Glossary

Abstract of TitleA written record of the historical ownership of the property that helps to determine whether the property can in fact be transferred from one party to another without any previous claims. An abstract of title is used in certain parts of the country when determining if there are any previous claims on the subject property in question.

AccelerationA loan accelerates when it is paid off early, usually at the request or demand of the lender. An acceleration clause within a loan document states what must happen when a loan must be paid immediately, but usually it applies to nonpayment, late payments, or the transfer of the property without the lender’s permission.

Adjustable Rate MortgageA loan program where the interest rate may change throughout the life of the loan. An ARM adjusts based on terms agreed to between the lender and the borrower, but typically it may only change once or twice a year.

Alternate CreditItems you must pay each month but that won’t appear on your credit report. Alternate credit accounts might include your telephone bill. In relation to mortgage loans, while such items aren’t reported as installment or revolving credit, they can establish your ability and willingness to make consistent payments in a responsible manner. Sometimes called nonstandard credit.

Alt LoansAlternative loans, so-called because they’re not conventional or government loans but step outside the lending box and establish their own lending criteria.

AmortizationAmortization is the length of time it takes for a loan to be fully paid off, by predetermined agreement. These payments are at regular intervals. Sometimes called a fully amortized loan. Amortization terms can vary, but generally accepted terms run in five-year increments, from 10 to 40 years.

Annual Percentage RateThe cost of money borrowed, expressed as an annual rate. The APR is a useful consumer tool to compare different lenders, but unfortunately it is often not used correctly. The APR can only work when comparing the same exact loan type from one lender to another.

Appraisable AssetAny item whose value can be determined by a third-party expert. That car you want to sell is an appraisable asset. If the item can be appraised, then you can use those funds to buy a house.

AppraisalA report that helps to determine the market value of a property. An appraisal can be done in various ways, as required by a lender, from simply driving by the property to ordering a full-blown inspection, complete with full-color photographs of the real estate. Appraisals compare similar homes in the area to substantiate the value of the property in question.

APRSee Annual Percentage Rate.

ARMSee Adjustable Rate Mortgage.

Assumable MortgageHomes sold with assumable mortgages let buyers take over the terms of the loan along with the house being sold. Assumable loans may be fully or nonqualifying assumable, meaning buyers take over the loan without being qualified or otherwise evaluated by the original lender. Qualifying assumable loans mean that while buyers may assume terms of the existing note, they must qualify all over again as if they were applying for a brand-new loan.

AUSSee Automated Underwriting System.

Automated Underwriting SystemA software application that electronically issues a preliminary loan approval. An AUS uses a complex approval matrix that reviews credit reports, debt ratios, and other factors that go into a mortgage loan approval.

Automated Valuation ModelAn electronic method of evaluating a property’s appraised value, done by scanning public records for recent home sales and other data in the subject property’s neighborhood. Although not yet widely accepted as a replacement for full-blown appraisals, many in the industry expect AVMs to eventually replace traditional appraisals altogether.

AVMSee Automated Valuation Model.

Balloon MortgageA type of mortgage where the remaining balance must be paid in full at the end of a preset term. A five-year balloon mortgage might be amortized over a 30-year period, but the remaining balance is due, in full, at the end of five years.

Basis PointA basis point is equal to 1/100 percent. A move of 50 basis points would cause a 30-year fixed mortgage rate to change by 1/8 percent.

Bridge LoanA short-term loan primarily used to pull equity out of one property for a down payment on another. This loan is paid off when the original property sells. Since they are short-term loans, sometimes lasting just a few weeks, usually only retail banks offer them. Usually the borrower doesn’t make any monthly payments and only pays off the loan when the property sells.

BundlingBundling is the act of putting together several real estate or mortgage services in one package. Instead of paying for an appraisal here or an inspection there, some or all of the buyer’s services are packaged together. Usually a bundle offers discounts on all services, although when they’re bundled it’s hard to parse all the services to see whether you’re getting a good deal.

BuydownPaying more money to get a lower interest rate is called a permanent buydown, and it is used in conjunction with discount points. The more points, the lower the rate. A temporary buydown is a fixed-rate mortgage that starts at a reduced rate for the first period, and then gradually increases to its final note rate. A temporary buydown for two years is called a 2–1 buydown. For three years it’s called a 3–2–1 buydown.

Cash-OutA refinance mortgage that involves taking equity out of a home in the form of cash during a refinance. Instead of just reducing your interest rate during a refinance and financing your closing costs, you finance even more, putting the additional money in your pocket.

CloserThe person who helps prepare the lender’s closing documents. The closer forwards those documents to your settlement agent’s office, where you will be signing closing papers. In some states, a closer can be the person who holds your loan closing.

Closing CostsThe various fees involved when buying a home or obtaining a mortgage. The fees, required to issue a good loan, can come directly from the lender or may come from others in the transactions.

CollateralCollateral is property owned by the borrower that’s pledged to the lender as security in case the loan goes bad. A lender makes a mortgage with the house as collateral.

Comparable SalesComparable sales are that part of an appraisal report that lists recent transfers of similar properties in the immediate vicinity of the house being bought. Also called “comps.”

Conforming LoanA conventional conforming loan is a Fannie Mae or Freddie Mac loan that is equal to or less than the maximum allowable loan limits established by Fannie and Freddie. These limits are changed annually.

Conventional LoanA loan mortgage that uses guidelines established by Fannie Mae or Freddie Mac and is issued and guaranteed by lenders.

Correspondent BankerA mortgage banker that doesn’t intend to keep your mortgage loan, but instead sells your loan to another preselected mortgage banker. Correspondent bankers are smaller mortgage bankers, those perhaps with a regional presence but not a national one. They can shop various rates from other correspondent mortgage bankers that have set up an established relationship to buy and sell loans from one another. They operate much like a broker, except correspondent bankers use their own money to fund loans.

Credit ReportA report that shows the payment histories of a consumer, along with the individual’s property addresses and any public records.

Credit RepositoryA place where credit histories are stored. Merchants and banks agree to store consumers’ credit patterns in a central place that other merchants and banks can access.

Credit ScoreA number derived from a consumer’s credit history and based upon various credit details in a consumer’s past and upon the likelihood of default. Different credit patterns are assigned different numbers and different credit activity may have a greater or lesser impact on the score. The higher the credit score, the better the credit.

Debt ConsolidationPaying off all or part of one’s consumer debt with equity from a home. Debt consolidation can be part of a refinanced mortgage or a separate equity loan.

Debt RatioGross monthly payments divided by gross monthly income, expressed as a percentage. There are typically two debt ratios to be considered: The housing ratio—sometimes called the front-end or front ratio—is the total monthly house payment, plus any monthly tax, insurance, private mortgage insurance, or homeowners association dues, divided by gross monthly income. The total debt ratio—also called the back-end or back ratio—is the total housing payment plus other monthly consumer installment or revolving debt, also expressed as a percentage. Loan debt ratio guidelines are usually denoted as 32/38, with 32 being the front ratio and 38 being the back ratio. Ratio guidelines can vary from loan to loan and lender to lender.

DeedA written document evidencing each transfer of ownership in a property.

Deed of TrustA written document giving an interest in the home being bought to a third party, usually the lender, as security to the lender.

DelinquentBeing behind on a mortgage payment. Delinquencies typically begin to be recognized as 30+ days delinquent, 60+ days delinquent, and 90+ days delinquent.

Discount PointsAlso called “points,” they are represented as a percentage of a loan amount. One point equals 1 percent of a loan balance. Borrowers pay discount points to reduce the interest rate for a mortgage. Typically each discount point paid reduces the interest rate by 1/4 percent. It is a form of prepaid interest to a lender.

Document StampEvidence—usually with an ink stamp—of how much tax was paid upon transfer of ownership of property. Certain states call it a doc stamp. Doc stamp tax rates can vary based upon locale, and not all states have doc stamps.

Down PaymentThe amount of money initially given by the borrower to close a mortgage. The down payment equals the sales price less financing. It’s the very first bit of equity you’ll have in the new home.

EasementA right of way previously established by a third party. Easement types can vary but typically involve the right of a public utility to cross your land to access an electrical line.

EntitlementThe amount the VA will guarantee in order for a VA loan to be made. See also VA loan.

EquityThe difference between the appraised value of a home and any outstanding loans recorded against the house.

EscrowDepending upon where you live, escrow can mean two things. On the West Coast, for example, when a home goes under contract it “goes into escrow” (see also Escrow Agent). In other parts of the country, an escrow is a financial account set up by a lender to collect monthly installments for annual tax bills and/or hazard insurance policy renewals.

Escrow AccountSee Impound Account.

Escrow AgentOn the West Coast, the escrow agent is the person or company that handles the home closing, ensuring documents are assigned correctly and property transfer has legitimately changed hands.

FACTASee Fair and Accurate Credit Transactions Act.

Fair and Accurate Credit Transactions ActThe FACTA is a new law that replaces the Fair Credit Reporting Act, or FCRA, and governs how consumer information can be stored, shared, and monitored for privacy and accuracy.

Fair Credit Reporting ActThe FCRA was the first consumer law that emphasized consumer rights and protections relating to credit reports, credit applications, and privacy concerns.

Fannie MaeSee Federal National Mortgage Association.

Farmers Home AdministrationThe FmHA provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere. These loans are typical for rural properties that might be larger in acreage than a suburban home, as well as for working farms.

FCRASee Fair Credit Reporting Act.

FedShorthand name for the Federal Reserve Board.

Federal Funds RateThe rate banks charge one another to borrow money overnight.

Federal Home Loan Mortgage CorporationThe FHLMC, or Freddie Mac, is a corporation established by the U.S. government in 1968 to buy mortgages from lenders made under Freddie Mac guidelines.

Federal Housing AdministrationThe FHA was formed in 1934 and is now a division of the Department of Housing and Urban Development (HUD). It provides loan guarantees to lenders who make loans under FHA guidelines.

Federal National Mortgage AssociationThe FNMA, or Fannie Mae, was originally established in 1938 by the U.S. government to buy FHA mortgages and provide liquidity in the mortgage marketplace. It is similar in function to Freddie Mac. In 1968, its charter was changed and it now purchases conventional mortgages as well as government ones.

Federal Reserve BoardThe head of the Federal Reverse Banks that, among other things, sets overnight lending rates for banking institutions. The Fed does not set mortgage rates.

Fee IncomeThe closing costs received by a lender or broker that are outside of the interest rate or discount points. Fee income can be in the form of loan processing charges, underwriting fees, and the like.

FHASee Federal Housing Administration.

FICOFICO stands for Fair Isaac Corporation, the company that invented the most widely used credit scoring system.

Final InspectionThe last inspection of a property, showing that a new home being built is 100 percent complete or that a home improvement is 100 percent complete. It lets lenders know that their collateral and their loan are exactly where they should be.

Financed PremiumAn alternative to second mortgages and mortgage insurance that allows for the borrower to buy a mortgage insurance premium and roll the cost of the premium into the loan amount, in lieu of paying a mortgage insurance payment every month.

Fixed Rate MortgageA loan whose interest rate does not change throughout the term of the loan.

FloatActively deciding not to “lock” or guarantee an interest rate while a loan is being processed. A float is usually done because the borrower believes rates will go down.

Float-DownA mortgage loan rate that can drop as mortgage rates drop. Usually a loan comes in two types of float, one being during construction of a home and the other being during the period of an interest rate lock.

Flood CertificateA certificate that shows whether a property or part of a property lies above or below any local flood zones. These flood zones are mapped over the course of several years by the Federal Emergency Management Agency (FEMA). The certificate identifies the property’s exact legal location and a flood line’s elevation. There is a box that simply asks, “Is the property in a flood zone, yes or no?” If the property is in a flood zone, the lender will require special flood insurance that is not usually carried under a standard homeowners hazard insurance policy.

FmHASee Farmers Home Administration.

ForeclosureA foreclosure is the bad thing that happens when the mortgage isn’t repaid. Lenders begin the process of forcefully recovering their collateral when borrowers fail to make loan payments. The lender takes your house away.

Freddie MacSee Federal Home Loan Mortgage Corporation.

Fully Indexed RateThe number reached when adding a loan’s index and the margin. This rate is how adjustable note rates are compiled.

FundingThe actual transfer of money from a lender to a borrower.

Funding FeeA required fee, equal to 2 percent of the sales price of a home, that helps to fund a VA loan guarantee.

GiftWhen the down payment and closing costs for a home are given to the borrower instead of the funds coming from their own accounts, it is called a gift. Usually such gifts can only come from family members or foundations established to help new homeowners.

Gift AffidavitA form signed whereby someone swears that the money they’re giving you is indeed a gift, not a loan, and is to be used for the purchase of a home. Lenders like to see that form, as well as a paper trail of the gift funds being added to your own funds.

Gift FundsMonies given to a borrower for the sole purpose of buying a home. These funds are not to be paid back in any form and are usually given by a family member or a qualified nonprofit organization.

Ginnie MaeSee Government National Mortgage Association.

Good Faith EstimateA list of estimated closing costs on a particular mortgage transaction. This estimate must be provided to the loan applicants within 72 hours after receipt of a mortgage application by the lender or broker.

Government National Mortgage AssociationThe GNMA, or Ginnie Mae, is a U.S. government corporation formed to purchase government loans like VA and FHA loans from banks and mortgage lenders. Think of it as Fannie or Freddie, only it buys government loans.

Hazard InsuranceA specific type of insurance that covers against certain destructive elements such as fire, wind, and hail. It is usually an addition to homeowners insurance, but every home loan has a hazard rider.

HELOCSee Home Equity Line of Credit.

Hold-BackA contingency fund associated with a construction or remodel. It covers any change orders that might occur during the process. A change order is what happens when you simply change your mind. The hold-back helps pay for the change when changing your mind costs more than the loan. A typical hold-back amount is 10 percent of the original loan.

Home Equity Line of CreditHELOC is a credit line using a home as collateral. Customers write checks on this line of credit whenever they need to and pay only on balances withdrawn. It is much like a credit card, but secured by the property.

Homeowners InsuranceAn insurance policy that covers not just hazard items, but also other things, such as liability or personal property.

Hybrid LoanA cross between an ARM and a fixed-rate loan. In a hybrid loan, the rate is fixed for a predetermined number of years before turning into an adjustable-rate mortgage, or ARM.

Impound AccountAn account that is set up by a lender to deposit a monthly portion of annual property taxes or hazard insurance. As taxes or insurance come up for renewal, the lender pays the bill using these funds. Also called an escrow account.

IndexAn index is used as the basis to establish an interest rate, usually associated with a margin. Most anything can be an index, but the most common are U.S. treasuries or similar instruments. See also Fully Indexed Rate.

InspectionA structural review of the house to determine defects in workmanship, damage to the property, or required maintenance. An inspection does not determine value of the property. A pest inspection, for example, looks for termites or wood ants.

Installment AccountBorrowing one lump sum and agreeing to pay back a certain amount each month until the loan is paid off. A car loan is an example of an installment loan.

Intangible AssetAn asset not valuable by itself, but by what it represents. A publicly traded stock is an intangible asset. It’s not the stock itself that has the value, but what the stock represents in terms of income.

Intangible TaxA state tax on personal property.

Interest-Only LoanA loan that requires only that you pay the interest on your loan each month, without having to pay any part of the principal.

Interest RateThe amount charged to borrowed money over a specified time.

Interest Rate Reduction LoanAn IRRL is a VA refinance loan program that has relaxed credit guidelines. Also called a streamline refinance.

IRRLSee Interest Rate Reduction Loan.

Jumbo LoanA mortgage that exceeds current conforming loan limits. For 2007, anything above $417,000 is considered jumbo.

Junior LienA second mortgage or one that subordinates to another loan. Not as common a term as it used to be. You’re more likely to hear the terms second mortgage or piggyback.

Land ContractAn arrangement where the buyer makes monthly payments to the seller but the ownership of the property does not change hands until the loan is paid in full.

Land-to-ValueAn appraisal term that calculates the value of the land as a percentage of the total value of the home. If the land exceeds the value of the home, it’s more difficult to find financing without good comparable sales. Also called lot-to-value.

Lease-Purchase AgreementAlso known as rent-to-own. An option whereby a buyer leases a home until the buyer has saved up enough money for a down payment to qualify for a conventional mortgage.

Lender PolicyTitle insurance that protects a mortgage from defects or previous claims of ownership.

LiabilityAn obligation or bill on the part of the borrower. It works like an automobile loan. When you pay off the car, you get the title. Liabilities such as student loans or a car payment can show up on a credit report, but they can also be anything else that you are obligated to pay. Those liabilities on the credit report are used to determine debt ratios.

LIBOR IndexSee London Interbank Offered Rate.

LienA legal claim or prior interest on the property you’re about to buy. Borrowing money from another source in order to buy a house could mean that someone else has a lien on that property.

LoanMoney granted to one party with the expectation of it being repaid.

Loan OfficerThe person typically responsible for helping mortgage applicants get qualified and assisting in loan selection and loan application. Loan officers can work at banks, credit unions, and mortgage brokerage houses or for bankers.

Loan ProcessorThe person who gathers the required documentation for a loan application for loan submission. Along with your loan officer, you’ll work with the loan processor quite a bit during your mortgage process.

Loan-to-Value RatioLTV is expressed as a percentage of the loan amount when compared to the valuation of the home determined by an appraisal. If a home were appraised at $100,000 and the loan amount were $70,000, then the LTV would be 70 percent.

Loan UnderwriterThe person responsible for ultimately saying “yes” or “no” on a loan file. The underwriter compares loan guidelines with what you have documented in the file.

LockAn agreement guaranteeing an interest rate over a predetermined period. Loan locks are not loan approvals; they’re simply the rate your lender has agreed to give you at loan closing.

London Interbank Offered RateLIBOR is a British index similar to our Federal Funds rate, where British banks borrow money from one another over short periods to adhere to reserve requirements.

LTVSee Loan-to-Value Ratio.

MarginA number, expressed as a percentage, that is added to a mortgage’s index to determine the rate the borrower pays on the note. An index can be a six-month CD at 4 percent and the margin can be 2 percent. The interest rate the borrower pays is 4 + 2, or 6 percent. A fully indexed rate is the index plus the margin.

Market GainThe difference between what a mortgage price was when you locked it with the lender and what the mortgage price is when the loan is physically locked with the lender’s secondary department or with a mortgage broker’s wholesale lender.

Market ValueIn an open market, the market value of a property is both the highest the borrower is willing to pay and the least the seller is willing to accept at the time of the contract. Property appraisals help justify market value by comparing similar home sales in the subject property’s neighborhood.

Modifiable MortgageA mortgage loan that allows its interest rate to be modified, even if it’s at another lender.

MortgageA loan with the property being pledged as collateral. The mortgage is retired when the loan is paid in full.

Mortgage-Backed SecuritiesInvestment securities issued by Wall Street firms that are guaranteed, or collateralized, with home mortgages taken out by consumers. These securities can then be bought and sold on Wall Street.

Mortgage BankersLenders who use their own funds to lend money. Historically, these funds would have come from the savings accounts of other bank customers. But with the evolution of mortgage banking, that’s the old way of doing business. Even though bankers use their own money, it may come from other sources such as lines of credit or through selling loans to other institutions.

Mortgage BrokersCompanies that set up a home loan between a banker and a borrower. Brokers don’t have money to lend directly, but they have experience in finding various loan programs that can suit the borrower, similar to how an independent insurance agent operates. Brokers don’t work for the borrower but instead provide mortgage loan choices from other mortgage lenders.

MortgageeThe person or business making the loan; also called the lender.

Mortgage Insurance (MI)See Private Mortgage Insurance.

MortgagorThe person(s) getting the loan; also called the borrower.

Multiple Listing ServiceMLS is a central repository where real estate brokers and agents show homes and search for homes that are for sale.

Negative AmortizationA neg-am loan is an adjustable-rate mortgage that can have two interest rates, the contract rate or the fully indexed rate. The contract rate is the minimum agreed-upon rate the consumer may pay; sometimes the contract rate is lower than the fully indexed rate. The borrower has a choice of which rate to pay, but if the contract rate is lower than the fully indexed rate, that difference is added back to the loan. If your contract payments are only $500 but the fully indexed rate is $700 and you pay only the contract rate, $200 is added back into your original loan amount. Not for the fainthearted, nor for those with little money down.

NINANo Income, No Asset mortgage. This type of loan does not require that the borrower prove or otherwise document any income or asset whatsoever.

No-Fee LoanA loan where your lender pays closing costs for you, if you agree to a slightly higher interest rate.

NonconformingLoans whose amounts are above current Fannie or Freddie limits. See also Jumbo Loan.

NoteA promise to repay. It may or may not have property involved and may or may not be a mortgage.

Note ModificationTaking the original terms of a note, and without changing any other part of the obligation or title, reducing the interest rate for the remaining term of the loan. A note modification means you can’t “shop around” for the best rate to reduce your rate; instead, you must work with your original lender who still services your mortgage. In a modification, nothing can change except the rate.

One-Time Close LoanA construction loan whereby you obtain construction financing and permanent financing, and lock in a permanent mortgage rate at the same time. See also Two-Time Close Loan.

Origination FeeA fee charged to cover costs associated with finding, documenting, and preparing a mortgage application, and usually expressed as a percentage of the loan amount.

Owner’s PolicyTitle insurance made for the benefit of the homeowner.

ParAn interest rate that can be obtained without paying any discount points and that does not have any additional yield beyond its rate. For instance, you get a 30-year quote of 7 percent with one point, or 7.25 percent with zero points, or 7.5 percent with zero points plus an additional yield to you of $1,000 toward closing costs. Here the 7.25 percent at zero points is the par rate.

Payment Option ARMA type of negative amortization loan where you have a choice as to what you’d like to pay each month. The choice is between an initial contract rate, an interest-only, or a fully indexed, fully amortized loan.

Payment ShockA term used by lenders referring to the percentage difference between what you’re paying now for housing and what your new payment would be. Most loan programs don’t have a payment shock provision, but for those that do, a common percentage increase is 150 percent.

Permanent BuydownSee Buydown.

Piggyback MortgageSee Second Mortgage.

PITIPrincipal, Interest, Taxes, and Insurance. These figures are used to help determine front debt ratios.

Pledged AssetAn appraisable property or security that is collateralized to make a mortgage loan. Sometimes a pledged asset can be a stock or mutual fund. A lender can make a mortgage loan and use the mutual fund as part of the collateral. If the borrower fails to make the payments, all or part of the pledged asset can go to the lender.

PMISee Private Mortgage Insurance.

PointsSee Discount Points.

Portfolio LoanA loan made by a direct lender, usually a bank, and kept in the lender’s loan portfolio instead of being sold or underwritten to any external guidelines.

Predatory LoanA loan designed to take advantage of people by charging either too many fees or too high of an interest rate, or both, while also stripping that homeowner of his equity.

Prepaid InterestDaily interest collected from the day of loan closing to the first of the following month.

Prepayment PenaltyAn amount is paid to the lender if the loan is paid off before its maturity or if extra payments are made on the loan. A hard penalty is automatic if the loan is paid off early or if extra payments are made at any time or for any amount whatsoever. A soft penalty only lasts for a couple of years and may allow extra payments on the loan not to exceed a certain amount.

PrincipalThe outstanding amount owed on a loan, not including any interest due.

Private Mortgage InsurancePMI is typically required on all mortgage loans with less than 20 percent down. It is an insurance policy, paid by the borrower with benefits paid to the lender. It covers the difference between the borrower’s down payment and 20 percent of the sales price. If the borrower defaults on the mortgage, this difference is paid to the lender.

Pull-Through RateA term, used by wholesale lenders, to track the percentage of loans that close that have been locked by a broker.

Quit ClaimA release of any interest in a property from one party to another. A quit claim does not, however, release the obligation on the mortgage.

Rate-and-Term RefinanceRefinancing to get a new rate. You’re changing the interest rate and changing the term, or length, of the new note.

Rate CapHow high your ARM rate is permitted to change each adjustment period. There are three possible caps on an adjustable-rate mortgage: the adjustment cap, the lifetime rate cap, and the initial rate cap.

Real Estate AccountA mortgage secured by real estate.

RealtorA member of the National Association of REALTORS and a registered trademark. Not all real estate agents are Realtors.

RecastA term applied to ARMs and used when extra payments are made to the principal balance. When your note is recast, your monthly payment is calculated for you.

RefinanceObtaining a new mortgage to replace an existing one. There is also a “rate-and-term refinance,” where only the outstanding principal balance, interest due, and closing costs are included in the loan.

ReissueWhen refinancing, there may be discounts if you use the same title agency. This “reissue” of an original title report can cost much less than a full title insurance policy.

RescissionWithdrawal from a mortgage agreement. Refinanced mortgage loans for a primary residence have a required three-day “cooling off” period before the loan becomes official. If for any reason you decide not to take the mortgage, you can “rescind” and the whole deal’s off.

ReservesA borrower’s assets after closing. Reserves can include cash in the bank, stocks, mutual funds, retirement accounts, IRAs, and 401(k) accounts.

Reverse MortgageA mortgage designed to help older Americans who own their homes by paying the homeowner cash in exchange for the equity in his home. When he no longer owns the home by selling or moving out or dying, then the reverse mortgage lender is paid back all the money borrowed, plus interest.

Revolving AccountA credit card or department store account on which you typically have a limit and don’t make any payments until you charge something.

Sales ContractYour written agreement to sell or purchase a home, signed by both the seller and buyer.

Secondary MarketA financial arena where mortgages are bought and sold, either individually or grouped together into securities backed by those mortgages. Fannie Mae and Freddie Mac are the backbone for the conventional secondary market. Other secondary markets exist for nonconforming loans, subprime loans, and others.

Second MortgageSometimes called a “piggyback” mortgage, a second mortgage assumes a subordinate position behind a first mortgage. If the home goes into foreclosure, the first mortgage would be settled before the second could lay claim. See also Junior Lien.

SellerThe person transferring ownership and all rights for his home in exchange for cash or trade.

Settlement StatementAlso called the Final HUD-1. It shows all financial entries during the home sale, including sales price, closing costs, loan amounts, and property taxes. Your initial Good Faith Estimate will be your first glimpse of your settlement statement. This statement is one of the final documents put together before you go to closing and is prepared by your attorney or settlement agent.

Subprime LoanA loan made to people with less than “prime” credit. There are various stages of subprime credit, from loans for those with simply “tarnished” credit who can’t quite get a conventional mortgage, to those with seriously damaged credit who may be in or just out of bankruptcy or have collection accounts or judgments and liens against them.

SurveyA map that shows the physical location of the structure and where it sits on the property. A survey also designates any easements that run across or through the property.

Temporary BuydownSee Buydown.

TitleLegal ownership in a property.

Title Exam/Title SearchThe process where public records are reviewed to research any previous liens on the property.

Title InsuranceProtection for the lender, the seller, and/or the borrower against any defects or previous claims to the property being transferred or sold.

Two-Time Close LoanIn a construction financing, when you first get a construction loan and then get another mortgage at the end of construction. You’ll go to two different closings for a two-time close loan. See also One-Time Close Loan.

VA LoanGovernment mortgage guaranteed by the Department of Veterans Affairs.

VA No-NoA type of VA loan where the borrower not only puts no money down, but also pays no closing costs.

Verification of DepositA VOD is a form mailed to a bank or credit union that asks the institution to verify that a borrower’s bank account exists, how much is in it, how long the borrower has had it, and what the average balance was over the previous two months.

VODSee Verification of Deposit.

Wraparound MortgageA method of financing where the borrower pays the former owner of the property each month in the form of a mortgage payment. The former owner will then make a mortgage payment to the original mortgage holder.