the mortgage and the amount that it actually sells for. Sometimes call points, loan brokerage fee, or new loan fee. The discount is computed on the amount of the loan, NOT the sales price.

Mortage Insurance Certificate (MIC)

HUD Form 59100.1. The certifiacte is issued by HUD-FHA as evidence that the mortgage has been insured. This certificate is evidence that a contract of mortgage insurance exists between HUD-FHA and the lender, incorporating the HUD-FHA regulations identified in the certificate. The certificate is filled in by the mortgagee and submitted to HUD-FHA with the closing papers. HUD-FHA then endorses the certificate and returns it to the mortgagee, Thus, an insured mortgage is said to have been “endorsed for insurance”.


A person or firm to whom property is conveyed as security for a loan made by such a person or firm (a creditor).

Mortgagee Clause

A special clause that may be attached to a hazard insurance policy covering mortgaged real property.

Mortgagee’s Assurance of Completion

HUD Form 92300. The form used to provide assurance by the mortgage by the mortgagee that certain exterior improvements that could be completed before closing will be completed. HUD must approve the delay of completion in advance.

Mortgagee’s Certification of Compliance with Conditions of Insurance

A locally-prepared form. HUD-FHA, in order to speed processing of the completed cases, relies on the mortgagee’s certification that all of the conditions imposed on insurance of the mortgage have been complied with. HUD-FHA staff makes only a cursory check of certain significant elements if this certification is present.

Mortgage Insurance

Insurance for which the lender pays a premium. This insurance protects the lender against loss if the borrower should default on the mortgage payments and foreclosure of the mortgage should become necessary. Mortgage insurance issued by private companies (PMI) typically covers a specific dollar amount or percentage of the debt adequate to protect the lender even though the value of the property may not be enough to make the lender whole. The lender generally retains title to the property after the mortgage insurance claim is paid. Mortgage insurance issued by HUD-FHA provides coverage of the entire unpaid principal of the debt, plus certain costs of foreclosure, and requires that marketable title to the property conveyed to HUD-FHA.

Mortgage Life Insurance

A type or term life insurance often bought by mortgagors. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgage Insurance Premium (MIP)

The consideration paid by a mortgagee for mortgage insurance either to HUD-FHA or to a private mortgage insurance (PMI) company. Although the premium is paid to the insurer by the lender, it is usually collected from the lender by the borrower. On most loans, it is a lump sum amount, paid when the loan is closed or in installments over the first few years of the life of the loan. In HUD-FHA loans, the borrower has the option of paying for MIP up front in cash or of financing 100% of the MIP as part of the loan amount.

Mortgage Note

A written promise to pay a sum at a stated interest rate during a specified term. It is secured by a mortgage or by a Deed of Trust.


One who borrows money, giving as security a mortgage or by a Deed of Trust.

Mutual Mortgage Insurance Fund

One of four HUD-FHA insurance funds into which all mortgage insurance and premiums and other revenues of HUD-FHA are paid and from which losses are met. It is “mutual“ in the sense that borrowers who pay premiums into the fund share in the profits of the fund, if any, when their mortgages are paid in full without foreclosure after certain specified periods of time.

Mutual Savings Bank

A state-chartered financial institution that invests mainly in mortgages. Most mutual savings banks are located in the Northeast.


Negative Cash Flow

Refers to investment property when the debt services and expenses exceed rental income.

Negotiable Certificate of Deposit

Certificates issued by commercial banks under Federal Reserve Regulation Q with a stated return return (discounted) or interest rate with a maturity usually of one year. The bank pays the holder in due course at maturity.

Net Worth

The value of all assets, including cash, less total liabilities. It is often used as an underwriting guideline to indicate credit worthiness and financial stregnth.

New Construction

In HUD-FHA or VA transactions, construction approved by HUD-FHA or VA before the beginning of construction. “Approval” means issuing a Conditional Commitment or Certificate of Reasonable Value. The “beginning of construction” means pouring footings. The foundation may be prepared for pouring, but if any concrete has been laid, construction has already begun. If this happens before the conditional commitment or CRV is issued, the property will not qualify as “new construction.” In HUD-FHA cases , this affects the maximum loan-to-value ratio of the insured mortgage. Until one year after construction is complete, HUD-FHA considers the house to be “existing, less than one year old.” After one year, it is said to be “existing”. On the HUD-FHA and VA application for apparisal the block “proposed is checked for new construction. On the application for loan guaranty or HUD-FHA application for firm commitment, the block checked is “Purchase Exisiting Home Not Previously Occupied”.

Nonsupervised Lender’s Nomination and Recommendation

VA Form 26-8736-a. To qualify for participation in the VA “Automatic“ loan guaranty program, a nonsupervised lender must have on its staff a permanent underwriter who meets basic qualifications established by VA. This form must accompany the basic application for approval (VA Form 26-1836) and be submitted whenever th eidentity of the underwriter changes or a new underwriter is added. It describes the nominee’s basic qualifications.


One authorized by the state to take acknowledgements and administer oaths.


A written promise to pay a sum of money at a stated interest rate during a specified term. It is secured by real property or unsecured at the discretion of the lender.


A very general term applied to any aspect of a loan file not meeting standard statutory guidelines of an accepted set of regulatory criteria. Often referred to in loan amounts which exceed FNMA or exotic layout (e.g., a bedroom leading directly to another bedroom.


Any loan source indirectly regulated by the federal government.


Notice of Default. The required recorded notification of an impending foreclosure.In real estate lending, a foreclosure in a credit rating would be one of the worst items to show up on a report. An N.O.D. is a close second.


Open House

A practice of realtors on weekends. The owners are gone and the realtor sits in the home and shows it to interested buyers, who have been attracted by special advertising.


An entry-level position in mortgage origination branches. Openers are also known as set-up people. They will send out all documents at the start of processing.

Off-Site Improvments

Improvements outside the boundaries of a property, such as sidewalks, streets, curbs and gutters, that enhance its value.

On-Site Improvements

Any construction of buildings or other improvements within the boundaries of a property that increases its value.

Origination Fee

A fee or charge for work involved in the evaluation, preparation and submission of a proposed mortgage loan. Often, improperly, considered a part of the discount.


A person who solicits builders, brokers and others to obtain applications for mortgage loans. Origination is the process by which the mortgage banker brings into being a mortgage secured by real property.


Parcel Number

A number used by counties when referring to a specific area of lots.Required when ordering appraisals (obtainable from the realtor).


Jargon used of a veteran who has only partial entitlement, or less than full eligibility. Indicates that the vet has had a loan previously.


Private Mortgage Insurance. The premium charged by several insurance Companies specializing in underwriting and insuring conventional loans.

Point Letter

A letter sent by loan companies to sellers or their agents, regarding discount points on an FHA or VA loan. It will reflect a specific amount of points or terms. The term is usually between 45 and 60 days.

Portfolio Loan

A loan made by any institution where the source of funds is their own savings inflow. The institution can then set its own lending guidelines. This type of loan is known as a non-conforming loan since underwriting standards, loan limits and property standards may not fall within standard FHLMC or FNMA guidelines.


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

Percolation Test

A test given to soil to determine its water seepage capacity when the use of a septic tank is being considered. Also called “Perc Test”.

Permanent Investor

One who provides permanent financing.

Permanent Loan

A long-term loan or mortgage that is fully amortized and extended for a period not less than ten years.

Personal Property

Any property that is not real property. State laws vary on the definition of real property.

Physical Approach to Value

An appraisal method whereby property value is derived by estimating the replacement cost of improvements, less estimated depreciation, plus estimated land value by use of market data.

PITI (Principal, Interest, Taxes and Insurance)

The principal and interest payment on most loans is fixed for the term of the loan; the tax and insurance portions may be adjusted to reflect changes in taxes or insurance costs.

Planned Unit Development (PUD)

(1) A comprehensive development plan for a large land area. It usually includes residences, roads, schools, recreational facilities and service areas, plus commercial, office and industrial areas. (2) A subdivision having lots or areas owned in common and reserved for the use of some or all of the owners of the separately-owned lots.

Plans and Specifications

Architectural and engineering drawings and specifications for construction of a building or project. They include a description of materials to be used and the manner in which they are to be applied.


A map representing a piece of land subdivided into lots with streets, boundaries, easements and dimensions shown thereon. It is usually recorded and made a part of the public record.

Plot Plan

A layout of improvements on a site, including their location, dimensions and landscapes. It is generally a part of the architectural plan.


An amount equal to one percent of the principal amount of an investment or note. Loan discount points are a one-time charge assessed at closing by the with other types of investments.

Power of Sale

(1) A clause in a will or trust agreement authorizing the sale or transfer of property in accordance with the terms of the clause. (2) The power granted in a deed of trust which permits the trustee(s) to sell the property to satisfy the debt in the event of default by the borrower.


A transaction preceding the formal closing, often used to distinguish between transactions affecting title to real property where there are events that appear to be the formal closing.

Preliminary Title Report

A title search by a title company before issuance of a title binder or commitment to insure.


A defined portion of land and the improvements thereon as usually described in a deed, deed of trust or mortgage.


The amount, often stated as a percentage, paid in addition to the face value of a note or bond. The opposite of “Discount.“ Also, the charge for insurance coverage.

Prepayment Fee

A consideration paid to the mortgagee for the prepayment privilege. Also known as “Prepayment Penalty“ or “Reinvestment Fee.“ No longer allowed on any FHA transaction.

Prepayment Privilege

A consideration paid to the mortgagee for the repayment privilege. Also known as “Prepayment Penalty” or “Reinvestment Fee.” No longer allowed on any FHA transaction.

Prepayment Rider

A rider which must be attached to every FHA Deed of Trust, allowing the mortgagor to make prepayments without penalty.

Primary Financing

A loan secured by a first mortgage or trust deed on real property.

Principal Balance

The outstanding balance of a mortgage, exclusive of interest or any other charges.


As applied to claims against property, the status of being prior to or having precedence over other claims. Priority is usually established by filing or recordation in point of time, but may be established by statute or agreement.

Privately Insured Mortgage

A conventional mortgage loan on which a private mortgage insurance company protects the lender against loss. The protection may be complete, but is usually partial. When it is partial, it is calculated on the assumption that the combination of the insurance and recovery from other sources, such as sale of the property, will be adequate to provide the lender with full protection.

Private Mortgage Insurance (PMI)

Insurance written by a private company, protecting the mortgage lender against loss occasioned by a mortgage default.


The preparation of a mortgage loan application and supporting documents for consideration by a lender or insurer.

Promissory Note

See “Mortgage Note”.

Property Characteristics Data to Accompany Conversion of VA CRV to HUD Firm Commitment

An unnumbered form, prescribed locally by most HUD-FHA offices, to record the property characteristics data necessary form maintenance of HUD’s records(but not to establish eligibility for mortgage insurance). Completed by the mortgagee and submitted with the application for Firm Commitment, when required locally.


To allocate proportionate shares of income (such as rents) or of an obligation (such as taxes and insurance premiums), paid or due, between seller and buyer at closing.

Purchase Agreement

A document in which the purchaser agrees to buy real estate (or personal property) and the seller agrees to sell under stated terms and conditions. Terms related to the purchaser’s financing are commonly included, and any deposit made by the purchaser is usually recognized. Also known as “Sales Contract”.

Purchase Money Mortgage

A mortgage given by the purchaser of real property to the seller as past of the consideration in the sales transaction. Also used to describe a mortgage given to any party as security for a loan to finance the purchase of real property.


Quiet Title Action

A legal action brought to eliminate any interest on a claim to property by others. The procedure used to perfect title when a quitclaim deed cannot be obtained by others.

Quitclaim Deed

A deed that transfers only such interest, title or right a grantor may have at the time the conveyance is executed. Also known as “Individual Transfer of Ownership”.


Real Estate

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits and inherent rights thereof, also known as “Real Property”.


A real estate broker or an associate holding active membership in the National Association of Real Estate Brokers.


A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.


The public official in a political subdivision who keeps records of transactions affecting real property in the area. Sometimes known as a registrar of deeds or county clerks.


The noting in the recorder’s or registrar’s office of the details of a properly executed legal document, such as a deed, mortgage, satisfaction of mortgage, Or an extension of mortgage, thereby making it a part of the public record. While a transaction may be completely valid between the parties to it without recording, the act of recording gives notice to the rest of the community that the transaction has taken place and serves as warning that later transactions contrary to its provisions may not be valid or binding on any of the parties.


The alleged identification by some lenders of specific geographical areas for the purpose of denying real estate loans or varying lending terms in a discriminatory pattern. It is illegal.


The repayment of a debt from the proceeds of an new loan using the same property as security.

Report of Home Loan Processed on Automatic Basis

VA Form 26-1820. A form used instead of VA Form 26-1876, Certificate of Loan Disbursement, when the mortgagee has processed and closed the loan under the VA “Direct“ program, which permits certain qualified lenders to close loans without prior VA approval of the borrower.

Report on Application

HUD Form 92026. The form used by HUD-FHA to inform a lender that the application is either deficient and cannot be processed or is ineligible for mortgage insurance. The same form is used at both the Conditional Commitment and Firm Commitment stages and includes detailed explanations for any rejection

RMU (Registered Mortgage Underwriter)

A professional designation awarded by the National Association of Review Appraisers and Mortgage Underwriters in Recognition of significant skills and experience in underwriting mortgage loans.

Release of Liability

An agreement by a lender to terminate the physical obligation of a mortgagor in connection with the payment of a debt, usually when another mortgagor has agreed to assume the liability. HUD_FHA and VA reserve the right to approve such releases in advance when the mortgage is insured or guaranteed by them.


Consideration paid for use or occupancy of property, buildings or dwelling units.

Request for Certificate of Veteran’s Status

VA Form 26-8261a. This form is used if the applicant intends to apply for the special downpayment terms available to veterans on most HUD-FHA loans. It is submitted to VA with proof of the veteran’s military service.

Request for Conversion of VA CRV to HUD Firm Commitment

A locally-produced, unnumbered form, the content of which is usually specified by the local HUD-FHA office. When HUD-FHA relies on a VA CRV to establish the value of a property and its eligibility for mortgage insurance, it does not have a copy of the appraisal report. Therefore, much of the detail necessary to complete processing of the application and develop the HUD-FHA data bank is missing and must be supplied by the lender. This form is used for that purpose.

Request for Credit Report

An unnumbered form, usually provided by Credit Bureaus, used to order credit Reports from the specific bureau providing the form.

Request for Determination of Eligibility and Available Loan Guaranty Entitlement VA Form 26-1880.

The form used to request a Certificate of Eligibility. It is forwarded to the local VA office with proof of the veteran’s military service. If the veteran does not already have a Certificate of Eligibility, application process, as soon as possible.

Request for Determination of Reasonable Value (Real Estate) (VA)

VA Form 26-1805, HUD Form 92800-1. The basic application to VA or HUD-FHA, requesting appraisal of the property and determination of its eligibility for insurance or guaranty.

Request for Postponement of Off-Site or Exterior On-Site Improvements

VA Form 26-1847. A form used to request VA approval for delays in completion of certain improvements not essential to the habitability of the property. The request is made by the veteran to VA, supported by the lender’s statements as to the means to be used to assure completion.

Request for Verification of Deposit.

VA Form 26-8497a, HUD Form 92400f. A form used jointly by VA an HUD-FHA to request and secure verifications of deposits claimed by the applicant as funds available to meet cash settlement requirements. When a depository identified by the applicant is also a creditor of the applicant, the form also serves to verify the applicant’s obligation, Where a creditor not a depository is identified by the applicant, the obligation is verified through the credit report or, if the creditor refuses to report to credit bureaus, by using a separate, locally-produced form.

Request Pertaining to Military Records

Standard Form 100. A form used to request missing records from the military services. Most commonly used when a veteran has misplaced or lost his/her separation papers, which are essential in establishing eligibility for VA loan guaranty benefits.

Residential Loan Application

FNMA Form 1003/FHLMC Form 65. The basic application for approval as a mortgagor used with conventional mortgages to be sold to FNMA or FHLMC. While applications to HUD-FHA, VA and FMHA must be submitted on other forms, this is an excellent basic form for use in gathering basic data from the applicant, especially if it is not known from the outset whether the mortgage will be conventional or insured. While it is used, it MUST BE SIGNED BY THE APPLICANT after completion and retained in the mortgagee’s files. Once signed, it should NEVER be changed. The application must also be signed by the person taking the application.

Residential Planned Community

See “Planned Unit Development”.


Real Estate Settlement Procedures Act. A federal law that requires lenders to provide home mortgage borrowers in advance with information of known or estimated settlement costs. RESPA also limits the amount lenders may require to be held in escrow for real estate taxes and insurance, requires the disclosure of known settlement costs to both buyers and sellers by the person conducting the settlement, and outlaws certain referral fees.


Sales Agreement

A document in which the purchaser agrees to buy real estate (or personal property) and the seller agrees to sell under stated terms and conditions. Terms related to the purchaser’s financing are commonly included, and any deposit made by the purchaser is usually recognized. Also known as a “Sales Contract” or “Earnest Money Contract”.

Sales Contract

A deliberate written agreement between competent parties stating terms and conditions of a sale.

Savings and Loan Association

A mutual or stock association chartered and regulated by either the federal government or a state. They accept time deposits and lend funds primarily on residential real estate.

Savings Bond List

An unnumbered, locally-produced form used to list savings bonds when they are used as a source of funds for closing. Such a listing should include the bond numbers, the face amounts, and the current redemption value, and should be certified by a mortgagee employee who has actually seen the bonds.

Schedule of Alternatives

FHA Form 2439. Accompanies applications for conditional commitment on new construction when separate valuation of the basic house and options which may not yet have been selected by a purchaser is requested. Lists the available options.

Schedule of Payments, Graduated Payment Mortgage

An unnumbered, locally produced form on which the borrower acknowledges understanding of the graduations to be expected in monthly payments on the mortgage being applied for. Required with all GPMs insured by HUD.

Secondary Financing

Financing real estate with a loan, or loans, that are subordinate to first mortgage or first trust deed. Loosely, any financing, secured or unsecured, associated with a real estate transaction, other than the first mortgage.

Secondary Financing

An unorganized market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Second Mortgage

A real estate mortgage junior to another mortgage.


The collateral given, deposited, or pledged to secure the fulfillment of an obligation or the payment of a debt.

Security Instrument

The mortgage or trust deed evidencing the pledge of real estate security as distinguished from the note or other credit instrument.


The FNMA term for an approved institution that sells and services mortgages for FNMA.


The duties of the mortgage banker as a loan correspondent as specified in the servicing agreement for which a fee is received. The collection for an investor of payments, interest, principal, and trust items such as hazard insurance and taxes, on a note by the borrower in accordance with the terms of the note. Servicing also includes operational procedures covering accounting, bookkeeping, insurance administration, tax records, loan payment follow-up, delinquent loan follow-up and loan analysis.

Settlement Costs

See “Closing Costs”.

Settlement Statement

HUD Form 1. A statement showing the full details of the loan closing, including costs paid by both the buyer and the seller and a detailed breakdown of the manner in which the loan proceeds are distributed. The Real Estate Settlement Procedures Act (RESPA) requires that this standardized form be used in all loan closings in which the federal government is involved in any way, even though the loan itself may not be insured or guaranteed by a government agency. For practical purposes, the form must be used with all mortgage closings.


Preparing and sending the complete package of mortgage documents to the investor.


See “Plans and specifications”.

Spot Loans

Single-family loans solicited on an individual basis.


Society of Real Estate Appraisers. The Society awards the following professional designations: Senior Residential Appraiser (SRA) ; Senior Real Property Appraiser (SRPA) ; and Senior Real Estate Analyst (SREA).


Improved or unimproved land divided into a number of parcels for the purpose of sale, lease, or financing, immediate or future.


One who guarantees the performance of another.


A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any improvement.

Surveyor’s Certificate

A formal statement signed, certified and dated by a surveyor giving the pertinent facts about a particular property and any easements or encroachments affecting it.

Sweat Equity

Equity created in a property by the performance of work or labor by the purchaser or borrower. It directly increases the value of the property.


Tax Deed

A deed on property purchased at public sale for non-payment of taxes.

Taxing Authority

A statutory authority given to a governmental body to levy and collect taxes for public purposes. The governmental body so authorized.

Tax Lien

A claim against property for the amount of its due and unpaid taxes.

Tax Rate

The rate of tax, usually stated in terms of tax per $100 of assessed value of real property.

Tax Sale

The sale of property by a taxing authority or an officer of the court acting on a judgment to satisfy the payment of delinquent taxes.


One who is not the owner but occupies real property with the consent of the owner and in subordination to the owner’s title. The tenant is entitled to exclusive possession, use, and enjoyment of the property, usually for a rent specified in the lease.


The period of time between the commencement date and the termination date of a note, mortgage, legal document, or other contract.

Term Mortgage

A loan having a specified term during which interest is paid but the principal is not reduced. The entire principal plus any unpaid accrued interest is due and payable at the end of its term. Also known as a “Balloon Mortgage”.


The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership devise, gift, or through foreclosure of a mortgage.

Title I

The portion of the National Housing Act that provides for insurance by HUD-FHA of home improvement and mobile home loans.

Title Insurance Policy

A contract by which the insurer, usually a title insurance company, agrees to pay the insured a specific amount for any loss caused by defects in title to real estate, wherein the insured has an interest as purchaser, mortgagee, or otherwise.

Title Search

An examination of public records, laws and court decisions to disclose the past and current facts regarding ownership or real estate.


A residential unit on a small lot that has coincidental exterior limits with other similar units. Title to the unit and its lot is vested in the individual buyer with a fractional interest in common areas, if any. Sometimes called “Row House”.

Transfer Fees

Fees collected from the buyer or seller of a property to defray city or county charges for changing the records.

Trust Deed

The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee as security for the borrower’s fulfillment of an obligation. See also “Deed of Trust”.


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

Trustee in Bankruptcy

An agent of the court authorized to liquidate the assets of the bankrupt, protect the assets and bring them to the court for final distribution for the benefit of the bankrupt and all the creditors.



The analysis of risk and the matching of it to an appropriate rate and term.

Unencumbered Property

Property that is free and clear.

Uniform Commercial Code (UCC)

A comprehensive law regulating commercial transactions. It has been adopted, with modifications, by most states.


Charging more for the use of money that allowed by law.

Usury Ceiling

A maximum legal rate, established by state law, for interest, discounts, or other fees that may be charged for the use of money. The ceiling may vary depending on the nature or type of the loan.


Vacancy Factor

A percentage rate expressing the loss from gross rental income due to vacancy and collection losses.

Valuation Condition

A condition imposed as a prerequisite to insurance of the mortgage by HUD-FHA and normally included with the Conditional Commitment, although it may be added as a condition of the Firm Commitment. Valuation conditions relate to the property. See “Conditional Commitment Requirements”.

Variable Rate Mortgage

A mortgage agreement that allows for adjustment of the interest rate in keeping with a fluctuating market and terms agreed upon in the note.


The party to whom personal or real property is sold.


The seller of personal or real property.

Vendor’s Lien

An unpaid seller’s right to a prior lien on property until the purchase price has been recovered.

Verification of Earnest Money Deposit

An unnumbered, locally-produced form used in some HUD-FHA and VA offices. Generally, the sales contract itself acknowledges the seller’s receipt of a deposit in a specific amount. In some cases, however, the contract language does not make it clear that the deposit was actually paid in cash. Where the deposit was in the form of a note or check, or where the language of the contract does not clearly acknowledge receipt, additional verification is required. This form is used for that purpose.

Verification of Deposit (VOD)

The FHA/VA form used to obtain verification of funds available to mortgagors for consummation of subject transaction. This verification can be used to obtain information from banks, savings and loans, credit unions and money market funds. The form can also be used to verify loans with any of the above (with the exception of a mortgage, which is usually verified by a mortgage verification form).

Verification of Employment (VOE)

The form used to verify the borrower’s present, previous and part-time employment. This verification will be double-checked immediately before funding.

Verification of Source of Funds for Closing

An unnumbered, locally-produced form, required by most HUD-FHA and VA Offices when the source of funds for closing is unclear form the basic documentation accompanying the application.

Veterans Administration (VA)

An independent agency of the federal government created in 1930. The Servicemen’s Readjustment Act of 1944 authorized the agency to administer a variety of benefits designed to facilitate the adjustment of returning veterans to civilian life. Unlike FHA, VA GUARANTEES a loan to the investor of up to 60% of the value of the property, or $27, 500, whichever is less. The VA does not set loan limits; this limitation is done by the secondary market by investors, based on the percentage of exposure they are willing to accept. VA loans are assumable with or without release by a non-veteran. However, if the veteran chooses to sell her/his home and allow the loan to be assumed without substitution of entitlement, that portion of entitlement involved is NOT available on another loan. A veteran may always use any remaining entitlement available. The mortgage amount may be affected by the percentage of entitlement remaining. A veteran’s entitlement is reinstated when the loan is fully paid and s/he is no longer in title to the property. Only a veteran with sufficient entitlement can substitute his or her entitlement for the entitlement currently being used. It is important to investigate thoroughly the assumption of a veteran’s previous loan before processing the current application to the veteran. The amount of entitlement available is listed on the back of the Certificate of Eligibility.



The borrowing of funds by a mortgage banker on a short-term basis at a commercial bank using permanent mortgage loans as collateral. This form of interim financing is used until the mortgages are sold to a permanent investor.

Wood Destroying Insect Information, Existing Construction

VA Form 26-8850, HUD Form 92053. A form used to report the findings of a pest control operator in response to a condition imposed on a Conditional Commitment or Certificate of Reasonable Value that an existing property be inspected for insect damage. The inspector reports the presence or absence of infestation or damage and indicates whether damage, if any, has been or will be repaired. The clearance must refer to any previous reports, must have been issued with the preceding six months, and must be signed by the veteran for a VA loan. The veteran must sign a statement that s/he has read, understood and received a copy of this report and that all work was done at no cost to him/herself. The buyer does not have to sign the termite clearance for an FHA loan.



In real estate, the term refers to the effective annual amount of income being accrued on an investment. Expressed as a percentage of the price originally paid.

Yield to Maturity

A percent returned each year to the lender on actual funds borrowed considering that the loan will be paid in full at maturity.