Glossary

An offeree’s consent to enter into a contract and be bound by the terms of the offer. In a real estate transaction an offer is made from the buyer to the seller. If the seller accepts the offer within the prescribed time limit, it becomes a binding contract.

A term for any mortgage in which the interest rate and, generally, the payments change over the life of the loan. The interest rate is adjusted to match the rise or fall of a preselected interest rate index (the LIBOR index or the Treasury index, for example).

A written signed agreement between the seller and the purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement. Also known as contract of purchase, purchase agreement, offer and acceptance, earnest money contract or sales agreement.

The systematic and continuous repayment of an obligation through periodic installments until the debt has been paid off in full.

That period of time over which a calculated mortgage payment will fully repay a set loan amount at a specific interest rate.

The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution: the APR is sometimes computed differently by different lenders.

A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.

A report made by a qualified appraiser setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.

The fair market value an appraiser assigns to a particular property, based on his knowledge, experience, analysis of the property in question and the market conditions in the area.

An expert qualified by education, training and experience who sets forth an opinion or estimate of value of a property, based on available facts and an inspection of that property.

An increase in the value of a property. Appreciation may be the result of an increased demand for a property, any improvements or additions made, improvements to the neighborhood, etc.

The price of a property set by the seller that the seller would like to receive. Also known as the list price.

Anything with a dollar value that you own. Assets include items such as cars and bank accounts. Lenders consider your assets when determining how much you can borrow.

Hired by a buyer to locate a property for purchase. The agent represents the buyer and negotiates with the seller/seller’s agent for the best possible deal for the buyer.

Limits on the amount that the interest rate on an ARM can change per year and/or during the life of the loan. Payment caps limit the amount that monthly payments for an ARM may change.

The borrower’s or borrowers’ savings, investments, and assets; lender may require a certain amount in reserves in order to approve a loan.

An individual who directs the closing-related activities.

Costs, in addition to the price of the property itself, incurred by the buyer and seller in a real estate or mortgage transaction that are due at closing. These costs normally include, but are not limited to, origination fees, discount points (see Points) attorney fees, costs for title, etc.

Itemizes all closing costs, including commissions, loan fees, points, and escrow amounts. Must be given to the borrower three days prior to the scheduled closing and the final loan terms.

The completion of the transaction, where the buyer(s) or borrower(s) sign the mortgage documents, the closing costs are paid and title is transferred to the new property owner. Also known as the settlement date.

A party who signs the mortgage note along with the borrower and who shares the title to, and the obligation to pay for, the property with the borrower. Also called co-mortgagor.

Money or property used as security on a loan and may be taken from the borrower in the case of a default; on a mortgage loan, the home is most often the collateral.

An abbreviation for “comparable properties”; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the appropriate fair market value of a home that is being valued.

A clause in a purchase contract stating conditions that must be met in order for the contract to be binding. For example: The sale of a home can be contingent upon the buyer obtaining financing.

A mortgage loan not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) or Farmers Home Administration (FmHA). No governmental agency approval is required of the lender, borrower or property.

A rejection of part or all of an offer by either the buyer or seller which includes different terms in an attempt to reach an acceptable agreement from both sides.

The ability of an individual or a company to borrow money or procure goods on time, as a result of a positive opinion by a particular lender concerning the borrower’s solvency and reliability. The right granted by a creditor to a debtor to delay satisfaction of a debt, or to incur a debt and defer payment.

A record that lists an individual’s debts and the payment history of those debts. Lenders often use this information to determine a borrower’s ability to repay a loan.

A report detailing a borrower’s credit and payment history including: revolving and installment accounts; public records such as tax liens and judgments.

A term used by lenders to describe the likelihood of a borrower defaulting on a loan.

A credit score is a snapshot of a person’s credit risk at a particular point in time. It is used by lenders to help determine if a borrower qualifies for a loan. There are three main credit reporting companies that issue these credit scores.

The ability of a borrower to repay a loan as perceived by the lender.

A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.

The borrower.

The formal written document that transfers the rights of ownership and possession from the seller to the buyer. Also called Certificate of Title or Title.

Failure to meet legal obligations in a contract, such as the failure to make the monthly mortgage payment.

A lowering of value based on physical deterioration or functional or economic obsolescence.

Payments made during the course of an escrow or at closing.

The difference between the sales price of real estate and the amount of the mortgage loan.

A deposit made by a buyer of real estate towards the down payment to evidence good faith. This money is typically held by the real estate brokers or the escrow company.

The market value of real property, less the amount of any liens.

An account held by the lending institution to which the borrower pays monthly installments for property taxes, insurance and special assessments, and from which the lender disburses these sums as they become due.

A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

A law prohibiting the discrimination on the basis of sex/gender, national origin, religion, race or color, familial status, or disability in any part of the home buying process.

An agency within the U.S. Department of Housing and Urban Development (HUD). FHA offers mortgage insurance programs to protect the lender in the event of default. Because lenders are insured against loss, they can make affordable financing available to borrowers who would not otherwise qualify.

A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages.

The type of loan in which the interest rate will not change for the entire term of the loan.

Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will usually require flood insurance before approving a loan.

Monthly mortgage payments (PITI, principal, interest, taxes and insurance) divided by your gross monthly income. This comes out to a percentage, and a lender uses this percentage to get an idea of how much of your income will be going towards paying your loan. Most programs require a maximum ratio around 30%.

A letter or affidavit that indicates part of a borrower’s down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid.

A mortgage set up as a line of credit against which a borrower can draw up to a maximum amount, as opposed to a loan for a fixed dollar amount. For example, using a standard mortgage you might borrow $150,000, which would be paid out in its entirety at closing. Using a HELOC instead, you receive the lender’s promise to advance you up to $150,000, in an amount and at a time of your choosing.

A loan with a second-priority claim against a property in the event that the borrower defaults. The lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid.

An examination of the structure and mechanical systems to determine a home’s quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.

An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.

An insurance policy that protects the homeowner against both damage to a home and its contents from disasters such as fire, storms, etc; as well as against claims of negligence or inappropriate action that result in someone’s injury. Most lenders will require homeowners insurance.

The beginning interest rate at the start of an adjustable-rate mortgage (ARM). It may be lower than the fully indexed rate or “going market rate” and it will remain constant until it is adjusted up or down on the adjustment date.

A charge for borrowing money. It is usually expressed on an annual rate, or as a percentage, of the money still owed. For example, the interest rate might be 6%. If a person borrowed $10,000 and agrees to pay it in full at the end of one year, the interest will be $600.

The percentage of an amount of money which is paid for its use for a specified time; usually expressed as an annual percentage.

A person or company that makes loans for real estate purchases.

A borrower’s financial obligations.

The form that lists the estimated settlement charges the borrower must pay at closing and the terms of the loan including the annual percentage rate (APR). The lender is obligated to provide the borrower this form within three business days of receiving the loan application.

A person working on behalf of a lending or mortgage company responsible for soliciting borrowers, qualifying and processing loans. Also known as originator, lender, loan representative or loan rep.

The company that collects a borrower’s monthly mortgage payments and disperses money for property taxes and insurance payments. They may be the lender or a company that is under contract with the investor to service the loan.

The ratio, expressed as a percentage, of the amount of a loan (numerator) to the value or selling price of real property (denominator).

A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

The amount of the monthly income as a percentage of the amount the borrower will owe each month in principal, interest, real estate tax and insurance on a mortgage.

A written instrument that creates a lien upon real estate as security for the payment of a specified debt.

Insurance written by an independent mortgage guaranty insurance company that protects the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sales price. Private companies offer this insurance. The federal government writes this form of insurance through the Federal Housing Administration (FHA).

A mortgage loan in which the interest rate can vary throughout the term of that loan.

A written promise by one party to pay a specified sum of money to a second party under conditions agreed upon mutually. Also called a promissory note.

The interest rate on the mortgage loan.

A document completed by a homebuyer specifying the terms and conditions under which real estate will be purchased.

The fee that the lender charges the borrower to cover the cost of issuing a loan commitment. It pays for processing the loan which includes collecting information about the borrower’s creditworthiness and the property. It usually does not include fees for appraisals, credit reports, inspections and loan document preparation.

The total mortgage payment which includes principal, interest, taxes and insurance. The payment of taxes and insurance with the monthly mortgage payment is not always required.

A fixed loan amount that a lender commits to lend to a borrower based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. This does not guaranty a loan until the property has passed inspections and meets underwriting guidelines.

The process of determining how much money a prospective homebuyer will be eligible to borrow before he or she applies for a loan.

Abusive lending practices that include intentionally placing borrowers in loans with notably worse terms or higher costs than loans offered to similarly qualified consumers from the same area. This may include convincing a borrower to refinance a loan that he or she likely would not have done, had the borrower been aware of all implications of the new loan.

The interest rate banks charge to preferred customers.

The outstanding balance of a mortgage, exclusive of interest and any other charges. The capital sum of a loan.

The amount of the total monthly payments for all debt (for example, installment, revolving, and proposed PITI) as a percentage of the monthly income.

An individual who often owns a real estate company or is in a management position, and who is licensed to represent a buyer or a seller in a real estate transaction.

Real Estate Settlement Procedures Act; a law requiring lenders to disclose all settlement costs, practices and relationships.

A real estate professional who is a member of the National Association of Realtors.

An insurance policy which protects the insured against loss arising from defects in title. Title insurance policies are typically obtained for the buyer and the lender.

A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.

In mortgage lending, the process of approving or denying a loan based on an evaluation of the property, the applicant’s creditworthiness and ability to repay the loan.

A mortgage guaranteed by the Department of Veterans Affairs (VA).

A document signed by the borrower’s bank or other financial institution verifying the account balance and history.

A document signed by the borrower’s employer verifying his/her starting date, job title, salary and probability of continued employment.

A buyer’s final inspection of a property to confirm that any contingencies specified in the purchase agreement have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.