Financial Glossary

Amenity - A feature of the home or the property that serves as a bonus to the buyer. Examples of amenities are elaborate gardens, scenic view or pools

Amortization - Amortization is the repayment process of a mortgage loan through monthly installments including principal and interest. The monthly payment amount is based on on the terms of your mortgage.

Annual Percentage Rate - Often referd as the APR, it shows the cost of a loan as a yearly interest rate.

Appraisal - An appraisal is an estimate of a property's fair market value. Most lenders require an appraisal is before a loan is approved to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser - An individual who uses their experience to prepare the an appraisal.

Adjustable Rate Mortgage - Also known as ARM it is a mortgage that is subject to changes in interest rates. ARM monthly payments increase or decrease at intervals determined by the lender usually changing with movements in the prime rate.

Assessor - A government official who determines the value of a property for taxes.

Assumable Mortgage - A mortgage that can be transferred from a seller to a buyer. Upon approval of the loan and assumed by the buyer the seller is no longer responsible for the mortgage.

Balloon Mortgage - A mortgage that typically offers low rates for an initial period of time and after that time period the balance is due or is refinanced by the borrower.

Bankruptcy - When a persons assets are turned over to a trustee and used to pay off outstanding debts.

Borrower - The person who has been approved for a loan and is obligated to repay it.

Cap - A limit on how much a monthly payment or interest rate can increase or decrease. Usually associated with an adjustable rate mortgage.

Certificate of title - A document that shows the property legally belongs to the current owner. Before the title is transferred at closing it should be free and clear of any liens or claims.

Closing - The time at which the property is formally sold and transferred from the seller to the buyer.

Closing costs - The costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership.

Conventional loan - A private loan that is not guaranteed or insured by the U.S. government.

Deed - A document that transfers ownership of a property.

Default - The inability to pay monthly mortgage payments in a timely manner or breaking the mortgage terms.

Delinquency - The failure of a borrower to make timely mortgage payments under a loan agreement.

Discount point - Points normally at closing and equivalent to 1% of the total loan amount used to reduce the interest rate on a loan.

Down payment - The amount of a home's purchase price that is paid in cash and is not part of the mortgage loan.

Earnest money - The amount if of money put down by a potential buyer to show that he or she is serious about purchasing the home. If the offer is accepted it becomes part of the down payment, if the offer is rejected it is returned. However it may be forfeited if the buyer pulls out of the deal.

Equity - The amount of money calculated by subtracting the amount still owed on the mortgage from the fair market value of the property.

Escrow account - A separate account into which the lender puts a portion of each monthly mortgage payment for expenses such as property taxes, homeowners insurance, mortgage insurance.

Fair Housing Act - A law that prohibits discrimination in the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fixed-rate mortgage - A mortgage in which the payments remain the same for the life of the loan.

Foreclosure - A process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Home inspection - An inspection of the structure and mechanical systems of a homes safety.

Home warranty - A protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance.

Homeowner's insurance - An insurance policy that combines protection against damage to a dwelling and Is contents with protection against claims of negligence.

Index - Based on the prime rate it is a measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.

Interest - A fee that is charged for the use or lending of money .

Interest rate - The amount of interest charged on a monthly loan payment expressed as a percentage.

Judgment - A court decision requiring debt repayment.

Lien - A legal claim against property that must be satisfied When the property is sold

Loan - Money borrowed that must be repaid and usually with interest.

Loan fraud - Intentionally giving incorrect information on a loan application to better qualify for the loan

Lock-in - An offer to lock-in an interest rate that guarantees a specific interest rate.

Margin - The amount a lender adds to an index to determine the interest rate on an ARM

Mortgage - A loan or lien on property that secures the promise to repay.

Mortgage banker - A company that originates loans and resells them to secondary mortgage lenders.

Mortgage broker - A company that originates and processes loans for a number of lenders.

Mortgage insurance - A policy that protects lenders against the losses that can occur when a borrower defaults on a mortgage loan.

Offer - An indication of a willingness to purchase a home at a specific price.

Origination - Preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination fee - A fee for originating a loan.

PITI - Refers to Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment.

Private Mortgage Insurance - Often refered to as PMI it is privately owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Pre-approve - A loan agreement with a potential borrower as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-qualify - An informal greement for the maximum amount an individual is eligible to borrow.

Prepayment - Paying the mortgage off before the scheduled due date.

Principal - The amount of money borrowed from a lender.

Refinancing - Obtaining a new mortgage to pay off the original one. Refinancing is usually done to secure better interest rate.

RESPA - Known as the Real Estate Settlement Procedures Act it is a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships

Settlement - Another term for closing .

Survey - A diagram of property that indicates legal boundaries, easements, encroachments, rights of way.

Title insurance - Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.

Title search - Searching public records to be sure that the seller is the owner of the real estate and that there are no unsettled liens or claims against the property.

Truth-in-Lending - A federal law obligating a lender to give fuII written disclosure of aII fees, terms, and conditions associated with the loan.

Underwriting - Analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

VA Department of Veterans Affairs - The federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.