Glossary

A B C D E F G H I J L M N P R S T U V W Z

Affordability - This is an estimate as to how much a person can afford in order to purchase a home. Affordability gives the consumer a possible price that they could be approved for and pay for a house, and the mortgage required to pay that amount.

Agency Disclosure - Most states require that an agent discloses which side they are working for in the real estate process. Either a buyers' agent, meaning the agent is working in the interest of the buyer, or the sellers' agent where the agent is solely working in the interest of the seller.

Amortization - The process of repayment of a loan with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time, the loan balance declines by the amount of the scheduled payment, plus the amount of any extra payment. The scheduled payment less the interest equals amortization.

Amount Finance - This figure is used to calculate your APR. It represents your loan amount minus any prepaid finance charges and assumes you will keep the loan to maturity and make only the required monthly payments.

Annual Percentage Rate - There are two interest rates applied to your loan: the Actual Interest Rate and the Annual Percentage Rate. The Actual Rate is the annual interest rate you pay on your loan (sometimes referred to as the "note rate"), and is the rate used to calculate your monthly payments. The amount of interest you pay, as determined by your Actual Rate, is only one of the costs associated with your loan; there may be others. The Annual Percentage Rate (APR) includes both your interest and any additional costs or prepaid finance charges you might pay such as prepaid interest, private mortgage insurance, closing fees, points, etc. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It will usually be slightly higher than your Actual Rate because it includes these additional items and assumes you will keep the loan to maturity.

Application Fee - Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges. The fee is usually $0 - $500. and is typically applied towards your closing costs.

Appraisal - An appraisal is a written analysis of the estimated value of your property. A qualified appraiser who has knowledge, experience and insight into the marketplace prepares the document. It demonstrates approximate fair market value based on recent sales in your neighborhood and is required to purchase or refinance your new home or property. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraisal Fee - A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date. This fee is paid to the outside appraisal company to objectively determine the fair market value of your property. This fee varies based on the location and type of your property. Typically $225 - $450

Assignment - The transfer of ownership, rights, or interests in property by one person, the assignor, to another, the assignee.

Assignment Recording Fee - In many instances, after closing the lender transfers your loan to a specialized loan "servicer" who handles the collection of your monthly payments. The Assignment Fee covers the cost of recording this transfer at the local recording office.

Assumption - A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property.

Backup offer - An alternate bid or secondary offer for a property that will be accepted if the first fails.

Balloon mortgage - Balloon mortgage loans are short-term fixed-rate loans with fixed monthly payments for a set number of years followed by one large final balloon payment for all of the remainder of the principal. Typically, the balloon payment may be due at the end of five, seven, or ten years. Borrowers with balloon loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.

Bankruptcy - A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts. The person's assets are then turned over to a trustee and used to payoff outstanding bills.

Base loan amount - The foundation loan amount upon which loan payments are based. If any other charges accrue, those costs will be added to the base loan amount.

Bi-monthly Mortgage - A mortgage on which the borrower pays half of the monthly payment on the first day of the month and the remaining half on the 15th of that same month.

Bi-weekly Mortgage - A mortgage on which the borrower pays half the monthly payment every two weeks.

Borrower - An individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan.

Broker - A person who is licensed to handle property transactions and acts as a go-between for buyers and sellers. Brokers also assist on negotiating contracts.

Broker Processing Fee - The fee charged to you to have your file packaged and handed over to a selected lender. Typically is about $575 - $1000

Buydown Mortgage - A mortgage loan with a below-market rate for a period of time, usually one to three years. A borrower may want this option because they expect their earnings to go up but want a lower payment right now.

Buyer's Marketer - Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.

Call Option - A provision of a note that allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

Cash Out - Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already built up in the house. The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan. For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in points), you would be left with $18,000 cash out. Cash-out loans may not be available for all types of property.

Ceiling - The maximum allowable interest rate of an adjustable rate mortgage.

Certificate of Title - This document shows that the property in question belongs to the current owner. It should be provided by a qualified source such as a title company. The certificate of title however does not offer the protection given by title insurance.

Cosing (or Settlement) - The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance). A closing statement is issued which is a document that is used in a real estate transaction to outline the fees, insurance, commissions, and other costs that are associated with a transfer of ownership to occur. This is sometimes referred as "settlement statement" and is commonly prepared by the closing agent.

Closing Costs - Also known as settlement costs, these costs are for services that must be performed to process and close your loan application. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees. Closing cost vary by geographic location.

Collateral - Assets (such as your home) pledged as security for a debt, however the borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust

Commission Fee - Money paid to a real estate agent or broker for negotiating a real estate or loan transaction. Salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more.

Commitment - A promise to lend and a statement by the lender of the terms and conditions under which a loan is made.

Comparables - 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 amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Comparative Market Analysis - An informal estimate of market value that a real estate agent or broker calculates based on sales of comparable properties. An appraisal or a comparative market analysis are the most accurate ways to determine what your home is worth.

Condominium - A real estate project in which each unit owner holds title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. The condominium may be attached or detached. The homeowners association dues are included in the total monthly mortgage payment for qualifying purposes. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.

Confirming Loan - A mortgage loan that meets all requirements to be eligible for purchase by federal agencies such as Fannie Mae and Freddie Mac. The maximum conforming loan amount is $300,700 for a one-unit property ($451,050 in Alaska, Hawaii and the Virgin Islands).

Contingency - A condition that must be satisfied before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Conventional Loan - Loans that are not made under any government housing program; they are not subject to the restrictions of government housing programs, such as loan size limits.

Conversation Clause - A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.

Convertible ARM - A type of ARM loan with the option to convert to a fixed-rate loan during a given time period.

Cooperative (or Co-Op) - A multi-unit housing complex that allows multiple owners that allows shares in the cooperative corporation that owns the property, each resident in the co-op has the right to occupy a specific unit or apartment.

Cost of Funds Index (or COFI) - An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District. COFI is one of the indexes that are used to determine interest rate changes for certain adjustable rate mortgages.

Credit Bureau - A credit bureau is a clearinghouse for credit history information. Credit grantors provide the bureau with factual information on how their credit customers pay their bills. The bureau regularly assembles this information, along with public record information obtained from courthouses around the country, into a "file" on each consumer. Equifax, Experian, and Trans Union are three largest credit bureaus in the United States.

Credit Report - This is a report that states your credit scores based on the results of the three major national credit Bureaus (Equifax, Experian, and TransUnion.) An average of the three is used to determine the score. It helps determine whether a client is eligible for a mortgage as well as the interest rate. The higher the score, the easier it is for that person to obtain a loan. Usually about $15 - $30

Credit Scores - A statistical method of assessing your creditworthiness. Your credit card history; amount of outstanding debt; the type of credit you use; negative information such as bankruptcies or late payments; collection accounts and judgments; too little credit history and too many credit lines with the maximum amount borrowed are all included in credit-scoring models to determine your credit score.

Debt to Income Ratio - The comparison of your gross income to housing as compared to your non-housing expenses. The FHA usually requires monthly mortgage payment to be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed - Legal document with which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.

Discount Points (or Points) - Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower your interest rate. However, the more points you pay, the more cash you need up front since points are paid in cash at closing. Generally 0 - 2% of loan

Document Preparation Fee - Occasionally companies charge this to prepare the loan closing documents. This fee covers the cost of this service.

Down Payment - The amount of your home's purchase price you need to supply up front in cash to get your loan. For conventional loans, you should strive for a down payment that's at least 20% of your home's value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of your home's purchase price. (Note, however, that FHA and VA loans have different policies regarding insurance.)

Due On Sale Clause - Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.

Duplex - Owner occupied property for more than one family.

Earnest Money - Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed. The deposit becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.

Escrow - A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds. Also refers to a special account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they become due. Also known as Impound Account.

Estimated Closing Fee - An estimate of the fees that must be paid on or before the closing date by the buyer and/or seller for services, taxes and items necessary to obtain mortgage. These fees will average between 2% and 5% of the loan amount and vary by lender, property location, and type of mortgage. Some fees are one-time expenses and some are recurring.

Equity - The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in the property.

Express Courier Fee - This fee covers the cost of an overnight courier to expedite the payoff of the existing loan. About $30.

Fannie Mae - The official name of the Federal National Mortgage Association, this agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Federal Housing Association - A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans. The FHA sets standards for construction and underwriting, however it does not lend money or plan or construct housing.

Federal Housing Association (or FHA) Mortgage - A low down payment loan that is insured against loss by the Federal Housing Administration. The borrower pays an insurance premium and the loan amount is usually limited.

Federal Reserve Board - The 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms. also called the Fed.

Finance Charge - Your finance charge is the total of all the interest you would pay over the entire life of the loan, assuming you kept the loan to maturity, as well as all prepaid finance charges. Loan charges include origination fees, discount points, mortgage insurance, and other applicable charges. If the seller pays any of these charges, they cannot be included in the finance charge. If you pre-pay any principal during your loan, your monthly payments remain the same, but your total finance charge will be reduced.

Financial Statement - The financial summary of a person's or a company's financial situation. The statement includes a person's assets and liabilities for a given date and a company's Profit and Loss Statement for a given date.

FICO (or Fair Isaac & Co) - The most common credit-scoring model used by lenders, it is also known as a Fair, Isaac score. Your FICO can range from 200 to 900. According to this model, the higher your score, the less likely you are to default on your loan.

First Mortgage - A mortgage that is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.

Fixed Rate Mortgage - An interest rate that is fixed for the term of the loan, 15 year and 30 year loans are the most common types. Also called a traditional loan.

Flood Certification Fee - Federal law requires that you obtain flood hazard insurance if your property lies in a flood zone. A flood determination company is used to identify if your house is located in a flood zone. The flood certification fee covers the cost. If your house is located in a flood zone, you will be required to purchase Flood Insurance.

Flood Insurance - Insurance that compensates for physical damage to a property by flood. Typically not covered under standard hazard insurance.

Foreclosure (or Repossession) - Legal process by which a mortgaged property may be sold to pay off a mortgage loan that is in default.

Freddie Mac - This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Good Faith Estimate - Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.

Government Recording Fee - This is a fee paid to your local county recording office for recording your mortgage lien, and in the event of a purchase transaction, the deed that transfers title. Fees for recording vary by county and are set by state and local governments.

Grace Period - Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note. Grace periods apply only to mortgages on which interest is calculated monthly. Simple interest mortgages do not have a grace period because interest accrues daily.

Graduate Mortgage Payment - A mortgage that requires borrowers make larger payments to the loan for specified periods. The GPM starts off low for the first few months, but gradually rises for the next few months but then it remains constant at the fully amortized level.

Gross Income - Total income before taxes or expenses are deducted.

Guideline Ratio - There are two guideline ratios used to qualify you for a mortgage. The first is called the front-end ratio, or top ratio, and is calculated by dividing your new total monthly mortgage payment by your gross monthly income. Typically, this ratio should not exceed 28%. The second is called the back-end, or bottom ratio, and is equal to your new total monthly mortgage payment plus your total monthly debt divided by your gross monthly income. Typically, this ratio should not exceed 36%.

Home Equity Line of Credit - A home equity line of credit is a credit line that is kept open and restored as you pay off what is owed. An equity line of credit also has a high credit limit similar to a credit card that you are allowed to draw upon as needed.

Homeowners Insurance - Just as you insure your automobile to protect against theft and damage, you insure your home. Homeowners insurance is required by all lenders to protect their investment, and must be obtained before closing. In most cases, coverage must be equal to the loan balance, or the value of the home. Varies - $350 and up, a standard policy insures the home and the homeowners possessions.

Housing Expense Ratio - The percentage of gross monthly income devoted to housing costs. This is a method used in qualifying borrowers.

Housing and Urban (or HUD) - Housing and Urban Development, the U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

Inspection Fee - A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. This makes the potential buyer aware of any potential hazards or home repairs that may be needed. A typical inspection costs around $225 - $450.

Interest - The fee a lender charges for permitting the borrower to use their money for a specific length of time.

Interest Adjustment - The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Sometimes there is a gap between the closing date of your home purchase and the first payment date of your mortgage. Let's say that the closing date on your new house is August 10th - but your mortgage payments are on the 15th of each month (so your first payment is calculated from August 15th and paid on September 15th). That leaves four days (August 10th to 14th) that aren't accounted for in your first mortgage payment. You have to make an extra payment to make up for these four days; the payment is generally due on your closing date. You can avoid all this by arranging to make your first mortgage payment exactly one payment period (e.g., one month) after your closing date.

Interest Only Mortgage - An interest only mortgage is one that gives you the option of paying just the interest or the interest and as much principal as you want in any given month during an initial period of time. Interest only loans can be 30-year fixed-rate mortgages or adjustable rate mortgages.

Interest Rate - The rate of interest a lender receives for permitting the borrower to use money for a specific length of time. The rate is calculated by dividing the total amount of interest charged by the loan amount.

Interest Rate Cap - Consumer safeguards that limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index. The interest rate ceiling is the highest interest rate that you can receive under an Adjustable Rate Mortgage. The interest rate floor is the lowest interest rate that you can receive under the ARM. Floors are less likely than ceilings.

Joint Liability - Liability shared among two or more people, each of whom is liable for the full debt.

Joint Tendency - A form of ownership of property giving each person equal interest in the property, including rights of survivorship.

Jumbo Mortgage - A mortgage larger than the limits set by Fannie Mae and Freddie Mac outlined as follows: Lower 48 States: 1 unit (i.e. a single family home): $333,700; 2 unit (i.e. a duplex) : $427,150; 3 unit: $516,300; 4 unit: $641,650; For Alaska and Hawaii: 1 unit (i.e. a single family home): $500,550; 2 unit (i.e. a duplex): $640,725; 3 unit: $774,450; 4 unit: $962,475 .

Legal Fees and Disbursement - Some of the legal costs associated with the sale or purchase of a property. It's in your best interest to engage the services of a real estate lawyer.

Lender - The bank, mortgage company, or mortgage broker offering the loan.

Lender Processing Fee - The lender processing fee covers the cost of analyzing your loan application and compiling and packaging the necessary supporting documentation to close your loan.

Lien - A legal claim by one person on the property of another for security for payment of a debt.

Loan Fraud - Loan Fraud occurs when trying to qualify for a better loan by giving false information.

Loan Origination Fee - Fee charged by a lender to cover administrative costs of processing a loan. This usually includes the evaluation, preparation, and submittal of the loan.

Loan-To-Value Ratio (or LTV) - The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property. The Loan-to-Value Ratio and down payment are different ways of expressing the same set of facts. This is calculated by taking the amount to be borrowed divided by the value of the home. For example, Jane wants to buy her first house which costs $100,000. She has a down payment of $15,000 and needs to borrow the remaining $85,000. The loan-to-value is 85% ($85,000 divided by