A

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued, plus a margin that remains constant. Although the initial interest rate may be lower than that of a fixed rate mortgage, the monthly payments can go up or down when the rate is adjusted.

 

Amortization

The gradual repayment of a mortgage loan by regular installments including both interest and principal. The timetable covering this process is called an amortization schedule.

 

Annual Percentage Rate (APR)

The interest rate which reflects the cost of a mortgage as a yearly rate. This rate is usually higher than the stated loan rate for the mortgage because it takes into account points and other charges.

 

Application Fee

The fee charged by the lender to the borrower to apply for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs.

 

Appraisal

The determination of property value based on recent sales information of similar properties.

 

Appreciation

An increase in the value of a property, due to changes in the market and/or improvements to the property.

B

Back-End Ratio

Monthly debt including any new/proposed housing expenses divided by the gross monthly income.

 

Balloon Payment Mortgage

Usually a short term mortgage with regular monthly payments that are insufficient to pay off the loan at the end of the term. A lump sum payment (balloon payment) is then required at the maturity date.

 

Bridge Financing

An interim loan, made when a borrower needs additional time before obtaining permanent financing. A bridge loan is often required between the purchase of a new home and the sale of the borrower's current home.

 

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money themselves. Brokers usually charge a fee or receive a commission for their services.

 

Buy down

A temporary reduction in an interest rate made by paying a lump sum or discount points up front.

C

Caps

A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers such as 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime.

 

Certificate of Eligibility

A certificate obtained by a veteran from a Veteran's Administration office, which states that the borrower is eligible for a VA insured loan.

 

Certificate of Reasonable Value (CRV)

An appraisal of property required for a VA mortgage.

 

Charge Off

The portion of principal and interest due on a loan that is written off when deemed to be un-collectible.

 

Chattel

Personal Property.

 

Closing

Also known as settlement. The meeting at which the sale of a property is finalized, closing costs and escrow amounts are paid, and the buyer and seller sign documents to transfer ownership of the property.

 

Closing Agent

Also known as the escrow officer. A neutral third party, usually an escrow company/title company that facilitates the closing of a real estate transaction.

 

Closing Costs

Expenses related to obtaining a loan. These normally include an origination fee, lender fees, title fees, etc.

 

Cloud on Title

Any fact or condition that could negatively impact upon the title of a property.

 

Comparables

Also known as "comps". Properties of similar size, location, and features used as comparisons to determine the value of a specified property.

 

Conditional Commitment

A lender's promise to issue a loan subject to certain conditions. The loan will not be funded until these conditions have been met.

 

Conditional Offer

Also known as a Contingent Offer. Purchase offer in which the buyer proposes to purchase property only after certain events occur, such as the sale of the current home, or obtaining financing.

 

Conforming Loan

A mortgage loan for $322,700 or less.

 

Construction Loan

A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

 

Conversion

The right of a borrower to convert an adjustable rate mortgage or a balloon loan into a fixed loan.

 

Convertible ARMS

An adjustable rate mortgage that may be converted to a fixed rate mortgage, subject to certain conditions specified in the mortgage note.

 

Conventional Mortgage

A mortgage loan that is not insured or guaranteed by the federal government.

 

Credit Rating

Borrowers are rated by lenders according to the borrower's credit worthiness or risk profile. Credit ratings are expressed as letter grades such as A, A-, B, etc. These ratings are based on various factors such as a borrower's payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower's credit, and different lenders may assign different grades to the same borrower.

 

Credit Report

A report obtained by a lender from the three major reporting bureaus, for the purpose of determining a borrower's history of debt repayment. Borrowers may examine their own credit reports, although they may have to pay a fee unless denied for credit recently.

 

Credit Scoring

A process that uses recorded information about individuals and their loan requests to assess, in a quantifiable, objective, and consistent manner, their future performance regarding debt repayment.