Real Estate Glossary of Terms
Adjustable Rate Mortgage (ARM)
A mortgage on which the interest rate may be adjusted up or
down based upon a change in a readily verifiable index. Rate adjustments
may be implemented through changes in the payment amount, in the
outstanding loan balance or in the term of the loan.
Agreement of Sale
Known by several names ("contract of purchase", "purchase
and sale agreement", "purchase agreement", "sales
agreement", and in some areas "binder") based on the
part of the country you are in. A contract in which a seller agrees
to sell and a buyer agrees to buy, under certain specific terms and
conditions reduce to writing and signed by both parties.
Amortization
Repayment of a loan through a predetermined schedule of payments
of principal and interest. At the maturity of the loan, both principal
and interest are completely paid.
Appreciation
An increase in the value of a property due to a rise in its
market price, appraised value, or other measure of current value.
Appraisal
A written estimate of the value of real estate as of a given
date and always performed by an appraiser.
Assessment
The value placed on property for purposes of taxation, may
also refer to a tax due for a specific purpose, such as a sewer
assessment.
Balloon Payment
The final payment on a loan, usually substantially larger than
previous payments, because the payments were not large enough to
fully amortize the loan.
Bill of Sale
An instrument that transfers title to personal property.
Bridge Loan
A short term loan on one property that is applied toward the
purchase of another property prior to the sale of the first property.
Used when a buyer needs the proceeds of a sale before purchasing
another property.
Buydown
Funds paid or set aside at closing to supplement a buyers's
monthly payment. Buydowns may be temporary (for a period of time)
or permanent (for the life of the loan).
Cap
The limitation on the amount by which either interest rates
or payments can change at any single adjustment interval on an
adjustable rate mortgage loan.
Closing
The final step in the sale and purchase of a property, when
the title is transferred from the seller to the buyer and money
due to the seller is handed over.
Closing Costs
(Settlement costs) Costs in addition to the price of a house,
usually including, but not limited to, mortgage origination fee,
lender's title insurance, recording fees, tax service, underwriting
fees, and the attorney's fees. Prepaid items such as taxes and
insurance payments which are collected in advance of closing to
be held in an escrow account are not considered "closing costs."
Closing Statement
The computation of financial adjustments as of the day of closing
to determine the net amount of money due to the seller and from
the buyer complete the purchase of the real estate.
Conventional Loan
A mortgage loan not insured by FHA or guaranteed by VA.
Credit Rating
A rating made by a company (such as a credit bureau) based
on one's present financial condition and past credit history.
Deed of Trust
A security instrument whereby real property is given as security
for a debt.
Default
Failure to make loan payment on time, as agreed to in the note.
If a payment is 30 days late, the loan is in default, and it may
give the lender the right to start foreclosure proceedings.
Depreciation
A loss or decrease in the value of a piece of property due
to age, wear and tear, economic conditions or adverse neighborhood
changes.
Discount Point (s)
One percent of the principal of a loan. Points are loan fees
charged by lenders to increase the yields on below-market interest
rate loans to competitive levels, and are paid when the loan is
closed. Also called point(s).
Due-on-sale clause
A form of acceleration clause that calls due, at the lender's
option, the entire outstanding balance of a loan upon the sale
or transfer of a property. Used by lenders primarily as a means
of restricting either a loan assumption or sale of a property without
the lender's approval.
Earnest Money
The money deposited in escrow for the potential purchaser by
the real estate broker upon the signing of the purchase agreement
to show that the purchaser is serious about buying the property.
Equity
The difference between a property's market value and the amount
of all liens against the property. Refers to an owner's interest
in a property.
Escrow
Money or document held by an independent third party until
all conditions of a contract are met. American Way does not act
as an escrow agent.
Escrow payment
That part of a borrower's monthly payment held by the lender
to pay for items such as taxes, private mortgage insurance, hazard
insurance, mortgage insurance and other items when they become
due.
FHA
Federal Housing Administration ( a division of the Department
of Housing and Urban Development) insures home mortgage loans made
by private lenders.
Finance charge
The total of all charges paid in order to obtain a loan.
Fixed rate mortgage
A mortgage on which the interest rate remains the same for
the life of the loan.
Fixture
What was formerly personal property which is now permanently
attached to real property and goes with the property when it is
sold.
Foreclosure
The legal process by which a lender forces payment of a loan
by taking the property from the owner and selling it to pay off
the debt.
Hazard insurance
Insurance which protect against damage caused to the property
by fire, windstorm or other common hazard. Required by many lenders
to be carried in an amount at least equal to the mortgage.
Homeowner's insurance
Insurance that covers the house and its contents in the case
of fire, wind damage or theft. It also covers the homeowner in
case someone is injured on the property and brings suit.
Index
An interest rate indicator used to determine changes in the
mortgage interest rate of adjustable rate mortgages. Average rates
on Treasury bills or Treasury securities over a specified period
of time are often used.
Lien
A hold or claim which someone has on the property of another,
as security of a debt or charge; if the debt is not repaid as agreed,
the property may be sold to pay off the lien.
Margin
A fixed percentage or amount added to the index at each adjustment
interval to determine the new interest rate on an adjustable rate
mortgage loan. Index + Margin = interest rate
Market Value
The highest price a buyer, ready, willing and able but not
compelled to buy, would pay, and the lowest price a seller, ready,
willing and able but not compelled to sell, would accept.
Mortgagee
A lender who holds a mortgage (Deed of Trust) as security for
repayment of a debt.
Mortgagor
A borrower of money who gives a mortgage (Deed of Trust) as
security.
Origination fee
The fee that the lender charges the borrower to cover the cost
of issuing a loan. It pays for processing your loan which includes
collecting information about your credit worthiness and the property
you are buying. This information is analyzed to determine whether
you will be able to pay the loan back as agreed, and, whether the
provides sufficient collateral in case you fail to repay the loan.
It usually does not incluse fees for appraisals, credit reports,
inspections and loan document preparation.
PITI
Abbreviation for the elements that commonly make up a borrower's
payment on an amortized loan: principal, interest, taxes and insurance.
Prepaid items
An advance payment at the time of closing for taxes, hazard
insurance, and mortgage insurance which is held in an escrow account
by the lender.
Prepayment penalty
A charge made by the lender if a mortgage loan is paid off
before the due date. FHA does not permit such a penalty on its
FHA-insured loans.
Principal
The amount of money borrowed which must be paid back, along
with interest and other finance charges.
Private Mortgage Insurance (PMI)
Insurance provided by a private company (rather than FHA) that
protects the lender against loss caused by a borrower's default;
the borrower , however, pays the premium for the insurance. This
insurance usually is required on loans with high loan-to-value
ratios.
Recording Fees
The charge to put on public record the details of legal documents
such as a deed or mortgage.
Refinancing
The process of paying off one loan with the money (proceeds)
from another loan.
Sellers Property Condition Disclosure
Provided by the seller for all parties in a transaction, it
state the sellers current knowledge of the condition of the property.
Title
The rights of ownership of a particular property, and the document
which proves that ownership (commonly called a warranty deed)
Title insurance
Special insurance which usually protects lenders against loss
of their interest in property due to legal defects in the title,
called lender's title policy. An owner can protect his interest
by purchasing separate coverage. HINT: It's cheaper it both policies
are purchased at the same time, usually at the closing.
Title search
An examination of public records to uncover any past or current
facts regarding the ownership of a piece of property. A title search
is intended to make sure that the title is marketable and free
from defects.
Veterans Administration (VA)
A federal agency that allows eligible veterans to obtain residential
mortgage loans with little or no down payment from private lending
institutions. The VA guarantees the lender for a specified amount
of the loan in the event of default by the borrower.
