Abstract of title
A written history of all the transactions associated to the title for a specific tract of land. An abstract of title covers the period from the original source of title (frequently the original land grant from the United States government to an individual) to the present time and encapsulates all subsequent documents that have been recorded against that tract of land.
Additional principal payment
A payment made by a borrower of more than the scheduled principal amount due in order to reduce the outstanding balance on the loan, in addition to save on interest over the life of the loan and/or pay off the loan in advance of its original termination date.
Adjustable-Rate Mortgage (ARM)
A mortgage loan with an interest rate that can change based on the terms of the mortgage, usually in response to the market or Treasury Bill rates. These loans generally start with a lower interest rate compared to a fixed-rate mortgage.
A preliminary analysis of a borrower’s ability to afford the purchase, refinance or qualify for a loan modification of a home that takes into consideration factors such as income, liabilities and available funds, as well as the type of home loan, the likely taxes and insurance for the home.
Paying a debt by making regular installment payments over a set period of time, at the end of which the loan balance is $0.
Approved term (after approval)
The number of months that it will take to pay off your loan. The approved term is for calculating the payment amount, repayment schedule and total interest paid over the life of the loan or at the time of a loan modification.
A mortgage loan with initially low interest payments but requires one large (“balloon”) payment due upon maturity (Most Balloon Mortgages are for a period of five to seven years).
The attempts a mortgage company takes to collect past due payments.
An Adjustable-Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period or under specified conditions.
Debt-to-Income (DTI) is a calculation commonly used by mortgage companies when qualifying borrowers for a mortgage or a loan modification to work out delinquency. It is calculated by comparing how much you pay toward your debts (for example: car loans, credit cards and child-support) divided by your gross monthly income before taxes. A standard acceptable percentage your mortgage payment is not to exceed 31% of your monthly income before taxes.
A legal document under which ownership of a property is transferred from one entity to another.
Deed-in-Lieu of Foreclosure
The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and avoid foreclosure, also called a voluntary conveyance.
When a borrow fails to meet the terms of their loan agreement. Generally, this is based on failure to make payments on time, pay property taxes (non-escrowed mortgage) or maintain homeowner’s insurance.
Payments that are authorized to be postponed as part of a workout process to avoid foreclosure. In most cases, the missed payments are tacked onto the end of the mortgage loan.
The difference between what a foreclosed home sold for at auction and the remaining mortgage balance. The mortgage company may demand you pay the amount of the deficiency balance.
Failure to make a payment when it is due. A loan is generally considered delinquent when it is thirty or more days past the due date.
Ownership interest in a property. The difference between the home’s retail value and the balance due on the mortgage loan and any additional liens attached to the property.
An account, usually held by the mortgage company, where a homeowner pays money toward taxes and insurance of a home.
The account where the escrow funds are held in trust.
A periodic review of escrow accounts to make sure it maintains a positive balance to pay the taxes and insurance on a home when they are due.
Escrow impound account
Refers to an account set up by a lender in which funds to pay for real estate taxes and homeowner’s insurance are deposited as part of the borrower’s monthly mortgage payment, then disbursed as tax and insurance payments come due.
An escrow overage will occur when your escrow account balance exceeds the required minimum balance for the account. These escrow overages typically happen when there is a decrease in your property taxes or insurance premiums. When this happens, you may receive an escrow overage refund check or funds may be applied towards a future escrow balance.
An escrow shortage will occur when the balance in your escrow account drops below the required minimum balance. These escrow shortages typically happen when there is an increase in your property taxes or insurance premiums. When this happens, you may need to make up the shortage through an increase in your contractual payment or you may elect to make a separate payment into the escrow account.
Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.
Federal Housing Administration (FHA)
An agency of the Department of Housing and Urban Development. The FHA provides mortgage insurance for certain residential mortgages. It also sets standards for underwriting these mortgages and for construction of homes secured by these mortgages.
A mortgage loan in where the interest rate is predetermined for the life of the loan, as compared to a variable or adjusted mortgage loan.
An agreement to suspend or reduce monthly mortgage payments for a specific period of time. The mortgage company may postpone legal action when a homeowner is delinquent. A forbearance is usually granted when a homeowner makes satisfactory arrangements to bring the overdue mortgage payments up to date or utilized the CARES ACT Mortgage Forbearance.
The legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the homeowner is in default for a reason other than the failure to make timely mortgage payments. Learn more about Foreclosure.
Steps by which the mortgage company works with the homeowner to find a permanent solution to resolve an existing or impending loan delinquency.
A hardship is the reason why a homeowner is having trouble making their mortgage payments, such as job loss, medical emergency or illness, divorce, etc. A hardship may be short term (less than 6 months) or long term (more than 6 months). When contacting your mortgage company or a housing counselor for assistance, homeowners may be required to demonstrate/explain any hardship they are experiencing.
Insurance coverage that pays for the loss or damage on a person’s home or property (due to fire, natural disasters, etc.).
Home Equity Line of Credit
A way of borrowing money against the equity or assets that the homeowner has in the home to pay for things such as home repairs, college education, or other personal uses.
A mortgage where the homeowner pays only the interest on the loan for a specified amount of time.
A property not considered to be a primary residence that is purchased by an investor in order to generate income, gain profit from reselling or to gain tax benefits.
The owner of the loan on a property.
Loan to value is a calculation frequently used by mortgage companies when qualifying borrowers for a mortgage. It is calculated by dividing the mortgage balance by the home’s current market value.
When the homeowner and the mortgage company are working together to determine the appropriate option or workout solution to bring the mortgage current and avoid foreclosure.
Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance or loan term. Learn more about Loan Modification (need hyperlink to Loan Mod page).
A legal document that pledges property to the mortgage company as security for the repayment of the loan. The term is also used to refer to the loan itself.
Mortgage companies may originate as well as service the loan. The lender who originated your mortgage may or may not service your loan. When the mortgage company services your mortgage, they do the following: collect the homeowner’s mortgage payments, pay taxes and insurance, generally manage your escrow accounts (i.e., they “service” your loan), and provide customer service and support.
Insurance that protects the mortgage company against losses caused by a homeowner’s default on a mortgage loan. Mortgage insurance, usually listed on a statement as MI, typically is required if the homeowner’s down payment is less than 20% of the purchase price. Non-FHA mortgages may have this insurance removed once the equity in the home meets the required percentage.
The amount a lender charges to borrow money to buy, refinance or modify a home.
Principal & interest
The principal is the amount of money borrowed on a loan. The interest is the charge paid for borrowing money. Principal and interest account for the greater part of your mortgage payment, which may also include escrow payments for property taxes, homeowner’s insurance, mortgage insurance and any other costs that are paid monthly.
The amount a person borrows from a lender referred to as “amount financed”.
The amount to pay the local city/municipality and sometimes county, based on the assessed value of the property.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts and requires notice to borrowers when servicing of a home loan is transferred.