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Adjustable Rate Mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
Agreement of Sale
The legal contract between buyer and seller of a property including the sale price, settlement date, and all conditions and terms of the sale.
Amortization Schedule
A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage stated as a percentage of the loan amount; includes such items as the base interest rate, primary mortgage insurance, and loan origination fee (points).
Appraisal
A professional opinion of the market value of a property.
Appreciation
An increase in the value of a property due to changes in market conditions or other causes.
Assessed value
The valuation placed upon property by a public tax assessor for purposes of taxation.
Assumable Mortgage
A mortgage that can be taken over by the buyer when a home is sold.
Balloon Mortgage
Type of mortgage loan where monthly payments are made until a certain date when the remaining balance becomes payable in full.
Binder
A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.
Buy-Down
A procedure which the seller or builder of a property permanently or temporarily reduces the amount of interest the buyer will have to pay by paying points to the mortgage lender at closing.
Cap
A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease.
Cash Reserve
A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments.
Certificate of Occupancy
A certificate issued by a local building department to a builder or renovator, stating that the building is in proper condition to be occupied and stating the legally permissible use.
Closing
The meeting during which the title to property actually changes hands, documents are executed and the sale of the property and/or the loan is
completed. It is usually attended by the buyer, the seller, a bank representative, each party's attorney and the title company representative.
Closing Costs
Costs associated with securing a mortgage and the sale and purchase of property. These expenses are
usually paid on the day the title to the property is formally transferred from the seller to the buyer.
Commitment letter
Written agreement detailing the terms and conditions by which the bank will lend and the borrower will borrow funds to finance a home.
Condominium
A structure of two or more units, the interior space of which are individually owned. The balance
of the property is owned in common by the owners of the individual units.
Conforming Loan Amount
A Fannie Mae (FNMA) established, maximum loan amount based on the property's legal number of
units (1-family, 2-family, etc.). Loan amounts up to this maximum dollar amount are considered "conforming loans."
Contract of Sale
Written contract signed by both parties in which the seller agrees to sell and the buyer agrees to
buy under certain specific terms and conditions.
Convertible ARM
An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
Cooperatives (Co-ops)
A structure of two or more units in which the right to occupy a unit is obtained by the purchase of stock in the corporation which owns the building.
Counteroffer
An offer to extend credit on different terms than the applicant originally requested.
Covenant
Generally, almost any promise set forth in a written agreement. Most commonly, assurances set forth in a deed by the grantor or implied by law.
Deed
A legal document conveying title (ownership) to real property from one individual to another.
Easement
The right to enter or use a portion of the land of another for a specific purpose.
Encroachment
Construction, such as a wall, fence, building, etc., on the property of another.
Equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of a property and the amount still owed on the mortgage.
Escrow
Funds held by the lender, set aside for payment of taxes and possible property and mortgage insurance
and other recurring charges against real property. (Monthly mortgage payments usually include principal, interest and escrow amounts.)
FHLMC (Freddie Mac)
Federal Home Loan Mortgage Corporation. A federal agency purchasing first mortgages, both
conventional and federally insured, from members of the Federal Reserve System and the Federal Loan Bank System.
Federal Housing Authority (FHA)
A part of the U.S. Dept. of Housing and Urban Development which offers mortgage loan insurance programs to buyers of qualifying properties.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration.
First mortgage
A mortgage that has first claim in the event of default.
FNMA (Fannie Mae)
A quasi-government agency, now publicly owned, which purchases mortgages from the original mortgage lenders.
Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments during the term of the loan, any interim interest paid at closing,
your origination fee and any other charges paid to the lender or to a third party or an incident or a condition of the extension of credit. Certain
charges like the appraisal, credit report and the title search charges are not included in the finance charge calculation.
Fixed Rate Mortgage
A mortgage having a rate of interest which remains the same for the life of the mortgage.
Flood Insurance
Insurance indemnifying against loss by flood damage, required by lenders in areas designated (federally) as potential flood areas.
Foreclosure
The legal remedy used by a mortgage lender to assume ownership of a property when the required loan payments are not made.
Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a settlement.
Hazard Insurance
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Housing Ratio
The ratio of the monthly housing payment (PITI) to total gross monthly income.
Also called Payment-to-Income Ratio or Front-End Ratio.
HUD
The U.S. Department of Housing and Urban Development.
Index
A published interest rate not controlled by the lender to which the interest rate on an Adjustable
Rate Mortgage (ARM) is tied. The index and the interest rate linked to it may increase or decrease.
Interest
A share or right in some property. Also, money charged for the use of money (principal).
Lien
An encumbrance against property for money due, either voluntary or involuntary.
Life of Loan Cap
The maximum interest rate that can be charged during the life of the loan. Also called Life Cap or Life Rate.
Lifetime cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.
Loan-to-Value (LTV)
The ratio of the amount of your loan to the value of the home.
Lock-in
A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed
within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Disability Insurance
A disability insurance policy which will pay the monthly mortgage payment in the event of a covered
disability of an insured borrower for a specified period of time.
Mortgage Insurance
Insurance written by an independent mortgage insurance company (MIC) protecting the mortgage
lender against loss incurred by a mortgage default.
Mortgage Life Insurance
A term life insurance policy that covers the declining balance of a loan secured by a mortgage, and is payable upon death of a covered borrower.
Mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.
Mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.
Non-Conforming Loan
Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie
Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting
guidelines. Non-conforming loans usually incur a rate and origination fee premium.
Note
A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.
Origination Fee
A fee imposed by a lender to cover certain processing expenses in connection with making a
real estate loan. Usually a percentage of the amount loaned, such as one percent.
Owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
Planned Unit Developments (PUD)
A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.
P.I.T.I.
Principal, interest, taxes and insurance--the components of a monthly mortgage payment.
Points
Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.
Prepaids
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.
Prepayment Penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.
Principal
Amount of debt, not including interest. The face value of a note or mortgage.
Private mortgage insurance (PMI)
Insurance provided by non government insurers that protects lenders against loss if a borrower defaults.
Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.
Qualifying Ratios
The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow.
Rate Cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
Rate Lock-In
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
Refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.
Residential Mortgage Credit Report
A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.
Seller-take-back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Survey
A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.
Tenants-by-Entirety
A form of ownership in which husband and wife are co-owners with rights of survivorship.
Tenants-in-Common
An undivided interest in property taken by two or more persons. The interest need not be equal.
Upon death of one or more persons, there is no right of survivorship.
Title
The evidence one has of right to possession of land.
Title Insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.
Title Search
An investigation into the history of ownership of a property to check for liens, unpaid claims,
restrictions or problems, to prove that the seller can transfer free and clear ownership.
Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.
Truth-in-Lending Act
A federal law requiring a disclosure of credit terms using a standard format.
This is intended to facilitate comparisons between the lending terms of different financial institutions.
Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.
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