Our Real Estate Dictionary is a handy list of terms and definitions that may be new to you:
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also known as a variable rate mortgage.
Amortization
Loan payment divided into equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Amortization Term
The length of time required to amortize the mortgage loan expressed as a number of months.
Annual Percentage Rate (APR)
The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.
Appraisal
An estimate of the value of property made by a qualified professional called an "appraiser."
Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.
Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement.
Closing Costs
Expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary.
Construction Loan
A short term interim loan to pay for the construction of building a home. These are usually designed to provide periodic disbursements to the builder as he or she progresses.
Consumer Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history.
Conventional Loan
A mortgage not insured by FHA or guaranteed by VA.
Credit Report
A report documenting the credit history and current status of a borrower's credit standing.
Credit Risk Score
A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.
Deed of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note.
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
Delinquency
Failure to make payments on time. This can lead to foreclosure.
Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.
Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity
The difference between the fair market value and current indebtedness also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.
Escrow
An account held by the lender into which the home buyer pays money for tax or insurance payments.
Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment
The part of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance & mortgage insurance as they become due.
Fannie Mae
See Federal National Mortgage Association.
Federal National Mortgage Association (FNMA) also know as "Fannie Mae"
A government sponsored entity that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA.
FHLMC
The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."
First Mortgage
The primary lien against a property.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
Foreclosure
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.
Freddie Mac
See Federal Home Loan Mortgage Corporation
Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.
HUD-1 Statement
A document that provides an itemized listing of the funds that are payable at closing. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing.
Impound
The portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance & mortgage insurance as they become due. Also known as reserves.
Indexed Rate
The sum of the published index plus the margin. For example if the index is 4% and the margin is 2.75%, the indexed rate would be 6.75%.
Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing.
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Interest
The fee charged for borrowing money.
Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
Jumbo Loan
A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Late Charge
The penalty a borrower must pay when a payment is made a stated number of days after the due date.
Liabilities
A person's financial obligations. Liabilities include long term and short term debt.
Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan to Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Lock
A lender's guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.
Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
Maturity
The date on which the principal balance of a loan becomes due and payable.
Monthly Fixed Installment
The portion of the total monthly payment that is applied toward principal and interest.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgagee
The lender.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance
Mortgagor
The borrower or homeowner.
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Origination Fee
A fee charged by the financial institution to originate the loan.
Owner Financing
A property purchase transaction in which the party selling the property provides all or part of the financing.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Preapproval
The process of determining how much money you will be eligible to borrow before you apply for a loan.
Prepaid Expenses
Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
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 balance of principal on a mortgage not including interest or any other charges.
Private Mortgage Insurance (PMI)
PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value.
Qualifying Ratios
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
Rate Lock
A commitment issued by a lender to a borrower or another mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Rescission
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinance
Obtaining a new mortgage loan on a property already owned often to replace existing loans on the property.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.
Security
The property that will be pledged as collateral for a loan.
Servicer
An organization that collects principal and interest payments from borrowers and manages borrower escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes & insurances.
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.
Third Party Origination
When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.
Title
A document that gives evidence of an individual's ownership of property.
Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.
Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Total Expense Ratio
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
Truth in Lending
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.
Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
