A
Amenity
A man-made or natural feature of the property or home that is a benefit to the buyer but not a necessity for its use.
Amortization
A schedule of monthly payments of principal and interest for a specific period of time, at the end of which you own your home.
Annual Percentage Rate (APR)
Shows the cost of a loan including the points, interest, mortgage insurance and any other fees associated with the loan.
Application
A form completed by the buyer providing the information necessary for the borrower; the beginning of the official loan approval process.
Appraisal
Usually required by the lender to make certain the mortgage loan amount does not exceed the value of the property; provides an estimate of the fair market value of the property.
Appraiser
Prepares the appraisal estimate based on his/her knowledge and experience.
ARM
Stands for Adjustable Rate Mortgage, which is a type of loan whose interest rate fluctuates (either up or down) at specific times as determined by the lender; borrower's monthly changes will fluctuate as the interest rate changes, though is usually subject to a cap.
Assessed Value
Used for taxation, this is the property's value as determined by a tax assessor.
Assessment
The public record of the value of a property used to determine property tax or the process of determining the value. Also may be for a special purpose such as a sewer assessment.
Assessor
Determines the property's value to be used for the basis of taxation; usually a government official.
Assumable Mortgage
Type of mortgage that is transferable from a seller to a buyer; once transferred, the seller assumes all responsibility for repaying the mortgage; a fee and/or credit package for the transfer may be required.
B
Balloon Mortgage
Type of mortgage that begins with a low rate for a specific period of time and then requires the balance to be paid or refinanced.
Bankruptcy
Occurs when a person's debts exceed their ability to pay; the person's assets are relinquished to a trustee in order to pay off the outstanding debts as determined by federal law.
Binder
The initial contract whereby a buyer offers to purchase real estate, usually secured with a money deposit.
Borrower
An individual who receives a loan after an approval process who is required to repay it, usually in installments with interest and/or additional fees.
Bridge Loan
Also known as a "swing loan," this type of loan uses the borrower's current home as collateral to obtain funds for the closing on a new home before the present home is sold.
Building Code
A regulation that governs the design, construction and materials used in a building based upon safety standards within a specific area.
Budget
A complete plan of all income earned and paid out for a specific period of time.
Buydown Account
An advance payment on a loan is held in an account so that the money can be applied, usually monthly, in order to reduce the interest rate on the loan for a set period of time.
Buydown Mortgage
A type of mortgage whereby an initial lump sum is made in order to reduce the borrower's monthly payments; can be a temporary or permanent buydown.
C
Cap
An upper limit for the interest rate or monthly payment placed on an adjustable rate mortgage.
Cash Reserves
An amount of cash required to be set aside in addition to the down payment and closing costs, to qualify for a mortgage; the lender usually determines the amount.
Certificate of Title
Indicates that a property legally belongs to the current owner. Before the closing, this document should show that the title is free and clear of all liens and claims.
Closing
Time when the property is sold and formally transferred to the buyer; also when the borrower assumes the mortgage loan obligation, pays closing costs and is given the title to the property; also known as the settlement.
Closing Costs
Usual charges above and beyond the sale price that must be paid at the closing. These may vary by geographic area and are typically provided to the buyer prior to closing.
Commission
A percentage of the selling price or flat fee paid to the real estate professional for the services they provide.
Common Area Assessments
A charge to individual unit owners of a condominium for funds to maintain, repair, improve and/or replace the common areas of the complex.
Common Areas
Areas of condominium property or planned unit development owned and used by all owners and/or their tenants; may include parking areas, walkways, pool, clubhouse, tennis courts, corridors, sidewalks; operation and maintenance expenses for these areas are shared by all.
Condominium
A type of ownership of a multi-unit complex whereby individuals own a unit of housing but share in the ownership and financial responsibility for the common areas.
Condominium Conversion
A modification of the type of ownership of a property from what is typically a rental type property to a condominium type of ownership.
Condominium Hotel
Condominiums are individually owned but the property is operated as a hotel providing short-term occupancy, registration desk, food and daily cleaning services.
Conventional loan
Available through the private sector, this loan is neither insured or guaranteed by the U.S. government.
Cooperative (Coop)
A type of ownership whereby people own stock in a corporation that owns a multi-unit housing complex. Stock ownership entitles each owner to live in a specific unit of the structure and to pay a predetermined portion of the loan on the property.
Credit History
Past debt payments by an individual that is used by lenders to determine a potential borrower's ability to pay back a loan.
Credit Report
A detailed accounting of an individual's debts, past and present, and how timely they were repaid.
Credit Bureau Score
Used to qualify for a mortgage loan, it is a number derived from a potential borrower's credit history in order to determine the likelihood of default.
D
Debt-to-Income Ratio
Under the FHA, the comparison of gross income to non-housing and housing expenses; expressed as a percentage, it should be no more than 29% of a buyer's monthly gross income before taxes; when combined with the non-housing debt, it should not exceed 41% of the buyer's income.
Deed
The legal document that transfers ownership from the seller to the buyer.
Default
The failure to meet the terms of the mortgage, often by not paying the monthly mortgage payments as required by the lender.
Delinquency
Past due mortgage payments due to a failure to make such payments by the borrower.
Discount Point
Paid at the closing in order to reduce the interest rate on a mortgage. A point is usually calculated at 1% of the total loan amount.
Down Payment
The amount paid in cash by the buyer of a home that is not part of a the amount being financed by a mortgage.
E
Earnest Money Money that becomes part of the down payment if an offer is accepted; used to show a seller that a potential buyer is truly interested in purchasing the home.
Easement The right of access to or over a property, given to someone other than the owner.
Encroachment An improvement to a property that intrudes illegally on another owner's property.
Equity The difference in the fair market value of a property and the balance owed on the mortgage.
Escrow Account A type of account whereby a third party holds money; often where a down payment is held until the closing; also may be used for taxes and insurance premiums paid as part of a monthly mortgage payment until these bills come due.
F
Fair Housing Act
A federal law that forbids discrimination in any part of the home buying process on the basis of sex, disability, race, color, religion, national origin or familial status.
Fair Market Value
The price that both a seller and buyer will agree upon based on full disclosure and when neither is under any undue pressure.
Fannie Mae
A federally-chartered company called the Federal National Mortgage Association that is owned by private stockholders. It buys residential mortgages and converts them into securities. Fannie Mae is the country's largest source of funding for home mortgages.
Federal Housing Administration (FHA)
The FHA creates homeownership opportunities for all Americans by providing mortgage insurance to lenders to cover most losses due to default. By doing so, it encourages lenders to make loans to borrowers who might not qualify without this insurance.
Fixed-rate Mortgage
A type of mortgage where neither the interest rate nor other terms of the loan change over the life of the loan so payments are remain the same.
Flood Insurance
Required by a lender if a home is located in a flood plain in order to protect against losses from a flood. These areas are Federally designated.
Foreclosure
The legal process, by which a property in default is sold at auction to pay the mortgage debt.
Freddie Mac
The Federal Home Loan Mortgage Corporation, a federally-chartered corporation that buys residential mortgages, secures them, and then sells them to investors to provide lenders with income for new home buyers.
G
Ginnie Mae
The Government National Mortgage Association, known as Ginnie Mae, is a government-owned corporation within the U.S. Department of Housing and Urban Development that provides funding for special assistance loans to eligible borrowers.
Good Faith Estimate
A borrower must receive an estimate of all closing fees within three days after a loan application is submitted to a lender; includes prepaid and escrow items as well as any lender charges.
H
Home Inspection
A through inspection of a home's structure and mechanical systems in order to make a potential home buyer aware of any necessary repairs.
Home Warranty
Insurance that covers unforeseen repairs to the mechanical systems and other specified parts of a house for a specific period of time and does not include the structure of the home.
Homeowners' Association
A nonprofit association that manages the common areas of a condominium project or planned unit development (PUD). In a condominium project, it has no ownership interest in the common areas. In a PUD, it holds title to the common areas.
Homeowners' Insurance
A type of insurance that protects against damage to a dwelling as well as the contents and against any claims of inappropriate action or negligence that has caused property damage or someone's injury.
HUD
The U.S. Department of Housing and Urban Development (HUD), created in 1965, with the goal to provide a suitable living environment and a decent home for all Americans. It addresses improving and developing communities, enforcing fair housing laws and addressing housing needs.
HUD Statement
An itemization of all closing costs that must be given to the borrower either at or before the closing. Also known as a "settlement sheet", it defines the seller's net proceeds and the buyer's net payment.
HVAC
Stands for Heating, Ventilation and Air Conditioning and refers to the heating and cooling system of a home.
I
Index
Used by lenders to change the interest rate on an adjustable rate mortgage.
Inflation
Occurs when the amount of goods and services available for purchase is less than the number of dollars in circulation, thereby increasing prices and decreasing the dollar's value.
Interest
A charge assessed by the lending institution for the use of money.
Interest Rate
The percentage charged on a mortgage loan for the use of the lender's money.
Insurance
Required by lenders in order to protect against specific losses to a property. Regularly scheduled premium payments are necessary.
J
Judgment
A legal ruling that may include a property lien in order to provide the creditor with collateral for the debt repayment.
L
Lease Purchase
An agreement whereby a home buyer is allowed to lease a home with the option to purchase it at a later date. The rent payment includes the monthly rental payment plus an additional amount that is credited for use as a down payment.
Lien
Used as security for a debt, this legal claim must be satisfied when the property is sold.
Loan
Money given to a borrower on the condition that it be paid back, usually with interest.
Loan Fraud
Deliberately providing false information on a loan application; criminal penalties or civil liabilities may result.
Loan-to-Value (LTV) Ratio
Calculated by dividing the amount borrowed by the price of the home or its appraised value, whichever is lower.
Lock-In
An agreement in which the lender guarantees a specific interest rate if the loan is closed within a specific period of time.
Loss Mitigation
Used by lenders to avoid foreclosure whereby a lender will assist a borrower who has been unable to make his or her loan payments.
M
Margin
The amount of profit added to the index by the lender to set the interest rate.
Mortgage
A contract between the lender and borrower that pledges the property as security for the payment of the loan.
Mortgage Banker
A financial institution that originates loans for property, and resells them to the secondary mortgage market.
Mortgage Broker
A company or individual that originates and processes loans for more than one lender.
Mortgage Insurance
A policy to protect the lender against specified losses if a borrower defaults on a mortgage; it is usually required for borrowers whose down payment is less than 20% of the home's purchase price.
Mortgage Insurance Premium (MIP)
Generally part of the monthly mortgage payment paid to a lender in order to pay for mortgage insurance.
Mortgage Modification
A change in the terms of the mortgage that permits a borrower to refinance and/or extend the term of the mortgage loan in order to reduce the monthly payments.
N
Note
A legally binding agreement that obligates a borrower to repay a mortgage loan during a specific period of time at a specified interest rate.
O
Offer
Generally provided in writing, it indicates a potential buyer's desire to purchase a home at a specific price.
Origination
The entire process of a loan application from preparation and submission to evaluation, that usually includes a property appraisal, credit check and verification of employment.
Origination Fee
The cost for originating a loan, paid at closing and calculated in the form of points.
P
PITI
Principal, Interest, Taxes and Insurance, the four elements that comprise a monthly mortgage payment. The portion allotted to the taxes and insurance is held in an escrow account until these fees are due for payment.
PMI
Also known as Private Mortgage Insurance usually required by privately-owned lenders when qualified borrowers have less than 20% of the purchase price as a down payment.
Point
A one-time fee paid to the lender for originating the loan. One point is equal to one percent of the loan amount.
Pre-approve
A commitment by a lender to lend a potential borrower a set amount of money provided the borrower still meets the qualification requirements when the purchase of a home takes place.
Pre-foreclosure Sale
Allows the borrower of a mortgaged property that is in default to avoid foreclosure by selling the property to satisfy the loan.
Premium
Payment made by a policyholder in order to maintain insurance coverage.
Prepayment
When a loan is paid before its scheduled due date; a prepayment penalty may be charged.
Prepayment Penalty
A charge to the borrower when a loan is paid before its scheduled due date.
Pre-qualify
An informal determination by a lender of the maximum amount a buyer is eligible to borrow.
Principal
The initial amount borrowed excluding interest and additional fees or the remainder of that amount once payments have begun.
PUD
Planned Unit Development (PUD), a project or subdivision that included common areas that are owned and maintained by a homeowners' association.
Q
Quitclaim Deed
A deed that transfers whatever interest or title the grantor may have at the time the transfer is made, without warranty.
R
Radon
A radioactive gas that, if in a high enough concentration, can cause health problems.
Real Estate Agent
A licensed person who negotiates and arranges real estate transactions.
Realtor®
A real estate broker or agent who is a member of the National Association of Realtors® and its affiliated state and local associations.
Refinancing
Paying off one loan with the proceeds of another.
Rehabilitation Mortgage
A type of mortgage that deals with the costs associated with improving or repairing a property; the FHA's 203(k) mortgage allows these costs and the home purchase costs to be put into one loan.
RESPA
The Real Estate Settlement Procedures Act, a law requiring lenders to disclose all settlement costs, practices and relationships during a residential real estate purchase and loan process in order to protect consumers from abuses.
S
Second Mortgage
An additional mortgage on a property that is subordinate to the first mortgage.
Settlement
Time when the property is sold and formally transferred to the buyer; also when the borrower assumes the mortgage loan obligation, pays closing costs and is given the title to the property; also known as the closing.
Subordinate
To place one claim after another or to place it in a rank of lesser importance.
Survey
A diagram of a property that shows easements, rights of way, encroachments, location of improvements and legal boundaries.
Sweat Equity
Building or improving a property by using labor instead of cash.
T
Title 1
Insured by the FHA, this type of loan allows the borrower to make non-luxury improvement to their home. A property lien is not required for Title 1 loans of less than $7,500.
Title Insurance
Insurance that protects the lender or the buyer against any claims regarding the ownership or title of the property.
Title Search
An investigation of public records to make certain there are no unsettled claims or liens against the property and that the seller is the legal owner.
Transfer Tax
Tax (local or state) payable when title passes from seller to buyer.
Truth-in-Lending
A federal law requiring lenders to provide full written disclosure of all fees, conditions and terms that are part of the loan.
U
Underwriting
The process used to evaluate a loan application in order to determine how much risk is involved if the loan is approved. A review of applicant's credit history and the value of the property is included.
V
VA
The Department of Veterans Affairs (VA), is a federal agency that acts as a guarantor for mortgage loans made to veterans; similar to mortgage insurance, it protects the lender against loss as a result of a borrower defaulting on the loan.
W
Wraparound
A type of mortgage where the remaining balance of a first mortgage is put with an additional amount requested by the borrower. Payments are made to the lender of the wraparound mortgage who forwards the first mortgage payment to that lender.
Wraparound
A type of mortgage where the remaining balance of a first mortgage is put with an additional amount requested by the borrower. Payments are made to the lender of the wraparound mortgage who forwards the first mortgage payment to that lender.
