Glossary
Adjustable rate mortgage (ARM): A type of mortgage loan that allows for periodic adjustments in interest rate (also call variable rate).
Amortization: A system of loan repayment in regular, equal installments of principal and interest.
Annual percentage rate (APR): The true rate of interest over the life of a loan, taking into account the interest rate for the loan and any points and fees charged for the loan.
Application fee: Fees paid upon application for a mortgage loan.
Broker: A licensed real estate professional who receives a commission for negotiating the sale of a property.
Closing costs: The final fees that must be paid before the transfer of title. Usually includes all expenses over and above the price of a property.
Condominium: A type of property ownership in which the buyer holds title to the air space of an apartment unit and an undivided interest in the common areas of the entire condominium complex.
Contingency: A condition(s) specified in the purchase contract that must be met or resolved before the transaction can be completed.
Debt-to-income ratio: A percentage used to determine the amount of a mortgage loan a buyer can afford.
Deed: A legal instrument by which one person conveys real property to another.
Deed restrictions: Any provisions in a deed restricting ownership or use of the property.
Default: Failure to adhere to the terms of an agreement.
Down payment: The cash portion of the purchase price that is not borrowed from the lender.
Earnest money: A small sum offered by the buyer to the seller with the purchase offer to demonstrate serious interest in a property.
Easement: The legal right to use another person's land for limited purposes.
Encumbrance: A claim against a property that inhibits the owner's ability to transfer good title.
Equity: The difference between the value of a home and the outstanding mortgage balance.
Escrow1: A procedure in which a third party holds all money and documents pertaining to a real estate transaction until the title clears.
Escrow2: When property taxes and home insurance are included in the monthly principal and interest payment, the lender sets up an escrow account to hold the borrower's monthly taxes and insurance premiums for payment at a later date.
FHA loan: A type of mortgage loan made by lending institutions and insured by the Federal Housing Administration through mortgage insurance purchased by the borrower. FHA loans generally provide more liberal terms than conventional loans. Any U.S. resident of legal age may apply.
Fixed rate mortgage (FRM): A type of mortgage loan in which the interest rate remains the same for the life of the loan
Foreclosure: The legal process in which the lender takes possession of the property of a buyer who has defaulted on a mortgage loan.
General warranty deed: Deed in which the seller warrants that the property is free and clear of all encumbrances.
Joint tenancy: The equal and undivided ownership of property by two or more persons with rights of survivorship.
Lien: Any legal claim against a property that is filed to ensure payment of a debt. These can include mortgages, overdue property taxes, unpaid repair bills (mechanics' liens), and judgments.
Loan-to-value ratio: The percentage of the appraised value that the lender will loan.
Location service: A process that confirms the boundaries of a property established by a surveyor.
Mortgage: A legal instrument that pledges property as security for a debt.
Origination fee: Fee charged by the lender for processing the loan.
Planned unit development (PUD): A type of property ownership in which the buyer holds title to a free-standing or attached structure and the land it sits on. The buyer of a PUD may also pay some fees for shared interest in common areas.
Point: An amount equal to one percent of the loan amount. Used by lenders to compute loan fees. Points can be paid to reduce the interest rate.
Pre-approval: Preliminary approval of a mortgage loan before the application is complete.
Pre-qualification: An informal estimate of the maximum mortgage a borrower could obtain based on available income and existing debt.
Promissory note: A legal document in which the borrower agrees to repay a loan according to the terms specified.
Quit claim deed: A legal instrument by which the seller conveys title to the buyer without making any assurances as to the status of the title.
Realtor®: A registered collective membership mark that identifies real estate professionals who are members of the National Association of Realtors® and who subscribe to its strict code of ethics.
Recording fees: The charges for filing the documents that transfer ownership and clear title.
Septic system: An underground tank for the disposal of waste materials.
Survey: A process in which a surveyor sets pins on all corners of a property. A document that shows the boundaries of a parcel of land, improvements on the land, and easements.
Tenancy by the entireties: A special form of joint ownership reserved for married couples in which ownership automatically passes to the surviving spouse.
Tenancy in common: Undivided, but not necessarily equal, ownership of real property by two or more persons without rights of survivorship.
Term: The period or duration of a note or loan.
Title: The legal evidence of ownership.
Title in severalty: Sole ownership of property.
Title insurance: Insurance against loss that results from claims and defects of title.
Title search: The review of all recorded documents to determine the history of ownership and the condition of title to a specific parcel of real property.
VA loan: A type of mortgage loan that provides favorable terms and conditions to eligible veterans. VA loans are made by lending institutions and guaranteed against default by the Department of Veterans Affairs.
Variable rate mortgage: A type of mortgage loan that allows for periodic adjustments in interest rate (also called adjustable rate).