Adjustable Rate Mortgage (ARM)
A mortgage loan where the interest rate changes over time, up or down, depending upon economic conditions. There is a strong chance that your monthly payment will go up in the future. The benefit of an ARM is that you get a lower payment at first, reducing your monthly expenses in the early years of homeownership.
Amortization
Gradual debt reduction. Normally, the reduction is made according to a pre-determined schedule for installment payments.
Annual Percentage Rate
A term used in the Truth-in-Lending Act to represent the full cost of a loan including interest and loan fees.
Appraisal
A formal, written estimation of the current market value of a home.
Appraiser
The appraiser decides the market value of a home based on its condition and the selling prices of comparable homes recently sold in the area. His or her job is to compute a fair estimate of market value to help the lender decide a reasonable loan amount.
Appreciation
An increase in value, the opposite of depreciation.
Assessed Valuation
The value that a taxing authority places upon personal property for the purposes of taxation.
Borrower
A mortgagor who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.
Broker (Real Estate)
One who receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of contracts between them. In most states a license is required.
Building Code
The local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.
Certificate of Occupancy
Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be inhabited.
Chain of Title
The history of all the documents transferring title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Chattel
Personal property.
Closing
The condition of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.
Closing Costs
All of the costs to the buyer and seller individually that are associated with the purchase, sale or financing of real property. They include, but are not limited to, prorating of agreed items such as taxes and rents, the cost of title insurance policies, and the cost of credit reports, recording fees and escrow fees.
Collateral
Property pledged as security for a debt, such as the real estate as security for a mortgage.
Commission
An agent's fee for negotiating a real estate or loan transaction, often expressed as percentage of the sales price or mortgage amount.
Condominium
A form of ownership of real property. The purchaser receives title to a particular unit and a proportionate interest in certain common areas.
Contingency
A condition that must be met before a contract is binding. For example, the sale of a house might be contingent upon the seller paying for certain repairs.
Contract of Sale
A contract between a purchaser and a seller of real property to convey a title after certain conditions have been met and payments have been made.
Conventional Loan
A mortgage loan not insured by FHA or Guaranteed by VA or Farmers Home Administration.
Debt-To-Income Ratio
Long term debt expenses as a percentage of monthly income. Lenders use this ratio to qualify borrowers for mortgage loans, typically setting a maximum debt-to-income ratio in the range of 36% to 38%.
Earnest Money
A sum of money given to bind a sale of real estate; a deposit.
Easement
Right or interest in the land of another entitling the holder to a specific limited use, privilege, or benefit such a laying a sewer, putting up electric power lines or crossing the property.
Equity
The home owner's interest in a property; the difference between fair market value and the current amount the owner owes on the property.
Escrow Account
An account set up by the lender into which the borrower makes periodic payments, usually monthly, for taxes, hazard insurance, assessments, and mortgage insurance premiums. The funds are held in trust by the lender who pays the sums as they become due.
Fannie Mae
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- a private corporation created by Congress to support the secondary mortgage market. Fannie Mae sells mortgage-backed securities backed by pools of conventional loans. Payment of principal and interest on these securities is backed by the US Government.
FHA
FEDERAL HOUSING ADMINISTRATION -- A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders.
Freddie Mac
FEDERAL HOME LOAN MORTGAGE CORPORATION -- A private corporation created by Congress to support the secondary mortgage market. It sells participation certificates secured by pools of conventional mortgage loans, their prinicipal and interest guaranteed by the federal governmetn through Freddie Mac.
Gross Monthly Income
The amount of consistent and stable income that an individual receives each month, averaged over a period of time. This amount includes overtime pay, bonuses, commissions and income from dividends or interest, provided that the individual can show consistent history of receiving such income.
Hazard Insurance
A contract that pays for loss on a home from certain hazards, such as fire.
Homowners Association
An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.
Interest
Money paid for the use of money -- that is, money paid for a loan.
Loan-To-Value Ratio
The relationship between the amount of a home loan and the total value of the property. For example, if you received a loan of $95,000 on a home that costs $100,000, the loan-to-value ratio is 95%.
Lock-In-Rate
A commitment for a lender to make a loan at a pre-set interest rate at some future date, usually for not more than 90 days. A fee may be charged to "lock-in" a rate.
Mortgage
An interest in real property given as security for the payment of an obligation.
Mortgage Insurance
A policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to fully repay a loan. Mortgage insurance makes it possible to buy a home with as little as 0% down.
Mortgagee
A lender to whom property is conveyed as security for a loan.
Mortgagor
One who borrows money, giving as security a mortgagee or deed of trust on real property.
PITI
Prinicpal, Interest, Taxes and Insurance are the components of a mortgage payment.
Point
A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount. Also called discount points.
Principal
The origianl balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.
Real Estate Broker
The seller of the house pays the real estate broker to attract potential buyers and help negotiate the contract between the seller and the buyers. The broker identifies available properties for buyers and shows them homes that meet their criteria.
Realtor
A member of the National Association of Realtors.
RESPA
Real Estate Settlement Procedures Act. RESPA is a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.
Servicer
After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrow taxes and insurance, and manages delinquent payments. Lenders often "release" servicing to another business, which means that a home buyer will not necessarily send house payments to the origianl lender.
Settlement
The closing of a mortgage loan.
Title
The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed. Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.
Title Insurance
Insurance which provides for the payment of a specific amount of funds for loss caused by defects in the title to real estate.
Veterans
An independent agency of the federal govenment created in Administration (VA) 1930. The VA home loan guaranty program is designed to encourage lenders to offer long term, low down payment mortgages to eligible veterans by guaranteeing the lender against loss.
Zoning
City or county laws specifying how property may be used in specific areas.
BankLiberty gratefully acknowledges portions of this glossary provided by the Mortgage Bankers Association of America and Genworth Financial.