Real Estate and Mortgage Terms and Definitions
- Adjustable Rate Mortgage(ARM)
- A type of mortgage rate loan whose interest rate changes periodically up or down, usually once or twice a year.
- Amortization
- Gradual debt reduction. Normally, the reduction is made according to a predetermined schedule for installment payments.
- Annual Percentage Rate (APR)
- Everything financed in your mortgage loan package (interest, loan fees, points or other charges) expressed as a percentage of the loan amount ( usually slightly above the actual rate alone.)
- Assumable loan
- A loan in which the lender transfers from the previous owner of the home to the new owner, sometimes at the same interest rate, sometimes at a new rate. an assumable loan can make your home more attractive to buyers when you want to sell.
- Cash reserve
- A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments.
- Closing
- The condition of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes and disbursement of funds necessary to the sale of loan transaction.
- Closing costs
- Fees the buyer must pay at the time of closing in addition to the down payment. Includes Points, mortgage insurance premium, homeowners insurance, prepayments for property taxes, etc. Closing Costs average 3 to 4 percent of the loan amount.
- Conventional mortgage (loan)
- A type of mortgage not insured by either the FHA or the VA.
- Deed of Trust
- The document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower.
- Earnest money
- Funds submitted with an offer to show good faith to follow through with the purchase. Earnest money is placed by the broker in an escrow account until closing, when it becomes part of the down payment of closing costs.
- Equity
- The difference between the amount of property could be sold for and the claims held against it.
- Escrow
- A procedure in which documents or transfers of cash and property are put in the care of a third party, other than the buyer or seller.
- FHA financing
- Financing for a loan which will be insured against loss by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development(HUD).
- FHLMC
- Federal Home Loan Mortgage Corporation. A private corporation created by congress to support the secondary mortgage market. Also known as Freddie Mac.
- Fixed-rate mortgage
- A mortgage in which the interest rate does not change during the entire term of the loan.
- Foreclosure
- The legal process by which a mortgaged property may be sold when a mortgage is in default.
- FNMA
- Federal National Mortgage Association. A private corporation created by Congress to support the secondary mortgage market. Also known as Fannie Mae.
- Homeowners insurance
- Insurance that protects the homeowner from "casualty" ( losses or damage to the home or personal property) and from "liability" (damages to other people or property). Required by the lender and usually included in the monthly mortgage payment.
- Income verification
- The lender must verify income for two full consecutive years in order to determine adequacy and continuance. On a case-by-case bases, some lenders will consider less than two years of income history.
- Interest rate
- Rate of interest charged for the use of money, usually expressed at an annual rate. The rate is derived by dividing the amount of interest by the amount of principal borrowed.
- Interest rate caps
- A provision of an ARM limiting how much interest rates may increase or decrease per adjustment period or over the life of the mortgage.
- Lien
- A legal claim against a property that must be paid off when the property is sold.
- Loan-to-value ratio
- The relationship between the amount of a home loan and the total value of the property.
- Loan origination fee
- A fee charged by the lender for evaluation, preparing, and submitting a proposed mortgage loan.
- Loan servicer
- After the loan closes, the loan servicer collects your payments and manages late payments. Lenders often release servicing to another organization, which means you won't necessarily send your mortgage payments to the company that made your initial or original loan.
- Margin
- The set percentage of the lender adds to the index value to determine the interest rate of an ARM.
- Mortgage Insurance Premium (MIP)
- A charge paid by the borrower (usually as part of the closing costs) to obtain financing, especially when making a down payment of less than 20% of the purchase price.
- Origination fee
- A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.
- Owner financing
- A property purchase transaction in which the property seller provides all or part of the financing.
- PITI ( Principal, Interest, Taxes, Insurance)
- The components of a mortgage payment.
- Point
- An amount equal to 1 percent of the principal amount being borrowed. the lender may charge the borrower several "points" in order to provide the loan.
- Pre-qualification
- The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.
- Principal
- the original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.
- Private Mortgage Insurance (PMI)
- Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults.
- Property taxes
- Taxes (based on the assessed value of the home) paid by the homeowner for community services such as schools, public works, and other costs of local government.
- Purchase and sale agreement
- A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold. Also called a REPC (Real Estate Purchase Contract).
- Qualifying ratios
- Guidelines applied by the lenders to determine how large a loan to grant a home buyer.
- Realtor
- A real estate professional who belongs to the national, state and local organization of practitioners who agree to abide by a Code of Ethics.
- Refinancing
- The process of paying off one loan with the proceeds from a new loan using the same property as security.
- Title insurance
- The purpose of title insurance is to protect lenders and homeowners against loss of their interest in property due to legal defects in the title.
- 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.
- Underwriting
- The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's creditworthiness and the quality of the property itself. Process in determining if borrower qualifies for a loan by fulfilling required guidelines.
- VA loan
- A loan guaranteed by the Department of Veteran Affairs against loss to the lender, and made through a private lender. (HUD Homes may be purchased with a VA loan.)
