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-A-
acceptance
An offeree's consent to enter into a contract and be bound by the terms of the
offer.
adjustable -rate mortgage (ARM)
A mortgage that permits the lender to periodically adjust its interest rate based on changes in a specified index.
amortization
Repayment of a mortgage loan in installments over time.
amortization schedule
A timetable that shows the amount of each payment applied to both interest and principal and shows the remaining balance after each payment is made.
amortization term
The term of a mortgage loan. For example, a 30-year fixed-rate mortgage has an amortization term of 360 months.
amortize
To repay a mortgage with regular payments.
annual percentage rate (APR)
The total cost of a mortgage, stated as a yearly rate.
appraisal
A written analysis of the estimated value of a property, performed and prepared by a licensed appraiser.
appreciation
An increase in the value of a property due to improvements, changes in market conditions, and other causes.
as-is condition
As of a set date (i.e. date an offer is accepted), the property must remain in the same condition upon transfer, and the buyer accepts said condition.
assessed value
The tax value of a property as determined by a public tax assessor.
assessment
The process of placing a value on property for the strict purpose of taxation. This may also refer to a levy against property for a special purpose, such as a sewer assessment.
assessment rolls
The public record of taxable property.
assessor
A public official who establishes the value of a property for taxation purposes.
asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer.
-B-
balloon mortgage
A mortgage that has level monthly payments over a specified term with lump sum payment to be due at the end of an earlier-specified term.
before-tax income
Income before taxes are deducted.
beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
betterment
An improvement that increases property value, but not simple repairs or replacements that serve only to maintain value.
bill of sale
A written document that transfers title to property.
breach
A violation of a legal obligation.
broker
A real estate professional who maintains a higher level of training than an agent. A broker brings parties together and assists in negotiating contracts between them, such as a mortgage broker or real estate broker. Generally, they are the legal representative of a real estate office.
building code
Based on safety and health standards, regulations that control design, quality, and materials used in construction.
buyer's agent
An agent who represents a potential buyer per written agreement (unlike a presumed buyer's agent), and is authorized to make offers and close deals for them.
-C-
cap
A feature of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. Also see escalation clause.
capital
Money used to create income, either as an investment in a business or the net worth of a business (amount by which its assets exceed liabilities).
capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
certificate of title
A statement that indicates the title to real estate is legally held by the current owner.
change frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
clear title
A title that is free of liens or legal ownership questions.
closing
A meeting at which the sale of a property is finalized.
closing attorney
A lawyer who sees the settlement through to completion while acting in the best interests of all parties concerned.
closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product.
closing costs
Expenses incurred by buyers and sellers in transferring ownership of a property.
collateral
An asset (such as a car or a home) that secures the repayment of a loan.
commission
The fee (usually a percentage) charged by a broker or agent for negotiating a real estate or loan transaction.
commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a loan commitment.
Comparable Market Analysis
Less formal than an appraisal, a Comparable (or Comparative) Market Analysis is an evaluation of homes in a specific neighborhood with similar characteristics, used to help calculate the correct value for a particular home.
comparables
Short for comparable properties; used for comparative purposes in the appraisal process. Comparables are properties similar to the property under consideration; they have recently been sold and are of approximately the same size with comparable location and amenities. Comparables help the appraiser determine the approximate fair market value of the subject property.
condo(minium)
Real estate where individuals own particular units, while sharing common property such as parking areas and grounds.
condo/coop fee
Monthly charge to all members to cover communal costs such as road plowing, grounds maintenance, management costs, and insurance policies.
condo/coop resale package
All paperwork that must be provided to the purchaser, including financials, instruments, covenants, and restrictions. There is generally a 3-7 day window in which to review the package before committal.
construction loan
A short-term, interim loan for financing the cost of construction.
consumer reporting agency (or bureau)
An organization that prepares reports used by lenders to determine a potential borrower's credit history.
contingency
A condition that must be met before a contract is legally binding.
contract
An oral or written agreement to do or not to do a certain thing.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.
convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.
convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.
coop(erative)
A form of communal property ownership, where members own stake in the company managing a multi-unit property instead of each owning individual units.
cooperating agent
An agent employed by one real estate agency hired by another to represent their interests in dealings.
cost of funds index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans
counteroffer
One offer, financial or otherwise, made in response to another.
covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
credit history
A record of an individual's open and fully repaid debts.
credit life insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.
creditor
A person to whom money is owed.
credit report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
-D-
deed
The legal document conveying title to a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a voluntary conveyance.
deed of trust
A document used in some states instead of a mortgage; title is conveyed to a trustee.
default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
delinquency
Failure to make mortgage payments when they are due.
deposit
A sum of money given to bind the sale of real estate. Also called earnest money.
depreciation
A decline in the value of property; the opposite of appreciation.
designated agent
An agent selected by a buyer or seller to represent them in dealings.
down payment
The portion of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
dual agency
Where both buyer and seller elect to use the same agency to represent both interests.
-E-
earnest money deposit
A deposit made by the potential home buyer in good faith to show that he or she is serious about buying the house.
easement
A right of way giving persons other than the owner access to or over a property.
effective age
An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective
age.
effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
encroachment
An improvement that intrudes illegally on another's property.
encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.
escalating factor
The set amount above a newer offer the original offer rises under an escalation clause. The total amount can be capped at a certain level.
escalation clause
An agreement under which a potential purchaser's official price offer will raise if the seller receives another, more profitable offer before accepting the purchaser's offer. The amount the offer is raised by is an escalating factor, and may be capped at a certain point.
escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition.
escrow account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.
-F-
Fannie Mae
Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for 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.
fee simple
Property owned exclusively by one person, with which said person can do as they like.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
first mortgage
A mortgage that is the primary lien against a property.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.
fixtures
Accessories to a home also located on its property, such as a gazebo or shed.
forfeiture
The loss of money, property, rights, or privileges due to a breach of legal obligation.
FSBO
For Sale by Owner. Property is listed for sale by its current owners, not through a realtor.
-G-
government mortgage
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service
(RHS).
Government National Mortgage Association
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) responsible for the special assistance loan program formerly administered by Fannie Mae. Sometimes referred to as Ginnie Mae.
-H-
hazard insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM)
A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage.
home equity line of credit
A financing option where a borrower uses a credit line to borrow against the equity in his/her home.
home inspection
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
homeowner's insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
homeowner's warranty (HOW)
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.
HUD 1/settlement statement
An official government statement outlining the purchase price, costs sustained by both parties, and related information.
-I-
inclusions/exclusions
Items on or within the home that are or are not included in the sale. These include appliances, window shades, and related items.
income property
Real estate developed or improved to produce income.
index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM).
installment
The regular periodic payment that a borrower agrees to make to a lender.
installment loan
Borrowed money that is repaid in equal payments, known as installments.
insurance binder
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
insured mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance
(PMI).
interest
The fee charged for borrowing money.
interest accrual rate
The percentage rate at which interest accrues on the mortgage.
interest-only loan
Loan program that offers an interest payment option instead of a principal and interest payment.
interest rate
The rate of interest in effect for the monthly payment due.
interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
interest rate floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
investment property
A property that is not usually occupied by the owner and is held for the purpose of making a profit.
-J-
joint tenants
Where two people, usually married, own a property together, with the interest of the first partner who becomes deceased automatically transferring to the surviving partner. Joint partners must enter into the property at the exact same time; if they transfer their ownership to another, all tenants revert to being tenants in common.
-L-
lease
A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
lease-purchase mortgage loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home from a non-profit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance
(PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a down payment will accumulate.
liabilities
A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
liability insurance
Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.
LIBOR
London InterBank Offered Rate. This is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market. Another index from which interest rates are derived for certain loan financing options.
lien
A legal claim against a property that must be paid off when the property is sold.
lifetime payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.
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lifetime rate cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan.
line of credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.
liquid asset
A cash asset or an asset that is easily converted into cash.
loan commitment
A formal extended loan offer from a lender, once all stipulated conditions are met and agreed upon.
loan financing agreement
The agreement between the borrower(s) and the lender that defines the terms of the loan, including loan amount, points, interest rate, and expiration date of the interest rate lock-in period.
loan origination
The process by which a mortgage lender brings into existence a mortgage secured by real estate.
loan pre-approval
Determined by reviewing the potential buyer's credit history and related financial documentation to ensure they meet or exceed lender's requirements. Pre-approval requires a later, official final approval and an acceptable appraisal.
loan pre-qualification
The first step to approval, where a potential buyer is accepted based on the information they provide, but said information must be verified before official approval takes place.
loan-to-value (LTV) percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.
lock-in
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time.
-M-
margin
For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.
maximum financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific loan program.
mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
mortgage banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.
mortgage broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.
mortgagee
The lender in a mortgage agreement.
mortgage insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance
(PMI) company.
mortgage life insurance
A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.
mortgagor
The borrower in a mortgage agreement.
-N-
net worth
The value of all of a person's assets, including cash, minus all liabilities.
nonliquid asset
An asset that cannot easily be converted into cash.
note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
-O-
origination fee
A fee paid to a lender for processing a loan application. The origination fee is sometimes stated in the form of points.
owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
-P-
PITI
The four components of a typical monthly mortgage payment: principal, interest, taxes, and insurance.
point
A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.
prepaid expense charges
Charges made in connection with the loan and which must be paid upon closing. These include the home owner's insurance premium, interest paid in advance, and fees associated with setting up the escrow account (which includes real estate tax and home owner's insurance reserves).
prepayment
Any amount paid to reduce the principal balance of a loan before the due date.
prepayment penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
pre-qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
presumed buyer's agent
An agent representing a potential buyer, but without a formal written agreement saying such. A presumed buyer's agent can show an interested party homes they may be interested in, but cannot close a deal or place offers until they become an actual buyer's agent.
prime rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate many times influence changes in other rates, including mortgage interest rates.
principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
principal balance
The outstanding amount due of principal on a mortgage. The principal balance does not include interest or any other charges.
private mortgage insurance (PMI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
-Q-
qualifying ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage.
-R-
radon
A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
realtor
A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors®.
refinance
The process of paying off an existing loan in order to obtain new financing. This includes interest reduction refinancing, changes in loan term refinancing, cash-out refinancing, and change in loan program refinancing.
rehabilitation mortgage
A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing
property.
rent back/post-settlement occupancy
An agreement that the seller will remain in the property for a set time after closing, for a daily rental fee. The rent is generally "at cost" for the buyer, i.e. equal to the mortgage and related payments the buyer pays for each day they are not occupying the home.
reserve funds
Monies held by a condominium group or coop intended for current expenses and future investments.
Rural Housing Service (RHS)
An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.
-S-
second mortgage
A mortgage that has a lien position subordinate to the first mortgage.
secondary mortgage market
The buying and selling of existing mortgages.
secured loan
A loan that is backed by collateral.
security
The property that will be pledged as collateral for a loan.
seller's agent
An agent employed by a real estate agency to represent their interests in dealings.
seller concession
Credit for closing costs given to the buyer by the seller.
settlement
See closing.
settlement attorney
See closing attorney.
sole ownership
Property owned by a single person.
step-rate mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e. seven years), resulting in increased payments. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
subdivision
A housing development created by dividing a section of land into individual lots for sale or lease.
survey
A map showing the precise legal boundaries of a property, along with the location of improvements, easements, rights of way, encroachments, and other physical features.
sweat equity
Contribution to the construction or rehabilitation of a property in the form of labor or services, as opposed to
cash.
-T-
tenancy by the entirety
Similar to joint tenancy, both property owners must enter into the deal at the same time and through one title. However, each is considered an owner of the entire property, and neither may individually transfer their interest. All decisions must be made, transferred, etc. by both partners.
tenants in common
A type of property ownership where two or more people share ownership of a house, but do not each own specific percentages. This is most common in inheritance situations, where the deceased may leave property to a certain number of people but not specify what percentage each should have control over.
title
A legal document evidencing a person's right to or ownership of a property.
title company
A company that specializes in examining and insuring titles to real estate.
title insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
title search
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Truth-in-Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
trustee
A fiduciary who holds or controls property for the benefit of another. style='
-U-
underlying mortgage
The first mortgage on a property where other mortgages also exist. This is most common in a coop situation, where the original property owners make mortgage payments on the entire property, and the individuals they sell units to also take out mortgages.
underwriting
Evaluating a loan application in order to determine the amount of potential risk involved for the lender. Underwriting includes an analysis of the borrower's creditworthiness and the actual worth of the property itself.
unsecured loan
A loan not backed by collateral.
-V-
VA mortgage
Also known as a government mortgage. Mortgage guaranteed by the Department of Veterans Affairs.
Department of Veterans Affairs (VA)
An federal agency that backs residential mortgages offered to eligible veterans of the military services. The agency guarantees the lender against loss, encouraging lenders to provide mortgages to veterans.
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