glossary

Amortize:

To repay a mortgage with regular payments, both the principal due and the interest.

Annual percentage rate (A.P.R.):

An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal:

An estimate of the value of the property, made by a qualified professional called an "appraiser". An appraisal is required by your bank to determine how much money it will lend you.

Appraised value:

An opinion of a property's fair market value, given by an appraiser, whose job it is to evaluate such things.

Appreciation:

An increase in the value of a property due to changes in market conditions, or for other reasons. The opposite of depreciation.

Assessment:

A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Chain of title:

The history of all of the documents that transfer title to a a piece of real estate. Think of it as being a genealogy for the home since it was built.

Clear title:

A title that is free of liens. You've probably heard of 'you own it free and clear.' Meet 'clear.' See also cloud on title.

Closing:

The meeting between the buyer, seller and lender or their agents at which the property and funds legally change hands. Also called 'settlement.' See also Closing Costs.

Closing costs:

Expenses incurred by buyers and sellers in transferring ownership of a property. These may include an origination fee, taxes, the costs of obtaining title insurance, transfer fees, etc. They can often total several, or many, thousands of dollars.

Cloud on title:

Anything found by the title search which indicates that the property is not owned free and clear by the purported owner.
This can take you right off Cloud Nine.

Collateral:

An asset (such as a car or a home) that can be used to guarantee the repayment of a loan. You, the borrower, risk losing that asset if the loan is not repaid in a timely fashion.

Comps:

No, these aren't free tickets to your favorite team's game. The word is short for "comparable properties" -- properties which have recently sold that are about the same size, in the same area, with similar amenities. These help both you and the appraiser figure out what your home ought to be worth.

Contingency:

A specified condition that must be met before a contract is legally binding. The two most common contingencies in home purchasing are that 1) the house must pass the home inspection, and 2) the borrower must get the loan.

Conventional loan:

A mortgage not insured by the FHA or guaranteed by the VA. Debt-to- Income Ratio: The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See housing expenses-to- income ratio.

Deed of trust:

In many states, this document is used in place of a mortgage to secure the payment of a note.

Depreciation:

A declining the value of property over time.

Down payment:

Money paid to make up the difference between the purchase price and the mortgage amount.
Down payments usually are 5 percent to 20 percent of the sales price on conventional loans and 3.5% on FHA loans.

Earnest Money:

Money given by a buyer to a seller as part of the purchase price, in order to bind a transaction or to assure payment.

Easement:

A right of way giving people other than the owner access to a property. If there is one of these on the house you're considering, make sure you understand what it is, or you may have troops of 1953 alien-landing devotees plodding through your back yard on the way to that sacred corn field just next door.

Encroachment:

1) An improvement that intrudes illegally on someone else's property

Encumbrance:

Anything which limits the title to a property, such as leases, mortgages, easements, or other restrictions.

Equity:

The value an owner has in real estate over and above the obligation against the property. In other words, that portion of the property which the owner actually owns, having already paid for it. (It's also referred to as the owner's interest.)
If a homeowner owns a house valued at $200,000.00 and has a mortgage of $50,000.00, the homeowner's equity is $150,000.00 (the value less the mortgage). As the value of the house increases or decreases, the homeowner's equity increases or decreases accordingly. The lender's equity is always equal to the value of the outstanding loan.

Escrow:

Funds that are set aside and held in trust, usually for payment of taxes and insurance on real property.

FHA loan:

A loan insured by the Federal Housing Administration, open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.

First mortgage:

The mortgage which is the primary lien against a property.

Fixed-Rate Mortgage:

A mortgage on which the interest rate is set for the term of the loan, regardless of future interest rate fluctuations. This makes payments precisely predictable, but it is not always the cheapest alternative.

Hazard Insurance:

nce company protects the insured from specified losses, such as fire, windstorm and the like.
Home equity line of credit: A loan against the amount of equity you may have in a property.

Home inspection:

A complete and thorough inspection of the physical condition of a property, including all major systems and structural elements. It's conducted by someone who knows what to look for, and who will inform you of what he finds. If he turns up something you don't like and which the seller refuses to repair, you don't proceed with the purchase of the home.

Homeowner's insurance:

An insurance policy, required when you take ownership, that combines personal liability insurance and hazard insurance for the home as well as its contents.

Homeowner's warranty:

A warranty which will cover repairs to specified parts of a house for a specific period of time. It is provided by the seller (or, if the place is new, the builder) as a condition of the sale. Interest: The amount of money, expressed as a percentage of the principal, charged for the use of the money borrowed.

Jumbo Loan:

A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lien:

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Listing Price:

The price at which the house is listed; the asking price.

Loan-to- Value Ratio:

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock-in:

A written agreement from the lender to offer a specified interest rate if the mortgage goes to closing within a set period of time.

Market Value:

The highest price that a buyer would pay and the lowest price a seller would accept on a property.
Market value may be different from the price a property could actually be sold for at a given time.

Mortgage:

A legal contract that is registered against the title to a property in order to guarantee that a loan will be repaid.

Mortgage broker:

A person or company that offers loans to borrowers from numerous sources; they're generally paid a commission for their services.

Mortgage Insurance:

Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

Note:

The signed obligation to pay a debt, as a mortgage note.

PITI:

Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Points (loan discount points):

Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Prepaid Expenses:

Money necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Principal:

The amount of debt, not counting interest, left on a loan.

Realtor: A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Sale Price:

The price at which the house actually sold. By noting the difference between the sale price and the listing price in houses that have recently sold, comparable to the one you're interested in, you can get an idea of how much below or above the asking price you might be able to offer.

Second Mortgage:

A mortgage made subsequent to another mortgage and subordinate to the first one.

Sweat Equity:

Equity created by a purchaser performing work on a property being purchased. The idea is that you're improving the property through all the sweaty work you're putting into it.

Title:

A document that gives evidence of an individual's ownership of property.

Title Insurance:

A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is us ally a function of the value of the property, and is often borne by the purchaser and/or seller.

Underwriting:

The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

VA Loan:

A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.