Glossary Of Terms

Here’s a list of terms commonly used in a real estate transaction. The definitions are brief and general. Please let me know if you need more detailed information.

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the index.

Adjustment Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.

Annual Percentage Rate (APR): The total finance charge (interest, loan fee, points) expressed as a percentage of the loan amount.

Balloon Payment: A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

CC&Rs: Covenants, Conditions & Restrictions: A document that controls the use, requirements and restrictions of a property.

Closing Statement: The financial disclosure statement that accounts for all the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Condominium: A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.

Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

FHA Loan: A loan insured by the Insuring Office of the Department of Housing and Urban Development; the Federal Housing Administration Federal National Mortgage Association (FNMA).Popularly known as Fannie Mae. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well conventional home mortgages.

Home Inspection Report: A qualified inspector’s report on a property’s overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Home Warranty Plan: Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.

Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon death of any owner, the survivors take the decedent’s interest in the property.

Lien: A right given by law to certain creditors to have their debts paid out of the property of the defaulting debtor, usually by means of a court sale.

Mechanic’s lien: A statutory lien created in favor of contractors, laborers who have performed work or furnished materials in the erection or repair of a building.

Loan Commitment: A written promise to make a loan for a specified amount on specified terms.

Loan-To-Value Ratio: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.

Origination Fee: A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to 1 percent for FHA and VA loans.

PITI: Principal, interest, taxes and insurance. Expenses that comprise an owner’s monthly payment.

Planned Unit Development (PUD): A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial

Point: An amount equal to 1 percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

Prepayment Penalty: A fee charged to a mortgagor who pays a loan before it is due. Not allowed for FHA or VA loans.

Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.

REALTOR®: A registered trademark term reserved for the sole use of active members of the National Association of Realtors®.

Regulation Z: Implements the Truth in Lending Act requiring that credit institutions inform borrowers of the true cost of obtaining credit.

Title Insurance Policy: A policy that protects the purchaser, mortgagee or other party against losses.

Seller disclosure form: Sellers are required to provide this from to buyers, identifying any property defects that the seller may be aware of.