Mortgage Dictionary


Abstract of Title - A written history of the title to a property including every owner and every claim since its original owner. It is the result of a title search (see Title Search) and it tells you if someone else has a legal claim on the property you are buying.

Acceleration Clause - A common feature of mortgages protecting the lender. If a borrower does not comply with all the requirements of the mortgage, for example, he fails to make the monthly payments; the lender can accelerate the maturity date and require full and immediate payment of the loan.

Accident and Health Premium - An insurance premium paid by you, the borrower, along with your mortgage payments each month. The lender sends the premium to an insurance company, which promises to make your monthly mortgage payments if you become disabled or ill.

Accrued Interest - The interest that has accumulated over the time elapsed since you the borrower made your last interest payment. (See Interest)

Add On Interest - Interest which is calculated on the original principal for the full term of the loan and then added to the original amount borrowed. This sum is then divided into a number of equal payments. (See Interest)

Adjustable Rate Mortgage (ARM) - A general term for any mortgage in which the interest rate and generally the payments change over the life of the loan. Your interest rate will be adjusted to match the rise or fall of a preselected interest rate index and your regular payments will increase or decrease accordingly. Different types of ARM's have different frequencies for these adjustments. Some ARM's have limits on payment and interest rate changes and the maximum interest rate over the life of your loan. To your advantage, the initial rate of an ARM is usually low, permitting you to buy real estate that would be unaffordable with a fixed rate mortgage. But you risk higher payments later on (see Index, Initial Interest Rate, Floating Rate of Interest)

Adjustment Interval - A term used in adjustable rate mortgages. It is the period of time specified in your loan between changes in your interest rate and/or monthly payment. Adjustments in currently offered ARMâs may be made every 3 months, 6 months, 1 year, 3 years or 5 years. (See Adjustable Rate Mortgage)

Affidavit - A sworn statement in writing, made before a public official, usually a notary.

Agent - One who is legally authorized by another to represent him/her or act in his/her behalf. For example, you may hire a broker to act as an agent in selling your property.

Agreement for Deed - A kind of agreement of sale in which the deed is delivered at closing (see Closing) to an escrow agent (see Escrow Agent) and not placed immediately in the public land records. The escrow agent holds the deed, for an agreed period of time, until the specified payments are made and then places the deed in the public records. (See Agreement of Sale, Deed)

Agreement of Sale - A contract in which the buyer agrees to purchase specific property and the seller agrees to sell under the stated conditions. This is also called a binder, a sales contract and an earnest money contract.

Alienation Clause - A special type of acceleration clause. (See Due-On-Sale Clause)

Amenity - Any non-monetary benefits you enjoy as the owner of a particular piece of property. A prestigious address, access to a private parking space and reliable transportation are all amenities.

American Land Title Association (ALTA) - A national association of title insurance companies, title abstractors and attorneys who specialize in real estate law. ALTA establishes standard procedures and uniform title abstract and insurance policy forms.

Amortization - A plan for gradually repaying the money you've borrowed in periodic payments. Generally with each payment, you pay back part of the money originally borrowed (the principal) plus interest on the declining balance of the principal. The amount of your periodic payments depends, in part, on the principal, the interest rate and the length of time allowed for repayment.

Amortization Schedule - A table that outlines your schedule for loan repayment. It shows the amount of principal and interest due at regular intervals. It also shows the unpaid balance of the loan remaining after each payment.

Annual Mortgagor Statement - A report prepared by the lender or servicing agent for you, the borrower (mortgagor), at the start of each year of your loan. It states which portions of your payments for the previous year were applied to principal, interest, taxes and insurance. (See PITO) It also states how much of the principal balance remains to be paid.

Annual Percentage Rate (ARP) - The total cost of finance charge for a loan per year, expressed as a percentage. IT is the sum of the interest and any other fees, such as discount points, compared to the amount of the loan. Your lender is required by the Truth-In-Lending Act to disclose the APR using a procedure prescribed by the federal government. (See Interest, Point)

Annuity - An amount paid at regular intervals for a set period of time. Your mortgage payments are a form of annuity paid to the lender.

Apportionment - The division of property expenses and income between the buyer and the seller, at the time of sale. Expenses may include taxes and insurance premiums; income may include rents. The buyer only assumes the portions of expenses and incomes that apply after closing day.

Appraisal - A report made by a qualified person (or appraiser), which states his opinion of the estimated value and quality of the property.

Appraisal Value - An estimate of property value, made by a qualified expert. The expert, called an appraiser qualified by his education, training and experience to evaluate the property based on available facts.

Appreciation - An increase in the value of your property. Appreciation may be the result of an increased demand for your property; any improvements or additions youâve made; improvements to your neighborhood, etc.

Appurtenance - Anything that becomes your property because it is attached or closely related to your land upon purchase. It may be a structure, such as a well, barn or garage; or it might be a right or interest enjoyed by the previous owner, such as an easement. (See Easement)

Assessed Valuation - The value of your property, according to an official tax assessor. Your real property tax will be based on the assessed valuation.

Assessment - The assessed Valuation. Also refers to a tax on property for a specific purpose. For example, a sewer assessment is levied on your property to help pay for the installation of a sewer line.

Assignee - A person or party to whom an assignment or transfer is made. When an agreement, contract or interest is transferred to you, you become the assignee. The Assignee might also be a corporation or partnership.

Assignor - The person or party who assigns or transfers an agreement, contract or interest to another person or party.

Assumption Fee - Money paid to a lender, usually by you, the buyer, when you assume a mortgage to buy someone's property. Sometimes, the owner of the property will pay this fee to the lender. (See Assumption of Mortgage)

Assumption of Mortgage - Sometimes to help you buy a house you can take responsibility for the sellerâs mortgage; agreeing to all the terms, making the monthly payments on the existing mortgage, after obtaining the lenderâs consent.

Attorney-In-Fact - A type of agent who has been granted a written power of attorney by you, the grantor. This authorizes him to sign, seal and deliver documents in your behalf.

Balloon Mortgage - With this mortgage, your monthly payments are too small to pay off the loan within the set period. Usually the remaining unpaid amount becomes due in a lump sum at the end of the term.

Binder, Real Estate - See Agreement of Sale.

Breach - To violate or default on any legal agreement or obligation. For example, you breach your mortgage when you fail to make a monthly payment on time.

Buydown - 1. Occurs when the person selling you real estate pays your lender a certain fee in order to reduce the rate of interest or monthly payments on your mortgage. The reduced interest rate may hold for all or part of the loan term. 2. A loan that has been bought down by the seller for the benefit of you, the buyer.

Call Provision - A clause in a loan that gives the lender the right to demand payments sooner than originally agreed upon, under certain specified conditions. For instance, the call provision might allow the lender to collect the full debt remaining after a certain time elapses or if you, the borrower, sell or transfer the property.

Cap - A term used in adjustable rate mortgages. Caps limit the increase or decrease allowed in your interest rate or monthly payments from one adjustment period to the next. Caps also may limit the interest rate over the entire term of the loan. For example, if your mortgage has an adjustment cap of 2% per year and 16% for its life, your interest rate can never be increased or decreased by more than 2% per year or exceed 16% even though the market or fully indexed rate may go much higher.

Certificate of Eligibility - If you are a veteran, you are eligible for a Veterans Administration (VA) mortgage loan guarantee. The federal government will issue a document, called a Certificate of Eligibility, to certify that you are eligible.

Certificate of Occupancy - In some areas, before you can move into a newly constructed building, your local government must first issue this public document. It authorizes occupancy of the building and certifies that you are eligible.

Certificate of Reasonable Value - Issued by the Veterans Administration (VA) to qualifying veterans, this document states the maximum amount of principal it will guarantee for a mortgage loan.

Certificate of Title - A document that assures you, the buyer, that the person selling you his house is indeed the legal owner of the property and that no one else has any legal claim to the property. This certificate does not protect you against loss if a hidden claim emerges after you buy the house, only a title insurance policy can do that.

Clear Title - When the seller holds the only legal claim to the property and no one holds any demands on that seller for the property, (i.e. there are no defects or encumbrances) he has a clear title. In contrast, a marketable title and an insurable title may include some minor claims on the property, but they are insignificant to the transfer of the property.

Closing - The final step of your sale transaction, in which the title to, or ownership of real estate is transferred from the owner to you, the buyer. In closing, youâll sign the mortgage notes, and both you and the seller will pay any costs that were agreed to previously. Any financial adjustments will be made at this time and you or the escrow agent will be given the deed. Closing is sometimes called "settlement."

Closing Cost - Costs, in addition to the price of the property itself, that are due at closing. They normally include origination fees, discount points, attorneyâs fees, costs for title insurance, surveys, recording documents and prepayments of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help you pay some of these costs.

Closing Day - The formal exchange of property form the owner to you, the buyer, is performed on closing day. The seller will sign the Deed to Property and you will sign the mortgage and both you and the seller will pay the closing costs to which you agreed. (See Closing Costs)

Closing Statement - A statement of the funds received and spent at the closing of a real estate sale. It is furnished by the real estate closing agent to the buyer and seller separately. The standardized federal form HUD Form 1 is used in most residential transactions.

Cloud on Title - An outstanding claim on the property, which, if valid, would affect the owner's rights to the property. It could be a lease or some legal restriction on the title such as an easement or deed restriction. A cloud can be removed from the title by a court action, a release or quitclaim deed. (See Easement, Quitclaim Deed)

Collateral - Property you pledge as security for a debt, such as your home as security for your mortgage loan.

Commitment - A written agreement, in which the lender agrees to loan money if the borrower meets certain conditions. (See Agreement for Deed)

Compliance Inspection Report - A report prepared by a compliance inspector for a mortgage lender. It states whether construction or repair work on a property meets the conditions of a previous inspection.

Conditional Sales Contract - A contract for the sale of property in which the seller remains the owner until you, the buyer, have fulfilled certain conditions. One example is a land contract. Under the terms of this contract, you would not be able to use or occupy the land sold to you until you have paid all or part of the sale price. Also called an Agreement for Deed.

Condominium Declaration - Also called a Master Deed, it is a document which the developer of an entire condominium complex must place in the public records before the first unit is transferred to a buyer. It states the terms of ownership of each private unit in detail, as well as any areas, such as a porch or lobby, that will be shared by the residents. It is just one of several condominium documents. (See Condominium Documents)

Condominium Documents - A set of legal papers provided to the buyer of a condominium. They usually include the condominium declaration, the plat and plans, and the buy-laws of the complex. (See Condominium Declaration, Plat)

Conventional Loan - A mortgage loan that is neither insured by the Federal Housing Administration or the Farm Home Administration, nor guaranteed by the Veterans Administration.

Convertibility - A feature sometimes found I adjustable rate mortgages. It allows you to change ("convert") your loan type from an ARM to a fixed rate mortgage. Usually you can only change your mortgage type a certain designated times during the early years of your ARM. You may be required to pay a fee at the time you want to change your loan type. (See Adjustable Rate Mortgage, Fixed-Rate Mortgage)

Convey - To transfer an interest in real estate to another party. Usually the conveyance involves a transfer of property ownership.

Cooperative - Ownership of a multi-unit building by a type of corporation. If you wish to own or invest in a unit in a cooperative building, you must buy stock in the corporation, which will assign a particular unit to you. As an occupant, youâre allowed to deduct a portion of the interest and property taxes paid by the corporation from your income tax.

Coupon Rate - The annual interest rate stated or specified on the face of your mortgage note. Also, known as the Nominal Interest Rate.

Covenant - A promise. For instance, a covenant may require you to insure your property against fire loss. When a covenant is breached, your mortgage is said to be in default. This could result in the loss of your property. (See Breach)

Credit Life - A life insurance policy that pays off your mortgage in the event of your death. A lender as additional assurance that your debt will be repaid may require credit life.

Credit Rating - An evaluation of your ability to pay back a loan. It is based on your current financial situation and past performance in debt repayment. It takes into account any defaults (see Breach) and slow repayments.

Credit Report - A report from a credit reporting agency issued to a lender which discloses your credit rating and any other pertinent financial information about you as a prospective borrower. (See Credit Rating)

Cul de Sac - A street with a dead-end, usually with space at the end for vehicles to turn around.

Custodial Account - A bank account for the deposit of another personâs funds. One example is a real estate tax escrow account.

Deed - This is the formal written document which transfers the rights of ownership and possession (i.e. the Title) from the seller to you, the buyer. Sometimes the deed is also called a title document. It contains an accurate, specific and legal description of the property and is delivered at closing.

Deed Restriction - An agreement in a deed which forbids certain activities on your property. For example, a deed might contain a covenant restricting you from selling alcohol on your property. If you breach (see Breach) this covenant, you could risk the loss of your property. (See Deed)

Deed of Trust - In some states, this is used in place of a mortgage or deed to secure debt. While there are only two people involved in a mortgage, the borrower and the lender, there are three people involved in a deed of trust: the borrower, the lender and the trustee. Here, the borrower transfers the legal title for the property to the trustee who holds the property as a security for the debt. If the borrower pays the mortgage as agreed, the trustee gives the legal title to the owner. If the borrower does not pay the mortgage as agreed, the trustee can sell the property. (See Mortgage)

Deed to Secure Debt - See Deed of Trust.

Default - See Breach.

Deferred Interest - A term used in Adjustable Rate Mortgages. When your monthly payments do not cover the interest cost, the interest left unpaid is deferred to later years by adding it to your unpaid principal balance. In subsequent months you are charged interest on this unpaid interest. Many lenders place a limit to deferred interest, (e.g. not allowing it to go above 125% of the original mortgage loan balance.) If your unpaid balance exceeds the limit placed by your lender, you can no longer defer interest and must begin making payments large enough to fully pay what is due over the remaining term. In this case, your payments can increase suddenly and significantly. Deferred interest can occur when you choose a graduated payment option. (See Graduated Payment Mortgage) where the loan starts out below current rates but you agree to pay the difference (the Deferred Interest) in later years. Deferred Interest can also occur when you choose a monthly payment cap. (See Cap)

Demand Note - A note, such as a mortgage note, that gives a lender the right to demand payment from you, the borrower, at any time without prior notice.

Designated Appraiser - Someone who determines the value of property and whose expertise is recognized and licensed by a professional association such as the Society of Real Estate Appraisers. Many lenders accept only those appraisals performed by a designated appraiser.

Discount Point - See Point.

Downpayment - The difference between the sale price of real estate and the amount of your mortgage loan. The downpayment is usually paid in full at the closing of a sale. For example, if you buy a house for $70,000, and your mortgage is for $50,000, you must make a downpayment of $20,000 at the closing. Your earnest money deposit will be credited to the downpayement. (see Earnest Money)

Due-On-Sale-Clause - A kind of acceleration clause in a mortgage which allows the lender to demand payment of the full remaining balance of your loan, when you, the borrower, sell or transfer your property. (see Acceleration Clause)

Earnest Money - This is a deposit that you give to the seller, proving to him that you are serious about buying his house. If the sale goes through, the earnest money becomes part of your downpayment (see Downpayment) on the house. If the sale does not go through, you lose the earnest money, unless the seller agreed from the beginning to refund it to you.

Easement - The right to make limited use of another person's land. It is usually granted in writing by the owner and becomes an interest in the land and an encumbrance (see Encumbrance) on the title. For example, as the owner, you may wish to grant an easement for the installation of a utility line through your property. (see Cloud on Title)

Effective Age - The age, given in years, of your property, figured solely on the basis of its physical condition. Usually figured for the purpose of appraisal (see Appraisal) it may differ from the chronological age of your property. For instance, if you own a 10 year old house which has been carefully maintained, it may be assigned an effective age of 5 years, whereas a 10 year old house that has been neglected may have an effective age of 15 years.

Effective Gross Income (Personal) - Your normal yearly income, including overtime that is regular or guaranteed. Usually, it is from one source, normally a salary. But any other income which is regular, significant and verifiable will qualify to be included.

Encroachment - Any physical condition or improvement belonging to another person that intrudes upon a part of your property; or any physical condition or improvement belonging to you that intrudes upon the property of another person. An encroachment on your property may be the result of survey error or negligence. A common example is a neighborâs fence which is built on your property by mistake.

Encumbrance - Any previously established right or interest to property that would restrict your rights of ownership upon purchase. Zoning ordinances, leases, easements, unpaid taxes, existing mortgages and restrictive covenants are all examples of encumbrances. A title search will tell you whether such encumbrances exist. If so, they will not prevent you from purchasing the property. Rather, they will complicate the terms of ownership, and in some cases may diminish the propertyâs value. It's up to you to decide how an encumbrance will affect the value of the property before purchase; or to determine how the encumbrance can be removed. (see Title Search)

End Loan - the final mortgage loan that is made to you, the borrower. It is called the "end loan" in order to distinguish it from construction loans, or other previous loans that have been made for the purchase, development and construction of the same property.

Endorsement - 1. When you sign your name on the back of a check, note or other negotiable instrument, your signature becomes the endorsement. Your endorsement transfers ownership or payment to a specified party. 2. An addition made to a document, such as a title policy, in order to alter or clarify it.

Equal Credit Opportunity Act (ACOA) - Enacted in 1974 and since amended, this federal statute prohibits lenders from discrimination of the basis of a prospective borrowerâs sex, marital status, age race, color, income, national origin or receipt of public assistance income.

Equity - The owner's interest. It is your interest in the property after all loans have been subtracted from the market value of the property. When you have paid off your mortgage, your equity in the property will be 100%.

Escrow Account - A special bank account maintained by the lender or an escrow agent. In it you set aside money so that the lender can pay the taxes, hazard and mortgage insurance, ground rents and other special costs on your mortgage property as they come due. Each month, a certain portion, called the escrow payment, of your monthly mortgage payment goes into this account. (see Ground Rent)

Escrow Agent - (Usually the escrow company) A third party who acts for both the seller of property and you, the buyer. He holds any pertinent documents and/or funds for safekeeping, and sees that the terms of the agreement are carried out. The escrow agent may be an individual trusted by both you and the seller; or a law firm, bank or other financial institution.

Escrow Analysis - A regular examination of an escrow account to make certain that the amount of money in the account is sufficient to pay taxes, insurance and other expenses when they become due. (see Escrow Account)

Escrow Contract - An agreement that establishes an escrow and states the specific obligations of the escrow agent. (see Escrow Account)

Escrow Overage or Shortage - The difference between the amount of funds in your escrow account and the amount of escrow funds needed to cover certain expenses. This difference is revealed through an escrow analysis. (see Escrow Analysis, Escrow Account)

Escrow Payment - Each month, a portion of your monthly payment is set aside by the lender in an escrow account to pay the taxes, hazard insurance, mortgage insurance, ground rents (see Ground Rent) and other special items as they come due.

Examination of Title - A review which reveals the previous owners of, and encumbrances on a piece of real estate. To conduct this review, you must search the public records or examine an abstract to title. (see Abstract of Title)

Execute - A legal term meaning "to complete". To execute a deed (see Deed) means to sign, seal and deliver it.

Extended Coverage Endorsement - An endorsement that may be added to your fire insurance policy, so that your home will be more fully protected. It may include coverage against loss or damages due to windstorm, hail, smoke, explosion, riot, civil commotion and colliding aircraft or vehicles.

Fair Market Value - An appraisal term (see Appraisal). It is the price that you, the buyer, are willing to pay and that the seller is willing to accept for a price of property. In arriving at this price, both you and the seller must be reasonably aware of the pertinent facts and under no obligation to buy or sell.

Federal Home Loan Mortgage Corporation - FHLMC or "Freddie Mac." An organization that buys already existing loans in packages from mortgage bankers and financial institutions. It sells shares of these mortgage packages to finance the purchase of more loan packages. (see Mortgage Banker)

Federal Housing Administration - FHA. A federal agency within the U. S. Department of Housing and Urban Development (HUD). Using loan insurance programs to insure mortgage for lenders, the FHA stimulates the availability of housing for low and moderate income families.

Federal National Mortgage Association - FNMA or "Fannie Mae". A corporation created by Congress but privately owned by stockholders. It buys pools or packages of mortgages and sells them or shares of them for profit.

Fee Simple - The largest possible interest in real estate. When you own property in fee simple, you enjoy substantial rights to it, and may dispose of it as you see fit. This includes selling it, using it for any lawful purpose and leaving it to your heirs.

First Mortgage - The loan that has the primary claim on all proceeds from the sale or other disposition of the property. (see Second Mortgage)

Fixed-Rate Mortgage - The basis type of loan where your interest rate can never change for the entire term of the loan. For example, it the interest on your 30-year mortgage is set at 13%, it will stay at 13% until the mortgage is paid off. ( compare with Adjustable Rate Mortgage)

Floating Rate of Interest - An interest rate that varies throughout the term of the loan instead of being fixed. The degree to which the interest rate may vary is governed by changes in a selected index and by interest rate caps (see Cap). For example, if your initial interest rate is 14% and after the first year the index has increased by one percentage point, then your interest rate generally would be raised to 15% if interest rate caps were not reached. Used in ARM's (see Adjustable Rate Mortgage)

Flood Plain - Areas of land that are subject to periodic flooding by a neighboring river, stream or other body of water. Flood plains are classified according to the anticipated frequency of flooding.

Front Foot - A measurement of land along its border with a street.

Front Foot Benefit Charge - A tax that some counties charge for providing utilities or other services to your property. It is based on the measurement of your property's border along a road or street.

Fully Indexed Rate - A term used in adjustable rate mortgages. It reflects the true market interest rate or going market rate without interest caps of any kind. It is calculated by adding the margin to the index. (see Cap, Margin, Index)

General Warranty Deed - A deed of conveyance, in which the person conveying his interest in a property guarantees to protect the buyer against all claims to the title arising from events that occurred at any time before or during his period of ownership. (compare with Special Warranty Deed, Quitclaim Deed)

Government National Mortgage Association - GNMA or "Ginnie Mae" a government organization that is responsible for the Special Assistance Loan Program, which provides those in need with low-interest rate mortgage loans. It also administer and guarantees a mortgage-based securities program backed by FHA and VA mortgages that channels new sources of funds from the national capital market into residential mortgages.

Grantee - When an interest in property is conveyed to you, you become the grantee. The grantee might also be a corporation or partnership.

Grantor - When an interest in property is conveyed by you to another person, you become the grantor.

Gross Income - Your total stable and verifiable income before expenses, such as mortgage payments, utility expenses, insurance premiums, other loan payments, taxes, etc. are deducted.

Ground Rent - The payment for use of land in accordance with a ground lease.

Guaranteed Loan - When a government agency or other party guarantees a loan, it agrees to reimburse the lender if the borrower fails to pay back the loan as promised. A loan can be guaranteed for all or a portion of the unpaid principal. An example, is the Veterans Administration loan to a veteran. (see VA)

Hidden Defect - Any claim on a property that does not appear in the public records; for example, an unknown heir. If such a claim is valid, the value of the property may be diminished. Also, a hidden defect is any physical problem with the property that is not easily seen.

Homeowners Association - An organization made up of homeowners who reside within a particular area or development, such as a subdivision or a condominium. The members of such an association enforce any restrictions on the use of property and both provide and manage community facilities.

Homeownerâs Policy - An insurance policy intended for owner occupied private dwellings. It covers the dwelling and its contents against common disasters, such as fire, wind damage and theft. In most cases, it also protects you, the owner, against the legal claims of anyone who becomes injured on your property. Also known as a package policy.

Homeownerâs Warranty Program - A program to guarantee the workmanship and materials of a home, and to warrant against any major structural defects. It is offered by participating builders of the National Association of Home Builders.

Impound - A part of your monthly mortgage payments which is set aside by the lender to cover the cost of taxes, insurance, ground rents and other items. Also known as reserves or escrow. (see Escrow Account)

Index - A term used in Adjustable Rate Mortgages, (see Adjustable Rate Mortgage) It is a measure of prevailing market interest rates. The index is used with the margin to determine your new interest rate at the time of adjustment. If the index increases, your interest rate increases unless an interest rate cap (see Cap) is reached. if the index decreases, your interest rate decreases, unless a cap is reached. Often, these interest rates are the rates for U. S. treasury securities. Treasury securities have become popular as indexes because they are easy to monitor and reflect economic conditions accurately.

Initial Interest Rate - A term used in adjustable rate mortgages. It is the beginning interest rate on your ARM. It may be lower than the fully indexed rate or "going market rate." It will remain constituent until it is adjusted up or down on the adjustment date. (see Fully Indexed Rate, Introductory Rate, Teaser Rate)

Installment - Your monthly mortgage payment.

Insurable Title - A title to a property which a title insurance company will insure and will issue a title insurance policy to you as evidence of its insurance. (compare with Marketable Title and Clear Title)

Insurance Binder - A written document proving that you have temporary hazard or title insurance coverage (see Title Insurance Policy) on your property. This must be replaced with a permanent policy.

Insured Closing Letter - A letter issued by a title insurance company to protect you against improper use of the funds you forward to the company's agent or approved attorney. It also protects you against failure on the part of the parties involved to follow specific closing instructions. Your closing agent should be able to provide you with this letter. (see Title Insurance Policy)

Interest - 1) A charge for borrowing money. It is usually expressed as an annual rate, or percentage, of the money you still owe. For example, your interest rate might be 14%. If you've borrowed $10,000 and you've agreed to pay in full at the end of one year, your interest will be $1,400. 2) A general term meaning partial or total right to a property. An interest in real estate might be a right, such as an easement (see Easement), a lease, partial ownership, or full ownership.

Interest Reduction Programs - Programs that lower the cost of housing for the benefit of you, the home buyer. Such programs use subsidies generally paid to lenders (by property sellers) at closing, to reduce the interest rate for mortgage loans.

Introductory Rate - A term used in adjustable rate mortgages. It is an initial interest rate that is usually below the "going market rate" which is set by the index plus the margin. (see Adjustable Rate Mortgage, Index, Margin)

Joint and Several Note - A signed promise that obligates borrowers to a lender both collectively (jointly) and individually (severally). Each borrower is liable to the lender for the full amount of the debt, not just his individual share. For instance, if you and a partner borrow $10,000 and your partner fails to make payments in time, the lender can collect the remaining balance from either one of you.

Joint Tenancy - Occurs when two or more people are legally granted at the same time, equal interests and equal rights to a property. If one of them dies, the others share his interest equally so that the remaining people still have equal interests. (see Right of Survivorship; compare with Tenancy in Common and Tenancy by the Entirety)

Junior Mortgage - A mortgage that is subordinate to any of the previous mortgages on the same property. If the borrower defaults (see Breach) on the mortgage and his property is sold, the proceeds of the sale would go to the first mortgage lender to reimburse him for the unpaid mortgage debt interest, and any legal expenses. The junior mortgage lender would receive the remainder, if any, of the proceeds. A second mortgage is a junior mortgage. (see Second Mortgage)

Kick-Our Clause - A clause in a sales contract that permits a seller to cancel your contract and return your deposit if you do not remove a contingency within a certain period of time.

Late Charge - A fee that the borrower must pay for failing to make a payment when it is due.

Lease - A written agreement stating the conditions for the possession and use of real estate (and/or personal property) given by the owner to another person (the tenant) for a specified period of time and rent.

Legal Description - A description of your property that is recognized by law. It must be exact and sufficient in itself for the purposes of identifying and locating your property.

Level Payment Mortgage - Your periodic payments for this type of mortgage will be the same throughout the term of your loan. Part of each payment will be applied toward the interest; the remainder will be used to reduce the principal. (see Interest, Principal)

Leverage - The use of borrowed money to increase both the amount of property you can purchase and the amount of profit this property generates. For example, if you have $100,000 in cash you could purchase one house costing $100,000. But if you use leverage you could buy the same property using only $20,000 in cash and borrowing $80,000. You could then use the remaining $80,000 in cash to buy more properties or make other investments.

Lien - A legal claim on the property of a borrower pledged as a security for the payment of a debt. If the debt is not repaid as promised, the lender or the lien holder can enforce his/her claim on the property and compel the sale of the property to pay off the debt. (e.g.,see Mechanic's Lien)

Life of Loan - The number of years you have to repay your mortgage. If you have a 30 year mortgage, the life of your loan is 30 years.

Liquidity - The degree of ease with which your assets, such as stocks, real estate and U.S. Savings Bonds, may be converted into cash. Because real estate is not easily converted into cash, it is said to have poor liquidity or to be illiquid.

Listing - 1. A written agreement which authorizes an agent, called a broker, to sell or lease real estate of an owner. 2. The record of your real estate for sale, which is dept by a broker who has been authorized by you, the owner. 2. The listed real estate for sale.

Loan Administration - The department of a lender that receives and keeps records of your monthly payments and pays your real estate taxes and insurance premiums.

Loan Balance Cap - Only applicable to ARM's (see Adjustable Rate Mortgage) with deferred interest or negative amortization (see Deferred Interest) . Because your loan balance may increase with these types of loans, many lenders place limits on how much deferred interest may be added to your original loan balance. If, during the life of your loan, the unpaid principal (see Principal) which you owe exceeds this limit, you can no longer defer interest. Your monthly payment must be increased (perhaps significantly, resulting in "payment shock") to pay all interest due monthly and enough of the principal monthly to fully pay off your loan within its remaining life.

Loan Fee - In addition to points (see Point) many lenders charge fees to cover costs of services provided, such as application charges, inspections and preparation of documents.

Loan Guaranty Certificate - If the Veterans Administration (VA) guarantees your loan, it will issue a loan guaranty certificate. This certificate states exactly how much of the amount you borrowed is guaranteed. If you fail to make payments on your loan as promised, the VA will reimburse your lender for the guaranteed amount (see Guaranteed Loan, Certificate of Reasonable Value)

Loan Submission - Before a lender agrees to grant you a mortgage loan, he considers a package of documents that describe the value of the property pledged by you, the borrower, as security for the loan and your history of paying off past debts and your ability to repay this debt.

Loan-to-Value Ratio - The amount you've borrowed to purchase property compared to the sale price or the appraised value (whichever is lower ) of that property. It is expressed as a percentage. For example, if you're buying a house for $100,000, and you arrange for a $90,000 loan, the LTV is 90%.

Lock-In Period - A time period during the term of a mortgage loan during which you cannot pay off your debt before the due date. (see Prepayment)

Loss Payable Clause - A clause in your insurance policy that provides payment (in the event of loss) first to your lender in order to pay off or reduce your loan.

Margin - Used with ARM's (see Adjustable Rate Mortgage). The margin is the amount the lender adds to the index (see Index) value to determine the new interest rate at the time of adjustment for your loan. Margins do not normally change over the life of the loan. The margin reflects the lender's cost of doing business and an allowance for profit.

Market Approach To Value - A method of estimating the value of your property. With this approach, recent sale prices of property comparable to your own are analyzed. The estimate of property value is then based on this analysis by an appraiser. (compare with Fair Market Value)

Market Value - See Fair Market Value.

Marketable Title - When the title, or rights to a property, has only minor problems that any well-informed and prudent buyer will accept, that property is said to have a marketable title.

Mechanic's Lien - If you fail to pay someone for his/her labor and materials used in construction, repair or rehabilitation of your house, he can file a legal claim or lien against your property for the amount due. If you do not pay him, he can enforce his lien by compelling the sale of your property to recover the amount which you owe him.

Metes and Bounds - A method of describing land boundaries in terms of directions and distances. The metes and bounds of a property generally appear in real estate documents when the property has not been legally subdivided into lots, but remains as a large parcel of land with no interior streets.

Mortgage - A formal document which proves the legal claim or lien (see Lien) on your property that your lender holds as security for the money you borrowed. There are two people involved in a mortgage, you and the lender. You pledge the property as security for the repayment of the money you borrowed, but you do not transfer title to the lender. However, if you do not pay the debt as agreed the lender, through a court proceeding, can compel the sale of your property to pay off your debt. (see Deed of Trust)

Mortgage Banker - A person or firm that originates your mortgage loan, collects and manages your payments and sells loans in packages to outside investors. The mortgage banker is not really a "banker," but a middleman who arranges and sells loans. The mortgage banker negotiates the terms of your loan and prepares the loan documents. Usually a mortgage banker will also service your mortgage for the life of the mortgage. (see Servicing)

Mortgage Broker - An individual or firm that acts as an agent for both the borrower and the lender of a mortgage loan. The broker places the borrower and lender in contact with each other, and receives a commission from the borrower if a loan results. Unlike the mortgage banker, he does not negotiate the terms of your loan, issue a loan commitment, prepare the loan documents or service your loan.

Mortgage Commitment - An agreement between you, the borrower, and the lender to disburse a mortgage loan at a future date if specified conditions are satisfied. For example, a lender may be willing to disburse a mortgage loan only if you pay off your current mortgage loan.

Mortgage Discount - See Point

Mortgage Insurance Premium (MIP) - The amount that you, the borrower, are required by the lender to pay for mortgage insurance. It helps to protect the lender if you default. It is required by lenders when your downpayment is less than 20% (or some other specified percentage) for conventional loans and for all FHA loans. The premium is paid periodically either to a private mortgage insurance company or to the Federal Housing Administration, which insures residential mortgage loans.

Mortgage Life and Disability Insurance - An insurance policy that guarantees repayment of your mortgage in the event of your death or, in some cases, disability. In case your survivors are unable to continue loan payments, it protects them against loss of the property by paying off the loan. This insurance is different from mortgage insurance which a lender may require you to pay for because it will pay the lender if you default.

Mortgage Note - A promissory note that is secured by a mortgage. (see Promissory Note, Mortgage)

Mortgagee - The lend of money which is to be used by you, the borrower, for the purchase of property. The lender holds the property as security for your debt. (see Mortgage, Security)

Mortgagee Clause - A clause that may be attached to your fire or hazard insurance policy. In the event of a covered fire loss to your property, it stipulates that the mortgage lender (mortgagee) receives enough of the insurance proceeds to pay off the remaining debt.

Mortgagese - The language of real estate finance. It is spoken by mortgage bankers, savings and loan officers, real estate agents, title attorneys, and real estate investors.

Mortgagor - The borrower of money which is to be used for the purchase of property pledged as a security for the loan. (see Mortgage, Security)

Negative Amortization - See Deferred Interest.

Net Worth - The value of all your assets: property, investments and cash, less your total liabilities: debts etc. worthiness for credit.

Nominal Interest Rate - The stated charge for a loan. It is expressed as a percentage of the amount borrowed. (see Coupon Rate)

Nonassumption Clause - Built into many loans, it states that you cannot allow anyone to assume your loan, unless your lender gives special written approval. (see Assumption of Mortgage)

Nonrecourse Loan - A type of mortgage loan in which the lender cannot hold you personally liable if you fail to repay the debt as promised. He can, using a legal procedure, take the property you've pledged as security for your loan, but he cannot claim any other assets or money from you if you default ( see Breach)

Option - An agreement allowing (but not requiring) you to buy or sell property for a stated price within a specified period of time. For example, if you are given a 90-day option to buy a piece of land for $500 per acre, you may purchase it within 90 days at that price, but you have no obligation to purchase.

Origination Fee - The fee that the lender charges you, the borrower, to cover the cost of issuing a loan. It pays for processing your loan which includes collecting information about your credit worthiness and the property you are buying. This information is analyzed to determine whether you will be able to pay the loan back as agreed, and, whether the property provides sufficient collateral in case you file to repay the loan. The fee is usually computed as a percentage (e.g. 1%) of your mortgage loan. It usually does not include fees for appraisals, credit reports, inspections and loan document preparation.

Overimprovement - An improvement to land, such as a building that is inappropriate due to excessive size, excessive cost or inadequate financial returns. For example, if a house costs $200,000 in a neighborhood of $100,000 homes, the market value of the house (see Fair Market Value) may only be $150,000. Because the original value of the house is too great for the value of the site, it is said to be an over improvement.

Par - A period in time where the face amount of a mortgage or other loan equals the current market value of the mortgage or loan.

Partial Payment - In loan collection, a loan payment that is less than the amount due. Usually, it will not be credited to your account until you submit the rest of the full amount due.

Party Wall - A wall built along a boundary line between two properties, occupying a narrow strip of each. Both property owners may use the party wall.

Percolation Test - A test which determines how fast waterless through soil. It is required when a septic tank is being considered for a property.

Perfecting Title - The process of eliminating any and all claims, other than the owner's to the title of a property. (see Title)

Permanent Loan - Also called permanent financing. This mortgage loan covers most costs of a building project; development costs, interim loans, construction loans, financing expenses, marketing, administrative and legal costs. It differs from construction or interim loans because the money from the loan is not received by the borrower until the project is constructed and ready for occupancy. It is a longer term loan of at least 5 years and generally 30 years for residential property. (see End Loan)

Personal Liability - When you pledge all of your own assets and property as a security for your mortgage debt, you agree to personal liability. It is your unconditional and absolute promise to pay the debt using all your assets. It occurs in addition to the primary security of the real estate you pledge to the lender. (compare with Nonrecourse Loan)

Personal Property - Any property that doesn't fall under the category of real property. It includes all of your movable possessions, such as furniture, automobiles and clothing and other investments such as stocks and bonds or limited partnership interest. (see Real Property)

PITI - This stands for the principal, interest, taxes (real estate) and insurance (fire): the four costs normally included in a monthly mortgage payment. The monthly payment for the principal and interest go to the lender to repay the debt while the real estate taxes and fire insurance ego into the escrow or custodial account (see Escrow Account) to pay these amounts when due.

PITI Ratio - Also called an "income-to-debt" ratio. It is used by lenders in deciding whether to give you, the borrower, a loan. It compares the amount of your monthly income to the amount you will owe each month in principal, interest, real state tax and insurance on that mortgage. (compare to Qualifying Income Ratio)

Plat - A map generally showing the ownership interests in a piece of land. For example, if you won urban or suburban real estate, the plat will show streets, easements (see Easement) and lots with their boundaries and dimensions. It will not show mortgage or mechanics' liens (see Mechanic's Lien) or deviations and contours of the land.

Point - Also called discount point. It is a one-time charge due at closing (see Closing). One point is one percent of your loan. For example, if your loan is for $100,000, two points is $2,000. By paying points, you increase your initial costs in order to decrease your interest rate. Sometimes the seller will split the cost of the points with you.

Power of Attorney - 1. The authority to act in another person's behalf, at this request. If your are granted such authority you are called the attorney-in-fact. If you are the grantor (see Grantor), you may revoke a power of attorney at any time. If you, as grantor die, relocate or are judged legally incompetent, the power of attorney will automatically terminate. 2. A document granting the power of attorney.

Preclosing - A rehearsal of the closing day for the sale of property. Preclosings are often used when the closing is complicated by many buyers and sellers, or by multiple loans. Often during a preclosing, legal documents, such as the deed (see Deed) and mortgage, are prepared and signed by some or all of the parties involved. (see Closing)

Preliminary Title Search - A title search (see Title Search) conducted by a title insurance company, before it commits itself to insure your rights in property ownership.

Prepaid Interest - Interest that you, the borrower, pay the lender before it becomes due. Until 1976, you could deduct prepaid interest from your income tax. this is no longer permissible.

Prepayment - Paying off your mortgage loan, or part of it, before the due date. Many fixed rate loans forbid prepayment, charge a penalty for it, or limit the amount that you can prepay in any one year. Adjustable Rate Mortgages (see Adjustable Rate Mortgage) usually allow prepayment without penalty.

Prime Rate - The interest rate that commercial banks set as their base lending rate. This rate is not determined by the financial markets, but is established separately by each bank. It is a closely watched indicator of general trends in interest rates.

Principal - At the beginning of your loan, it is the amount that you borrow: when you borrow $100,000 your principal is $100,000. During the term of your loan it is the amount you owe exclusive of interest, late charges and other fees. The principal is always the amount on which you pay interest (see Interest). With most loans, your early mortgage payments pay mostly the interest that you owe, with very little from each payment going to pay off the principal. Only later will a larger portion of your payments begin to pay off the principal.

Private Mortgage Insurance (PMI) - Insurance provided by a private company helping to protect the mortgage lender against your mortgage default (see Breach). Generally, this insurance is required by your lender when your downpayment is less than 20% of your property value. The lender requires you to pay the insurance premiums. (see Mortgage Insurance Premium)

Processing - Gathering your loan application and all of the required supporting documents (including the property appraisal, credit report, your credit history and your income and expense situation) so that a lender can consider you for a loan.

Promissory Note - A document in which you promise to pay a stated amount on a specific date. The note normally states the name of the person you'll be paying, as well as the terms for payment and any interest rate.

Pro Rate - To divide expenses and income between a buyer and a seller in proportionate shares. For example, you purchase property at mid-year after the seller has already paid taxes on the property for the whole year. You reimburse him one half of those taxes, your pro-rata share, for your share of that year.

PUD (Planned Unit Development) - 1. It is the comprehensive development plan for a large area. Usually indicating where roads, schools, recreational, office, commercial or industrial and residential areas will be. 2. It also refers to a subdivision that has common areas reserved for the use of and commonly owned by the separate lot owners.

Punch List - A list of flaws in the construction of property that must be corrected by the seller. An example of such a flaw is a leaky roof.

Purchase Agreement - A contract to buy. (see Agreement of Sale)

Purchase-Money Mortgage - A mortgage loan given by you, the buyer, directly to the seller as partial payment of the purchase price of his real estate. For example, you purchase a home for $50,000 which has an already existing mortgage of $30,000. You may make a cash payment of $10,000 and, if the lender agrees, assume the existing mortgage (see Assumption of Mortgage). To close the sale, you'd give the seller a purchase-money mortgage of $10,000 which would be junior to or subordinate to the existing mortgage.

Qualifying Income Ratio - Used by lenders in deciding whether to offer you a loan. One type compares only the amount of your proposed monthly mortgage payment to your monthly income (see PITI Ratio) Another compares the amount of your total monthly payments (e.g. you car, credit card and proposed mortgage payments) to your monthly income.

Quitclaim Deed - A legal document which transfers to the buyer or owner, whatever interests in the property are held by the maker of the deed. It does not guarantee that those interest are valid. By accepting such a deed, you accept the risk that someone may later appear with a valid claim to your property. (compare with General Warranty Deed)

Real Property - A general term meaning land, buildings and other improvements on the land and certain rights arising from its ownership. Your real property includes any land you own, the structures built on it, the crops growing from it and the water and minerals under it. It also includes the right to enjoy the scenic view, sunlight, wind and easements (see Easement) that arise from the terms of ownership or lease. Real property is commonly known as real estate.

Realtors - Anyone who is both licensed to buy and sell real estate in an area and who is an active member in the local real estate board affiliated with the national Association of Realtors.

Realty - Real property. (see Real Property)

Recording - Any legal document that affects the ownership of real property is recorded in a book of public records. For example, when property is sold to you, the deed (see Deed) is recorded by the registrar or county clerk. This gives notice of your ownership to all other interested parties.

Recourse Loan - A type of loan in which a lender can hold you, the borrower, personally liable if you fail to meet all the requirements of the mortgage. By signing a recourse note you pledge all of your assets to repay the note. Through legal action, the lender can force the sale of any of your assets to pay off the loan. Examples of possible actions include a lawsuit and wage garnishing to collect the judgment. (compare with Nonrecourse Loan)

Refinancing - Occurs when a borrower pays off one loan with the proceeds from another loan using the same property as security.

Reinstatement - Happens when a borrower corrects a mortgage default. A mortgage is reinstated if it is brought back up to date by paying all charges that had become overdue. Not all mortgages allow reinstatement.

Release Clause - A clause in a mortgage that grants the owner or borrower the privilege of releasing a portion of the property from the mortgage by paying off a portion of the mortgage loan. That portion released can no longer be considered by the lender as direct security for your loan.

Renegotiable Rate Mortgage (RRM) - A type of Adjustable Rate Mortgage (ARM). the interest rate and the terms of the mortgage are completely renegotiated at regular intervals. Unlike other ARM's where fluctuations in your interest are controlled by a preselected index, changes in an RRM are totally at the lenderâs discretion. (see Adjustable Rate Mortgage)

Rescission - Cancellation of a contract or a transaction. A rescission can occur when all involved parties agree to make the transaction invalid or when some law or rule makes the transaction void.

RESPA - Real Estate Settlement Procedures Act. A federal law protecting you, the home buyer, by requiring your lender to provide you with estimates and information about closing costs before closing date. (see Closing Costs)

Reverse Annuity Mortgage (RAM) - An unusual mortgage where someone who owns their home free and clear (i.e. has paid off all mortgages on the property) receives monthly payments from a lender for a short period of time, usually less than ten years. At the end of the mortgage, the owner agrees to refinance the loan or sell the property to pay off the loan. Such payments from the lender are often beneficial for retired people who know they wonât be in a house for more than 5 or 10 years, because they can help them make tax and insurance payments.

Right of First Refusal - A provision or agreement given by a property owner so that you have the first opportunity to buy or lease a property before it is offered to others. For example, if you are renting an apartment that is converted to a condominium, you may begin a right of first refusal to buy the unit before it is offered for sale to another party.

Right of Survivorship - In certain types of joint ownership, surviving co-owners legally inherit the interest of a deceased co-owner. This is called the right of survivorship. you are granted this right if you hold either joint tenancy or a tenancy by the entirety; but not if you hold a tenancy in common. (see Joint Tenancy, Tenancy of the Entirety, Tenancy in Common)

Right of Way - The privilege to pass over another personâs land, as granted by the owner of that land. Right of way falls under the general category of easement. ( see Easement)

Riparian Rights - The right of owners to the water and land below the high water mark.

Rollover Mortgage - A type of ARM (see Adjustable Rate Mortgage). With this mortgage, you can renegotiate your interest rate and payment terms, usually every five years.

SAM (A Shared Appreciation Mortgage) - In exchange for receiving a below-market interest rate on your mortgage, you promise to give your lender a certain portion of the value that your property will gain.

Satisfaction of Mortgage - Also known as a release deed. It is the legal document which proves that you have completely paid off your mortgage. It is given to you by your lender.

Second Mortgage - A junior mortgage. A second mortgage loan can be used to reduce the cash downpayment (see Downpayment) for your purchase of property. For example, if you're buying a house for $100,000 and your downpayment is $20,000, you can reduce that downpayment to $10,000 by getting another mortgage for $10,000. Usually the second mortgage will have a higher interest rate because it involves a greater risk to the lender since any proceeds from the property go first to pay off the first mortgage.

Secured Party - Usually the lender who holds the security interest in, or lien on a property. Also known as the mortgagee. (see Security Interest, Lien)

Security - The collateral or property given, deposited or pledged to insure the fulfillment of an obligation or to pay off a debt. When you sign a mortgage, you pledge your property as the security for the money that you borrowed.

Security Instrument - A legal document (that is recorded) given by you, the borrower, to your lender. It pledges the title of your property as insurance to the lender for the full payment of your mortgage. Mortgages, deeds of trust, trust deeds and deeds to secure debt (see Mortgage, and Deed of Trust) are considered security instruments. The security instrument contains the description of the property.

Security Interest - The legal right or share that your mortgage lender holds in your property.

Servicing - All the management and operational procedures that your mortgage company does for you for the life of the mortgage, including: collecting your mortgage payments, making sure that your taxes and insurance charges are paid promptly, and sending you an annual report on your mortgage and your escrow accounts. (see Escrow Account)

Settlement Costs - A term sometimes used inter changeably with closing costs. These actually include the closing costs plus the downpayment and pre-paid expenses such as the escrows for insurance and taxes. (see Closing Costs)

Special Warranty Deed - With is deed of conveyance, the grantor (seller) agrees to protect you, the grantee (buyer) from any claims to the title of the property only while he owned it.

Spot Loans - What most home buyers receive. It is a loan secured by residential real estate and received on an individual basis.

Subordination - Occurs when a party agrees in writing that its claim on a property is inferior to the claim of another. For example, a second mortgage lender agrees to subordination when he agrees that the proceeds from the sale of a property will go first to pay off the first mortgage lender.

Subsidy - Money given (usually by the seller in a lump sum at settlement) to lower the buyer's share of housing costs. A subsidy is generally given for a limited number of years by a seller to a buyer to pay a portion of the buyerâs monthly mortgage payments.

Survey - A measurement of your land, performed by a registered land surveyor. The surveyor will draw up a plat (see Plat), or map, to show your landâs location in relation to known points of reference, as well as its dimensions and features. The plat will also include the locations and dimensions of any structures on your land.

Tax Basis - The cost of your property, used for tax purposes. The tax basis includes any cash you paid and the principal amount of your mortgage loan at purchase. As you invest more in your property, the tax basis will increase. It decreases as you take the tax deductions (such as depreciation) or withdraw cash.

Tax Lien - A claim on your property by government (local, state or federal) for the amount of due and unpaid taxes.

Teaser Rate - A term used in adjustable rate mortgages. It is an initial interest rate that is considerably below the "going market rate" which is determined by the index plus the margin. The teaser rate may result in a large increase in the interest rate and/or in your monthly payment at the first adjustment date. (see Adjustable Rate Mortgage, Index, Margin)

Tenancy by the Entirety - The co-owner of real estate by a married couple. Upon the death of one spouse, the other automatically owns the entire property. (see Right of Survivorship)

Tenancy in Common - When two or more people are legally granted interest in the same property, they hold a tenancy in common. The interests need not be equal nor created at the same time as in joint tenancy. If one of them dies, the others do not automatically own his interest, as they would in a joint tenancy. His interest passes to his heirs. (see Joint Tenancy, Tenancy by the Entirety, and Right of survivorship)

Tenant - One who is not the owner but occupies real property (see Real Property) with the consent of the owner. The tenant is entitled to exclusive possession and enjoyment of the property for a specified period of time and payment of rent as specified in a lease.

Title - In mortgagese, title can refer to two things: 1. The rights of ownership and possession of a particular property. 2. The documents that proved those rights. You can buy the rights of ownership and possession (title), inherit them or accept them as a gift.

Title Binder - A temporary title insurance policy. The title binder insures your right to property ownership for an interim period only. It must be replaced by a permanent title insurance policy. (see Title Insurance Policy)

Title Defect - Any legal right to a property claimed by a person other than the owner. For examples include unpaid real estate taxes or claims to the property such as those of an unknown heir.

Title Exception - An encumbrance or potential encumbrance (see Encumbrance) on a title against which an insurance company will not insure. If a current survey is not provided at a property settlement (see Closing), the title insurance policy will not cover any encumbrance revealed by a later survey.

Title Insurance Policy - Protects you, the insured, up to a specified amount against losses arising from claims against your property due to a defect in the title (see Title Defect, Encumbrance, Cloud on Title, Clear Title). You are insured from loss up to a specific amount only when you have your own policy, listing your name as the beneficiary. A mortgagee's (e.g. your lenderâs) title insurance policy does not protect you, the owner.

Title Search - An examination of public records, laws and court actions to make sure that the seller is the legal owner and to disclose all other claims or encumbrances on the property affecting its ownership. (see Encumbrance)

Town House - A residential unit on a small lot that shares at least one exterior wall with the other similar units. The title to the entire lot (see title) belongs to an individual buyer and, in some cases, the buyer also receives a fractional interest in the common areas.

Transfer Fees - The cost of changing the public records when ownership of property is transferred from one person to another. Either you, the buyer, or the seller will pay the transfer fees to the city or county government.

Transfer Tax - State and local taxes charged on the price of the property for transferring property from one person to another. Either you, the buyer, or the seller will pay this tax.

Trustee - Someone who holds the legal title to your property, either as a favor to you or as security for a debt you owe a lender.

Underwriting - In mortgage lending, the process of approving or denying a loan based on an evaluation of the property and the applicant's ability to repay the loan. The underwriter analyzes the risks involved and selects an appropriate loan term and interest rate.

Usury - the practice of charging more for a loan than law permits. In committing usury, the lender sets your interest rate (see Interest) above the maximum rate allowed by law.

VA (Veterans Administration) - An independent agency of the federal government which helps a veteran get a long-term, low-downpayment mortgage. The agency normally does this by guaranteeing a portion of a lender's loans against loss. In return for this guarantee, lenders must follow prescribed procedures for loans established by the VA.

Variable Rate Mortgage (VRM) - A long-term, mortgage loan in which the interest rate may vary, or float, periodically throughout the term of the loan. The rate fluctuations generally are based on an interest rate index, and are restricted under the terms of your mortgage. For example, the rate increase may be restricted to no more than 1 percentage point per year. (see Floating Rate of Interest) To your advantage, the initial interest rate on a VRM is usually low, making it easier for you to obtain this type of loan, but rate increases may make future monthly payments higher. (see Adjustable Rate Mortgage, Index)

Waiver of Lien - Normally, someone who supplies labor or materials, such as a contractor, holds his legal claim to the value of those materials until he is paid for them. When a supplier signs a waiver of lien, he surrenders that claim against the property, and coincidentally, his right to force payment through it. (see Mechanic's Lien)

Water Table - The depth, usually expressed in feet, from the surface of your land to the level at which natural ground water is found.

Wraparound Mortgage - A form of refinancing (see Refinancing). When you already own a house and borrow more money, you can combine the amount you still owe on your homeâs original loan (see First Mortgage) with the new amount to form one wraparound mortgage.

Yield - In real estate it is the effective amount income from an investment. It is expressed as a percentage of the initial amount of the investment.

Zero Lot Line - The positioning of a structure so that one side of it sits directly on the lot's boundary line. Although usually prohibited by setback ordinances see Setback Lines), such positioning can be part of special planned unit developments. (see PUD)

Zoning - Local governments establish and can sometimes change the types of land usage that affect any property in their area. The basic zoning categories are residential, commercial and industrial. To build a business on property zoned for residences, you must request and wait until the property is rezoned for business use.