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Mortgage & Home Buyer's Glossary

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Adjustable Rate Mortgage(ARM)

A mortgage in which interest and payment rates vary periodically, based on a specific index, such as 30-year Treasury bills or the Cost-of-Funds index.

Adjustments

Money credited to either/both buyer and seller at closing, including real estate taxes, price adjustment based on disclosures in the inspection, etc.

Agent

A licensed person who represents the seller(and/or buyer) and who provides market assessment, sales or buying strategy, recommends various services and sources important to the seller or buyer.

Amortization

A method by which monthly mortgage payments are equalized over the life of the loan despite the fact that the proportion of principal to interest changes.

Appraisal

Professional and unbiased written opinion of property's value based on recent, comparable sales, quality of construction, current condition and style of architecture.

Assessor

A municipal or country official who determines the value of properties for the purpose of taxation.

Assumption of Mortgage

The buyer assumes liability for an existing mortgage held by the seller, subject to approval by the lender.

Balloon Mortgage

A short-term mortgage, generally at a fixed rate of interest, to be paid back in predetermined, equal monthly payments, with a large, final payments for the balance of the loan paid at the end of the term.

Broker

A person licensed to represent home buyers or sellers for a contracted fee. Most real estate offices are managed by a broker who employs licensed sales agents to sell the properties.

Cap

A limit on the total amount an interest rate can be increased. (See ARM.)

Closing

The final settlement at which time the title is transferred from seller to buyer, accounts are settled, new mortgages signed and all fees and expenses dispersed or satisfied.

Closing Costs

All fees, taxes, charges, commissions and other costs paid by buyer and/or seller at the closing.

Collateral

Personal property pledged as the security for a debt. The mortgage is usually the collateral for the property itself.

Commission

A previously agreed upon percentage of the home's sale price paid to the listing and selling agent(s).

Conventional Mortgage

Most popular home financing form not insured by FHA or guaranteed by VA. Available from many lenders at varying rates, terms and conditions.

Credit Report

A report outlining the credit history of an individual which includes current and previous debts, payment amounts, late payments and past due amounts and other related information on every credit source the individual has used.

Deed

A legal "instrument" that conveys the title to a property from seller buyer.

Disclosure

Statement concerning the condition of the property for sale and the surrounding area.

Down Payment

The buyer's payment to the seller at the time the sales contract has been mutually agreed to, or at closing, for the percentage of the total purchase price required by the buyer's mortgage loan.

Earnest Money

Money paid by the buyer at the time an official offer to purchase is submitted to the seller, intended to demonstrate the good faith of the buyer to complete the purchase. Earnest money applied against the purchase price; however, it may be forfeited if the buyer fails to complete the purchase under the terms of the sales contract.

Equity

The difference between the sale price of a property and the mortgage on the property.

Escrow Account

A third party account used to retain funds including the property owner's real estate taxes, buyer's earnest money or hazard insurance premiums.

FHA Insured Mortgage

The federal Housing Administration makes available through banks and other lender, insured mortgages with low down payment requirements.

Fixed-Rate Mortgage

A mortgage that has a set interest rate and is basically unaffected by interest rate changes.

Free and clear Title

Title to a property which is free from any mortgage, lien, or other encumbrance.

Graduated Payment Mortgage

This mortgage offers low initial monthly payments which increase at a pre-determined rate, then cap at a final level for the duration of the mortgage.

Hazard Insurance

Often confused with "Homeowner's" insurance, it's designed to compensate for specific hazards including fire and wind. An "all-risk home owner's policy" provides more complete coverage.

Home Inspection

A formal survey of a home's structure, mechanical systems and overall condition, generally performed by a licensed professional inspector.

Homeowner's Policy

A hazard insurance policy covering at the very least the appraised value of a house and property.

Interest

The predetermined charge or fee paid to a lender by the borrower for the use fo monies loaned.

Lease-purchase Agreement

An agreement between owner and tenant specifying a portion of monthly rent, during a specified period, to be credited toward purchase of property.

Market Price

The actual price at which a property is sold.

Market Value

The price that is established by existing economic conditions, property location and market style and size preferences.

Mortgage

A legal claim received by the lender on a property as security for the loan made to a buyer to facilitate the purchase.

Mortgage Interest

The amount the borrower pays the lender to compensate the lender for the use of money to purchase the borrower's home. This is tax deductible interest.

Negative Amortization

Most likely to occur with ARMs when monthly payments are not sufficient to cover interest cost. Additional interest is added to principal balance and the borrower may end up owing more than at the initiation of the loan.

Origination Fee

Similar to a point, this fee is a supplemental fee paid by buyers to lenders.

Payment Cap

A limit on the amount monthly payments on an adjustable rate mortgage can increase or decrease at each adjustment period.

Point

A single percent of the loan principal, often charged by the lender in addition to various fees and interest.

Prepayment Penalty

A fee included in the mortgage agreement requiring borrower to pay in the event the loan is paid before the due date.

Pre-qualification

An informal estimate of the "financing potential" of a prospective borrower.

Principal

The amount of money borrowed against which interest and possibly fees will be charged. (A second meaning: one of the parties to a contract.)

Prorate

Proportionate division of expense based on days or time occupied or used by the seller and/or buyer.

Qualify

Ability of a borrower to satisfy a lender's mortgage approval requirements.

Refinancing

The process of applying for a new mortgage to gain better terms or use of equity.

RESPA Statement

The Real Estate Settlement Procedures Act requires a precise listing of all closing costs for both sellers and buyers.

Settlement

This term relates to all legal and financial transactions required to finalize the contract between buyer and seller, at the conclusion of which closing takes place.

Title

A legal document that defines the property, right of ownership and possession.

Title Insurance

An insurance policy that protects the buyer against errors, omissions or any defects in the title.

VA Mortgage

The Department of Veterans Affairs has made guaranteed mortgages available through banks and other lending institutions to active military personnel, veterans, or spouses of veterans who died of service-related injuries.

Walk-Through Inspection

The inspection by the buyer, usually in the company of the buyer's real estate sales agent, to ensure that all conditions noted in the offer-to-purchase, and all seller-related contingencies have been met. This inspection is most often completed immediately prior to the official act of closing, after the seller has vacated the premises.

Warranty

Protection provided to the purchaser regarding the condition of appliances and pictures. Often, new homes have more extensive warranties also covering the overall structure.

 

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