Glossary of Mortgage &
Real Estate Terms
NOTE: There are many more terms and more complete definitions
used in the Mortgage and Real Estate industries. For a more complete
understanding, consult your local library . Additionally, interpretation
of these terms may be different from state-to-state.
- Adjustable rate mortgage loan (ARM) - A
type of alternative mortgage instrument in which the interest
rate adjusts periodically according to a predetermined index
and margin. This adjustment results in the mortgage payment either
increasing or decreasing.
- Agreement for sale (SALES CONTRACT) - A
written document in which the purchaser agrees to buy certain
real estate (or personal property) and the seller agrees to sell
under stated terms and conditions.
- Amortization - Repayment of a debt in equal
installments of principal and interest, rather than interest-only
payments.
- Annual percentage rate (APR) - A rate which
represents the relationship of the total finance charge (interest,
loan fees, point) to the amount of the loan.
- Application - A form used to apply for a
mortgage loan and to record pertinent information concerning
a prospective mortgagor and the proposed security.
- Appraisal - A report by a qualified person
setting forth an opinion or estimate of value.
- Appraised value - An opinion of value reached
by an appraiser based upon knowledge, experience, and a study
of pertinent data.
- Appraiser - A person qualified
by education, training, and experience to estimate the value
of real and presonal property.
- Appreciation - An increase in value; the
opposite of depreciation.
- Assessment - The process of placing a value on property
for the strict purpose of taxation. may also refer to a levy
against property for a special purpose, such as a sewer assessment.
- Balloon mortgage - A mortgage with periodic
installments of principal and interest that do not fully amortize
the loan. The balance of the mortgage is due in a lump sum at
the end of the term.
- Balloon payment- The unpaid principal amount
of a mortgagee or other long-term loan due at a certain date
in he future, usually the amount that must be paid in a lump
sum at the end of the term.
- Binder, insurance - A written evidence of
temporary hazard or title coverage that only runs for a limited
time and must be replaced by a permanent policy.
- Borrower - One who receives funds with the
expressed or implied intention of repaying the loan in full.
- Caps - A limitation on the interest rate
increase of either the periodic or lifetime rate or both for
an adjustable rate mortgage.
- Certificate Of
Occupancy (CO) - Written authorization given by a local municipality
that allows a newly-completed or substantially-completed structure
to be inhabited. The issuing of a CO means that: the home is
SAFE, SOUND & SANITARY, and has matches the PLANS & SPECIFICATIONS
given to the Appraiser at the beginning of the Loan Process.
- Certificate of title - A statement furnished
by an abstract or title company or an attorney to a client stating
that the title to real estate is legally vested in the present
owner.
- Closing - The conclusion
or consummation of a transaction. In real estate, closing includes
the delivery of a deed, financial adjustments, the signing of
notes and the disbursement of funds necessary to the sale or
loan transaction.
- Closing costs - Expenses incidental to a
sale of real estate, such as loan fees, title fees, appraisal
fee, and others.
- Commission - An agent's fee for negotiating
a real estate or loan transaction.
- Condominium - A form of ownership of real
property. The owner receives title to a particular unit and a
proportionate interest in certain common areas. A condominium
generally defines each unit as a separately owned space to the
interior surfaces of the perimeter wall, floors, and ceilings.
- Construction loan- A short-term, interim
loan for financing the cost of construction. The lender makes
payments to the builder at periodic intervals as the work progresses
- Conventional loan - A mortgage loan neither
insured by FHA nor guaranteed by VA.
- Cosigner- A person who signs a legal instrument
and therefore becomes individually and jointly liable for repayment
or performance of an obligation.
- Credit report - A report to a prospective
lender on the credit standing of a prospective borrower or tenant.
Used to help determine creditworthiness.
- Deed - A written legal document which purports
to transfer ownership of land from one party to another.
- Deposit (Earnest Money) - A sum of money
given to bind a sale of real estate, or a sum of money given
to assure payment or an advance of funds in the processing of
a loan.
- Depreciation - A loss of value in real estate
property brought about by age, physical deterioration, or functional
or economic obsolescence. The opposite of appreciation.
- Downpayment (EARNEST
MONEY) - Cash portion paid by a buyer from his own funds, as
opposed to that portion of the purchase price which is financed.
- Draw System - Scheduled payment
of money to a builder during the phases of home construction.
Between each draw, the appraiser must inspect the home to ensure
that construction is proceeding as planned.
- Due-on-sale Clause - A type of acceleration
clause, calling for a debt under a mortgage or deed of trust
to be due in its entirety upon transfer of ownership of the secured
property.
- Easement - right
or interest in the land of another entitling the holder to a
specific limited use, privilege or benefit such as laying a sewer,
putting up electric power lines, or crossing the property.
- Eminent domain - The right of a government
to take private property for public use upon payment of its fair
value.
- Encumbrance - Anything that affects or limits
the fee simple title to property, such as mortgages, leases,
easements, or restrictions.
- Equity - In real estate, equity is the difference
between Fair Market Value and current indebtedness, usually referring
to the owner's interest.
- Escrow - A transaction in which a third
party, acting as the agent for the buyer and the seller, carries
out instructions of both and assumes the responsibilities of
handling all the paperwork and disbursement of funds.
- Escrow payment - That portion of a mortgagor's
monthly payment held by the lender to pay for taxes, hazard insurance,
mortgage insurance, lease payments, and other items as they become
due. Known as impounds or reserves in some states.
- Exclusive right to sell (Listing) - A written
contract giving a licensed real estate agent the exclusive right
to sell a property for a specified time. The owner agrees to
pay a full commission to the broker even though the owner may
sell the property.
- Fair Market Value
- The price at which property is transferred between a willing
buyer and a willing seller, each of whom has a reasonable knowledge
of all pertinent data and neither of whom is under any compulsion
to buy or sell.
- Federal Home Loan Mortgage Corporation (FHLMC)
- a private corporation authorized by Congress to provide secondary
mortgage market support for conventional mortgages. Also know
as Freddie Mac.
- Federal Housing Administration (FHA) - A
division of HUD. Its main activity is the insuring of residential
mortgage loans made by private lenders. FHA does not lend money.
- Federal National Mortgage Association (FNMA)
- A privately owned corporation created by Congress to support
the secondary mortgage market. Also known as Fannie Mae.
- Fee Simple - An estate under which the owner is entitled
to unrestricted powers to dispose of the property, and which
can be left by will or inherited. The greatest interest a person
can have in real estate.
- Fiduciary - A person in a
position of trust and confidence for another.
- Firm commitment - A lender's agreement to make a loan
to a specific borrower of a specific property.
- First mortgage - a mortgage having priority over all
other voluntary liens against certain property.
- Foreclosure - An authorized procedure taken by a mortgage
or lender under the terms of a mortgage or deed of trust for
the purpose of having the property sold and the proceeds applied
to the payment of a defaulted debt.
- Graduated Payment Mortgage - Residential mortgage
which has monthly mortgage payments that start at a low level
and increase at a predetermined rate.
- Hazard insurance- A contract whereby an insurer, for
a premium, undertakes to compensate the insured for loss on a
specific property due to certain hazards.
- Holdback - That portion of a loan commitment not funded
until some additional requirement such as rental or completion
is attained. In construction it is a percentage of the contractor's
draw held back to provide additional protection for the interim
lender, often in an amount equal to the contractor's profit.
- HUD - The Department of Housing and Urban Development,
established by the Housing and Urban Development Act of 1965
to supersede the Housing and Home Finance Agency. It is responsible
for the implementation and administration of government housing
and urban development programs.
- Index - An economic measurement that is used to measure
periodic interest rate adjustments for an adjustable rate mortgage.
- Interest rate- The percentage of an amount of money
which is paid for its use for a specified time. Usually expressed
as an annual percentage.
- Investor - An person or institution investing in mortgages.
- Involuntary lien - A lien imposed against property
without consent of an owner. Examples include taxes, special
assessment, federal income tax liens, mechanics liens, and materials
liens.
- Judgment lien - A lien upon the property of a debtor
resulting from the decree of a court.
- Land contract - A contract ordinarily used in connection
with the sale of property in cases where the seller does not
wish to convey title until all or a certain part of the purchase
price is paid by the buyer. This financing vehicle is often used
when property is sold on a small down payment.
- Lease - A written document containing the conditions
under which the possession and use of real or personal property
are given by the owner to another for a stated period and for
a stated consideration.
- Legal description - A property description recognized
by law which is sufficient to locate and identify the property
without oral testimony.
- Lessee (tenant) - The person(s) holding rights of
possession and use of property under terms of a lease.
- Lessor (landlord) - The one leasing property to a
lessee.
- Lic. Mortgage Broker
- The licensed person who, for a commission or a fee, brings
parties together and assists in negotiating contracts between
them. A firm or individual bringing the borrower and lender together
and receiving a commission. A mortgage broker does not retain
servicing.
- Lien - A legal hold or claim of one person on the
property of another as security for a debt or charge. The right
given by law to satisfy a debt.
- Limited partnership - a partnership that consists
of one or more general partners who are fully liable and one
or more limited partners who are liable only for the amount of
their investment.
- Loan - A sum of money loaned at interest to be repaid.
- Loan Processing - (1)
A System by which a Buyer is evaluated for loan approval. The
system compares the stated income, debt, savings and credit against
documentation provided by the buyer (or alternative Federal documents).
Calculations of Debt-To-Income, Loan-To-Value, Net Worth, Cash
Reserves and Compensating Factors are used to develop and Underwriting
Opinion. (2) The system of structuring a Buyer's financial
situation and documentation in such a way that an Underwriting
Opinion can be reached.
- Loan submission - a package of pertinent papers and
documents regarding specific property or properties. It is delivered
to a prospective lender for review and consideration for the
purpose of making a mortgage loan.
- Loan-to-value ratio - The relationship between the
amount of the mortgage loan and the appraised value of the security
expressed as a percentage of the appraised value.
- Margin - The number of basis points a lender adds
to the index to determine the interest rate of an adjustable
rate mortgage.
- Metes and bounds - A description in a deed of the
land location in which the boundaries are defined by directions
and distances.
- Mortgage (Latin = `dead pledge') - A conveyance of
an interest in real property given as security for the payment
of a debt.
- Mortgage company - A private corporation whose principal
activity is the origination and servicing of mortgage loans which
are sold to other financial institutions.
- Mortgagee - a person or firm to whom property is conveyed
as security for a loan made.
- Mortgage insurance - The function of mortgage insurance
is to insure a mortgage lender against loss caused by a mortgagor's
default. This insurance may cover a percentage of the mortgage
loan depending on the type of mortgage insurance.
- Mortgage life insurance - A type of term life insurance
often bought by mortgagors. The amount of coverage decreases
as the mortgage balance declines. In the event that the borrower
dies while the policy is in force, the debt is automatically
satisfied by insurance proceeds.
- Mortgage note (NOTE) - A written promise to pay a
sum of money at a stated interest rate during a specified term.
It is secured by a mortgage.
- Mortgagor - One who borrows money, giving a mortgage
or deed of trust on real property as security.
- Origination - The process of originating mortgages.
Solicitation may be from individual borrowers, builders, or brokers.
- Origination fee - A fee or charge for the work involved
in the evaluation, preparation, and submission of a proposed
mortgage loan.
- Originator - A person who solicits builder, brokers,
and others to obtain applications for mortgage loans. origination
is the process by which the mortgage lender brings into being
a mortgage secured by real property.
- PITI(principal, interest, taxes, and insurance) -
The principal and interest payment on most loans is fixed for
the term of the loan; the tax and insurance portion may be adjusted
to reflect changes in takes or insurance costs.
- NOTE: In cases where the buyer puts down less than
20% of the Sales Price, Mortgage Insurance will be required as
part of the Total Monthly Payment (PITI).
- Plans and specifications - Architectural and engineering
drawings and specifications for construction of a building or
project, including a description of materials to be used and
the manner in which they are to be applied.
- Point - An amount equal to one percent of the mortgage
loan. Loan discount points are a one-time charge assessed at
closing by the lender to increase the yield on the mortgage loan.
- NOTE: Basically, the borrower is offering the lender
upfront money to get a lower interest rate. The upfront
money is to compensate the lender for loss of yield (profit)
on the loan because of the lower rate given to the borrower.
- Preclosing - A transaction preceding the formal closing,
often used to settle outstanding issues (survey, pest inspection,
hazard insurance, flood insurance (if required), with the formal
closing shortly thereafter.
- Prepayment privilege - The right given a borrower
to pay all or part of a debt prior to its maturity.
- Principal - Amount of debt, not including interest.
The face value of a note, mortgage, etc.
- Principal balance - The outstanding balance of a loan.
- Private mortgage insurance (PMI) - Insurance written
by a private company protecting the mortgage lender against loss
by a mortgage default.
- Quitclaim deed - A deed that transfers (with no warranty)
only such interest, title, or right a grantor may have at the
time the conveyance is executed.
- Realtor - A real estate broker or an associate holding
active membership in a local real estate board affiliated with
the National Association of Realtors.
- Reconveyance - The transfer of land from one person
to the immediately preceding owner. It is used when the performance
of debt is satisfied under the terms of a deed of trust.
- Redemption period - That period of time in those states
where it is allowed in which a foreclosed mortgagor has to buy
back his property by paying principal amount and interest and
fees.
- Release of lien - An instrument discharging secured
property from a lien.
- Right of survivorship - In joint tenancy, the right
of survivors to acquire the interest of a deceased joint tenant.
- Right-of-way - A privilege operating as an easement
upon land, whereby a land owner, by grant or agreement, gives
another the right to pass over land. Also knows as easement.
- Sale-leaseback - A technique in which a seller deeds
property to a buyer for a consideration and the buyer simultaneously
leases the property back to the seller, usually on a long-term
basis.
- Sales Contract - Another name
for a sales agreement, purchase agreement, etc. Not to be confused
with a land contract, which is a conditional sales contract.
- Satisfaction of mortgage - The recordable instrument
given by the lender to evidence payment in full of the mortgage
debt. Sometimes knows as a release deed.
- Secondary financing - 'Financing real estate with
a loan, or loans, subordinate to a first mortgage or first trust
deed.
- Secondary mortgage market- The market where existing
mortgages are bought and sold. It contrasts with the primary
mortgage market, where mortgages are just originated, and packaged
for delivery to the secondary market.
- Servicing - The duties of
the mortgage lender as a loan correspondent as specified in the
servicing agreement for which a fee is received. Consists of
operational procedures covering accounting, bookkeeping, insurance,
tax records, loan payment follow-up, delinquency loan follow-up
and loan analysis.
- Takeout commitment - A promise to make a loan at a
future specified time. It is commonly used to designate a higher
cost, shorter term, backup commitment as a support for construction
financing until a suitable permanent loan can be secured.
- Tax lien - A claim against property for the amount
of its due and unpaid taxes.
- Tenancy - A holding of real estate under any kind
of right of title.
- Tenancy at will - A holding of real estate that can
be terminated at the will of either the lessor or the lessee,
usually with notice.
- Tenancy by entirety - The joint ownership of property
by a husband and wife where both are viewed as one person under
common law that provides for the right of survivorship.
- Tenancy in common - In law, the type of tenancy or
estate created when real or personal property is granted, devised
or bequeathed to two or more persons, in the absence of expressed
words creating a joint tenancy. There is no right of survivorship.
- Term - The period of time between the commencement
date an termination date of a note, mortgage, legal document,
or the contract.
- Title - The evidence of the right to or ownership
in property.
- Title insurance policy - A contract by which the insurer,
usually a title insurance company, agrees to pay the insured
a specified amount for any loss caused by defects (clouds) of
title to real estate, wherein the insured has an interest as
purchaser, mortgagee, or otherwise.
- Underwriting - The analysis and matching of risk to
an appropriate rate and term.
- Unencumbered property - A property the title to which
is free and clear.
- Usury - Charging more for the use of money than allowed
by law.
- Variable rate mortgage - A mortgage agreement that
allows for adjustment of the interest rate in keeping with a
fluctuating market and terms agreed upon in the note.
- Warehousing - The holding of a mortgage on a short
term basis pending either a sale to an investor or other long
term financing.
- Warranty deed - A deed in which the grantor or seller
warrants or guarantees that good title is being conveyed, as
opposed to a quitclaim deed that contains no representation or
warrant as to the quality of title being conveyed.
- Zoning - The act of city or county authorities specifying
the type of use to which property may be put in specific areas.