Real Estate Glossary

adjustable-rate mortgage (ARM)
An ARM is classified as a loan with a fluctuating interest rate. In other words, the interest rate moves up and down as market conditions fluctuate. Typically, an ARM will afford a lower initial interest rate, but your mortgage payments may change (usually semiannually or annually).

adjustment period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

affidavit
A sworn statement in writing, usually requiring notarization.

amortization
The gradual repayment of a mortgage loan by installments.

amortization schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

annuity
An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

appraised value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

balloon mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.

bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

bill of sale
A written document that transfers title to personal property.

buy-down mortgage
A temporary buy-down is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage. A permanent buy-down reduces the interest rate over the entire life of a mortgage.

cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

capital
(1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

cash reserve
A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.

cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

certificate of deposit
A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

certificate of reasonable value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

certificate of title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or realtors® often provide estimates of closing costs to prospective homebuyers.

co-borrower
Second or additional person equally responsible for payments on a mortgage. A co-borrower does not have to take title to the property, but usually has to sign the mortgage note.

collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

construction loan draw
A partial disbursement of the construction loan based on the schedule of payments in the loan agreement. Also called takedown.

consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

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

convertibility clause
A provision in some adjustable-rate mortgages (ARM) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

co-signer
One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property; his or her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower.

cost of funds index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

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.

curbside funding
The process of paying for a material package at the time of delivery of said materials.

debt to income ratio
Compares the amount of monthly income to the amount the borrower will owe each month in house payment (PITI) plus other debts. The other debts may include but not limited to car payment, credit cards, alimony, child support, and personal loans. This ratio is commonly used to see if the borrower has the capacity to repay the debt.

deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.

deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

depreciation
A decline in the value of property; the opposite of appreciation.

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

down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Glossary (A-D) | Glossary (E-Z)