Buying a home can be exciting. It also can be somewhat daunting, even if you’ve done it before. No doubt you will hear words and terms you’ve never heard before. Just what do they all mean?

ACCELERATION CLAUSE
A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

ADJUSTABLE RATE MORTGAGE (ARM)
A mortgage with an interest rate that changes over time based on an index.

AGENCY
The contractual relationship between a real estate agent and a client.

AMORTIZATION
The gradual repayment of a mortgage by installments.

ANNUAL PERCENTAGE RATE (APR)
The total yearly cost of a mortgage stated as a percentage of the loan amount, includes the base interest rate, primary mortgage insurance (PMI) and loan origination fee (points).

APPRAISAL
A professional analysis used to estimate the value of the property.

APPRAISER
A professional who conducts an analysis of the property, including examples of sales of similar properties in order to develop an estimate of the value of the property.

APPRECIATION
An increase in the value of a house due to changes in market conditions.

ASSESSED VALUE
The value placed upon a property by a public tax assessor for purposes of taxation.

ASSUMABLE MORTGAGE
A mortgage that can be taken over (assumed) by the buyer when a house is sold. v BANKRUPTCY
Legally declared unable to pay your debts. Bankruptcy can severely impact your credit and your ability to borrow money. v

BINDER
A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.

BRIDGE LOAN
A short-term loan secured by the borrower’s current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold.

BUYER’S AGENT
A real estate agent who represents the buyer in a real estate transaction.

CASH-OUT REFINANCE
A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate plans.

CLEAR TITLE
A title that is free of liens and legal questions as to ownership of the property.

CLOSING COSTS
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property.

CLOSING
The occasion where a sale is finalized; the buyer signs the mortgage and closing costs are paid.

COMMITMENT LETTER
A formal offer by a lender stating the terms under which it agrees to loan money to a home buyer.

COMPARABLES (COMPS)
A comparison in determining the current value of a property that is being appraised.

CONDOMINIUM
A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest in common areas of a multi-unit project.

CONTINGENCY
A condition that must be met before a contract is legally binding.

CONVENTIONAL MORTGAGE
Any mortgage that is not insured or guaranteed by the federal government.

COOPERATIVE
A form of common property ownership in which the residents of an apartment building do not own their own units, but rather own shares in the corporation that owns the property.

COVENANT
A clause in a mortgage that obligates or restricts the borrow and which, if violated, can result in foreclosure.

COUNTER-OFFER
An offer made in response to a previous offer. For example, after the buyer presents the first offer, the seller may make a counter-offer with a slightly higher sale price.

CREDIT REPORT
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s credit worthiness.

DEBT-TO-INCOME RATIO
The percentage of gross monthly income that goes toward paying for your monthly housing expense, alimony, child support,

DEED
The legal document conveying title (ownership) of a property.

DEFAULT
Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.

DELINQUENCY
A loan in which a payment is overdue but not yet in default.

DEPOSIT
Cash paid to the seller when a formal sales contract is signed.

DEPRECIATION
A decline in the value of property, the opposite of appreciation.

DOWN PAYMENT
The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

EASEMENT
A right of way giving persons other than owner access to or over a property.

ENCROACHMENT
The intrusion onto another’s property without right or permission.

ENCUMBRANCE
Any claim on a property such as a lien, mortgage or easement.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)
A federal law that prohibits lenders from denying mortgages on the basis of the borrower’s race, color, religion, national origin, age, sex, marital status, or receipt of income form public assistance programs.

EQUITY
The difference between the market value of a property and the homeowner’s outstanding mortgage balance.

ESCROW
The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

ESCROW ACCOUNT
An account that a mortgage servicer establishes on behalf of a borrower to pay taxes, insurance premiums or other charges when they are due.

FAIR CREDIT REPORTING ACT
A consumer protection law that sets up a procedure for correcting mistakes on one’s credit record.

FAIR MARKET VALUE (FMV)
Amount at which an asset would change hands between two parties, who both have knowledge of the relevant facts.

FANNIE MAE
A New York Stock Exchange Company that operates under a federal charter and is the nation’s largest source of financing for home mortgages.

FEDERAL HOUSING ADMINISTRATION (FHA)
An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private leaders.

FHA Loan
A mortgage that is insured by the Federal Housing Administration.

FIRST MORTGAGE
The mortgage that has first claim in the event of default.

FIXED RATE MORTGAGE (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.

FLOOD INSURANCE
Insurance required for properties in federally designated flood areas.

FORBEARANCE
The lender’s postponement of foreclosure to give the borrower time to catch up on overdue payments.

FORECLOSURE
The process by which a mortgaged property may be repossessed by the lender and sold when a mortgage is in default.

FSBO
For sale by owner.

HAZARD INSURANCE
Insurance policy that combines liability coverage and hazard insurance.

HOME EQUITY LOAN
A mortgage based on the borrower’s equity in the home.

HOME INSPECTION
An examination of a house by a professional inspector. The inspector’s job is to inform the client of the condition of the home, describe any problems discovered, and explain how and why they occurred.

HOMEOWNER’S INSURANCE
An insurance policy that combines liability coverage and hazard insurance.

HOMEOWNER’S WARRANTY
A type of insurance that covers repairs to specified parts of a house for a specific period of time.

HUD-1 SETTLEMENT STATEMENT
A final listing of the closing costs of the mortgage transaction. It provides the sales price and down payment, as well as the total settlement costs required from the buyer and seller.

INTEREST RATE CAP
A provision of an ARM limiting how much interest rates may increase per adjustment period.

INTEREST
The fee charged for borrowing money. Usually stated as a percentage.

JOINT TENANCY
A form of co-ownership giving each owner (tenant) equal interest and equal rights in the property, including the right of survivorship/

JUMBO LOAN
A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae or Freddie Mac.

LATE CHARGE
The penalty a borrower must pay when a payment is made after the due date.

LIEN
A legal claim against a property that must be paid when the property is sold.

LOAN SERVICING
The collection of mortgage payments from borrowers and related responsibilities of a loan service.

LOAN-TO-VALUE RATIO (LTV)
The relationship between the amount of a mortgage and the total value of the property.

MARGIN
The set percentage the lender adds to the index rate to determine the interest rate of an ARM.

MID
Mortgage interest deduction on federal tax return.

MODIFICATION
Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance or loan term.

MORTGAGE
A loan using your home as collateral. It may also indicate the amount of money you borrow, with interest, to purchase your house.

MORTGAGE BROKER
A company that originates mortgages exclusively for resale in the secondary market.

MORTGAGE INSURANCE PREMIUM (MIP)
The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

MORTGAGE INSURANCE
Required by lenders on some loans to protect lenders from a possible default.

MORTGAGE NOTE
A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time, the agreement is secured by a mortgage.

MORTGAGE
A legal document that pledges a property to the lender as security for payment of a debt.

MORTGAGEE
The lender.

MORTGAGOR
The borrower.

MULTIPLE LISTING SERVICE (MLS)
A service that combines agency listings of all available homes in an area into one directory or database.

NAR
National Association of REALTORS®. A trade organization for real estate agents and brokers who become members by agreeing to abide by the organization’s code of ethics. Members may call themselves REALTORS®.

NEGATIVE AMORTIZATION
Payment terms under which the borrower’s monthly payments do not cover the interest due and as a result, the loan balance increases.

NEGATIVE EQUITY
When the amount of principal owed on a mortgage is greater than the fair market value.

NOTICE OF DEFAULT
A formal written notice to a borrower that a default has occurred and that legal action may be taken.

ORIGINATION FEE
A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount, or points.

OWNER FINANCING
A purchase in which the seller provides all or a part of the financing.

PAYMENT CAP
A provision of some ARMs limiting how much a borrower’s payments may increase regardless of how much the interest rate increases; can result in negative amortization.

PITI
Stands for principal, interest, tax and insurance – the components of a monthly mortgage payment.

POINTS
A one-time charge by the lender to increase the yield of the loan; a point is one percent (1%) of the amount of the mortgage.

POWER OF ATTORNEY
A legal document that authorizes another person to act on one’s behalf.

PRE APPROVAL
A letter from a lender stating how much money the borrower can obtain.

PREPAYMENT PENALTY
A fee charged to a borrower who pays off a loan before it is due.

PRE QUALIFICATION
The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

PRINCIPAL
The amount borrowed or remaining unpaid; also that part of the monthly payment that reduces the outstanding balance of a mortgage.

PRIVATE MORTGAGE INSURANCE (PMI)
Insurance provided by a nongovernmental insurers that protects lenders against loss if a borrower defaults.

PURCHASE & SALE AGREEMENT
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

QUALIFYING RATIOS
Guidelines applied by lenders to determine how large a loan to grant a homebuyer.

RATE LOCK
An agreement in which an interest rate is “locked in” or guaranteed for a specified period of time prior to closing.

REAL ESTATE AGENT
A person licensed to negotiate and transact the sale of real estate on behalf of the owner.

REALTOR®
A real estate professional who is a member of the National Association of REALTORS®. A registered trademark.

SALES CONTRACT
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

SECOND MORTGAGE
A mortgage that is subordinated to the rights of the first mortgage holder.

SECONDARY MORTGAGE MARKET
The buying and selling of existing mortgages.

SELLER TAKE-BACK
An agreement in which the owner of a property provides financing often in combination with an assumed mortgage.

SELLER’S AGENT
A real estate agent who represents the property owner, the seller; also a listing agent.

SETTLEMENT SHEET
The computation of costs payable at closing which determines the seller’s net proceeds and the buyer’s net payment.

SURVEY
A drawing showing the legal boundaries of a property.

TITLE COMPANY
A company that specializes in insuring the title to a property.

TITLE INSURANCE
Insurance to protect the lender (lenders policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

TITLE SEARCH
A check of the title records to ensure that the seller is the legal owner of property and that there are no liens or other claims outstanding.

TITLE
A legal document establishing the right of ownership.

TRANSFER TAX
State or local tax payment when title passes from one owner to another.

TRUTH-IN-LENDING
A federal law that requires lenders to fully disclose in writing, the terms and conditions of a mortgage, including the APR and other charges.

UNDERWRITING
The process of evaluating a loan application to determine the risk involved for the lender.

VA LOAN
A loan that is guaranteed by the Veterans Administration.

WALK THROUGH
A buyer’s final inspection of the home to determine if conditions in the purchase agreement have been satisfied.