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Whitney and Associates
Glossary of Real Estate Terms
Adjustable-Rate Mortgage (ARM)-
A loan that’s interest rate will change
on pre-determined dates based on market
conditions.
Annual Percentage Rate (APR) -
A term that describes the percentage between
the total fee for the cost of the loan to
the amount of the loan, over the term of
the loan. APR is frequently confused with
a quoted interest rate.
Appraisal – A written
report stating the opinion of a qualified
expert about the value of a property. The
report is based on the “comps”
(the price comparable properties have recently
sold for) in the area and the characteristics
of the property.
 Automated
Underwriting – A method of
reviewing and approving home mortgage loan
applications by computer.
Bridge Loan – A
loan that makes it possible for a buyer
to get financing in order to make a down
payment and pay closing costs on a new property
before the have sold their current home.
Closing – The last
step in the home purchasing process. The
buyer and the lender sign the legal mortgage
documents, the funds are transferred to
the seller and the buyer takes title of
the property.
Closing Agent - The designated
individual who oversees the closing. Generally
this is an attorney or a representative
from a title company.
Closing Costs –
The costs associated with the closing of
a property that are separate from the purchase
price. Closing costs generally include fees
for appraisals, title fees and lender costs.
Closing costs are usually paid by the buyer
although sometimes in conjunction with the
seller.
Commitment Letter –
A legally binding written agreement from
a lender, pledging to loan monies to a buyer
under prescribed conditions.
Conventional Loan - A
mortgage provided by a lender that is not
guaranteed by a government agency. FHA and
VA loans are non-conventional loans.
Credit Report – Information
about a person’s credit history which
provides a rating of their current credit
status.
Debt-to-Income Ratio – A
formula designed to compare a prospective
buyer’s current income to the amount
they will pay on a proposed mortgage plus
their current debt. Also known as the “back
end ratio.”
Down Payment – The
amount of money a buyer agrees to pay for
a home without financing.
Equity – The difference
between the amount a property is currently
worth and the amount of money still owed
on it.
Escrow Account –
A separate holding account where funds are
place after each mortgage payment. The funds
are used to pay extra expenses such as taxes
and insurance.
Fixed-Rate Mortgage –
A loan with an interest rate that does not
fluctuate with the market.
FICO Score – A rating
given to a person to determine their credit
worthiness.
Float the Rate - An agreement
by a buyer and a lender to wait on the locking
in of an interest rate until closer to closing
– generally in the hopes of getting
a lower rate.
Front – End Ratio –
a formula to determine the relationship
between a buyer’s income and the amount
needed to cover the costs of a proposed
mortgage including tax and insurance.
Funding Fee – A
fee charged on VA loans to cover administrative
costs.
Good Faith Estimate –
A written declaration of the approximate
costs due on or before closing.
Government Loan – A
mortgage guaranteed by a government entity,
although usually provided by private lenders.
VA and FHA loans are government loans.
Home Mortgage Consultants –
Also known as a loan officer, the representative
for a lender who specializes in home mortgages.
Homeowner’s Insurance or
Hazard Insurance – An insurance
policy that protects a property against
losses incurred by fire, vandalism, theft,
etc. Hazard insurance is required with most
mortgages.
HUD-1 Settlement Statement –
a form that discloses costs at
closing.
Index – The specific,
reliable market indicator on which your
ARM mortgage rate will adjust according
to.
Interest Rate –
A fee paid to the lender for the loan of
the money, it is a percentage of the mortgage.
Interim Interest – Interest
that accrues from the day of the closing
until the last day of the month.
Loan Conditions –
The terms agreed to by the buyer and the
lender regarding the specifics of a loan,
such as the length of the agreement and
the rate of interest.
Loan Payment Reserves –
Extra money saved that a borrower can use
to make mortgage payments in case of loss
of income. Frequently a lender will require
at least three months reserve.
Loan Settlement –
The end of a mortgage transaction. The deed
is delivered, the notes are signed and the
funds disbursed.
Loan-to-Value –
the comparison of the amount a property
is appraised for and the amount of a proposed
loan to purchase the property.
Margin – The number
of percent points added to the index to
determine the rate an ARM will adjust to.
Mortgagee – A lender.
Mortgage Insurance –
Generally required if a buyer is making
a down payment of less than 20 %, it is
insurance for a lender in case of a buyer
defaulting on the terms of the loan.
Mortgagor – A borrower.
Mortgage Specialist - Also
known as a loan processor, this is a representative
for a lender who collects an application
and supporting documents in order to submit
them to underwriting.
Non-conforming Loan –
A loan or mortgage program which offers
services outside industry standards.
Non-prime Loan – Also
known as Sub-prime, a loan program which
specializes in accommodating prospective
borrowers with mitigating factors, such
as poor credit.
Note – A legal document
outlining the terms of a loan, the amount,
repayment information and the time frame
of the agreement.
Origination Fee –
A fee paid to a lender for loaning money,
usually a percentage of the loan amount.
Points – Each point
represents 1% of the total loan amount.
There are origination points, used to offset
the cost of a loan and discount points which
are paid to reduce a loan’s interest
rate.
Pre-approval – A
written document from a lender to a buyer
informing them the amount of loan the can
reasonably be approved for under stated
conditions.
Pre-paids – Closing
costs that are used to cover taxes, interest
and insurance.
Principal – The
remaining amount due on a loan, excluding
closing costs.
Private Mortgage Insurance –
Mortgage insurance on a conventional
loan, issued by a private insurance company.
Rate Cap – The highest
amount an ARM interest rate can adjust to.
Rate Lock – The
buyer and lender agree to a specified interest
rate, points and the term of the loan.
Sub-Prime Loan –
See Non-Prime Loan
Truth-in-Lending Statement –
Required by federal regulations, it is a
statement providing detailed information
about the costs of a loan in regards to
its annual percentage rate.
Underwriting – A
process that determines the level of risk
in granting a loan.
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