Adjustable-Rate Mortgage (ARM)
A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month.
Annual Percentage Rate (APR)
The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.
A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
A practitioner who has the knowledge and expertise necessary to estimate the value of an asset. Ideally, an appraiser acts independently of the buying and selling parties in a transaction in order to arrive at the fair value of an asset without bias.
The increase in the value of a property due to changes in market conditions, inflation, or other causes.
An assumable mortgage is one that a buyer of a home can take over from the seller – often with lender approval – usually with little to no change in terms, especially interest rate. The buyer agrees to make all future payments on the loan as if they took out the original loan.
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
A legal status of a person or other entity that cannot repay the debts it owes to creditors. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.
A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage.
This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands. In Washington State, real estate transactions must be recorded at the county recorder’s office for a sale to become official.
Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
A service charge assessed by a broker or investment advisor in return for providing investment advice and/or handling the purchase or sale of a security. Most major, full-service brokerages derive most of their profits from charging commissions on client transactions. Commissions vary widely from brokerage to brokerage.
Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."
Conditions included with an offer on a home that must be fulfilled before the deal can close. If a buyer or seller is unable to satisfy a contingency, then the offer on a home may become void. Contingencies usually include time frames in which a buyer can get his earnest money back if the contingency isn't fulfilled before the deadline.
Refers to home loans other than government loans (VA and FHA).
The legal document conveying title to a property.
The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are unable to make the required payment or are unwilling to honor the debt.
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
A decrease in an asset's value caused by unfavorable market conditions.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
The value of ownership built up in a home or property that represents the current market value of the house less any remaining mortgage payments. This value is built up over time as the property owner pays off the mortgage and the market value of the property appreciates.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
Fannie Mae (FNMA)
As the leading source of residential mortgage credit in the U.S. secondary market, Fannie Mae is supporting today's economic recovery and helping to build a sustainable housing finance system. They exist to provide reliable, large-scale access to affordable mortgage credit in all communities across the country at all times so people can buy, refinance, or rent homes.
Federal Housing Administration (FHA)
A United States government agency created as part of the National Housing Act of 1934. It sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building. The goals of this organization are to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans, and to stabilize the mortgage market.
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
A mortgage in which the interest rate does not change during the entire term of the loan.
A situation in which a homeowner is unable to make full principal and interest payments on his/her mortgage, which allows the lender to seize the property, evict the homeowner and sell the home, as stipulated in the mortgage contract.
Government Loan (Mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.
Home Equity Line of Credit (HELOC)
A line of credit extended to a homeowner that uses the borrower's home as collateral. Once a maximum loan balance is established, the homeowner may draw on the line of credit at his or her discretion. Interest is charged on a predetermined variable rate, which is usually based on prevailing prime rates.
A legal claim placed on a home that makes selling the home, obtaining a mortgage or refinancing the property more difficult until outstanding financial obligations are met. A lien placed on a home is part of the public record in the county where the home is located, and can be filed by anyone who has a legal interest in the property.
Property bought or developed to earn income through renting, leasing or price appreciation. Income property can be residential or commercial.
Interest Rate Ceiling
The maximum interest rate that a financial institution can charge a borrower for an adjustable rate mortgage or loan according to the contractual terms of the mortgage or loan. This interest rate is expressed as an absolute percentage.
A type of mortgage in which the mortgagor is only required to pay off the interest that arises from the principal that is borrowed. Because only the interest is being paid off, the interest payments remain fairly constant throughout the term of the mortgage. However, interest-only mortgages do not last indefinitely, meaning that the mortgagor will need to pay off the principal of the loan eventually.
A mortgage with a loan amount exceeding the conforming loan limits set by the Office of Federal Housing Enterprise Oversight (OFHEO), and therefore, not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac.
Someone who makes funds available to another with the expectation that the funds will be repaid, plus any interest and/or fees.
A document from a contractor, subcontractor, supplier or other party holding a mechanic's lien stating that they have been paid in full and waiving future lien rights to the disputed property.
The initial asking price for a real estate property, such as a home, as determined by similar properties that have recently sold in the area. These comparison properties are known as comparables. The list price can be thought of as the starting price for negotiations; it is not necessarily the price that the buyer will pay.
Representatives of banks, credit unions and other financial institutions that find and assist borrowers in acquiring loans. Some specialized loan officers, called loan underwriters, analyze and assess the creditworthiness of potential borrowers to see if they qualify for a loan.
Mortgage programs which require a minimal down payment. Most low-down mortgages require a down payment of between 3% - 5% of the property value; however, some lenders have programs for 100% financing (or 0% down payment). Low-down mortgages are designed primarily for borrowers with a low to moderate income and first-time home buyers.
A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. Mortgages are also known as "liens against property" or "claims on property." If the borrower stops paying the mortgage, the bank can foreclose.
The interest charged on a loan used to purchase a residence. Mortgage interest is charged for both primary and secondary loans, home equity loans, lines of credit, and as long as the residence is used to secure the loan. Mortgage interest is deductible on form 1040.
The rate of interest charged on a mortgage. Mortgage rates are determined by the lender in most cases, and can be either fixed (stay the same for the term of the mortgage) or variable (fluctuate with a benchmark interest rate). Mortgage rates rise and fall with interest rates and can drastically affect the homebuyers' market.
Multiple Listing Service (MLS)
A service provided by a group of real estate brokers. They band together to create a Multiple Listing Service that allows each of them to list each other's houses. Under this arrangement, the listing broker and the selling broker split the commission for each sale.
A mortgage that does not require an appraisal of the property’s current market value. A no-appraisal loan may use alternative methods of determining a home’s value for the purpose of defining how much money to lend, or it may not require professional assessment of the home’s current market value, just information on the borrower’s loan balance.
A scheduled period of time in which a house or other dwelling is designated to be open for viewing for potential buyers.
A property listing that uses multiple real estate agents in order to sell it and get it off the market. With an open listing, the agent that sells the property collects the commission. An open listing can also refer to an owner who sells his/her home or property on his/her own without paying a commission to a real estate agent.
A resident of a property who also holds the title to that property. In contrast, an absentee owner holds title to the property but does not live there. A landlord is a type of absentee owner.
A type of mortgage where a second mortgage or home equity loan is taken out by a borrower at the same time the first mortgage is started or refinanced. Piggyback mortgages are frequently used to lower the loan-to-value ratio (LTV) of a first position mortgage to under 80%, thereby eliminating the need for private mortgage insurance (PMI).
Any listing that is retained by a listing broker or salesperson who does not make the listing available to other brokers in the office or to other multiple listing system (MLS) members. Also referred to as an "exclusive listing."
An evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend. The pre-approval process involves a thorough look into the income and expenses of the borrower, including a look at the borrower's credit report and score.
A mortgage in which the lender has analyzed the borrower's ability to repay based on income, assets and debts; has not allowed the borrower to take on monthly debt payments in excess of 43% of pre-tax income; has not charged more than 3% in points and origination fees; and has not issued a risky or overpriced loan like negative-amortization, balloon, 40-year or interest-only mortgage.
Real Estate Owned - REO
Property owned by a lender - usually a bank - after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: the minimum bid in most foreclosure auctions equal the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale.
A real estate professional who is a member of the National Association of Realtors, a professional association. Realtors include agents that work as residential and commercial real estate brokers, salespeople, property managers, appraisers, counselors and other real estate professionals. More than 1 million real estate agents are realtors, and the term is a registered trademark. Realtors must belong to both a local association or board and a state association.
A maximum price a landlord is allowed to charge for rent. Rent ceilings are usually set by law and limit how high the rent can go in a specified area.
A form of property insurance that provides coverage for a policy holder's belongings and liability within a rental property. Renter's insurance applies to persons renting or subletting a single family home, apartment, duplex, condo, studio, loft or townhome.
The amount of income that an individual has after all personal debts, including the mortgage, have been paid.
A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.
A mortgage in which the unpaid balance (outstanding principal) must be refinanced every few years (often three to five) at current interest rates, subject to certain limits.
A type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the second mortgage would receive repayments only when the first mortgage has been paid off, the interest rate charged for the second mortgage tends to be higher and the amount borrowed will be lower than for the first mortgage.
A monetary deposit given to a lender, seller or landlord as proof of intent. Security deposits can be either refundable or nonrefundable, depending on the terms of the transaction.
Shared Equity Mortgage
Joint ownership of real estate by both lenders and property dwellers. When the property is eventually sold, the owners share in the proceeds, or equity. In the meantime the property occupants benefit from interest and property tax write-offs.
Any sale of real estate that generates proceeds that are less than the amount owed on the property. A real estate short sale occurs when the lender and borrower decide that selling the property and absorbing a moderate loss is preferable to having the borrower default on the loan. It is therefore an alternative to foreclosure.
A type of mortgage that is normally made out to borrowers with lower credit ratings. As a result of the borrower's lowered credit rating, a conventional mortgage is not offered because the lender views the borrower as having a larger-than-average risk of defaulting on the loan. Lending institutions often charge interest on subprime mortgages at a rate that is higher than a conventional mortgage in order to compensate themselves for carrying more risk.
A home purchase loan with a higher balance than the free-market value of the home. This situation prevents the homeowner from selling the home unless s/he has cash to pay the loss out of pocket. It also prevents the homeowner from refinancing in most cases.
A mortgage loan program established by the United States Department of Veterans Affairs to help veterans and their families obtain home financing. The Department of Veterans Affairs does not directly originate VA loans; instead, they establish the rules for those who may qualify, dictate the terms of the mortgages offered and insure VA loans against default.
Variable Rate Mortgage
A type of home loan in which the interest rate is not fixed. The two most common types of mortgages in the United States are fixed rate and variable rate (also called adjustable rate).
A voluntary foreclosure is a foreclosure proceeding that is initiated by the borrower, rather than the lender, in an attempt to avoid further payments. A foreclosure is the procedure that permits a lender, in the event of a loan default, to have the mortgaged property sold in order to cover some or all of the remaining debt.