Important Mortgage Terms You Need to Know

These are useful terms to know when you're considering purchasing or refinancing a home.

Agent:

A person acting on behalf of another, called the principal.

Agreement of Sale:

Known by various names, such as "contract of purchase," "purchase agreement," "sales agreement" or "binder," according to location or jurisdiction. A contract in which a seller agree to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Appraisal:

An estimate of market value as of a given date.

Assessed Value:

The valuation placed upon property by a public tax assessor as the basis for taxes.

Bill of Sale:

An instrument which transfers title to personal property (chattels); A "Deed" transfers real property.

Certificate of Title:

A document signed by a title examiner or attorney, stating that the seller has good marketable and insurable title.

Closing Statement (Settlement):

The computation of financial adjustments between buyer and seller as of the day of closing a sale to determine the net amount of money that buyer must pay to seller to complete purchase of the real estate and seller's net proceeds. Also, "settlement sheets," "HUD-1."

Convey:

To deed or transfer title of property from one person to another.

Deed:

A formal written instrument by which title to real property is transferred from one owner to another. Also, "conveyance."

Deed of Trust:

Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender (or beneficiary).

Earnest Money:

The money given to the seller by the potential buyer (usually held in escrow) upon the signing of the agreement of sale to show that buyer is serious about buying the house. Also, "deposit."

Equity:

The interest or value that owner has in real estate over and above the debts against it. (Market Value - Mortgage Balance = Equity.)

Escrow:

Funds, property, or other things of value left in trust to a third party. The escrow may be released upon the fulfillment of certain conditions or by agreement of the parties.

Federal Housing Administration (FHA):

A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.

Fixture:

What was formerly personal property which is now permanently attached to real property, and goes with the property when it is sold.

Forbearance:

The act of refraining from taking legal action despite the fact the mortgage is in arrears. It is usually granted only when a mortgagor makes satisfactory arrangements to pay the amount owed at a future date.

Foreclosure:

A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.

Ground Rent:

Rent paid for land in accordance with the terms of a ground lease.

Hazard Insurance:

Protects against damages caused to the property by fire, windstorms, and other common hazards.

Home or Condominium Owners Association (HOA):

A nonprofit corporation or association that manages the common areas and services of a planned unit development or condominium project. In a condominium project, it has no ownership interest in the common areas; in a planned unit development, it holds title to common areas.

Inspection Certificate:

A document verifying that a property is as described. The inspection is usually performed by a designated agent and may be accepted in place of a survey.

Interest:

Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property.

Market Value:

The highest price that a buyer--ready, willing, and able but not compelled to buy--would pay, and the lowest price a seller--ready, willing and able but not compelled to sell--would accept. Basis for "listing price," or "asking price."

Market Price:

The actual amount for which a piece of property is sold. Also, "sale price," "purchase price."

Mortgage:

A lien or claim against real property given by the buyer to the lender as security for money borrowed.

Mortgage Note:

A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall paid. Also, "deed of trust note."

Origination Fee:

Normally charged to the lender as payment for originating the mortgage loan. The typical origination fee is 1% of the mortgage loan amount.

P.I.T.I.:

Principal, interest, taxes, and insurance. Most residential mortgage payments include the above and are therefore referred to as P.I.T.I.

Points:

Sometimes called "discount points." A point is 1% of the amount of the mortgage loan.

Principal:

The original balance of money loaned, excluding interest. Also, the remaining balanced of a loan, excluding interest.

Private Mortgage Insurance (PMI):

Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower.

Promissory Note:

A written promise to pay a specific amount at a specified time.

Tax Abatement:

The exemption or reduction of local taxes on a project for a specific period of time.

Title:

As generally used, a document that indicates rights of ownership and possession of particular property.