Adjustable Rate Mortgage (ARM): A mortgage loan under which the interest rate is
periodically adjusted to more closely coincide with the current rates. The amounts and
times of adjustments are agreed to at the inception of the loan. (Compare to fixed rate
loans).
Adjustment Period: The length of time between interest rate changes on an ARM. For
example, a loan with an adjustment period of one year is called a one year ARM, which
means that the interest rate can change once a year.
Amortization: Repayment of a loan in equal installments comprised of principal and
interest, rather than interest only.
Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points
expressed as percentageof the loan amount). The APR is disclosed as a requirement of
the federal Truth in Lending statutes.
“As-Is Condition”: Premises accepted by a buyer in the condition existing at the time
of the sale, including all physical defects.
Assumption of Mortgage: A buyer’s agreement to assume the liability under an
existing note that is secured by a mortgage or deed of trust. The lender must approve
the buyer in order to assume the loan.
Buydown: A payment to the lender from the seller, buyer, third party or some
combination of these, causing the lender to reduce the interest rate during the early
years of a loan. The buydown is usually for the first 1 to 5 years of the loan.
CAP: The limit of how much an interest rate or monthly payment can change, either at
each adjustment or over the life of the mortgage.
CC&R’s: Covenants, Conditions and Restrictions. A document that controls the use,
requirements and restrictions of a property.
Closing Costs: Expenses incidental to the sale of real estate, such as loan fees, title
fees, appraisal fees, etc.
Closing Statement: The financial disclosure statement that accounts for all of the
funds received and expected at the closing, including deposits for taxes, hazard
insurance and mortgage insurance. The form used for the closing statement is the
HUD 1.
CLTA New Homeowner’s Policy: A widely used title insurance policy that offers the
most extensive title insurance coverage available for homeowners. Special conditions
and deductibles apply.
Contingency Clause: The dependence upon a stated event which must occur before
a contract is binding. For example: The sale of a house, contingent
upon the buyer obtaining financing.
Conversion Provision: A provision in some ARM’s to convert the loan to a fixed rate
loan, usually after an adjustment period. The new fixed rate is generally set at the
prevailing interest rate for fixed rate mortgages. This conversion feature may be at an
extra cost.
Deed: Written instrument which, when properly executed and delivered, conveys title.
Due on Sale Clause: An acceleration clause that requires full payment of a mortgage
or deed of trust when the secured property changes ownership.
Earnest Money: The portion of the down payment delivered to the seller or escrow
agent by the buyer, with a written offer as evidence of good faith.
Escrow: A procedure in which a third party acts as a stakeholder for both the buyer
and the seller, carrying out both party’s instructions and assuming responsibility for
handling all of the paperwork and distribution of funds.
Fair Market Value: Price that probably would be negotiated between a willing seller
and willing buyer in a reasonable time. Usually arrived at by using comparable sales in
the area.
Federal National Mortgage Association (FNMA): Popularly known as Fannie Mae.
A privately owned corporation created by Congress to support the secondary mortgage
market. It purchases and sells residential mortgages insured by the FHA or guaranteed
by the VA as well as conventional home mortgages.
FHA Loan: A loan issued by the Department of Housing and Urban Development. The
Federal Housing Administration (FHA) guarantees its payment in event of default by the
owner.
Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain
credit according to Regulation Z of the Truth in Lending law.
Flood Insurance: Insurance indemnifying against loss by flood damage. Required by
lenders in areas federally designated as potential flood areas. The insurance is private
but is federally subsidized.
Graduated Payment Mortgage: A residential mortgage with monthly payments that
start at a low level and increase at a predetermined rate.
Grant Deed: One of the many types of deeds used to transfer real property. Contains
warranties against prior conveyances or encumbrances. When title insurance is
purchased, warranties in a deed are of little practical significance.
Grantee: One to whom a grant is made. Generally the buyer.
Grantor: One who grants property or property rights.
Hazard Insurance: Real estate insurance protecting against loss caused by fire, some
natural causes, vandalism, etc., depending upon the terms of the policy.
Home Inspection Report: A qualified inspector’s report on a property’s overall
condition. The report usually includes an evaluation of both the structural and
mechanical systems.
Home Owner’s Association:
1) An association of people who own homes in a given area, formed for the purpose of
improving or maintaining the quality of the area.
2) An association formed by the builder of condominiums or planned developments and
required by statute in some states. The builder’s participation as well as
the duties of the association are controlled by statute.
Home Warranty Plan: Protection against failure of mechanical systems with the
property. Frequently includes plumbing, electrical, heating systems and
installed appliances.
Homestead: The dwelling (house and contiguous land) of the head of a family. Some
states grant statutory exemptions, protecting homestead property (usually to a set
maximum amount) against the rights of creditors. Property tax exemptions (for all or part
of the tax) are also available in some states. Statutory requirements to establish a
homestead may include a formal declaration to be recorded.
HUD 1: The form used for the closing statement. (See Closing Statement).
Impound Account: Account held by a lender for payment of taxes, insurance, or other
periodic debts against real property. For example, the mortgagor or trustor pays a
portion of the yearly taxes with each monthly payment. The lender pays the tax bill from
the accumulated funds.
Index: A measure of interest rate changes used to determine changes in an Adjustable
Rate Mortgage interest rate over the term of the loan.
Joint Tenancy: An equally undivided ownership of property by two or more persons.
Upon death of any owner, the survivors take the decedent’s interest on
the property.
Lien: A legal hold or claim on property as security for a debt or charge.
Loan Commitment: A written promise to make a loan for a specified amount on
specific terms.
Loan-To-Value Ratio: The relationship between the amount of the appraised value of
the property and the amount of the loan, expressed as a percentage.
Lock or Lock-in: A lender's guarantee of an interest rate for a set period of time.
Margin: The number of percentage points the lender adds to the index rate to
calculate the ARM interest rate at each adjustment.
Negative Amortization: Negative amortization occurs when the monthly payments fail
to cover the interest cost. The interest that isn’t covered is added to the unpaid
principal balance, which means that even after several payments you could owe more
than you did at the beginning of the loan. Negative amortization can occur when an
ARM has a payment cap that results in monthly payments that aren’t high enough to
cover the interest.
Origination Fee: A fee or charge for establishing a new loan.
Owner’s Policy: Title insurance for the owner of property, rather than a lienholder
.
PI: Principal and interest. Used to indicate what is included in a monthly payment on
real property. If the payment includes only principal and interest, property
taxes and hazard insurance would make the total payment higher. (See PITI).
PITI: Principal, interest, taxes and insurance. Used to indicate what is included in a
monthly payment on real property. Principal, interest, taxes and insurance are the
four major portions of a usual monthly payment.
Point: An amount equal to 1% of the principal amount of the investment or note When
referring to mortgages or deeds of trust, the term is used to describe the percentage of
discount rather than interest.
Preliminary Title Report: A report showing the condition of title before a sale or loan
transaction. After completion of the transaction, a title insurance policy is issued.
Pre-payment Penalty: A fee charged to a borrower who repays a loan before it is due.
Private Mortgage Insurance (PMI): Insurance written by a private company
protecting the lender against loss if the borrower defaults on the loan.
Purchase Agreement: A written document in which the purchaser agrees to buy
certain real estate and the seller agrees to sell under stated terms and conditions. Also
called a Sales Contract, Deposit Receipt, Earnest Money Contract or Agreement for
Sale.
Realtor: A real estate broker or associate active in a local real estate board affiliated
with the National Association of Realtors.
Regulation Z: Federal Reserve regulation issued under the Truth in Lending Law,
which requires that a credit purchaser be advised in writing of all costs connected with
the credit portion of the purchase.
Sole Ownership: Ownership of property by an individual or other entity capable of
acquiring title. Statement of Information: A confidential form filled out by buyer and
seller to help a title company determine if any liens are recorded against either. Also
called a Statement of Identity.
Tax Rate: Traditionally, the ratio of dollars of tax per one hundred or per one thousand
dollars of valuation. Modernly, expressed as a percentage of valuation.
Tenancy in Common: A type of joint ownership of property by two or more persons
with no right of survivorship.
Title Insurance Policy: A policy that protects the purchaser, lender or other party
against losses. Title insurance offers protection against claims arising from various
defects (as set out in the policy) which may exist in the title to a specific parcel of land.
Title companies routinely issue two types of policies. An “owner’s” policy, which insures
the home buyer for as long as they own the property, and a "lender's" policy, which
insures the lender's security interest over the claims that others may have in the
property. For more information on title insurance, please contact your Title
professional.
VA Loan: A loan that is guaranteed by the Veteran’s Administration and made by a
private lender.
periodically adjusted to more closely coincide with the current rates. The amounts and
times of adjustments are agreed to at the inception of the loan. (Compare to fixed rate
loans).
Adjustment Period: The length of time between interest rate changes on an ARM. For
example, a loan with an adjustment period of one year is called a one year ARM, which
means that the interest rate can change once a year.
Amortization: Repayment of a loan in equal installments comprised of principal and
interest, rather than interest only.
Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points
expressed as percentageof the loan amount). The APR is disclosed as a requirement of
the federal Truth in Lending statutes.
“As-Is Condition”: Premises accepted by a buyer in the condition existing at the time
of the sale, including all physical defects.
Assumption of Mortgage: A buyer’s agreement to assume the liability under an
existing note that is secured by a mortgage or deed of trust. The lender must approve
the buyer in order to assume the loan.
Buydown: A payment to the lender from the seller, buyer, third party or some
combination of these, causing the lender to reduce the interest rate during the early
years of a loan. The buydown is usually for the first 1 to 5 years of the loan.
CAP: The limit of how much an interest rate or monthly payment can change, either at
each adjustment or over the life of the mortgage.
CC&R’s: Covenants, Conditions and Restrictions. A document that controls the use,
requirements and restrictions of a property.
Closing Costs: Expenses incidental to the sale of real estate, such as loan fees, title
fees, appraisal fees, etc.
Closing Statement: The financial disclosure statement that accounts for all of the
funds received and expected at the closing, including deposits for taxes, hazard
insurance and mortgage insurance. The form used for the closing statement is the
HUD 1.
CLTA New Homeowner’s Policy: A widely used title insurance policy that offers the
most extensive title insurance coverage available for homeowners. Special conditions
and deductibles apply.
Contingency Clause: The dependence upon a stated event which must occur before
a contract is binding. For example: The sale of a house, contingent
upon the buyer obtaining financing.
Conversion Provision: A provision in some ARM’s to convert the loan to a fixed rate
loan, usually after an adjustment period. The new fixed rate is generally set at the
prevailing interest rate for fixed rate mortgages. This conversion feature may be at an
extra cost.
Deed: Written instrument which, when properly executed and delivered, conveys title.
Due on Sale Clause: An acceleration clause that requires full payment of a mortgage
or deed of trust when the secured property changes ownership.
Earnest Money: The portion of the down payment delivered to the seller or escrow
agent by the buyer, with a written offer as evidence of good faith.
Escrow: A procedure in which a third party acts as a stakeholder for both the buyer
and the seller, carrying out both party’s instructions and assuming responsibility for
handling all of the paperwork and distribution of funds.
Fair Market Value: Price that probably would be negotiated between a willing seller
and willing buyer in a reasonable time. Usually arrived at by using comparable sales in
the area.
Federal National Mortgage Association (FNMA): Popularly known as Fannie Mae.
A privately owned corporation created by Congress to support the secondary mortgage
market. It purchases and sells residential mortgages insured by the FHA or guaranteed
by the VA as well as conventional home mortgages.
FHA Loan: A loan issued by the Department of Housing and Urban Development. The
Federal Housing Administration (FHA) guarantees its payment in event of default by the
owner.
Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain
credit according to Regulation Z of the Truth in Lending law.
Flood Insurance: Insurance indemnifying against loss by flood damage. Required by
lenders in areas federally designated as potential flood areas. The insurance is private
but is federally subsidized.
Graduated Payment Mortgage: A residential mortgage with monthly payments that
start at a low level and increase at a predetermined rate.
Grant Deed: One of the many types of deeds used to transfer real property. Contains
warranties against prior conveyances or encumbrances. When title insurance is
purchased, warranties in a deed are of little practical significance.
Grantee: One to whom a grant is made. Generally the buyer.
Grantor: One who grants property or property rights.
Hazard Insurance: Real estate insurance protecting against loss caused by fire, some
natural causes, vandalism, etc., depending upon the terms of the policy.
Home Inspection Report: A qualified inspector’s report on a property’s overall
condition. The report usually includes an evaluation of both the structural and
mechanical systems.
Home Owner’s Association:
1) An association of people who own homes in a given area, formed for the purpose of
improving or maintaining the quality of the area.
2) An association formed by the builder of condominiums or planned developments and
required by statute in some states. The builder’s participation as well as
the duties of the association are controlled by statute.
Home Warranty Plan: Protection against failure of mechanical systems with the
property. Frequently includes plumbing, electrical, heating systems and
installed appliances.
Homestead: The dwelling (house and contiguous land) of the head of a family. Some
states grant statutory exemptions, protecting homestead property (usually to a set
maximum amount) against the rights of creditors. Property tax exemptions (for all or part
of the tax) are also available in some states. Statutory requirements to establish a
homestead may include a formal declaration to be recorded.
HUD 1: The form used for the closing statement. (See Closing Statement).
Impound Account: Account held by a lender for payment of taxes, insurance, or other
periodic debts against real property. For example, the mortgagor or trustor pays a
portion of the yearly taxes with each monthly payment. The lender pays the tax bill from
the accumulated funds.
Index: A measure of interest rate changes used to determine changes in an Adjustable
Rate Mortgage interest rate over the term of the loan.
Joint Tenancy: An equally undivided ownership of property by two or more persons.
Upon death of any owner, the survivors take the decedent’s interest on
the property.
Lien: A legal hold or claim on property as security for a debt or charge.
Loan Commitment: A written promise to make a loan for a specified amount on
specific terms.
Loan-To-Value Ratio: The relationship between the amount of the appraised value of
the property and the amount of the loan, expressed as a percentage.
Lock or Lock-in: A lender's guarantee of an interest rate for a set period of time.
Margin: The number of percentage points the lender adds to the index rate to
calculate the ARM interest rate at each adjustment.
Negative Amortization: Negative amortization occurs when the monthly payments fail
to cover the interest cost. The interest that isn’t covered is added to the unpaid
principal balance, which means that even after several payments you could owe more
than you did at the beginning of the loan. Negative amortization can occur when an
ARM has a payment cap that results in monthly payments that aren’t high enough to
cover the interest.
Origination Fee: A fee or charge for establishing a new loan.
Owner’s Policy: Title insurance for the owner of property, rather than a lienholder
.
PI: Principal and interest. Used to indicate what is included in a monthly payment on
real property. If the payment includes only principal and interest, property
taxes and hazard insurance would make the total payment higher. (See PITI).
PITI: Principal, interest, taxes and insurance. Used to indicate what is included in a
monthly payment on real property. Principal, interest, taxes and insurance are the
four major portions of a usual monthly payment.
Point: An amount equal to 1% of the principal amount of the investment or note When
referring to mortgages or deeds of trust, the term is used to describe the percentage of
discount rather than interest.
Preliminary Title Report: A report showing the condition of title before a sale or loan
transaction. After completion of the transaction, a title insurance policy is issued.
Pre-payment Penalty: A fee charged to a borrower who repays a loan before it is due.
Private Mortgage Insurance (PMI): Insurance written by a private company
protecting the lender against loss if the borrower defaults on the loan.
Purchase Agreement: A written document in which the purchaser agrees to buy
certain real estate and the seller agrees to sell under stated terms and conditions. Also
called a Sales Contract, Deposit Receipt, Earnest Money Contract or Agreement for
Sale.
Realtor: A real estate broker or associate active in a local real estate board affiliated
with the National Association of Realtors.
Regulation Z: Federal Reserve regulation issued under the Truth in Lending Law,
which requires that a credit purchaser be advised in writing of all costs connected with
the credit portion of the purchase.
Sole Ownership: Ownership of property by an individual or other entity capable of
acquiring title. Statement of Information: A confidential form filled out by buyer and
seller to help a title company determine if any liens are recorded against either. Also
called a Statement of Identity.
Tax Rate: Traditionally, the ratio of dollars of tax per one hundred or per one thousand
dollars of valuation. Modernly, expressed as a percentage of valuation.
Tenancy in Common: A type of joint ownership of property by two or more persons
with no right of survivorship.
Title Insurance Policy: A policy that protects the purchaser, lender or other party
against losses. Title insurance offers protection against claims arising from various
defects (as set out in the policy) which may exist in the title to a specific parcel of land.
Title companies routinely issue two types of policies. An “owner’s” policy, which insures
the home buyer for as long as they own the property, and a "lender's" policy, which
insures the lender's security interest over the claims that others may have in the
property. For more information on title insurance, please contact your Title
professional.
VA Loan: A loan that is guaranteed by the Veteran’s Administration and made by a
private lender.
| Use this glossary as a general guide to acquaint yourself with terms commonly used in real estate transactions. |
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