Adjustable Rate Mortgage (ARM) – A mortgage having an interest rate which is usually initially lower than that of a mortgage with a fixed rate but is adjusted periodically according to the cost of funds to the lender
Amortization – The gradual repayment of a mortgage loan by periodic payments to cover the principal and interest. An amortization schedule shows the amount of each payment applied to interest and principal and the remaining balance after each payment is made. As you pay down your mortgage and the balance goes down, more of your payments go to reducing the principal than toward interest.
Annual Percentage Rate (APR) – The interest rate that reflects the actual cost of the mortgage as an annual rate. The total finance charge including items such as interest, mortgage insurance, loan origination fee, and points which means that the APR more accurately reflects the costs of a mortgage and allows you to compare different mortgages based on the actual costs.
Appraisal – An evaluation of a property used to determine an estimate of value. The maximum amount of the mortgage is usually based on the appraised value. The appraised value is different than the tax appraisal.
Assessed Value (Tax Appraisal) – The value placed on a property by a public tax assessor used to determine property taxes. This is different than the appraised value.
Buydown – Fees paid to the lender at closing in exchange for a reduced interest rate, either temporary or permanent, which reduces a borrower’s monthly payments.
Closing – The final step in a real estate transaction where documents are signed and the ownership of the property is transferred to the buyer, typically held at a title company.
Closing Costs – Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney’s fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.
Closing Disclosure – This disclosure lists all of the borrower’s closing costs, monthly payments, and loan terms. The lender is required to provide the closing disclosure to a borrower three business days prior to the closing.
Closing Statement – Also referred to as the Settlement Statement. The final statement of costs incurred to close on a loan or to purchase a home.
Comparables (Comps) – An abbreviation for “comparable properties”; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amentias and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
Condominium – A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, such as sidewalks, hallways, stairs, etc., and sometimes the exclusive use of certain limited common areas.
Contingency – A condition that must be met before a contract is binding.
Contract – An oral or written agreement to do or not to do a certain thing.
Conventional Mortgage (Conventional Loan) – A mortgage that is not insured or guaranteed by the federal government.
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.
Earnest Money Deposit – A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Escrow – An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
Fannie Mae (FNMA) – Nickname for Federal National Mortgage Association (FNMA) – A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds. A corporation that specializes in buying mortgage loans, mostly from mortgage bankers. It adds liquidity to the mortgage market.
Federal Housing Administration (FHA) – An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
FEMA 100 Yr Flood Plain – All land adjacent to a watercourse over which water flows in times of flood or would flow but for the presence of flood defences where they exist. The limits of the flood plain are defined by the peak level of a 1 in 100 year return period flood or the highest known water level, whichever is greater.
FHA Mortgage – A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
Fixed-Rate Mortgage (FRM) – A mortgage in which the interest rate does not change during the entire term of the loan.
Freddie Mac (Federal Home Loan Mortgage Corporation) – A corporation authorized by Congress to provide a secondary market for residential mortgages.
Hazard Insurance (Homeowner’s Insurance) – Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Home Inspection – A physical review and evaluation of a home by a licensed inspector that evaluates the condition of the home.
Homestead Tax Exemption – In some jurisdictions, a reduction in the assessed value allowed for one’s principal residence.
Jumbo Loan (Non-Conforming Loan) – A loan where the loan amount exceeds the Fannie Mae or Freddie Mac loan limit. In most of the U.S., the 2018 maximum conforming loan limit for one-unit properties is $453,100.
Legal Description – Legally acceptable identification of real estate by one of the following: The government rectangular survey, Metes and Bounds, or recorded plat (lot and block number).
Lender – The bank, mortgage broker, or credit union offering the loan.
Lender Approval – Lender’s agreement to allow assumption after review of borrower’s creditworthiness and income; can also apply to initial loan.
Lien – An encumbrance against property for money due, either voluntary or involuntary.
Loan-To-Value Ratio (LTV) – The ratio of the amount of your loan to the appraised value of the home. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.
Mortgage – A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Broker – The individual or company facilitating the deal between borrowers and lenders, whether that be originating the loan or placing it with a funding source such as a bank.
Mortgage Insurance (MI) – Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of more than 80%.
Mortgagee – The lender in a mortgage, typically a bank.
Mortgagor – The borrower in a mortgage, typically a homeowner.
Note – A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.
Origination Fee – A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.
PITI (Principal, Interest, Taxes, and Insurance) – The components of a monthly mortgage payment.
Planned Unit Development (PUD) – A zoning classification that allows flexibility in the design of a subdivision. Planned Unit Development zones generally set an overall density limit for the entire subdivision, allowing the dwelling units to be clustered to provide for common open space.
PMI (Private Mortgage Insurance) – An insurance policy the borrower purchases to insure the lender from non-payment of a conventional loan. Usually required for loans with an LTV of more than 80%.
Points (Loan Discount Points) – Prepaid interest assessed at closing by the lender. Each point equals 1 percent of the loan amount. (2 points on a $100,000 mortgage would cost $2,000)
Pre-Approval – A lender’s conditional agreement to lend a specific amount with specific terms to a home buyer.
Prepaids Items (Prepaids) – Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.
Pre-Qualification – A preliminary analysis of a borrower’s ability to obtain a loan, which takes into consideration factors such as income, liabilities, and available funds, along with the type of home loan, the likely taxes and insurance for the home, and the estimated closing costs.
Real Estate Agent – A professional licensed by the state who works under a real estate broker and assists both buyers and sellers in a real estate transaction.
Real Estate Broker – A real estate agent who has passed a state broker’s exam and has met a minimum number of transactions. These brokers are able to work on their own and hire their own agents.
Realtor – A real estate agent who is a member of the National Association of Realtors and abides by a strict code of standards and ethics.
Seller’s Disclosure – Requires sellers to inform buyers about known problems with the house, as well as any remodel projects completed during the time they owned the home.
Settlement Statement (Closing Statement) – A summary of both the buyer’s and seller’s fees and charges at closing, including the contract price of the property, mortgage amounts, taxes, closing costs, and other costs or fees involved.
Survey – The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions and positions of a building on a lot, including the determination of any existing encroachments or easements.
Title – The evidence one has of right to possession of land.
Title Company – A company that specializes in examining and insuring real estate titles.
Title Insurance – Insurance against loss resulting from defects of title to a specifically described parcel of real property.
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 potentials borrower’s creditworthiness, the determination of the appropriate loan amount, the setting of loan terms and conditions, and a judgement of the property value.
Veterans Affairs (VA) – Department of Veterans Affairs, a government agency that provides certain services to discharged service members.