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Numeric
203(b):
An FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
203(k):
A type of FHA mortgage insurance program that enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.
A
Acceleration Clause:
The part of a loan agreement that allows a lender to demand the entire principle amount due to failure to meet certain conditions of the loan. In a mortgage, for example, an acceleration clause may require that the borrower pay in full if he is late on a payment or if he sells the property or transfer title. In a credit card agreement, a card issuer may reserve the right to demand full and immediate payment if a borrower is late, goes over his/her credit limit, or fails to meet any other terms of the account.
Account Status:
Refers to the payment history of that account. Any status other than "current" does not reflect good credit.
Acquiring Financial Institution:
A financial institution that processes credit card purchases for a merchant. This is usually a different financial institution from the one that issues consumer credit cards.
Acquisition Fee:
A monetary sum that some leasing companies charge for originating the loan.
Active Account:
An account that has been reported by a lender to a credit reporting agency as having purchases or payments made in the last 90 days.
Adjustable Rate Mortgage (ARM):
A home loan in which the interest rate adjusts periodically based on a pre-selected index, such as the prime rate or the rate on six-month treasury bonds issued by the US government. Also referred to as a Variable Rate Mortgage.
1 year ARM:
An adjustable-rate mortgage (ARM) that has the potential to change annually based on a preselected index.
10/1 ARM:
An adjustable-rate mortgage (ARM) with an initial fixed interest rate for ten years, and afterwards an adjustment interval of one year.
3/1 ARM:
An adjustable rate mortgage (ARM) with an initial fixed interest rate for three years, and afterwards an adjustment interval of one year.
5/1 ARM:
An adjustable rate mortgage (ARM) with an initial fixed interest rate for five years, and afterwards an adjustment interval of one year.
7/1 ARM:
An adjustable rate mortgage (ARM) with an initial fixed interest rate for seven years, and afterwards an adjustment interval of one year.
Affinity Credit Card:
A card offered by an issuing bank in conjunction with another organization, often a membership or charitable organization. A small portion of the annual fee, charge volume and/or interest may be given to the sponsoring organization in exchange for marketing to its members. Affinity cards are generally considered different than co-branded credit cards where the sponsoring organization is a for-profit business, i.e., a gasoline company, grocery chain, airline, etc.
Airmiles Card:
A CO-branded credit card offered by an airline. Also known as airmile cards. Typically, the cardholder will earn one frequent flier mile for every dollar charged on the card. A mile is estimated to be worth about two cents.
Alias:
Any name used for official documents that is different from the name on a person's birth certificate (not including maiden names). Aliases are listed on credit reports as additional protection against fraud.
Amenity:
A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, Woods, water) or man-made (like a swimming pool or garden).
American Express:
American Express Company is a diversified, worldwide travel, financial and network services company founded in 1850. It offers charge cards, credit cards, travelers checks, travel, financial planning, investment products, insurance and international banking. Unlike MasterCard or Visa, American Express issues its cards directly to consumers.
Amortization:
The process of paying off a debt by making regular payments for a specified period of time; Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)
Amortization Schedule:
A table showing each of the monthly payments that will be made during the term of an installment debt, such as a mortgage or auto loan. For each month of the loan, the schedule displays the amount of money used to pay down the principal loan amount and how much is applied to pay interest, along with the remaining balance due after each payment.
Annual Percentage Rate (APR):
Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
Application:
The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Appraisal:
A professional report that contains information to support an estimate of value on real property. For a mortgage, the underwriting lender must approve the company who performs the appraisal; A document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraiser:
A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
Annual Fee:
The monetary sum charged each year by some credit card companies for the use of their card.
Annual Percentage Rate (APR):
A measure of the actual cost of credit represented as a yearly interest rate. Government regulations require lenders to disclose the APR.
Appreciation:
The increase in property value due to market changes or improvements to the property.
ARM:
Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.
Assessor:
A government official who is responsible for determining the value of a property for the purpose of taxation.
Assessed Value:
The dollar amount placed on real property for the purpose of assessing taxes. Assessed value is typically determined by the local tax assessor, and is not affected by the appraisal.
Assets:
Personal possessions, such as, a car, home, investments, etc.
Assumable Mortgage:
A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage; A feature in some mortgages that will allow a new buyer to take over an existing loan from the seller. Assuming a mortgage requires lender approval, but it may allow a buyer to save money if the seller has a lower rate loan than is currently available. Another benefit of assuming the loan is that the remaining loan term of an assumed loan will be shorter than that of a new 30-year loan. VA loans, as well as some older FHA and most ARMs, are assumable.
Authorized User:
On a credit card account, a person who has been given permission by the primary cardholder to make purchases with the credit card. Authorized users are not legally responsible for the account.
Auto Loan:
A secured loan for the purchase of a vehicle.
Available Credit:
The amount of unused credit on a revolving or open-ended account. The amount refers to the credit limit, minus any outstanding balance.
Average Daily Balance Method:
The most common method for calculating credit card interest, which can include or exclude new purchases. The common average daily balance (ADB) method that includes new purchases is arrived at by adding the balance on each day, subtracting any payments, adding any new purchases, and finally dividing that balance by the number of days in the billing cycle. That sum is then multiplied by the periodic rate-typically the annual percentage rate divided by 12. When this method is prescribed, the earlier a payment is received, the lower the average daily balance, and lower interest charges will result.
B
Balance:
As of a specific date, the amount owed to a creditor for a specific account.
Balance Transfer:
The transfer of one credit card balance to another credit card. Fees may be charged to conduct a balance transfer, and the interest rate may be higher than it is for purchases.
Balloon Mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.
Balloon Payment:
Any payment that exceeds the regular monthly payment on a loan and is required to be made at one time or on a regular specified date. With mortgages, a balloon payment is usually the final payment of a short-term fixed rate loan, with monthly payments calculated over thirty years. The terms of the loans are usually three, five, seven and ten years.
Bankcard:
A major national credit card that can be used in multiple retail locations. American Express, Discover, MasterCard and Visa are all examples of bankcards.
Bankruptcy:
A court order that protects consumers from their creditors while they set up a new payment plan or liquidate their current assets to pay off their debts; A federal legal action that requires a person's assets to be turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Chapter 7 Bankruptcy:
A federal court preceding that allows an individual or business to effectively eliminate most or all of their outstanding debts. Some assets or property may be turned over to the court so they can be sold to pay creditors. Chapter 7 stays on a credit report for 10 years from the date of filing.
Chapter 11 Bankruptcy:
A federal court preceding that allows corporations and individuals with a large amount of debt the chance to reorganize the outstanding debt. It usually enables companies and individuals to continue their business while the court decides on a full or partial repayment plan.
Chapter 13 Bankruptcy:
A federal court preceding that allows individuals and businesses to reorganize their debts under a three or five year repayment plan approved by the court. A Chapter 13 bankruptcy legally stays on a credit report for ten years from date of filing, but major credit bureaus will remove it seven years from date of filing.
Bankruptcy Discharge:
The completion of a bankruptcy either by liquidating assets or repaying debt.
Base Price:
The cost of a vehicle without any options, such as CD stereo, anti-theft system, etc.
Basis Point:
One basis point equals one one-hundredth of one percent (.01 percent).
Biweekly Mortgage:
A home loan that schedules payments equal to one-half of the monthly payment on a biweekly basis instead of the standard monthly basis. By essentially making one full extra payment a year, interest and repayment periods can be substantially reduced. [more information]
Blanket Mortgage:
A home loan involving more than one property.
Blue Book:
Also known as the Kelley Blue Book, a guide used to determine the wholesale and retail value of a vehicle.
Borrower:
A person who applies for and receives a loan with the intention of repaying the loan in full; A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Broker:
A professional who arranges funding or negotiates contracts for a borrower but does not loan the money himself. Brokers charge a fee for their services.
Broker Premium:
Money paid to the mortgage broker for handling the mortgage processing between the lender and the borrower.
Budget:
An itemized list of probable income and expenditures for a given time period; A detailed record of all income earned and spent during a specific period of time.
Building code:
A regulation that determines the design, construction, and materials used in building based on agreed upon safety standards within a specific area.
Buy-down:
Trading money up front to get a lower mortgage rate, typically by paying discount points to acquire a lower interest rate.
C
Cap:
The maximum amount the interest rate can change periodically or over the life of an adjustable mortgage; A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.
Capacity:
The estimated amount of debt a consumer can handle based on income.
Capital:
A measure of current assets, such as savings, investments, and property. Lenders evaluate capital to ensure borrowers are capable of meeting financial obligations.
Cardholder Agreement:
The written terms of a credit card account, as required by the Federal Reserve. These may be modified with written notice from the card issuer.
Cash Advance:
Currency obtained using a credit card or checks that draw on a credit card account. Interest is typically charged immediately (no grace period) and fees usually apply. The interest rate for cash advances may be higher than that for regular purchases.
Cash Advance Fees:
A monetary sum charged for the cash advance transaction, typically 2-4% of the amount of the cash advance (or convenience check), sometimes with a cap of $25-$50 per advance.
Cash Flow:
A picture of how much money a consumer has coming in as compared to expenditures. Positive cash flow means you can pay all your obligations with money left over. Negative cash flow indicates your expenses are larger than your income.
Cash Out Refinance:
Refinancing a mortgage for more than the current amount owed, with the purpose of receiving the difference in cash.
Cash Reserves:
A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Certificate of Title:
A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Charge Card:
A short-term credit card that requires full payment of the outstanding balance every month. Also referred to as travel and entertainment cards. American Express and Diners Club are examples of charge cards.
Charge-off:
A debt written off by a lender as not collectible for accounting purposes. Most lenders are required by federal banking regulations to charge off loans when satisfactory payment has not been received for 180 days. Some lenders charge off loans sooner. A lender can and usually will still try to collect a charged-off balance.
Closed Account:
An account that is closed to further borrowing. An account reported to credit reporting agencies as "closed by the creditor" can be viewed negatively by other creditors. For that reason, consumers who close an account themselves should ask the creditor to report it as "closed by consumer" to the credit reporting agencies. By law, creditors must do so when this request is made.
Closed-End Lease:
The most common type of car lease, where the lessee returns the car at the end of the lease and at that time pays left over costs and ends the agreement.
Closing:
The final meeting held between the buyer and a representative of the lender, at which ownership of the property is transferred from lender to buyer; Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.
Closing Costs:
Fees that are associated with the purchase of property including, but not limited to, title searches, survey costs, appraisals, and lender processing fees; Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.
Closing Statement:
A financial report that discloses all monies changing hands at closing.
Co-Branded Credit Card:
A card issued by a financial institution in conjunction with a sponsoring organization, such as a grocery chain, airline, or gasoline company. These cards typically carry rewards for the cardholder based on purchases, such as free or discounted groceries, air miles, or gasoline.
Collateral:
Real property such as a car, house, computer, etc. that can be pledged as security for a loan.
Collection Account:
An account that has been written off by a lender and sent to either the lender's own collection department or a third party for collection from the debtor.
Collection Agency:
A company that collects unpaid debts for lenders. Outside collection agencies are regulated under the Fair Debt Collection Practices Act by the Federal Trade Commission, and may also be subject to state law.
Commission:
Money paid to the broker or real estate agent who assisted a borrower in completing his/her transaction; An amount, usually a percentage of the property sales price, that is collected by a real estate professional as a fee for negotiating the transaction..
Commitment:
An agreement between a lender and a borrower, often in writing, to loan money to the borrower upon completion of stated conditions.
Compensating Factor:
In qualifying for a mortgage, any additional factual information that can help influence or strengthen the chances of loan approval, by lessening the impact of unfavorable information. An example of a compensating factor might be if an individual has a debt to income ratio that exceeds general guidelines, yet he or she has a substantial amount of liquid funds, or has a high credit score, or both.
Condominium:
A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.
Consolidation Loan:
A loan obtained to pay off multiple debts, sometimes at a lower interest rate. [more information: Mortgage Products, Debt Management, Financial Planning]
Consumer Statement:
A consumer’s explanation of specific information appearing on his or her credit report, limited to no more than one hundred words. A consumer statement is usually used to provide additional information to potential creditors relating to negative or unfavorable information on the credit report that was previously disputed unsuccessfully.
Consumer Credit Counseling Organization:
A group that helps people reduce debt through educational programs and repayment programs. In a typical debt management program, the consumer makes one monthly payment to the counseling organization, which then pays all creditors included in the program. Sometimes creditors agree to stop charging interest or charge a reduced amount of interest as long as payments are made per the new agreement.
Contract:
Any binding agreement between parties. In real estate, it is usually a legal document between a buyer and seller to purchase property, also known as "under contract." In credit card lending, the cardholder agreement spells out the terms of the contract, and a consumer agrees to those terms when he or she accepts the card.
Convenience Checks:
Checks sent by credit card issuers to use for purchases, transfers, or cash advances. These transactions are typically posted to the account as cash advances, thus removing the grace period for payment. In addition, there is no billing error protection for purchases made with a convenience check. In other words, you cannot dispute a purchase made with a convenience check unless the check was written fraudulently by someone not authorized by you to do so.
Convenience User:
A term used to describe someone who typically pays his or her credit card balances in full each month.
Conventional Mortgage (Converntional Loan):
A fully amortizing mortgage that is not insured by the Department of Housing and Urban Development (HUD), or guaranteed by the VA; A private sector loan, one that is not guaranteed or insured by the U.S. government.
Convertible ARM:
An Adjustable Rate Mortgage (ARM) that can be converted to a fixed rate mortgage during a window of time specified by the lender. Typical terms are three, five, seven, and ten years.
Cooperative (Co-op):
Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.
Cosigner:
A person who signs a promissory note along with another borrower. Usually a co-signer is requested when there is some deficiency with the primary borrower’s credit or income. Cosigners take legal responsibility for the entire debt plus collection costs, but aren’t always co-owners of the property.
Credit:
Money granted by a creditor or lender to a debtor or borrower who defers payment of the debt. The lender receives as repayment on this debt the initial loan amount plus any interest on an agreed-upon schedule.
Credit Bureau:
A company that collects and sells information-in the form of a report-about a consumer’s current and past use of credit to various lending, employment and insurance companies. Also known as a credit-reporting agency.
Credit Bureau Score:
A number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.
Credit Card:
A card used to access open-end credit from time to time. Interest rates are calculated monthly and vary widely.
Credit Counselor:
A professional who negotiates debts with creditors and sets up a repayment plan for their clients to pay the debt off.
Credit file:
All of the information on or about a consumer recorded and retained by a consumer reporting agency
Credit Fraud:
Deliberate use of another person's credit card or information to receive any type of benefit. [more information: Preventing Identity Theft]
Credit History:
A factual account of how a consumer has repaid his or her debts. A credit history is also known as a credit report; The history of an individual's debt payment; lenders use this information to gouge a potential borrower's ability to repay a loan.
Credit or Loan Insurance:
A policy which pays off or makes monthly payments on a loan if the borrower dies or becomes disabled or unemployed. Rates vary widely and are governed by the state in which the borrower resides.
Credit Limit:
The total amount of credit available for purchases or cash advances on a credit card or home equity loan.
Credit Rating:
A term that has been used to describe consumers’ credit reports, credit scores, income versus debt ratios, and other information about credit worthiness that is important to lenders. Since all of these factors may be viewed differently by individual lenders, there is no such thing as a single uniform credit rating.
Credit Report:
Information compiled and sold by a credit bureau containing factual data about a consumer's current and past use of credit. Lenders use credit reports to evaluate potential candidates for loans and extensions of credit.
Credit report: a record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.
Credit Reporting Agencies:
Also known as credit bureaus, these companies maintain information about individual credit histories and provide it mainly to potential lenders as well as insurance companies and some employers. There are three major credit bureaus- Equifax, Experian, and Trans Union-as well as hundreds of smaller ones usually affiliated with one or more of the big three bureaus.
Credit Risk:
An evaluation, based on a consumer's credit report and other factors from an application, of how likely a consumer is to repay a loan.
Credit Score:
A computer-generated number created by analyzing information on a consumer credit report and application comparing it with historical data to determine the likelihood of that consumer defaulting on credit extended to them within a specific time period. The Fair Isaac Co, commonly known as FICO, has created the most widely used credit scores.
Creditor:
A person or company to whom money is owed; a lender.
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