Glossary of Terms

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Accelerated Depreciation:	A bookkeeping method that depreciates property faster in the early years of ownership.
Acceleration Clause	A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
Acceptance:	The seller’s written approval of a buyer’s offer.
Acre:	A measurement of land equal to 43,500 square feet.
Add-On Interest:	The interest a borrower pays on the principal for the length of the loan.
Adjustable-Rate Mortgage (ARM):	A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.
Adjustment Date	The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Period:	The time between interest rate adjustments on an adjustable-rate mortgage.
Agency:	The relationship that exists between sellers and buyers and their agents formed as a result of a written contract.
Agreement Of Sale:	The document initiated by a buyer for the seller to approve outlining the details of price and terms of the transaction.
American Society Of Home Inspectors (ASHI):	Professional association of independent home inspectors whose members.
Americans With Disabilities Act:	A law that outlaws discrimination against a person with a disability in housing, public accommodations, employment, government services, transportation and telecommunications.
Amortization	The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
Amortization Schedule	A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
Amortization Term	The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.
Annual Percentage Rate (APR)	This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan.
Annuity:	A payment of a fixed amount to an investor at regularly established intervals.
Application	The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.
Appraisal	A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
Appraised Value	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.
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.
ASHI (American Society Of Home Inspectors):	Association of independent home inspectors.
Asking Price:	The price the seller is asking for a property.
Assessed Value	The valuation placed on property by a public tax assessor for purposes of taxation.
Assessment	The placing of a value on property for the purpose of taxation.
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 assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.
Assumption	The transfer of the seller’s existing mortgage to the buyer.
Assumption Clause	A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
Assumption Fee	The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.
Balance Sheet	A financial statement that shows assets, liabilities, and net worth as of a specific date.
Balloon Loan:	A loan, in which monthly installments are not enough to repay the full amount of the loan by the end of the loan term, therefore a final lump sum payment is made at the end of the loan to cover the remaining principal amount. Balloon payment:
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	By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
Basis Point:	A basis point is one one-hundredth of one percentage point. A loan of 6.75 percent versus a loan of 6.82 percent has a difference of 7 basis points.
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. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.
Binder	A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
Biweekly Mortgage	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. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.
Blanket Mortgage	The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
Bona Fide:	A legal term used to describe actions or persons that are honest and in good faith.
Bond	An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.
Bond Market	Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.
Boundary:	The dividing line between two adjacent properties.
Breach	A violation of any legal obligation.
Bridge Loan	Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
Broker	Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Buydown	Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
Buyers Agent:	Represents the buyer in a property purchase, as either a single agent or as an exclusive buyer’s broker.
Bylaws:	Rules and regulations established by a homeowners association or corporation to govern activities.
California Real Estate Inspection Association (CREIA):	Trade organization of home inspectors whose members must meet the group’s education and performance requirements.
Call Option	A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
Cancellation Clause:	Conditions under which either party may terminate an agreement.
Cap	Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
Capital Improvement	Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
Capital Improvement:	Any improvement that increase the value of a piece of property or extends the property life.
Capitalization:	A formula used by investors to determine the value of a property based on the income derived from the property.
Cash Flow:	Remaining cash from rental property gross income after deducting operating expenses and loan 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 time deposit held in a bank which pays a certain amount of interest to the depositor. (top)
Certificate Of Deposit Index	One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit. (top)
Certificate Of Eligibility	A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.(top)
Certificate Of Occupancy:	A document stating that a property is suitable for habitation and has met all building codes.
Certificate Of Reasonable Value (CRV)	Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
Certificate Of Sale:	Entitles the property buyer to receive a property deed after court confirmation of the purchase of the property. The document is issued by a judicial sale.
Chain Of Title	An analysis of the transfers of title to a piece of property over the years.
Change Frequency	The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Classified Property Tax:	A tax rate that varies depending on the use of the property.
Clear Title	A title that is free of liens or legal questions as to ownership of the property.
Closing	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.
Closing Costs	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.
Closing Statement	Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.
Cloud On Title	Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
Co-Borrower	IAn additional individual who is both obligated on the loan and is on title to the property.
Collateral	In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
Collection	When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
Co-Maker	A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.
Combination Loan	With this type of loan, you receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans–known as 80/10/10 loans or 80/20’s.
Combined Loan-To-Value (CLTV)	The unpaid principal balances of all the mortgages on a property (first and second usually) divided by the property’s appraised value.
Commercial Property:	An area zoned for business.
Commission	Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
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.”
Commitment:	Commitment by a lender to fund a loan with specific terms for a specified period.
Common Area Assessments	In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas. (top)
Common Areas	Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
Common Law	An unwritten body of law based on general custom in England and used to an extent in some states.
Common-Area Assessments:	Fees paid to maintain, operate, improve or, maintain common areas by condominium owners.
Community Home Improvement Mortgage Loan	An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.
Community Property:	A classification of property specific to certain states. Relates to property accumulated by a husband and wife.
Comparables	An abbreviation for “comparable properties”; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
Compound Interest:	Interest paid on the principal balance of a loan and on the accrued and unpaid interest of the loan.
Condominium	A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
Condominium Conversion	Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
Condominium Hotel	A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.
Conforming Loan	The current conforming loan limit is $300,700 and below. Conforming loan limits change annually.
Conservator:	A court-appointed guardian.
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.
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.
Contiguous Lots:	Properties that are adjoined.
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.
Contract	An oral or written agreement to do or not to do a certain thing.
Contract To Purchase:	This is also known as an agreement of sale. Details the purchase price and conditions of the transaction by the buyer and is accepted by the seller.
Conventional Loan:	A long-term loan made by a lender for the purchase of a home.
Conventional Mortgage	Refers to home loans other than government loans (VA and FHA).
Convertibility Clause	A provision in some adjustable-rate mortgages (ARMs) 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.
Conveyance Tax:	A tax imposed on the transfer of property.
Conveyance:	The transfer of title of property.
Cooperating Broker:	A real estate broker who finds a buyer for property that was listed by another broker.
Cooperative (Co-Op)	A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Corporate Relocation	Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.
Cost Of Funds Index (COFI)	One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
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	A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit Rating:	The credit worthiness of an individual based upon past credit history and financial status.
Credit Report:	Details of an individual’s credit history, employment and residence history. Used by lenders to determine the credit worthiness of an individual.
Credit Repository	An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
Credit:	The loan of money by a lender to buyer for a commitment to repay the loan in a certain period of time.
Creditor:	An institution or individual to whom a debt is owed.
Days On The Market:

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