Abstract (of Title): A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects that must be cleared before a buyer can purchase clear, marketable, and insurable title. Return to index
Acceleration Clause: A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if regular mortgage payments are not made or for breach of other conditions of the mortgage. Return to index
Adjustable Rate Mortgage (ARM): A mortgage whose interest rate may be changed at specified times, within specified limits, based on a specified index. Return to index
Agreement of Sale: Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. Return to index
Amortization: Paying off a debt by making periodic payments of both principal and interest. Return to index
Amortization Schedule: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance Remaining. Return to index
Annual Percentage Rate (APR): The finance charge calculated over 1 year taking into consideration all costs of the loan as required by the Truth in Lending Act. Return to index
Appraisal: An expert judgment or estimate of the quality or value of real estate as of a given date. Return to index
Appreciation: The amount of increase in property value. Return to index
Assessed Value: The valuation placed upon property by a public tax assessor for purposes of taxation. Return to index
Assumption of Mortgage: An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. Return to index
Balloon: The final payment, usually a lump sum, that is due on the maturity date of the mortgage. Return to index
Blanket Mortgage: One mortgage which covers more than one property. Return to index
Building Line or Setback: Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances. Return to index
Cap: A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease. Return to index
Cash Reserve: A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments. Return to index
Certificate of Title: A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property that he is offering for sale. A certificate of title offers no protection against any hidden defects in the title that an examination of the records could not reveal. The issuer of the certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy. Return to index
Clear Title: A title that is free of liens or legal questions as to ownership of property. Return to index
Closing Costs: Expenses incurred in buying a home including but not limited to attorney's fees, title insurance premium, land survey, title search, recording fees, appraisal cost, and mortgage application fees. Return to index
Closing Day (or Settlement): The day on which the formalities of a real estate sale are concluded. The certificates of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale. Return to index
Cloud: An outstanding claim or encumbrance that adversely affects the marketability of title. Return to index
Collateral: The property used as security for a loan and is subject to seizure if the borrower defaults. Return to index
Commission: Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price — 6 to 7 percent on houses, 10 percent on land. Return to index
Commitment Letter: A formal offer by a lender stating the terms under which it agrees to lender money to a home buyer. Return to index
Condemnation: The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a government agency that a particular building is unsafe or unfit for use. Return to index
Condominium: Individual ownership of a dwelling unit and an individual interest in the common areas and facilities that serve the multi-unit project. Return to index
Contingency: A condition that must be met before a contract is legally binding. Return to index
Contractor: In the construction industry, a contractor is on who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others. Return to index
Covenant: A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure. Return to index
Conventional Mortgage: A mortgage loan not insured by HUD or guaranteed by the Department of Veterans Affairs. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.) Return to index
Conveyance: The transfer of ownership of real property from on person to another. Return to index
Convertible ARM: An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions. Return to index
Cooperative: An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. Return to index
Credit Report: A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. Return to index
Deed: A formal written instrument by which title to a real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. Return to index
Deed of Trust: Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few states have begun in recent years to treat the deed of trust like a mortgage. Return to index
Default: Failure to fulfill the obligations of a loan, such as failing to make payments. Return to index
Depreciation: Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason. Return to index
Documentary (or Tax) Stamps: A state tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each state. Some states do not have documentary (or tax) stamps, but they do have recordation fees. Return to index
Down Payment: The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale. Return to index
Due-on-Sale Clause: A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage. Return to index
Earnest Money: The down payment deposited by the buyer under the terms of the contract. Return to index
Easement: A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example. Return to index
Encroachment: An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line. Return to index
Encumbrance: A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase the encumbrance, or what can be done to remove it. Return to index
Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from denying mortgages on the basis of the borrower's race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. Return to index
Equity: The difference between the market value of a home and the amount of the mortgage secured by it. Return to index
Equity Loan: A loan based on the borrower's equity in his or her home. Return to index
Escrow Payment: The portion of the monthly mortgage payment held by the lender to be applied to real estate taxes, hazard insurance, and/or mortgage insurance. Return to index
Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer/credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record. Return to index
Fannie Mae: Federal National Mortgage Association. Return to index
FHA Mortgage: A mortgage that is insured by the Federal Housing Administration. Also referred to as a "government" mortgage. Return to index
First Mortgage: A mortgage that has first claim in the event of default. Return to index
Fizzbo (FSBO): For Sale By Owner. Return to index
Fixed Rate Loan: The interest rate remains constant over the life of the loan. Return to index
Flood Insurance: Insurance that compensates for physical property damages resulting from flooding. It is required for properties located in federally designated flood areas. Return to index
Forbearance: The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments. Return to index
Foreclosure: A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgage property, and depriving the mortgagor of possession. Return to index
Freddie Mac: Federal Home Loan Mortgage Corporation Index: Any specified indication of prevailing interest rates or economic condition that is easily verifiable. Return to index
General Warranty Deed: A deed which conveys not only all the grantor's interest in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable. Return to index
Graduated Payment Mortgage: A mortgage that starts with low monthly payments that increase at a predetermined rate. the initial monthly payments are set at an amount lower than that required for full amortization of the debt. Return to index
Grantee: That party in the deed who is the buyer or recipient. Return to index
Grantor: That party in the deed who is the seller or giver. Return to index
Hazard Insurance: Protects against damages caused to property by fire, windstorms, and other common hazards. Return to index
Homeowner's Insurance: An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents. Return to index
Homeowner's Warranty (HOW): A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale. Return to index
HUD: U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders. Return to index
Interest: A charge paid for borrowing money. Return to index
Interest Rate Cap: A provision of an ARM limiting how much interest rates may increase or decrease per adjustment period or over the life of a mortgage. Return to index