Glossary

ADJUSTABLE RATE MORTGAGE (ARM)

A mortgage with an interest rate that changes over time in line with movements in a financial index. ARMs can also be referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages)

ADJUSTABLE PERIOD

The length of time between interest rate changes on an ARM, for example, a loan with an adjustment period of one year is called a one-year ARM, meaning that the interest rate can change once a year.

AMORTIZATION

Repayment of a loan in installments of principal and interest, Rather than interest-only payments.

APPRAISAL

An estimate of the property value.

ASSESSED VALUE

The value placed on the property for the purpose of taxation.

ASSUMPTION OF MORTGAGE

A buyer’s agreement assumes liability under an existing note secured by a mortgage, deed, or trust. The lender must approve the buyer in order to release the original borrower. (typically the seller ) from liability.

BALLOON PAYMENT

A lump-sum principal payment is due at the end of some mortgages or other long-term loans.

BUY-DOWN

A permanent buy-down is pre-paid interest that brings the note rate on a loan down to a lower permanent rate. A temporary buy-down is pre-paid interest that lowers the note rate temporarily on the loan, allowing the buyer to more readily qualify and increase payments as income grows.

CAP

The limit on how much an interest rate or monthly payment can change at each adjustment or over the life of a mortgage.

CASH RESERVES

The amount of the buyer’s liquid cash remaining after making the down payment and paying all closing costs.

CC&RS OR COVENANTS, CONDITIONS, AND RESTRICTIONS

A recorded document that controls the use, requirements, and restrictions of a property.

COMMISSION

An amount paid by the seller listing and buyer’s agent for handling the real estate transaction.

COMMITMENT PERIOD

The period of time during which a loan approval is valid

CONDOMINIUM

A real estate ownership form is where the owner receives exclusive title to a particular unit and shares ownership in certain common areas with other unit owners. The unit itself is generally a separately owned space whose interior surface (walls, floors, and ceiling) serve as its boundaries.

CONTINGENCY

A condition that must be satisfied before a contract is binding. For example, a sales agreement or offer may be contingent upon the buyer obtaining financing.

CONVERSION CLAUSES

A provision in some ARM’s that enables home buyers to change an ARM to a fixed-rate mortgage, usually after the first adjustment period, the new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages, this conversion feature may involve an extra charge.

COOPERATIVE

A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of property leases or similar arrangements.

DEBT RATIOS

The comparison of a buyer’s housing cost to his or her gross or net effective income and the comparison of a buyer’s total long-term debt to his or her gross or net effective income. The first ratio is the housing ratio and the second is the total debt ratio.

DEED

A document that, when properly executed and delivered conveys the title of real property.

DISCLOSURE

To make known or public By law a seller of real property must disclose facts that impact the value or desirability of the property.

DISCOUNT POINTS

A negotiable fee is paid to the lender to secure financing for the buyer. Discount points are interest charges paid up front to reduce the interest rate on the loan over the life or portion of the term.

DUE-ON-SALE CLAUSE

A clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

EARNEST MONEY

The portion of the down payment is delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith

EASEMENT

A right to use all or part of the land owned by another for a specific purpose. For example, an easement may entitle the holder to install and maintain sewer or utility lines.

ENCUMBRANCE

Anything that affects or limits the owner of real property, such as mortgage liens, easement, or restrictions of any kind.

ESCROW

A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds. An escrow fee, typically paid by the buyer, is charged by the title company to serve the transaction and to escrow money and documents.

EQUITY

The difference between what is owed and the amount for which the property could be sold.

FHA LOAN

A loan insured by the Federal Housing Administration (of the Department of Housing and Urban Development)

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)

Often referred to as ‘‘Freddie Mac’’ they purchase loans from savings and the loan lenders within the Federal Home Loan Banks Board.

FEE SIMPLE

An estate in which the owner has unrestricted power to dispose of the property as he or she wishes, including leaving by will or inheritance.

FIXTURE
Personal property that is attached to real property and is legally treated as real property while it is attached, such as light fixtures, window treatments, and medicine cabinets.

NEGATIVE AMORTIZATION

Occurs when monthly payments fail to cover the cost of the interest on a loan. The interest that is not covered is added to the unpaid balance, meaning that even after making several payments the borrower could owe more than at the beginning of the loan. Negative amortization may occur when an ARM has a payment cap that results in monthly payments that are not high enough to cover the interest.

ORIENTATION FEE

A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to 1% for FHA and VA loans.

PITI

The term for a mortgage payment that includes the principal (P), interest (I), Taxes (T), and insurance(I).

PLANNED UNIT DEVELOPMENT (PUD)

A zoning design for property development at the same or slightly greater overall density than conventional development, often with improvements clustered between open or common areas. Use may be residential or commercial industrial.

POINTS

An amount equal to 1% of the principal amount of the investment or note

PRE-APPROVAL

When a borrower has completed the loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate quill actually be at the time the loan is made, as well as estimates for the amount that will be paid for property taxes, insurance, and others.

PREPAYMENT PENALTY OR CLAUSE

A fee is charged for a borrower who pays a loan in full before the stated due date.

PRIVATE MORTGAGE INSURANCE(PMI)

Insurance is written by private companies to protect the lender against loss if the borrower defaults on the mortgage. PMI is often required on mortgage loans in which less than 20% has been put forth for the down payment.

PURCHASE AGREEMENT

A written document in which the purchaser agrees to buy a certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.

RATE GAP

The difference between the current rate and the rate to which it could adjust on an ARM. REALTOR® A real estate broker or sales associate active in a local real estate board affiliated with the

NATIONAL ASSOCIATION of REALTORS® RECORDING FEE Charged by the County Clerk to record documents in the public records.

REFINANCE

A new loan with new terms, interest rates, and monthly payments that completely replace your current mortgage.

REGULATION Z

The set of rules governing consumer lending is issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

SHORT SALE

The sale of a home for less than the balance remaining on the homeowner’s mortgage.

TENANCY IN COMMON

A type of joint ownership of property by two or more persons with no right of survivorship.

TITLE

The rights of ownership are recognized and protected by law. It is a combination of all elements that constitute the highest legal right to own, possess, use, contract, enjoy, translate and dispose of real estate