glossary

Adjustable Rate Mortgage (ARM) – interest rates on the mortgage are periodically adjusted up or down, depending on a specified financial index.

Agent – acts on behalf of another, representing that person’s interest and serving as intermediary.

Aggregate Escrow Accounting – a required method of accounting for and reconciling the borrower’s escrow account with the lender.  There are limits to amount of excess or “cushion” the lender may retain or require in an escrow account.

ALTA Settlement Statement – a precise breakdown of closing costs for both sellers and buyers.

Amortization – a method of equalizing the monthly mortgage payments over the life of the loan even though the proportion of principal to interest changes over time.   In the early part of the loan, principal repayment is very small and interest repayment very high; at the end of the loan, the opposite is true.

Annual Percentage Rate (APR) – the actual finance charge for a loan, expressed as a percentage, including any points and loan fees paid by the borrower in addition to the stated interest rate.

Appraisal – an expert judgment of the value or worth of a property.   Completed by a licensed appraiser and required by the lender as a condition of loan approval.   Usually ordered by the Lender.

Assessed Value – the value placed on property by the local taxing authority for purposes of levying real estate taxes.   It is not the same as the appraised value or sales price.

Assumption of Mortgage – Buyer assumes liability for an existing mortgage loan held by the seller of the property.   This is subject to approval by the existing lender who must be willing to approve the buyer and release the seller from liability on the loan.

Balloon Payment – a large principal payment due all at once at the end of some loans.

Cap – limit on how much the interest rate change on an adjustable rate mortgage.

Closing – see “Settlement”

Commission – fee, usually a percentage of the property sales price, paid to a real estate agent or brokerage for services performed.

Condominium (Condo) – type of real estate property where the owner has title to a specific unit and shared interest in common areas.

Consummation – see “Settlement”

Contingency – a condition in a contract that must be satisfied or removed for the contract to be binding.

Contract – binding written legal agreement between two or more parties that delineates the conditions for the exchange of value (for example: money exchanged for title to property).

Deed – legal document that formally conveys ownership of property from the seller to buyer.

Deed of Trust – legal document that formally conveys ownership of property from the buyer to a trustee for the purpose of securing the lender’s claim on the property pending repayment of the loan.

Down Payment – portion of the purchase price that the buyer must pay in cash at settlement and may not borrow from the lender.

Earnest Money Deposit (EMD) – Deposit paid by the buyer when the sales contract is ratified.

Escrow – an account held by a third-party custodian until conditions of a contract are met.

Fixed Rate Mortgage – interest rates on this type of mortgage remain the same over the life of the loan term.

Fixture – a recognizable object (such as a toilet bowl, kitchen cabinet, or lighting unit) that is permanently attached to property and thus belongs to the property when it is sold.

Hazard Insurance/Homeowner’s Insurance – an insurance policy that compensates for property damage from specified hazards, such as fire and wind.   Insurance must be obtained prior to settlement by the buyer and provided to the lender.

Home Inspection Report – prepared by a qualified inspector, it evaluates a property’s structural and mechanical systems.

HUD-1 Settlement Statement – a precise breakdown of closing costs for both sellers and buyers, now used primarily for commercial or all-cash transactions.

Interest – the cost of borrowing money, usually expressed as a percentage over time.

Lien – a secured claim on property until a debt is satisfied.

Listing Contract – agreement whereby an owner engages a real estate agent for a specified period of time to sell property for which sale the agent receives a commission.

Mortgage – a security claim by a lender against property until the debt is paid.

Negative Amortization – type of loan product where by monthly payments aren’t sufficient to cover interest accruing on the loan, causing the additional amounts of interest due to be added to the principal balance and creating the potential of a higher principal balance over time.

PITI – principal, interest, taxes and insurance; forming the basis for monthly mortgage payments.

Prepayment Penalty – a fee paid by a borrower who pays off the loan before it is due according to the terms of the loan.

Prorate – divide or assess proportionately

Settlement – culmination of legal and financial transaction required to make the contract terms finalized and transfer title of property from Seller to Buyer.

Tenancy – there are four types of ownership for real property:

•  Sole Ownership – only one person/entity owns the property entirely.
• Tenants in Common – two or more persons have a divided and specific ownership in the property.   The percentage of ownership need not be equal; each party has a right to sell their interest, and upon the death of that owner, his interest in the property passes to his heirs.
•  Joint Tenants – ownership taken by two or more persons at the same time in equal percentages with an undivided right to possession.   If one owner dies, his or her interest automatically passes to the remaining owner(s) through a right of survivorship.
•  Tenants by the Entirety – owners are husband and wife and together they hold title to the property with a right of survivorship.   Upon the death of either, the survivor takes sole ownership of the entire property by operation of law.

Title – document that indicated ownership of a specific property, i.e. a deed for real property.

Title Insurance – protects against loss from legal defects in the title.

Title Search – detailed examination of the land records for a customarily prescribed period of time during the history of a property.