A-B Terms

A

Acceptance – A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.

Additional Principal Payment – A payment made by a borrower of more than the scheduled principal amount due, in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Adjustable Rate Mortgage (ARM) – stands for Adjustable Rate Mortgage, also referred to as a Variable Rate Mortgage. They both mean the same thing. An ARM is a mortgage with an interest rate that adjusts periodically to reflect changes in market conditions. Your mortgage payments are adjusted up or down (usually on an annual basis) as the interest rate changes. To protect you in a rising interest market, rate increases are limited (usually 2 percentage points annually; 6 percentage points over the life of the loan).

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, etc. Man-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

Amortization – The gradual repayment of a home loan by periodic installments.

Amortization Schedule – A timetable for payment of a home loan. An amortization schedule shows the amount of each payment applied to interest and principal and the remaining balance after each payment is made.

Amortization Term (period) – The amount of time it takes to pay off the loan. The amortization term is expressed as a number of months. For example, for a 30 year fixed rate loan, the amortization term is 360 months.

Amortize – To repay a loan with regular payments that cover both principal and interest.

Annual Percentage Rate (APR) – stands for Annual Percentage Rate. This refers to the interest rate that reflects the actual cost of a mortgage as a yearly rate. Because APR includes points and other costs associated with the mortgage, it’s usually higher than the advertised simple interest rate. The APR more accurately reflects what you’ll be paying and allows you to compare different mortgages based on actual costs.

Application (or 1003) – A form to be completed by a home loan applicant with the lender’s assistance to provide pertinent information about a prospective borrower’s employment, income, assets, debts and other financial information, about the purpose of the home loan, and about the property securing the home loan. Lenders also sometimes call it a 1003-the form number of Fannie Mae’s standard application form.

Application Fee – A fee usually paid at the time an application is given to a lender for helping to complete and review an application. Some lenders collect fees for a property appraisal and a credit report, instead of an application fee, at the time of application.

Appraisal – An estimate of the value of a home, made by a professional appraiser. The maximum amount of the mortgage is usually based on the appraisal.

Appraised Value – The dollar figure for a property’s estimated fair market value, based on an appraiser’s knowledge, experience, and analysis of the property and comparable properties near by.

Appraiser – A person qualified by education, training, and experience to estimate the value of real property.

Appreciation – An increase in the value of a property due to changes in market conditions or other causes. Inflation, increased demand, home improvement, and sweat equity are all causes of appreciation. The opposite of depreciation.

Assessed Value – The value used to determine property taxes, based on a public tax assessor’s opinion. Contrast with appraised value.

Assessment – The amount of tax due to local government. May also refer to the amount due to local government or to common owners of a property (e.g., a homeowner’s association) for a special payment to cover expenses for improvements or maintenance, such as new sewers or roads.

Assessment Rolls – A public record of the assessed value of property in the taxing jurisdiction.

Assessor – A public official who establishes the value of a property for taxation purposes.

Asset – Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assumable Loan – A home loan that allows a new purchaser of the home to take over (“assume”) the loan obligations of the seller when a home is sold.

Assumption Clause – A provision in an assumable loan that allows a buyer to assume responsibility for the home loan from the seller. The loan does not need to be paid in full by the original borrower (seller) upon sale or transfer of the property.

Assumption Fee – The fee paid to a lender (usually by the buyer) for the lender’s agreement to start collecting payment from the buyer instead of the original borrower (seller).

B

Balance Sheet – A financial statement that shows an individual’s assets, liabilities, and net worth as of a specific date.

Balloon Loan – A loan that has level monthly payments that will amortize it over a stated term (e.g., 30 years) but that requires a lump sum payment of the entire principal balance at the end of a shorter term (e.g., 10 years).

Balloon Payment – The final lump sum payment that is made at the end of the shorter term for a balloon loan and pays the loan in full.

Bankrupt – A person, firm, or corporation that is financially unable to pay debts when due. The debtor seeks relief through a court proceeding to work out a payment schedule or erase debts. In some cases, the debtor must surrender control of all assets to a court-appointed trustee.

Bankruptcy – A proceeding in a federal court in which a debtor who is financially unable to pay debts when due seeks relief to work out a payment schedule or erase debts.

Bill Of Sale – A written document that transfers title to personal property from seller to buyer.

Biweekly Payment Loan – A loan that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30 year fixed rate loan, and they are usually drafted from the borrower’s bank account. The result for the borrower is faster amortization leading to substantial interest savings from faster principal
reduction.

Bond – An interest-bearing certificate of debt with a maturity date. A real estate bond is a written
obligation usually secured by a mortgage or a deed of trust.

Breach – A violation of terms of any legal obligation.

Break Even Point – Point at which total income equals total expenses.

Bridge Loan – A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower’s present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as a “swing loan.”

Broker – A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction or negotiating the terms of a home loan. See mortgage broker.

Budget – A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Building Code – Local regulations that specify minimum structural requirements for design of, construction of, and materials used in a home or office building. Building codes are based on safety and health standards.

Buydown Account – An account in which funds are held so that they can be applied as part of the monthly loan payment as each payment comes due during the period that an interest rate buydown plan is in effect. For example, if a seller agrees to help reduce a buyer’s monthly payment during the first year of a loan, the seller may put money in a buydown account which is then paid to the lender each month to reduce the buyer’s monthly payment. This is more commonly done through a buydown paid directly to the lender at closing.

Buydown – A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.