Adjustable Rate Loan or Adjustable Rate Mortgage (ARM)A loan with an interest rate that changes during the term of the loan. The payments generally increase or decrease with the interest rate. Rate is based on one of several “index” options.

Amount FinancedA required Truth in Lending Act disclosure for consumer loans. It is calculated by starting with the full amount borrowed (principal) and subtracting out the dollar amount of prepaid finance charges (finance charges the borrower is paying in advance).

Amortization The process of paying off a debt in installments over a given period of time without a final balloon payment.

Annual Percentage Rate (APR)An expression of the percentage relationship of the total finance charges to the total amount to be financed, as required under the federal Truth-in-Lending Act.

Application FeeA fee charged by the lender or broker for the loan application.

Appraisal An opinion of the value of property resulting from an analysis of facts affecting market value.

Assumable Mortgage A mortgage loan which can be transferred to another person without a change in the terms of the loan.

Balloon paymentA scheduled payment due at the end of a loan term that is substantially greater than the regular monthly payments. This may be a very large payment. It is designed to occur when the regular payments do not pay off all interest and principal owing (not fully amortizing) on the loan over the term of the loan.

Bill of Sale An instrument by which title personal property is transferred or conveyed.

Bona Fide Purchaser (BFP) One who buys property in good faith, for fair value, and without notice of any adverse claim or right of third parties.

BorrowerA person who receives funds in the form of a loan with the obligation to repay the loan in full.

Broker (Real Estate) A person licensed to act as an agent for another in negotiating the sale or purchase or real property in return for a fee or commission.

Chain of Title A chronological list of recorded instruments tracing title to land, from the original owner to the present owner.

Closing The process of completing a real estate transaction during which the seller delivers title to the buyer in exchange for payment of the purchase price. Called a “settlement” in some areas.

Closing Costs Expenses, beyond the selling price, such as loan fees, title fees, etc. Paid when documents are executed and/or recorded and the sale is complete.

Closing Statement A summary, in the form of a balance sheet, showing the amounts of debits and credits to which each party to a real estate transaction is entitled upon closing.

CommissionCompensation due a real estate broker for acting on behalf of the principal.

Courier FeeThis is a fee that may be charged to send documents or payments by courier, messenger or overnight mail service to various parties involved in the transaction.

Documentary Transfer TaxThe tax, based on sales price, less loans which are being assumed, which is charged by the county and/or state on the transfer of real property

Earnest Money The monetary deposit paid by a prospective buyer as evidence of good faith to bind a sale of real estate.

Escrow The process in which a disinterested third party holds money and/or documents for delivery to the respective parties in a transaction on performance of established conditions.

Flood CertificationA report to determine if the property lies in a flood zone and whether flood insurance is required.

Foreclosure (Mortgage)The legal procedure by which a lender holding a mortgage on your house forces a sale of your house to obtain repayment of your loan. Foreclosure proceedings are typically started by a lender when you do not pay your loan on time. It might also be started if you fail to pay property taxes.

Good Faith Estimate This document lists the estimated fees you will have to pay to get the loan. It also identifies who is expected to provide services and receive fees in connection with your loan, such as credit bureaus, appraisers, and closing agents.

Government Recording Fees and TaxesFees and taxes required to be paid to the state/local government where your real estate documents are filed.

Grantee One to whom a grant is made. The purchaser of real property.

Grantor One who has made a grant. The seller of real property.

Homeowner’s/Hazard Insurance Homeowner’s or Hazard Insurance is insurance to protect the the owner and/or mortgage lender against possible damage to your home. It can also protect the borrower. A borrower must obtain this insurance and bring proof of its existence to the loan closing.

HUD The U.S. Department of Housing and Urban Development. HUD will provide a Special Information Booklet that describes important terms and provides information about the home buying and mortgage loan process.

HUD-1 Also called a “Settlement Statement” of all costs and fees in your closing.

Lender A company or person that makes mortgage loans, such as a mortgage banker, credit union or bank. Your lender’s name will appear on your promissory note.

Lien A claim (legal interest) against real estate. Common types of liens include a mortgage, tax lien or judgment lien.

MortgagorThe borrower in a mortgage, typically a homeowner.

MortgageeThe lender in a mortgage, typically a bank,credit union or other financial institution.

Mortgage A legal document used to secure the performance of an obligation.

POC (Paid Outside of Closing) A fee paid in advance of closing by either buyer or seller that reflects on the settlement statement but is not part of the total cash to close on date of closing.

PITI Refers to principle, interest, taxes and insurance, the four major components of a usual monthly mortgage payment.

Private Mortgage Insurance Private Mortgage Insurance (PMI or MI)- Insurance required to be paid for by the borrower to protect the lender in the event payments are not made on time; most often required when the loan amount exceeds 80% of the purchase price.

Promissory Note A legal contract in which the borrower promises to pay back the loan. The “promissory note” sets forth the terms and conditions that apply to the loan repayment, such as interest rate, when payments are due, where payments are made, what happens if payments are not made, etc.

Recordation Involves filing for record in the office of the county recorder for the purpose of giving constructive notice of title, claim or interest in real property.

Recording Fees Fees charged by the local government to record loan documents (for example, the mortgage). These fees will be charged to the borrower and shown on the Settlement Statement (HUD-1).

Rescind (also Right of Rescission) Literally means “to take back” or “cancel.” If a borrower rescinds a mortgage loan, it is as if the mortgage loan never existed. Some borrowers have by law a right to “rescind” certain mortgage loans. Note: A Borrower may be entitled to a refund all fees paid in connection with the loan if the Borrower exercises his right of rescission.

Settlement The time when loan and mortgage documents are formally signed and the loan transaction is completed. Sometimes called “Closing.”

Settlement Agent (may also be called closing agent or settlement attorney)
The person who organizes and is in charge of the loan closing. The settlement agent is the person who can explain any document the borrower must sign.

Settlement Statement A mortgage loan closing form required by HUD that is often called a HUD-1. It provides details of all charges and payments made in connection with your loan, and shows to whom they are distributed.

Statement of Information A confidential information statement completed by the buyer, seller and borrower in every transaction where a policy or policies of title insurance are requested. Allows the title company to competently search documents affecting the property to be insured, documents which may not refer to said property. Allows title companies to differentiate between parties with similar names when searching matters such as liens and court decrees.

Survey A drawing or map showing the precise legal boundaries of a property and other physical features, prepared by a registered land surveyor.