Adjustable Rate Mortgage
(ARM)
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A mortgage whose interest
rate changes over time based
on an index.
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Amortization
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The gradual repayment of a
mortgage by installments.
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Annual Percentage Rate
(APR)
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The total yearly cost of a
mortgage stated as
percentage of the loan
amount; includes the base
interest rate, primary
mortgage insurance, and loan
origination fee or points.
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Appraisal
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A professional opinion of
the market value of a
property.
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Assumable Mortgage
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A mortgage that can be taken
over by the buyer when a
home is sold.
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Borrower
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See Mortgagor
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Broker
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See Real Estate Broker.
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Cash Reserve
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A requirement of some
lenders that buyers have
sufficient cash remaining
after closing to make the
first two mortgage payments.
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Closing
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The occasion when a sale is
finalized; the buyer signs
the mortgage, and closing
costs are paid. It is
sometimes called the
"settlement."
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Closing Costs
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Expenses (over and above the
price of the property)
incurred by buyers and
sellers in transferring
ownership of a property.
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Closing Statement
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A legal form used at closing
that gives an account of the
funds received and paid at
the closing, including the
escrow deposits. For taxed,
hazard insurance, and
mortgage insurance.
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Commitment Letter
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A formal offer by a lender
stating the terms under
which it agrees to loan
money to a home buyer.
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Conventional Mortgage
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Any mortgage that is not
insured or guaranteed by the
government.
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Credit Report
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A report of an individual's
credit history. Prepared by
a credit bureau and used by
a. Lender in determining a
loan applicant's credit
worthiness.
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Debt-to-Income Ratio
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The ratio used to qualify
you for a mortgage. Compares
your total monthly housing
expense and other debt (the
amount you pay out) with
your total monthly gross
income (the amount you
earn).
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Deed
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The legal document conveying
title to a property.
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Deed of Trust
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The document used in some
states instead of a
mortgage; title is conveyed
to a trustee rather than to
the borrower.
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Default
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Failure to make mortgage
payments on a timely basis
or to comply with other
conditions of the mortgage.
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Deposit
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See Earnest Money.
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Down Payment
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The part of the purchase
price which the buyer
usually pays in cash.
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Earnest Money
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A deposit given to the
seller to show that a
prospective buyer is serious
about buying the house.
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Equity
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The difference between the
market value of a property
and the homeowner's
outstanding mortgage
balance.
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Escrow
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The holding of documents and
money by a neutral third
party prior to closing; also
an account held by the
lender into which a
homeowner pays money for
taxes and insurance.
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FHA Loan
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A mortgage that is insured
by the Federal Housing
Administration (FHA).
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Fixed Rate Mortgage
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A mortgage in which the
interest rate does not
change during the term of
the loan.
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Foreclosure
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The process by which a
mortgaged property may be
sold when a mortgage is in
default.
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Hazard Insurance
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Insurance to protect the
homeowner and the Lender
against physical damage to a
property from fire, wind,
vandalism, or other hazards.
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Home Inspection
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An inspection of the
prospective home done by a
professional (soon after an
offer is made) to establish
the structural and
mechanical integrity of the
house.
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Homeowner's Insurance
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An insurance policy that
combines liability coverage
and hazard insurance.
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Interest
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The fee charged for
borrowing money.
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Lien
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A legal claim against a
property that must be paid
when the property is sold.
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Loan to Value Ratio (LTV)
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The relationship between the
amount of a mortgage and the
total volume of the
property.
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Lock-in
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A written agreement
guaranteeing the home buyer
a specified interest rate
provided the loan is closed
within a set period of time.
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Mortgage
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A legal document that
pledges a property to the
lender as security for
payment of a debt.
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Mortgage Insurance
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See Private Mortgage
Insurance.
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Mortgage Insurance
Premium (MIP)
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The fee paid by a borrower
to FHA or a private insurer
for mortgage insurance.
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Mortgage Note
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A legal document obligating
a borrower to repay a loan
at a stated interest rate
for a specified period of
time, with a specific
monthly payment date.
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Mortgagee
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The lender in a mortgage
agreement.
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Mortgagor
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The borrower in a mortgage
agreement.
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PITI
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The components of a monthly
mortgage payment: Principal,
Interest, Taxes, and
Insurance.
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Private Mortgage
Insurance
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Insurance provided by
nongovernment. Insurers that
protects lenders against
loss if a borrower defaults.
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Purchase and Sales
Agreement
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A written contract signed by
the buyer and seller stating
the terms and conditions
under which a property will
be sold.
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Qualifying Ratios
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Guidelines applied by
lenders to determine how
large a loan a home buyer
can afford.
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Real Estate Agent
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A person licensed to
negotiate and transact the
sale of real estate on
behalf of the owner.
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Real Estate Broker
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A person trained and
licensed to carry out real
estate transactions and
receive a fee for these
services.
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Refinancing
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The process of paying off
one loan with the proceeds
from a new loan secured by
the same property.
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Sales Contract
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Sometimes called the offer
to purchase, or the sales
agreement. It is the
controlling document for the
closing and contains
everything that the buyer
and seller have agreed upon.
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Settlement
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See Closing
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Title
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A legal document
establishing the right of
ownership.
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Title Company
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A company that specializes
in insuring title to
property.
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Title Insurance
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Insurance to protect the
lender (lender's policy) or
the buyer (owner's policy)
against loss arising from
disputes over ownership of a
property.
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Transfer Tax
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State or local tax payable
when title passes from one
owner to another.
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Underwriting
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The process of evaluating a
loan application to
determine the risk involved
for the lender.
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VA Loan
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A loan that guaranteed by
the Veterans Administration.
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