Definitions A-D
additional principal payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.
adjustable-rate mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
adjustment Period
Frequency that the interest rate of an adjustable-rate mortgage is repriced to the base rate. Example: For a one-year ARM, the adjustment is made oncea year, for a three-year ARM, the adjustment is made every three years.
amenity
A feature of real property that enhances its attractiveness and increases the occupant’s or user’s satisfaction although the feature is not essential to the property’s use. Natural amenities include a pleasantor desirable location near water, scenic views of the surrounding area,etc. Human-made amenities include swimming pools, tennis courts,community buildings, and other recreational facilities.
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 andshows the remaining balance after each payment is made.
amortization Tables
Mathematical tables that shows how a mortgage or other loan is gradually repaid by applying the appropriate amount of the payment to the principal and interest.
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.
appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection.
appraised value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property.
appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
assessed value
The valuation placed on property by a public tax assessor for purposes of taxation.
assessment
Theprocess of placing a value on property for the strict purpose oftaxation. May also refer to a levy against property for a specialpurpose, such as a sewer assessment.
assessor
A public official who establishes the value of a property for taxation purposes.
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).
assignment
The transfer of a mortgage from one person to another.
assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.
attorney-in-fact
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.
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 theend of an earlier specified term.
balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.
bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.
bankruptcy
A proceeding in a federal court in which a debtor who owes more than hisor her assets can relieve the debts by transferring his or her assetsto a trustee.
base Rate
The underlying interest rate used as a benchmark, or index for pricing variable rate mortgages.
before-tax income
Income before taxes are deducted.
beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
bill of sale
A written document that transfers title to personal property.
binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower’s bank account. The result for the borrower is a substantial savings ininterest.
blanket insurance policy
A single policy that covers more than one piece of property (or more than one person).
bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bondis a written obligation usually secured by a mortgage or a deed oftrust.
breach
A violation of any legal obligation.
bridge loan
A form of second trust that is collateralized by the borrower's presenthome (which is usually for sale) in a manner that allows the proceedsto be used for closing on a new house before the present home is sold.Also known as "swing loan."
broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. See mortgage broker.
buydown account
An account in which funds are held so that they can be applied as part ofthe monthly mortgage payment as each payment comes due during the period that an interest rate buy down plan is in effect.
buydown mortgage
A temporary buy down is a mortgage on which an initial lump sum payment ismade 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. Seelifetime payment cap, periodic payment cap, and periodic rate cap.capital
(1)Money used to create income, either as an investment in a business oran income property. (2) The money or property comprising the wealthowned or used by a person or business enterprise. (3) The accumulatedwealth of a person or business. (4) The net worth of a businessrepresented by the amount by which its assets exceed liabilities.
capital expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.
capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
cash-out refinance
Arefinance transaction in which the amount of money received from thenew loan exceeds the total of the money needed to repay the existingfirst mortgage, closing costs, points, and the amount required tosatisfy any outstanding subordinate mortgage liens. In other words, arefinance transaction in which the borrower receives additional cashthat can be used for any purpose.
clear title
A title that is free of liens or legal questions as to ownership of the property.
closing
Ameeting at which a sale of a property is finalized by the buyer signingthe mortgage documents and paying closing costs. Also called"settlement."
closing cost item
Afee or amount that a home buyer must pay at closing for a singleservice, tax, or product. Closing costs are made up of individualclosing cost items such as origination fees and attorney's fees. Manyclosing cost items are included as numbered items on the HUD-1statement.
closing costs
Expenses(over and above the price of the property) incurred by buyers andsellers in transferring ownership of a property. Closing costs normallyinclude an origination fee, an attorney's fee, taxes, an amount placedin escrow, and charges for obtaining title insurance and a survey.Closing costs percentage will vary according to the area of thecountry; lenders or realtors® often provide estimates of closing coststo prospective homebuyers.
closing statement
See HUD-1 statement.
cloud on title
Anyconditions revealed by a title search that adversely affect the titleto real estate. Usually clouds on title cannot be removed except by aquitclaim deed, release, or court action.
collateral
Anasset (such as a car or a home) that guarantees the repayment of aloan. The borrower risks losing the asset if the loan is not repaidaccording to the terms of the loan contract.
co-maker
Aperson who signs a promissory note along with the borrower. Aco-maker's signature guarantees that the loan will be repaid, becausethe borrower and the co-maker are equally responsible for therepayment. See endorser.
commission
Thefee charged by a broker or agent for negotiating a real estate or loantransaction. A commission is generally a percentage of the price of theproperty or loan.
common areas
Thoseportions of a building, land, and amenities owned (or managed) by aplanned unit development (PUD) or condominium project's homeowners'association (or a cooperative project's cooperative corporation) thatare used by all of the unit owners, who share in the common expenses oftheir operation and maintenance. Common areas include swimming pools,tennis courts, and other recreational facilities, as well as commoncorridors of buildings, parking areas, means of ingress and egress,etc.
comparables
Anabbreviation for "comparable properties"; used for comparative purposesin the appraisal process. Comparables are properties like the propertyunder consideration; they have reasonably the same size, location, andamenities and have recently been sold. Comparables help the appraiserdetermine the approximate fair market value of the subject property.
compound interest
Interest paid on the original principal balance and on the accrued and unpaid interest.
condemnation
Thedetermination that a building is not fit for use or is dangerous andmust be destroyed; the taking of private property for a public purposethrough an exercise of the right of eminent domain.
condominium
Areal estate project in which each unit owner has title to a unit in abuilding, an undivided interest in the common areas of the project, andsometimes the exclusive use of certain limited common areas.
condominium conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
construction loan
Ashort-term, interim loan for financing the cost of construction. Thelender makes payments to the builder at periodic intervals as the workprogresses.
contingency
Acondition that must be met before a contract is legally binding. Forexample, home purchasers often include a contingency that specifiesthat the contract is not binding until the purchaser obtains asatisfactory home inspection report from a qualified home inspector.
contract
An oral or written agreement to do or not to do a certain thing.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.
convertibility clause
Aprovision in some adjustable-rate mortgages (ARMs) that allows theborrower to change the ARM to a fixed-rate mortgage at specifiedtimeframes after loan origination.
convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.
cooperative (co-op)
Atype of multiple ownership in which the residents of a multiunithousing complex own shares in the cooperative corporation that owns theproperty, giving each resident the right to occupy a specific apartmentor unit.
corporate relocation
Arrangementsunder which an employer moves an employee to another area as part ofthe employer's normal course of business or under which it transfers asubstantial part or all of its operations and employees to another areabecause it is relocating its headquarters or expanding its officecapacity.
cost of funds index (COFI)
Anindex that is used to determine interest rate changes for certainadjustable-rate mortgage (ARM) plans. It represents theweighted-average cost of savings, borrowings, and advances of the 11thDistrict members of the Federal Home Loan Bank of San Francisco. Seeadjustable-rate mortgage (ARM).
covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
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 history
Arecord of an individual's open and fully repaid debts. A credit historyhelps a lender to determine whether a potential borrower has a historyof repaying debts in a timely manner.
credit life insurance
Atype of insurance often bought by mortgagors because it will pay offthe mortgage debt if the mortgagor dies while the policy is in force.
creditor
A person to whom money is owed.
credit report
Areport of an individual's credit history prepared by a credit bureauand used by a lender in determining a loan applicant'screditworthiness. See merged credit report.
credit repository
Anorganization that gathers, records, updates, and stores financial andpublic records information about the payment records of individuals whoare being considered for credit.
debt
An amount owed to another. See installment loan and revolving liability.
Debit-to-income Ratio
Measuresyour future monthly housing expenses, which include your proposedmortgage payments (debt), property tax, and insurance in relation toyour monthly income.
deed
The legal document conveying title to a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."
deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.
delinquency
Failure to make mortgage payments when mortgage payments are due.
deposit
Asum of money given to bind the sale of real estate, or a sum of moneygiven to ensure payment or an advance of funds in the processing of aloan. See earnest money deposit.
depreciation
A decline in the value of property; the opposite of appreciation.
discount points
See point.
down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
