Glossary of Terms

Real Estate, Mortgage & Title Glossary

    The date when both parties, seller and buyer, have agreed to and completed signing and/or initialing the contract.

    Adjustable Rate Mortgage (ARM):
    A mortgage that permits the lender to adjust the mortgage's interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change.

    Amortized Loan:
    A loan, which is paid in equal installments during its term.

    A.P.R. (Annual Percentage Rate):
    A term used in the Truth in Lending Act. It represents the relationship of the total finance charge (interest, discount points, origination fees, loan broker, commission, etc.) to the amount of the loan.

    An estimate of real estate value, usually issued to standards of FHA, VA, and FHMA. Recent comparable sales in the neighborhood is the most important factor in determining value. This should be contrasted against the subject home of the inspection.

    An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

    Assumable Mortgage:
    Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.

    Bill of Sale:
    Document used to transfer title (ownership) of PERSONAL Property.

    Mortgage characterized by level fixed payments for a pre-determined timeframe followed by either a refinance or a call from a lien holder to pay off a loan.

    Cash to Close:
    The amount needed from the borrower at closing. Consists of any down payment, closing costs and prepaid items. This amount normally needs to be in the form of a cashier check made payable to the title company.

    Closing Statement (HUD1):
    A financial statement rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended.

    Cloud on Title:
    Any condition that affects the clear title to real property.

    Comparable Sales:
    Sales that have similar characteristics as the subject property and are used for analysis in the appraisal process.

    An agreement to do or not to do a certain thing.

    Anything of value to induce another to enter into a contract, i.e., money, services, a promise.

    Conventional Financing:
    Standard, non-government financing.

    Credit Scores:
    The number generated by the credit bureaus which is a numerical representation of the subjects credit profile, range is from 350 on the low side to 850 being the highest score possible.

    Debt Ratios:
    Ratio of debt to pretax (gross) income, often expressed as a front (housing payment only) or back (all debt) ratios. Ex- $5000 monthly income, $1400 housing payment, $1700 total debt would equal ratios of 28%/34%.

    Written instrument, which when properly executed and delivered, conveys title to real property.

    Discount Points:
    A loan fee charged by a lender of FHA, VA or conventional loans to increase the yield on the investment. One point = 1% of the loan amount.

    Down Payment:
    Difference between loan amount and purchase price.

    Earnest Money:
    Deposit toward down payment submitted with a purchase agreement as evidence of the buyers commitment.

    The right to use the land of another.

    Anything that burdens (limits) the fee title to property, such as a lien, easement, or restriction of any kind. Equity: The value of real estate over and above the liens against it. It is obtained by subtracting the total liens from the value.

    Escrow Payment:
    That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due.

    Fannie Mae:
    Nickname for Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

    Federal Housing Administration (FHA):
    An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

    FHA Insured Mortgage:
    A mortgage under which the Federal Housing Administration insures loans made, according to its regulations.

    Fixed Rate Mortgage:
    A loan that fixes the interest rate at a prescribed rate for the duration of the loan.

    Not locking in a rate, but rather choosing to float the interest rate as the market moves up or down.

    Flood Certification:
    Required document on all loans. Confirms if the property is in or out of a FEMA designated flood zone.

    Good Faith Estimate:
    Document prepared by lender which estimates and delineates the various fees and closing costs associated with the home purchase.

    Procedure whereby property pledges as security for a debt is sold to pay the debt in the event of default.

    Freddie Mac:
    Nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.

    Graduated Payment Mortgage:
    Any loan where the borrower pays a portion of the interest due each month during the first few years of the loan. The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its life.

    Home Equity Line of Credit. Second mortgage product, generally characterized by interest only payments and the ability to draw, pay back, and redraw.

    Home Inspection:
    Not required by lender. This is a private inspection done by the buyer's choice to confirm that the property is in acceptable condition.

    Homeowners Association Dues:
    Amount paid by owner of a town home or condo to cover various amenities or services provided by the homeowners association (examples -- common areas, hazard insurance, garbage, mowing, snow removal). This monthly fee is paid separately than the mortgage, usually to a management company.

    Homeowners/hazard Insurance:
    Insurance which covers damage or loss to the property. The premium is usually paid into an escrow account held by the mortgage company, which then pays the insurance company once a year.

    HUD-I (Settlement statement):
    Document prepared by title company at closing which shows where all of the money in the transaction was coming from and going to.

    The holder of a mortgage or the permanent lender for whom the mortgage banker services the loan. Any person or institution that invests in mortgages.

    Lease Purchase Agreement:
    Buyer makes a deposit for future purchases of a property with the right to lease the property for the interim.

    Loan to Value Ration (LTV):
    The ratio of the mortgage loan principal (amount borrowed) to the property's appraised value (selling price). Example - on a $100,000 home, with a mortgage loan principal of $80,000 the loan to value ratio is 80%.

    Lock-in Period:
    Time period that a rate is protected (locked) for during the loan process.

    A legal document that pledges a property to the lender as security for payment of a debt.

    Mortgage Insurance:
    This insurance protects the investor from possible loss in the event of a borrower's default on a loan. Due and is paid by the borrower.

    The borrower of money or the giver of the mortgage document.

    A written promise to pay a certain amount of money.

    Origination Fee:
    Usually 1% of the loan amount. Can be avoided by paying a higher rate & typically is tax deductible.

    Piggy Back:
    A second mortgage closed at the same time as a first mortgage. Usually purpose is to avoid mortgage insurance, jumbo pricing, or for future needs.

    Group of items paid at closing including monies to set up the escrow account and to pay prepaid or odd days interest.

    Private Mortgage Insurance (PMI):
    See Mortgage Insurance Premium.

    Promissory Note:
    A written contract containing a promise to pay a definite amount of money at a definite future time.

    Property Taxes:
    Amount of tax due on a property. Usually is collected as part of the escrow portion of the monthly payment, with the lender being responsible to forward the escrowed money as the bills come due on May 15 and Oct 15.

    Purchase Agreement:
    Contract between buyer and seller outlining the terms of the agreement.

    A member of local and state real estate boards, which are affiliated with the National Association of Realtors (NAR) who represent buyers and/or sellers in real estate transactions.

    Rent With Option:
    A contract, which gives one the right to lease property at a certain sum with the option to purchase at a future date.

    Second Mortgage/Junior Mortgage or Junior Lien:
    An additional loan imposed on a property with a first mortgage. Generally, a higher interest rate and shorter term than a "first" mortgage. They are sometimes used to avoid mortgage insurance.

    Severalty Ownership:
    Ownership by one person only. Sole ownership.

    The process by which a parcel of land is measured and its area ascertained.

    Tenancy In Common:
    Ownership by two or more persons who hold an undivided interest without right of survivorship. (In event of the death of one owner, his/her share will pass to his/her heirs).

    Title Insurance:
    An insurance policy which protects the insured (purchaser or lender against loss arising from defects in the title).

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