Glossary of Real Estate and Financing Terminology
ACCEPTANCE: Consent to an offer to enter into contract.
ADJUSTABLE RATE MORTGAGE: A loan that allows the lender to adjust the borrower’s Interest rate and payments at prescribed times and with prescribed limits.
AMORTIZED LOAN: A loan that is paid off in equal installments during its term.
A. P. R. (Annual Percentage Rate): A term used in the Truth in Lending Act. It represents the relationship of the total finance charge (Interest, discounts points. origination fees, loan broker, commission, etc.) to the amount of the loan.
APPRAISAL: An estimate of real estate value, usually issued to standards of FHA, VA, FHMA. Recent comparable sales in the neighborhood are the most important factor in determining value.
APPRECIATION: Increase in value due to any cause.
ASSUMABLE MORTGAGE: Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.
BILL OF SALE: Document used to transfer title (ownership) of PERSONAL property.
CLOSING STATEMENT: A financial statement rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended.
CLOUD ON THE TITLE: Any condition that affects the clear tithe to real property.
COMPARABLE SALES: Sales that have similar characteristics as the subject property and are used for analysis in the appraisal process.
CONTRACT: An agreement to do or not to do a certain thing.
CONSIDERATION: Anything of value to induce another to enter into a contract (i.e. money, services, a promise).
DEED: Written instrument which, when properly executed and delivered, conveys title to real property.
DISCOUNT POINTS OR POINTS: A loan fee charged by a lender of FHA, VA or Conventional loans to increase the yield on the investment. One point = 1% of the loan amount.
EARNEST MONEY: Initial deposit made by the purchaser of real estate as evidence of good faith.
EASEMENT: A right to use the land of another.
ENCUMBRANCE: Anything that burdens (limits) the fee title to property, such as a lien, easement or restriction of any kind.
EQUITY: The value of real estate over and above the liens against it. It is obtained by subtracting the total liens ‘from the value.
ESCROW PAYMENT: That portion of a mortgagor’s monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due.
EXCHANGE: The trading of equity in a piece of property for equity in another.
FANNIE MAE: Nickname for Federal National Mortgage Corp. (FNMA), a tax-paying corporation created by Congress to support the secondary mortgages insured by FHA or guaranteed by VA. as well as conventional home mortgages.
FEDERAL HOUSING ADMINISTRATION (FHA): The Federal Government agency that administers FHA insured loans.
FHA INSURED MORTGAGE: A mortgage under which the Federal Housing Administration insures loans made, according to its regulation, by approved lenders.
FIXED RATE MORTGAGE: A loan that fixes the interest rate at a prescribed rate for the duration of the loan.
FORECLOSURE: Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default.
FREDDIE MAC: Nickname for Federal Home Loan Mortgage Corp. (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.
GRADUATED PAYMENT MORTGAGE: Any loan where the borrower pays a portion of the interest due each month during the first few years of the loan. The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its life,
INVESTOR: the holder of a mortgage or the permanent lender for whom the mortgage banker services the loan. Any person or institution that invests in mortgages.
TENANCY: A type of ownership of property by two or more people with the right of survivorship. Requires the four unities of time, title, interest and possession.
LEASE PURCHASE AGREEMENT: Buyer makes a deposit for the future purchase of a property with the right to lease the property in the interim.
LOAN TO VALUE RATIO (LTV): The ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value (selling price). Example- on a $100,000 home, with a mortgage loan principal of $80,000 the loan to value ratio is 80%.
MORTGAGE: One type of document used to make property the security for the payment of a loan.
MORTGAGE INSURANCE PREMIUM (MIP): The consideration paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance (PMl) company. This insurance protects the investor from possible loss in the event of a borrower’s default on a loan.
MORTGAGEE: The lender of money or the receiver of the mortgage document.
MORTGAGOR: The borrower of money of the giver of the mortgage document.
NOTE: A written promise to pay a certain amount of money.
ORIGINATION FEE: A fee or charge for work involved in the evaluation, preparation and submission of a proposed mortgage loan.
PREPAYMENT PENALTY: A fee paid to the mortgagee for paying the mortgage before it becomes due. Also known as prepayment fee or reinvestment fee.
PRIVATE MORTGAGE INSURANCE (PMI): See Mortgage Insurance Premium.
PROMISSORY NOTE: A written contract containing a promise to pay a definite amount of money at a definite future time.
REALTOR: A member of local and state real estate boards that are affiliated with the National Association of Realtors (NAR).
SECOND MORTGAGE/SECOND DEED OF TRUST/JUNIOR MORTGAGE OR JUNIOR LIEN: An additional loan imposed on a property with a first mortgage. Generally a higher interest rate and shorter term than a “first” mortgage.
SEVERALTY OWNERSHIP: Ownership by one person only. Sole ownership.
SURVEY: The process by which a parcel of land is measured and its area ascertained.
TENANCY IN COMMON: Ownership by two or more persons who hold an undivided interest without right of survivorship. (In the event of the death of one owner, his/her share will pass to his/her heirs).
TITLE INSURANCE: An insurance policy that protects the insured (Purchaser or lender) against loss arising from defects in the title.
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