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Mortgage Glossary |
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A
Abstract (Abstract Of Title)
A summary of the public records relating to the title to a particular property. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title. The abstract also identifies encumbrances, easements and covenants that affect the property. Also known as a Title Report.Adjustable Rate Mortgage (ARM)
A mortgage loan in which the interest rate varies during the term of the mortgage according to a specified index that may result in increased or decreased monthly mortgage payments.Amortization
Paying off a loan by making scheduled payments against principal and interest, according to the mortgage note terms.Annual Percentage Rate (APR)
The interest rate reflecting the cost of a mortgage as a yearly rate including points and other credit costs.Appraisal
The written estimate of a property's value based on a factual market analysis.Back to Top
B
Binder (or Offer to Purchase)
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.Broker
(See Real Estate Broker or Mortgage Broker)Buydown
When the borrower pays the lender a specified amount at the start of the loan to reduce the interest and monthly payments for a period of time.
C
Certificate of Title
A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not nearly as great as that offered in a title insurance policy.Closing
The actual process whereby all parties to a real estate transaction conclude the details of a sale or mortgage. This process includes the signing and transfer of documents and the distribution of funds.Closing Costs
The expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership or mortgage of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. This is a general list of buyer's and seller's expenses:Loan Fees, Documentary Stamps on Notes, Cost of Abstract, Recording Deed and Mortgage, Documentary Stamps on Deed, Escrow Fees, Real Estate Commissions, Attorney's Fees, Title Insurance, Survey Charge, Appraisal Fees, Inspection Fees.
The agreement of sale negotiated previously between the buyer and the seller should state in writing who will pay each of the above costs or how they will be split. Most areas have local customs that guide which party typically pays which expense.
Commission
Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price -- 5 to 7 percent on houses, and can be up to 10 percent on land.Condominium
A system of real estate ownership that includes individual ownership of a dwelling unit and an interest in the common areas and facilities which serve the all condominium units.Contractor
In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.Conventional Mortgage
A mortgage loan not insured by HUD (FHA loans) or guaranteed by the Veterans' Administration (VA loans). It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States.Back to Top
D
Deed
A formal written instrument by which title to real property is transferred. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also Deed of Trust, General Warranty Deed, Quitclaim Deed, and Special Warranty Deed)Default
Failure to make timely mortgage payments as agreed to an in accordance with the terms in the mortgage or deed of trust. It is the borrower's responsibility to remember the due date and send the payment prior to the due date. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession, receive rents and/or start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.Depreciation
Decline in value of real estate due to passage of time, physical deterioration, loss of function or for other reasons. Depreciation also has technical meanings as it relates to the valuation or real estate for tax purposes.Downpayment
The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale. Downpayment also refers to the difference between the sales price and maximum mortgage amount. It is expressed as a dollar figure or a percentage of the purchase price. For example, when a house is purchased for $100,000 and $90,000 is borrowed to finance the purchase, then the downpayment is said to be 10% ($10,000).Back to Top
E
Easement
A right-of-way granted to a person or company which authorizes access to another person's land for a specific purpose. An electric company obtaining a right-of-way across private property to install or maintain its electricity lines is a common example.Encroachment
An obstruction, building, or part of a building or other improvement that intrudes beyond a legal boundary onto neighboring land. A common example would be fences or walls that are built on the other side of a property line and thereby "encroach" on the neighbors property.Encumbrance
A legal right or interest in land that affects or limits complete ownership and control over property. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes or restrictive convenants. An encumbrance does not necessarily prevent transfer of the property to another, but may diminish its value. A title search will usually reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase the property with the encumbrance.Equity
The difference between the fair market value of the property and the current amount owed on the property.Escrow
A portion of monthly payments held by the lender on behalf of the borrower to pay taxes, insurance or other charges as they are due.Back to Top
F
Foreclosure
The procedure whereby property is sold to pay for the debt owed on a mortgage or deed of trust because of non-payment or other default by the borrower. Foreclosure proceedings are initiated by the lender filing a lawsuit against the borrower (judicial foreclosure) or through private action by the lender according to the terms of the mortgage or deed of trust (non-judicial foreclosure).Back to Top
G
Grantee
That party in the deed who is the buyer or recipient.Grantor
That party in the deed who is the seller or giver.Back to Top
H
Hazard Insurance
Protects against damages caused to property by fire or other common hazards.HUD
The United States Department of Housing and Urban Development. Federal Housing Administration (FHA) is a division of HUD which insures home mortgage loans made by lenders and sets minimum standards for such homes.Back to Top
I
Index
A published interest rate used by lenders to masure the difference between the current interest rate on an Adjustable Rate Mortgage and that earned by other investments. The index is used to adjust the mortgage rate up or down.Interest
As it relates to loans, a charge paid for borrowing money over for a period of time.Interest Rate
The percentage of loan amount borrowed which is charged by the lender for use of the money. Interest rates are usually expressed as the percentage per year.Interest Rate Cap
A consumer safeguard that limits the amount that the interest rate may change per year on an Adjustable Rate Mortgage.Back to Top
L
Lien
A legal hold that has been placed on the property as security for a debt.Back to Top
M
Marketable Title
A title that is free of objectionable liens, easements, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will reasonably accept without objection.Maturity (or Maturity Date)
The date a loan becomes payable in full. This is most often the due date of the final payment of a loan.Mortgage
Generally speaking, a mortgage is a lien against real property given by a buyer or property owner to the lender as security for money borrowed. In the event of non-payment of the loan or other default, the property may be sold by foreclosure to satisfy the debt. Mortgage foreclosure procedures are primarily dictated by statute in the property's jurisdiction.Mortgage Broker
A licensed middle man or agent who represents borrowers and/or lenders in mortgage financing transactions. Brokers' fees for their services are usually charged on a commission basis upon the loan closing. Broker's often charge other fees in addition to their commissions to offset specific costs associated with originating a loan.Mortgage Commitment
A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.Mortgage Insurance
Guaranty insurance that protects conventional lenders from losses on a portion of a particular loan. Also known as MI, PMI or Private Mortgage Insurance.Mortgage Insurance Premium
With FHA loans, the payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.Mortgage (Open-End)
A mortgage note with a provision that permits borrowing additional money in the future without refinancing the loan. Open-end provisions often limit such borrowing to no more than would raise the balance to the original principal amount.Mortgagee
The lender in a mortgage agreement.Mortgagor
The borrower in a mortgage agreement.Back to Top
N
Note
A written agreement to repay a loan that is secured by a mortgage. The note serves as proof of indebtedness, states the actual amount of the debt that the mortgage secures and enumerates the terms of repayment.
P
Plot Plan
A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements. Plot plans are generally kept as records of the county, parish or other local government entity.Points
A fee for work involved in the preparation and evaluation of a mortgage loan. One point is equal to one percent of the loan amount.Prepayment
Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a prepayment penalty. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.Principal
The amount of money borrowed excluding interest.Private Mortgage Insurance (PMI)
Protection paid for by the borrower to insure the lender against borrower default. It is usually required when the down payment is less than 20% of thje purchase price.Purchase and Sales Agreement (P&S)
Known by various names - such as contract of purchase, purchase contract, purchase agreement, purchase & sales agreement, or sales agreement - according to local custom. This is a written contract in which a seller agrees to sell and a buyer agrees to buy the subject property. This contract spells out specific terms and conditions of the agreement and is signed by both parties.Back to Top
Q
Quitclaim Deed
A deed which relinquishes any interest in a particular property which the grantor may have. A quitclaim deed is often executed to clear the title when the nature of a grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks because the deed makes no warranties as to the title held by the grantor. Quitclaim deeds may transfer full ownership in a property or no interest at all.Back to Top
R
Real Estate Broker
A licensed middle man or agent who represents buyers and/or sellers in real estate transactions. Brokers' fees for their services are usually charged on a commission basis.Refinance
The process where a borrower pays-off one loan with the proceeds from another loan. A property can be refinanced with a new loan from the current holder of the mortgage or from a new lender.Back to Top
S
Survey
A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is sometimes required by the lender to assure him that a building is actually sited on the land according to its legal description.Back to Top
T
Title
The lawful ownership of particular property.In common real estate usage, title may refer to the actual documents or deeds by which a right of ownership is established.
Title Insurance
An insurance policy that protects lenders or property owners up to a specified amount from certain types of loss of interest in property due to legal defects in title.Title Search (or Title Records Examination)
A check of the title records to establish that the buyer is purchasing a property from the legal owner and to determine all of the liens, assessments, claims, convenants, or other encumbrances or restrictions that would affect the title to the property. The results of the search are expressed in a Title Report or Abstract. The primary purpose of the search is to establish whether the property has marketable title.Trustee
A party who is given legal responsibility to hold and administer property for the benefit of another (the beneficiary). Trustee's are obligated to act in the best interest of the beneficiary.Back to Top
Z
Zoning
Act of city, county or other local authorities specifying how property may be used in specific areas. Also know as Land Use Plans.Back to Top
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