Glossary

Questions on any of these? Just ask!

ADJUSTABLE RATE MORTGAGE (ARM) – This is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index.

ADJUSTMENT INTERVAL – The time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index on an adjustable rate mortgage.

AMORTIZATION –The loan repayment process executed by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the balance.

APPRAISAL – This is an estimate of the value of property, made by a qualified appraiser, usually hired by a bank.

BALLOON (PAYMENT) MORTGAGE – This type of mortgage is usually defined by a short-term fixed-rate loan comprised of small payments for a certain period of time and one large payment for the remaining amount of the principal.

BRIDGE LOAN – A bridge loan is a short-term loan used until a person or company secures permanent financing or removes an existing obligation. It allows the user to meet current obligations by providing immediate cash flow. Bridge loans are short term, up to one year, have relatively high interest rates and are usually backed by some form of collateral, such as real estate or inventory.

CLOSING – This occurs after all the paperwork has been signed, funds have been disbursed, and the property legally changes hands. Also called settlement.

CLOSING COSTS – These usually include (for the buyer) origination fee on the loan, any discount points, appraisal fee, half of escrow fee, pro-rated property taxes, pro-rated mortgage interest, and other costs assessed at settlement. The seller’s include half of escrow, title insurance, excise tax, any unpaid property taxes, certain unpaid utilities or homeowner association dues, and real estate commission.

COMPUTATION OF TIME – all real estate contracts using NWMLS forms will automatically count the number of days according to the following computation of time summary:

Day commencing the period is Day 0

5 days or less – count Business Days ONLY

Greater than 5 days – count ALL days

All periods must end on a Business Day – except that “possession” can be on a weekend

All periods end at 9pm local time

CONVENTIONAL LOAN – A mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FMHA).

CREDIT REPORT – a report documenting the credit history and current status of a borrower’s credit standing.

DOWN PAYMENT – Money paid to secure a property. Down payments are usually 10% or higher on conventional loans. FHA and VA loan down payments may be lower – 0% to 5%.

EARNEST MONEY – Money “given” by a buyer to a seller (held in escrow) as part of the purchase price to bind a transaction and show good faith.

EQUITY – The difference between the fair market value for a property and current mortgage balance.

ESCROW – Refers to a neutral third party who carries out the instructions in the purchase and sales agreement and handles all the paperwork of settlement or “closing.” Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

FHA LOAN – A loan insured by the Federal Housing Administration which allows a low down payment.

FIXED-RATE MORTGAGE – A mortgage on which the interest rate is set for the term of the loan, usually 15 or 30 years.

HAZARD INSURANCE (AKA HOMEOWNER’S INSURANCE) – a form of insurance in which an insurance company protects the insured from specified losses on a property such as fire, wind, and accidents.

JUMBO LOAN – A mortgage which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

LIEN – A claim upon property for the payment or satisfaction of a debt, obligation, or judgement.

LOAN-TO-VALUE RATIO – The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. This is important for calculating mortgage insurance.

MARKET VALUE – The intersection of the highest price a buyer is willing to pay and the lowest price a seller will accept on a property.

MORTGAGE INSURANCE – Fee paid to insure the mortgage when equity in a property is less than 20 percent.

ORIGINATION FEE – The fee charged by the lender to prepare loan documents, make credit checks, and appraise a property (if not charged separately).

POWER OF ATTORNEY – A legal document authorizing one person to act on behalf of another.

PREPAYMENT PENALTY – Money charged for an early repayment of debt. Some mortgages carry these so read your documentation carefully.

PRINCIPAL – The amount of original debt, not including interest, left on a loan.

PRIVATE MORTGAGE INSURANCE (PMI) – In the event a borrower does not have a 20% down payment or 20% equity in the property, lenders will allow a smaller down payment with private mortgage insurance. This requires an initial premium payment of 1% – 5% of the mortgage amount and may require an additional monthly fee depending on the loan structure.

REALTOR® – A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of REALTORS. REALTORS adhere to a strict Code of Ethics in real estate dealings.

RECORDING FEES – Fees paid to the lender for recording a home sale with the local municipality which makes the transaction part of the public records.

SERVICING – In regards to the loan, this includes all the processes a lender performs to keep a loan in good standing, including payment collection, property tax payments, and hazard insurance payments.

SURVEY – A land surveyor will measure land to determine boundaries, showing references to known points.

TITLE – A legal document that provides evidence of an individual’s ownership of property.

TITLE INSURANCE – A policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. A separate policy may also be taken out by the lender.

TITLE SEARCH – An examination of records to determine the legal ownership of property as well as other legalities that come with ownership. A title search is usually performed by a title company.

UNDERWRITING – The process in which a lender makes a determination to make a loan to a potential homebuyer based on credit, employment, assets, and other factors.

VA LOAN – A long-term, low- or no down payment loan guaranteed by the Department of Veterans Affairs.

VERIFICATION OF DEPOSIT – May also be known as “proof of funds”. Usually requested by escrow or the lender, this is a document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts as evidence of lendability or as evidence that an amount used for a down payment actually exists.

VERIFICATION OF EMPLOYMENT – Requested by the lender, this is a document signed by the borrower’s employer verifying his/her position and salary to indicated lendability.