Glossary
Adjustable
Rate Mortgage (ARM): A
loan having an interest rate that is adjusted according to movements in the
financial market.
Amortization:
A
payment plan in which a loan is reduced through monthly payments or principal
and interest.
Annual
Percentage Rate (APR): The
annual cost of credit over the life of the loan, including interest, service
charges, points, loan fees, mortgage insurance and other items.
Appraisal:
An
evaluation to determine what a piece of property would sell for in the current
marketplace.
Appreciation:
An
increase in the value of a property.
Assessment:
A
tax levied on a property, or value placed in the worth of property, by a taxing
authority.
Assumption:
A
transaction that allows the buyer to assume responsibility for an existing loan
instead of getting a new loan.
Balloon:
A
loan that has a series of monthly payments with the remaining balance due in
a large lump sum at the end.
Binder:
A
receipt for a deposit paid to secure the right to purchase a home at terms agreed
upon by the buyer and seller.
Buy-down:
A
subsidy (usually paid by a builder or developer) to reduce the monthly payments
on a mortgage loan.
CAP:
A
limit to the amount an interest rate or monthly payment can increase for an
adjustable rate loan, either during an adjustment period or over the
life of the loan.
Certificate
of Occupancy: A
document from an official agency, stating that the property meets the requirements
of local codes, ordinances and regulations.
Closing:
A
meeting to sign documents that transfer property from a seller to a buyer also
known as a settlement).
Closing
Costs: Charges
paid at settlement for obtaining a mortgage loan and transferring a real estate.
Conditions,
Covenants and Restrictions (CC and R's): The
standards that define how a property may be used and the protections the developer
makes for the benefit of all owners in a subdivision.
Conventional
Loan: A
mortgage loan not insured by a government agency, such as FNMA, FHA or VA.
Convertibility:
The
ability to change a loan from an adjustable rate to a fixed rate schedule.
Credit
Rating: Credit
bureau report obtained by a lender to determine if the borrower is a good credit
risk.
Default:
A
breach of
mortgage contract:
not making the required payments.
Down
Payment: The
difference between the sales price and the mortgage amount.
A down payment is usually paid at the closing.
Due-on-Sale:
A
clause in a mortgage contract requiring the borrower to pay the entire outstanding
balance upon sale or transfer of the property.
Earnest
Money: A
sum paid to the seller to show that a potential purchaser is serious about buying.
Easement:
The
right-of-way granted to a person or company, authorizing access to the owner's
land. FOR EXAMPLE: A utility company may be granted an easement to install pipes
or wires. An owner may voluntarily grant an easement, or can be ordered to grant
one by a local jurisdiction.
Equity:
The
difference between the value of a home and what is owned on it.
Escrow:
The
handling of funds or documents via a third party on behalf of the buyer and/or
seller.
Federal
Housing Administration (FHA): A
federal agency that insures mortgages with lower down payment requirements than
conventional loans.
Fixed
Schedule Mortgage: A
mortgage with a payment schedule that is established at closing for the life
of the loan.
The payment and interest rate are not necessarily level.
Graduated
Payment Mortgage (GMP): A
fixed-rate, fixed-schedule loan that starts with lower payments than a level-payment
loan. The
payments rise annually over the first 5-10 years and then remain constant for
the remainder of the loan.
GMPs involve negative amortization.
Growing
Equity Mortgage (Rapid Payoff Mortgage): A
fixed-rate, fixed-schedule loan that starts with the same payments as a level
payment loan.
The payments rise annually, with the entire increase being used to reduce
the outstanding balance.
No negative amortization occurs, and the increase in payments may enable
the borrower to pay off a 30-year loan in 15-20 years, or less.
Hazard
Insurance: Protection
against damage caused by fire, windstorm or other common hazards. Many lenders
require it in amount at least equal to the mortgage.
Housing
Finance Authority: A
state agency that offers below-market-rate hone financing for low and moderate
income households.
Index:
The
interest rate or adjustment standard that determines the changes in monthly
payments for an adjustable rate loan.
Infrastructure:
The
public facilities and services needed to support residential development, including
highways, bridges, schools and sewer and water systems.
Interest:
The
cost paid to a lender for borrowed money.
Interest
Only Loan: A loan which requires that you make periodic
payment only on the interest amount assigned to the mortgage. Typically, this
type of loan fluctuates with the LIBOR rate and has a fixed margin percentage
amount assigned to the loan.
Joint
Tenancy: A
form of ownership in which the tenants own a property equally.
If one dies, the other would automatically inherit the entire property.
Level
Payment Mortgage: A
mortgage with identical, monthly payments over the life of the loan.
LIBOR:
London Inter Bank Offer Rate
LTV
Loan to Value: Loan
amount divided by appraised value.
Mortgage
Commitment: A
form, written communication by a lender agreeing to make a mortgage loan on
a specific
property specifying the loan amount, duration and conditions.
Mortgagee:
A
lender who makes a mortgage loan.
Mortgage
Loan: A
contract in which the borrower's property is pledged as collateral.
It is repaid in installments.
The mortgager (buyer) promises to repay principal and interest, keep
the home insured, pay all taxes and keep the property in good condition.
Mortgage
Orientation Fee: A
charge for the work involved in preparing and servicing a mortgage application.
Negative
Amortization: An
increase in the outstanding amount brought about when a monthly payment does
not cover the monthly interest due.
Note:
A
formal document showing the existence of a debt and stating the terms of repayment.
PITI:
Principal,
interest, taxes, and insurance-the four major components of monthly housing
payments.
PMI
Private Mortgage Insurance: Required
on Fannie Mae/Freddie Mac, FHA/VA products where LTV exceeds 80%.
Point:
A
one-time charge assessed by the lender at closing to increase the interest yield
on a mortgage loan.
Prepayment:
Payment
of a debt prior to maturity.
Principal:
The
amount borrowed, excluding interest and other charges.
Property
Survey: A
survey to determine the boundaries of your property.
The cost depends on the complexity of the survey.
Recording
Fee: A
charge for recording the transfer of a property, paid to the city, county or
other appropriate branch of government.
Real
Estate Settlement Procedures Act (RESPA): A
federal law requiring lenders to provide home buyers with information about
known or estimated settlement costs.
R-Values:
The
resistance of insulation materials (including windows) to heat passing through
them. The
higher the number, the greater the insulating
value.
Shared
Appreciation Mortgage: A
loan in which
partners agree to share specified portions of the payment, monthly payment
and appreciation.
Tenancy
in Common: A
form of ownership in which the tenants own separate by equal parts.
To inherit the property, a surviving tenant would either have to be mentioned
in the will or, in the absence of a will, be eligible through state inheritance
laws.
Title:
Evidence,
usually in the form of certificate or deed, of a person's legal right to ownership.
Transfer
Taxes: Taxes
levied on the transfer of property or on real estate loans, by the state and/or
local jurisdictions.
Veterans
Administration (VA): A
federal agency that provides and insures mortgage loans with very liberal down
payment requirements for honorably discharged veterans and their surviving spouses.
Walk-Through:
A
final inspection of a home before settlement to find the corrections needed
before ownership changes hands.
Warranty:
A
promise, either written or implied, that the material and workmanship of a product
are without defect or will meet a specified level of performance over a specified
period of time.
Written warranties on new homes are either backed by insurance companies
or by the builders.
Zoning:
Regulations
established by local governments regarding the location, height and use for
any given piece of property with a specified area.