Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

  • Affidavit: a written statement made under oath before a Notary Public or other judicial officer.
  • Amenity:a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, Woods, water) or man-made (like a swimming pool or garden).                                                              
  • Amortization: repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)  
  • Annual Percentage Rate (APR):calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.                      
  • Application: the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.          
  • Appraisal: a document that gives an estimate of a property’s fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.                                              
  • Appraiser: a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.               
  • ARM:Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly payment amount, however, is usually subject to a Cap.                                                               
  • Assessed Value: the value assigned to real estate by the county/city tax assessor; and upon which property taxes are calculated.
  • Assessor:a government official who is responsible for determining the value of a property for the purpose of taxation.
  • Assignment of Funds: the redirection of funds, at the seller’s request, to be applied to another transaction; typically occurs when the sale of the seller’s current home and the purchase of their new home happen within 24-48 hours of each other.
  • Assumable mortgage:a mortgage that, subject to lender’s approval, can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.              
B
  • Balloon Mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.                                                                        
  • Bankruptcy:a federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.                                                                   
  • Borrower:a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.                                           
  • Building code:based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction and materials used in building. 
C
  • Cap: a limit, such as that placed on an adjustable rate mortgage (see ARM), on how much a monthly payment or interest rate can increase or decrease.                           
  • Cash reserves: a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
  • Closing: also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays their closing costs, and receives title (Deed) from the seller     
  • Closing costs: customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.                                               
  • Commission: an amount, usually a percentage of the property sales price, which is collected by a real estate professional as a fee for negotiating the transaction.              
  • Condominium:a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.
  • Conventional loan: a private sector loan, one that is not guaranteed or insured by the U.S. government.
  • Credit history: history of an individual’s debt payment; lenders use this information to gauge a potential borrower’s ability to repay a loan.                                                      
  • Credit report: a record that lists all past and present debts and the timeliness of their repayment; it documents an individual’s credit history.                                  
  • Credit bureau score:a number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.        
D
  • Debt-to-income ratio:a comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
  • Deed:the legal document that transfers ownership of a property.
  • Deed of Trust:a lien on the property that secures the Promise to repay a loan; a legal document that transfers ownership of a property to the Lender’s Trustee in the event of default by the borrower; used in place of a Mortgage in certain U.S. states.
  • Default: the failure to pay monthly mortgage payments in a timely manner or otherwise fail to meet the mortgage terms.
  • Delinquency: lateness of payment; failure of a borrower to make timely mortgage payments under a loan agreement.
  • Discount point: normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount,
  • discount points are paid to reduce the interest rate on a loan.
  • Down payment: the portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan.
E
  • Earnest money: money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.
  • Equity: an owner’s financial interest in a property; calculated by subtracting the amount still owed on the mortgage loans from the fair market value of a property.             
  • Escrow account:a separate account into which the lender puts a portion of each monthly mortgage payment; funds accumulated in an escrow account are used for the payment of future scheduled expenses such as property taxes, homeowners insurance, mortgage insurance, etc.     
F
  • Fair Housing Act:a law that prohibits discrimination in all facets of the home buying process on the basis of race, color,
  • national origin, religion, sex, familial status, or disability.
  • Fair market value:the hypothetical price that a willing buyer and seller will agree upon when they are acting freely,
  • carefully, and with complete knowledge of the situation.
  • Fannie Mae:Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential home buyers.                             
  • FHA: Federal Housing Administration; established in 1934 to advance home ownership opportunities for all Americans; assists home buyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages. 
  • Fixed-rate mortgage:a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.      
  • Flood insurance: insurance that protects homeowners against losses from a flood; if a home is located in a flood plain the lender will require flood insurance before approving a loan.        
  • Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.          
  • Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new home buyers.
G
  • GFE: Good Faith Estimate, an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.                                  
H
  • Home inspection: an examination of the structure and mechanical systems to determine a home’s safety; makes the potential home buyer aware of any repairs that may be needed.
  • Home warranty:offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner’s insurance; coverage extends over a specific time period (usually one year) and does not cover the home’s structure.
  • Homeowner’s insurance: also referred to as Hazard Insurance, an insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence (inappropriate action that results in someone’s injury) or property damage.                               
  • HUD: the U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
  • HUD1 Settlement Statement:also known as the "HUD1" or "settlement sheet," is a disclosure of closing costs for both seller and buyer as required by the Real Estate Settlement Procedures Act (RESPA).                            
I
  • Interest:the cost of borrowing money, usually expressed as a percentage over time.
  • Interest rate: the amount of interest charged on a monthly loan payment; usually expressed as a percentage.
L
  • Lien: a legal claim against property that must be satisfied when the property is sold.
  • Loan fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability and/or criminal penalties.                                 
  • Loan-to-value (LTV) ratio:a percentage calculated by dividing the amount borrowed by the sales price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.                    
  • Lock-in: since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.        
M
  • Margin:an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.
  • Mortgage: a lien on the property that secures the Promise to repay a loan; used in place of a Deed of Trust in certain States.
  • Mortgage broker: a firm that originates and processes loans for a number of lenders.
  • Mortgage insurance:a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price.                                     
  • Mortgage Insurance Premium (MIP): a monthly payment- usually part of the mortgage payment- paid by a borrower for mortgage insurance.           
N
  • Note: a written agreement  between the borrower and lender which outlines the terms for repayment of the mortgage loan.
O
  • Offer: indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
  • Origination:the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.         
  • Origination fee:the charge for originating a loan; is usually calculated in the form of points and paid at closing.
P
  • PITI:Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner’s and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.                            
  • PMI:Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.                            
  • Pre-approval: a lender’s commitment to lend to a potential borrower; commitment remains as long as the borrower still
  • meets the qualification requirements at the time of purchase.
  • Pre-qualify:a lender informally determines the maximum amount an individual is eligible to borrow.
  • Premium: an amount paid on a regular schedule by a policyholder that maintains insurance coverage.
  • Prepayment:payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty.
  • Principal: the amount borrowed from a lender to be repayed over a specified term; and upon which interest accrues. 
R
  • Radon:a radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.
  • Real estate: land; and all man-made improvements attached thereto (i.e. house, garage, shed, fences, etc.).
  • Real estate agent: an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.
  • REALTOR®: a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.                        
  • Refinancing: paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (such as a lower interest rate).                                      
  • RESPA:Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders, agents, brokers and settlement agents to disclose all settlement costs, practices, and relationships.                                     
S
  • Settlement: another name for Closing.
  • Subordinate: to place in a rank of lesser importance or to make one claim secondary to another.
  • Survey: a property diagram that indicates the location of improvements (i.e. house, garage, shed, fences, etc.), legal boundaries, easements, encroachments, rights of way, etc.             
T
  • Title:a document that indicates ownership of a property; collectively the documented history of ownership, liens and encumbrances of a specific property.                
  • Title insurance:indemnity against loss resulting from disputes over ownership of the property and defects in the title.
  • Title abstract/search: a check of public records to be sure that the seller is the recognized owner of the property and that 
  • there are no unsettled liens or other claims against the property.
  • Truth-in-Lending (TIL): A disclosure required by federal law; designed to give the borrower information about the estimated annual cost of the loan, as well as the total cost over the life of the loan. This allows the borrower to compare costs between loan programs and/or lenders.                 
  • TSG: The Settlement Group, Inc.; an independently owned and operated company.
U
  • Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan; includes a review of the potential borrower’s credit history and a judgment of the property value.     
V
  • VA: Department of Veterans Affairs: a federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.                 
  • VHDA:  Virginia Housing Development Authority; the state’s mortgage finance agency; created in 1972 by the Virginia General Assembly, its mission is to help low- and moderate-income Virginians attain quality, affordable housing.

 

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