Adjustable Rate Mortgage (ARM) A loan's interest rate is adjusted according to movements in the
financial markets. Examples: 1 year ARM, 5 year ARM, etc means initial rate is fixed for 1 year, 5 year,
etc. and adjusts each year after that with a fixed maximum adjustment (up or down) each and a fixed amount
of adjustments over the life of the mortgage.
Amortization A payment plan by which a borrower reduces a debt gradually through monthly payments
of principal (amount of debt) and interest. The principal begins as a small part and gradually increases
in size; while the interest portion begins as a large part and gradually decreases in size.
Appreciation The increase in the value of a property.
Assessment A tax levied on a property or a value placed on the worth of a property by a taxing authority
Assumption A transaction allowing the buyer of a home to assume responsibility for an existing loan
on a home instead of structuring a new loan
-B-
Balloon A loan which has a series of monthly payments (often 5 years or less) with the remaining balance
due in a large lump sum payment at the end of the series of monthly payments.
Binder A receipt for a deposit paid to secure the right to purchase a home at terms agreed upon by the
buyer and seller.
Buydown A subsidy (usually paid by a builder or developer) to reduce the monthly payments on a mortgage
loan.
-C-
Cap A limit to the amount an interest rate or monthly payment can increase for an adjustable rate loan
either during an adjustment period or over the life of the loan.
Certificate of Occupancy A document from an official agency stating that the property meets the
requirements of local codes, ordinances, and regulations.
Closing A meeting to sign documents which transfer property from a seller to a buyer (also called a
settlement).
Closing Costs Charges paid at closing for obtaining a mortgage loan and transferring real estate tile.
Conditions, Covenants, and Restrictions (CC and Rs) The standards that define how a property may be
used and the protections the developer has made for the benefit of all owners in a subdivision.
Condominium A home in a multi-unit complex; each purchaser owns an individual unit, and all the purchasers
jointly own the common areas, such as the surrounding land, hallways, etc.
Conventional Loan A mortgage loan not insured by a government agency (such as FHA or VA).
Convertibility The ability to change a loan from an adjustable rate schedule to a fixed rate schedule.
Cooperative A form of ownership in a multi-unit complex; the purchasers own shares of the entire complex
rather than owning individual units.
Credit Rating A report ordered by a lender from a credit bureau to determine if the borrower is a good
credit risk.
-D-
Default A breach of a mortgage contract (such as not making monthly payments).
Density The number of homes built on a particular acre of land. Allowable densities are usually
determined by local jurisdictions.
Downpayment The difference between the sales price and the mortgage amount on a home. The downpayment
is usually paid at closing.
Due-onSale A clause in a mortgage contract requiring the borrower to pay the entire outstanding
balance upon sale or transfer of the property. A mortgage with a due-on-sale clause is not assumable.
-E-
Earnest Money A sum paid to the seller to show that a potential purchaser is serious about buying,
Easement Right-of-way granted to a person or company authorizing access to the owner's land; for
example, a utility company may be granted an easement to install pipes or wires. An owner may voluntarily
grant an easement, or in some cases, be compelled to grant one by a local jurisdiction.
Emblement A growing crop (called fructus industriales), such as grapes or corn, which is produced annually through labor and industry; also called a way-growing crop. Emblements are regarded as personal property even before harvest; thus, a tenant has the right to take the annual crop resulting from his or her labor, even if the harvest does not occur until after tenancy has ended. A landlord cannot lease land to a tenant farmer and then terminate the lease without giving the tenant the right to reenter the land to harvest any crops grown by the tenant.
Equity The difference between the value of a home and the remaining debt.
Escrow The handling of funds or documents by a third party on behalf of the buyer and/or seller.
-F-
Federal Housing Administration (FHA) A federal agency which insures mortgages that have lower downpayment
requirements than conventional loans.
Fixed Rate Mortgage A mortgage with an interest rate remaining constant over the life of the loan.
The payments are not necessarily level. (See Graduated Payment Mortgage and Growing Equity Mortgage)
Fixed Schedule Mortgage A mortgage payment schedule for the life of the loan which is established at
closing. The payments and interest rate are not necessarily level.
-G-
Graduated Equity Mortgage (GPM) A fixed-rate, fixed schedule loan which starts with lower payments than a
level payment loan; the payments rise annually over the first 5 to 10 years and then remain constant for the
remainder of the loan. GPMs involve negative amortization.
Growing Equity Mortgage (Rapid Payoff Mortgage) A fixed-rate, fixed-schedule loan which starts with the
same payments as a level payment loan; The payments rise annually, with the entire increase being used to reduce
the outstanding balance. No negative amortization occurs, and the increase in payments may enable the borrower
to pay off a 30 year loan in 15 to 20 years or less.
-H-
Hazard Insurance Protection against damage caused by fire, windstorm, or other common hazards. Many
lenders require borrowers to carry it in an amount at least equal to the mortgage.
Housing Finance Agency A state agency which offers a limited amount of below-market-rate home financing
for low- and moderate-income households.
-I-
Index The interest rate or adjustment which determines the changes in monthly payments for an adjustable
rate loan.
Infrastructure The public facilities and services needed to support residential development, including
highways, bridges, schools, and sewer and water systems.
Interest The cost paid to a lender for use of borrowed money.
-J,K,L-
Joint Tenancy A form of ownership by which the tenants own a property equally. If one dies, the other
would automatically inherit the entire property.
Kicker A payment required by a mortgage in addition to normal principal and interest.
Level Payment Mortgage A mortgage with payments identical for each month over the life of the loan.
-M-
Mortgage Broker A broker who represents numerous lenders and helps consumers find affordable mortgages;
the brokers charges a fee only if the consumer finds a loan.
Mortgage Commitment A formal written communication by a lender, agreeing to make a mortgage loan on a
specific property, specifying the loan amount, length of time, and conditions.
Mortgage Company (Mortgage Banker) A company that borrows money from a bank, lends the borrowed money
to consumers who want to buy homes, then sells the loans to investors.
Mortgagee The lender who makes the mortgage loan.
Mortgage Loan A contract in which the borrower's property is pledged as collateral and which can be repaid
in installments over a long period of time. The mortgagor (buyer) promises to repay principal and interest, to
keep the house insured, to pay all taxes, and to keep the property in good condition.
Mortgage Origination Fee A charge by a lender for the work involved in preparing and servicing a mortgage
application (usually 1 percent of the loan amount).
-N,O-
Negative Amortization An increase of the outstanding balance of a loan when a monthly payment is not large
enough to cover all of the interest due during that month.
Note A formal document showing the existence of a debt and stating the terms of repayment.
Ordinances Municipal rules governing the use of land.
-P,Q-
PITI Principal, interest, taxes, and insurance (the 4 major components of monthly housing payments).
Point A charge of 1 percent of the mortgage amount. Points are a one-time charge assessed by the
lender at closing to increase yield on a mortgage loan.
Prepayment Payment of all or part of a debt prior to its maturity.
Principal The amount borrowed in a loan, excluding interest and other charges.
Property Survey A survey to determine the boundaries of your property. The cost will depend on the
complexity of the survey.
Quitclaim Deed A deed that conveys only the grantor's rights or interest in real estate, without stating
the nature of the rights and with no warranties of ownership. Often used to remove a possible cloud on the
title.
-R-
Rapid Payoff Mortgage (See Growing Equity Mortgage)
Recording Fee A charge for recording the transfer of a property, paid to a city, county, or other
appropriate branch of government.
Real Estate Settlement Procedures Act (RESPA) A federal law requiring lenders to provide home buyers with
information about known or estimated settlement costs. The act also regulates other aspects of settlement
procedures.
R-Value The resistance of insulation material (including windows) to heat passing through the material. The
higher the number, the greater the insulating value. Useful for characterizing the efficiency of a home for
heating and air conditioning.
-S-
Sales Contract A contract between a buyer and a seller which should explain, in detail, exactly what the
purchase includes, what guarantees there are, when the buyer can move in, what the closing costs are, and what
recourse the parties have if the contract is not fulfilled or if the buyer cannot get a mortgage commitment
at the agreed-upon terms.
Settlement (See Closing)
Shared Appreciation Mortgage A loan in which partners agree to share specified portions of the downpayment,
monthly payment, and appreciation.
-T,U-
Tenancy in Common A form of ownership in which the tenants own separate but equal parts. To inherit the
property, a surviving tenant would either have to be mentioned in the will, or in absence of a will, be eligible
through state inheritance laws.
Title Evidence (usually in the form of a certificate or deed) of a person's legal right to ownership of a
Property.
Transfer Taxes Taxes levied on the transfer of the property or on real estate loans vy a state and/or
local jurisdiction.
-V,W,X,Y,Z-
Veterans Adminstration (VA) A federal agency which insures mortgage loans with very liberal downpayment
requirements for honorably discharged veterans and their surviving spouses.
Walk-Through A final inspection of the home before closing to search for problems that need to be corrected
before ownership changes hands.
Warranty A promise, either written or implied, that the material and workmanship of a product is defect
free or will meet a specified level of performance over a specified period of time. Written warranties
on new homes are either backed by insurance companies or by the builders themselves.
Zoning Regulations established by local governments regarding the location, height, and use for any given
piece of property within a specific area.
