A mortgage loan with an interest rate that can change at specified intervals subject to certain interest rate caps. ARM loans generally have a lower initial interest rate than a comparable fixed rate mortgage.
The period that elapses between the adjustment dates for an adjustable rate mortgage.
A detailed analysis of an individual’s ability to afford a property, taking into consideration income, liabilities, available funds, mortgage terms and other housing-related expenses.
A legal contract creating a fiduciary relationship between a real estate agent and a buyer or seller to perform services under certain agreed upon and standard terms. The duration of the agreement varies, but they are generally valid for 3-12 months.
An agent arranges in advance to show clients’ homes that are for sale.
The paying off of debt with a fixed repayment schedule in regular installments over a period of time.
Timetable for repayment of a debt detailing each periodic payment as it is applied to principal and interest, and the remaining balance after each payment.
A broader measure of the cost of borrowing money. The APR reflects not only the interest rate but also the points, fees, and other finance charges associated with getting a loan.
An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.
A written analysis of the estimated value of a property prepared by a qualified appraiser.
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analyses of the property and of recent sales of similar properties.
A person qualified by education, training, and experience to estimate the value of real property and personal property.
An increase in the value of a property due to changes in market conditions or other causes.
The valuation placed on property by a public tax assessor for purposes of taxation.
The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against a property for a special purpose, such as a sewer assessment.
Anything of 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).
The transfer of a mortgage from one person to another.
A mortgage that can be taken over (“assumed”) by the buyer when a home is sold. Most mortgages are not assumable.
One who holds a power of attorney from another and who is authorized to perform business-related transactions on behalf of the grantor of the power.
A mortgage that has level monthly payments that will amortize over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.
The final lump sum payment that is made at the maturity date of a balloon mortgage.
A proceeding in a federal court in which people (or businesses) who can no longer pay their debts get a fresh start by liquidating assets to pay their debts or by creating a repayment plan.
The person designated to receive the income from a trust, estate, or a deed of trust.
An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.
A document that transfers ownership of personal property from one person to another.
A mortgage for which one-half payment is made every other week instead of a full payment made once a month.
Made or carried out in good faith, without intention to deceive.
A form of second trust that is collateralized by the borrower's present home (which is usually 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 "swing loan."
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
A provision in a mortgage that gives the creditor the right to call the mortgage due and payable at the end of a specified period for whatever reason.
A provision of an adjustable rate mortgage (ARM) that limits how much an interest rate or mortgage payment may increase or decrease.
A CapCenter Managing Agent guides clients through every step of the home buying process, including getting pre-approved for a loan, finding a home, negotiating a contract, managing the inspections, and closing.
A licensed loan originator who works closely with loan applicants to provide a loan that meets their financial goals.
The CapCenter employee who handles the loan after the interest rate is locked, including collecting supporting documentation, finalizing the underwriting, and preparing the closing documents.
A refinance transaction in which the funds that the borrower receives from the new loan exceed the funds needed to repay the existing first mortgage.
The funds required from the borrower to consummate the purchase or refinance transaction. This typically includes the down payment, escrow deposits for property taxes and insurance, pre-paid homeowner’s insurance and pre-paid interest.
A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
A statement provided by an abstract company, title company, or attorney that affirms legal ownership of real estate.
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
A CapCenter document that accompanies the pre-approval letter and loan commitment package. The Clarity Statement itemizes all of the costs associated with the loan and identifies the party responsible for each item (CapCenter or the borrower).
A title that is free of liens or legal questions about ownership of the property.
The last step in buying and/or financing a home. The “closing,” also called “settlement,” is when all parties in a mortgage purchase or refinance transaction sign the necessary documents.
A disclosure form lenders must provide to customers for certain consumer loans secured by real property at least three business days before consummation of the loan (i.e. closing).
An asset (such as a car or a home) pledged as security for repayment of a loan, to be forfeited in the event of a default.
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment.
A formal written offer by a lender to a borrower stating the terms under which it agrees to lend money. Also known as a "loan commitment."
An abbreviation for "comparable properties" used in the appraisal process. Comparables are properties similar to the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
An organization that prepares reports that document a person’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
A condition that must be met before a contract is legally binding. For example, home purchase contracts often include a mortgage contingency that specifies that the contract is not binding until the purchaser obtains financing from a qualified lender.
A mortgage that is not insured or guaranteed by the federal government.
A residential or mixed-use building in which a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of ownership.
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
A record of an individual's open and fully repaid debts. A credit history helps a creditor determine whether a potential borrower has a history of repaying debts in a timely manner.
A life insurance policy designed to pay off a borrower’s debt if that borrower dies. The face value of a credit life insurance policy decreases proportionately with an outstanding loan amount as the loan is paid off over time until both reach zero value.
A report of an individual's credit history prepared by a credit bureau and used by a creditor to evaluate a loan applicant's creditworthiness.
A person or company to whom money is owed.
The debt to income ratio is one of the primary factors used in mortgage qualification. The metric is calculated by dividing the borrower’s monthly financial obligations, such as credit cards, installment loans, student loans and mortgage payments, by their monthly income.
The legal document conveying title to a property.
A deed given by a borrower to the creditor to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."
The document used in some states, instead of a mortgage, to create a security interest in the property for the benefit of the creditor.
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Failure to make mortgage payments when mortgage payments are due.
A decline in the value of property; the opposite of appreciation.
A form of pre-paid interest or fees mortgage borrowers may pay to get a lower interest rate and reduce the amount of interest they will have to pay over the life of the loan. One point equals one percent of the loan amount.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
A deposit made by a potential home buyer that represents to a seller that the buyer is serious about purchasing a property. When the transaction is finalized, the funds are put toward the buyer’s down payment. If the deal falls through, the buyer may not be able to reclaim the EMD. EMDs are usually 1 to 3 percent of a home’s purchase price and are held by an escrow company or settlement attorney.
A legal right to use someone else’s land for a particular purpose. For example, a municipal water company may have an easement to run water pipes under a privately owned property. Easements are usually created by a conveyance in a deed, or some other written document such as a will or contract.
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
Unlawful entering upon the land, property, other possessions, or the rights of another. An example would be where a property owner encroaches on his neighbor by building something on the neighbor’s land or by allowing something to hang over onto the neighbor’s property.
A lien or claim on property held by someone other than the fee owner, such as a mortgage, lease, easement, or restriction. An encumbrance can restrict the owner’s ability to transfer title to the property or lessen its value.
A person who signs ownership interest over to another party.
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed.
Money held by a third party on behalf of transacting parties. Mortgage companies establish escrow accounts to periodically pay property taxes and homeowner’s insurance. At closing, funds may be collected to prefund an escrow account.
A reserve account in which a third party (mortgage servicer) holds the borrower’s escrow to pay property taxes and homeowner’s insurance.
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due. The escrow payment must be recomputed at least once every 12 months to account for increases in property taxes or insurance.
The portion of a borrower’s monthly payment that is held by the servicer to pay for property taxes, homeowner's insurance, and other items as they become due. It is an amount over and above the principal and interest portion of a mortgage payment.
A close examination of all public records that affect the title to real estate. It informs the purchaser and lender if the property being conveyed is free and clear of any liens or encumbrances.
A federal law that governs how consumer reporting agencies (CRAs) use an individual’s credit information and requires CRAs to follow reasonable procedures to protect the confidentiality, accuracy, and use of credit information.
An estimate of the market value at which a property would change hands between a willing and able buyer and a willing and able seller. Fair market value is usually determined by real estate appraisals and recent comparable sales.
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders.
Property owned in fee simple is owned completely, without any limitations or conditions. It is the main type of property ownership.
A mortgage that is insured by the Federal Housing Administration (FHA). Sometimes referred to as a government mortgage.
A clause in a home purchase agreement that expresses that the offer is contingent on the buyer being able to secure financing for the home. It allows the buyer to walk away from the deal if they are not approved for the mortgage, if the property does not appraise for a value high enough to qualify for the mortgage, or if the property’s condition precludes the mortgage from being approved.
A mortgage that is the primary lien against a property, which takes precedence to all other mortgages and liens. If the property is sold or the borrower defaults, the first mortgage is paid before any other liens on the property.
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
A mortgage in which the interest rate does not change during the entire term of the loan.
Any personal property that is permanently attached to real property, such as drapery rods, toilets, wet bar, or other items which could damage the premises by their removal.
Insurance against loss resulting from flood, tidal wave, and rising water. Flood insurance is required for all residential buildings on a mortgaged premise if any part of the structure is located within a federally designated Special Flood Hazard Area.
A method of selling property without the use of an agent or broker.
The legal process of taking possession of a mortgaged property as a result of the borrower’s failure to keep up with mortgage payments. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS).
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.
A Federal Housing Administration reverse mortgage program which allows homeowners who are at least 62 years of age to withdraw some of the equity in their homes and convert it into a monthly stream of income or a line of credit.
A line of credit extended to a homeowner that uses the borrower’s home as collateral. Once a maximum loan balance is established, the homeowner may draw on the line of credit at his or her discretion.
A home warranty covers costly home repairs and replacements due to normal wear and tear. It is not part of a homeowner’s insurance policy, but it is a separate contract provided by the builder or property seller as a condition of the sale.
A valuation of similar, recently sold homes called comparables, which are homes of similar size, condition, age, and style, to help determine a home’s fair market value.
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. The HOA makes or enforces rules for the properties in its jurisdiction. In a condominium project, the HOA has no ownership interest in the common elements. In a PUD project, the HOA holds title to the common elements.
A form of property insurance designed to protect an individual’s home against damages to the house itself, or to possessions in the home. Homeowner’s insurance also provides liability coverage against accidents in the home or on the property.
A ratio comparing housing expenses to before-tax income that is used by lenders to qualify borrowers for a mortgage. The housing expense measure includes mortgage principal and interest payments, property taxes, hazard insurance, mortgage insurance and association fees.
The HUD-1 Settlement Statement is a standard form that was used by settlement or closing agents to itemize services and fees charged to a borrower in a home purchase or refinance transaction. As a result of new government regulations effective as of October 3, 2015, the HUD-1 was replaced by the Closing Disclosure.
A benchmark interest rate that reflects general market conditions and is used to calculate the interest rate for an adjustable rate mortgage. The index amount changes based on the market.
The interest rate that is initially assessed on an adjustable rate mortgage.
Inspections range in depth from general home inspections to very specific inspections. Some are the responsibility of the seller (such as termite, well and septic) and others (such as chimney inspections) are conducted if requested by the buyer. The findings can be used merely for informational purposes or can lead to further negotiations for seller repairs or repair credits. When negotiating the Purchase Agreement, the buyer and seller will agree to the timeframe during which inspections may be performed.
Some of the inspections available to a buyer include:
The regular periodic payment that a borrower agrees to make to a lender.
A loan that is repaid over time with a set number of scheduled payments or installments. The term of loan may be as little as a few months, such as loans for furniture, and as long as 30 years, such as a mortgage.
A property title that a title insurance company agrees to insure against defects and disputes.
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
A mortgage that is protected by the Federal Housing Administration or by private mortgage insurance. If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.
For an adjustable rate mortgage, the maximum interest rate that a lender can charge a borrower, as specified in the mortgage note.
For an adjustable rate mortgage, the lowest interest rate possible, as specified in the mortgage note.
A type of shared ownership of property where each owner has an undivided interest in the property, the share of each generally passing to the other upon death.
A decision made by a court of law regarding the rights and liabilities of parties in a legal action or proceeding. In judgments that require the repayment of a debt, the court may place a nonconsensual lien against the debtor's real property as collateral for the judgment creditor.
A lien attached to a debtor’s property based upon a court judgment.
A loan for an amount that exceeds conforming loan limits established by Fannie Mae and Freddie Mac.
A penalty charged if the regularly scheduled payment has not been made when due. Most mortgage contracts include a grace period of 15 days from the due date, after which time the lender will assess the late charge.
A written agreement between the property owner and a tenant that stipulates the rent and other conditions under which the tenant may possess the real estate for a specified period of time.
A person's financial obligations to pay amounts due to another person or entity. Examples include mortgages, car loans, and credit card balances.
Insurance that protects the insured from the risk of liabilities imposed by lawsuits and similar claims. In real estate, such coverage offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.
A legal right acquired in a person’s property by a creditor. A lien generally stays in effect until the underlying obligation to the creditor is paid.
For an adjustable rate mortgage, a limit on the amount that payments can increase or decrease over the life of the mortgage.
For an adjustable rate mortgage, the maximum interest rate that can be charged at any point over the life of the mortgage.
An asset that can be converted into cash quickly and with minimal impact to the price received.
A disclosure form that went into effect on October 3, 2015, which provides a borrower with the estimated interest rate, monthly payment and total closing costs for the loan. Lenders must provide this disclosure to applicants for certain consumer loans secured by real property within three business days of receiving a loan application.
Lenders offer many different loan options, including:
Loan origination is the process by which a borrower applies for a new loan and a lender processes that application. Origination generally includes all the steps from taking a loan application up to disbursement of the loan proceeds.
A comparison between the principal balance of a mortgage and the current market value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV of 80%.
The number of days, often 30 or 60, during which the lender has guaranteed an interest rate to a borrower on a pending mortgage loan.
For an adjustable rate mortgage, the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.
The final payment date of a loan, bond, or other financial instrument.
A mortgage payment is the sum of the principal, interest, escrow payment, and, if applicable, mortgage insurance premium.
A credit report that contains a summary of credit information from the three credit bureaus.
The process whereby the terms of the mortgage are changed from the original terms of the contract.
A legal document that pledges a property to the lender as security for payment of a debt.
A company that originates mortgages exclusively for resale in the secondary mortgage market.
The lender in a mortgage agreement.
A policy that insures the lender against loss caused by a borrower's default on a mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA).
The borrower in a mortgage agreement.
A marketing database set up by a group of cooperating real estate brokers that allows them to see one another’s listings of properties for sale.
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance which causes the borrower to owe more money.
The income from the sale of an asset, or part of an asset, minus brokerage commissions, closing costs and expenses.
The total value of a person's assets, including cash, minus liabilities.
A refinance transaction in which the new mortgage amount is less than or only slightly higher than the remaining balance of the existing first mortgage.
An asset that cannot easily be converted into cash.
A legal document that obligates a borrower to repay a loan at a stated interest rate during a specified period of time.
The interest rate stated on a mortgage note.
The total amount of principal owed on a mortgage before any payments are made.
An up-front fee charged by some lenders for processing a new loan application.
The date when a new monthly payment amount takes effect on an adjustable rate mortgage.
For an adjustable rate mortgage, a limit on the amount that payments can increase or decrease during any one adjustment period.
Personal property is anything that is not real estate or affixed to real estate. Examples of personal property include window coverings, furniture and home appliances.
A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to specific acts and/or specific periods of time.
An evaluation of a potential borrower by a lender to determine whether the potential borrower qualifies for a specified loan amount based on his income and credit check. A pre-approval differs from a pre-qualification in that a pre-qualification does not involve any verification of the information provided including obtaining the borrower’s credit report.
A written statement from a lender stating the lender’s preliminary determination that a borrower would qualify for a particular loan amount under that lender’s guidelines. Having a pre-approval letter in hand is often required in order to place an offer with a listing agent.
Pre-paids are future expenses that are paid in advance, such as homeowner’s insurance or property taxes.
Pre-paid interest is due at closing for any daily interest that accrues on a mortgage between the closing date and the period covered by the first monthly mortgage payment.
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage may result from a sale of the property or from the owner's decision to pay off the loan in entirety.
A fee that may be charged to a borrower who pays off a loan before it is due.
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and homeowner's insurance.
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Lenders typically require MI for a loan with a loan-to-value (LTV) percentage that exceeds 80 percent.
This is a concept unique to real estate transactions. It is the interaction between a prospective buyer and an agent that ensures the agent will receive a portion of the commission when a home sells because the agent played a sufficient role in finding (procuring) the buyer.
A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.
For lending purposes, properties are classified according to their usage by the owner(s):
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Also known as purchase contract, the Purchase Agreement includes many important terms, including:
The period of time after an inspection has been completed during which the seller must respond to the buyer’s request for a repair or repair credit.
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: housing expense as a percentage of income; total debt obligations as a percentage of income.
A document that transfers all or part of a person’s ownership of real estate to another person. Quitclaim deeds are often used when property is not sold, i.e., when an owner dies and bequeaths the property to an heir, or adds a spouse’s name to the title.
A commitment issued by a lender to a borrower guaranteeing a specified interest rate for a specified period of time.
Land, and anything growing on, affixed to, or built upon land.
A service mark used for a real estate professional who is a member of or affiliated with the National Association of Realtors, a professional association. Realtors include agents that work as residential and commercial real estate brokers, salespeople, property managers, appraisers, counselors and other real estate professionals.
A borrower’s statutory right under federal law to rescind or cancel certain types of refinance loans within three business days after closing. Purchase loans generally are not subject to rescission.
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, which makes the document a public record.
The act of paying off an existing loan using the proceeds of a new loan which uses the same property as security.
The amount of principal on a mortgage that has not yet been paid.
The number of payments or time period left on a loan.
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.
The right to enter or leave a property, usually a driveway.
An agency within the United States Department of Agriculture that provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere.
A mortgage that has a lien position subordinate to the first mortgage.
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
The act of preparing a private residence for sale in the real estate marketplace to make a home appealing to the highest number of potential buyers.
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
A survey is a map or plot drawn by a licensed surveyor after measuring a piece of land, to show its area, boundaries, contours, elevations, improvements, and its relationship to the surrounding land. A property survey confirms that a particular piece of land or building is sited in accordance to its legal description. A survey determines property boundaries and ensures that improvements are constructed in the correct location, and reveals encroachments or other irregularities that might lead to future legal disputes with neighbors.
A legal document evidencing a person's right to or ownership of a property.
A company that specializes in examining and insuring titles to real estate.
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no undisclosed liens or other claims outstanding.
A tax on the passing of title to property from one person or entity to another. It is essentially a transaction fee imposed on the transfer of title to property by states, counties or municipalities.
A federal law designed to protect consumers who apply for consumer credit, including mortgage loans and car loans.
A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.
A person or organization that has been given responsibility for managing someone else’s property or money through a trust. A trustee is legally and morally bound to manage the trust property in a responsible and productive manner, and is under a duty to act solely for the benefit of the trust’s beneficiaries.
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.
Someone who pursues a home purchase transaction without being represented by a licensed real estate professional.
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.