Glossary

the date when both parties, seller and buyer, have agreed to and completed signing and/or initialing the contract.

A mortgage that permits the lender to adjust the mortgage’s interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change.

The date the interest rate changes on an adjustable-rate mortgage.

A loan that is paid in equal installments during its term.

A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero

An estimate of real estate value, usually issued to standards of FHA, VA and FHMA.  Recent comparable sales in the neighborhood is the most important factor in determining value

An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.

Document used to transfer title (ownership) of PERSONAL property.

Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.

Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.

Any condition that affects the clear title to real property.

Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as “comps.”

A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.

Anything of value to induce another to enter into a contract, i.e., money, services, a promise.

A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

A written instrument, which when properly executed and delivered, conveys title to real property.

A loan fee charged by a lender of FHA, VA or conventional loans to increase the yield on the investment.  One point = 1% of the loan amount.

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

A deposit made by the potential home buyer to show that he or she is serious about buying the house.

The right to use the land of another.

Anything that burdens (limits) the title to property, such as a lien, easement, or restriction of any kind.

The value of real estate over and above the liens against it.  It is obtained by subtracting the total liens from the value.

That portion of a mortgagor’s monthly payment held in trust by the lender to pay for taxes, hazard insurance and other items as they become due.

Nickname for Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional loans.

An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

A mortgage under which the Federal Housing Administration insures loans made, according to its regulations.

A loan that fixes the interest rate at a prescribed rate for the duration of the loan.

Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default.

Nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market.  It purchases and sells residential conventional home mortgages.

Any loan where the borrower pays a portion of the interest due each month during the first few years of the loan.  The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its life.

A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

Buyer makes a deposit for future purchases of a property with the right to lease property in the interim.

A contract, which gives one the right to lease property at a certain sum with the option to purchase at a future date.

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

The ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value (selling price).  Example – on a $100,000 home, with a mortgage loan principal of $80,000 the loan to value ratio is 80%.

A legal document that pledges a property to the lender as security for payment of a debt.

The amount paid by a mortgagor for mortgage insurance.  This insurance protects the investor from possible loss in the event of a borrower’s default on a loan.

A written promise to pay a certain amount of money.

A fee paid to a lender for services provided when granting a loan, usually a percentage of the face amount of the loan.

A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.

This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

See Mortgage Insurance Premium.

An additional loan imposed on a property with a first mortgage.  Generally, a higher interest rate and shorter term than a “first” mortgage.

A financial statement rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended.

Ownership by one person only.  Sole ownership.

A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Ownership by two or more persons who hold an undivided interest without right of survivorship.  (In event of the death of one owner, his/her share will pass to his/her heirs.

An insurance policy that protects the insured (buyer or lender) against loss arising from defects in the title.