Real Estate Glossary

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ABSTRACTA written history of public records on property.

ADJUSTABLE RATE MORTGATE (ARM)These loans have an interest rate which changes periodically according to a specified financial index.

AMORTIZATIONRepayment of your loan through scheduled installment payments.

APPRAISALA report made by a qualified person indicating the value of a property as of a given date. During the course of a real estate transaction, this person represents the bank. In addition to value, they may report on repairs required for financing.

APPLICATION FEEThe amount you pay to a lender to process your application.

ASSUMABLE MORTGAGEThe buyer takes over the seller’s mortgage, and the buyer then accepts the responsibility for the payments. These are becoming more rare as banks have eliminated this option on most new loans.

BALLOON MORTGAGEScheduled repayment of the loan balance at one time.

BINDER – A preliminary agreement to purchase, often secured by the payment of money in earnest. Also known as a purchase offer.

BLANKET MORTGAGEThis is one mortgage that covers 2 or more properties.

BUY-DOWNMoney advanced by an individual (e.g., builder, seller, buyer, developer) to lower monthly mortgage payments for a few years or for the whole term.

CAP (INTEREST RATE)The maximum interest rate increase allowable on an adjustable rate mortgage.

CAP (PAYMENT RATE)The maximum payment amount increase allowable on an adjustable rate mortgage.

CLOSINGThe actual legal transfer of property from seller to buyer.

CLOSING COSTSFees paid at the time of closing. Costs may vary from lender to lender.

CONVENTIONAL MORTGAGEA loan that is not insured or guaranteed by a government or private source.

DEEDthis is the written transfer of property ownership.

DEFAULTFailure to meet an obligation when due.

EASEMENTThe legal right for limited use of another’s land.

ENCUMBRANCEA claim, lien, or liability that has been attached to the title of a property. This may affect its value. This is a valid claim against property.

EQUITYThe difference between the fair market value (appraised value) of your home and your outstanding mortgage balance. It is the portion of property you own.

ESCROWDeposits made to a special account until the terms of a contract are fulfilled.

FANNIE MAE (FNMA)Federal National Mortgage Association – quasi-government corporation that buys and sells mortgages.

FEDERAL HOUSING ADMINISTRATION (FHA) LOANThis agency insures mortgages on residential property with a low down payment.

FIXED RATE MORTGAGE (FRM)The interest rate always remains the same on this loan.

FORECLOSUREThe procedure where the lender reacquires property after default.

FREDDIE MAC (FHLMC)Federal Home Loan Mortgage Corporation – quasi-government agency that pools mortgages and sells participation agreements.

GRANTEEBuyer of property.

GRANTORSeller of property.

INDEXThe guide for rate changes that lenders use to decide how much the annual percentage rate will change over time.

INTEREST RATEThe periodic charge, expressed as a percentage, for use of credit.

LIENA legal claim on property used as security for a debt.

LOAN-TO-VALUE RATIOThe relationship, expressed as a percentage between the property’s mortgage and its value. For example, if you owe $75,000 on a $100,000 home, your ratio is 75%.

MARGINOn an adjustable mortgage, the number of percentage points the lender adds to the index rate to determine the adjusted rate.

MIP – MORTGAGE INSURANCE PREMIUMInsurance protecting the bank against foreclosure on all FHA mortgages.

MORTGAGEA legal document where the owner uses the new property as security to guarantee repayment of the loan. The mortgagee is also known as the lender. The mortgagor is known as the borrower.

NEGATIVE AMORTIZATION The loan balance increasing over time (often due to monthly payments being less than the interest owned).

PARTY-HAT MORTGAGEMichael made this up to be funny.

PITIAn acronym for payments to a lender that cover principle, interest, taxes and insurance on a property.

PMI – PRIVATE MORTGAGE INSURANCE –            Insurance protecting the bank against foreclosure covering a percentage of property value. This is required on most loans with an LTV of 80% or greater.

POINTSUp-front charge for making the loan (1 point = 1% of loan amount).

PREPAYMENT PENALTYA fee paid by the borrower if they pay their loan before it is due.

PRINCIPALThe balance still owed or the amount of money borrowed on a loan.

PROMISSORY NOTEThis document is signed and given to the lender by the borrower. It will explain what is owed and how it will be paid.

RATE CAPA limit on how much the variable-interest rate can increase during the life of the loan.

REFINANCINGThis process involves getting a new mortgage, usually with a lower rate to pay off your existing loan.

REVERSE MORTGAGEThe lender makes payments to the borrower (a form of negative amortization). Certain restrictions apply.

SECONDARY MARKETThe buying and selling of mortgages after closing.

SONYMA (STATE OF NEW YORK MORTGAGE ASSOCIATION)This is a state-funded program for first-time home buyers who may be eligible for special mortgage rates. Check with your lender to see if you can qualify.

TITLEA document showing ownership of property.

TITLE INSURANCEInsurance against defects in title.

TITLE SEARCHThis report offers the present condition of property and reviews a specific piece of real estate to guarantee there are no liens, encumbrances, ownership concerns, etc.

TRANSFER TAXCity, county, or state taxes imposed when property passes from one person to another.

VA (VETERAN’S ADMINISTRATION)A government agency that insures loans for those involved in the armed services (service persons/veterans).

VARIABLE RATE MORTGAGEA mortgage loan in which the interest rate may increase or decrease at specified intervals within certain limits based upon an economic indicator.