7/23 and 5/25 Mortgages: Mortgages with a one-time rate adjustment after seven years and five years, respectively.

3/1, 5/1, 7/1 and 10/1 ARMs: Adjustable-rate mortgages in which the rate is fixed for three-year, five-year, seven-year and 10-year periods, respectively, but may adjust annually after that.

A

Acceleration: The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgager (borrower), or by using the right vested in the due-on-sale clause.

Adjustable-Rate Mortgage (ARM): A loan on which the monthly payments will increase or decrease over time, based on changes in the ARM‘s interest rate index. ARM payments typically are adjusted every six months or once a year. Common indices to which ARMs are tied include the 11th District Cost of Funds, one-year T-note and six-month T-bill.

Adjusted Basis: The cost of a property plus the value of any capital expenditure for improvements to the property minus any depreciation taken.

Adjustment Date: The date that the interest rate changes on an adjustable-rate mortgage.

Adjustment Interval: The interval between changes on an adjustable-rate mortgage in the interest rate and/or monthly payment; typically one, three or five years depending on the index.

Adjustment Period: The period elapsing between adjustment dates for an adjustable-rate mortgage.

Affordability Analysis: An analysis of a buyer‘s ability to afford the purchase of a home. Reviews income, liabilities and available funds. Considers the type of mortgage you plan to use, the area where you want to purchase a home and the probable closing costs.
Amortization: The gradual repayment of a mortgage through monthly (e.g. installment) payments. In the early years of a mortgage, most of the monthly payment goes toward interest. Later in the mortgage, more of the payment goes toward reducing the loan‘s principal balance.

Amortization Term: The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
Annual Percentage Rate (APR): The annual cost of a mortgage, including interest, loan fees and other costs, stated as a percentage of the loan amount.

Appraisal/Appraised Value: An opinion of the market value of a home expressed by a real estate appraiser.

Arbitration: The term used to describe a form of dispute resolution that occurs outside of the court system, usually by private agreement between parties. Basically, arbitration is a dispute resolution system where the parties submit arguments and evidence to a neutral person, known as the arbitrator, who then renders a decision, called an award, based upon the evidence and arguments presented.

Assessment: A local tax levied against a property for a specific community purpose, such as a sewer or streetlights.
Assignment: The transfer of a contractual interest or obligation from one person to another such as, but not limited to, a transfer of a mortgage obligation. Assignment is a legal term used to transfer interest from one contract to another.

Assumable Mortgage: An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, a new buyer may not assume the mortgage.

Assumption: The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money by acquiring an existing mortgage debt, instead of obtaining a new mortgage where closing costs and market-rate interest charges will apply.

Assumption Fee: The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

B

Balloon Mortgage: A loan that is amortized for a longer period than the term of the loan. Usually this refers to a 30-year amortization and a five-year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due.

Balloon Payment: The final lump sum paid at the maturity date of a balloon mortgage.

Biweekly Payment Mortgage: A plan to make mortgage payments every two weeks (instead of the standard monthly payment schedule). The 26 (or 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial saving in interest.

Blanket Mortgage: A mortgage covering at least two pieces of real estate as security for the same mortgage.

Borrower (Mortgager): One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Bridge Loan: A second trust for which the borrower‘s present home is collateral, allowing the proceeds to be used to close on a new house before the present home is sold. Also known as a "swing loan."

Broker: An individual who assists with arranging funding or negotiating contracts for a client but who does not loan the money himself or herself. Brokers usually charge a fee or receive a commission for their services.

Buy-down: When the lender and/or the homebuilder subsidize a mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

C

Caps: Provisions of an adjustable-rate mortgage limiting how much the interest rate can change at each adjustment period (e.g., every six months, once a year) or over the life of the loan (rate cap). A payment cap limits how much the payment due on the loan can increase or decrease.

Cash Flow: The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income-producing property (mortgage payment, maintenance, utilities, etc.).

Certificate of Eligibility: The document given to qualified veterans entitling them to VA-guaranteed loans for homes, businesses and mobile homes. Certificates of eligibility may be obtained by sending form DD-214 (Separation Paper) to the local Veterans Affairs office with VA form 1880 (request for Certificate of Eligibility).

Certificate of Reasonable Value (CRV): An appraisal issued by Veterans Affairs showing the property‘s current market value.

Certificate of Veteran Status: The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local Veterans Affairs office with form 26-8261a (request for certificate of veteran status; this document enables veterans to obtain lower downpayments on certain FHA-insured loans).

Change Frequency: The frequency (in months) of payment and/or interest rate changes on an adjustable-rate mortgage.

Closing: The meeting at which a home sale is finalized. The buyer signs the mortgage, pays closing costs and receives title to the home. The seller pays closing costs and receives the net proceeds from the home sale.

Closing Costs: Expenses in addition to the price of the home incurred by buyers and sellers when a home is sold. Common closing costs include escrow fees, title insurance fees, document recording fees and real estate commissions.

COFI: An adjustable-rate mortgage with a rate that adjusts based on a cost-of-funds index, often the 11th District Cost of Funds.

Construction Loan: A short-term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.

Consumer Reporting Agency (or Bureau): An organization that handles the preparation of reports used by lenders to determine a potential borrower‘s credit history. The agency gets data for these reports from a credit repository and other sources.

Contingency: A condition that must be fulfilled before a contract is binding.

Contract Sale or Deed: A contract between purchaser and seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional Mortgage: A loan not guaranteed, insured or made by the federal or state government.

Conversion Clause: A provision in an adjustable-rate mortgage allowing the loan to be converted to a fixed-rate mortgage at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Counteroffer: An offer in response to an original offer.

Credit Report: A report documenting the credit history and current status of a borrower‘s credit standing.

Credit Risk Score: A credit risk score is a statistical summary of the information contained in a consumer‘s credit report. The most well-known type of credit risk score is the Fair, Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.

D

Default: Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Deferred Interest: When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.

Delinquency: Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA): An independent agency of the federal government that guarantees long-term, low- or no-downpayment mortgages to eligible veterans.

Debt-To-Income (DTI) Ratio:The ratio of monthly debt payments to monthly gross income. Lenders use a housing DTI ratio (house payment divided by monthly income) and a total DTI ratio (total debt payments including the house payment divided by monthly income) to determine whether a borrower‘s income qualifies him or her for a mortgage.

Deed: A legal document conveying ownership of property.

Downpayment: The portion of the home‘s purchase price the buyer pays in cash.

Due-on-Sale-Clause: A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

E

Earnest Money: The deposit given by a buyer to a seller to show that the buyer is serious about purchasing the home. Earnest money usually is refundable to homebuyers in the event a contingency of the sales contract cannot be met.

Entitlement: The Veterans Affairs home loan benefit (i.e., entitlement for a VA-guaranteed home loan). This is also known as eligibility.

Equal Credit Opportunity Act (ECOA): A federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity: The difference between a home‘s value and the mortgage amount owed on the home.
Escrow: The holding of documents and money by a neutral third party prior to closing.

Escrow Disbursements: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance and other property expenses as they become due.

Escrow Payment: The part of a mortgager’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due.

Exclusive Right to Sell Listing: A contract giving an agent the exclusive right to market a property under a certain time frame.

Exclusive Agency Listing: A contract giving the broker the right to market an owner‘s property for a certain period of time, but also allowing the owner to sell the property during that period without paying a commission.

Real Estate Terms continued F - Z....

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