A - E

A historical summary provided by a title insurance company of all records affecting the title to a property.

acceleration clause

Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan.

adjustable rate mortgage (ARM)

A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower's risk, the ARM may have a payment or rate cap. See also: cap.

amenities

Features of your home that fit your preferences and can increase the value of your property. Some examples include the number of bedrooms, bathrooms, or vicinity to public transportation.

amortization

The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan.

annual cap
See: cap.

annual percentage rate (A.P.R.)

The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.

appraisal
An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property's ability to produce income.

appreciation
A property's increase in value due to inflation or economic factors.

A.P.R.

See: annual percentage rate.

ARM

See: adjustable rate mortgage.

assessment
Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance.

assignment
The transfer of a contract or a right to buy property at given rates and terms from a mortgagee to another person.

assumption

An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan's interest rate may be lower than current market rates. Depending on what is in the mortgage or deed of trust, the lender may raise the interest rate, require the buyer to qualify for the mortgage, or not permit the buyer to assume the loan at all.

balloon mortgage

Mortgage with a final lump sum payment that is greater than preceding payments and pays the loan in full.

biweekly mortgage

A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be.

bond

A certificate serving as security for payment of a debt. Bonds backed by mortgage loans are pooled together and sold in the secondary market.

bridge loan
A loan to "bridge" the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also known as a swing loan.

broker
An intermediary between the borrower and the lender. The broker may represent several lending sources and charges a fee or commission for services.

buy-down
Where the buyer pays additional discount points or makes a substantial down payment in return for a below market interest rate; or the seller offers 3-2-1 interest payment plans or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased.

cap
A limit in how much an adjustable rate mortgage's monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap.

A payment cap is a limit on the monthly payment.

An interest cap is a limit on the amount of the interest rate.

A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan.

An annual cap limits the amount the interest rate can increase over a twelve-month period

certificate of reasonable value (CRV)
A Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.

certificate of title

Document rendering an opinion on the status of a property's title based on public records.

closed-end mortgage

A mortgage principal amount that is fixed and cannot be increased during the life of the loan. See also: open-end mortgage.

closing costs

Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually include but are not limited to the following:

cloud
A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a clear title.

collateral

Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan. .

commitment fee

A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate.

co-mortgagor

One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.

condominium
An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as the grounds, the parking facilities and the tennis courts.

conforming loan

A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan.

construction loan
A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full.

consumer handbook on adjustable rate mortgages (C.H.A.R.M.)
A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).

conventional loan

A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).

convertible mortgage
An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term.

co-signer

One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also: co-mortgagor.

covenants

Rules and restrictions governing the use of property.

CRV

See: certificate of reasonable value.

curtailments

The borrower's privilege to make payments on a loan's principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage's prepayment clause.

debt

Money owed to repay someone.

debt-to-income ratio

The ratio between a borrower's monthly payment obligations divided by his or her net effective income (FHA or VA loans) or gross monthly income (conventional loans).

deed of trust

A document, used in many states in place of a mortgage, held by a trustee pending repayment of the loan. The advantage of a deed of trust is that the trustee does not have to go to court to proceed with foreclosure should the borrower default on the loan.

Department of Housing and Urban Development (HUD)

The U.S. government agency that administers FHA, GNMA and other housing programs.

discount points
Amounts paid to the lender based on the loan amount to buy the interest rate down. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000.

down payment
The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.

due-on-sale
A clause in a mortgage or deed of trust allowing a lender to require immediate payment of the balance of the loan if the property is sold (subject to the terms of the security instrument).

duplex
Dwelling divided into two units.

earnest money

Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property.

easement

The right one party has in regard to the property of another, such as the right of a public utility company to lay lines.

Equal Credit Opportunity Act
A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act.

equity
The value of a property beyond any liens against it. Also referred to as owner's interest.

escape clause
A provision allowing one party or more to cancel all or part of the contract if certain events fail to happen, such as the ability of the buyer to obtain financing within a specified period.

escrow
Money placed with a third party for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year.