Abstract (of Title): A summary of the public records relating to the title of a particular piece of land. An attorney or title insurance company reviews this to determine if any defects need to be cleared before a buyer can make the purchase.

Acceleration Clause: A condition in a mortgage that may require the balance of the loan to become due immediately if regular mortgage payments are not made or when a breach of other conditions of the mortgage occurs.

Adjustable-Rate Mortgage (ARM): A loan with an interest rate that changes periodically in keeping with a current index. Typically ARMs don't jump more than two percentage points per year or six points above the staring point.

Agreement of Sale: Also known as contact of purchase, purchase agreement, or sales agreement, the agreement of sale is a contract in which a seller agrees to sell and a buyer agrees to buy, under certain terms and conditions, and is signed by both parties.

Amortization: A payment plan that enables the borrower to reduce his debt gradually through monthly payments of principal.

Appraisal: An expert judgment of estimate of the quality or value of real estate at a given time.

Broker: A middleman or agent who buys and sells real estate or mortgages. The broker does not have title to the property, but generally represents the property owner.

Closing costs: The expenses that buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to the price of the property and are prepaid at the closing day. The agreement of sale negotiated may state who will pay for each of the closing costs. Typical closing costs include:

Buyer's Expenses: documentary stamps on notes, recording deed and mortgage, escrow fees, attorney's fee, title insurance, appraisal and inspection fee, survey charge.

Seller's Expenses: cost of abstract, documentary stamps on deed, real estate commission, recording mortgage, survey charge, escrow fees, attorney's fee.

Closing Day: The day on which the formalities of a real estate transaction are concluded.

Commitment Letter: A written promise from a lender that you will receive a mortgage of a specified amount at a specified rate.

Conditions Offer: An offer to buy a property, but only under certain circumstances (for example, the buyer receives financing or sells the current home).

Conventional Mortgage: A mortgage loan not insured by HUD or guaranteed by the Veteran's Administration. It is subject to conditions established by the lending institution and state statutes. The rate may vary with different institutions and between states.

Deed: A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the state where the property is located, and should be delivered to the purchaser on closing day. The two parties of the deed are the grantor and the grantee. (See also Deed of Trust, General Warranty Deed, Quitclaim Deed, and Special Warranty Deed.)

Deed of Trust: The three parties of the deed are the borrower, the trustee, and the lender (or beneficiary). The borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender/beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, the borrower defaults, the trustee may sell the property at a public sale under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few states have begun to treat the deed of trust like a mortgage.

Earnest Money: The deposit money given to the seller of his agent by the potential buyer upon signing the agreement of sale to show the buyer is serious about the purchase. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the money is forfeited unless the offer to purchase expressly provides that it is refundable.

Encumbrance: A legal right or interest in a land that affects a good or clear title, and diminishes the value, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. It does not legally prevent property transfer. A title search is generally all that is necessary to revel an encumbrance. The buyer must determine whether he wants to purchase with the encumbrance or what can be done to remove it.

Equity: The portion of the property owned outright (for example, with a 20% down payment the buyer has 20% equity). Equity increases as the mortgage is paid off.

Escrow: Funds paid by one party to another (the agent) to hold until the occurrence of a specified event after which the funds are released to a designated individual.

Escrow Account: Also called an impound account, in FHA transactions an escrow account usually refers to the funds a mortgagor pays the lender and which are held in trust. It contains funds adequate to cover yearly, anticipated costs for mortgage insurance premiums, taxes, hazard insurance, premiums, and special assessments.

FHA: The Federal Housing Administration, a division of the US Department of Housing and Urban Development (HUD), offers financing options to help buyers qualify for a mortgage loan.

Fixed-Rate Mortgage: A loan with an unchangeable interest rate over its entire term.

General Warranty Deed: A deed in which the seller guarantees that the property title is clear back to its origins and that should the title fail, the seller will compensate the buyer for losses. This should not take the place of Title Insurance. (See also Deed.)

Grantee: The party in the deed who is the buyer or recipient.

Grantor: The party in the deed who is the seller or giver.

Hazard Insurance: Protects against damage caused to property by fire, windstorm, and other common hazards.

Home Equity Line of Credit (HELOC): A line of credit that is secured by a property allowing the mortgagor to access their property's equity.

Home Equity Loan: A loan allowing the mortgagor to borrow against the equity in the property, possibly up to 100% of the equity in the property.

HUD: The US Department of Housing and Urban Development insures mortgage loans by lenders and sets minimum standards for such homes.

Interest: A charge paid for borrowing money. (See also Mortgage Note.)

Lien: A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, or for materials or labor. (See also Special Lien.)

Lock-In: A guarantee, for which a fee is generally charged, that a specific rate will be received when the mortgage is closed.

Market Value: The price that a home will likely fetch on the market, based on comparisons to similar homes that have recently sold.

Marketable Title: A title free and clear of objectionable items, clouds, or other defects, that will be accepted without objection.

Mortgage: A lien or claim against a property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years during which the loan is paid off.

Mortgage Calculator: A program used to help homebuyers determine the monthly payment on a mortgage using principal, interest rate, and term as the variables.

Mortgage Insurance Premium: The payment made by a borrower to the lender for transmittal to HUD to help defray the mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. Mortgage insurance is required on loan with a loan to value greater than 80% of the appraised value of the home.

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 be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for payment.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in the mortgage agreement.

Personal Loan: A loan for personal use that is not backed by collateral, such as a home or automobile. This is neither a business loan nor a home equity or mortgage loan.

Piggy Back Loan: A second home loan that allows a buyer, who is able to put 10% down on a home, to avoid mortgage insurance. With a 10% down payment, the first loan is for 80% of the purchase price, the second "piggy back" loan is for 10% of the purchase price. This is often called an 80-10-10 loan.

PITI: Principal, Interest, Taxes, and Insurance, which comprise the monthly mortgage payment.

Points: A one-time-only fee paid to the lender, sometimes in exchange for a slightly lower mortgage rate. One point equals one percent of the total amount borrowed.

Prepayment: Payment of a mortgage or loan, or part of it, before the due date. Some agreements may restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment.

Principal: The amount on which the interest is paid.

Quitclaim Deed: A deed that transfers whatever interest the maker of the deed may have in the particular parcel of land and is often given to clear the title when the grantor's interest in a property is questionable. It makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. By accepting such a deed the buyer assumes all risks. (See also Deed.)

Refinance: When a mortgagor replaces the current mortgage with a new one. Refinancing is generally done when a lower interest rate or monthly payment can be achieved or when the mortgagor wants to get cash out.

Reverse Mortgage: A tax-free loan for home owners whose mortgage is paid in full, but want to use the equity in their home.

Special Warranty Deed: A deed in which the seller guarantees the property title is clear for all of his tenure (not before then) and that he has done nothing during this time that might in the future affect the title. (See Deed.)

Teaser Rate: An initial interest rate on an ARM that is below the market rate.

Title: The rights of ownership and possession of a particular property. It may also refer to the instruments or documents by which a right of ownership is established (title documents), or to the ownership interest one has in the property.

Title Insurance: Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Benefits will be paid only to the "named insured" in the title policy, so the buyer should purchase an "owner's title policy" for protection of title insurance.

Trustee: A party who is given legal responsibility to hold property in the best interest of or for the benefit of another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law. (See also Deed of Trust.)

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