A-Credit
A consumer with the best credit rating, deserving of the lowest prices that lenders offer. Most lenders require a
FICO score above 720. There is seldom any payoff for being above the A-credit threshold, but you pay a penalty
for being below it.
Abstract of Title
A history of a property's title record used in some states to prepare the Preliminary or Title Commitment report.
Acceleration Clause
Provision in a mortgage document stating that if a payment is missed or any other provision is violated the whole
debt becomes immediately due and payable.
Accrued interest
Interest that is earned but not paid, adding to the amount owed. Same as Negative amortization.
Adjustable Rate Mortgage (ARM)
A mortgage loan where the interest rate is not fixed for the entire term of the loan, and can change during the life
of the loan in line with movements of an index rate.
Ad Valorem
Designates an assessment of taxes against property. Literally, according to value; based on the "ability to pay"
theory.
Agreement of Sale
A contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
Alienation Clause
Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred.
Alternative-A (Alt-A)
A mortgage risk categorization that falls between prime and sub-prime, but is closer to prime. Also
referred to as "A minus"
.
Amortization
Gradual payment of a debt through regular installments that cover both interest and principal.
Amortization schedule
A table showing the mortgage payment, broken down by interest and amortization, the loan balance, tax
and insurance payments if made by the lender, and the balance of the tax/insurance escrow account.
Annual Percentage Rate (APR)
A measure of the total cost of credit (interest as well as other recurring charges) expressed as a yearly percentage
rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers
with a good basis for comparing the cost of loans.
Appraisal
A written estimate of a property's current market value prepared by an appraiser.
Appraiser
A professional with knowledge of real estate markets and skilled in the practice of appraisal. When a
property is appraised in connection with a loan, the appraiser is selected by the lender, but the
appraisal fee is usually paid by the borrower.
Appraised Value
An expert option of the value of a property at a given time, based on facts regarding the location, improvements,
etc., of the property and surroundings.
Appraisal Report
Estimate of real estate value, presumably by an expert. An appraisal evaluates the property at a given time based
on facts regarding the location, improvements, neighborhood and comparable sales. Generally, the value is based
on three approaches: cost, market and income.
Appreciation
Increase in value or worth of property.
Arrears
Payment made after it is due is in arrears. Interest is said to be paid in arrears since it is paid to the date of
payment rather than in advance.
Assessed Valuation
Value placed on real estate by governmental assessors as a basis for levying property taxes; not identical with
appraised or market value.
Assignment
Transfer of a contract from one party to another.
Assumption
An act that occurs when the buyer of a property assumes the seller's debt or obligation without obtaining new
financing. This must be approved by the lender and be permitted under the terms of the note that the seller
executed with the lender.
Attached Homes
A home that has one or more common walls adjoining another home. Condominiums and row houses are attached
homes.
Balloon Loan
Mortgage in which the remaining principal balance becomes fully due and payable at a predetermined time. Most of
the time, balloon loans have level payments until the note becomes due and payable.
Balloon Payment
The final payment of a mortgage which is larger than the regular payment; it usually extinguishes the debt.
Basis
Original cost of property plus value of any improvements put on by the seller minus the depreciation taken by the
seller.
Beneficiary
The lender named on the mortgage note. One entitled to the proceeds of property held in trust; also proceeds of
wills, insurance policies, or trusts.
Bill of Sale
Written agreement transferring personal property from one person to another.
Binder
Preliminary agreement of sale, usually accompanied by earnest money (term also used with property insurance).
Bridge Financing (Bridge Loan)
A form of an interim loan, generally made between a short term loan and a long term loan when the borrower
needs additional time before obtaining permanent financing.
Broker
A person that represents another for a fee in real estate transactions. Real Estate brokers help consumers locate
suitable real estate and are paid a fee for their services.
Buy down
An interest rate buy down is the temporary reduction of the note rate and resulting monthly payments a borrower
pays to the lender. The shortfall between the rate on the note and initial payment made by the borrower is usually
paid by a third party such as a seller or builder.
Buy-up
Paying a higher interest rate in exchange for a rebate by the lender which reduces upfront costs.
Capital Gain
Taxable profit on the sale of an appreciated asset.
Caps
Caps are used on adjustable rate mortgages (ARM's) to limit the interest rate and/or the payment. Most ARMs
have a periodic cap that is around 2% per year and a life cap of around 5%-6% over the life of the loan.
Certificate of Title
A certification 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.
Closing
Conclusion of a real estate sale where the title of the property is transferred to the new owners and funds are
transferred to the appropriate parties ( seller, old lender, real estate broker, etc.).
Closing Agent
A neutral third party that facilities the closing of a real estate transaction. The closing agent can be an escrow
company, title company or attorney.
Closing Costs
Expenses incurred by the buyer/borrower and the seller in a real estate or mortgage transaction. There can be
non-recurring costs that include a one time charge for points, appraisal fees, etc. or a prorating of recurring costs
such as taxes and insurance incurred while the new buyer/borrower owns the real estate.
Co-Maker
Equally responsible for repayment as the borrower.
Commercial Property
Property intended for use by all types of retail and wholesale stores, office buildings, hotels and service
establishments.
Commission
Fee paid to a broker or other entity for services rendered. Real estate brokers and mortgage brokers receive a
commission for the services they provide; a real estate broker secures a buyer for a property that is for sale and a
mortgage broker secures a mortgage loan for the buyer to finance the purchase of a property.
Community Property
Property owned jointly by husband and wife. This classification of property is only used in certain states.
Comparables
Properties which are similar in value to a particular property and are used as comparisons to determine the fair
market value of a specified property.
Conditional Offer
Purchase offer in which the buyer proposes to purchase property only after certain events (sale of another home,
finding a loan commitment, etc.) occur.
Consideration
Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is
consideration.
Construction Loan
Short-term financing for real estate construction. Generally followed by long term financing called a "take out" loan
issued upon completion of construction.
Contingency
Condition which must be satisfied before the buyer can consummate the purchase of a property. Contingencies are
generally outlined in the purchase contract between the buyer and seller.
Contract of Purchase
An agreement between parties for the sale of real estate. In some states it is synonymous with a Purchase
Agreement, Sales Agreement, or Land Contract. In Texas it is known as an Earnest Money Contract.
Contract of Sale
A purchase transaction in which the buyer receives possession of the property, but the seller retains title.
Contract Sales Price
The full purchase price as stated in the contract.
Conventional Loan
A mortgage loan that is not guaranteed or insured by the government. FHA and VA loans are not conventional
loans.
Convertible ARMs
ARMs that have a provision allowing the borrower to convert the mortgage to a fixed rate term. The conversion
feature is outlined in the mortgage note and has certain restrictions.
Conventional Mortgage
A loan neither insured by the FHA nor guaranteed by the VA.
Cost Basis
Accounting figure that includes original cost of property plus certain expenses to purchase, money spent on
permanent improvements and other costs, minus any depreciation claimed on tax returns over the years.
Counteroffer
A new offer made as a result of another offer, which cancels the original offer
Debt Consolidation Mortgage
Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later.
Dedication
The voluntary giving of private property to some public use by the owner, as the dedication of land for streets,
schools, etc., in a development.
Deed
A written instrument by which a property owner, the "grantor," conveys and transfers to a "grantee" an ownership
interest in real property.
Deed of Trust
An instrument given by the borrower to a third party (trustee) vesting title to the property in the trustee as security
for the borrower's repayment of the mortgage loan.
Deed Restriction
Restrictions placed on use of real property by writing in a deed to control use and occupancy of the property by
future owners.
Default
Failure to make mortgage payments or violations other provisions of the mortgage note.
Defective Title
Title to real property which lacks some of the elements necessary to transfer good title. Title to a negotiable
instrument obtained by fraud.
Deposit
Also called Earnest Money Deposit, the deposit is money given to the seller or his agent by the potential buyer
upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes
through, the earnest money is applied against the down payment. If the sale does not go through, the earnest
money deposit will be forfeited to the seller unless the purchase contract expressly provides conditions for its
return to the buyer.
Depreciation
Decrease in value to real property improvements due to wear and tear, adverse changes in the neighborhood, or
any other reason.
Direct Reduction Mortgage
An amortized mortgage in which principal and interest are computed on the remaining balance.
Direct To Consumer Lender
A lender who offers loans directly to the consumer, without an intermediary.
Discount
A loan funded below par (100%). Lenders or investors will fund loans at a discount in order increase the overall
yield on the note.
Disbursements
Payments made during the course of an escrow or at closing.
Documentary Tax Stamps (Doc. Stamps)
Stamps affixed to a deed showing the amount of transfer tax.
Down Payment
Cash to be paid by the buyer at closing to consummate a real estate transaction. Down payment is the difference
between the sales price and the mortgage amount.. Buyer cash required at closing includes the down payment,
closing costs and prepaid expenses.
Dragnet Clause
A clause in a mortgage or deed of trust which places the real estate as security for existing debts between the
parties.
Encroachment
Unauthorized intrusion of a building or improvement such as a wall, fence, etc. onto another's land.
Encumbrance
A claim, lien, charge or liability attached to and binding real property. Any right to, or interest in, land which may
exist in one other than the owner, but which will not prevent the transfer of fee title subject to such encumbrances.
Equity
The market value of the property less the homeowner's unpaid mortgage balance and any outstanding liens or
other debts against the property.
Escrow
The deposit of instruments and/or funds into the care of a neutral third party with instructions to carry out the
provisions of an agreement or contract once all instruments and/or funds have been deposited.
Escrow Payment
That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, mortgage insurance,
hazard insurance, lease payments and other items as they become due. Also known as "impounds" in some states.
Estimated Closing Costs Statement
The statement which lists the financial settlement between buyer and seller and the costs each must pay. A
separate statement for buyer and seller is sometimes prepared.
Exclusive Agency
Listing agreement in which only the listing office may sell the property and earn the commission. If the owner sells
the house, the listing office would not receive any commission.
Exclusive Right-to-Sell
Listing agreement under which the owner promises to pay a commission if the property is sold during the listing
period by anyone, even the owner.
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