Adjustable-Rate Mortgage
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Amortization
A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Appraisal
The value of a home as of a given date of a property in the opinion of a licensed professional appraiser. Required by most lenders to obtain a loan.
Appreciation
The increase in a property’s value over time.
Annual Membership
An amount that may be charged annually for having a line of credit available.
Annual Percentage Rate (APR)
The cost of credit on a yearly basis expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. It does not include title insurance, appraisal, and credit report.
Application
An initial statement of personal and financial information that is required to approve your loan.
Application Fee
Fees that are paid upon application. An application fee may frequently include charges for property appraisal.
Assumption of Mortgage
The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.
Balloon Payment
A lump-sum payment for the unpaid balance of the loan.
Bottom-line Price
The highest price you would be willing to pay for a property.
Buyer’s Agent
This real estate agent who works on behalf of a buyer by researching homes and neighborhoods and drawing up offers and contracts.
Buyer’s Broker Representation Agreement
A written agreement that stipulates a buyer’s agent will work only on behalf of the buyer.
Cap
The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable-rate mortgage.
Capital
Wealth or assets used to stimulate the production of additional assets
Cash Flow
The amount of money generated after expenses are accounted for. Often used to describe the amount of money an investment property generates.
Cash Out
Receiving money back when refinancing your present mortgage.
Casualty Insurance
A policy that protects the homeowner against damages to their property caused by fire and other common hazards. Liability insurance, which protects homeowners in case someone is injured on their property, is usually included.
Ceiling
The maximum allowable interest rate over the life of the loan of an adjustable-rate mortgage.
Certified Public Accountant (CPA)
A CPA is an accountant who has passed a state examination and other requirements necessary to be a practicing professional.
Closing Costs
Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This can include an origination fee, discount points, attorney’s fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.
Comparables
Properties that are similarly sized and have similar features to a subject property. By reviewing comparable properties, buyers and their agents can get an idea of a property’s market value.
Comparative Market Analyses
Conducted by a real estate agent, this assessment of a property’s value is used to determine a reasonable offering price.
Conforming Loan
Generally, a mortgage loan which, for 2019, was generally limited to $484,350 for single-family homes in the continental US.
Contract of Sale
The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.
Counter-offer
In a real estate negotiation, a counter-offer is typically a response by the seller to the buyer’s initial offer.
Credit
Money that is available for the sake of a loan.
Credit Limit
The maximum amount that you can borrow
Credit Bureaus
Private companies that collect and maintain individuals’ credit histories. The three main bureaus are Equifax, Experian, and TransUnion.
Credit Report
Produced by credit reporting agencies, this reveals the borrower’s history and current status of obligations. You’re entitled to one free report every 12 months. You can request these reports at AnnualCreditReport.com.
Debt Service
The total amount of credit card, auto, mortgage or other debt upon which you must pay.
Deed of Trust
Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.
Discount Points (or Points)
The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).
Down Payment
The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.
Dual Agency
When a buyer’s agent concurrently represents the interests of a seller. A dual agency is generally not recommended.
Due on Sale
A clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance.
Earnest Money
The deposit money given by the buyer to his agent or settlement agent upon the signing of the offer to purchase to show that the buyer is serious about buying the house
Effective Interest Rate
The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.
Encumbrance
A claim against a property by another party which usually affects the ability to transfer ownership of the property.
Equity
The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.
Escrow
The settlement agent who handles the closing of a purchase transaction is an escrow company. In other states, settlement agents may be the escrow division of a title company or an attorney.
Escrow accounts
Lender-established accounts through which a borrower makes payments and a lender takes deductions to cover the costs of the following: mortgage insurance premiums, property tax payments, and/or casualty insurance premiums.
Escrow Officer
After an offer is made, an escrow officer facilitates the transaction from the time the contract is signed through the close of escrow. These include inspections, earnest money agreements, disclosures, lender issues, and title and escrow issues.
Federal Reserve (also “The Fed”)
The central bank of the United States government. The Federal Reserve is responsible for setting short-term interest rates that serve as models for many types of loans. Mortgage rates, however, are influenced by the market rates on long-term securities like the 10-year Treasury Bond, which is only loosely affected by the Fed.
FHA Loan
More appropriately termed “FHA Insured Loan.” A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.
FICO
Created by Fair Isaac and Co., this mathematical scoring system is the main scoring model used to assess the relative risk of an individual borrower.
First Mortgage
A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).
Fixed-Rate Mortgage
An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.
Foreclosure:
The legal process by which a lender enforces payment of a debt secured by a mortgage, or deed of trust. During a foreclosure, the lender takes possession of the home, evicts the mortgagor, and sells the mortgaged property. If the sales price is not enough to pay off the loan, the lender may have other remedies dependent upon state laws, which vary from state to state.
For Sale By Owner Properties
Properties that are sold directly by owners rather than through a brokerage firm.
Good Faith Estimate
A written estimate of closing costs that a lender must provide you within three days of submitting an application.
Grace Period
A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.
Gross Income
For qualifying purposes, the income of the borrower before taxes or expenses are deducted.
Hazard Insurance
A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.
Home Equity Line of Credit
A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.
Home Equity Loan
A fixed or adjustable-rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment.
HUD I Settlement Statement
A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.
Index
A number, usually a percentage, upon which future interest rates for adjustable-rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.
Interest
The price paid for borrowing money
Interest-Only Loan
A loan that requires a borrower to pay back interest only for a set number of years. After the interest-only period has expired, the remaining principal is typically amortized over the remainder of the life of the loan.
Interest Rate
The periodic charge, expressed as a percentage, for use of credit.
Interest Rate Lock
An assurance from a lender that an interest rate will not rise between the time a borrower locks in the terms of the loan and the time the loan closes.
Jumbo Loan
A jumbo loan, also known as a jumbo mortgage, is a type of financing that exceeds the limits set by the Federal Housing Finance Agency (FHFA), which currently (2019) is $484,350.
Lien
A claim by one person or entity on the property of another. Commonly, this is security for money owed, created by the lender when you buy a property. Liens also include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor.
Liquidity
The percentage of assets that can be quickly turned into cash. Liquidity is also a measure of the funds available for a down payment, closing costs, and reserves.
Listing Agent:
The agent representing the interests of the seller.
Lock Period:
Either 15, 30, 45, or 60 days, lock periods are set amounts of time during which the interest rates buyers have been promised cannot be made any higher.
Loan to Value Ratio (LTV)
A ratio determined by dividing the sales price or appraised value into the loan amount expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.
Lot Number
The number corresponding to a parcel of land meant to be owned by a particular individual.
Margin
An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable-rate mortgages.
Minimum Payment
The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be “interest only,” (simple interest). In other plans, the minimum payment may include principal and interest (amortized).
Mortgage:
A lien or claim against real property given by the buyer to the lender as security for money borrowed.
Mortgage Banker
Originates mortgage loans, loaning you their funds and closing the loan in their name.
Mortgage Broker
Mortgage brokers take loan applications and process the necessary paperwork. Unlike mortgage bankers, brokers do not fund the loan with their own money but shop a variety of lenders to find the best rates.
Mortgage Insurance (MIP or PMI)
The insurance purchased by the borrower to insure the lender or the government against loss should you default. When you have accumulated 20% of your home’s value as equity, your lender may waive PMI at your request.
Mortgage Loan
A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan.
Mortgage Loan Officer:
A representative of a lending institution that acts as an intermediary between the institution and the borrower.
Multiple Listing Service:
A group of private databases that provides real estate brokers with a comprehensive look at available housing in a particular market or across markets. The information, which used to be guarded, is now available at numerous websites.
Mortgagee
The lender in a mortgage loan transaction.
Mortgagor
The borrower in a mortgage loan transaction.
Negative Amortization
Amortization in which the payment made is insufficient to fund the complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.
PITI
Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.
Points
The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).
Pre-approval
A commitment from a lender stipulating how much money a person may borrow and under what terms and conditions
Prepayment Penalty
A fee paid to the lending institution for paying a loan prior to the scheduled maturity date.
Principal
The balance of the loan outstanding. This is the amount upon which the interest payment is computed.
Prorate
This refers to an adjustment made on a payment to account for unused service so that buyer and seller each pay their respective share of costs in proportion to the time in which they own the property.
Qualifying Ratios
Comparisons of a borrower’s debts and gross monthly income.
Right to Rescission
The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. The right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.
Risk
In terms of credit, risk refers to the likelihood of a borrower being able to make payments in a timely fashion and, ultimately, to pay off a loan. Naturally, lenders prefer low-risk borrowers to those who pose a high risk. Lenders determine risk by reviewing a person’s credit score and credit history.
Security Interest
An interest that a lender takes in the borrower’s property to assure repayment of a debt.
Servicing a Loan
The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.
Subprime
Refers to loans offered to high-risk individuals (with low down payments and or bad credit scores, and thus carry higher interest rates.
Title
The written evidence that proves the right of ownership of a specific piece of property.
Title Insurance
Protection for lenders or homeowners against financial loss resulting from legal defects in the title.
Transaction Fee
A fee that may be charged each time you draw on a home equity credit line.
Underwriting
The process of verifying data and approving a loan.
VA Loan
More appropriately termed “VA Insured Loan.” A loan for which the Veteran’s Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility.
Variable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Yield Curve
A yield curve is the representation of the relationship between an interest rate and the time to maturity of a debt. The shape at any given time will determine the difference between long-term loans like a 30-year fixed-rate loan and, say, a 5/1 ARM.