Real Estate Dictionary
Adjustable-rate mortgage
There are two types of conventional loans: the fixed-rate and the adjustable-rate mortgage. In an adjustable-rate mortgage, the interest rate can change over the course of the loan at five, seven, or ten year intervals. For homeowners who plan to stay in their home for more than a few years, this is a risky loan as rates can suddenly skyrocket depending on market conditions.
Amortization
This is the process of combining both interest and principal in payments, rather than simply paying off interest at the start. This allows you to build more equity in the home early on.
Appraisal
A professional analysis is used to estimate the value of the property. This includes examples of sales of similar properties.
Assessed value
This is how much a home is worth according to a public tax assessor who makes that determination in order to figure out how much city or state tax the owner owes.
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Earnest Money Deposit
Earnest Money Deposit
Annual Percentage Rate (APR)
The cost of a loan or other financing as an annual rate. The APR includes the interest rate, points, broker fees, and certain other credit charges a borrower is required to pay.
Annuity
An amount paid yearly or at other regular intervals, often at a guaranteed minimum amount. Also, a type of insurance policy in which the policyholder makes payments for a fixed period or until a stated age, and then receives annuity payments from the insurance company.
Application Fee
The fee that a mortgage lender or broker charges to apply for a mortgage to cover processing costs.
Appraiser
A professional who conducts an analysis of the property, including examples of sales of similar properties in order to develop an estimate of the value of the property. The analysis is called an "appraisal."
Appreciation
An increase in the market value of a home due to changing market conditions and/or home improvements.
Arbitration
A process where disputes are settled by referring them to a fair and neutral third party (the arbitrator). The disputing parties agree in advance to see the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator makes a decision.
Asbestos
A toxic material that was once used in housing insulation and fireproofing. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.
Assessed Value
Typically the value placed on a property for the purpose of taxation.
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 or company. Assets include real property, personal property, stocks, mutual funds, etc.
Assignment of Mortgage
A document evidencing the transfer of ownership of a mortgage from one person to another.
Assumable Mortgage:
A mortgage loan that can be taken over (assumed by the buyer when a home is sold. An assumption of a mortgage is a transaction in which the buyer of real property takes over the seller's existing mortgage; the seller remains liable unless released by the lender from the obligation. If the mortgage contains a due-on-sale clause, the loan may not be assumed without the lender's consent.
Assumption
A homebuyer's agreement to take on the primary responsibility for paying an existing mortgage from a home seller.
Assumption Fee
A fee a lender charges a buyer who will assume the seller's existing mortgage.
Automated Underwriting
An automated process performed by a technology application that streamlines the processing of loan applications and provides a recommendation to the lender to approve the loan or refer it for manual underwriting.
Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
Balloon Mortgage
A mortgage with monthly payments often based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a specific period of time (usually 5 or 7 years). The mortgage may contain an option to "reset" the interest rate to the current market rate and to extend the due date if certain conditions are met.
Balloon Payment
A final lump sum payment that is due, often at the maturity date of a balloon mortgage.
Bankruptcy
Legally declared unable to pay your debts. Bankruptcy can severely impact your credit and your ability to borrow money.
Before-tax Income
Income before taxes are deducted. Also known as "gross income."
Biweekly Payment Mortgage
A mortgage with payments due every two weeks (instead of monthly).
Bona fide
In good faith, without fraud.
Bridge Loan
A short-term loan secured by the borrower's current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold. Also known as a "swing loan."
Broker
An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker. See also "Mortgage Broker."
Building Code
Local regulations that set forth the standards and requirements for the construction, maintenance, and occupancy of buildings. The codes are designed to provide for the safety, health, and welfare of the public.
Buydown
An arrangement whereby the property developer or another third party provides an interest subsidy to reduce the borrower's monthly payments typically in the early years of the loan.
Buydown Account
An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.
Cap
For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease. See also "Lifetime Payment Cap," "Lifetime Rate Cap," "Periodic Payment Cap," and "Periodic Rate Cap."
Capacity
Your ability to make your mortgage payments on time. This depends on your income and income stability (job history and security), your assets and savings, and the amount of your income each month that is left over after you've paid for your housing costs, debts, and other obligations.
Cash-out Refinance
A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate liens.
Certificate of Deposit
A document issued by a bank or other financial institution that is evidence of a deposit, with the issuer's promise to return the deposit plus earnings at a specified interest rate within a specified time period.
Certificate of Eligibility
A document issued by the U.S. Department of Veterans Affairs (VA) certifying a veteran's eligibility for a VA-guaranteed mortgage loan.
Chain of Title
The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Change Orders
A change in the original construction plans ordered by the property owner or general contractor.
Clear Title
Ownership that is free of liens, defects, or other legal encumbrances.
Closing
The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as "escrow," a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions. See also "Settlement."
Closing Agent
The person or entity that coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions) Typically, the closing is conducted by title companies, escrow companies, or attorneys.
Closing Costs
The upfront fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third parties, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney's fee, and prepaid items, such as escrow deposits for taxes and insurance.
Closing Date
The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.
Closing Statement
See "HUD-1 Settlement Statement.
Co-borrower
Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note.
Collateral
An asset that is pledged as security for a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan agreement. In the case of a mortgage, the collateral would be the house and real property.
Commission
The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).
Debt
Money owed from one person or institution to another person or institution.
Debt-to-Income Ratio
The percentage of gross monthly income that goes toward paying for your monthly housing expense, alimony, child support, car payments, and other installment debts, and payments on revolving or open-ended accounts, such as credit cards.
Deed
The legal document transferring ownership or title to a property
Deed-in-Lieu of Foreclosure
The transfer of title from a borrower to the lender to satisfy the mortgage debt and avoid foreclosure. Also called a "voluntary conveyance."
Earnest Money Deposit
The deposit to show that you’re committed to buying the home. The deposit usually will not be refunded to you after the seller accepts your offer unless one of the sales contract contingencies is not fulfilled.
Easement
A right to the use of, or ac-cess to, land owned by another.
Employer-Assisted Housing
A program in which companies assist their employees in purchasing homes by providing assistance with the down payment, closing costs, or monthly payments.
Encroachment
The intrusion onto another’s property without right or permission.
Encumbrance
Any claim on a property, such as a lien, mortgage or easement.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders to make credit equally available without regard to the applicant’s race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant's income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. It also requires various notices to consumers.
Fair Credit Reporting Act (FCRA)
A consumer protection law that imposes obligations on (1) credit bureaus (and similar agencies) that maintain consumer credit histories, (2) lenders and other businesses that buy reports from credit bureaus, and (3) parties who furnish consumer information to credit bureaus. Among other provisions, the FCRA limits the sale of credit reports by credit bureaus by requiring the purchaser to have a legitimate business need for the data, allows consumers to learn the information on them in credit bureau files (including one annual free credit report), and specifies a procedure for challenging errors in that data.
Fair Market Value
The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.
Fannie Mae
New York stock exchange company. It is a public company that operates under a federal charter and is the nation’s largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.
Fannie Mae-Seller/Servicer
A lender that Fannie Mae has approved to sell loans to it and to service loans on Fannie Mae’s behalf.
Fannie Mae/Freddie Mac Loan Limit
The current 2006 Fannie Mae/Freddie Mac loan limit for a single-family home is $417,000 and is higher in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. The Fannie Mae loan limit is $533,850 for a two-unit home; $645,300 for a three-unit home; and $801,950 for a four-unit home. Also referred to as the “conventional loan limit.”
Federal Housing Administration (FHA)
An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.
FHA-Insured Loan
A loan that is insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD).
First Mortgage
A mortgage that is the primary lien against a property.
First-Time Home Buyer
A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.
Fixed-Period Adjustable-Rate Mort-gage
An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term. Also known as a “hybrid loan.”
General Contractor
A person who oversees a home improvement or construction project and handles various aspects such as scheduling workers and ordering supplies.
Gift Letter
A letter that a family member writes verifying that s/he has given you a certain amount of money as a gift and that you don’t have to repay it. You can use this money towards a portion of your down payment with some mortgages.
Good-Faith Estimate
A form required by the Real Estate Settlement Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, for specific settlement services the bor-rower is likely to incur in connection with the mortgage transaction.
Government Mortgage
A mortgage loan that is insured or guaranteed by a federal government entity such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Popularly known as “Ginnie Mae.”
Hazard Insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other covered hazards or natural disasters.
Home Equity Conversion Mortgage (HECM)
A special type of mortgage developed and insured by the Federal Housing Administration (FHA) that enables older homeowners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Sometimes called a “reverse mortgage.”
Home Equity Line of Credit (HELOC)
A type of revolving loan, that enables a homeowner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in the property.
Home Inspection
A professional inspection of a home to determine the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation, and pest infestation.
Homeowner’s Insurance
A policy that protects you and the lender from fire or flood, which damages the structure of the house; a liability, such as an injury to a visitor to your home; or damage to your personal property, such as your furniture, clothes, or appliances.
Income Property
Real estate developed or purchased to produce income, such as a rental unit.
Index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, stated in the note.
Individual Retirement Account (IRA)
A tax-deferred plan that can help you build a retirement nest egg.
Inflation
An increase in prices.
Initial Interest Rate
The original inter-est rate for an adjustable-rate mortgage (ARM). Sometimes known as the “start rate.”
Inquiry
A request for a copy of your credit report by a lender or other business, often when you fill out a credit application and/or request more credit. Too many inquiries on a credit report can hurt your credit score; however, most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time.
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Installment Debt
A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).
Interest
The cost you pay to borrow money. It is the payment you make to a lender for the money it has loaned to you. Interest is usually expressed as a percentage of the amount borrowed.
Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.
Jumbo Loan
A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae or Freddie Mac. Also called “non-conforming loan.”
Junior Mortgage
A loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage.
Keogh Funds
A tax-deferred retirement-savings plan for small business owners or self-employed individuals who have earned income from their trade or business. Contributions to the Keogh plan are tax-deductible.
Late Charge
A penalty imposed by the lender when a borrower fails to make a scheduled payment on time.
Lease-Purchase Option
An option sometimes used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs.
Liabilities
A person’s debts and other financial obligations.
Liability Insurance
Insurance coverage that protects property owners against claims of negligence, personal injury, or property damage to another party.
LIBOR-Index
An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans, based on the average interest rate at which international banks lend to or borrow funds from the London Inter-bank Market.
Lien
A claim or charge on property for payment of a debt. With a mortgage, the lender has the right to take the title to your property if you don’t make the mortgage payments.
Lifetime Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate or monthly payment can increase or decrease over the life of the loan.
Manufactured Housing
Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). Manufactured homes may be single or multi-section and are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law and may be financed with a mortgage. Homes that are not permanently affixed to a foundation generally are classified as personal property and are financed with a retail installment sales agreement.
Margin
A percentage added to the index for an adjustable-rate mortgage (ARM) to establish the interest rate on each adjustment date.
Market Value
The current value of your home based on what a purchaser would pay. An appraisal is sometimes used to determine market value.
Maturity Date
The date on which a mortgage loan is scheduled to be paid in full, as stated in the note.
Merged Credit Report
A credit report issued by a credit reporting company that combines information from two or three major credit bureaus.
Modification
Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.
Negative Amortization
An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.
Net Monthly Income
Your take-home pay after taxes. It is the amount of money that you actually receive in your paycheck.
Net Worth
The value of a company or individual’s assets, including cash, less total liabilities.
Non-Liquid Asset
An asset that cannot easily be converted into cash.
Offer
A formal bid from the home buyer to the home seller to purchase a home.
Open House
When the seller’s real estate agent opens the seller’s house to the public. You don’t need a real estate agent to attend an open house.
Original Principal Balance
The total amount of principal owed on a mortgage before any payments are made.
Origination Fee
A fee paid to a lender or broker to cover the administrative costs of processing a loan application. The origination fee typically is stated in the form of points. One point is one percent of the mortgage amount.
Partial Payment
A payment that is less than the scheduled monthly payment on a mortgage loan.
Payment Change Date
The date on which a new monthly payment amount takes effect, for example, on an adjustable-rate mortgage (ARM) loan.
Payment Cap
For an adjustable-rate mortgage (ARM) or other variable rate loan, a limit on the amount that payments can increase or decrease during any one adjustment period.
Personal Property
Any property that is not real property.
Qualifying Guidelines
Criteria used to determine eligibility for a loan.
Qualifying Ratios
Calculations that are used in determining the loan amount that a borrower qualifies for, typically a comparison of the borrower’s total monthly income to monthly debt payments and other recurring monthly obligations.
Quality Control
A system of safeguards to ensure that loans are originated, underwritten, and serviced according to the lender’s standards and, if applicable, the standards of the investor, governmental agency, or mortgage insurer.
Radon
A toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses.
Rate Cap
The limit on the amount an interest rate on an adjustable-rate mortgage (ARM) can increase or decrease during an adjustment period.
Rate Lock
An agreement in which an interest rate is “locked in” or guaranteed for a specified period of time prior to closing. See also “Lock-in Rate.”
Ratified Sales Contract
A contract that shows both you and the seller of the house have agreed to your offer. This offer may include sales contingencies, such as obtaining a mortgage of a certain type and rate, getting an acceptable inspection, making repairs, closing by a certain date, etc.
Real Estate Professional
An individual who provides services in buying and selling homes. The real estate professional is paid a percentage of the home sale price by the seller. Unless you’ve specifically contracted with a buyer’s agent, the real estate professional represents the interest of the seller. Real estate professionals may be able to refer you to local lenders or mortgage brokers, but are generally not involved in the lending process.
Securities
A financial form that shows the holder owns a share or shares of a company (stock) or has loaned money to a company or government organization (bond).
Sale-Leaseback
transaction in which the buyer leases the property back to the seller for a specified period of time.
Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Secondary Mortgage Market
The market in which mortgage loan and mortgage-backed securities are bought and sold.
Taxes and Insurance
Funds collected as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s, or funds paid by the borrower for, state and local property taxes and insurance premiums.
Termite Inspection
An inspection to determine whether a property has termite infestation or termite damage. In many parts of the country, a home must be inspected for termites before it can be sold.
Third-Party Origination
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package a mortgage loan. See also “Mortgage Broker.”
Underwriting:
The process used to determine loan approval. It involves evaluating the property and the borrower’s credit and ability to pay the mortgage.
Uniform Residential Loan Application
A standard mortgage application you will have to complete. The form requests your income, assets, liabilities, and a description of the property you plan to buy, among other things.
Unsecured Loan
A loan that is not backed by collateral.
Veterans Affairs (U.S. Department of Veterans Affairs)
A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance, and guaranteed home loans.
VA Guaranteed Loan
A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA).
Walk-Through
A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing, for example, within the 24 hours before closing.
Warranties
Written guarantees of the quality of a product and the promise to repair or replace defective parts free of charge.
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