Glossary

ARM (Adjustable Rate Mortgage) - interest rates on this type of mortgage are periodically adjusted up or down, depending on a specified financial index.

Agent - acts on behalf of another, representing that person's interests and serving as an intermediary.

Amortization - method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, principal repayment is very small and interest replacement very high; at the end of the loan that relationship is reversed.

APR (Annual Percentage Rate) - actual finance charge for a loan, including points and loan fees, in addition to the stated interest rate.

Appraisal - expert opinion of the value or worth of a property.

Assumption of Mortgage - buyer assumes liability for an existing mortgage note held by the seller. This is usually subject to approval by the lender, who must be willing to approve the buyer and release the seller.

Assessed Value - value placed on property by a municipality for purposes of levying taxes. It may differ widely from appraised or market value.

Balloon Payment - large principal payment due all at once at the end of some loan terms.

Broker - real estate professional who has a higher level of training than an agent. Generally, this is one who is the legal representative or proprietor of the office.

Cap - limit on how much the interest rate can change on an ARM.

Certificate of Title - document, signed by a title examiner, stating that a seller has an insurable title to the property.

Closing - "closing the deal," the meeting where the deed to property is legally transferred from seller to buyer.

CMA - (Comparative Market Analysis) - survey of attributes and selling prices of comparable houses on the market or recently sold; used to help determine correct pricing strategy for seller's property.

Condo (Condominium) - type of real estate ownership where the owner has title to a specific unit and shared interest in common areas.

Contingency - condition in a contract that must be met for the contract to be binding.

Contract - binding legal agreement between two or more parties that outlines the conditions for the exchange of value (for example: money exchanged for title to property).

Conversion Clause - provision that allows converting an ARM to a fixed-rate loan after a specified interval.

Co-op (Cooperative) - type of real estate ownership where all shareholders own the whole property, but each has proprietary occupancy rights for specific units.

Deed - legal document that formally conveys ownership of property from seller to buyer.

Down Payment - percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender.

Earnest Money - large deposit paid when the sale contract is signed before the closing.

Equity - value of the property actually owned by the homeowner (purchase price, appreciation, and improvements, minus mortgage and liens.

Escrow - fund or account held by a third-party custodian until conditions of a contract are met.

FNMA, called "Fannie Mae" (Federal National Mortgage Association) privately owned corporation created by Congress that buys mortgage notes from local lenders and is responsible for the guidelines a majority of lenders use to qualify borrowers.

Finance Charge - total cost, including all fees, points and interest payments a borrower pays to obtain credit.

Fixed Rate Mortgage - interest rates on this type of mortgage remain the same over the life of the loan term. Compare to "Adjustable Rate Mortgage."

Fixture - recognizable entity (such as a toilet bowl, kitchen cabinet or light unit) that is permanently attached to property and belongs to the property when it is sold.

Hazard Insurance - compensates for property damage from specified hazards such as fire and wind. More complete coverage is given by all-risk homeowner's insurance.

Interest - cost of borrowing money usually expressed as a percentage over time.

Lien - security claim on property until a debt is satisfied.

Listing Contract - agreement whereby an owner engages real estate company for a specified period to sell property, which upon sale the agent receives a commission.

Market Value - price that is established by present economic conditions, location and general trends.

Market Price - actual price at which a property sold.

MLS (Multiple Listing Service) - system that provides to its member detailed information about properties for sale.

Negative Amortization - when monthly payments aren't enough to cover interest costs, they are added to the principal balance, and you may end up owing more than when you started. This most likely occurs with ARMs that have payment caps.

Origination Fee - application fee(s) for processing a proposed mortgage loan. PITI - principal, interest, taxes and insurance forming the basis for monthly mortgage payments.

Point - one percent of the loan principal. It's charged in addition to interest and fees.

Prepayment Penalty - fee paid by a borrower who pays off the loan before it is due.

Prequalification - informal estimate of how much financing a potential borrower might expect to obtain. Done before paying substantial loan application fees.

Purchase Agreement - see "Contract".

RESPA Statement (Real Estate Settlement Procedures Act) - precise breakdown of closing costs for both sellers and buyers.

Settlement (Closing Costs) - all financial transactions required to make the contract final.

Title - document that indicates ownership of a specific property.

Title Insurance - protects against loss from legal defects in the title.

Title Search - detailed examination of the entire document history of a property title to make sure there are no legal encumbrances.