Glossary of Terms
It is often said that mortgage financing has a language of its own. To help you through the process, we have a dictionary of common terms you’re likely to come across during the home financing process. Of course, if you’re unsure about a term, or you see something you’re unfamiliar with, give us a call at 888-509-2867.
A summary; an abridgment. Before the use of photocopying, public records were kept by abstracts of recorded documents.
ABSTRACT OF JUDGMENT
A summary of the essential provisions of a court judgment which, when recorded in the county recorder's office, creates a lien upon the property of the debtor in that county, both presently owned or after acquired.
ABSTRACT OF TITLE
A history of a property's title record used in some states to prepare the Preliminary or Title Commitment report. An Abstract of Title lists anyone who's ever had a claim to the property, past and present. Some states require mortgage lenders to obtain a complete Abstract of Title. However, most states condense the abstract into a document called either the Preliminary or Title Commitment, which lists only current claims to the property.
Provision in a mortgage document stating that if a payment is missed or any other provision is violated the whole debt becomes immediately due and payable.
Formal declaration before a public official that one has signed a document. Prior to recording real estate legal documents, such as grant deeds and deeds of trust, a Notary Public acknowledges the person's signature on the document.
A measure of land equal to 43,560 square feet.
ACTION TO QUIET TITLE
A court action to establish ownership of real property. Although technically not an action to remove a cloud on title, the two actions are usually referred to as "Quiet Title" actions.
Interest on a note, bond, etc. that has been earned but not yet paid.
Designates an assessment of taxes against property. Literally, according to value; based on the "ability to pay" theory.
An attachment to a contract, deed or other document that incorporates additional terms of information to the original.
ADJUSTABLE RATE MORTGAGE (ARM)
Adjustable rate mortgages, or ARMs, usually start with a lower fixed rate and then adjust according to a specified index after an initial period. ARM terms can be 3/1, 5/1, 7/1, 10/1 and a handful of other options. The first number indicates how many years the interest rate is fixed, and the second number indicates how often the rate adjusts after that initial period is over. For example, in a 7/1 ARM, your interest rate stays the same the first seven years, and then adjusts every year. These mortgages adjust periodically based on an index that changes with market conditions. The rate of interest is the sum of the index plus a margin (the margin remains fixed for the life of the loan). Most ARMs have periodic interest rate and payment caps, as well as a life cap. An ARM may also be referred to as a re-negotiable rate mortgage, a variable rate mortgage (VRMs) or the Canadian rollover mortgage.
A rider is an addition to a security instrument. The adjustable-rate rider outlines terms and conditions specific to an adjustable-rate loan. It must be recorded along with the security instrument at the county recorder's office. See SECURITY INSTRUMENT.
The adjustment cap limits the degree of interest rate changes that may be made during a specific period during the life of the loan.
The actual, exclusive, openly notorious, hostile and continuous possession and occupation of real property under an evident claim of right or title. The time required legally to obtain title by adverse possession varies from state to state.
A contract by which the agent undertakes to represent the principal in business transactions, using some degree of discretion.
A person authorized to act on behalf of another in dealings with third parties.
AGREEMENT OF SALE
An agreement between parties for the sale of real estate. In some states it is synonymous with a Purchase Agreement, Sales Agreement, or Land Contract. In Texas it is known as an Earnest Money Contract.
Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred.
Periodic payments made under a divorce decree or a written separation agreement toward the support of a former spouse. Alimony may be taken as a deduction from adjusted gross income by the person who pays it, while the person who receives it must claim it as taxable income.
An acronym for American Land Title Association. Commonly used in reference to a particular type of title policy. See AMERICAN LAND TITLE ASSOCIATION (ALTA).
The qualities and state of being pleasant and agreeable. In appraising, those qualities that attach to property, benefits derived from other than monetary. Satisfactions of possession and use arising from architectural excellence, scenic beauty, and social environment.
AMERICAN LAND TITLE ASSOCIATION (ALTA)
An organization composed of title insurance companies that has adopted certain insurance policy forms to standardize title insurance coverage on a national basis. See TITLE INSURANCE.
Gradual payment of a debt through regular installments that cover both interest and principal.
A yearly cost charged in connection with maintaining a home equity line of credit.
ANNUAL PERCENTAGE RATE (APR)
Developed to provide you with a clearer description of how much your loan costs, the APR is the true cost of your credit stated at an annual, or yearly rate. The APR also takes into account any costs associated with your loan other than the interest rate. These may include origination fees, loan discount points, and private mortgage insurance premiums. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.
APPRAISAL AND CREDIT REPORT FEES
These fees are generally collected by the lender and paid to outside companies performing the services.
An expert opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.
Estimate of real estate value, presumably made by an expert. An appraisal evaluates the property at a given time based on facts regarding the location, improvements, neighborhood, and comparable sales.
Increase in value or worth of property.
Payment made after it is due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.
A clause that is sometimes used in the transfer of property. It means that the present property is being transferred with no guarantee or warranty provided by the seller.
The total assessed value of all property in a given assessment district.
Value placed on real estate by governmental assessors as a basis for levying property taxes; not identical with appraised or market value.
Transfer of a contract from one party to another.
When one assumes the responsibility for repaying an existing mortgage. Both FHA and VA loans are fully assumable. Some adjustable rate mortgages may be partially assumable, but the new owners may be required to re-qualify for the loan.
A home that has one or more common walls adjoining another home. Condominiums and row houses are attached homes.
Usually a short-term fixed-rate loan that involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract. Also known as a Balloon Loan.
The final payment of a mortgage that is larger than the regular payment; it usually extinguishes the debt.
A provision of federal law whereby a debtor surrenders his assets to the Bankruptcy Court and is relieved of the future obligation to repay his unsecured debts. After bankruptcy, the debtor is discharged and his unsecured creditors may not pursue further collection efforts against him. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property, but they may not take other action to collect from the debtor.
Original cost of property plus value of any improvements put on by the seller minus the depreciation taken by the seller.
The lender named on the mortgage note. One entitled to the proceeds of property held in trust; also proceeds of wills, insurance policies, or trusts.
BILL OF SALE
Written agreement transferring personal property from one person to another.
Preliminary agreement of sale, usually accompanied by earnest money (term also used with property insurance).
A mortgage covering more than one property.
A debt instrument in the capital markets. The U.S. government, corporations, and municipalities use bonds to raise money. Bonds can also be backed by real estate loans and the payments from mortgages.
A form of an interim loan, generally made between a short-term loan and a long-term loan when the borrower needs additional time before obtaining permanent financing.
A person who represents another for a fee in real estate transactions. Real estate brokers help consumers locate suitable real estate and are paid a fee for their services. Mortgage brokers help consumers find suitable loans for their real estate purchases and are paid a fee for their services.
Government regulations specifying minimum construction standards.
BUILDING LINE OR SETBACK
Distances from the ends and/or sides of the lot beyond which construction may not extend.
An interest rate buy down is the temporary reduction of the note rate and resulting monthly payments a borrower pays to the lender. The shortfall between the rate on the note and initial payment made by the borrower is usually paid by a third party, such as a seller or builder.
Agent who takes the buyer as a client and is obligated to represent his or her interest above all others’.