Glossary of Terms
A | B | C | D | E | F | H | I | J | L | M | O | P | Q | R | S | T | U
A
Adjustable-Rate Mortgage (ARM): A type of mortgage that permits the lender to periodically adjust its interest rate based on changes in a specified index, such as the prime rate.
Amortization: The gradual repayment of a mortgage in installments, calculated to pay off the obligation in a fixed period of time.
Amortization Schedule: A timetable for payment of a mortgage, showing the amount of each payment being applied to interest and principal as well as the remaining balance.
Annual Percentage Rate (APR): The cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees and certain other credit charges paid by the borrower.
Appraisal: A professional analysis, including sales of comparable properties, used to estimate the value of a property.
Appreciation: An increase in a home's market value due to changing market conditions and/or home improvements.
Assessed Value: The value placed on a property by a public tax assessor and used to calculate property taxes.
Assumable Mortgage: A mortgage that can be taken over by the buyer from the seller when a home is sold.
B
Binder: A preliminary agreement between a buyer and seller that spells out the price and terms of the contract.
C
Cap: A provision of an ARM that limits how much interest rates or payments may increase or decrease.
Closing: The meeting at which the real estate transaction between buyer and seller is completed. The buyer signs the mortgage documents and the closing costs are paid. Also known as the settlement date.
Closing Costs: Expenses incurred in transferring ownership of a property. Closing costs are in addition to the price of the property, and may include points, taxes, title insurance, financing costs, and items that must be prepaid or escrowed.
Commitment Letter: A letter from your lender that states the amount of the mortgage, length of term, interest rate, the loan origination fee, the annual percentage rate and the monthly charges.
Condominium: A form of property ownership in which the owner holds title to an individual unit and has the right to use the common areas but does not own them. There are usually condominium association fees for building and property upkeep, taxes and insurance on the common areas, and reserves for improvements.
Contingency: A condition that must be met before a contract is legally binding.
Conventional Mortgage: A mortgage that is not insured or guaranteed by the federal government.
Convertible ARM: An adjustable-rate mortgage that can be converted to fixed-rate under specified conditions.
Cooperative: A type of ownership in which the residents of a multi-unit housing complex own shares in the corporation that owns the property.
Credit Report: A credit history prepared by a credit bureau or consumer reporting agency and used by lenders to determine an applicant's creditworthiness.
Credit Score: A computer-generated number that summarizes an individual's credit profile and predicts the likelihood that a borrower will repay future obligations.
D
Deed: The legal documents conveying title to a property
Deed of Trust: The document used in some states instead of a mortgage, which gives the lender a security interest in the property. The title is conveyed to a trustee by the borrower, who retains equitable title. When the loan is paid in full, the title is returned to the borrower.
Default: Failure to make a mortgage payment on a timely basis or to otherwise comply with the requirements of a mortgage.
Depreciation: A decline in the value of a house due to changing market conditions, decline of a neighborhood, or lack of upkeep.
Down Payment: A portion of the price of a home, usually between 3-20% that is paid up front.
E
Earnest Money: The deposit you make to show that you are committed to buying the home. Earnest money is not refundable after the seller accepts your offer, unless one of the sales contract contingencies is not met.
Easement: A right-of-way giving parties other than the owner access to or through a property.
Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from discriminating on the basis of a buyer's race, color, religion, national origin, sex, age, marital status, or receipt of income from public assistance.
Equity: The difference between the fair market value of your property and the amount still owed on the mortgage.
Equity Loan: A loan based on the borrower's equity in his or her home.
Escrow: The holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.
F
Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer credit reports, and outlines the procedure for correcting inaccuracies on your credit report.
Fannie Mae and Freddie Mac: Two agencies created by Congress to increase the supply of funds that mortgage lenders can make available to home buyers. Fannie Mae and Freddie Mac purchase mortgages from lenders, package them into securities and sell them to investors.
FHA Mortgage: A mortgage insured by the Federal Housing Administration. Also known as a government mortgage.
Fixed-Rate Mortgage: A mortgage with an interest rate that does not change during the entire term of the loan.
Foreclosure: The legal process by which a mortgaged property may be sold when a mortgage is in default.
H
Hazard Insurance: Coverage for physical damage to a property from fire, wind, vandalism, or other hazards.
Home Inspection: A professional inspection to examine the condition of the property, including an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and any pest infestation.
Homeowner's Insurance: An insurance policy that combines personal liability and hazard insurance coverage for your home and its contents.
HUD-1 Settlement Statement: A final listing of the costs of the mortgage transaction, including the sales price and down payment as well as the total settlement costs required from the buyer and seller.
I
Interest: The fee charged to borrow money.
J
Joint Tenancy: A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.
L
Lien: A legal claim against a property that must be paid off when the property is sold.
Loan-to-value Percentage (LTV): The ratio of the unpaid principal to the appraised value (or sales price if lower) of the property.
Lock-in Rate: A written agreement guaranteeing a specific interest rate when your mortgage closes.
M
Mortgage: A legal document that pledges property to the lender as security for payment of a debt.
Mortgage Banker: A company that originates mortgages exclusively for resale.
Mortgage Broker: An individual or firm that for a fee acts as an intermediary between borrowers and lenders.
Mortgage Insurance Premium (MIP): The fee a borrower pays to FHA or a private insurer for mortgage insurance.
Mortgage Rate: The interest rate you pay to borrow the money to buy your house.
O
Origination Fee: A fee paid to a lender for processing a loan application, generally calculated as a percentage of the loan amount.
P
PITI: The components of a monthly mortgage payment principal, interest, taxes, and insurance.
Point: 1% of the amount of the mortgage loan. For example, if a loan is made for $50,000, one point equals $500.
Pre-payment Penalty: A fee that may be charged to the borrower if the loan is paid off before it is due.
Pre-qualification: The process of determining how much money a prospective homebuyer will be eligible to borrow.
Principal: The amount of money borrowed to buy your house or the amount of the loan that has not yet been paid back to the lender, excluding interest.
Private Mortgage Insurance (PMI): Insurance provided by non-government insurers that protects the lender against loss if a buyer defaults. PMI is generally required when the loan-to-value (LTV) percentage is greater than 80 percent.
Q
Qualifying Ratio: Guidelines used to calculate how large a loan to grant a homebuyer.
R
Real Estate Professional: A person licensed to negotiate and transact the sale of a property on behalf of the owner.
Real Estate Settlement Procedures Act: A consumer protection law requiring lenders to give borrowers advance notice of closing costs.
Refinance: Obtaining a new mortgage with all or some portion of the proceeds used to pay off the original mortgage.
S
Second Mortgage: A mortgage that has a lien position subordinate to the first mortgage.
Settlement: See closing.
Survey: A drawing or map showing the precise legal boundaries of a property, including location of improvements, easements, rights of way, and other physical features.
T
Title: A legal document that provides evidence of ownership.
Title Company: A company that specializes in examining and insuring real estate titles.
Title Insurance: Insurance that protects lenders and homeowners against loss of their interest in the property because of legal problems with the title.
Title Search: A review of public records to ensure that the seller is the legal owner of the property and that there are no outstanding liens or other claims.
Truth-in-Lending Act (TILA): Federal law which requires disclosure of a truth-in-lending statement for consumer loans. The statement includes a summary of the total cost of credit such as the APR and other specifics of the loan.
U
Underwriting: The process a lender uses to determine loan approval. It involves evaluating the property and the borrower's credit and ability to pay the mortgage.
