Adjustable rate mortgage (ARM) -- A mortgage
on which the interest rate moves up or down periodically in accordance
with changes in a specified financial index.
Annual Percentage Rate (APR) -- The "true"
cost of money borrowed, reflecting the stated interest rate plus points
and fees charged for the loan. Lenders are required to disclose the
APR as well as the stated interest rate.
Application Fee -- The amount, usually
non refundable, that a lender charges for processing a borrower's
application for a loan.
Appraisal -- An estimate of the market
value of the property, usually based upon the sale prices of other
properties in the same neighborhood. Lenders will base the size of
the mortgage they are willing to approve in part on the appraised
value as determined by a professional appraiser.
Assessment -- The value of a property
as established by local officials for purposes of calculating the
property taxes owed. The assessed valued may be, but is not always,
equal to the appraised value.
Assumable Mortgage -- A loan issued to
the owner of a property, which can be taken over by the new owner
of the property, who then accepts the responsibility for making the
payments. Fixed-rate mortgages typically are not assumable; VA, FHA,
and adjustable-rate mortgages usually are.
Binder -- Earnest money, or a deposit,
given by the buyer to the seller or broker of a property, as a sign
of the buyer's good-faith intent to complete the transaction.
Buyer's Broker -- A licensed agent who
represents only the buyer in a transaction, regardless of source of
compensation. This differs from the typical arrangement, in which
the broker acts as the agent of the seller and is paid commission
by the seller from the proceeds of the sale.
Capital Gains -- The taxable "profit"
made on the sale of real estate, which must either be recognized (and
paid) or deferred.
Closing -- The legal occasion during
which the deed to a property is transferred from the seller to the
Closing Costs -- The final fees that
must be paid to complete the property transfer. The borrower typically
is responsible for paying these fees, but sometimes the seller contributes
all or part of the cash required.
Deed -- A legal instrument conveying
title to real property.
Deed Restrictions -- Any provisions in
a deed restricting ownership or use of the property--for example,
limitations on rights-of-way, or easements granted to other parties.
Deferral of Gain -- A legal means of
delaying the payment of taxes due on the profit realized from the
sale of a primary residence, which takes effect when the replacement
residence is purchased for at least as much as the selling price of
the original property.
Deposit -- A percentage of the purchase
price, paid by the buyer when the Purchase and Sale agreement is
signed and typically held in escrow until the transaction is completed.
Easement -- The legal right to use another
person's land for limited purposes, one example would be an easement
to use a portion of a neighbor's driveway. Also, a utility easement
would give a utility company the right to run wires or lay pipes across
Encumbrance -- A claim levied against
a property, inhibiting the owner's ability to transfer the title.
Liens and attachments are the most common forms of encumbrances.
Equity -- The owners "stake"
in a property -- equal to the down payment plus any principal repaid
on the mortgage loan, plus any increase in value due to appreciation
or improvements the owner has made, less the value of any outstanding
mortgages, liens, or other encumbrances.
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Escrow -- The placing of money (or documents)
in the control of a custodian until the conditions of a contract are
met. In a real estate transaction, the buyers deposit typically is
held in escrow (in a segregated bank account, separate from the assets
of the escrow agent) until the closing.
Exclusion of Gain -- Under federal tax
laws, the one-time right, available to homeowners age fifty-five or
older, to eliminate their tax liability on a portion of the gain (up
to $125,000) realized on the sale of a primary residence.
Fair Market Value -- What a willing buyer
will pay a willing seller for a property.
Federal Housing Administration Mortgage (FHA)
-- A loan insured by the Federal Housing Administration. The fact
that down payments of less than 5 percent are acceptable makes FHA
loans attractive but there are purchase price limitations.
Fixed Rate Mortgage -- A loan on which
the interest rate remains the same throughout the loan term.
Good Faith Estimate -- An approximation
of closing costs, which a lender is required to give to a prospective
mortgage borrower within three days of the time an application for
a loan is submitted.
Graduated Payment Mortgage -- A mortgage
loan on which the interest and principal payments start off below
market level but increase yearly, possibly rising above the payments
on a conventional mortgage.
Hazard Insurance -- A homeowner's policy
typically required by mortgage lenders, insuring the property against
damage or loss.
Home Inspection -- The professional scrutiny
of a home to assess its overall condition and identify existing
or potential structural and/or mechanical problems.
HUD-1 Form -- Also known as the RESPA
statement, detailing all the loan closing costs and itemizing all
payments made by and due from both the buyer and the seller.
Income-to-Debt Ratio -- A lender's calculation
of the percentage of income represented by a borrower's housing payments
plus all other revolving debt payments.
Index -- The guide used by lenders to
determine periodic adjustments in adjustable rate mortgages.
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Joint Tenancy -- A form of ownership;
in which two or more individuals have an equal interest in a property,
which passes to the surviving owner or owners if one dies.
Lien -- Any legal claim against a property,
filed to ensure payment of a debt or discharge of an obligation.
Listing Agreement -- A contract between
a real-estate broker an a property owner, specifying the terms under
which the broker is authorized to sell or lease the owner's property
and the terms under which a commission is due the broker.
Loan-to-Value Ratio -- The relationship
between the mortgage on a property and its value. If the mortgage
is $80,000 and the property is worth $100,000, the loan-to-value ratio
is 80 percent.
Mortgage -- A legal document in which
the owner of a property pledges it as security to guarantee
repayment of a loan.
Multiple Listing Service (MLS) -- A system
for disseminating, to participating members, information on properties
No-Documentation Loan -- A program offered
by some lenders, requiring less extensive verifications than
a standard loan-approval process. Typically available only to borrowers
able to make relatively large down
Odd Day's Interest -- The interest due
on a loan from the closing date until the first day of the following
Origination Fee -- A fee charged by the
lender for processing a borrower's loan application. Typically calculated
in "points", as a percentage of the loan, and due to be
paid at the closing.
PITI-- Lender's shorthand for the key
components of the monthly mortgage payment: principal, interest,
Points -- The fee mortgage lenders charge
for processing a loan, usually due at the closing. Each point represents
one percent of the mortgage amount. As a form of prepaid interest,
points charged for loans on a primary residence generally are tax
Pre-approval -- The process of obtaining
preliminary approval for a mortgage before application is complete.
May or may not constitute a formal commitment by the lender to make
Pre-qualification -- An informal estimate
of the maximum mortgage a borrower could obtain, based on a calculation
of available income and existing debt.
Private Mortgage Insurance -- An insurance
policy that protects the lender should the borrower default on the
mortgage. Usually required for borrowers whose down payment represents
less than 20 percent of the purchase price.
Purchase and Sale Agreement -- A legal
document requiring the purchaser to buy and the owner to sell a property
under the terms and conditions specified.
Quit-claim Deed -- The seller relinquishes
whatever interest he has in the property but makes no assurances about
how good his claim to the property might be.
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Real Estate Settlement Procedures Act (RESPA)
-- A federal law that requires lenders to specify in detail all the
costs involved in a real-estate closing.
Realtor -- A licensed real estate agent
who belongs tot he local or state affiliate of the the industry's
professional trade association, the National Association of Realtors
Recording Fees -- In a real-estate transaction,
the charges for filing the documents effecting the transfer of
ownership and clearing the title.
Refinancing -- The process of obtaining
a new mortgage, typically at a lower rate, to repay and replace and
Second Mortgage -- An additional loan
behind the first mortgage, also secured by a property. Usually written
with a higher interest rate and for a shorter term than the first
Setback Requirements -- The local rules
specifying the distances required between homes, between structures
and rear lot lines, and between homes and streets.
Special Warranty Deed -- In most jurisdictions,
a limited warranty of title, in which the seller promises not to file
any claim a and to defend the title against any claims filed by or
through the seller or the seller's heirs.
Survey -- A drawing that shows the legal
boundaries of a property and the location of the house and other buildings
on a lot.
Tenancy by the Entirety -- A form of
joint ownership available only to married couples, in which the ownership
interest of a deceased spouse passes automatically to the surviving
spouse. The arrangement normally cannot be severed during the marriage
without the consent of both spouses.
Tenancy in Common -- A form of joint
ownership by which a deceased owner's interest in the property goes
to his or her heirs rather than to the other owner or owners.
Title -- The legal evidence of ownership,
a document containing basic evidence by which ownership is based.
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Title Flaw -- Any encumbrance on a title
that interferes with the owner's ability to transfer ownership.
Title Search -- A detailed examination
of the ownership documents, undertaken to ensure that there are no
liens or other encumbrances on the property and no questions about
the seller's ownership claim.
Truth in Lending Disclosure Statement --
A form required by federal law to be presented to the borrower, providing
detailed information about the terms and costs of the loan
VA (Veterans Administration) Loan --
Mortgages issued by lenders but guaranteed by the Veterans
Administration and available only to eligible veterans and their spouses
Variance -- A limited exemption from
local zoning requirements.
Warranty -- A written or implied guarantee
that property (including mechanical systems or appliances) is in the
condition described and will perform as promised.