Negative Amortization: An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.

Net Monthly Income: Your take-home pay after taxes. It is the amount of money that you actually receive in your paycheck.

Net Worth: The value of a company or individual’s assets, including cash, less total liabilities.

Non-Liquid Asset: An asset that cannot easily be converted into cash.

Note: A written promise to pay a specified amount under the agreed upon conditions.

Note Rate: The interest rate stated on a mortgage note, or other loan agreement.

Offer: A formal bid from the home buyer to the home seller to purchase a home.

Open House: When the seller’s real estate agent opens the seller’s house to the public. You don’t need a real estate agent to attend an open house.

Original Principal Balance: The total amount of principal owed on a mortgage before any payments are made.

Origination Fee: A fee paid to a lender or broker to cover the administrative costs of processing a loan application. The origination fee typically is stated in the form of points. One point is one percent of the mortgage amount.

Owner Financing: A transaction in which the property seller provides all or part of the financing for the buyer’s purchase of the property.

Owner-Occupied Property: A property that serves as the borrower’s primary residence.

Partial Payment: A payment that is less than the scheduled monthly payment on a mortgage loan.

Payment Change Date: The date on which a new monthly payment amount takes effect, for example, on an adjustable-rate mortgage (ARM) loan.

Payment Cap: For an adjustable-rate mortgage (ARM) or other variable rate loan, a limit on the amount that payments can increase or decrease during any one adjustment period.

Personal Property: Any property that is not real property.

PITI: An acronym for the four primary components of a monthly mortgage payment: principle, interest, taxes, and insurance (PITI).

PITI Reserves: A cash amount that a borrower has available after making a down payment and paying closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned Unit Development (PUD): A real estate project in which individuals hold title to a residential lot and home while the common facilities are owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.

Point: One percent of the amount of the mortgage loan. For example, if a loan is made for $50,000, one point equals $500.

Power of Attorney: A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-Approval: A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant’s credit history and may involve the review and verification of income and assets to close.

Pre-Approval Letter: A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer.

Pre-Qualification: A preliminary assessment by a lender of the amount it will lend to a potential home buyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.

Pre-Qualification Letter: A letter from a mortgage lender that states that you’re pre-qualified to buy a home, but does not commit the lender to a particular mortgage amount.

Predatory Lending: Abusive lending practices that include making mortgage loans to people who do not have the income to repay them or repeatedly refinancing loans, charging high points and fees each time and “packing” credit insurance onto a loan.

Prepayment: Any amount paid to reduce the principal balance of a loan before the scheduled due date.

Prepayment Penalty: A fee that a borrower may be required to pay to the lender, in the early years of a mortgage loan, for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principle balance.

Principal: The amount of money borrowed or the amount of the loan that has not yet been repaid to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan minus the amount you’ve repaid.

Private Mortgage Insurance: Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower. See Mortgage Insurance

Promissory Note: A written promise to repay a specified amount over a specified period of time.

Property Appreciation: See “Appreciation.”

Purchase and Sale Agreement: A document that details the price and conditions for a transaction. In connection with the sale of a residential property, the agreement typically would include: information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid, and any special contingencies.

Purchase Money Mortgage: A mortgage loan that enables a borrower to acquire a property.

Qualifying Guidelines: Criteria used to determine eligibility for a loan.

Qualifying Ratios: Calculations that are used in determining the loan amount that a borrower qualifies for, typically a comparison of the borrower’s total monthly income to monthly debt payments and other recurring monthly obligations.

Quality Control: A system of safeguards to ensure that loans are originated, underwritten and serviced according to the lender’s standards and, if applicable, the standards of the investor, governmental agency, or mortgage insurer.

Radon: A toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses.

Rate Cap: The limit on the amount an interest rate on an adjustable-rate mortgage (ARM) can increase or decrease during an adjustment period.

Rate Lock: An agreement in which an interest rate is “locked in” or guaranteed for a specified period of time prior to closing. See also “Lock-in Rate.”

Ratified Sales Contract: A contract that shows both you and the seller of the house have agreed to your offer. This offer may include sales contingencies, such as obtaining a mortgage of a certain type and rate, getting an acceptable inspection, making repairs, closing by a certain date, etc.

Real Estate Professional: An individual who provides services in buying and selling homes. The real estate professional is paid a percentage of the home sale price by the seller. Unless you’ve specifically contracted with a buyer’s agent, the real estate professional represents the interest of the seller. Real estate professionals may be able to refer you to local lenders or mortgage brokers, but are generally not involved in the lending process.

Real Estate Settlement Procedures Act (RESPA): A federal law that requires lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as well as information during the life of the loan regarding servicing and escrow accounts. RESPA also prohibits kickbacks and unearned fees in the mortgage loan business.

Real Property: Land and anything permanently affixed thereto — including buildings, fences, trees, and minerals.

Recorder: The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

Recording: The filing of a lien or other legal documents in the appropriate public record.

Refinance: Getting a new mortgage with all or some portion of the proceeds used to pay off the prior mortgage.

Rehabilitation Mortgage: A mortgage loan made to cover the costs of repairing, improving, and sometimes acquiring an existing property.

Remaining Term: The original number of payments due on the loan minus the number of payments that have been made.

Repayment Plan: An arrangement by which a borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Replacement Cost: The cost to replace damaged personal property without a deduction for depreciation.

Rescission: The cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers have a right to cancel certain mortgage refinance and home equity transactions within three business days after closing, or for up to three years in certain instances.

Revolving Debt: Credit that is extended by a creditor under a plan in which (1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid.

Right of First Refusal: A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Rural Housing Service (RHS): An agency within the U.S. Department of Agriculture (USDA), which operates a range of programs to help rural communities and individuals by providing loan and grants for housing and community facilities. The agency also works with private lenders to guarantee loans for the purchase or construction of single-family housing.