Adjustable Rate Mortgage (ARM)
A type of mortgage loan characterized by interest rates that automatically adjust or fluctuate in concert with certain market indexes. Generally, an ARM begins with an introductory or initial interest rate, which then may rise or fall.
The date that the interest rate changes on an adjustable-rate mortgage (ARM).
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
The gradual repayment of a mortgage loan, both principle and interest, by installments.
Annual Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however, APR should not be confused with actual note rate.
A fixed rate mortgage with monthly payments which are not large enough to pay off the loan during the term. Balloons end after a specific time, usually one to five years, after which the entire remaining balance must be paid in a lump sum.
The final lump sum payment due at the end of a balloon mortgage.
Balloon Reset Mortgage
See Two Step Mortgage (Balloon Reset)
Bill Of Sale
A written document which transfers titles to personal property, such as an automobile or other valuable property.
A mortgage with payments made every two weeks instead of monthly. Since a bi-weekly has 26 payments per year -- the equivalent of 13 monthly payments -- the loan is paid off much sooner typically in 18 - 20 years as opposed to monthly payments for 30 years. The early payoff saves substantial amounts of interest.
A loan used (usually) to finance the down payment on a new home before the previous property is sold. Previously commonly available, bridge loans are hard to find and are expensive.
A person or company that, for a specified fee, provides a service. Real estate brokers bring together buyers and sellers and then facilitate the transaction. Note: most real estate brokers represent the seller, NOT the buyer. Mortgage brokers are individuals or companies which arrange financing but do not lend money directly.
A provision where someone, usually the builder or seller, subsides the mortgage, either by paying extra points or by setting up an escrow account with funds to subsidize the loan during the first few years. The effect is to lower the interest rate for some period of time, which in turn allows the borrower to qualify. The reduced monthly payments increase when the subsidy expires.
Caps are limits on the amount that the interest rate on an Adjustable Rate Mortgage can change at any one adjustment and (usually) over the life of the loan. They protect the borrower from huge increases in the monthly payment in a rising interest rate environment. Rarely, a cap may apply to the payment amount rather than to the rate. Under certain conditions, payment caps can cause the loan balance to increase rather than decrease. See Negative Amortization
Cash Out Refinance
The process of refinancing for an amount higher than the balance due, assuming the property has a sufficiently high value.
Certificate of Eligibility
A document required for a VA guaranteed loan. It is obtained through any local VA office on presentation of a DD-214 Separation Paper.
Certificate of Reasonable Value (CRV)
Used for VA loans only, a certificate issued by the Veterans Administration verifying the appraisal.
A meeting between the buyer, seller, and lender where the property and funds legally change hands. Called a Settlement in some states.
The total costs and fees associated with closing. Includes one-time non-recurring fees and charges for inspections and other services, and (usually) initial escrows for recurring costs such as property taxes and insurance.
See Settlement Statement
An asset used to secure a loan. It can be seized by a lender if the borrower defaults.
The semi-formal process used by lenders in contacting borrowers in an effort to bring a loan current. In the case of a mortgage, the mailing and formal recording of certain documents which may be required to foreclose on a property.
The fee paid to brokers, attorneys, and others for their services.
A promise by a lender to make a loan within a specified time period, subject to compliance with stated conditions. The lender's obligation expires if the borrower does not close the loan prior to the expiration date of the commitment.
Those portions of a building, land, and amenities in condominium and cooperative projects which are used the apartment owners. The hallways, parking areas, and other amenities.
Common Area Assessments
Fees paid (usually) to an Owners Association Fees by the owners of the individual units in a condominium or cooperative which are used to maintain the property and common areas.
Community Home Buyers Programs
A series of low-income loan programs offered under Fannie Mae and Freddie Mac auspices. These generally require only 3 - 5% down but do require PMI (Private Mortgage Insurance).
Recent sales of similar properties in the area. Used as a measure local market value to help set the current value of a property.
A form of ownership in real property where the owners have title to only of an apartment or townhouse. The common areas and the building exteriors are owned jointly. All owners have generally rights to all common areas.
A loan used to finance construction of a new home and, sometimes, the land for a home. Depending on local custom, a construction loan may a permanent mortgage with funds disbursed as construction proceeds, or may be a short-term loan that must be repaid on completion.
A condition which must be met before a contract is binding. For example, a requirement that an existing lien on the property must be cleared by a certain date.
A loose term which generally refers to a fixed-rate conforming loan other than an FHA or VA loan.
An Adjustable-Rate mortgage with a borrower's option to convert to a fixed-rate mortgage under specified conditions.
A form of ownership in which the residents own shares in a corporation which owns the entire property. Shareholders are entitled to occupy a specific apartment and to have use of the common areas.
A report of an individual's credit history used by lenders to determine credit risk. A record of an individual's repayment of debt.
An obligation, Specifically, the amount owed.
Debt To Income Ratio (DTI)
Total outstanding debt as a portion of total income. Used by lenders as a measure of credit worthiness.
The legal document which certifies title to a property.
A means of avoiding foreclosure by conveying title to the lender. The lender has the option of whether to accept a deed-in-lieu, to proceed with the foreclosure, or both.
Deed Of Trust
Used in place of a mortgage in some states. The deed to a property is held by a trustee (title company or other third party) with the condition that it will be conveyed to the borrower when the mortgage is paid off.
Failure to make payments within a specified period of time. A finding made by a lender prior to beginning foreclosure proceedings.
Failure to make mortgage payments when they are due. Policies vary from lender to lender but a borrower is generally reported delinquent if a payment is more than 30 days late.
A decline in the value of property; the opposite of appreciation.
A prepayment of interest equal to 1% of the mortgage amount. See Point, Origination Fee
A part of the purchase price, paid in cash, to cover the difference between the purchase price and the loan amount. Typically between 5% and 20% but can be more or less.
A provision which requires that the remaining balance due be paid if the borrower sells the property or transfers title to another party.
A deposit made by the potential home buyer which restrains the seller from offering the property to another party for a specified period.
A right of way allowing access to or over a property for a specific purpose, such as for a power line, or a road for access to another property.
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
An illegal intrusion on another property by a fence, structure, etc.
Anything that affects or limits the title to a property, such as a lien or mortgage, easement, or a lease or other restriction.
The difference between the fair market value of a property and any lien or mortgage. The net amount the owner would realize if the property were sold.
Funds deposited with a third party to be delivered upon the fulfillment of a condition. A special account created to hold money for taxes and insurance, or to hold deposit money prior to closing.
An account created for a specific purpose, such as to hold money for taxes and insurance, or to hold deposit money prior to closing.
The total of all the real property and personal property owned by an individual at time of death.
A legal proceeding to expel an occupant from a property.
Examination Of Title
An abstract of report on the title of a property, taken from public records.
Fair Market Value
The highest price for a property that a willing buyer would pay, and the lowest price a willing seller would accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association (FNMA). A government sponsored private corporation which purchase mortgages from lenders. Also see Freddie Mac (FHLMC)
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. See FHA mortgage
Absolute title; the highest possible interest in a property.
A mortgage insured by the Federal Housing Administration. Typically, FHA mortgages require somewhat lower down payments and less stringent qualification requirements. The borrower pays a relatively high mortgage insurance premium which can be paid monthly or added to the total loan amount.
A measurement of an individual's credit score as calculated by Fair, Isaaic and Company.
A loan used to finance the purchase of a home. The primary lien against a property.
Fixed Rate Mortgage
A mortgage with an interest rate that remains constant for the life of the loan. The rate is set when the loan is made and never changes. Also see Balloon Mortgage
Insurance against damage from flooding. A specialized insurance which must be purchased separately.
The legal process used to regain title to a mortgaged property if the borrower defaults. Foreclosure usually involves a forced sale of the property with the proceeds being applied to the mortgage balance.
Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation. A government sponsored private corporation which purchase mortgages from lenders. Also see Fannie Mae (FNMA)
Ginnie Mae (GNMA)
Government National Mortgage Association. A federally owned corporation which funds FHA and VA loans. GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans.
Good Faith Estimate
A formal estimate of the fees and charges which the borrower must pay at the closing. Lenders are required to provide a Good Faith Estimate at the time the commitment is issued. See Loan Estimate.
The person or entity to whom an interest in real property is conveyed.
The person or entity conveying an interest in real property.
Insurance to protect the homeowner AND the lender against physical damage to a property from fire, windstorm, vandalism, and other specified hazards. Also see Flood Insurance, Homeowner's Policy
Home Equity Line Of Credit (HELOC)
A variable rate line of credit secured by a homeowner's equity. The lender provides funds on demand, with a corresponding lien against the property. The loan must be repaid in installments after a specified draw period.
A standardized form of insurance providing blanket coverage against personal liability and a wide variety of hazards. Homeowner's policies do NOT include flood insurance, and may also specify additional exemptions.
See Escrow Account.
A figure calculated as a percentage that is used in the financial industry to indicate the rate charged for use of money in a loan. Interest rates may be fixed or variable. See Annual Percentage Rate.
Real estate bought for investment purposes as opposed to private residential. Often the property will be used for rental purposes, such as rental home, apartments or other spaces that give owners the opportunity to create profit and income over the long term.
A person’s debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.
London Interbank Offering Rate; an index commonly used for some adjustable-rate mortgages (ARMs).
A formal, legal symbol of money owed on a major asset such as property. See Mortgage.
The percentage of assets that can be quickly turned into cash. Liquidity is also a measure of the funds available for down payment, closing costs, and reserves.
The agent who represents the interests of the seller.
Loan Estimate (LE)
Disclosure to help consumers understand the key loan terms and estimated costs of a mortgage before they make a complete application. After a consumer submits 6 key elements: name, income, social security number, property address, estimated property value and desired loan amount, the lender is required to provide this form. All lenders are required to use the same standard loan estimate form to make it easier for consumers to compare and shop for a mortgage.
A ratio that expresses the amount of a first mortgage lien as a percentage of a property’s total appraised value. For example, if a borrower wants $100,000 to buy a home worth $120,000, the LTV ratio is $100,000/$120,000 or 83%.
Either 15, 30, 45, or 60 days, lock periods are set amounts of time during which the interest rates buyers have been promised cannot be made any higher.
The number corresponding to a parcel of land meant to be owned by a particular individual.
Typically applied to the term of a home loan or mortgage; the life span of a mortgage; for example, a 15-year loan matures in 15 years, the period of time in which the debt must be paid off.
A legal document between a mortgagor and a mortgagee that establishes a home and/or property as security for a home loan.
A fixed-income security which derives its cashflow from payments on a pool of underlying residential or commercial mortgages.
The entity that acts as a go-between between a homebuyer and mortgage lender, handling paperwork and finally effecting a mortgage. A broker does not make direct loans to buyers, but works to find the best deal and finally collects fees as part of the mortgage process.
When buyers take out a mortgage with less than a certain dollar percentage to put down on the loan, lenders require them to pay mortgage insurance, a monthly premium that is added to the mortgage. This protects the lender should a buyer default on the home loan.
Mortgage Insurance Premium (MIP)
A required fee added into a FHA loan, paid at closing.
Notice of Incomplete (NOI)
A form sent to the buyer that indicates missing or incomplete loan application information. Buyer must provide all required information for the lender to complete the application process.
A fee, calculated as a small percentage of the value of the loan, charged by a mortgage lender for processing the loan. One of many fees often due at closing and one that must be disclosed on the Good Faith Estimate when a buyer first completes a loan application.
For an adjustable rate mortgage, this is the maximum payment amount a buyer could ever be expected to pay per month.
A second mortgage "piggybacked" onto a first mortgage and used in lieu of mortgage insurance. Cost effectiveness of a piggyback loan depends on current market factors.
Power of Attorney (POA)
A legal document that grants an individual the rights to act on behalf of another. For example, if a borrower dies or becomes incapable of managing his or her home loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage and related decisions.
Pre-paid Costs or Fees
Any of a number of fees associated with a mortgage and usually paid out of pocket at the time of closing; includes origination fees, underwriting fees, attorney fees, etc.
the process in which a homebuyer may find out how much of a home loan he or she would be approved for with a lender; gives many buyers more flexibility when shopping for a home.
The amount borrowed on a home loan.
The amount currently owed on a home loan.
Private Mortgage Insurance (PMI)
A type of insurance many homebuyers are required to purchase, particularly when they are unable to put down a certain dollar amount on the loan; protects the lender in the event of borrower default.
Lender fees associated with creating the loan or mortgage, usually part of closing costs.
The physical street address of a home or property, required for mortgage application.
A fair market value of property performed by a licensed appraiser; takes into account not only condition, but also the value of similar local properties or comparable sales.
Annual local taxes charged against the value of a homeowner's property.
See Property appraisal.
Quit Claim Deed
A document that releases one party in a home title from any responsibility and grants all responsibility to another. Commonly used for spouses or in family situations in which more than one individual has an interest in a mortgage or property title.
A short-term agreement by a lender to “hold” a certain interest rate on a home loan while the buyer negotiates a sale transaction. Also, Rate commitment option.
Real Estate Settlement Procedures Act (RESPA)
This act passed in 1974 reeled in hidden costs, fees and kickbacks that had become widespread among real estate entities. Per this act all fees and costs must be disclosed to both buyers and sellers.
Real Estate Tax
See Property Tax
Process by which a borrower/homeowner may negotiate a lower interest rate on a mortgage, thereby lowering monthly payments. They may choose to work with their current lender, or refinance with another lender.
The current balance owed on a home loan.
The current amount of time remaining in the length of the loan.
Mortgage payments laid out over the life of the loan. Some mortgage calculators let borrowers see their repayment schedule based on the amount of the home loan, the interest rate and monthly payments. See also Amortization.
A type of mortgage designed for homeowners over 62 years of age; gives them access to home’s equity in cash payments, frees up money they may use for other important costs or to make needed home repairs. Since reverse mortgages are typically structured as loans, these payments are not typically considered income.
A real estate sales agreement is a formal written contract made between a homebuyer and seller. The document includes property address, condition, purchase price, inspections, date of closing, date of possession and more.
Also known as a home equity loan, a second mortgage gives borrowers flexibility to access the cash equity in their home, usually useful for other high-dollar expenses such as auto and college loans.
Secondary Mortgage Market
The segment of the mortgage and real estate securities market that deals in the investment of mortgages; not direct mortgage lenders.
A real estate agent that works on behalf of the home seller.
Useful tool for lenders and homeowners when foreclosure could be a worst-case scenario. In a real estate short-sale lenders give homeowners permission to discount the home value (an outstanding loan balance) to effect a quick sale, thereby averting foreclosure.
A formal survey of property that establishes boundary lines and defines any types of limits on construction and other features that could affect the value of property; in many cases lenders require buyers to purchase a property survey.
See Bridge Loan
Tenancy in Common
One or more persons may possess the property title, but ownership may be declared in various percentages.
See Closing Costs
The official document used in the real estate industry that specifies at any one time who owns a piece of property.
A title company typically handles all tasks associated with the property title, including insurance and search.
Insurance taken out on the property title that protects both borrower and lender in the event of a title dispute.
Research on a property title usually conducted by a title company to determine if there exist any outstanding liens against the property prior to a sales transaction.
See Bridge Loan
Uniform Residential Loan Application (1003)
The standard loan application form published by the Federal National Mortgage Association (Fannie Mae) and used by most lenders.
A mortgage that is guaranteed by the Department of Veterans Affairs (VA) for qualified veterans of U.S. military forces. See also: Government loan
A vacation home is a single-family property that the borrower occupies in addition to his or her primary residence. The property cannot be considered income-producing and must not be part of a mandatory rental pool, but occasionally may be rented to friends and relatives. When property is classified as a second home, rental income may not be used to qualify the applicant. A 2- to 4-unit property is not eligible for second home status. Also known as second home.
An interest rate that may fluctuate or change periodically, often in relation to an index such as the prime rate or other criteria. Payments may increase or decrease accordingly.
A final inspection shortly before settlement to make sure the property is in the same condition that it was at the time the offer contract was written.
A transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.