Homeownership Glossary
From http://www.wfu.edu/users/englma03/home/glossary.htm
Adjustable_rate mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
Amortization
The gradual repayment of a mortgage by installments, calculated to pay off the obligation at the end of a fixed period of time.
Amortization schedule
A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.
Annual percentage rate (APR)
The total cost of a mortgage stated as a yearly rate; includes such items as the base interest rate, loan origination fee (points), commitment fees, prepaid interest, and other credit costs that may be paid by the borrower.
Appraisal
A professional opinion or estimate of the market value of a property.
Appreciation
An increase in the value of a property due to changes in market conditions or other causes.
Assessed value
The valuation placed upon property by a public tax assessor that is used to compute property taxes.
Assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.
Assumption
The transfer of the seller's existing mortgage to the buyer.
Binder
A preliminary agreement between a buyer and seller that includes the price and terms of the contract.
Cap
A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease.
Cash reserve
A requirement of some lenders that buyers have sufficient cash remaining after closing equivalent to two months' mortgage payments.
Clear title
A title that is free of liens or legal questions as to ownership of property.
Closing
A meeting at which the sale of a property is finalized by delivery of a deed from the seller to the buyer and by the buyer's signing the mortgage documents and paying closing costs. Also called "settlement".
Closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs".
Commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.
Contingency
A condition that must be met before a contract is legally binding.
Conventional mortgage
Any mortgage that is not insured or guaranteed by the federal government.
Convertible ARM
An ARM that can be converted to a fixed_rate mortgage under specified conditions.
Cooperative
A type of multiple ownership in which the residents of a multi_unit housing complex own shares in the corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Covenant
A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.
Credit report
A report of an individual's credit history prepared by a credit bureau or consumer reporting agency and used by a lender in determining a loan applicant's creditworthiness.
Deed
The legal document conveying title to a property.
Deed of trust
The document used in some states instead of a mortgage that gives the lender a security interest in the property. Title is conveyed to a trustee by the borrower (who retains equitable title). When the debt is paid in full, title is re_conveyed to the borrower.
Default
The failure to make a mortgage payment on a timely basis or to comply with other requirements of a mortgage.
Delinquency
A situation in which a payment on a loan is overdue but not yet in default.
Deposit
See earnest money.
Depreciation
A decline in the value of a property; the opposite of "appreciation".
Discount points
See points.
Down payment
The part of the purchase price that the buyer pays in cash and does not finance with a mortgage.
Due_on_sale clause
A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.
Earnest money
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.
Equal Credit Opportunity Act
A federal law that prohibits lenders from discriminating on the basis of the borrower's race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.Equity loan
A loan based on the borrower's equity in his or her home.
Escrow
The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender (or servicer)into which a homeowner pays money for taxes and insurance.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer credit reporting agencies and establishes procedures for correcting mistakes in one's credit record.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration. Also referred to as a "government" mortgage.
First mortgage
A mortgage that has first claim to the secured property in the event of default. Fixed_rate mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.
Flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Forbearance
The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.
Foreclosure
The legal process by which a mortgaged property may be sold when a mortgage is in default.
Graduated_payment mortgage
A mortgage that starts with low monthly payments that increase at a predetermined rate for a specified time. The initial monthly payments are set at an amount lower than that required for full amortization of the debt.
Hazard insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
Homeowner's insurance
An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents.
Homeowner's warranty
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of sale.
Interest
The fee charged for borrowing money.
Interest cap rate
A provision of an ARM limiting how much interest rates may increase per adjustment period or over the life of a mortgage. See also lifetime cap.
Joint tenancy
A form of co_ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.
Late charge
The penalty a borrower must pay when a payment is made after the due date.
Lease_Purchase Mortgage Loan
A mortgage product that allows low_ and moderate_income home buyers to lease a home from a non_profit organization with an option to buy. Each month's rent payment consists of PITI payments on the first mortgage, plus an extra amount that is earmarked for deposit to a savings account which money for a down payment will accumulate.
Lien
A legal claim against a property that must be paid off when the property is sold.
Lifetime cap
A provision of an ARM that limits the total increase in interest rates over the life of the loan.
Loan commitment
See commitment letter.
Loan servicing
The collection of mortgage payments from borrowers and the related responsibilities of a loan servicer.
Loan_to_value percentage
The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.
Lock_in
A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock_in also usually specifies the number of points to be paid at closing.
Mortgage
A legal document that pledges a property to the lender as a security payment for debt.
Mortgage banker
A company that originates mortgages exclusively for resale in the secondary market.
Mortgage broker
An individual or company that for a fee acts as intermediary between borrowers and lenders.
Mortgage insurance
See private mortgage insurance.
Mortgage insurance premium
The fee paid by a borrower to the FHA or a private insurer for mortgage insurance.
Mortgage margin
The set percentage the lender adds to the index value to determine the interest rate of an ARM.
Mortgage note
A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the mortgage note is secured by a mortgage.
Mortgage interest rate
The rate of interest in effect for the monthly payment due.
Mortgagee
The lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage agreement.
Negative amortization
A gradual increase in the mortgage debt that occurs when the monthly payment is not large enough to cover the entire amount of principal and interest due. The amount of shortfall is added to the unpaid principal balance, which results in "negative" amortization.
Notice of default
A formal written notice to a borrower that default has occurred and that legal action may be taken.
Origination fee
A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.
Owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
Payment cap
A provision of some ARMs limiting the amount by which a borrower's payments may increase regardless of any interest rate increase; may result in negative amortization. See adjustable_rate mortgage.
PITI
Stands for principal, interest, taxes, and insurance _ the components of a monthly mortgage payment.
Planned unit development (PUD)
A project or subdivision that consists of common property that is owned and maintained by an owner's association for the benefit and use of the individual unit owners.
Points
A one_time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.
Prepaids
Fees collected at closing to cover items such as setting up escrow accounts for property taxes, homeowner's insurance, and mortgage insurance premiums.
Prepayment penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
Pre_qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.
Principal
The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of the mortgage.
Private mortgage insurance (PMI)
Insurance provided by non_government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires PMI for loans with loan_to-value percentages greater than 80 percent.
Purchase and sale agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Qualifying ratios
Guidelines applied by the lenders to determine how large a loan to grant a home buyer.
Radon
An invisible, odorless gas found in some homes that in sufficient concentrations may cause health problems.
Rate lock
See lock_in.
Real estate sales professional
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.
Rent with option to buy
See lease_purchase mortgage loan.
Second mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Secondary mortgage market
The buying and selling of existing mortgages.
Seller take_back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Settlement
See closing
Settlement Statement
The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment (referred to as a HUD_1).
Survey
A drawing or map showing the precise legal boundaries of a property and the location of improvements, easements, rights of way, encroachments, and other physical features.
Tenancy by entirety
A type of joint ownership of property that provides rights of survivorship and is available only to a husband and wife.
Tenancy in common
A type of joint ownership in a property without rights of survivorship.
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 to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of property.
Title search
An examination of the public records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Transfer tax
State or local tax payable when title passes from one owner to another.
Truth_in_Lending Act
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.
Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's creditworthiness and the quality of the property itself.
VA loan
A loan that is guaranteed by the U.S. Department of Veterans Affairs. Also referred to as a "government" mortgage.