Real Estate Glossary
A
- Acceleration Clause: A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.
- Acceptance: An offeree's consent to enter into a contract and be bound by the terms of the offer.
- Additional Principal Payment: A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.
- 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.
- Adjusted Basis: The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
- Adjustment Date: The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
- Adjustment Period: The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
- Administrator: A person appointed by a probate court to administer the estate of a person who died intestate.
- Affidavits: A formal sworn statement of fact. Common affidavits during closing include the affidavit of occupancy.
- Affordability Analysis: A detailed analysis of your ability to afford the purchase of a home.
- Amenity: A feature of real property that enhances its attractiveness, such as scenic views or recreational facilities.
- Amortization: The gradual repayment of a mortgage loan by installments.
- Amortization Term: The amount of time required to amortize the mortgage loan, expressed in months.
- Amortize: To repay a mortgage with regular payments that cover both principal and interest.
- Amortization Schedule: A timetable for payment of a mortgage loan showing the amount applied to interest and principal.
- Annual Mortgagor Statement: A report sent to the mortgagor each year showing taxes, interest paid, and remaining loan balance.
- Annual Percentage Rate (APR): The cost of a mortgage stated as a yearly rate including fees and interest.
- Annuity: An amount paid yearly or at regular intervals, often on a guaranteed basis.
- Application: A form used to apply for a mortgage loan recording pertinent information.
- Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser.
- Appraised Value: An opinion of a property's fair market value.
- Appraiser: A person qualified to estimate the value of real property and personal property.
- Appreciation: An increase in the value of a property due to market conditions or other causes.
- Assessed Value: The valuation placed on property by a public tax assessor for purposes of taxation.
- Assessment: The process of placing a value on property for taxation or levies for special purposes.
- Assessment Rolls: The public record of taxable property.
- Assessor: A public official who establishes the value of a property for taxation purposes.
- Asset: Anything of monetary value owned by a person, including real property and enforceable claims.
- Assignment: The transfer of a mortgage from one person to another.
- Assumable Mortgage: A mortgage that can be taken over by the buyer when a home is sold.
- Assumption: The transfer of the seller's existing mortgage to the buyer.
- Assumption Clause: A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller.
- Assumption Fee: The fee paid to a lender resulting from the assumption of an existing mortgage.
- Attorney-In-Fact: One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.
- Automated Underwriting: A computerized process used to review and analyze a mortgage application.
B
- Balance Sheet: A financial statement that shows assets, liabilities, and net worth as of a specific date.
- Balloon Mortgage: A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.
- Balloon Payment: The final lump sum payment that is made at the maturity date of a balloon mortgage.
- Bankrupt: A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.
- Bankruptcy: A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
- Before-Tax Income: Income before taxes are deducted.
- Beneficiary: The person designated to receive the income from a trust, estate, or a deed of trust.
- Bequeath: To transfer personal property through a will.
- Betterment: An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.
- Bill of Sale: A written document that transfers title to personal property.
- Binder: A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
- Biweekly Mortgages: A mortgage structured with payments every 14 days instead of once a month, resulting in faster equity buildup.
- Blanket Insurance Policy: A single policy that covers more than one piece of property (or more than one person).
- Blanket Mortgage: A mortgage secured by multiple properties or units.
- Bona Fide: In good faith, without fraud.
- Bond: An interest-bearing certificate of debt with a maturity date, often secured by a mortgage or deed of trust.
- Breach: A violation of any legal obligation.
- Bridge Loan: A temporary loan secured by the borrower's current home to finance the purchase of a new home before selling the current one.
- Broker: A person who, for a commission or fee, brings parties together and assists in negotiating contracts between them.
- Budget: A detailed plan of income and expenses expected over a certain period.
- Budget Category: A classification for organizing income or expense data in a budget, such as "Rent" or "Salary."
- Building Code: Local regulations controlling construction design, materials, and standards for safety and health.
- Buydown Account: An account holding funds to subsidize monthly mortgage payments during an interest rate buydown period.
- Buydown Mortgage: A mortgage with reduced monthly payments for an initial period, achieved through an upfront payment.
C
- Call Option: A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
- Cap: A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
- Capacity: Lenders evaluate your ability to repay mortgage debt based on employment, income, and expenses, including dependents and obligations like child support.
- Capital: Money used to create income, invest in property, or represent net worth, calculated as assets minus liabilities.
- Capital Expenditure: Costs for improvements that extend the useful life of a property or add to its value.
- Capital Improvement: Permanent enhancements to property that increase its value and utility.
- Cash-Out Refinance: A refinance transaction where the new loan exceeds the debt being paid off, providing additional cash to the borrower.
- CD-Indexed (Certificate of Deposit) ARMs: Adjustable-rate mortgages tied to the weekly average of interest rates on six-month negotiable certificates of deposit.
- Certificate of Deposit: A financial document from a bank or institution representing a deposit with specified interest and maturity.
- Certificate of Deposit Index: An index reflecting average interest rates of six-month negotiable certificates of deposit, used to adjust ARM rates.
- Certificate of Eligibility: A document certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.
- Certificate of Reasonable Value (CRV): A VA-issued document establishing the maximum value and loan amount for a VA mortgage.
- Certificate of Title: A legal document verifying property ownership.
- Chain of Title: A record of all legal transactions transferring title to a property.
- Change Frequency: The time interval (in months) between rate or payment adjustments on an ARM.
- Change Orders: Amendments to construction contracts for unplanned repairs or discretionary modifications.
- Chattel: Personal, movable property, as opposed to real estate.
- Clear Title: A title free from liens or disputes regarding ownership.
- Closing: The meeting where property ownership is finalized through signing documents and paying closing costs.
- Closing Agent: A professional coordinating closing activities like document preparation and funds disbursement.
- Closing Cost Item: Fees for specific services, like title insurance or attorney fees, included in closing costs.
- Closing Costs: Expenses beyond the property's price, such as taxes, insurance, and fees for transferring ownership.
- Closing Date: The scheduled date for finalizing the property transaction and transferring ownership.
- Cloud on Title: A condition or claim affecting the ownership of a property, often requiring legal action to clear.
- Co-Maker: A cosigner who guarantees repayment of a loan alongside the borrower.
- Coinsurance: Shared insurance responsibility between insurer and insured, based on coverage and property value.
- Coinsurance Clause: A clause in insurance policies stating the coverage percentage required to receive full loss payment.
- Collateral: An asset pledged to secure a loan, subject to forfeiture upon default.
- Collection: The process of recovering overdue mortgage payments or initiating foreclosure when necessary.
- Commercial Banks: Banks that originate and service mortgage loans, sometimes retaining them or selling them to investors.
- Commission: A fee, often a percentage, paid to real estate agents or brokers for their services in transactions.
- Commitment Letter: A lender's formal offer detailing loan terms for a borrower.
- Common Area Assessments: Charges levied on owners in developments to maintain shared spaces and amenities.
- Common Areas: Shared property spaces, such as hallways or recreational areas, used collectively by property owners or tenants.
- Common Law: A body of law based on tradition and judicial precedent, influencing property rights in some regions.
- Community Land Trust Mortgage Option: Financing enabling buyers to lease land while owning homes built by nonprofit organizations.
- Community Property: A form of joint ownership for property acquired during marriage, recognized in some states.
- Community Seconds: Financing with a subsidized second mortgage to assist low- and moderate-income households.
- Comparables: Properties used to estimate the market value of another property through comparison.
- Compound Interest: Interest calculated on both the original principal and accumulated interest.
- Condemnation: A declaration deeming property unsafe, or the taking of property under eminent domain for public use.
- Condominium: A residential unit owned individually, with shared ownership of common areas in a larger property complex.
- Condominium Conversion: Changing an existing building into individually owned condominium units.
- Condominium Hotel: A condominium with hotel-like services, including short-term rentals and daily cleaning.
- Construction Contract: A legally binding agreement outlining terms for renovation or construction work.
- Construction Loan: Short-term financing for building costs, disbursed incrementally as work progresses.
- Contingencies for Repairs: Purchase agreement conditions requiring sellers to ensure property systems function correctly before closing.
- Contingency: A contractual condition that must be met for the agreement to proceed, such as financing or inspection approvals.
- Contract: A legally enforceable agreement between parties outlining obligations or restrictions.
- Contractor: A professional managing construction projects, from scheduling to supply procurement.
- Conventional Mortgage: A mortgage not backed by government insurance or guarantees, such as FHA or VA loans.
- Convertibility Clause: A clause allowing adjustable-rate mortgages to switch to fixed rates under specified conditions.
- Convertible ARM: An adjustable-rate mortgage that can convert to a fixed-rate mortgage as specified in the loan agreement.
- Credit: An agreement where a borrower receives goods or services with a promise to repay later.
- Credit Bureau: Agencies like Equifax or Experian that compile and report individuals' credit histories for lenders.
- Credit History: A documented record of an individual's credit accounts, payments, and repayment patterns.
- Credit Life Insurance: Insurance covering outstanding loan balances if the insured borrower dies.
- Credit Report: A detailed record from credit bureaus summarizing an individual's borrowing and payment activities.
- Credit Report Fee: The fee charged by lenders to obtain a borrower's credit report from credit bureaus.
- Credit Scoring: A system assigning numerical values to a borrower's creditworthiness based on credit history.
- Credit Unions: Member-owned cooperative financial institutions offering savings and loans, often at favorable rates.
- Creditor: A person or entity to whom money is owed.
D
- Debt: An amount owed to another. See installment loan and revolving liability.
- Deed: The legal document conveying title to a property. Only the seller signs the deed at closing, and it is recorded to finalize ownership transfer.
- Deed of Trust: The document used in some states instead of a mortgage; title is conveyed to a trustee until the loan balance is paid in full.
- Deed-in-Lieu: A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."
- Default: Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
- Delinquency: Failure to make mortgage payments when they are due.
- Department of Veterans Affairs: An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. It protects lenders against loss and offers flexible qualification guidelines.
- Deposit: A sum of money given to bind the sale of real estate, or to ensure payment or advance funds in the processing of a loan.
- Depreciation: A decline in the value of property; the opposite of appreciation.
- Detached Single-Family Home: A standalone housing unit separate from other housing structures, serving as a residence for one family.
- Direct Leveraging Loan Program: A program that helps rural residents own homes through lower interest rates and no down payment. The lender provides part of the loan, and the Rural Housing Service (RHS) provides the balance at below-market rates.
- Discount Points: Additional funds paid at closing to get a lower mortgage interest rate. One point equals 1% of the loan amount and typically reduces the rate by 0.125%.
- Dower: The rights of a widow in the property of her husband at his death.
- Down Payment: The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage. Historically 20% of the purchase price, but can be as low as 3%-5% with private mortgage insurance.
- Due-on-Sale Provision: A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
- Due-on-Transfer Provision: A similar term used for second mortgages, allowing the lender to demand full repayment when the property is transferred.
E
- Earnest Money Deposit: A deposit made by the potential home buyer to show that they are serious about buying the house. The deposit is held in an escrow account and applied to closing costs.
- 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, which may differ from its actual age.
- Effective Gross Income: Normal annual income, including guaranteed overtime and other stable sources of income.
- Eminent Domain: The right of a government to take private property for public use upon payment of its fair market value.
- Encroachment: An improvement that intrudes illegally on another's property.
- Encumbrance: Anything that affects or limits the fee simple title to a property, such as mortgages, leases, or easements.
- Endorser: A person who signs ownership interest over to another party. Contrast with co-maker.
- Equal Credit Opportunity Act (ECOA): A federal law requiring lenders to make credit equally available without discrimination based on certain characteristics like race, religion, or income source.
- Equity: A homeowner's financial interest in a property, calculated as the difference between the property's fair market value and the mortgage balance.
- Errors in Credit Report: Inaccuracies in a credit report that can be corrected by reviewing and disputing errors with credit bureaus.
- Escrow: Items of value, money, or documents held by a third party to be delivered upon the fulfillment of a condition.
- Escrow Account: An account held by a mortgage servicer where borrower payments for taxes, insurance, and other property expenses are deposited and disbursed as needed.
- Escrow Analysis: The periodic examination of escrow accounts to ensure sufficient funds are available to pay property-related expenses.
- Escrow Collections: Funds collected by the servicer to pay property taxes, mortgage insurance, and hazard insurance.
- Escrow Disbursements: The use of escrow funds to pay property-related expenses like taxes and insurance as they become due.
- Escrow Payment: The portion of a monthly mortgage payment held by the servicer to cover property-related expenses.
- Establishing a Credit Report: Building a credit history through documented payments to landlords, utility companies, and insurers.
- Estate: The ownership interest of an individual in real property and personal property at the time of their death.
- Eviction: The lawful expulsion of an occupant from real property.
- Examination of Title: The report on the title of a property from public records or an abstract of the title.
- Exclusive Listing: A written contract giving a real estate agent the exclusive right to sell a property for a specified time, while reserving the owner's right to sell without paying a commission.
- Executor: A person named in a will to administer an estate. If no executor is named, the court appoints an administrator.
F
- Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer credit reports 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 (FNMA): A New York Stock Exchange company and the largest non-bank financial services company in the world, operating pursuant to a federal charter as the nation's largest source of financing for home mortgages.
- Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD) that insures residential mortgage loans made by private lenders.
- Fee Simple: The greatest possible interest a person can have in real estate, providing unrestricted powers to dispose of the property.
- Fee Simple Estate: An unconditional, unlimited estate of inheritance that represents the greatest and most extensive interest in land that can be enjoyed.
- FHA Coinsured Mortgage: A mortgage (under FHA Section 244) for which the FHA and the originating lender share the risk of loss in the event of default.
- FHA Loans: Mortgages insured by the FHA that allow home purchases with low down payments of 3% to 5% of the appraised value or purchase price, subject to regional loan limits.
- FHA Mortgage: A government-insured mortgage allowing low down payments and subject to maximum loan limits based on the region's housing costs.
- Final Walk-Through Inspection: A pre-closing inspection to ensure the seller has vacated, agreed-upon items are left, and all conditions of the sales contract are met.
- Financial Index: A number to which the interest rate on an adjustable-rate mortgage (ARM) is tied, such as the average yield on U.S. Treasury bills.
- Finders Fee: A fee or commission paid to a mortgage broker for finding a mortgage loan for a borrower.
- Firm Commitment: A lender's agreement to make a loan to a specific borrower on a specific property.
- First Mortgage: The primary lien against a property, often differentiated from a second mortgage or subordinate lien.
- Fixed Installment: The monthly payment due on a mortgage loan, including both principal and interest.
- Fixed-Period Adjustable-Rate Mortgages: ARMs that maintain the same initial interest rate for a set period before adjusting annually, offering protections against rate increases during the fixed period.
- Fixed-Rate Mortgage: A mortgage with an interest rate that does not change during the loan's term, providing predictable payments.
- 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, required for properties in federally designated flood areas.
- Foreclosure: The legal process by which a borrower in default loses interest in the mortgaged property, often involving a forced sale to repay the debt.
- Forfeiture: The loss of money, property, rights, or privileges due to a breach of legal obligation.
- FSBO (For Sale by Owner): The marketing, buying, and selling of real estate without a broker, where the owner handles the transaction directly.
- Fully Amortized ARM: An adjustable-rate mortgage with monthly payments sufficient to amortize the remaining balance over the loan term.
G
- General Contractor: A professional overseeing construction projects, managing aspects like scheduling workers and ordering supplies, ensuring compliance with standards.
- Good Faith Estimate: A report from your lender outlining expected mortgage costs, subject to changes before closing, with a final settlement form detailing exact amounts needed.
- Government Mortgage: A mortgage insured or guaranteed by FHA, VA, or RHS, contrasting with conventional mortgages.
- Government National Mortgage Association: A government-owned corporation within HUD, known as Ginnie Mae, responsible for special assistance loan programs previously managed by Fannie Mae.
- Grantee: The person to whom an interest in real property is conveyed.
- Grantor: The person conveying an interest in real property.
- Ground Rent: Payments for land use under leasehold estate ownership rather than fee simple estate ownership.
- Group Home: A residential structure designed for developmentally disabled individuals, providing long-term housing and support services.
- Growing-Equity Mortgage (GEM): A fixed-rate mortgage with scheduled payment increases applied directly to reducing the remaining balance.
- Guarantee Mortgage: A mortgage guaranteed by a third party.
- Guaranteed Loan: Also known as a government mortgage, insured or guaranteed by entities like FHA or VA.
H
- Hazard Insurance: Insurance coverage that protects against physical damage to a property from fire, wind, vandalism, or other hazards.
- Home Equity Conversion Mortgage (HECM): A reverse mortgage that allows homeowners aged 62 or over to convert home equity into cash, with no repayment required until the borrower leaves the home.
- Home Equity Line of Credit: A loan allowing borrowers to access funds up to a certain percentage of their property's equity, often used for multiple advances.
- Home Inspection: A thorough evaluation of a property's structural and mechanical condition, used to identify problems before purchase.
- Homeowners Association: A nonprofit managing common areas in a planned unit development or condominium project.
- Homeowners Insurance: Insurance covering property replacement, liability, and personal property losses, often required by lenders.
- Homeowners Warranty: Insurance covering specified house repairs for a set period, often provided by the builder or seller.
- HomeStyle Construction-to-Permanent Mortgage: A loan combining construction and permanent financing, allowing borrowers to build or complete homes with one set of closing costs.
- HomeStyle Mortgage Loan: A loan enabling borrowers to remodel, repair, or upgrade their homes.
- Housing Expense Ratio: The percentage of gross monthly income allocated to housing expenses.
- HUD Median Income: The median family income for a region, as estimated by the U.S. Department of Housing and Urban Development (HUD).
- HUD-1 Statement: An itemized document of funds payable at closing, detailing costs like commissions, fees, and escrow amounts.
I
- In-File Credit Report: An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.
- Income Property: Real estate developed or improved to produce income.
- 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 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 that are associated with the mortgage.
- Inflation: An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.
- Initial Interest Rate: The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser."
- Installment: The regular periodic payment that a borrower agrees to make to a lender.
- Installment Loan: Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.
- Insurable Title: A property title that a title insurance company agrees to insure against defects and disputes.
- Insurance: A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.
- Insurance Binder: A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
- Insured Mortgage: A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.
- Interest: The fee charged for borrowing money.
- Interest Accrual Rate: The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.
- Interest Rate: The rate of interest in effect for the monthly payment due.
- Interest Rate Buydown Plan: An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual interest rate.
- Interest Rate Ceiling: For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
- Interest Rate Floor: For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
- Interest Rate for HECMs: The interest rate on a Home Equity Conversion Mortgage (HECM) adjusts monthly or yearly. It is tied to the weekly average yield of U.S. Treasury securities adjusted to a constant maturity of one year. The interest charged on the HECM loan will be payable to your lender when the loan terminates.
- InterestFirstSM Mortgage: A mortgage offering the benefit of a low, fixed-rate monthly payment for the first 15 years, ideal for leveraging purchasing power.
- Investment Property: A property that is not occupied by the owner.
- IRA (Individual Retirement Account): A retirement account allowing individuals to make tax-deferred contributions to a personal retirement fund. Funds can be placed in bank accounts, stocks, bonds, or mutual funds.
J
- Joint Tenancy: A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.
- Judgment: A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.
- Judgment Lien: A lien on the property of a debtor resulting from the decree of a court.
- Judicial Foreclosure: A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
- Jumbo Loan: A loan that exceeds mortgage amount limits. Also called a nonconforming loan.
L
- Late Charge: The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
- Lease: A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
- Lease-Purchase Option: An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes, and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a down payment will accumulate.
- 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.
- Legal Description: A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
- Liabilities: A person's financial obligations. Liabilities include long-term 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.
- LIBOR-based ARMs: The London Interbank Offered Rate (LIBOR) is based on the interest rate that major international banks are willing to lend and borrow funds for a specified period of time in the London interbank market. The LIBOR is similar to the prime-lending rate posted by major U.S. banks.
- Lien: A legal claim against a property that must be paid off when the property is sold.
- Lifetime Payment Cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.
- Lifetime Rate Cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan.
- 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 an asset that is easily converted into cash.
- Lis Pendens: A publicly recorded notice of a pending lawsuit against a property owner that may affect the ownership of a property. Some states require lenders to file a lis pendens to begin the foreclosure process if a borrower is in default on loan payments.
- Loan: A sum of borrowed money (principal) that is generally repaid with interest.
- Loan Application: The loan application is a detailed form designed to provide information from you that your lender will need. Lenders use the application to evaluate whether or not they can give you a loan, and if so, the amount of money they can lend you.
- Loan Commitment: The commitment letter states the dollar amount of the loan being offered, the number of years you have to repay the loan, the loan origination fee, the points, the annual percentage rate, and the monthly charges.
- Loan Limit: The limit on the size of a mortgage which Fannie Mae and Freddie Mac will purchase and/or guarantee.
- Loan Origination: The process by which a mortgage lender brings into existence a mortgage secured by real property.
- Loan Origination Fee: The loan origination fee covers the administrative costs of processing the loan. It is often expressed in points. One point is 1 percent of the mortgage amount.
- Loan Terms and Conditions: With a reverse mortgage, a lender can call in your loan under certain conditions.
- Loan-to-Value (LTV) Percentage: The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.
- Lock-In: A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time.
- Lock-In Period: The time period during which the lender has guaranteed an interest rate to a borrower.
M
- Manufactured Housing: Homes and dwellings that are not built at the home site and are moved to the location are considered manufactured housing. Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation. All manufactured homes must be built to meet standards set forth by the U.S. Department of Housing and Urban Development (HUD). The standards focus on such aspects as design, strength, energy efficiency, and fire resistance.
- Margin: For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.
- Market Value: You can get a good feel for the market value of a home by asking whether the listing agent compiled a "comparative market analysis (CMA)". This written report on the property examines comparable homes in the area that have recently been sold, are currently on the market, or are currently under contract.
- Master Association: A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.
- Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
- Maximum Claim Amount: Your maximum claim amount is the lesser of two figures: Your home's appraised value or the HUD 203(b) limit.
- Maximum Financing: A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product.
- Merged Credit Report: A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.
- Modification: The act of changing any of the terms of the mortgage.
- Money Market Account: A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.
- Money Market Fund: A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.
- Monthly Fixed Installment: That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.
- Monthly Payment Mortgage: A mortgage that requires payments to reduce the debt once a month.
- Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.
- Mortgage Banker: A company that originates mortgages exclusively for resale in the secondary mortgage market.
- Mortgage Broker: An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.
- Mortgage Insurance: A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA).
- Mortgage Insurance Premium (MIP): The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.
- Mortgage Life Insurance: A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines.
- Mortgage-Related Closing Costs: Mortgage-related closing costs generally are costs associated with your loan application. They vary, but here are some of the most common ones.
- Mortgagee: The lender in a mortgage agreement.
- Mortgagor: The borrower in a mortgage agreement.
- Multidwelling Units: Properties that provide separate housing units for more than one family, although they secure only a single mortgage.
- Multifamily Mortgage: A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.
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- Negative Amortization: A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.
- Net Cash Flow: The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.
- No Cash-Out Refinance: A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).
- Non-Liquid Asset: An asset that cannot easily be converted into cash.
- 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 stated 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.
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- Occupancy Date: This provision helps ensure that your home will be ready for occupancy after closing. It may include a clause requiring the seller to pay rent if they fail to vacate by the agreed date.
- Offer: A formal bid to purchase a home, typically including price, financing details, and other terms, often accompanied by an earnest money deposit.
- One-Year Adjustable-Rate Mortgage: An ARM with a low initial interest rate, adjusting annually. Features a 2% annual rate cap and lifetime caps, ideal for short-term homeowners or those expecting income growth.
- Ongoing Costs: Costs associated with homeownership, including mortgage payments, insurance, property taxes, utilities, and maintenance.
- Original Principal Balance: The total principal owed on a mortgage before any payments are made.
- Origination Fee: A fee for processing a loan application, often expressed as points (1% of the loan amount).
- Other Buyer Costs: Additional closing costs, such as lender fees, prepaid expenses, escrow reserves, title charges, and inspection fees.
- Other Contingencies: Contract clauses allowing cancellation if certain conditions (e.g., inspections or legal issues) are unmet.
- Other Financial Companies: Institutions like credit unions, mortgage brokers, insurance companies, and housing finance agencies that offer financial products including mortgages.
- Owner Financing: A property purchase in which the seller provides all or part of the financing.
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- 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 (GPM).
- Periodic Payment Cap: For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.
- Periodic Rate Cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period.
- Permits: Legal permissions required for most major home improvement projects, typically granted by local government agencies.
- Personal Property: Any property that is not real property.
- PITI: Principal, interest, taxes, and insurance—the four components of a monthly mortgage payment.
- PITI Reserves: Cash reserves equal to a specified number of months' worth of PITI payments.
- Planned Unit Development (PUD): A subdivision that includes common property owned and maintained by a homeowners' association.
- Point: A one-time charge by the lender for originating a loan, equal to 1 percent of the mortgage amount.
- Power of Attorney: A legal document authorizing someone to act on another's behalf.
- Pre-Approval: An indication of how much money a borrower is eligible to borrow, determined before completing a loan application.
- Pre-Qualification: An estimate of how much money a prospective buyer might be eligible to borrow.
- Prearranged Refinancing Agreement: An agreement between a lender and borrower for future refinancing terms.
- Preforeclosure Sale: A sale in which a borrower sells their property to avoid foreclosure, often for less than the amount owed.
- Prepayment: Any amount paid to reduce the principal balance of a loan before the due date.
- Prepayment Penalty: A fee charged for paying off a loan before its due date.
- Prime Rate: The interest rate banks charge to their preferred customers.
- Principal: The amount borrowed or remaining unpaid on a loan.
- Principal Balance: The outstanding balance of principal on a mortgage, excluding interest and other charges.
- Private Mortgage Insurance (PMI): Insurance protecting lenders against loss if a borrower defaults, typically required for loans with high loan-to-value ratios.
- Promissory Note: A written promise to repay a specified amount over a specified period.
- Public Auction: A public sale of property to repay a mortgage in default.
- Purchase and Sale Agreement: A written contract outlining 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.
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- Qualifying Guidelines: Lenders consider two main elements when determining mortgage eligibility: monthly mortgage costs (including taxes and insurance) should not exceed 28% of gross monthly income, and total monthly housing costs and other debts should not exceed 36% of gross monthly income.
- Qualifying Ratios: Calculations used to determine whether a borrower can qualify for a mortgage, including housing expense and total debt as a percentage of income.
- Quitclaim Deed: A deed transferring whatever interest or title a grantor may have at the time of conveyance, without warranty.
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- Radon: A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
- Rate Caps: Limits set by lenders on adjustable-rate mortgages (ARMs) to control how much the interest rate can change. These include per-adjustment caps and lifetime adjustment caps.
- Rate Lock: A commitment issued by a lender to guarantee a specified interest rate for a specified period of time.
- Rate-Improvement Mortgage: A fixed-rate mortgage that gives borrowers a one-time option to reduce the interest rate during the early years of the loan term.
- Ratified Sales Contract: A contract signed by both the buyer and seller that specifies terms such as price, down payment, and contingencies, serving as a starting point for the loan application process.
- Real Estate Agent: A licensed professional who negotiates and transacts real estate sales on behalf of property owners.
- Real Estate Attorney: An attorney who represents homeowners during the loan application process and reviews sales contracts.
- Real Estate Settlement Procedures Act (RESPA): A consumer protection law requiring lenders to give borrowers advance notice of closing costs.
- Real Property: Land and anything permanently attached to it, including buildings, trees, and minerals.
- REALTOR®: A real estate agent or broker who is a member of the National Association of REALTORS®.
- Recorder: A public official who keeps records of real property transactions.
- Recording: The act of noting a legal document, such as a deed or mortgage, in public records.
- Refinance Transaction: The process of paying off one loan with proceeds from a new loan using the same property as collateral.
- Rehabilitation Escrow Account: A fund set up to finance home improvements, with payments made to contractors as work progresses.
- Rehabilitation Mortgage: A mortgage designed to cover the costs of repairing, improving, or acquiring a property.
- Remaining Balance: The amount of principal that has not yet been repaid on a loan.
- Remaining Term: The original amortization term of a loan minus the number of payments made.
- Rent Loss Insurance: Insurance protecting landlords against lost rental income due to events like fire that render property uninhabitable.
- Rent with Option to Buy: Financing options allowing tenants to lease a property with the option to purchase it later, often involving savings for a down payment.
- REO (Real Estate Owned): Property owned by a lender or bank as a result of foreclosure.
- Repayment Plan: An arrangement to repay delinquent installments or advances, often called "relief provisions" by lenders.
- Replacement Reserve Fund: A fund set aside for replacing common property in condominiums or planned unit developments.
- Rescission: The cancellation of a contract or transaction, often applicable to refinance transactions within three business days of closing.
- Reverse Mortgage Counseling: Counseling required for borrowers considering reverse mortgages to understand loan advances and borrower responsibilities.
- Revolving Liability: A credit arrangement, such as a credit card, allowing borrowing against a preapproved line of credit.
- RHS Loans: Loans offered by the Rural Housing Service for low- and moderate-income individuals in rural areas.
- Right of First Refusal: A provision requiring property owners to offer purchase or lease opportunities to a specific party before others.
- Right of Ingress or Egress: The right to enter or leave a property.
- Right of Survivorship: In joint tenancy, the right of surviving owners to acquire the interest of a deceased joint tenant.
- Rural Housing Service (RHS): A USDA agency providing financing for rural home buyers unable to obtain loans elsewhere.
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- 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.
- Savings and Loans: Financial institutions focusing on residential mortgages, accepting deposits, and providing loans to savers and property borrowers.
- Second Mortgage: A mortgage subordinate to the first mortgage.
- Secondary Mortgage Market: The buying and selling of existing mortgages.
- Secured Loan: A loan backed by collateral.
- Security: Property pledged as collateral for a loan.
- Seller Take-Back: An agreement in which the property seller provides financing, often combined with an assumable mortgage.
- Seller Versus Buyer Closing Costs: Negotiations between buyer and seller on who pays specific closing costs, often dependent on factors like market conditions and the property's desirability.
- Servicer: An organization that collects mortgage payments and manages escrow accounts.
- Servicing: The collection of mortgage payments and related responsibilities of a loan servicer.
- Settlement: The formal meeting where ownership of a property is transferred from the seller to the buyer, involving the payment of closing costs and signing of documents.
- Settlement Sheet: The HUD-1 Settlement Statement itemizing amounts paid by the buyer and seller at closing, including commissions, fees, and escrow amounts.
- Short Sale: A property sale where the lender accepts less than the amount owed on the mortgage.
- Single-Family Properties: Residential properties with one to four units, including detached homes and condominiums.
- Six-Month Adjustable-Rate Mortgage: An ARM with a low initial interest rate for six months, adjusting every six months thereafter, with rate caps to control adjustments.
- Special Deposit Account: An account set up for rehabilitation mortgages to hold funds for disbursement as work progresses.
- Standard Payment Calculation: The method for determining monthly payments to repay a mortgage balance over its remaining term at the current interest rate.
- Step-Rate Mortgage: A mortgage with scheduled interest rate increases, resulting in higher payments over time.
- Subdivision: A housing development created by dividing land into individual lots for sale or lease.
- Subordinate Financing: Any mortgage or lien with a lower priority than the first mortgage.
- Subprime: Loans offered at higher interest rates to borrowers with poor credit histories or higher risk profiles.
- Subsidized Second Mortgage: A financing option for low- and moderate-income households, often with deferred payments and low interest rates.
- Survey: A map showing property boundaries, improvements, and physical features, often required by lenders to confirm property descriptions.
- Sweat Equity: Contributions in the form of labor or services for the construction or rehabilitation of a property, instead of cash.
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- Taxes and Insurance: Components of a monthly mortgage payment held in escrow by the lender to pay property tax and homeowner's insurance bills on behalf of the borrower.
- Tenancy by the Entirety: A joint tenancy type available only to married couples, offering right of survivorship.
- Tenancy in Common: A joint tenancy type without the right of survivorship, allowing each owner to pass their share to heirs.
- Tenant-Stockholder: A cooperative housing member who owns shares in the cooperative and leases a unit under a proprietary lease.
- Termite Inspection: A required inspection in many areas to ensure a property is free of visible termite infestation and damage, often paid for by the seller.
- Third-Party Origination: The use of another party by a lender to assist in originating, processing, or underwriting mortgages.
- Thrifts: Depository institutions, including savings banks and S&Ls, focusing on consumer mortgages and related services.
- Title: A legal document verifying property ownership.
- Title Company: A company that examines and insures real estate titles.
- Title Insurance: Insurance protecting against ownership disputes or title defects, typically required by lenders.
- Title Search: An examination of public records to confirm property ownership and uncover encumbrances.
- Total Expense Ratio: The percentage of gross monthly income spent on housing expenses and other debts.
- Townhouse: A multi-story residential property individually owned, often with shared walls and community areas.
- Trade Equity: Equity resulting from using an existing property or asset as part of a down payment for a new property.
- Transfer of Ownership: Any method of changing property ownership, including sales, inheritance, or trusts.
- Transfer Tax: A tax imposed by states or local governments when property ownership changes hands.
- Treasury Index: An index based on U.S. Treasury securities, used to determine interest rate changes for adjustable-rate mortgages.
- Trustee: A fiduciary managing property or assets for another's benefit.
- Truth-In-Lending: A federal law requiring lenders to disclose mortgage terms and costs, including APR and finance charges.
- Two-Step Mortgage: An adjustable-rate mortgage with one interest rate adjustment after five or seven years, followed by a fixed rate for the remaining term.
- Two-to Four-Family Property: A residential structure housing two to four families under a single deed.
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- Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.
- Unsecured Loan: A loan that is not backed by collateral.
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- VA Mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
- Vested: Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.
- Veterans Administration (VA): The Veterans Administration is a federal government agency authorized to guarantee loans made to eligible veterans under certain conditions. To obtain more information, you can contact the U.S. Department of Veterans Affairs. VA loans are more flexible than those for either the Federal Housing Administration (FHA) or conventional loans. If you are a qualified veteran, this can be an attractive mortgage program. To determine whether you are eligible, check with your nearest VA regional office.
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- Ways of Obtaining a Loan: You have several ways to get a mortgage. Your loan interview can take place, in whole or in part, over the telephone, over the Internet, or in person. Approved lenders have a variety of options when it comes to helping you get the mortgage that's right for you. Many lenders have Web sites that let you fill out an application online, which can save you time. Other lenders may work with you over the telephone. Review our approved lenders list in the Find a Lender section to locate the lender that provides the services you prefer.
- What-If Analysis: An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.
- What-If Scenario: A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house.
- Wraparound Mortgage: A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.