Real Estate Glossary
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 adjustable-rate mortgage (ARM)
An ARM is classified as a loan with a fluctuating interest
rate. In other words, the interest rate moves up and
down as market conditions fluctuate. Typically, an
ARM will afford a lower initial interest rate, but
your mortgage payments may change (usually semiannually
or annually).
adjustment period
The period that elapses between the adjustment dates
for an adjustable-rate mortgage (ARM).
affidavit
A sworn statement in writing, usually requiring notarization.
amortization
The gradual repayment of a mortgage loan by installments.
amortization schedule
A timetable for payment of a mortgage loan. An amortization
schedule shows the amount of each payment applied to
interest and principal and shows the remaining balance
after each payment is made.
annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes
such items as interest, mortgage insurance, and loan
origination fee (points).
annuity
An amount paid yearly or at other regular intervals,
often on a guaranteed dollar basis.
appraised value
An opinion of a property's fair market value, based on
an appraiser's knowledge, experience, and analysis
of the property.
appreciation
An increase in the value of a property due to changes
in market conditions or other causes. The opposite
of depreciation.
asset
Anything of monetary value that is owned by a person.
Assets include real property, personal property, and
enforceable claims against others (including bank accounts,
stocks, mutual funds, and so on).
assumable mortgage
A mortgage that can be taken over ("assumed")
by the buyer when a home is sold.
balloon mortgage
A mortgage that has level monthly payments that will
amortize it over a stated term but that provides for
a lump sum payment to be due at the end of an earlier
specified term.
balloon payment
The final lump sum payment that is made at the maturity
date of a balloon mortgage.
bankruptcy
A proceeding in a federal court in which a debtor who
owes more than his or her assets can relieve the debts
by transferring his or her assets to a trustee.
bill of sale
A written document that transfers title to personal property.
buy-down mortgage
A temporary buy-down is a mortgage on which an initial
lump sum payment is made by any party to reduce a borrower’s
monthly payments during the first few years of a mortgage.
A permanent buy-down reduces the interest rate over
the entire life of a mortgage.
cap
A provision of an adjustable-rate mortgage (ARM) that
limits how much the interest rate or mortgage payments
may increase or decrease.
capital
(1) Money used to create income, either as an investment
in a business or an income property. (2) The money
or property comprising the wealth owned or used by
a person or business enterprise. (3) The accumulated
wealth of a person or business. (4) The net worth of
a business represented by the amount by which its assets
exceed liabilities.
cash reserve
A requirement of some lenders that buyers have sufficient
cash remaining after closing to make the first two
mortgage payments.
cash-out refinance
A refinance transaction in which the amount of money
received from the new loan exceeds the total of the
money needed to repay the existing first mortgage,
closing costs, points, and the amount required to satisfy
any outstanding subordinate mortgage liens. In other
words, a refinance transaction in which the borrower
receives additional cash that can be used for any purpose.
certificate of deposit
A document written by a bank or other financial institution
that is evidence of a deposit, with the issuer’s
promise to return the deposit plus earnings at a specified
interest rate within a specified time period.
certificate of reasonable value (CRV)
A document issued by the Department of Veterans Affairs
(VA) that establishes the maximum value and loan amount
for a VA mortgage.
certificate of title
A statement provided by an abstract company, title company,
or attorney stating that the title to real estate is
legally held by the current owner.
closing
A meeting at which a sale of a property is finalized
by the buyer signing the mortgage documents and paying
closing costs. Also called "settlement."
closing costs
Expenses (over and above the price of the property) incurred
by buyers and sellers in transferring ownership of
a property. Closing costs normally include an origination
fee, an attorney's fee, taxes, an amount placed in
escrow, and charges for obtaining title insurance and
a survey. Closing costs percentage will vary according
to the area of the country; lenders or realtors® often
provide estimates of closing costs to prospective homebuyers.
co-borrower
Second or additional person equally responsible for payments
on a mortgage. A co-borrower does not have to take
title to the property, but usually has to sign the
mortgage note.
collateral
An asset (such as a car or a home) that guarantees the
repayment of a loan. The borrower risks losing the
asset if the loan is not repaid according to the terms
of the loan contract.
commitment letter
A formal offer by a lender stating the terms under which
it agrees to lend money to a home buyer. Also known
as a "loan commitment."
construction loan
A short-term, interim loan for financing the cost of
construction. The lender makes payments to the builder
at periodic intervals as the work progresses.
construction loan draw
A partial disbursement of the construction loan based
on the schedule of payments in the loan agreement.
Also called takedown.
consumer reporting agency (or bureau)
An organization that prepares reports that are used by
lenders to determine a potential borrower's credit
history. The agency obtains data for these reports
from a credit repository as well as from other sources.
contingency
A condition that must be met before a contract is legally
binding. For example, home purchasers often include
a contingency that specifies that the contract is not
binding until the purchaser obtains a satisfactory
home inspection report from a qualified home inspector.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal
government.
convertibility clause
A provision in some adjustable-rate mortgages (ARM) that
allows the borrower to change the ARM to a fixed-rate
mortgage at specified timeframes after loan origination.
convertible ARM
An adjustable-rate mortgage (ARM) that can be converted
to a fixed-rate mortgage under specified conditions.
co-signer
One who agrees to assume a debt obligation if the principal
borrower defaults on mortgage payments. A co-signer
assumes only personal liability and has no ownership
interest in the property; his or her income and obligations
are used in the underwriting process to reinforce the
credit of the principal borrower.
cost of funds index (COFI)
An index that is used to determine interest rate changes
for certain adjustable-rate mortgage (ARM) plans. It
represents the weighted-average cost of savings, borrowings,
and advances of the 11th District members of the Federal
Home Loan Bank of San Francisco.
credit
An agreement in which a borrower receives something of
value in exchange for a promise to repay the lender
at a later date.
credit report
A report of an individual's credit history prepared by
a credit bureau and used by a lender in determining
a loan applicant's creditworthiness.
curbside funding
The process of paying for a material package at the time
of delivery of said materials.
debt to income ratio
Compares the amount of monthly income to the amount the
borrower will owe each month in house payment (PITI)
plus other debts. The other debts may include but not
limited to car payment, credit cards, alimony, child
support, and personal loans. This ratio is commonly
used to see if the borrower has the capacity to repay
the debt.
deed of trust
The document used in some states instead of a mortgage;
title is conveyed to a trustee.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy
a debt and avoid foreclosure. Also called a "voluntary
conveyance."
default
Failure to make mortgage payments on a timely basis or
to comply with other requirements of a mortgage.
depreciation
A decline in the value of property; the opposite of appreciation.
discount points
A one-time charge by the lender for originating a loan.
A point is 1 percent of the amount of the mortgage.
down payment
The part of the purchase price of a property that the
buyer pays in cash and does not finance with a mortgage.
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