Mortgage Glossary - P to Z

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PAYMENT CAP: A provision of some ARMs limiting the amount by which a borrower's payments may increase regardless of any interest rate increase; may result in negative amortization. See ADJUSTABLE-RATE MORTGAGE.

PITI: Stands for principal, interest, taxes, and insurance -- the components of a monthly mortgage payment.

PLANNED UNIT DEVELOPMENT (PUD): A project or subdivision that consists of common property that is owned and maintained by an owner's association for the benefit and use of the individual unit owners.

POINTS: A one time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.

PREPAIDS: Fees collected at closing to cover items such as setting up escrow accounts for property taxes, homeowner's insurance, and mortgage insurance premiums.

PREPAYMENT PENALTY: A fee that may be charged to a borrower who pays off a loan before it is due.

PRE-APPROVAL: A pre-approval is a lender's preliminary evaluation of your credit history, income, and assets. During the pre-approval process, the lender will order a credit report for you and will obtain an underwriting analysis and recommendation.

If you are pre-approved, you will receive a letter that you can show to potential home sellers. The letter identifies the amount you may be able to borrow and indicates to the seller that the lender is likely to approve your request for a mortgage.

Remember that a pre-approval is not an absolute commitment by the lender. Before you can receive the actual mortgage loan, you will need to provide verification of some of the information you provided during the pre-approval process. You may also need to meet several other terms and conditions.

PRE-QUALIFICATION: The process of determining how much money a prospective home buyer will be eligible to borrow, subject to certain conditions, before a loan is applied for.

PRINCIPAL: The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

PRIVATE MORTGAGE INSURANCE (PMI): Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults.

PURCHASE AND SALE AGREEMENT: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

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QUALIFYING RATIOS: Guidelines applied by the lenders to determine how large a loan to grant a home buyer.

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RADON: An invisible, odorless gas found in some homes that in sufficient concentrations may cause health problems.


REAL ESTATE SALES PROFESSIONAL: A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

REAL ESTATE SETTLEMENT PROCEDURES ACT: A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

REFINANCING: The process of paying off one loan with proceeds from a new loan using the same property as security.


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SECOND MORTGAGE: A mortgage that has a lien position subordinate to the first mortgage.

SECONDARY MORTGAGE MARKET: The buying and selling of existing mortgages.

SELLER TAKE-BACK: An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.


SETTLEMENT STATEMENT: The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment (referred to as a HUD-1).

SURVEY: A drawing or map showing the precise legal boundaries of a property and the location of improvements, easements, rights of way, encroachments, and other physical features.

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TENANCY BY ENTIRETY: A type of joint ownership in a property without rights of survivorship.

TITLE: A legal document evidencing a person's right to or ownership of a property.

TITLE COMPANY: A company that specializes in examining and insuring real estate titles.

TITLE INSURANCE: Insurance to protect the lender (lender's policy) or the buyer (owner's) policy against loss arising from disputes over ownership of the property.

TITLE SEARCH: An examination of the public records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

TRANSFER TAX: State or local tax payable when title passes from one owner to another.

TRUTH-IN-LENDING ACT: A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

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UNDERWRITING: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's creditworthiness and the quality of property itself.

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VA LOAN: A loan that is guaranteed by the U.S. Department of Veterans Affairs. Also referred to as a "government" mortgage.