Real Estate Financing Practice – Key Vocabulary

A comprehensive set of vocabulary flashcards covering the loan process, federal lending laws, underwriting ratios, loan programs, and foreclosure concepts from the provided real-estate-finance lecture notes.

Pre-qualification

An informal, non-binding estimate of how much a potential borrower might be able to borrow.

Pre-approval

A lender’s written commitment to fund a borrower up to a specified amount, subject to stated conditions.

Nominal Interest Rate

The stated percentage rate on the promissory note; excludes fees and points.

Annual Percentage Rate (APR)

The effective yearly cost of credit, combining the stated interest rate with all finance charges.

Rate Lock

An agreement that freezes a specific interest rate for a set period before closing.

Usury Laws

State statutes that set maximum legal interest rates to prevent excessive charges.

Origination Fee

A lender charge—often expressed in points—to cover the administrative cost of making a loan.

Point

One percent of the loan amount, used for origination fees or discount points.

Discount Point

Pre-paid interest paid at closing to lower the loan’s interest rate; one point equals 1% of the loan.

Yield Spread Premium (YSP)

Compensation that allows borrowers lower up-front costs in exchange for a slightly higher rate.

Homeowners Hazard Insurance

Coverage required by lenders to protect their collateral against fire and other perils (not floods).

PITI

Principal, Interest, Taxes, and Insurance—the four components of a typical monthly mortgage payment.

Escrow (Impound) Account

Lender-held reserve into which borrowers pay 1⁄12 of annual taxes and insurance each month.

Truth in Lending Act (TILA)

1968 federal law requiring full disclosure of credit costs; implemented by Regulation Z.

Regulation Z

The CFPB rule that enforces TILA and its disclosure and advertising requirements.

TRID Rule

TILA-RESPA Integrated Disclosure regulation that created the Loan Estimate and Closing Disclosure forms.

Loan Estimate

A three-page disclosure of key loan terms, APR, and estimated closing costs, due within three business days of application.

Trigger Term

Specific credit information in advertising that requires full loan disclosures under TILA.

Right of Rescission

TILA right allowing borrowers to cancel certain refinances or home-equity loans within three business days.

Real Estate Settlement Procedures Act (RESPA)

1974 law (Reg X) mandating disclosure of actual settlement costs and prohibiting kickbacks.

Consumer Financial Protection Bureau (CFPB)

Federal agency created by Dodd-Frank to enforce consumer financial laws including Reg Z and Reg X.

Equal Credit Opportunity Act (ECOA)

Regulation B law prohibiting credit discrimination and requiring notice of adverse action within 30 days.

Dodd-Frank Act

2010 legislation that increased financial oversight and created the CFPB; contains Mortgage Reform provisions.

Housing Expense Ratio

Front-end ratio comparing PITI to gross monthly income; conventional limit is 28%.

Total Debt-to-Income Ratio

Back-end ratio comparing all monthly debts (including PITI) to gross income; conventional limit is 36%.

Amortization Table

Chart listing monthly principal and interest payments per $1,000 of loan based on term and rate.

Uniform Residential Loan Application (URLA)

Standard Form 1003/65 used by lenders to collect borrower and property information.

FICO Score

Numerical credit score derived from credit bureau data to gauge borrower risk.

Tri-merged Credit Report

Combined report from all three bureaus providing one consolidated credit profile and score.

Underwriting

The lender’s risk-analysis process that decides whether to approve a loan and on what terms.

Conditional Approval

Loan approval subject to specified additional documentation or actions before closing.

Conventional Loan

Mortgage not insured or guaranteed by government agencies; often sold to Fannie Mae or Freddie Mac.

Loan-to-Value Ratio (LTV)

Loan amount divided by the lesser of appraised value or purchase price of the property.

Private Mortgage Insurance (PMI)

Insurance protecting lenders on high-LTV conventional loans; can be canceled at 80% LTV.

Combined Loan-to-Value (CLTV)

Total of all loan balances on a property divided by its value or purchase price.

FHA-Insured Loan

Mortgage funded by approved lenders and insured by the Federal Housing Administration.

Section 203(b) Loan

FHA’s standard fixed-rate loan program available to qualified borrowers for 1-4-unit homes.

VA-Guaranteed Loan

Mortgage to eligible veterans, guaranteed by the Department of Veterans Affairs up to set limits.

Certificate of Eligibility (COE)

VA document stating a veteran’s entitlement to loan guaranty benefits.

Notice of Value (NOV)

VA-issued appraisal that sets the maximum loan amount for a VA mortgage.

USDA Section 502 Loan

Rural housing program offering guaranteed or direct loans, sometimes with 100% financing.

Assets

Items of value owned by the borrower, such as cash, accounts, and investments.

Down Payment

Portion of the purchase price paid in cash by the buyer; not financed.

Reserves

Liquid funds a borrower must have after closing, typically equal to two months of PITI.

Stable Monthly Income

Earnings that are expected to continue and can be verified for qualifying.

Residual Income

Income left over after taxes, housing costs, and debts; key in VA loan qualification.

Secondary Financing

Additional borrowing (e.g., a second mortgage) used to supplement the primary loan.

Biweekly Payment Plan

Mortgage structure with payments every two weeks, reducing interest and shortening term.

Foreclosure

Legal process by which a lender forces sale of collateral to satisfy a defaulted loan.

Judicial Foreclosure

Court-supervised foreclosure culminating in a sheriff’s sale of the property.

Statutory Right of Reinstatement

Borrower’s right to cure a default and stop foreclosure by paying arrears before lawsuit is filed.

Equitable Right of Redemption

Borrower’s ability to redeem property by paying debt and costs before the foreclosure sale.

Statutory Right of Redemption

State-granted period after a foreclosure sale in which the borrower may reclaim the property.

Nonjudicial Foreclosure

Foreclosure by power-of-sale clause in a deed of trust without court action.

Power of Sale Clause

Provision in a deed of trust allowing the trustee to sell the property upon borrower default.

Strict Foreclosure

Court sets a payoff deadline; if unmet, title passes directly to the lender—rarely used.

Real Estate Owned (REO)

Property acquired by a lender after an unsuccessful foreclosure sale auction.

Deed in Lieu of Foreclosure

Borrower voluntarily deeds property to lender to avoid formal foreclosure proceedings.

Loan Modification

Permanent change to loan terms—rate, payment, or term—to help borrower avoid default.

Forbearance Agreement

Temporary lender consent to reduce or suspend payments while borrower brings loan current.

Repayment Plan

Agreement for borrower to make regular payments plus portions of arrears to cure default.

Short Sale

Lender-approved sale in which proceeds are less than the outstanding loan balance.

Deficiency Judgment

Court order making borrower personally liable for loan balance not covered by foreclosure sale.

Exculpatory Clause

Loan clause making debt nonrecourse, shielding borrower from deficiency judgments.

Bankruptcy

Court proceeding that discharges or reorganizes debtor obligations; severely impacts credit.

Sheriff’s Sale

Public auction of property ordered by a court after judicial foreclosure.

Sheriff’s Deed

Deed conveying title to the highest bidder after a sheriff’s sale; usually without warranties.

Lis Pendens

Recorded notice that litigation affecting title is pending.

Notice of Foreclosure

Lender’s recorded notice accelerating the debt and declaring intent to foreclose.

Debt

Money owed under a note or credit agreement that must be repaid.

Credit History

Record of past borrowing and repayment behavior used to predict future creditworthiness.

Credit Report

Document listing a borrower’s debts, payment history, employment, and address information.

Credit Scoring

System assigning numerical values to borrower characteristics to measure credit risk.

Nonrecourse Loan

Loan in which lender’s only remedy is the collateral; borrower’s other assets are not liable.

Impound Account

Alternate term for escrow account used to collect funds for taxes and insurance.

Mortgage Insurance Premium (MIP)

Insurance fee on FHA loans, paid upfront and monthly, to protect lenders from default.

Lock-In Agreement

Written confirmation of rate lock terms between lender and borrower.

Trigger Phrase

Another term for trigger term; advertising language that obligates full loan disclosure.

Underwriter

Individual who evaluates loan risk and issues the final approval or denial decision.

Underwriting

Comprehensive analysis of borrower, property, and loan terms to determine lending risk.

Verification of Deposit (VOD)

Form sent to financial institutions to confirm borrower account balances for underwriting.

Yield Spread Premium

See YSP—broker rebate for originating a higher-rate loan that offsets borrower closing costs.

Usury

Charging interest at a rate higher than legally allowed.

Trigger Term (Advertising)

Specific credit detail in an ad that triggers full disclosure under Reg Z (e.g., “10% down”).