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Glossary of Real Estate Terms:

ACCELERATION CLAUSE

A provision in a mortgage note that gives a lender the right to demand repayment of the entire balance of the loan under certain conditions, such as the failure to make timely payments or a transfer of the property.

ADDITIONAL PRINCIPAL PAYMENT

An amount paid by a borrower of more than the scheduled principal amount due. This type of payment reduces the remaining balance and shortens the term of the loan. Also called a “Principal curtailment.”

ADJUSTABLE-RATE MORTGAGE (ARM)

A mortgage that permits the lender to periodically adjust the interest rate on the basis of changes in a specified index.

ADJUSTMENT DATE

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

ADJUSTMENT PERIOD

For an adjustable-rate mortgage, the time period between interest rate change dates, as stated in the mortgage note.

AFFORDABILITY ANALYSIS

An estimation of a borrower’s ability to afford the purchase of a home and/or the payment on a loan. An affordability analysis may consider income, liabilities, the type of mortgage, the loan amount, purchase price, the expected closing costs, and other factors.

AMORTIZATION

The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan.

AMORTIZATION SCHEDULE

A timetable for payment of a mortgage loan. An amortization schedule shows: the amount of each payment; the amount to be applied to principal and interest; and the remaining principal balance after each payment is made.

AMORTIZE

To repay a mortgage with regular payments that cover both principal and interest.

ANNUAL PERCENTAGE RATE (APR)

The measure of the cost of credit stated as a yearly rate; includes such items as the stated interest rate, plus certain charges.

ANNUITY

An amount paid yearly or at other regular intervals, often at a guaranteed minimum amount. Also, a type of insurance policy in which the policy holder makes payments for a fixed period or until a stated age, and then receives annuity payments from the insurance company.

APPRAISAL

A written estimate or opinion of a property’s value prepared by a qualified appraiser.

APPRECIATION

An increase in the value of an item (e.g., the increase in the market value of real estate).

ASSESSED VALUE

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

ASSESSOR

A public official who establishes the value of a property for taxation purposes.

ASSET

Anything of monetary value that is owned by a person or company. Assets include real property, personal property, stocks, mutual funds, etc.

ASSIGNMENT OF MORTGAGE

A document evidencing the transfer of ownership of a mortgage from one person to another.

ATTORNEY & INSPECTION REVIEW (A/I)

This states the deal is still awaiting contingency approval and as soon as all have been met – it goes into pending.  Both attorneys (seller’s and buyer’s) handle the A/I period as such and do not renegotiate price or closing date (usually) and make sure that everything is agreed to in the contract for their respective clients Typically the buyer turns in the balance of earnest money at  this point.

BALLOON MORTGAGE

A mortgage in which the borrower’s monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump sum payment or refinance the loan.

BALLOON PAYMENT

The final lump sum payment that is made at the maturity date of a balloon mortgage.

BEFORE-TAX INCOME

Income before taxes are deducted. Also known as “gross income.”

BRIDGE LOAN

A short-term loan secured by the borrower’s current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold. Also known as a “swing loan.”

BROKER

An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker.

BUILDING CODE

Local regulations that set forth the standards and requirements for the construction, maintenance and occupancy of buildings. The codes are designed to provide for the safety, health and welfare of the public.

CAP

For an adjustable-rate mortgage (ARM), limitation on the amount the interest rate or mortgage payments may increase or decrease.

CASH-OUT REFINANCE

A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate liens.

CERTIFICATE OF DEPOSIT

A document issued by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

CERTIFICATE OF ELIGIBILITY

A document issued by the U.S. Department of Veterans Affairs (VA) certifying a veteran’s eligibility for a VA-guaranteed mortgage loan.

CHAIN OF TITLE

The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

CHANGE ORDERS

A change in the original construction plans ordered by the property owner or general contractor.

CLEAR TITLE

Ownership that is free of liens, defects, or other legal encumbrances.

CLOSING

The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as “escrow,” a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions.

CLOSING COSTS

The fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney’s fee, and prepaid items, such as escrow deposits for taxes and insurance.

CLOSING DATE

The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.

CO-BORROWER

Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note.

COMMISSION

The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).

COMMITMENT LETTER

A binding offer by a lender to loan money at a future date subject to the borrower’s compliance with stated conditions.

COMMON AREAS

Those portions of a building, land, or improvements and amenities owned by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

COMPARABLES

An abbreviation for “comparable properties,” which are used as a comparison in determining the current value of a property that is being appraised.

CONDOMINIUM

A real estate project in which each unit owner holds title to an individual unit in a building, and an undivided interest in the common areas.

CONTINGENCY

A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection contingency; the sales contract is not binding unless and until the purchaser has the home inspected.

CONVERTIBLE ARM

An adjustable-rate mortgage (ARM) that allows the borrower to convert the loan to a fixed-rate mortgage under specified conditions.

COST OF FUNDS INDEX (COFI)

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the weighted monthly average cost of deposits, advances, and other borrowings of members of the Federal Home Loan Bank of San Francisco.

CREDIT HISTORY

A record of an individual’s debts and repayment record. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

CREDIT REPORT

A document provided by a credit reporting agency containing information about an individual’s previous mortgage history, bank loans, credit cards, and public records dealing with financial matters.

CREDIT SCORE

A numerical value that ranks a borrower’s credit risk at a given point in time based on a statistical evaluation of information in the individual’s credit file that has been proven to be predictive of loan performance.

DEBT-TO-INCOME RATIO

The relationship between a borrowers total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.

DEED

The legal document conveying title to a property (i.e., transferring the ownership of real property from one party to another.)

DEED OF TRUST

A legal document that conveys title to real estate to a disinterested third party (a “trustee”) who holds the title until the borrower has repaid the debt. In some states, this document is used in place of a mortgage.

DEFAULT

The failure to make a scheduled payment or otherwise comply with the terms of a mortgage loan or other contract.

DELINQUENCY

Failure to make a payment when it is due. The condition of a loan when a scheduled payment has not been received by the due date, but generally used to refer to a loan for which payment is 30 or more days past due.

DOWN PAYMENT

The amount of cash a buyer puts toward a purchase.

EARNEST MONEY DEPOSIT

A deposit submitted with a purchase offer to show that the buyer’s offer is being made in “good faith.”

EASEMENT

A right to the use of, or access to, land owned by another.

ENCROACHMENT

The intrusion onto another’s property without right or permission.

ENCUMBRANCE

Any claim on a property, such as a lien, mortgage or easement.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)

A federal law that requires lenders to make credit equally available without regard to the applicant’s race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant’s income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

EQUITY

The owner’s interest in a property, calculated as the current fair market value of the property less the amount of existing liens.

ESCROW

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

ESCROW ACCOUNT

An account that a mortgage service establishes on behalf of a borrower to pay taxes, insurance premiums, or other charges when they are due. Sometimes referred to as an “impound” or “reserve” account.

EVICTION

The legal act of removing someone fromreal property.

EXCLUSIVE LISTING

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

EXECUTOR

A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.

FAIR CREDIT REPORTING ACT

A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and specifies procedures for challenging errors on a credit record.

FAIR MARKET VALUE

The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.

FEDERAL HOUSING ADMINISTRATION (FHA)

An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.

FHA-INSURED LOAN

A loan that is insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD).

FIRST MORTGAGE

A mortgage that is the primary lien against a property.

FIRST TIME HOME BUYER

A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.

FIXED-PERIOD ADJUSTABLE-RATE MORTGAGE

An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term.

FIXED-RATE MORTGAGE (FRM)

A mortgage loan in which the interest rate does not change during the entire term.

INDEX

A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, stated in the note.

INITIAL INTEREST RATE

The original interest rate for an adjustable-rate mortgage (ARM). Sometimes known as the “start rate.”

INSTALLMENT

The regular periodic payment that a borrower agrees to make to a lender.

INSTALLMENT DEBT

A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).

INTEREST

The fee charged for borrowing money, usually expressed as an annual percentage of the principal.

INTEREST ACCRUAL RATE

The percentage rate at which interest accumulates or increases on a mortgage loan.

INTEREST RATE CAP

For an adjustable-rate mortgage, a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.

INTEREST RATE CEILING

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

INVESTMENT PROPERTY

A property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower’s primary residence. Contrast with “second home.”

JUDGMENT LIEN

A lien on the property of a debtor resulting from the decree of a court.

JUMBO LOAN

A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae or Freddie Mac. Also called “nonconforming loan.”

LEASE-PURCHASE OPTION

An option sometimes used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs.

LIABILITY INSURANCE

Insurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party.

LIEN

A legal encumbrance or claim on property as security for a debt.

LIFETIME CAP

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate or monthly payment can increase or decrease over the life of the loan.

LIQUID ASSET

A cash asset or an asset that is easily converted into cash.

LOAN ORIGINATION

The process by which a lender makes a loan which may include taking a loan application, processing and underwriting the application, and closing the loan.

LOAN ORIGINATION FEE

A fee to cover some of the administrative costs of processing a loan. It is often expressed in points. One point is equal to 1 percent of the loan amount.

LOCK-IN

An agreement in which the lender agrees to “lock-in” the borrower’s interest rate for a set period of time before closing.

MARGIN

For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.

MORTGAGE

A loan to finance the purchase of real estate, for which the borrower pledges the real property as security for the repayment of the loan. The borrower gives the lender a lien on the property as collateral for the loan.

MORTGAGE BROKER

An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans, but generally does not use its own funds to close the loan. Mortgage brokers often act as independent contractors and not as an agent of the borrower or lender.

NEGATIVE AMORTIZATION

An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.

ORIGINAL PRINCIPAL BALANCE

The total amount of principal owed on a mortgage before any payments are made.

ORIGINATION FEE

A fee paid to a lender to cover the administrative costs of processing a loan application. The origination fee typically is stated in the form of points. One point is 1 percent of the mortgage amount.

OWNER FINANCING

A transaction in which the property seller provides all or part of the financing for the buyer’s purchase of the property.

OWNER OCCUPIED PROPERTY

A property that serves as the borrower’s primary residence.

PARTIAL PAYMENT

A payment that is less than the scheduled monthly payment on a mortgage loan.

PENDING

Once all contingencies are met in the sale you are clear to close.

PERSONAL PROPERTY

Any property that is not real property.

PITI

An acronym for the four primary components of a monthly mortgage payment: principle, interest, taxes, and insurance (PITI).

PITI RESERVES

A cash amount that a borrower has available after making a down payment and paying closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

POINT

An amount equal to 1 percent of the loan amount.

PRE-APPROVAL

A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant’s credit history and may involve the review and verification of income and assets to close.

PRE-QUALIFICATION

A preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.

PREPAYMENT

Any amount paid to reduce the principal balance of a loan before the scheduled due date.

PREPAYMENT PENALTY

A fee that a borrower may be required to pay to the lender, in the early years of a mortgage loan, for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principal balance.

PRINCIPAL

The amount of money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.

PRIVATE MORTGAGE INSURANCE (PMI)

Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower.

PROMISSORY NOTE

A written promise to repay a specified amount over a specified period of time.

PURCHASE AND SALE AGREEMENT

A document that details the price and conditions for a transaction. In connection with the sale of a residential property, the agreement typically would include: information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid, and any special contingencies.

QUALIFYING GUIDELINES

Criteria used to determine eligibility for a loan.

QUALIFYING RATIOS

Calculations that are used in determining the loan amount that a borrower qualifies for, typically a comparison of the borrower’s total monthly income to monthly debt payments and other recurring monthly obligations.

RATE CAPS

For an adjustable-rate mortgage loan, the maximum interest rate that may be charged, either at the time of each adjustment date or over the life of the loan.

RATE LOCK

An agreement in which a lender “locks in” or guarantees an interest rate for a specified period of time prior to closing.

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)

A federal law that requires lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as well as information during the life of the loan regarding servicing and escrow accounts. RESPA also prohibits kickbacks and unearned fees in the mortgage loan business.

REAL PROPERTY

Land and anything permanently affixed there to — including buildings, fences, trees, and minerals.

REFINANCE TRANSACTION

The process of paying off one loan with the proceeds from a new loan using the same property as security.

REVOLVING DEBT

Credit that is extended by a creditor under a plan in which (1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid.

RIGHT OF FIRST REFUSAL

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

SECURED LOAN

A loan that is backed by property such as a house, car, jewelry, etc.

SETTLEMENT

The process of completing a loan transaction at which time the mortgage documents are signed and then recorded, funds are disbursed, and the property is transferred to the buyer (if applicable). Also called closing or escrow in different jurisdictions.

SETTLEMENT STATEMENT

A document that lists all closing costs on a real estate purchase or refinance transaction.

SINGLE-FAMILY PROPERTIES

One- to four-unit properties including detached homes, townhouses, condominiums, and cooperatives, and manufactured homes attached to a permanent foundation and classified as real property under applicable state law.

TAXES AND INSURANCE

Funds collected as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s state and local property taxes and insurance premiums.

TITLE

A legal document evidencing a person’s right to or ownership of a property.

TITLE INSURANCE

Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against losses arising from defects in the title not listed in the title report or abstract.

TITLE SEARCH

A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.

TRADE EQUITY

Real estate or assets given to the seller as part of the down payment for the property.

TRANSFER TAX

State or local tax payable when title to property passes from one owner to another.

SINGLE-FAMILY PROPERTIES

One- to four-unit properties including detached homes, townhouses, condominiums, and cooperatives, and manufactured homes attached to a permanent foundation and classified as real property under applicable state law.

TAXES AND INSURANCE

Funds collected as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s state and local property taxes and insurance premiums.

TITLE

A legal document evidencing a person’s right to or ownership of a property.

TITLE INSURANCE

Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against losses arising from defects in the title not listed in the title report or abstract.

TITLE SEARCH

A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.

TRADE EQUITY

Real estate or assets given to the seller as part of the down payment for the property.

TRANSFER TAX

State or local tax payable when title to property passes from one owner to another.

TREASURY INDEX

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions by the U.S. Treasury of Treasury bills and securities.

TRUTH-IN-LENDING

A federal law intended to promote the informed use of consumer credit by requiring disclosure about its terms and costs. Creditors are required to disclose the cost of credit as a dollar amount (the finance charge) and as an annual percentage rate (APR).

UNDERWRITING

In mortgage lending, the process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness, ability to repay the loan, and the value of the property securing the loan.

VA GUARANTEED LOAN

A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA).

WALKTHROUGH

A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing, for example, within the 24 hours before closing.