Repayment of the loan by installment payments. As the payments are made, the debt is reduced so that at the end of the fixed period or term, no money will be owed.
APR (Annual Percentage Rate)
The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.
Application Fee
That part of the closing costs pre-paid to the lender at the time of application to cover initial expenses.
A report made by a qualified person as to the value of a property as of a given date.
Assessed Value
The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.
Assumption of Mortgage
The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.
A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term.
The monthly mortgage amount is split into two and paid every two weeks instead of once a month. Since there are 52 weeks in a year, this results in 26 half payments annually, totaling 13 whole payments. This means borrowers basically pay one extra monthly mortgage payment each year.
Bridge Loan
A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.
Broker
The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buydown
Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years or the whole term.
The concluding day of the real estate transaction, when title and deed pass from seller to buyer, the buyer signs the mortgage and pays the purchase price and closing costs.
Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."
Closing Disclosure
A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account.
Commission
An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.
Commitment
An agreement, frequently in writing, between a lender and a borrower to loan money at a future date, subject to certain conditions.
Comparables
Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.
Condominium
Ownership of a single unit in a multiunit building or complex of buildings. Along with this goes a share of ownership of the common areas.
Contingency
A condition that must be met for a contract or a commitment to remain binding.
A conforming loan is a loan that meets the requirements so that it can be sold to Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), USDA (Rural Housing Development) or Department of Veterans Affairs (VA).
Conventional Mortgage
Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded by a government authorized bond sale or grant.
Convey
To transfer real estate from one person to another.
Credit Report
The report to a prospective lender on the credit standing of a prospective borrower.
A legal written document by which title to the property is transferred.
Debt-to-Income Ratio
A debt-to-income, or DTI, ratio is derived by dividing your monthly debt payments by your monthly gross income. The ratio is expressed as a percentage, and lenders use it to determine how well you manage monthly debts - and if you can afford to repay a loan.
Default
Failure to fulfill the terms as agreed to in the mortgage of note.
Down Payment
The difference between the sale price of a property and the mortgage amount.
Due-On-Sale
A clause in a mortgage which gives the lender the right to require immediate repayment of a mortgage balance if the property changes hands.
The deposit money given to the seller or his agent by the potential buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment.
Easement
A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone's property.
Encumbrance
Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid property taxes.
Equity
The value in which the owner has in real estate over and above the mortgages against it. When the mortgage and all other debts against the property are paid in full, the owner has 100% equity in his property.
Funds and/or deed left in trust to a third party. Generally, a portion of the monthly mortgage payment is held in escrow by the lender to pay for taxes, hazard insurance, and yearly mortgage insurance premiums.
A mortgage that has a primary lien against a property.
Fixed-Rates Mortgage
A mortgage with an interest rate and monthly payments that remain constant over the life of the loan.
Fixture
Property, such as a hot water heater or plumbing fixture, that has become permanently attached to piece of real estate and goes with the property when it is sold.
Flood Certification
An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy.
Foreclosure
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.
A fixed rate loan with monthly payments that start low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan.
Gross Income
Normal income, including overtime, prior to any payroll deductions, that is regular and dependable. This income may come from more than one source.
Insurance protection against damage to a property from fire, windstorms, and other common hazards.
Homeowner's Insurance
An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability.
Is a loan in which the mortgage lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house (akin to a second mortgage).
An agreement between a borrower and a mortgage lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate.
When the buyer agrees to make payments directly to the seller at pre-negotiated terms. The seller agrees to deed the property to the buyer upon completion of the agreement. The buyer becomes the owner of equity in this type of sale. (Also see Owner Financing.)
Lien
A legal claim on a property used as security for a debt.
Loan-To-Value Ratio
The relationship between the amount of the mortgage and property value, usually shown as a percentage.
A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.
An acronym for payments to the mortgage lender that cover principal, interest, taxes, and insurance on a property.
Plat
A map of a piece of land showing boundary lines, streets, actual measurements, and easements.
Point
A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point, is one percent of the amount of the mortgage loan. Also called a discount point.
A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.
Pre-Approval
A commitment by a lender to extend credit provided that specific conditions are met.
Pre-Qualification
A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.
Prime Rate
The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short-term interest rates.
Principal
The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
PMI (Private Mortgage Insurance)
Insurance written by a private mortgage insurance company to protect the lender against losses caused by a mortgage default. This is commonly required on loan transactions involving less than a 20% down payment or equity position.
Residual income is the amount of net income generated in excess of the minimum rate of return. Alternatively, in personal finance, residual income is the level of income that an individual has after the deduction of all personal debts and expenses have been paid.
A loan issued on property that is already encumbered by an existing mortgage (ie: the first mortgage). The second mortgage is subordinate to the first.
Secondary Mortgage Market
The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.
Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.
Title Insurance Policy
A title insurance policy is designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase.
Title Search
A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.
Transfer Tax
In some areas city, county or state taxes imposed when property passes from one person to another.
Truth-In-Lending
Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower. If the charges were $0, the APR would be equal to that actual interest rate on the loan.
