Abstract (of title)
A written summary of the title history of a particular piece of real estate.
Acceleration Clause
A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index. An ARM usually includes a period at the beginning of the loan where the interest rate is fixed and does not adjust (this fixed period can be between 6 months and 10 years).
Amortization
Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed.
Annual Percentage Rate (APR)
The annual percentage rate measures both your interest and certain closing costs or prepaid finance charges you might pay, such as prepaid interest, private mortgage insurance, and discount points. Although the APR is meant to indicate the total cost of credit on a yearly basis, you must take care in using it to compare loan programs because it does not account for certain closing costs (e.g., title, escrow, appraisal) and it presumes that you plan to hold the loan for the entire term. For instance, the APR on a 5/1 ARM (where the interest rate is fixed for five years and then adjusts according to a financial index) may be substantially higher than the APR on a 30 year fixed mortgage because the APR calculation presumes that you will hold both loans for 30 years and estimates your future interest rate based on a current financial index. However, if you refinance your loan or sell your home prior to expiration of the 30 year term, your actual cost of credit could be substantially lower with the 5/1 ARM.
Application Fee
A fee charged by certain lenders at time of application to cover initial expenses.
Appraisal
A report made by a qualified person as to the value of a property as of a given date.
Assessed Value
The value placed on a piece of real estate by the taxing authority for the purpose of taxation.
Assumption of Mortgage
The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.
Balloon Mortgage
A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term.
Bridge Loan
A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.
Broker
The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buydown
Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years or the whole term.
Cap (interest rate)
The maximum interest rate increase allowable on an adjustable rate mortgage.
Cap (payment rate)
The maximum payment amount increase allowable on an adjustable rate mortgage.
Certificate Of Title
A statement that shows ownership of property, stating that the seller has clear legal title.
Closing
The concluding day of the real estate transaction, when title and deed pass from seller to buyer, and the buyer signs the mortgage and pays the purchase price.
Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."
Closing Statement
A financial disclosure giving an account of all funds received and expected at closing, including any deposit for taxes, hazard insurance and mortgage insurance into an escrow account.
Commission
An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.
Comparables
Similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.
Condominium
Ownership of a single unit in a multi-unit building or complex. Along with this goes a share of ownership of the common areas.
Contingency
A condition that must be met for a contract or a commitment to remain binding.
Conventional Mortgage
Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded by a government authorized bond sale or grant.
Convey
To transfer real estate from one person to another.
Credit Report
The report provided to a prospective lender that shows the credit history of a prospective borrower.
Deed
A legal written document by which title to property is transferred.
Deed of Trust
Similar to a mortgage, a deed of trust is a contract in which a borrower's property is pledged as security for a loan which is to be repaid on an installment basis. Certain states, such as California, utilize a deed of trust to secure borrowed funds instead of a mortgage.
Default
Failure to fulfill the terms as agreed to in the mortgage or mortgage note.
Discount Point
A fee paid to the lender on closing day to buy down the interest rate that would otherwise be charged on the loan. One point is equal to one percent of the amount of the mortgage loan.
Down Payment
The difference between the sale price of a property and the mortgage amount.
Due-On-Sale
A clause in a mortgage which gives the lender the right to require immediate repayment of a mortgage balance if ownership of the property changes hands.
Earnest Money
The deposit money given to seller or his agent by the potential buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment.
Easement
A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone's property.
Encumbrance
Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid property taxes.
Equity
The value that an owner has in real estate over and above the mortgages against it. When the mortgage and all other debts against the property are paid in full, the owner has 100% equity in his property.
Escrow
A third party that holds funds and/or legal documents in trust.
Escrow Account
An account established by a lender to pay the taxes, hazard insurance and/or yearly mortgage insurance premiums owed by the borrower. Also known as an impound account.
First Mortgage
A mortgage that has a primary lien against a property.
Fixed-Rates Mortgage
A mortgage with an interest rate and monthly payments that remain constant over the life of the loan.
Fixture
Property, such as a hot water heater or plumbing fixture, that has become permanently attached to piece of real estate and goes with the property when it is sold.
Flood Certification
An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy.
Foreclosure
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.
Graduated Payment Mortgage
A fixed rate loan with monthly payments that start low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan.
Gross Income
The regular and dependable pre-tax income earned by a borrower from all sources, including overtime and investments.
Hazard Insurance
Insurance protection against property damage due to fire, windstorms, and other common hazards.
Homeowner's Insurance
An insurance policy that protects your home and the possessions inside from serious loss, such as theft or fire. Homeowners insurance is required by all lenders to protect their investment, and must be obtained before closing on your loan. In most cases, coverage must be at least equal to the loan balance.
HUD-1 Form
See Real Estate Settlement Statement.
Income Property
Real estate that is owned for investment purposes and not used as the owner's residence.
Interest
A charge paid for the use of money.
Interim Financing
See Bridge Loan.
Land Contract
A contract whereby the buyer agrees to make payments directly to the seller at pre-negotiated terms and the seller agrees to deed the property to the buyer upon completion of the agreement (i.e., receipt of all of the payments). During the period where the buyer is making payments, the seller retains legal title to the property although the buyer has “equitable” title.
Lien
A legal claim on a property used as security for a debt.
Loan-To-Value Ratio
The relationship between the amount of the mortgage loan and the value of the property, usually shown as a percentage.
Market Value
The price at which a property will sell, assuming a knowledgeable buyer and seller, both operating without undue pressure.
Mortgage
A contract in which a borrower's property is pledged as security for a loan which is to be repaid on an installment basis.
Mortgage Note
A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.
Mortgagee
The lender under a mortgage contract.
Mortgagor
The borrower under a mortgage contract.
Negative Amortization
A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.
Offer to Purchase
A written proposal to buy a piece of real estate that becomes binding when accepted by the seller. Also called a sales contract.
Origination Fee
A fee charged for the work involved in the evaluation, preparation and submission of a proposed mortgage loan.
Owner Financing
A purchase in which the seller provides all or part of the financing.
PITI
An acronym for payments made by a borrower to cover principal, interest, taxes and insurance on a property.
Plat
A map of a piece of land showing boundary lines, streets, actual measurements and easements.
Point
A fee paid to the lender on closing day to buy down the interest rate that would otherwise be charged on the loan. One point is equal to one percent of the amount of the mortgage loan. Also called a discount point.
Prepayment Penalty
A charge paid to the lender by the borrower if a mortgage loan is repaid prior to the end of the term. Prepayment penalties generally expire in one to three years after loan origination. Also, many loans do not contain prepayment penalties.
Pre-Approval
A commitment by a lender to extend credit provided that specific conditions are met.
Pre-Qualification
A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.
Prime Rate
The interest rate charged by banks to their preferred corporate customers; it tends to be an estimator for general trends in short term interest rates.
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 written by a private mortgage insurance company to protect the lender against losses caused by mortgage default. This is often required when the balance on a single loan exceeds 80% of the appraised value of the property.
Qualifying Ratios
Guidelines used by lenders to determine how much of a loan a home buyer qualifies for. Often referred to as debt-to-income ratios (or DTI).
Real Estate Settlement Statement
Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing.
Realtor
A real estate broker or sales associate affiliated with the National Association of Realtors.
Recording Fee
The charge imposed by the county recording office to record the legal documents.
Refinancing
Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.
Second Mortgage
A loan issued on property that is already encumbered by an existing mortgage (the first mortgage). The second mortgage is subordinate to the first mortgage.
Secondary Mortgage Market
The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.
Survey
A map prepared by an engineer or surveyor charting a particular piece of real estate.
Title
Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.
Title Insurance Policy
A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase.
Title Search
A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.
Transfer Tax
In some areas city, county or state taxes imposed when property passes from one person to another.
Truth-In-Lending
Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower.
Underwriting
The process of evaluating a loan application to determine the risk involved for the lender.