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A
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.
ARM
(Adjustable Rate Mortgage)
A mortgage in which the interest rate is adjusted
periodically, based on the movement of a financial
index.
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.
APR (Annual Percentage Rate)
The annual percentage rate refers to the total cost
of the loan, expressed as a yearly rate.
Application
Fee
That part of the closing costs pre-paid to the lender
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. Also
called an assessment.
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. |
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B
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. |
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C
Cap (interest rate)
The maximum interest rate increase allowable on
an adjustable rate mortgage. Does not result in
negative amortization. See Negative amortization.
Cap (payment rate)
The maximum payment amount increase allowable on
an adjustable rate mortgage. May result in negative
amortization. See Negative amortization.
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, the
buyer signs the mortgage and pays the purchase price
and closing costs.
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
the escrow deposit for taxes, hazard insurance and
mortgage insurance for the 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.
Commitment
An agreement, frequently in writing, between a lender
and a borrower to loan money at a future date, subject
to certain conditions.
Comparables
Refers to 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 multiunit building
or complex of buildings. 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 to a prospective lender on the credit
standing of a prospective borrower. |
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D
Deed
A legal written document by which title to property
is transferred.
Default
Failure to fulfill the terms as agreed to in the
mortgage of note.
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 the property changes hands. |
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E
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 in which the 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
Funds and/or deed left in trust to a third party.
Generally, a portion of the monthly mortgage payment
is held in escrow by the lender to pay for taxes,
hazard insurance and yearly mortgage insurance premiums.
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F
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. |
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G
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
Normal income, including overtime, prior to any
payroll deductions, that is regular and dependable.
This income may come from more than one source.
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H
Hazard Insurance
Insurance protection against damage to a property
from fire, windstorms, and other common hazards.
Homeowner's Insurance
An insurance policy that covers the dwelling and
its contents in case of fire or wind damage, theft,
liability for property damage and personal liability.
HUD-1 Form
See Real Estate Settlement Statement. |
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I
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. |
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L
Land Contract
When the buyer agrees to make payments directly
to the seller at pre-negotiated terms. The seller
agrees to deed the property to the buyer upon completion
of the agreement. The buyer becomes the owner of
equity in this type of sale. (Also see Owner Financing.)
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
and property value, usually shown as a percentage. |
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M
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 in a mortgage contract.
Mortgagor
The borrower in a mortgage contract. |
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N
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. |
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O
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. |
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P
PITI
An acronym for payments to lender that 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 increase
the effective yield of the mortgage. A point is
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 before its term is over.
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.
PMI (Private
Mortgage Insurance)
Insurance written by a private mortgage insurance
company to protect the lender against losses caused
by mortgage default. This is commonly required on
loan transactions involving less than a 20% down
payment or equity position. |
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Q
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). |
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R
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 charges made by the register of deeds to record
the legal documents.
Refinancing
Repaying a debt with the proceeds of a new loan,
using the same property as collateral or security.
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S
Second Mortgage
A loan issued on property that is already encumbered
by an existing mortgage (ie: the first mortgage).
The second mortgage is subordinate to the first.
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. |
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T
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.
If the charges were $0, the APR would be equal to
that actual interest rate on the loan. |
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U
Underwriting
The process of evaluating a loan application to
determine the risk involved for the lender. |
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