Glossary

A

Adjustable Rate Mortgage (ARM)
An adjustable-rate mortgage differs from a fixed-rate mortgage in many ways. With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an ARM, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly.
Amortization Schedule
A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.
Annual Percentage Rate (APR)
The cost of credit as a yearly rate.
Application Fee
A fee charged by the lender (bank) to cover the cost of processing the application.
Appreciation
An increase in the value of a property due to changes in market conditions or other causes.
Appraisal
A written estimation of the current value of a home.
Appraiser
Certified professional who carries out an appraisal.
Assessment
The value placed on real estate for tax purposes.
Assumable Mortgage
A mortgage that can be taken over (assumed) by the buyer when a home is sold.

Return to Top

B

Balloon Payment
The unamortized principal of a mortgage or other type of loan, which is paid off in a lump sum.

Return to Top

C

Caps
Safeguards built into an adjustable rate loan to protect buyers against dramatic increase in the rate of interest, and therefore, monthly payments.
Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money to the home buyer.
Contingency
A condition that must be met before a contract is legally binding.
Closed Mortgage
In some cases, a closed mortgage cannot be paid off, in whole or in part, before the end of its term.  In other cases, the lender may allow for partial prepayment in the form of an increased mortgage payment or a lump sum prepayment.  However, any prepayment made above stipulated allowances may incur penalty charges.
Closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."
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."
Counter Offer
If, for example, your original offer to the vendor is not accepted, the vendor may counteroffer.  This means that the vendor has amended something from your original offer, such as the price or closing date. As this new offer varies from the terms of the original offer, this rejects the original offer.  If a counteroffer is presented, the individual has a specified amount of time to accept or reject.
Credit Report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Return to Top

D

Debt- to-Income Ratio
The percentage of a consumer's monthly gross income that goes toward paying debts. The two main forms of DTI are expressed as a pair using the notation x/y (for example, 28/36).
1. The first DTI, known as the front-end ratio, indicates the percentage of income that goes toward housing costs, which for renters is the rent amount and for homeowners is PITI (mortgage principal and interest, mortgage insurance premium [when applicable], hazard insurance premium, property taxes, and homeowners' association dues [when applicable]).
2. The second DTI, known as the back-end ratio, indicates the percentage of income that goes toward paying all recurring debt payments, including those covered by the first DTI, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.[1]
Deed
The legal document conveying title to a property.
Deed of Trust
The document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower.
Default
The failure to make a mortgage payment on a timely basis or to otherwise comply with other requirements of a mortgage.
Delinquency
A loan in which a payment is overdue but not yet in default.
Depreciation
A decline in the value of the property.
Down Payment
Cash amount paid by a buyer from his/her own funds which is the difference between the purchase price and the amount to be covered by the mortgage loan.

Return to Top

E

Easement
A right of way giving persons other that the owner access to or over a property.
Equity
The difference between the price for which a home could be sold and the total debts registered against it.  Equity usually increases as the mortgage is reduced through regular payments.  Market values and improvements to the property may also affect equity.
Escrow Account
An account set aside to accumulate money during the year for annual home related expenses such as insurance and property taxes.

Return to Top

F

First Mortgage
A mortgage that has first claim in the event of default.
Fixed Rate Mortgage
A mortgage loan at one stated interest rate over the life of the mortgage.
Foreclosure
A legal process where the lender takes possession of your party and sells it to cover the unpaid debt.
Forgivable Loan
A form of loan in which its entirety, or a potion of it, can be forgiven or deferred for a period of time by the lender when certain conditions are met.

Return to Top

G

Gross Income
Total income, either actual or estimated, before other deductions are made.

Return to Top

H

Home Inspector
a person who visually inspects a home to tell you if something is not working properly, or is unsafe. he or she will also tell you if repairs are needed, and maybe even where there were problems in the past.
Homeowner’s Policy
An insurance policy available to owners of private dwellings covering the dwelling and its contents in case of fire or wind damage, infestation, theft, liability for property damage and personal liability.

Return to Top

I

Inspection
An examination of property to see if it is free of termites, etc., as well as to see if required repairs were made before the home is sold or if there are repairs required.
Interest
The fee charged for borrowing money.
Interest Rate
The price paid for the use of money borrowed from a lender.

Return to Top

L

Lien
A legal claim against a property that must be paid off when the property is sold.
Loan-to-Value (LTV) Ratio
The percentage of the property value that is being financed through a loan.

Return to Top

M

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Approval
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
Mortgage Lender
A mortgage lender is an institution (bank, trust company, credit union, etc.) that lends money for a mortgage.

Return to Top

O

Open Mortgage
A flexible mortgage that allows you to pay part before the end of its term.
Origination Fee
A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.

Return to Top

P

Points
A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.
Pre-qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.
Principal
The amount that you borrow for a loan (not including interest).
Principal, Interest, Taxes and Insurance (PITI)
Used to indicate what is included in a monthly payment on real estate. Principal, interest, taxes and insurance are the four major items in a usual monthly mortgage loan payment.
Private Mortgage Insurance (PMI)
Insurance provided by non-government insurers that protect lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80 percent.
Property taxes
Taxes charged by the municipality where the home is located, usually based on the value of the home. In some cases, the lender will collect a monthly amount as part of the mortgage payment to cover your property taxes, which is then paid by the lender to the municipality on your behalf.

Return to Top

Q

Qualifying Ratios
Guidelines applied by the lenders to determine how large a loan to grant a home buyer.

Return to Top

R

Real Estate
Property consisting of buildings and land.
Realtor or real estate agent
A person who acts as an intermediary between the seller and the buyer of a property.

Return to Top

S

Security
Property that is pledged to guarantee the fulfillment of an obligation and that can be claimed by a creditor if a loan is not repaid.

Return to Top

T

Term
The number of years before your loan is scheduled to be paid off.
Title Insurance
Insurance that protects the lender and/or purchaser against loss due to problem or defects in connection with the title.
Title Search
An examination of public records to reveal the past and current facts of ownership of real estate.
Transfer Tax
State or local tax payable when title passes from one owner to another.

Return to Top

V

Variable mortgage interest rate
Fluctuates based on market conditions but the mortgage payment remains unchanged.
Vendor
The seller of a property.

Return to Top