Glossary

Adjustable Rate Mortgage (ARM)
Also called a Variable Rate Mortgage, it is a mortgage with an interest rate that is adjusted periodically to reflect changes in market conditions. The mortgage payments are adjusted up or down as the interest rate changes.

Amenity
A feature of the home or property that serves as a benefit to the buyer. It may be natural (such as location, woods, water) or man-made (such as a swimming pool or garden).

Amortization Schedule
A schedule showing principal and interest payments throughout the life of the loan and how the payments reduce the principal balance.

Annual Percentage Rate (APR)
An interest rate that reflects the actual cost of a mortgage as a yearly rate. Because APR includes points and other costs, it’s usually higher than the advertised rate. The APR allows you to compare different mortgages based on actual annual costs.

Application
The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal
An estimate of the value of a home, made by a professional appraiser. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser
A qualified licensed professional who uses his or her experience and knowledge to prepare the appraisal report of value.

Assumable Mortgage
A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit approval requirement by the new buyer involved in the transfer of an assumable mortgage.

Balloon Mortgage
A large principal payment due all at once at the end of some loan programs.

Borrower
A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Broker
A licensed, real estate professional that has a higher level of training and experience than an agent.

Building Code
Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Cap
A limit on how much the interest rate can change in an adjustable rate mortgage (ARM.)

Cash Reserves
A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Certificate of Title
A document, signed by a title examiner, stating that a seller has an insurable title to the property.

Closing
Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, down payment, and receives title from the seller.

Closing Costs
All the charges associated with getting a mortgage, including the origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, charges for credit reports and other costs. Costs of closing usually total 3 to 6 percent of the mortgage amount.

Commission
An amount, usually a percentage of the property sales price, that is paid to an agent or broker for professional services performed.

Comparative Market Analysis (CMA)
A study of attributes and selling prices of comparable houses on the market or recently sold; used to help determine correct pricing strategy for a seller’s property.

Condominium
A type of real estate ownership where the owner has title to a specific unit and shared interest in common areas.

Contingency
A condition in a contract that must be met for the contract to be binding.

Contract
A binding legal agreement between two or more parties that delineates the conditions for the exchange of value (for example: money exchanged for title to property).

Conventional Loan
A private sector loan, one that is not guaranteed or insured by the U.S. government.

Cooperative (Co-op)
A type of real estate ownership where all shareholders own the whole property, but each has proprietary occupancy rights for specific units.

Credit History
History of an individual's debt payment. Lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Report
A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.

Credit Bureau Score
A number based upon credit history; it is used to determine ability to qualify for a mortgage loan.

Debt-to-Income Ratio
A comparison of gross income to housing and non-housing expenses. To qualify for a government backed loan (FHA), the monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed
A legal document that formally conveys ownership of property from seller to buyer.

Default
The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Delinquency
Failure of a borrower to make timely mortgage payments under a loan agreement.

Discount Point
Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Down Payment
The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.

Earnest Money
Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted: is returned if the offer is rejected, or is forfeited if the buyer pulls out of the contract after the options period and loan approval deadlines are past.

Equity
The value of the property after the outstanding balance of any loans are subtracted.

Escrow Account
A fund or account held by a third-party custodian until conditions of a contract are met.

Escrow Balance
Property owners’ existing reserve accounts on deposit with lender for taxes and insurance. The lender then pays the taxing authorities and property insurance company directly on behalf of the property owner.

Fair Housing Act
A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value
The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fannie Mae
Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors. By purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

Federal Housing Administration (FHA)
Established in 1934 by the Federal Government to advance homeownership opportunities for all Americans. This program assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults. FHA encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Fixed-Rate Mortgage
A mortgage with an interest rate that remains the same (fixed) for the life of the mortgage.

Flood Insurance
Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure
A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Freddie Mac
Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers.

Ginnie Mae
Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development. Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as with Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Good Faith Estimate
An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Homebuyer Education Learning Program (HELP)
An educational program from the FHA that counsels people about the home-buying process; HELP covers topics such as budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.

Home Inspection Report
An examination of the structural and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.

Home Warranty
Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; overage extends over a specific time period and does not cover the home's structure with annual renewals.

Homeowner’s Association Fee
Maintenance fee assessed to property owners within a condominium or townhouse complex, a planned unity development or a single family residence subdivision.

Homeowner's Insurance
An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that results in someone's injury or property damage.

Housing Counseling Agency
Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.

U.S. Department of Housing and Urban Development (HUD)
Established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HUD1 Statement
Also known as the "settlement sheet" or closing statement, it itemizes all costs associated with closing a transaction; presented to the buyer and seller at or before closing.

HVAC
Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

Index
A measurement used by lenders to determine changes to the interest rate charged on an adjustable rate mortgage.

Inflation
The number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.

Inspections
Examination of property being purchased. Various types of inspections: structural and mechanical, wood destroying insects, mold, lead paint, etc.

Insurance
Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Interest
The sum paid for borrowing money, which pays the lender’s costs of doing business.

Interest Rate
The amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Judgment
A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Lease Purchase
Assists homebuyers in purchasing a home by allowing them to lease and apply a portion of the monthly rental payment to a savings account for use as a future down payment.

Lien
A legal claim against property that must be satisfied when the property is sold.

Loan
Money borrowed that is usually repaid with interest.

Loan Fraud
Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan-to-Value (LTV) Ratio
A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Lock-in
Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Market Value
The price that is established by present economic conditions, location, and general trends.

Margin
An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Mortgage
A lien on the property that secures the promise to repay a loan.

Mortgage Banker
A company that originates loans and resells them to secondary mortgage lenders such as Fannie Mae or Freddie Mac.

Mortgage Broker
A firm that originates and processes loans for a number of lenders.

Mortgage Insurance
A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.

Multiple Listing Service (MLS)
A system that provides to its member detailed information about properties for sale.

Offer
Indication by a potential buyer of a willingness to purchase a home at a specific price; put forth in writing.

Owner’s Title Policy
Insures the owner against loss due to any defect of the title not excepted to or excluded from the policy.

Origination
The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination Fee
The fee charged by a lender to prepare all the documents associated with a mortgage. It is usually calculated in the form of points and paid at closing.

Principal, Interest, Taxes, and Insurance (PITI)
The four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

Points (Loan Discount Points)
Points are prepaid interest on your mortgage, charged by the lender at the time of closing. Each point is one percent of the loan amount--that is, 2 points on a $100,000 mortgage would be $2,000.

Private Mortgage Insurance (PMI)
A monthly payment, usually part of the mortgage payment, paid by the borrower which protects the lender in case of purchaser’s default on the loan. If the lender incurs a loss from taking the property back in foreclosure, PMI can insure the lender for that loss. PMI is usually charged if the purchaser puts down less than 20% of the purchase price.

Pre-approve
Lender commits to lend to a potential borrower; commitment can remain as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-qualify
A lender informally determines the maximum amount an individual is eligible to borrow.

Premium
An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment
Payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty.

Principal
The amount borrowed from a lender; doesn't include interest or additional fees.

Radon
A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

Real Estate Agent
An individual who is licensed to negotiate and arrange real estate sales whose license is carried by a licensed real estate broker.

Realtor
A real estate agent or broker who is a member of the National Association of Realtors®, and its local and state associations.

Refinancing
Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (such as a lower interest rate).

Real Estate Settlement Procedures Act (RESPA)
A law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Settlement
All financial transactions required to make the contract final. Another name for closing.

Survey
A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Tax Assessor
A government official who is responsible for determining the value of a property for the purpose of taxation.

Title Insurance
An insurance policy which insures you against errors in the title search, essentially guaranteeing a property owner’s and lender’s financial interest in the property.

Title Search
A check of public records to be sure that the owner is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Transfer Fee
Fee charged by the home owner’s association to change ownership records when a property changes hands.

Truth-in-Lending
A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the initial loan period.

Underwriting
The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

U.S. Department of Veterans Affairs (VA)
A federal agency that guarantees loans made to veterans.