Glossary

Adjustable rate mortgage (ARM) Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the re-negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Amortization Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual percentage rate (APR) Is a interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal An estimate of the value of property, made by a qualified professional called an "appraiser".

Closing The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

Conventional loan A mortgage not insured by FHA or guaranteed by the VA.

Credit History A partial profile of your financial life given within a particular time frame (usually measured in years). It shows the extent to which you pay your bills on time and how much you may owe particular parties.

Credit Report A document that lists your credit history and was created and updated using information from banks, merchants and other creditors.

Debt-to-Income Ratio The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

Delinquency Failure to make payments on time. This can lead to foreclosure.

Down Payment Money paid to make up the difference between the purchase price and the mortgage amount.

Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Equity The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

EscrowAn account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.

Federal Housing Administration (FHA) A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA) also know as "Fannie Mae" A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA loan A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($155,250 as of 1/1/96), they are generous enough to handle moderately-priced homes almost anywhere in the country.

FHA mortgage insurance Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

Finance Charge The total cost of a loan in dollars and cents. The Finance Charge includes interest, service and transactional fees, and other fees charged against a loan.

Hazard Insurance A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Interest Rate The cost of borrowing money, expressed as a percentage, usually over a period of one year.

Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation. The right given by law to satisfy debt.

Loan-To-Value-Ratio: The relationship between the amount of the mortgage and the appraised value of the property, expressed as percentage of the appraised value.

Mortgage A lien or claim against real property given by the buyer to the lender as security for money borrowed.

Mortgagee The lender.

Mortgagor The borrower or homeowner.

Origination Fee The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

PITI Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Power of Attorney A legal document authorizing one person to act on behalf of another.

Prepaid Expenses Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Principal The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI) In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan's structure.

Public Record Information obtained by the Credit Reporting Agency from court records, such as liens, bankruptcy filings and judgments. Public records are open to any person who requests them.

Purchase agreement An agreement between buyer and seller denoting price and terms of the sale.

Realtor A Realtor is a real estate professional who is a member of the National Association of Realtors and subscribes to its strict Code of Ethics. This professional is committed to protecting and promoting private ownership of real property, establishing and maintaining high professional standards of practice, and creating unity in the National Association of Realtors organization and respect for the real estate profession.

Recision The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recording Fees Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Repossession Forced, or voluntary surrender of merchandise as a result of the customer's failure to pay as promised. There are several types and descriptions of repossession accounts.

Survey A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land.

Title A document that gives evidence of an individual's ownership of property.

Title Insurance A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.

Title Search An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Truth-In-Lending A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

VA Loan A mortgage loan guaranteed by the US Department of Veterans Affairs against loss to the lender and made through a private lender.

Zoning Ordinances The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.