Glossary

ADJUSTABLE RATE MORTGAGE (ARM) Mortgages whose interest rates can fluctuate over time. The interest rates are tied to an index. Usually there is a fixed period followed by intervals where the percentage rate can be adjusted. While the initial percentage may be lower than a fixed-rate mortgage, watch out for that first step; it may give you a nose-bleed. This can be an attractive option for buyers who plan on moving prior to the first adjustment.

ADJUSTMENT PERIOD ARMS are known by the length of time between potential rate changes. For example, a one-year ARM means the initial adjustment is one-year. An ARM with an adjustable period of two years is called a two-year ARM. After two years, the rate will adjust to reflect where the market is at. Subsequent adjustments are by contract and contained within the mortgage documents. Often there is a ceiling or cap of a fixed percentage.

ANNUAL PERCENTAGE RATE (APR) An interesting term that can be substantially higher than the percentage rate you think you are paying, because the APR is the total finance charge including interest, fees and points, expressed as a percentage of your loan.

AMORTIZATION The repayment of a loan in installments of principal and interest rather than interest only payments.

APPRAISAL An estimate of the property value by a professional appraiser.

ASSUMPTION OF MORTGAGE The agreement by the buyer to assume a seller’s liability under an existing mortgage or deed of trust. Obviously, all parties must agree to this for the original borrower to be relieved of responsibility. This almost never happens when mortgage rates are low.

BALLOON NOTE A loan agreement where the borrower agrees to repay a lump sum at a date in the future. The advantages include lower monthly payments and the ability to deduct the entire payment. The primary disadvantage is that when the note is due, you may not have either the cash or the ability to refinance at a favorable rate.

BINDER A somewhat archaic term that refers to the earnest money put up with an offer.

CAP The limit on how much the interest rate can change in an ARM.

COMMITMENT LETTER The lender’s agreement to loan a specified amount of money to a particular person under certain specified terms.

CHATTEL Personal property. Things that are not real estate or attached to real estate.

CLOSING STATEMENT The statement usually prepared by the escrow officer, title company or the seller’s attorney for all of the funds and deposits to be accounted for at the closing. The escrow officer or attorney usually puts the figures together with information from the title company and buyer’s and seller’s lenders.

COMMITMENT An agreement from a mortgage broker to write a mortgage for a stated amount for a stated interest rate for a stated period of time.

CONDOMINIUM A form of real estate ownership where the buyer has title to a particular unit plus a proportionate share, (based upon his percentage ownership of the whole), of the common areas.

CONTINGENCY A condition that must be satisfied before the contract is binding.

CO-OP or COOPERATIVE A form of real estate ownership where a corporation or trust owns the property and the tenants own the corporation or are beneficiaries of the trust which leases the units to the owners. This form of multiple ownership is older than the more common condominium form. This type of ownership may also be subject to less stringent control by the government. A disadvantage is that the shares may not be as marketable as the individual units of a condominium.

DEEDS of TRUST Deeds of trust are a type of real estate ownership where the borrower conveys title to a trustee who holds it as security for the lender. The borrower (trustor) retains all ownership rights, while the lender has an equitable interest in the property. The trustee holds only the bare legal title. In “non-lawyer” states, Deeds of Trust are a common method of transacting residential loans.

EARNEST MONEY The amount of money given with an offer to purchase real estate. The amount is governed by local custom. Often, the initial earnest money is presented with the offer and is then increased to an agreed to amount after acceptance of the contract. This money is held in an escrow account and applied to the purchase price.

ESCROW Escrow, or (Settlement in some areas) is simply the mechanism by which a disinterested third party, such as an attorney, escrow company or title company (banks and savings & loans often have their own escrow departments) makes sure that ownership of the property and the monies due are properly transferred.

EQUITY The difference between the amount owed on a property and what it is worth.

FHA LOAN A loan insured by the Federal Housing Administration of Housing and Urban Development.

FEE SIMPLE Refers to the rights an owner has in the real estate. Fee simple being the highest and most amount of control and use of the property an owner can have.

FIXED RATE MORTGAGE Sometimes called a conventional mortgage. It is a mortgage with a single interest rate for the life of a loan.

FIXTURES Property attached to real estate, e.g., property that would be damaged or destroyed if it was removed from real estate or the real estate would be damaged. Often, but not always this includes attached lighting, shelving, window treatments, and some appliances. Swingsets are often an issue and may be considered fixtures.

GFCI A ground fault circuit interrupter electrical socket or receptacle.

over the life of a loan. The amount of each payment is fixed at the beginning of the loan. A type of mortgage with a payments that start off low and increase over the life of a loan. The amount of each payment is fixed at the beginning of the loan.

JOINT TENANCY A type of ownership where each party owns an equal and undivided interest in the entire property. “Undivided” means each person owns part of the whole property rather than tenancy in common, where each party owns a separate piece of the whole property.

JUMBO LOANS Mortgages that exceed the amount of a conventional loan. Jumbos are subject to different rules and have different percentage rates of interest than conventional loans.

LIEN A legal claim, notice or hold on property used as security.

LOAN COMMITMENT A written promise by a lender to loan a specified amount for a specified time period.

LOCK or LOCK-IN A mortgage lender’s written commitment to a buyer for a specified loan amount, at a specified interest rate, for a specified period of time.

MARKET VALUE The amount of money a willing buyer will buy something for and a willing seller will sell something for.

MECHANIC’S LIEN An encumbrance in the real estate’s title filed by a contractor or workman, who claims that a property owner has not paid for work done on that property.

MORTGAGE A lien on real estate used to guarantee the repayment of a loan.

ONE TIME SHOWING AGREEMENT A contract between the seller and a realtor where the seller agrees to pay a commission to the realtor if the realtor’s buyer buys the house within the agreed to period of time.

PREAPPROVAL A letter from a mortgage broker based on a background check, including credit check, which will have the amount your prospective buyer can expect to be available to him/her. A preapproval from a “qualified lender” has value. While it is not a commitment for a mortgage, it is the next best thing.

PREQUALIFICATION A letter from a mortgage broker that is an estimate of what a prospective home buyer can afford. A loan officer will base this on information that the prospect himself/herself provides.

PRORATIONS The term used to allocate certain expenses proportionately between the seller and buyer. These expenses may be continuing, i.e., real estate taxes or prepaid, i.e., a furnace maintenance contracts. If real estate taxes are paid in the current year for the previous year, the seller would give to the buyer the amount of the taxes for the time the seller occupied the house. (Sometimes this is an estimate of the last tax bill plus an additional percentage to allow for the inevitable increase.) With prepaid service contracts, the buyer would give the seller the amount for the time the buyer has the benefit from the contract.

QUITCLAIM DEED A deed that transfers all of the ownership rights the transferor has.

RELEASE DEED A deed also known as a deed of reconveyance, that transfers all of the rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid.

RESPA The Real Estate Settlement Procedures Act mandated statement that lenders are required to give to borrowers which contains advance notice of the closing costs.

SETTLEMENT see, Escrow.

TENANCY BY THE ENTIRETY A form of real estate ownership whereby each person’s share is subject only to his own liabilities. For example, a husband’s creditors would not be able to touch a wife’s share of the property in order to satisfy a legal obligation that was only his and not hers.

TRUST DEED A type of deed that transfers legal title to a trustee to be held until an obligation is satisfied, for example, repayment of a loan.

VA LOAN A loan guaranteed by the Department of Veterans Affairs (VA). The VA has certain requirements that must be met in order for the loan to be approved.

VARIANCE A deviation from certain zoning laws or restrictions.

WALK THROUGH (FINAL) The final inspection, usually held just prior to closing, where the buyers make certain the house is in the condition it was in when the contract was agreed to.

WARRANTY DEED A deed where the seller warrants or guarantees that he has all of the rights to the property, that he is transferring all of them, and that he will defend against the lawful claims of any third persons.