Adjustable rate mortgage (ARM).
Mortgage loan on which the interest rate falls and rises with changes in prevailing rates. The mortgage rate is tied to a selected index and may be adjusted annually. Also called a variable rate mortgage.
Amortize. Pay a debt in monthly or other periodic installments until the total amount, along with the interest, if any, is paid.
Annual percentage rate (APR). Combines the interest rate with other loan costs, such as points and loan fees, into a single figure that shows the true annual cost of borrowing.
Appraisal. A formal estimate of property value conducted by a professional qualified to make such an opinion.
Assumption of mortgage. Taking title to property that has an existing mortgage, and being personally liable for its payment as a condition of the sale.
Bi-weekly payment mortgage. Instead of the standard monthly payment schedule, a mortgage that requires payments every two weeks. The result for the borrower is a substantial savings in interest.
Bridge Loan. A loan on a borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as a “swing loan”.
Close. Act of finalizing a transaction in which all the concerned parties meet to transfer title to a property. Also, when real estate formally changes ownership.
Closing costs. Expenses over and above the price of property that must be paid by buyers and sellers before title is transferred. Also known as settlement costs.
Closing statement. Written account of all expenses, adjustments, and disbursements received by the buyer and seller when completing a real estate transaction.
Contingency. A provision in a contract that keeps it from becoming binding until a certain event happens. A satisfactory inspection report might be a contingency.
Downpayment. Initial cash investment made as evidence of good faith when purchasing real estate. It is usually a percentage of the sale price.
Equal credit opportunity act (ECOA). A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance.
Escrow. Money or documents held by a third party until specific conditions of an agreement or contract are fulfilled.
Escrow account. Special bank account into which escrow monies are deposited and from which they are disbursed. Lawyers and real estate brokers maintain escrow accounts to hold money in trust for others.
Escrow company. A firm that specializes in handling the closing of a transaction.
First mortgage. Mortgage on a property that is superior to any other. It is the first to be paid in the event of foreclosure.
Fixed-rate mortgage (FRM). A mortgage in which the interest rate dies not change during the entire term of the loan.
Foreclosure. Legal action instigated by a lender to end all ownership rights when mortgage payments have not been kept up.
Freddie Mac. Common name for the Federal Home Loan Mortgage Corporation, which buys and sells loans in the secondary mortgage market.
Home inspection. A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often
Historic structures. Buildings of historical or architectural significance, perhaps landmarks, that are designated by federal, state, or local historical commissions.
Homeowner’s insurance policy. Packaged insurance policy for homeowners and tenants that cover property damage and public liability, such as fire, theft, and personal liability.
Homestead protection. State and federal laws that protect against the forced sale of a person’s home by creditors. Also, upon the death of one spouse, provides the other with a home for life.
Housing codes. Local regulations that set minimum conditions under which dwellings are considered fit for human habitation. It guards against unsanitary or unsafe conditions and overcrowding.
HUD. Acronym for the Department of Housing and Urban Development, an agency from which almost all of the federal government’s housing programs flow.
Improvement. Any form of land development or man-made addition, such as the erection of a building or fence, to enhance the value of private property; also an improvement to publicly owned structures, such as a sewer or road.
Inspection. The act of physically examining and testing a piece of property to ascertain certain information.
Installment payment. Periodic payment, usually monthly, of interest and principal on a mortgage or other loan.
Interest. A fee paid for the use of money; also a share or right in something.
Interim financing. Short-term loan usually made during the construction phase of a building project or until a permanent, long-term loan can be obtained. Also called a construction loan.
Jumbo loan. A loan that exceeds Fannie Mae’s legislated mortgage amount limits. Also called a non-conforming loan.
Lien. A debt on a property which encumbers it until the obligation is paid; a mortgage, back taxes, or other claim.
Listing. Contract used for hiring a real estate agent to sell a piece of property. Also a piece of property that is for sale.
Loan origination fee. Paid by the borrower to get a loan; it covers expenses incurred by the lender, such as the cost of the appraisal, credit report, title search, etc.
Loan servicing. Task of collecting monthly payments, handling insurance and tax impounds, delinquencies, early payoffs, and mortgage releases.
Loan-to-value ratio. Relationship of a mortgage loan to the appraised value of a piece of property. Usually expressed to the buyer in terms of how much the lender will lend, i.e. – 75 percent financing.
Mortgage. Legal document that creates a lien on property; it secures the repayment of a loan.
Mortgage broker. Individual or company that brings borrowers and lenders together; a loan broker.
Mortgage company or mortgage banker. Financial intermediary that offers mortgages to borrowers, and then resells them to various lending institutions, government agencies, or private investors.
Mortgagee. Party or institution that lends money; the creditor.
Mortgagor. Party or person that borrows money, giving a lien on the property as security for the loan; the borrower.
Multiple listing. Agreement that allows real estate brokers to distribute information on the properties they have listed for sale to other members of a local real estate organization. Allows the widest possible marketing of those properties. Commissions are split by mutual agreement between the listing broker and the selling broker.
Origination fee. A charge by the lender for granting and processing a new mortgage loan.
PITI. Acronym for “principal, interest, taxes, and insurance.” Frequently used to describe a loan payment that combines all four items.
Point. Fee charged by a lender to get additional revenue over the interest rate. A point is equal to one percent of the loan amount.
Principal. The amount of money borrowed; the amount of money still owed.
Qualification. Act of determining a potential buyer’s needs, abilities, and urgency to buy and matching these with available properties.
Second mortgage. Lien on property that is subordinate to a first mortgage. In the event of default, the second mortgage is repaid after the first. Also called a junior mortgage, and in some circumstances a home equity loan.
Title. Actual ownership; the right of possession; also the evidence of ownership such as a deed or bill of sale.
Title insurance. An insurance policy that protects against any losses incurred because of defects in the title not listed in the title report or abstract.
Title report. A statement of the current condition of title for a parcel of land.
Title search. A professional examination of public records to determine the chain of ownership of a particular piece of property and to note any liens, encumbrances, easements, restrictions, or other factors that might affect the title.
Underwriting. The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s credit worthiness and the quality of the property itself.
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