Real Estate Defined
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ADJUSTABLE RATE LOAN (ARM) A mortgage loan in which the interest rate may increase or decrease over the course of the loan.  An ARM is different than a fixed rate loan, where the interest rate remains the same throughout the term of the loan.

AMORTIZATION  The gradual paying off a debt by making equal periodic payments of principal and interest on a loan at equal intervals of time. You may request an amortization statement when you obtain a loan.

APPRAISAL An estimate of a property's valuation by an appraiser. This is not necessarily the selling price of the home, but an estimate of what homes in the same area and similar style are currently selling for.

APR ( Annual Percentage Rate) Rate of interest charged on a loan.

ASSESSED VALUE A value placed on a property by a public officer/assessor or a board as a basis for property taxes.

ASSUMABLE MORTGAGE A mortgage that is transferred to the buyer who then becomes personally liable for the terms and conditions of the current mortgage.

BACK RATIO The total debt expense compares your total monthly obligations including your total mortgage payment to your monthly income.  Eg: Credit card debt, car payment, etc. plus PITI.   Most banks use a ratio of 36 to 40.

CLOSING The actual transfer of title for money or other consideration.  All parties usually meet at a predetermined location (usually a law office) to sign and transfer title and deed to buyer.

CONTINGENCY A provision in a contract that requires a certain act to be completed, or a certain event occur before the contract becomes binging.

CLOUD ON TITLE An outstanding claim or encumbrance that would impair the title. 

CONVENTIONAL LOAN A loan not insured or guaranteed by a government.

DEED A written instrument which after execution and delivery, conveys title to or an interest in real estate.

DISCOUNT POINTS An added loan fee charged by a lender to make the yield on a lower than market value loan competitive with higher interest rate loans.  One point is equal to one percent of the loan.

DOWN PAYMENT The amount of cash that a purchaser puts down to buy property.  Most lenders require a minimum of 5% down payment for an owner occupied purchase where the purchasers intend to live in the property and at least 20% down for an investor purchased property where the investor does not intent to use the property as their primary residence. First time buyers have reported FHA loans as low as 3%.

EQUITY The value of a property over and above any mortgage indebtedness.

ESCROW ACCOUNT An account usually established by the lender to make payments for hazard insurance and property taxes.  Payments will be required to include enough money to pay principal and interest to the bank for the loan as well as enough money to pay annual taxes and insurance which is deposited into an escrow account.  This money protects your mortgage company from a property being revoked through unpaid taxes.

FHA LOAN A loan insured by the Federal Housing Administration and made by an approved lender.

FRONT RATIO The housing payment ratio compares your total mortgage payment to your monthly income.  Most lenders typically use a ratio of 28 but can be as high as 32.

HUD-1 SETTLEMENT STATEMENT A closing statement that outlines all costs associated with a real estate transaction.

LIEN A right given by law to certain creditors to have their debt paid out of the property of a defaulting debtor.  Court judgments become liens against a persons real property.  Liens and judgments are recorded at the county clerk's office and are considered public information.

LOAN ORIGINATION FEE Same as discount points.  A point is equal to 1% of the loan.

LOAN PROCESSING FEE A flat fee charged by lenders for administration of the loan process.  Some banks waive this fee.  

LTV% (LOAN TO VALUE) Commonly referred to as loan to value ratio, this figure tells the lender what percentage of the purchase price the loan is going to be.

MARKET VALUE The actual value of property at a specific time. 

MORTGAGE A pledge of real estate as security for the payment of a debt.  Simply put, a mortgage is a recorded document that tells the lender that the borrower pledged their real estate as collateral for a loan.

PITI Stands for principal, interest, taxes and insurance and generally referring to an all encompassing monthly payment on a mortgage to a lender.  Lenders use this figure to pre-qualify a buyer.  Lenders will traditionally allow buyers to use up to 28% of their monthly income to pay PITI. 

PRE-QUALIFICATION A process where a lender determines how large a monthly payment a purchaser can afford. 

PRINCIPAL The amount of money that a borrower owes on a loan at any given time.

TITLE Legal evidence of ownership.

TITLE INSURANCE Insurance that guarantees a return of your investment should a title problem arise after you take possession.  There two types of title insurance are fee title policy which insures the owners title and  mortgagee title policy, which insures the lender for the mortgaged amount.  Most lenders require the purchaser to pay for a mortgagee policy to indemnify the lender.

TRUTH IN LENDING DISCLOSURE (RESPA) A federal law known as the real estate settlement and procedures act that requires certain disclosures to consumers about mortgage loan settlements.  The law also prohibits the payment or receipt of kickbacks.

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