Glossary of Common Real Estate and Mortgage Terms
Amortization – Method of repayment in which the amount you borrow is paid for over a period of time through monthly payments of principal and interest. During the first few years of the loan most of the amount paid is applied towards the interest. In the last few years of the loan, most of the amount paid is applied towards the principal.
Appraisal Fee – a few charged by an appraiser whose business is to render an opinion on the value of a specific property. This is usually required by most lenders in order for the buyer to obtain a loan.
Closing Costs – Fees or costs paid in addition to the down payment on closing day of the mortgage loan. This can include attorney fees, loan origination fees, appraisal fees, escrow fees, title insurance, taxes and other items which must be prepaid.
Contract of Sale – The agreement between the buyer and seller on purchase price, terms and conditions to be met to convey the title to the buyer.
Down payment – The difference between the purchase price and that portion of the purchase price for which a mortgage is being obtained. The down payment can be paid from the buyers own funds or from gifts from relatives. Minimum down payment required is usually in the region of 20% of the purchase price however some lenders have special plans that requires no money down or 5% down.
Equity – The difference between a home’s fair market value (appraised value) and the outstanding mortgage balance.
Gross Income – The income of the borrower before taxes and other statutory payments are deducted for qualifying purposes.
Home Equity Loan – A fixed or adjustable rate loan secured by the equity in the home. This type of loan can be obtained for a variety of purposes including home improvement, other real estate or investment, car loan, education loan, credit or medical debt or emergency.
Mortgage loan – A loan which utilizes real estate as security or collateral to provide for repayment should the buyer default on the terms of the loan.
Prepayment Penalties – Fees charged by the lender to a borrower who pays off his loan balance before it is due.
Qualifying ratios – comparisons of the borrower’s gross Monthly income vs debts and expenses. Usually the Monthly payment cannot be more than a specified amount by the lender, of the borrower’s gross Monthly income. Also all the borrower’s Monthly debt usually cannot be more than a specified amount by the lender, of his Monthly income. Some leniency may be applied based upon down payment, credit history, etc.
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