Below are some brief descriptions of common terminology used in real estate transactions.  These are general terms and are not intended to apply to all possible uses of the term.  Please consult Autumn Turner for more information or questions regarding definitions.

Adjustable Rate Mortgage (ARM):  A mortgage with an interest rate that changes over time in line with movements of the index.

Adjustable Period:  The length of time between interest rate changes on an ARM.  For example, a loan with an adjustment period of one year is called a one year ARM which means that the interest rate can change once a year.

Amortization:  Repayment of a loan in equal installments of principle and interest rather than interest-only payments.

Annual Percentage Rate (APR):  The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.

Assumption of Mortgage:  A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust.  The lender must approve the buyer in order to assume the loan.

Cap:  The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

CC&R’s:  Covenants, Conditions and Restrictions.  A document that controls the use, requirements and restrictions of a property.

Certificate of Reasonable Value (CRV):  A document that establishes the maximum value and loan amount for a VA guaranteed loan.

Closing Statement:  The financial disclosure statement that accounts for all of the funds received and expected at the closing of the escrow, including deposits for taxes, hazard insurance and mortgage insurance.

Due-on-sale Clause:  An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money:  The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.

Federal National Mortgage Association:  Popularly known as Fannie Mae.  A privately owned corporation created by Congress to support the secondary mortgage market.  It purchases and sells residential mortgages insured by FHA or guaranteed by VA as well as conventional home mortgages.

Finance Charge:  The total cost a borrower must pay, directly or indirectly, to obtain credit.

Graduated Payment Mortgage:  A residential mortgage with monthly payments that start at a low payment and increase at a predetermined rate.

Home Inspection Report:  A qualified inspector’s report on a property’s overall condition. The report usually covers an evaluation of both the structural and mechanical systems.

Index:  The measure of interest rate changes used to determine adjustments in an ARM’s interest rate over the term of the loan.

Joint Tenancy:  An equal, undivided ownership of property by two or more persons.  Upon death of any owner, the survivor takes the descendant’s interest in the property.

Lien:  A legal hold or claim on property as security for a debt or a charge.

Loan Commitment:  A written promise to make a loan for a specified amount on specific terms.

Loan-to-Value Ratio:  The relationship between the amount of the loan expressed as a percentage of the appraised value.

Margin:  The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Negative Amortization:  This occurs when monthly payments fail to cover the interest cost. The interest not covered is added to the unpaid principle so that even after several payments you could owe more than you did at the beginning of the loan.

Origination Fee:  A fee or charge for establishing a new loan.

PITI:  Principle, Interest, Taxes, Insurance.

Point:  An amount equal to 1% of the principle amount of the investment or note.  The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of mortgage investments.

Pre-Payment Penalty:  A fee charged to the mortgagor who pays a loan before it is due.

Private Mortgage Insurance:  Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

Purchase Agreements:  A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under certain terms and conditions.  Also called a sales contract.

Realtor:  A real estate broker or associate in a local real estate board affiliated with the National Association of Realtors.  Membership to the National Association of Realtors which requires strict adherence to a Code of Ethics.

Tenancy in Common:  A type of joint ownership of property by two or more persons with no right of survivorship.

Title Insurance:  An insurance policy which protects the purchaser, mortgagee or other party against liens or encumbrances against their property.