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Mortgage Terms

adjustable-rate mortgage (ARM)
A mortgage whose interest rate changes periodically based on the changes in a specified index.

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). This is the rate used to compare rates from lender to lender.

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

closing
The eventual funding of a mortgage loan after the 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 cost item
Closing costs are items charged by the lender, third parties and certain service providers. These fees can include origination fees, discount points, title fees and pre-paid items. Impounds such as taxes and homeowner's insurance are in addition to closing costs.

common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

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

earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

escrow account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest price a seller, willing but not compelled to sell, would accept.

fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.

Home Owner's Association
The association that manages a condominium or a planned unit development.

HUD
The U.S. Department of Housing and Urban Development.

jumbo mortgage
The current loan limit for a conforming loan is $275,000. Loans for amounts above $275,000 are considered non-conforming or jumbo mortgages.

lender
The bank, mortgage company, or mortgage broker offering the loan.

lock-in
A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

origination fee
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

pre-qualification
When a lender or broker figures out how much you qualify to borrow.

principal
Amount of debt, not including interest. The face value of a note or mortgage.

private mortgage insurance (PMI)
Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Investors generally require private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

promissory note
A written promise to pay back a sum of money at a specific time.

rate lock-in
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.

stated income
Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns or pay stubs. These programs carry a higher rate due to increased risk to the investor.

title
The evidence one has of right to possession of land.

title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.

*Definitions courtesy of imortgage