Glossary Of Terms
Acceleration clause: A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
Anchoradjustable-rate mortgage (ARM): A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
Amortization: The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
Amortization schedule: A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
AnchorAnnual percentage rate (APR): This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.
Application: The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.
Appraisal: A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
Appraised value: An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
Appraiser: An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
Appreciation: The increase in the value of a property due to changes in market conditions, inflation, or other causes.
Broker: Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so
Balloon mortgage : A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty-year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
Chain of title: An analysis of the transfers of title to a piece of property over the years.
Clear title: A title that is free of liens or legal questions as to ownership of the property.
Closing: This has different meanings in different states. In some states a real estate transaction is not considered "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.
Depreciation: A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
Down payment: The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Earnest money deposit: A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Easement: A right of way giving persons other than the owner, access to or over a property.
Encumbrance: Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Examination of title: The report on the title of a property from the public records, or an abstract of the title.
First mortgage: The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.
Fixed-rate mortgage: A mortgage in which the interest rate does not change during the entire term of the loan
Grantee: The person to whom an interest in real property is conveyed.
Grantor: The person conveying an interest in real property.
Hazard insurance: Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
Home inspection: A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser
Judgment: A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor
Legal description: A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
Lender: A term which can refer to the institution making the loan or to the individual representing the firm.
Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
Modification: Occasionally, a lender will agree to modify the terms of your mortgage without requiring you to refinance. If any changes are made, it is called a modification.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds
Note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate, during a specified period of time.
Origination fee: On a government loan, the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.
Owner financing: A property purchase transaction in which the property seller provides all, or part of the financing.
Personal property: Any property that is not real property.
PITI: This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.
Point: A point is 1 percent of the amount of the mortgage.
Power of attorney: A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Quitclaim deed: A deed that transfers without warranty, whatever interest or title a grantor may have, at the time the conveyance is made.
Real estate agent: A person licensed to negotiate and transact the sale of real estate.
Right of ingress or egress: The right to enter or leave designated premises.
Secured loan: A loan that is backed by collateral.
Survey: A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Title: A legal document evidencing a person's right to, or ownership of a property.
Title company: A company that specializes in examining and insuring titles to real estate.
Title insurance: Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
Title search: A check of the title records to ensure that the seller is the legal owner of the property, and that there are no liens, or other claims outstanding.
VA mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs (VA).