real estate terms glossary

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

With most major home improvement projects, work permits may be required. Permits provide legal permission to undertake a project and are usually given by local governments agencies.

Some of the most common permits are for general projects or permits that require you to meet specific local building codes.

You may want to check with your local government to determine if there are building restrictions in historic areas or in environmentally-sensitive areas.

Any property that is not real property.

Principle, interests, taxes and insurance (PITI) are the four components of a monthly mortgage payment.

The four components of a monthly mortgage payment.

• Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage.
• Interest is the fee charged for borrowing money.
• Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and hazard insurance.

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.

A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.

A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

When you work with your lender to get pre-approved, you are getting an indication of how much money you will be eligible to borrow when you apply for a mortgage. This process occurs before you complete an application for a loan.

Pre-approval includes a screening of a borrower’s credit history, and all information you give to your lender will be verified when you apply for your mortgage.

The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

A fee that may be charged to a borrower who pays off a loan before it is due.

If you pay off your mortgage before it is due, you may be charged a fee -- this is referred to as a prepayment penalty.

Any amount that is paid to reduce the principal balance of a loan before the due date - such as the sale of the property, the owner’s decision to pay the loan in full, the owner’s decision to pay additional money every month to lower the principle or interest - is considered prepayment.

You may want to consider discussing the specifics of this fee as you negotiate the terms of your loan with your lender.

The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

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

One of the terms you’re likely to hear when you talk about a mortgage with your lender is principal. The principal is the amount originally borrowed or the amount that remains to be paid once you have started making payments. It is also the part of the monthly mortgage payment that reduces the remaining balance of a mortgage.

The principal balance is the outstanding amount of principal on a mortgage; it does not include interest or any other charges.

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.

Also known as Mortgage Insurance, PMI is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

A written promise to repay a specified amount over a specified period of time.

A meeting in an announced public location to sell property to repay a mortgage that is in default.

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

The Purchase and Sale Agreement is a written contract that is signed by the buyer and seller. It states the terms and conditions under which a property will be sold. It includes:

• description of property
• price offered
• down payment
• earnest money deposit
• financing
• personal items to be included
• closing date
• occupancy date
• length of time the offer is valid
• special contingencies
• inspection

The acquisition of property through the payment of money or its equivalent.

A radioactive gas found in some homes that in sufficient concentrations can cause health problems.

Lenders offer caps with their adjustable rate mortgages (ARMs) so you can have more control over your monthly mortgage payment. Usually, there are two types of rate caps:

• A per-adjustment cap, which specifies the most your interest rate can rise from one adjustment period to the next
• A lifetime adjustment cap, which specifies how much your interest rate can rise over the life of your loan

Ask your lender about both caps when evaluating any ARM product.

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time.

A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.

A ratified sales contract means both the buyer and the seller have signed off on the final offer. It also acts as a starting point for the loan application interview.

The ratified sales contract specifies the amount of your down payment, the price you will pay for the house, the type of mortgage financing you will seek, your proposed closing and occupancy dates, and other contingencies.

You will give all this information to your loan officer when you meet to discuss your financing options.

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

Many homeowners hire a real estate attorney to represent them during the loan application process. If you do so, your attorney will review the sales contract and represent you at closing.

There are many questions you can ask a personal attorney before deciding whether to have the attorney represent you at closing. They can include:

• What is the attorney’s fee for representing you at closing?
• What is the attorney’s experience with real estate transactions?
• Are there fees for reading documents relating to the closing?
• Are there fees for giving advice? 

Remember that your personal attorney’s fee is not part of your closing costs. You must pay for this expense separately.

A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of REALTORS®.

The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

The process of paying off one loan with the proceeds from a new loan using the same property as security.

A contingency reserve will be set up that contains funds borrowed to finance your home improvements. These will be placed into an escrow account upon the closing of your mortgage. Payments to the contractor will be periodically made from this fund as construction occurs.

You will be paid interest on the funds that are in the escrow account that have not been paid to the contractor.

A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.

The amount of principal that has not yet been repaid.

The original amortization term minus the number of payments that have been applied.

Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

There are two different Rent With Option to Buy options:

Lease-Purchase Mortgage Loan: An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate.

Lease-Purchase Option: Nonprofit organizations may use the lease-purchase option to purchase a home that they then rent to a consumer, or “leaseholder.” The leaseholder has the option to buy the home after a designated period of time (usually three or five years). Part of each rent payment is put aside toward savings for the purpose of accumulating the down payment and closing costs.

This is Real Estate that is owned by the lender. This status indicates the property is owned by a lender or bank as a result of a foreclosure.

An arrangement made to repay delinquent installments or advances. Lenders’ formal repayment plans are called “relief provisions.”

A fund set aside for replacement of common property in a condominium, PUD, or cooperative project - particularly that which has a short life expectancy, such as carpeting, furniture, etc.

The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.

In order to get a Home Keeper® reverse mortgage or a Home Equity Conversion Mortgage (HECM), you must receive counseling that explains how the financing option works.

During your counseling, you will receive an estimate of your loan advances and an explanation of your responsibilities as a borrower. Other sources of unbiased information education may also be provided. A non-profit agency or a local lender typically conducts the counseling.

A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

The Rural Housing Service (RHS), a branch of the U.S. Department of Agriculture, offers low-interest-rate homeownership loans with no down payment requirements to low- and moderate-income persons who live in rural areas or small towns. Check with your local RHS office or a local lender for eligibility requirements. For the location of RHS State Offices and details on RHS loans, see the RHS home page.

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

The right to enter or leave designated premises.

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.