Buyer's Market - A situation in which homes in any given area have been on the market for an average of 6 months or more. This means that there are usually too many homes on the market....and buyers are in a better negotiating position.
Cap – The limit on how much the interest rate can change in any given year.
Cash-Out Refinance – When the homeowner refinances their loan and receives money back at closing. This can be for personal use or home improvements.
Certificate of Deposit – A time deposit held in a bank, which pays a certain amount of interest to the depositor.
Certificate of Eligibility – A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.
Chain of Title – An analysis of the transfers of title to a piece of property over the years.
Clear Title – A title that is free of liens or legal questions as to ownership of the property.
Closing – A meeting where all of the documents are signed, money changes hands and ownership of the property is transferred to the new owner.
Closing Costs – Costs associated with obtaining the loan and closing on a property. This is typically lender and attorney fees. Pre-paid items, which are items that recur over time, such as property taxes and homeowners insurance are also included in the total amount. The lender is obligated to send you a good faith estimate to disclose all closing costs.
Closing or Settlement Statement – Usually referred to as a HUD-1 – this is the final accounting of all funds disbursed in the purchase of your new home. This will be one of your signed documents at closing.
Cloud on Title – Any condition(s) revealed by a title search that adversely affect the title to real estate.
Co-Borrower – An additional individual who is both obligated on the loan and is also on the deed to the property.
Collateral – Real property that is a surety for the loan payments. In real estate, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage.
Collection – The process of collecting a loan that has not been repaid according to the terms of the contract. When a loan goes to “collection” it will be reflected on your Credit Report and may decrease your ability to qualify for the new loan.
Commission – The amount of money paid to professionals for work in connection to a real estate transaction. This can be the Realtor, loan originator, title representative, attorneys or insurance agents.
Common Area Assessments – Charges paid to Homeowners Associations by the owners of individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
Comparable Sales – Recent sales of similar properties in nearby areas that are used to help determine the market value of a property. Also referred to as “comps”.
Condominium – 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.
Condominium Conversion – Changing the ownership of an existing building (usually a rental project) to the condominium for of ownership.
Construction Loan – A short-term, interim loan for financing the cost of construction.
Contingency – 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 has obtained a satisfactory home inspection report or perhaps has sold their present home.
Contract – A written legal agreement that is signed by both buyer(s) and seller(s). It must specify a closing date to be legal.
Conventional Mortgage – Any home loan that is not backed or funded by the Federal government.
Convertible ARM Mortgage – An adjustable rate mortgage that allows the borrower to change the ARM to a fixed rate mortgage within a specified time.
Co-operative (co-op) – A type of multiple ownership in which the residents of a multi unit housing complex own shares in the cooperative corporation that owns the property….giving each resident the right to occupy a specific apartment or unit.
Cost of Funds Index – One of the indexes that is used to determine interest rate changes for certain adjustable rate mortgages. It represents the weighted average cost of savings, borrowings and advances of the financial institutions.
Credit – An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit History – A record of an individual’s repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk. Most lenders use FICO scores to determine credit worthiness.
Creditor – A person or company to whom money is owed.
Credit Report – A report of an individual’s credit history prepared by a credit bureau and used by a lender to determine whether to approve the loan application.
Debt – An amount of money owed to another.
Deed – The legal document conveying title to a property.
Deed of Trust – A document that is recorded at the courthouse after the loan has closed.
Default – Failure to make the mortgage payments within a specified period of time.
Deficiency Judgment - A court order authorizing a lender to collect part of an outstanding debt from the foreclosure and sale of a borrower's property after finding that the property is worth less than the value of the debt.
Delinquency – Failure to make mortgage payments when they are due. After a loan payment has gone more than 30 days without being paid, it is usually reported to the credit bureau and will become a mark on your credit report and will remain there for many years.
Deposit – A sum of money given in advance of a larger amount being expected in the future. Often called an “earnest money” deposit.
Depreciation – A decline in the value of property…..or the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income.
Discount Points – A term used in reference to any amount of money paid to reduce the interest rate on a mortgage loan. One discount point equals one percent of the loan amount.
Down Payment – The part of the purchase price of a property that the buyer pays in cash and does not finance with the mortgage.
Due-on-sale Provision – A provision in a mortgage that allows the lender to demand payment in full if the borrower sells the property that serves as security for the mortgage.
Earnest Money Deposit – A deposit made by the potential homebuyer to show that he or she is serious about buying the property. This money is held by the listing real estate office in an escrow account and is credited to the buyer at closing. This money is most always refunded in case the buyer is not approved for a mortgage loan.
Easement – A right of way giving persons other than the owner access to or over a property.
Effective Age – An appraiser’s estimate of the physical condition of a building. The actual age may be longer or shorter than its’ effective age.
Eminent Domain – The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
Encroachment – An improvement to a property that intrudes illegally on another’s property.
Encumbrance – Anything that affects or limits the title to a property, such as mortgages, leases, easements or restrictions.
Equal Credit Opportunity Act – A federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity – A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage or other liens.
Escrow – An item of value, money or documents deposited with a third party to be delivered upon the fulfillment of a condition.
Escrow Account – An account set up for money to be deposited on a monthly basis, to be used to pay taxes or insurance premiums when they come due. The lender pays these bills for you from this account.
Estate – The ownership interest of an individual in real property. The sum total of all the real and personal property owned by an individual at time of death.
Eviction – The lawful expulsion of an occupant from real property.
Exclusive Listing – A written contract that gives a licensed real estate company the right to sell a property for a specified time.
Executor – A person named in a will to administer an estate.
Fair Credit Reporting Act – A consumer protection law that regulates the disclosure of consumer credit reports by consumer credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
Fair Market Value – The highest price that a buyer, willing but not compelled to buy, would pay……and the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae - The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.
Fee Simple – The greatest possible interest a person can have in real estate.
FHA Mortgage – A mortgage that is insured by the Federal Housing Administration (FHA).
Firm Commitment – A lender’s agreement to make a loan to a specific borrower on a specific property.
First Mortgage – The mortgage that is in first place among any loans recorded against a property.
Fixed Rate Mortgage – A mortgage in which the interest rate does not change during the entire term of the loan.
Fixture - Personal property that becomes real property when attached in a permanent manner to real estate.
Flood Insurance – Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Foreclosure – The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property, with the proceeds being applied to the mortgage debt.
401(k) – An employer sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes.
401(k) Loan – Some administrators of these plans allow for loans against the monies you have accumulated. Usually, they are an acceptable source of down payment funds.
Government Loan – A mortgage that is insured by the Federal housing Administration.
Government National Mortgage Association – A government owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress in 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans.
Grantee – The person to whom an interest in real property is conveyed.
Grantor – The person conveying an interest in real property.
Hazard Insurance – Insurance coverage for physical damage to property from fire, wind, vandalism or other hazards. Does not cover floods or earthquakes…..and may require a separate rider for jewelry, swimming pools, collections, etc.
Home Equity Conversion Mortgage – Usually referred to as a “
reverse mortgage”. Instead of you making payments to the lender….the lender is making payments to you. It enables older home owners to convert the equity they have in their homes into cash that they can use for living expenses. Typically, the loan doesn’t have to be repaid until the borrower no longer occupies the property.
Home Equity Line of Credit – A mortgage loan – usually in second position – that allows the borrower to obtain cash drawn against the equity of his home up to a predetermined amount.
Home Inspection – A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. We recommend a thorough inspection of
new construction as well as existing properties.
Homeowner’s Association – A non-profit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common areas. In a PUD, it holds title to the common elements.
Homeowner’s Insurance – An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its’ contents.
Homeowner’s Warranty – A type of insurance often purchased by homeowners that will cover repairs to certain items, such as the major systems of a house, in case the break down during the coverage period.
HUD-1 Settlement Statement – A document that provides an itemized listing of the funds that were paid at closing. It defines the seller’s net proceeds and the buyers net payment. It is commonly referred to as the “closing statement”.
Joint Tenancy – A form of ownership or taking title to property, which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its’ entirety.
Judgment – A decision made by a court of law. In judgments that require repayment of a debt, the court may place a lien against the debtor’s property as collateral for the creditor.
Jumbo Loan – A loan that exceeds certain loan limits.
Lease – A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Leasehold Estate – A way of holding title to a property wherein the mortgagor does not actually own the property….but rather has a recorded long-term lease on it.
Lease Option – An alternative financing option that allows home buyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.
Legal Description – A property description, recognized by law that is sufficient to locate and identify a property.
Lender – A company that makes the loan or an individual representing the firm. Loan officers are often referred to as lenders.
Liabilities – A person’s financial obligations. Liabilities include both long and short term debt, as well as any other amounts that are owed to others.
Liability Insurance – Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner’s policy.
Lien – A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien. If construction work is done and not paid for, it can result in a lien on the property.
Line of Credit – An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.
Liquid Asset – A cash asset or one that is easily converted into cash.
Loan Officer – An individual that represents a lending institution. Sometimes referred to as lender, loan originator, loan rep, account executive, etc.
Loan – A sum of money borrowed that is generally repaid with interest.
Loan Origination – How a lender refers to the process of obtaining new loans.
Loan Servicing – The process of handling your loan after the closing. The company that you make payments to is “servicing” your loan. They process payments, send statements, manage the escrow account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on time, handle pay-offs, and provide a variety of other services.
Loan-to-Value (LTV) – The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).
Lock-in – An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.
Lock-in Period – The time period during which the lender has guaranteed an interest rate to a borrower.
Margin – The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan…..and the index moves up and down.
Market Analysis - An analysis of property using recent sales (comps) - usually within the previous 6-12 months...as close to the property as possible...to determine market value.
Maturity – The date on which the principal balance of a loan, bond or other financial instrument becomes due and payable.
Merged Credit Report – A credit report which is pulled from two or more of the major credit reporting agencies. Most lenders will pull from Equifax, Experian and TransUnion and take the middle FICO score for their underwriting purposes.
Multiple Listing Service (MLS) - The service that allows real estate agents from different brokerage firms to post all their listings, making them available for other members to show and sell.
Modification – Any change made to your mortgage.
Mortgage – A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Banker – A bank that originates and funds their own loans, which are then sold on the secondary market.
Mortgage Broker – A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
Mortgagee – The lender in a mortgage agreement.
Mortgage Insurance – Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. It is usually required on all loans above 80% LTV.
Mortgage Insurance Premium – The amount paid by a mortgagor for mortgage insurance.
Mortgage Life and Disability Insurance – A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in case of disability. In case of the borrowers death, the mortgage is paid off. In case of disability, the mortgage payment is paid for a specified period of time during the disability.
Mortgagor – The borrower in a mortgage agreement.
Negative Amortization – Some adjustable rate mortgages allow the interest rate to be lower than the required minimum payment. If the borrower only makes the minimum payment, it may not be enough to cover the amount that would normally be due at the current interest rate. Actually, the borrower is “deferring” the interest. The difference between what is owed and what is paid is added to the loan balance, which can grow larger instead of smaller.
No-Cost Loan – Many lenders offer loans that you can obtain at no cost. Be sure to carefully check the guidelines on these loans. There could be hidden fees or higher interest rates associated with no-cost loans.
Note – A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate – The interest rate on a mortgage note.
Notice of Default – A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Origination Fee – Usually 1% of the loan amount, but it can vary. This fee is part of your closing costs.
Owner Financing – A property purchase transaction in which the property seller provides all or part of the financing.
Partial Payment – A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.
Payment Change Date – The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated payment mortgage. Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.
Personal Property – Any property that is not real property.
PITI – Principal, interest, taxes and insurance.
PITI Reserves – A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes and insurance reserves must equal the amount that the borrower would have to pay for PITI for a pre-defined number of months.
Planned Unit Development (PUD) – A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association.
Point – A point is 1% of the amount of the mortgage.
Power of Attorney – A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant either complete or limited authority to another person for certain periods of time……or in the case of real estate, to sign documents pertaining to a certain property.
Pre-Approval – A loosely used term which is general 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. Estimates are also made for the amount that will be paid for property taxes and homeowners insurance. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender.
Pre-Payment – Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay the loan in full, or a foreclosure. In each case, pre-payment means payment occurs before the loan has been fully amortized.
Pre-Payment Penalty – A fee that may be charged to a borrower who pays off a loan before it is due. This fee can be equal to or exceed six months of payments.
Pre-Qualification – This usually refers to the loan officer’s opinion of the ability of a borrower to qualify for a home loan. The information provided to the loan originator may have been presented verbally or in the form of documentation…..and the loan officer may or may not have reviewed a credit report.
Prime Rate – The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit.
Principal – The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance on a mortgage.
Principal Balance – The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.
Private Mortgage Insurance – Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders require mortgage insurance for a loan in excess 80% of the total value of the property.
Promissory Note – A written promise to repay a specified amount over a specified period of time.
Public Auction – A meeting in an announced public location to sell property to repay a mortgage that is in default. This can also refer to an estate auction, and could include personal property.
Purchase Agreement – A written contract signed by both the buyer and seller stating the terms and conditions under which a property will be sold.
Purchase Money Transaction – The acquisition of property through the payment of money or its equivalent.
Qualifying Ratios – Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The “top” or “front” ratio is a calculation of the borrower’s monthly housing costs as a percentage of monthly income. The “back” or “bottom” ratio includes housing costs as well as all other monthly obligations.
Quitclaim Deed – A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
Rate Lock – A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
Real Estate Agent – A person licensed to negotiate and transact the sale of real estate. Most real estate agents are supervised by a broker.
Real Estate Settlement Procedures Act (RESPA) – A consumers protection law that requires lenders to give borrowers advance notice of closing costs.
Real Property – Land and appurtenances, including anything of permanent nature such as structures, trees, minerals and the interest, benefits and inherent rights thereof.
Realtor – A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
Recorder – The public official who keeps records of transactions that affect real property in the area. Sometimes known as the Registrar of Deeds or County Court Clerk.
Recording – The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage…..thereby making it a part of the public record.
Refinance – The process of paying off one loan with the proceeds from a new loan using the same property as security.
Remaining Balance – The amount of principal that has not yet been repaid.
Remaining Term – The original amortization term minus the number of payments that have been applied.
Rent Loss Insurance – Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use.
Repayment Plan – An arrangement made to repay delinquent installments.
Revolving Debt – A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest.
Right of First Refusal – A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale to others. This is often used in a real estate contract when the buyer has a home to sell before he can make this purchase.
Right of ingress or egress – The right to enter or leave designated premises.
Right of Survivorship – In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
Sale-Leaseback – A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
Second Mortgage – A mortgage that has a lien position that subordinates the first mortgage.
Secondary Market – The buying and selling of existing mortgages, usually as part of a “pool” of mortgages.
Secured Loan – A loan that is backed by collateral.
Security – The property that will be pledged as collateral for a loan.
Seller Carry-back – An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
Servicer – An organization that collects principal and interest payments from borrowers and also manages their escrow accounts.
Servicing – The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Settlement Statement – The final accounting of all monies involved in a real estate transaction. This is one of the closing documents.
Subdivision – A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Subordinate Financing – Any mortgage or lien that has a priority that is lower than that of the first mortgage.
