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Adjustable Rate Mortgage (ARM) : Mortgage in which rates/payments vary
according to the current rate of interest. Many offer lower-than-market initial interest rates that rise only gradually for the first few years.
 Adjustments : Money that both buyers and sellers credit to each other at closing, including taxes and down payment.
Agent : Acts on behalf of another, representing
that person's interests and serving as an intermediary.
Amortization: A plan for gradually repaying the
money borrowed in periodic payments. Generally with each payment, one pays back part of the money originally borrowed (the principal) plus interest on the declining balance of the principal. The amount of periodic payments depends in part,
on the principal, the interest rate and the length of time allowed for repayment.
Annual Percentage Rate (APR): The actual finance charge for a loan, including
points and loan fees in addition to the stated interest rate. The APR is higher than your interest rate because other costs (such as borrower-paid origination fees,
mortgage insurance, processing and loan fees, interim interest, etc.) are included.
Appraisal: Unbiased, professional opinion of a property's value based on its style
and appearance, construction quality, usefulness, and the value of comparable properties.
Asking Price: Price at which the owner wishes to sell a property.
Assessed Valuation : The value of property, according to an official tax assessor.
The real property tax will be based on the assessed valuation.
Assessor: Municipal or county official who determines the value of property for
taxation.
Assumption: The acquisition by a new borrower of the liability for payment of an existing mortgage or deed of trust. The original borrower remains liable unless specifically released by the servicer.
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Balloon Mortgage: Short term loan, usually at a fixed interest rate, paid back in
equal monthly payments, with a large, final "balloon" payment for the balance.
Bridge Loan: A form of interim financing which is secured by the borrower's
present residence (which is usually for sale) so as to allow the proceeds to be used to close on a new home before the present home is sold.
Broker: Person licensed to represent home buyers or sellers for a fee.
Buydown: Money advanced at settlement to reduce the borrower's monthly
payments on a mortgage either during the entire term of the mortgage or for the first few years.
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Cap : Limit on how much the interest rate can change in an ARM.
Certificate of Eligibility: A document issued by the federal government certifying
a veteran's eligibility for a Veterans Administration mortgage.
Closing: Final settlement, including the buyer's signing of the mortgage and
mortgage note, and exchange of title.
Closing Agent (or Escrow or Settlement Company): A third party who oversees
the closing of the loan transaction.
Closing Costs: Fees and other charges paid by both buyers and sellers at closing.
Closing Statement: A statement of the funds received and spent at the closing of
a real estate sale. It is furnished by the real estate closing agent to the buyer and seller separately. The standard federal form HUD 1 is used in most residential transactions.
Commission: Percentage of the home's sale price paid at closing to the listing
agent and to cooperating agents.
Comparables: Houses and properties that are similar in style, appearance,
construction, quality and usefulness to a particular property in a certain location.
Competitive Market Analysis (CMA): Realistic estimate of a home's current
market value based on the most salient points of the local real estate market.
Condominium : A unit of real property to which title is given, usually to the
interior surfaces. Title to the common areas is in terms of percentages and refers to the entire condominium project less the separately owner units.
Condominium Documents: A set of legal papers provided to the buyer of a
condominium. They usually include the condominium declaration, the plat and plans, and the by-laws of the complex.
Conforming Loan: Loans originated and eligible for sale to FNMA (The Federal
National Mortgage Association) or FHLMC (the Federal Home Loan Mortgage Corporation). The most significant feature of a conforming loan is the loan size, currently $252,700, for a one unit dwelling. Interest rates are typically the lowest
for this type of loan.
Contingency : A condition in a contract that must be met for the contract to be
binding.
Contribution: Also known as seller/builder contribution. The cost of those items paid by a seller, builder or any other interested party on the buyer's behalf.
Contributions include temporary buydowns, permanent buydowns, points and other closing fees customarily paid by the buyer.
Conventional Mortgage: A mortgage not insured or guaranteed by a federally
insured program (such as FHA or VA).
Convertible ARM: A type of adjustable rate mortgage that allows the borrower to
change from an ARM to a fixed rate loan according to the terms of the note and security instrument.
Counter-Offer: Offer made by the buyer or seller in response to the other's bid.
Credit Report: A report from a credit reporting agency issued to a lender which
discloses credit rating and any other pertinent financial information about a prospective borrower.
Credit Score : A ranking that assists lenders in evaluating the relative likelihood
of loan default. Credit reporting agencies and/or credit repositories use statistical models to generate a credit score from a Borrower's credit bureau file.
Curb Appeal: Common term for everything prospective buyers can see from the
street that might make them want to take a closer look at a house for sale.
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Debt: Borrowed money, the repayment of which may be either secured or
unsecured with various possible repayment schedules.
Debt-to-Income Ratios: Ratios used to qualify a borrower by comparing the
borrower's total monthly housing expense and total monthly debt to gross monthly income.
Deed: Instrument that transfers title from the seller to the buyer.
Deed of Trust: In some states, including Virginia, this is used in place of a
mortgage or a deed to secure debt. While there are only two people involved in a mortgage, the borrower and the lender, there are three people involved in a deed
of trust - the borrower, the lender and the trustee. Here, the borrower transfers the legal title for the property to the trustee who holds the property as a security
for the debt. If the borrower pays the mortgage as agreed, the trustee gives the legal title to the owner. If the borrower does not pay the mortgage as agreed, the trustee can sell the property.
Delinquency : The failure to make timely payments under a loan agreement.
Discount Points: A charge calculated as a percentage of the loan amount, to
compensate the lender for the difference between the stated interest rate of the loan and the current market interest rates.
Down Payment: Buyer's payment to the seller at time of closing for that
percentage of the purchase price required by the buyer's mortgage loan.
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Earnest Money: Money paid by a buyer at the time of making an offer or entering
into a contract to purchase which is intended to show the buyer's good faith intention to complete the purchase. Generally, earnest money is applied against the purchase price, but may be forfeited if the buyer fails to complete the
purchase.
Equity: Difference in dollars between a house's anticipated sale price and the
mortgage. This is the owner's interest. It is the interest in the property after all loans have been subtracted from the market value of the property. When the mortgage has been paid off, the equity in the property will be 100%.
Escrow Account: Third-party account for holding money, such as a buyer's earnest
money and the owner's taxes and insurance payment.
Examination of Title : A review which reveals the previous owners of, and
encumbrances on, a piece of real estate. To conduct this review, one must search the public records or examine an abstract of title.
Exclusive Agency : Sales contract in which sellers owe no commission to an agent
if they find a buyer for their house on their own.
Exclusive Right to Sell: Sales contract in which sellers owe commission to the
listing agent even if they find a buyer for their house on their own.
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Fair Market Value: Highest price an informed buyer will pay, assuming there is
no unusual pressure to complete the purchase.
FHA-Insured Mortgage: Mortgage with low down payment requirements, insured
by the Federal Housing Administration and made available through banks and other lenders.
First Mortgage : The loan that has the primary claim on all proceeds from the sale
or other disposition of the property.
Fixed Rate Mortgage: Mortgage that is locked in to a set interest rate and
relatively unaffected by inflation and interest rate changes.
Fixture: A recognizable entity (such as a toilet bowl, kitchen cabinet, or light unit)
that is permanently attached to property and belongs to the property when it is sold.
Fully Indexed Rate: A rate used in the calculation process for changing the rate
on an ARM. It is the sum of the index plus the designated margin.
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General Warranty Deed: A deed of conveyance in which the person conveying his
interest in a property fully warrants good and clear title to the premises. It offers the greatest protection of any deed.
Gift Letter : A signed statement describing the amount of any cash gift used by
the borrower to qualify for a loan with a reference that the gift need not be repaid.
Good Faith Estimate : Disclosure provided at loan application that itemizes all of
the costs associated with obtaining the mortgage loan.
Graduated Payment Mortgage: Mortgage offering low initial monthly payments
that increase by a predetermined amount, then level off for the duration of the loan.
Grantee: When an interest in property is conveyed to a purchaser, the purchaser
becomes the grantee. The grantee might also be a corporation or partnership.
Grantor: When an interest in property is conveyed by a seller to another person
or entity, the seller becomes the grantor.
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Hazard Insurance: An insurance contract, whereby an insurer undertakes to
compensate the insured for loss on property because of physical damage by fire, wind, or other natural disasters.
Home Warranty: Policy purchased by a buyer or seller as assurance against
unexpected home repair costs.
Homeowners' Association: An organization made up of homeowners who reside
within a particular area or development, such as a subdivision or a condominium. The members of such an association enforce any restrictions on the use of property and both provide and manage community facilities.
HUD 1 Statement: A document that provides an itemized listing of the funds that
are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. The totals at the bottom define the seller's net proceeds and the buyer's net payment at closing.
The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD statement is also known as the "Closing Statement".
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Index: An indicator used to determine interest rate changes.
Inspection: Formal survey of a home's structure and systems, often performed by
a licensed professional.
Inspection Clause : Stipulation in an offer-to-purchase that makes the contract
contingent upon the findings of a professional home inspector.
Interest: Charge paid to a lender for borrowed money.
Interest Rate: The note rate or rate of interest paid by the borrower.
Interest Rate Adjustment Cap: The maximum positive or negative change in the
interest rate on any interest rate change date on an ARM.
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Kick-out Clause: A clause in a sales contract that permits a seller to cancel a
contract and return the deposit if a contingency is not removed within a certain period of time.
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Lease: A written agreement stating the conditions for the possession and use of
real estate (and/or personal property) given by the owner to another person (the tenant) for a specific period of time and rent.
Lease-Purchase Agreement: Agreement between a tenant and landlord that a
portion of monthly rent may be credited toward eventual purchase of the rental property.
Lender's Agent: Person who represents the lender holding the mortgage at closing.
Lien : A security claim on property until a debt is satisfied.
Listing: Contract in which the seller agrees to pay a commission to the agent who
finds a purchaser who can meet the specified terms.
Liquid Assets: Demand deposits, savings accounts, IRAs, Keoghs, 401-K Plans,
CDs and publicly traded stocks and bonds.
Loan Fee : In addition to points, many lenders charge fees to cover costs of
services provided, such as application charges, inspection and preparation of documents.
Loan-to-Value Ratio : The amount borrowed to purchase property compared to the
sale price or the appraised value (whichever is lower) of that property. It is expressed as a percentage. For example, if one is buying a house for $100,000 and arranges for a $90,000 loan, the LTVR is 90%.
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Margin: The amount that is added to an index value to determine the fully
indexed rate for an ARM.
Mortgage: Claim that a lender receives on a property as its security for the loan it
makes to a home buyer.
Mortgage Broker : Independent, third-part broker who arranges transactions
between borrowers and lenders by streamlining the application and approval process and finding favorable terms for the buyer.
Mortgage Insurance (See PMI)
Mortgage Note: Signed promise to repay a mortgage loan in regular monthly payments.
Multiple Listing Service (MLS): System in which participating brokers agree to share commission on the sale of houses listed by any one of them.
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Net Worth: The value of all of a company's or individual's assets minus the total
liabilities. Used as a means to indicate creditworthiness or financial strength.
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Offer (Offer-to-Purchase): Legally binding, written contract that declares how
much a buyer will pay for the house provided certain conditions are met.
Open House: Opportunity for prospective buyers to view a house for sale in a
low-pressure atmosphere.
Option : An agreement allowing (but not requiring) the purchase or sale of
property for a stated price within a specified period of time. For example, if one is given a 90-day option to buy a piece of land for $500 per acre, one may purchase it within 90 days at that price, but has no obligation to purchase.
Origination Fee : Similar to a point; a supplemental fee paid to lenders. It pays
for processing the loan, which includes collecting information about the borrower's credit worthiness and the property being purchased. This information is analyzed
to determine whether one will be able to repay the loan as agreed and whether the property provides sufficient collateral in case one fails to repay the loan. This fee
is usually computed as a percentage (i.e. 1%) of a mortgage loan. It usually does not include fees for appraisals, credit reports, inspections and loan document preparation.
Over-Improvement: Addition or improvement in which the cost is greater than
the increased value of the house.
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Payment Cap : Protective device included in some adjustable rate mortgages that
sets a maximum amount monthly payments may rise in any given year.
Percolation Test : A test which determines how fast water seeps through soil. It is
required when a septic tank is being considered for a property.
PITI : Principal, Interest, Taxes, and Insurance - the four main parts of a monthly
mortgage payment.
PITI Ratio: Also called an "income-to-debt" ratio. It is used by lenders in deciding
whether to give the borrower a loan. It compares the amount of monthly income to the amount owed each month in principal, interest, real estate tax and insurance on that mortgage.
Plat Map : A map representing a piece of land subdivided into lots with streets,
boundaries, easements, and dimensions shown. It is usually recorded and made part of the public records.
PMI : Private mortgage insurance, which protects the lender in case of default by
the borrower. PMI is often used to allow buyers to obtain financing with less than a 20% down payment.
Points : One point equals one percent of the total mortgage loan amount. Buyers
often pay lenders a supplemental fee, calculated in points, to get a better mortgage interest rate.
Power of Attorney: The authority to act in another person's behalf, at his request.
If one is granted such authority, one is called the attorney-in-fact. The grantor may revoke a power of attorney at any time. If the grantor dies, relocates, or is
judged legally incompetent, the power of attorney will automatically terminate.
Pre-Payment : Paying off an entire mortgage before the scheduled date.
Pre-Qualify: Informal determination by a lender or broker of how large a
mortgage a buyer can afford.
Principal : Money borrowed from a lender, not including any fees or interest.
Promissory Note: A document in which one promises to pay a stated amount on a
specific date.
Prorate : To divide expenses and income between a buyer and a seller in
proportionate shares. For example, if a property is purchased at mid-year after the seller has already paid taxes on the property for the whole year, the purchases reimburses for one-half of those taxes, i.e. the pro-rata share.
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Qualify: Ability to meet a lender's mortgage approval requirements.
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Rate Cap : Protective device in some ARMs that sets a maximum amount that
interest rates may rise or decrease annually and over the life of the loan.
Real Property : A general term meaning land, buildings and other improvements
on the land and certain rights arising from its ownership. Real property is commonly known as real estate.
REALTOR®: A person who is both a licensed real estate practitioner and is an
active member in the local real estate board affiliated with the National Association of Realtors; Realtors subscribe to its strict Code of Ethics.
Recording: Any legal document that affects the ownership of real property is
recorded in a book of public records. This gives notice of ownership to all other interested parties.
Recording Fee: The cost of changing the public record when ownership of property
is transferred from one person to another.
Referral : One agent's recommendation of a potential buyer or seller to another
cooperating agent.
Refinancing: Applying for a new mortgage in order to gain better terms - usually
a lower interest rate.
RESPA: Real Estate Settlement Procedures Act. A federal law protecting the
homebuyer by requiring your lender to provide a borrower with estimates and information about closing costs before closing day.
Return on Investment: Value or profit gained as a result of dollars spent, as in an
improvement or addition.
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Sales Contract : A written document that establishes the purchase price and
terms of the agreement between the buyer and seller.
Second Mortgage: A junior mortgage. A second mortgage loan can be used to
reduce the cash down payment for purchase of property.
Settlement Disclosure Statement: A list giving a complete breakdown of costs
involved in a real estate transaction, prepared by the lender's agent at closing.
Shared Appreciation Mortgage: Arrangement in which a third-party investor
provides a percentage of the buyer's down payment and retains the same percentage of ownership and appreciation until paid back.
Special Warranty Deed: With this deed of conveyance, the grantor (seller) agrees
to protect the grantee (buyer) from any claims to the title of the property while he owned it.
Survey: A measurement of land, performed by a registered land surveyor. The
surveyor will draw up a plat, or map, to show the land's location in relation to known points of reference, as well as its dimensions and features. The plat will also include the locations and dimensions of any structures on the land.
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Tenant: One who is not the owner but occupies real property with the consent of
the owner. The tenant is entitled to exclusive possession and enjoyment of the property for a specific period of time and payment of rent as specified in a lease.
Term : The time limit within which a loan must be repaid.
Time is of the Essence: A phrase often used in legal contracts. It means that the
transaction, such as closing on a purchase, must be performed within the specified period of time.
Title: Right of ownership and possession of a property.
Title Insurance : Policy that protects a buyer against errors or omissions or
defects in the title of a property.
Title Search: An examination of public records, laws and court actions to make
sure that the seller is the legal owner and to disclose all other claims or encumbrances on the property affecting its ownership.
Truth-in-Lending Disclosure Statement: The document which discloses the annual
percentage rate (APR) and estimates loan payments.
Types of Ownership: There are four types of ownership.
They are: Sole Ownership - Only one person owns the property.
Tenants in Common - Two or more persons have an undivided ownership in the
property. The percentage of ownership need not be equal; each party has a right to sell HIS interest, and upon the death of any of the owners that owner's interest in the property goes to his heirs.
Joint Tenants - Ownership taken by two or more persons at the same time in
equal percentages with an undivided right to possession. If one owner dies, his or her interest automatically goes to the remaining owner(s).
Tenants by the Entireties - Owners are husband and wife and together they hold
title to the property with a right of survivorship. Upon the death of either, the survivor takes sole ownership to the exclusion of the deceased spouse's heirs.
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Underwriting: The process of analyzing the loan application and supporting
information to decide whether the loan is approved or declined.
VA Mortgage: Mortgage guaranteed by the Department of Veterans Affairs and
made available through banks and other lending institutions. Reserved for active military personnel, veterans, or spouses of veterans who died of service-related injuries.
Walk-Through Inspection : Final inspection of a property's condition by the buyer,
usually to ensure that all conditions noted in the offer-to-purchase have been met.
Zoning : Local restrictions for neighborhood building and land use.
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