Morgage Glossary of Common Loan Terms   A Abstract (of Title) A historical summary of all the recorded transactions that affect the title to the property. An attorney or a title company will review an abstract of title to determine if there are any problems affecting the title to the property. All such problems must be cleared before the buyer can be issued a clear and insurable title. Abutting Bordering upon or next to; the joining or touching of adjoining land; sharing a common boundary. Acceleration Clause A loan provision giving the lender the power to declare all sums owing lender immediately due and payable upon the violation of a specific loan provision, such as the sale of the property, or the failure to make loan payments on time. Example : John sells his property to Mary who takes over John's mortgage payments. They do not notify the lender of this transaction. The lender finds out that the title to the property has transferred and calls the loan, since the loan documents state that the loan is due on the sale of the property. John is now liable to pay his lender in full. Acceptance An offeree’s consent to enter into a contract and be bound by the terms of the offer. In a real estate transaction an offer is made from the buyer to the seller. If the seller accepts the offer within the prescribed time limit, it becomes a binding contract. In this case Acceptance is documented by the Seller signing and delivering the signed document. Accretion The addition to land through natural forces like wind or water. Example: Soil carried by a river then deposited on land. Acknowledgment Formal declaration before a public official (typically a Notary Public) that one has signed a document. Required before recording real estate legal documents, such as a deeds of trust. Acre A measure of land equal to 43,560 square feet. Additional Principal Payment A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan. Adjustable Rate Mortgage (ARM) Also known as a variable rate mortgage. The interest rate on these mortgages changes periodically. Adjusted Basis The adjusted basis figure is the value used to determine capital gains when you sell real property. The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken. Adjustment Period The length of time for which the interest rate is fixed on an adjustable. If the adjustment period is six months, then the interest rate will remain fixed for six months, after which time it will adjust. Affordability Analysis A detailed analysis to determine whether you can afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay. Agreement of Sale A written signed agreement between the seller and the purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement. Also known as contract of purchase, purchase agreement, offer and acceptance, earnest money contract or sales agreement. Amenity A feature of real property that enhances its attractiveness and increases the occupant’s or user’s satisfaction, although the feature is not essential to the property’s use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities. Amortization A gradual paying off of a debt by periodic installments which pay principal and interest. Annual Percentage Rate (APR) The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution : the APR is sometimes computed differently by different lenders and can be misleading. Application A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. Appraisal An opinion or estimate of the value of a property at a given date. Appreciation An increase in the value of a property due to changes in market conditions or for other reasons, such as additions and renovations. Opposite of depreciation. Arm's length transaction A transaction among parties each of who acts in his or her own best interest. Example: A transaction between a father and his son would NOT be an Arm's length transaction. Assessed Value The valuation placed on property by a public tax assessor for purposes of taxation. Assessment The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a street or traffic light or sewer assessment. Assessment Rolls The public record of taxable property. Assessor A public official who establishes the value of a property for taxation purposes. Assignment The transfer of a mortgage from one person to another. Asset Anything with a dollar value that you own. Banks consider your assets when determining how much you can borrow. Assumable Mortgage A mortgage loan which allows a new home buyer to take over the obligation of making loan payments with no change in the terms of the loan. Assumable loans do not have a due-on-sale clause. The lender has to be notified and agree to the assumption. The lender may require the buyer to qualify for the loan and may charge an assumption fee. The seller should obtain a written release from the lender stating clearly that he/she is no longer liable to make mortgage payments. See also "Subject To." Attorney In Fact One who is authorized to act for another under a power of attorney which may be general or limited in scope. Example: John wants to sell his house but has to be out of the country for four months. John gives authorization to Mary to sign the grant deed to sell the property to a buyer. Mary becomes John's Attorney In Fact. B Back-end ratio, or debt ratio The amount you pay in monthly debt (car payments, credit cards, student loans, etc.) divided by your gross monthly income. Balloon (Payment) Mortgage Usually a short-term fixed-rate loan which 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. Example : A balloon mortgage for $25,000 has interest only payments for 5 years at 12 percent ($250 per month), with the full principal of $25,000 due and payable after five years Bankruptcy The financial inability to pay one's debts when due. The debtor surrenders his assets to the bankruptcy court. An individual typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes a payment plan to pay off debts). A bankruptcy stays on an individual's credit report for seven years. Beneficiary The person who receives or is to receive the benefits resulting from certain acts. Example : The lender is named as the beneficiary on a mortgage loan. Example : John has a life insurance policy for $100,000 with Jane as his beneficiary. Should John die, Jane will receive the benefits in the amount of $100,000. Betterment An improvement that increases property value as distinguished from repairs or replacements that simply maintain value. Bill of Sale A written document that transfers title to personal property. Binder 1. A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder. 2. Preliminary agreement, normally secured with earnest money, between a buyer and a seller as an offer to purchase real estate. Biweekly Mortgage A mortgage which requires half the normal monthly payment every two weeks. Over the course of the year, twenty-six half payments are made which is equivalent to thirteen full mortgage payments. As a result of this extra payment the loan amortizes much faster than a loan with normal monthly payments Blanket Insurance Policy A single policy that covers more than one piece of property (or more than one person). Blanket Mortgage A mortgage covering more than one piece of property. Example : A developer subdivides a tract of land into lots and obtains a blanket mortgage on the whole tract. Bond 1. 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 mortgages. The best known bond is the 30-yr. treasury bond issued by the U.S. government. 2. A sum of money given to a court to guarantee against a loss. For example if there is a lien on a property, the owner may remove the lien by posting a bond. Borrower (mortgagor, trustor) One who applies for a loan secured by real estate and is responsible for repaying the loan (mortgage). Breach To break or violate an agreement. Bridge Loan An interim loan typically used when the buyer is unable to sell his/her house but needs money to close the transaction on the house he/she is buying. The bridge loan is made on the buyer's current residence to finance the buyer's new residence. The loan is paid off when the buyer's current residence is sold. Broker See Real Estate Broker or Mortgage Broker. Browser Short for Web browser, a software application used to locate and display Web pages. The two most popular browsers are Microsoft Internet Explorer and Netscape Navigator. Building Code Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards. Building Line or Setback Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances. Buydown Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply for the full duration of the loan or for just the first few years. A buydown may be used to qualify a borrower who would otherwise not qualify since a buydown results in lower payments. Example : A very popular buydown is the 2-1 buydown. If the interest rate on the note is 9 percent, the buydown results in the rate being 7 percent (9 percent minus 2 percent) for the first year, 8 percent (9 percent minus 1 percent) for the second year, and 9 percent thereafter. Buyer's Broker An agent hired by a buyer to locate a property for purchase. The broker represents the buyer and negotiates with the seller's broker for the best possible deal for the buyer. Buyer's Market Market conditions that favor the buyer. I.e., a market in which there are more sellers than buyers. As a result, a buyer has an excess supply of homes from which to choose and can negotiate a lower price. A buyer's market may be caused by an economic slump or overbuilding. Buying Your Home: Settlement Costs and Information (HUD guide) A booklet that provides an overview of the lending process and is required to be given to consumers after the loan application is completed. Bylaws A set of regulations by which an organization conducts its business. Example : A condominium association prepares bylaws that state the minimum number of owners to conduct a meeting to decide policies. Use our detailed glossary to familiarize yourself with many of the terms that will be used through out the process of obtaining a loan. The key to being a successful 'borrower' is by making the best decision based on the information available to you. With that in mind we offer this glossary to help you become a more informed 'borrower'.

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