1 Glossary

Prepayment Penalty: A fee that a bor-

is made for $50,000, one point equals

$500.

rower may be required to pay to the

lender, in the early years of a mortgage

Power of Attorney: A legal document

loan, for repaying the loan in full or pre-

that authorizes another person to act

paying a substantial amount to reduce

on one's behalf. A power of attorney can

the unpaid principle balance.

grant complete authority or can be lim-

Principal: The amount of money bor-

ited to certain acts and/or certain peri-

ods of time.

rowed or the amount of the loan that

has not yet been repaid to the lender.

Pre-Approval: A process by which a

This does not include the interest you

lender provides a prospective borrower

will pay to borrow that money. The

with an indication of how much money

principal balance (sometimes called the

he or she will be eligible to borrow when

outstanding or unpaid principal balance)

applying for a mortgage loan. This pro-

is the amount owed on the loan minus

cess typically includes a review of the

the amount you've repaid.

applicant's credit history and may in-

Private Mortgage Insurance: Insur-

volve the review and verification of in-

come and assets to close.

ance for conventional mortgage loans

that protects the lender from loss in the

Pre-Approval Letter: A letter from a

event of default by the borrower. See

mortgage lender indicating that you

Mortgage Insurance

qualify for a mortgage of a specific

Promissory Note: A written promise to

amount. It also shows a home seller that

you're a serious buyer.

repay a specified amount over a speci-

fied period of time.

Pre-Qualification: A preliminary assess-

Property Appreciation: See "Apprecia-

ment by a lender of the amount it will

lend to a potential home buyer. The pro-

tion."

cess of determining how much money a

Purchase and Sale Agreement: A docu-

prospective home buyer may be eligible

to borrow before he or she applies for a

ment that details the price and condi-

loan.

tions for a transaction. In connection

with the sale of a residential property,

Pre-Qualification Letter: A letter from

the agreement typically would include:

a mortgage lender that states that you're

information about the property to be

pre-qualified to buy a home, but does

sold, sale price, down payment, earnest

not commit the lender to a particular

money deposit, financing, closing date,

mortgage amount.

occupancy date, length of time the offer

is valid, and any special contingencies.

Predatory Lending: Abusive lending

Purchase Money Mortgage: A mortgage

practices that include making mort-

gage loans to people who do not have

loan that enables a borrower to acquire

the income to repay them or repeatedly

a property.

refinancing loans, charging high points

and fees each time and "packing" credit

Q

insurance onto a loan.

Prepayment: Any amount paid to re-

Qualifying Guidelines: Criteria used to

duce the principal balance of a loan

determine eligibility for a loan.

before the scheduled due date.