EDUCATION

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Acceleration  
The right of the lender to demand payment on the outstanding balance of a loan.

Adjustable Rate Mortgage (ARM)  
A mortgage that has a fixed rate of interest for only a set period of time, usually one, three or five years. During the initial period the interest rate is lower, and after that period it will adjust based on an index. 

Adjustment Date 
The date that the interest rate is changed for an ARM. 

Amortization Schedule
A schedule of how the loan is intended to be repaid. For example, a typical amortization schedule will include the amount borrowed, the interest rate, and the term. The result will be a month-by-month breakdown of how much every month is paid in interest versus how much is paid down on the principal.

Annual Percentage Rate (APR) 
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.

Appraisal 
Appraisals are conducted to give an estimate of the value of a property. They are conducted by certified professionals who evaluate a piece of property based on a physical inspection and the selling price of comparable houses that have recently been sold.

Appreciation
An increase in property value.

- B -

Balloon Loan/Mortgage 
A loan which is amortized for a longer period than the term of the loan. Usually this refers to a 30-year amortization and a five or seven-year term. At the end of the term of the loan the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment. 

Bi-Weekly Mortgage 
Compared to typical mortgages that are paid once a month, bi-weekly mortgages are paid twice a month. More frequent payments reduce interest costs and decrease the length of the mortgage. 

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Cap 
A limit on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage.

Capital or Cash Reserves 
Extra money the borrower has in the bank on closing day. These funds go above and beyond what is needed for the down payment and closing costs. 

Consumer Financial Protection Bureau (CFPB) 
The CFPB is a regulatory agency charged with overseeing financial products and services that are offered to consumers.

Clear Title 
Titles that are marketable and free of liens or disputed legal questions as to ownership of the property.

Closing 
The final step in purchasing a property where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other parties such as attorneys. At the closing the seller receives payment for the property. Also known as settlement.

Closing Costs 
Closing costs are the costs involved with buying a house, typically including attorney fees, recording fees and other costs associated with the mortgage closing.

Collateral 
Security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.

Construction Loan
A short term non-revolving line of credit to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.

Credit Score 
A score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 to 840. A lower score means a person is a higher risk, while a higher score means that there is less risk.

- D -

Debt-to-Income Ratio 
One of many ratios used to estimate whether a borrower will be able to repay a loan. In this calculation, the lender compares the monthly debt payments of the borrower, including the new mortgage, to the borrower's monthly income. The income figure is divided into the expense figure, and the result is displayed as a percentage. The higher the percentage, the riskier the loan for the lender.

Default
The inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure.

Down Payment
An amount of the purchase price that the buyer pays at the time of closing. Generally, lenders require a specific down payment in order to qualify for a mortgage.

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Earnest Money 
Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.

Encumbrance 
Anything that affects title to a property, such as loans, leases, easements, or restrictions.

Equity 
The difference between the value of the home and the borrowed principal still outstanding. As a borrower makes payments and the value of the home increases, the equity of the home generally increases.

Escrow 
Portion of a mortgage payment that is designated to pay for property taxes and hazard insurance. It is an amount "over and above" the principal and interest portion of a mortgage payment.

- F -

Fair Credit Reporting Act (FCRA)
Law passed by Congress to give borrowers certain rights when dealing with consumer reporting agencies, or credit bureaus. All credit bureaus are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit or loans.

Fair Housing Act
A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Federal Housing Administration (FHA)
An FHA loan is a mortgage issued by federally qualified lenders and insured by the FHA. FHA loans are designed for low-to-moderate income borrowers who are unable to make a large down payment.

Fixed Rate Mortgage
A mortgage where the interest rate and the term of the loan is set for the life of the loan.

Funding Fee
The Department of Veteran's Affairs (VA) charges a Funding Fee to most veterans who obtain a VA mortgage loan to help sustain the VA home loan program. Only veterans receiving VA disability are exempt from paying this fee. The VA Funding Fee is a percentage of the principal loan amount.

- H -

Homeowner's Insurance 
Prior to closing, the homeowners must secure property insurance on the new home. The policy must list the lender as loss payee in the event of a fire or other event.

- I -

Interest
A fee charged for the use of borrowing money.

Interest Rate 
The amount of interest charged on a monthly loan payment, expressed as a percentage.