Adjustment Period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Adjustable Rate Mortgage (ARM)
Also known as variable rate, an ARM is a mortgage with interest rates that may fluctuate up or down periodically, according to the index upon which it is based. Most ARMs will have a limit on the amount that the rate can vary.

Administrator
A person appointed by a probate court to administer the estate of a person who died intestate

Agency
A legal relationship between two or more persons whereby one person (the agent) is authorized to act on behalf of the other(s).

Agent
Generally, someone who acts on behalf of another, called the principal, for a fee. In real estate, the term refers to a person with a real estate license who works under the authority of a real estate broker.

Amortization
The process of repaying a debt through regular payments of principal and interest.

Annual Percentage Rate (APR)
The true rate of interest, stated as a yearly percentage, for a loan over its projected life.

Annuity
The return from an investment of capital, with interest, in a series of regular payments. An entity that lends money collects an annuity from the borrower, while the borrower is amortizing the loan.

Appraisal
An official estimate of value of an asset as determined by a qualified, independent party. Appraisal of property is typically based on facts such as recent sales of comparable properties, replacement cost, and ability to produce income.

Appreciation
Increase in value of a property, not including increases from improvements.

As-is Agreement
An agreement in which a property is sold without warranty in whatever condition it is in at the time the contract is signed.

Assessed Value
The valuation placed upon property by a public tax assessor as the basis for taxes.

Assessment
Tax or charge levied against a property by the government, typically to pay for local improvement, e.g. sidewalks, curbs, sewers, etc.

Assignment Clause
A sales contract with an assignment clause allows the buyer to transfer the interest in the property(e.g. the right to buy it at the given rates and terms) to another party.

Assumption
The process of taking over the existing mortgage and assuming liability for the payments when purchasing a property. If the purchaser defaults, both buyer and seller are responsible for repaying the debt.

Back Ratio
Ratio of monthly housing costs (principal, insurance, taxes, and interest) plus regular monthly payments to gross monthly income used by lender to evaluate an applicant’s qualification for a loan. Lenders will typically allow a back ratio between 32 and 45 percent.

Balloon Mortgage
This is a loan which must be paid off after a certain period. The advantage they offer is an interest rate that is lower than a mortgage that is made for 30 years.

Balloon Payment
Final payment on a mortgage that is larger than preceding payments and pays the loan in full.

Bankruptcy
A legal proceeding which offers protection from creditors to a debtor who is unable to pay debts.

Bi-weekly Mortgages
Your lender will probably tell you that a biweekly mortgage is structured just like a traditional fixed-rate, level-payment, fully amortizing mortgage. However, you make your payments every 14 days instead of once a month. The monthly payment is split in half, resulting in the same total monthly mortgage, but the resulting 26 and sometimes 27 biweekly payments a year translate into 13 monthly payments, or one extra monthly payment per year.

Borrowers can qualify for a 30-year monthly payment amount, but get a loan that pays off in approximately 22 years at current interest rates. At higher rates, the actual term declines.

If you are looking to build up equity in your home faster without the higher mortgage payments that come with a shorter-term mortgage, you may want to consider the biweekly mortgage. Payments can be deducted from your bank account and scheduled to coincide with your payroll deposits to simplify budgeting. Lenders may charge an initial set-up fee to automatically debit your checking account.

Book Value
The value of an asset as shown in the financial records of an individual or corporation.

Breach
Failure to perform on a promise made in contract without legal excuse.

Broker
A licensed professional who assists in the purchase, sale, rental, or management of real property. A broker can be employed by either the buyer or seller, and accordingly, his duties may include locating and showing properties to prospective buyers, advertising properties for sale, assisting in contract negotiations, and other related activities. The term agent is often used interchangeably with broker, although in actuality, agents work under a broker and act as agents for that broker.

Buy-back Agreement
An agreement specifying conditions under which the seller agrees to repurchase the property, usually for a stated price and within a stated time limit.

Buyer’s Market
A market in which there are more houses for sale than there are potential buyers. As such, housing prices are driven lower, and buyers stand to get a better deal when purchasing.

CC and R’s (Covenants, Conditions and Restrictions)
A document that controls the use, requirements and restrictions of a property.

Certificate of Occupancy
A certificate stating that a building is approved for occupancy issued by the city or county building inspection department. It is important that a certificate has been issued, as some home insurance policies will not pay claims for damage to a property that has not been approved for occupancy.

Certificate of Reasonable Value (CRV)
A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Closing
Also referred to as settlement. The process of finalizing all dealings in the purchase of a property, including singing of papers, disbursement of money, preparation of deed, and transfer of ownership.

Closing Costs
Costs associated with finalizing the purchase of a home or property, including property insurance, property taxes, title insurance, mortgage insurance premium, points, and filing fees.

Closing Statement (Settlement)
The computation of financial adjustments between buyer and seller as of the day of closing a sale to determine the net amount of money which buyer must pay to seller to complete purchase of the real estate and seller’s net proceeds.  Also, “settlement sheets,” “HUD-1.”

Cloud on Title
An invalid legal claim to the title of a property that appears during the sale of the property, due to a recording mistake or other error and thus not apparent to the buyer or seller beforehand.

Collateral
Personal property pledged as security for a debt. Collateral for a mortgage is usually the property itself.

Comparative Market Analysis (CMA)
A comparison a sale prices of similar properties in a given area for the purpose of determining the fair market value of a property.

Commission
Payment to a real estate broker for services performed.

Condominium/Condo
A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.

Contingency
A provision that makes the occurrence of on e event dependent on the completion of another. For example, the purchase of a home may be contingent on the seller repairing the structural damages.

Contract
A formal agreement between two or more parties that is typically legally binding.

Conventional Loan
Real estate loan that is not guaranteed by a government agency such as the Veterans Administration or Federal Housing Authority.

Co-ownership
The state of two or more people sharing ownership of a property. Can be an important issue in matters such as personal liability or inheritance.

Co-signer
A person who assumes joint liability with another person by signing documents (e.g. loan promissory note). A co-signer is not necessarily a co-owner.

Counteroffer
A rejection of an original offer, combined with a new offer stating different terms and conditions.

Credit Report
A report from an independent source outlining the credit history of an individual, including current and previous debts, payment amounts, late payments and past due amounts, defaults, and other related information on every credit source the individual has used.

Deed
A written, sealed document which transfers title to real estate from one party to another.

Default
Failure or neglect to fulfill an obligation or requirement. A borrower defaults on a loan if he fails to make payment, or otherwise fails to perform according to the terms of the note.

Disclosure
Statement of fact(s) concerning the condition of the property for sale and the surrounding area. In most states, the buyer is protected by disclosure laws requiring sellers to divulge certain information about the property, e.g. if the property is in a special studies zone.

Down Payment
The amount of payment required to secure the purchase of a property. Lenders typically require a 20% down payment, although with mortgage insurance down payments of 5, 10, and 15% are common.

Dual Agency
A situation where one broker represents both the buyer and seller in a purchase.  Although there may be two separate agents involved, both act on behalf of the same broker. In order to have dual agency representation, both parties must be made aware of and agree to the relationship.

Due-On-Sale Clause
An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money Deposit
A portion of the purchase price paid to demonstrate the buyer’s good faith (i.e. intent to go through with the purchase). Payment is usually accompanied by an agreement outlining the terms and conditions of the sale.

Easement Rights
The rights of an individual to use another individual’s property for a particular purpose (e.g. access to their own property). The seller should make the buyer aware of any easement rights that affect the property for sale.

Encumbrance
Any claim against the title to a property, such as a lien or mortgage.

Entitlement
A right due to an individual. The term, when used with VA insurance, refers to the loan amount that the VA will guarantee for a particular borrower.

Equity
The amount or value of a person’s interest in a property in excess of any lien against the property. For example, if a person makes a down payment of $30,000 on a property with market value $120,000 and takes out a mortgage for $90,000, at the time of purchase the buyer would have a $30,000, or 25% equity in the property.

Escrow
A deed, contract, or something of value placed in the custody of a third party to be transferred upon fulfillment of a stipulated condition.

Fannie Mae
Another name for the Federal National Mortgage Association, a federally sponsored agency which buys mortgages from banks, savings and loans, and other lending institutions. Agencies such as Fannie Mae are part of the secondary market.

Fee Simple
An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

FHA Insurance
Mortgage insurance provided by the Federal Housing Administration to protect banks, savings and loans, and mortgage companies against loss on real estate loans. Borrowers must pay a premium in order to get an FHA issued loan.

Fixed Rate Mortgage
A mortgage with an interest rate and payments that remain fixed over the duration of the loan.

Fixture
An item that is attached to the property, e.g. a dishwasher or air conditioner, and usually sold with it.

Foreclosure
Legal procedure used by creditors to take a mortgaged property from a debtor who has defaulted on the loan.

Freddie Mac
Another name for the Federal Home Loan Mortgage Corporation, a federally sponsored agency which buys and sells mortgages. Along with Fannie Mae, Freddie Mac is a major player in the secondary market.

Free and Clear Title
Title to a property which is free from any mortgage, lien, or other encumbrance.

Freely Assumable
Term used to describe a loan which may be assumed by anyone without permission from the lender. In such a situation, however, the original borrower is usually held liable in the event the loan is not repaid.

Front Ratio
Ratio of monthly housing costs (principal, insurance, taxes, and interest) to gross monthly income used by lenders to evaluate an applicant’s qualification for a loan. Lenders will typically allow a front ratio between 28 and 40 percent.

Guaranteed Mortgage
A mortgage that is guaranteed against default, such as a VA or FHA insured mortgage. Borrowers must pay an insurance premium in order to get a guaranteed mortgage (also called an insured mortgage).

Grace Period
The time period between the due date of a mortgage payment and the date when late charges are assessed. For example, payments due on the first of the month may have a 14 day grace period, meaning that fees will be charged if payment is not received by the fifteenth.

Graduated Payment Mortgage
A mortgage with monthly payments that are smaller at the beginning of the loan period and gradually increase by a specified amount for the first five or ten years, after which they become fixed. A GPM has a fixed interest rate and fixed loan period.

Hazard Insurance
Insurance that covers events such as earthquakes, floods, tornadoes, and other “acts of God”.

Homeowner’s Insurance
Property insurance that protects homeowners against theft, personal liability, and fire.

Home Warranty Insurance
Private insurance for homebuyers that covers appliances and plumbing, heating, and electrical systems in the home.

HUD Flood Zone
An area prone to flooding, as determined by the Housing and Urban Development, a branch of the federal government.

Income-to-Debt Ratio
The percentage of gross income that lenders will allow for monthly housing costs when evaluating a borrower’s qualification for a particular loan amount.

Index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage.

Inspection
An examination of a property or building to determine condition or quality for a particular purpose such as an assessment of structural or termite damage.

Interest Cap
A limit on the amount that the interest rate for an adjustable rate mortgage can change, regardless of how much the index changes. Most ARMs have cap on both the amount it can increase or decrease at any periodic adjustment interval and a life-long cap that limits the amount the interest rate can vary over the life of the loan. The two interest caps are sometimes called a “periodic cap” and a “life cap”.

Interest Rate
The percentage rate on a principal amount charged by a lender for the use of a sum of money.

Joint Tenancy
An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent’s interest in the property.

Junior Lien
When a property is foreclosed, lenders are repaid in a particular order, established by the loan documents. The lender with the first claim to repayment is said to hold the first mortgage, and a lender whose repayment order is after the first claimant is said to hold a junior lien.

Junior Mortgage
Also called a secondary mortgage. A mortgage whose claim to repayment is second to another mortgage.

Key Lot
A tract of land which sells for a high price because of its desirable location.

Lien
A claim against a property, typically as security for a debt. In addition to a mortgage lien, a property may also have a tax lien (e.g. overdue property taxes) or judgment lien, which is a court-appointed claim against a property.

Liquidated Damages
Compensation paid to the seller if the buyer fails to complete the purchase even though all contingencies have been satisfied. For example, the seller may keep the buyer’s earnest money in the event the buyer defaults on the contract.

Listing Contract
Between a home owner (as principal) and a licensed real estate broker (as agent) by which the broker is employed to market the real estate within a given time for which service the owner agrees to pay a commission. Also, “listing agreement.”

Loan Application
A document containing detailed information about the borrower and co-borrower that is required for a loan to be issued.

Loan Commitment
A written promise to make a loan for a specified amount on specified terms.

Loan-to-Value Ratio (LTV)
The ratio of a proposed loan amount to the lesser of a property’s appraised value or purchase price. For example, if a property is purchased for $110,000, appraised for $100,000 and the buyer is applying for a loan in the amount of $90,000, the LTV is 90% (90,000 divided by 100,000).

Lock-in
An assurance of a given interest rate at the time of settlement. For example, if the interest rate is at 7.5% when you apply for a loan, it may have risen (or fallen) by the time the loan is approved. A lock-in ensures that you will get the original interest rate. Some lenders charge a fee for locking in an interest rate.

Lump Sum Payment
A sum of money paid at one time, as opposed to spreading payments over a period of time.

Maintenance
Any repairs or general upkeep done to preserve the present condition of a property.

Margin
A percentage added to an adjustable rate mortgage’s index to determine the interest rate at a given time. For example, if an ARM has an index of 4% and a margin of 2.75, the interest rate is set at 6.75% (4 + 2.75).

Market Value
Also known as fair market value. The price that a property can realistically be sold for, given the selling price of other comparable houses in the area.

Mortgage
A conditional contract in which a property is given as security for the repayment of a loan.

Mortgage Life Insurance
A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.

Mortgage Note
A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. Also, “deed of trust note.”

National Association of Realtors® (NAR)
A trade organization that sets the standards for the real estate profession and enforces a rigid code of honesty in real estate dealings.  Membership includes real estate professionals across the country.

Negative Amortization
The situation in which the balance of a loan gets larger, rather than smaller each month because payments made are too small to cover the loan’s interest charges. For example, if your monthly payment amount is based on a 4% interest rate but the actual rate being charged on the loan is 7.5%, your payments will not cover the accrued interest and each month the unpaid interest portion will be added to your loan balance.

Negotiation
Discussions held between two or more parties for the purpose of resolving issues and reaching an agreement.

Origination Fee
A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to 1 percent of FHA and VA loans.

Payment Cap
A limit on the amount that the monthly payment on an adjustable rate mortgage can increase or decrease at each adjustment period. For example, if your monthly payments start at $1,000 and the ARM has a payment cap of 7.5%, the next adjustment cannot exceed plus or minus $75 per month regardless of how much the loan’s index changes. This can lead to negative amortization if the interest rate goes up and the monthly payment amount is too small to cover the increased interest charges.

PITI
Short for principal, interest, taxes, and insurance. These are the basic monthly housing costs that lenders consider when evaluating a borrower’s qualification for a loan, as in: the PITI may not exceed 28% of the borrower’s gross monthly income.

Planned Unit Development (PUD)
A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial.

Point
An amount equal to 1 percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

Prepayment Penalty
A charge which a lender may assess a borrower if a loan is paid off before the due date.

Prequalification
The process of establishing a borrower’s qualification for a loan of a particular amount based on income and expenses. Prequalification does not guarantee that the loan amount will be approved, but can be used to demonstrate financial capability to an agent or seller.

Primary Lender
A financial institution which actually makes mortgage loans from its funds. For Example, if you obtain a mortgage from a bank and the bank then sells the mortgage to the secondary market, the bank is the original, or primary lender. Examples of primary lenders are banks, saving and loans, mortgage companies, and credit unions.

Prime Rate
The rate of interest charged by a lender to its best customers.

Principal
- Has several meanings:
a) To denote the most important;
b) A capital sum lent on interest;
c) One who appoints an agent to act on their behalf;
d) Either party to a contract.

Private Mortgage Insurance (PMI)
Mortgage insurance available for a premium which allows a borrower to take out a loan with a down payment of less than 20%. Unlike VA or FHA insurance, PMI is not backed by any government agency.

Property Tax
Tax assessed against a property by local governments. One of the four basic monthly housing costs (PITI).

Prorate
To divide proportionately, so as to determine actual amounts owed by the buyer and seller at closing. For example, if property taxes for a month are $300 and the seller owned the property for the first 10 days while the borrower owned the property for the remaining 20 days, the property taxes owed would be prorated so that the seller would pay $100 ($300 * 10/30) and the buyer would pay $200 ($300 * 20/30).

Purchase Agreement
A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions.  Also called a sales contract, earnest money contract, or agreement for sale.

Qualifying
The process of determining whether a buyer is financially able to assume a mortgage by checking credit history, present and previous employment, and any other sources which may help to determine the buyer’s financial capability.

Realtor®
A real estate professional who is a member of the National Association of Realtors^®. Also used more generally to refer to a real estate professional, although agents may not advertise themselves as Realtors; unless they belong to NAR.

Recourse
The right of a lender to reclaim both money and collateral from a borrower who has defaulted on a loan.

Regulation Z
The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection act.

Right of First Refusal
The right to purchase a property under terms and conditions made by another purchaser and accepted by the seller. For example, if the Jones’ make an offer of $120,000 on a property and the seller accepts the offer subject to the Wilsons’ right of first refusal, the Wilson’s have the right to buy the property for $120,000.

Sales Contract
A formal, written document specifying the terms and conditions under which the sale of property will take place.

Secondary Market
A collection of agencies that buy mortgages from primary lenders. These mortgage funds are than pooled and sold to investors, much like a mutual fund. By purchasing loans form primary lenders, the secondary market supplies money for additional mortgages.

Seller Assisted Second Mortgage
The seller of the house lends the buyer enough to make up the difference between the purchase price and the down payment plus first-mortgage balance (a commercial lender may also make this kind of loan). The terms including the interest rate, are based on buyer/seller agreement. It is often a short-term (5 to 15 year) loan; sometimes “interest only” payments until the term date when the balance is due in full. A buyer can then refinance the home.

Single Agency
A relationship in which an agent represents the buyer or the seller but not both.

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 often required by the lender to assure a building is actually sited on the land according to its legal description.

Tenancy in Common
A type of joint ownership of property by two or more persons with no right of survivorship.

Title
A formal document which establishes ownership of a property.

Title Insurance
Insurance that protects a purchaser against any defects that may be discovered in the title after ownership has been transferred.

Title Search or Examination
A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims.

Transfer Taxes
Taxes imposed by local governments when transferring ownership of real property.

Unencumbered
The state of having no mortgages, liens, or other claims against a property. A property that is unencumbered is said to be “free and clear.”

VA Insurance
Mortgage insurance available to veterans of the U.S. military form the Veterans Administration. Eligible borrowers must pay a premium of 1% of the loan amount to get a VA insured loan. The loan is then backed by the government in case of borrower default.

Valuation
An estimation of value of a property, as determined by various factors.

Warranty
A guarantee or protection provided to the purchaser regarding the condition of appliances and certain fixtures. New homes often have more extensive warranties covering not only fixtures and appliances but the overall structure as well.