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Glossary of Real Estate Terms |
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Adjustable-rate Mortgage (ARM)
Amortization
Conventional Mortgage Loan
Deposit
Fannie Mae and Freddie Mac
Fixed-rate Mortgage (FRM)
Loan-to-value Ratio (LTV)
Mortgage Banker
Mortgage Broker
Multiple Listing Service (MLS):
Offer
Pre-Approval
Pre-Qualification
Private Mortgage Insurance (PMI)
Underwriting
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Adjustable-rate Mortgage (ARM): A mortgage loan with an interest rate subject to change over the term of the loan. The interest rate is tied to the performance of a specified market rate, such as the cost of funds index calculated by the 11th District of the Federal Home Loan Bank Board, or the yields on one-year or six-month U.S. Treasury securities. |
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Amortization: The paying down of principal over time. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the term of the loan. |
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Conventional Mortgage Loan: Any mortgage loan not guaranteed or insured by the government (typically through FHA or VA programs). |
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Deposit: Money given, along with an offer to purchase property or as security for the performance of some contract. Also called earnest money it is intended to show willingness to follow through with the purchase agreement |
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Fannie Mae and Freddie Mac: The nation's two federally chartered and stockholder-owned mortgage finance companies. Forbidden by their charters from originating loans (that is, from providing mortgage loans on a retail basis), these two Government-Sponsored Enterprises (GSEs) purchase and/or securitize mortgage loans made by others. Due to their directive to serve low-, moderate-, and middle-income families, the GSEs have loan limits on the purchase or securitization of mortgages (in 2001, the conforming loan limit is $275,000). The difference between these two entities often comes down to size (Fannie's larger), business strategy and execution. |
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Fixed-rate Mortgage (FRM): A mortgage loan with an interest rate that does not change over the term of the loan. |
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Loan-to-value Ratio (LTV): In a mortgage loan, the amount borrowed relative to the value of the property. An LTV of 80% means that the mortgage loan is for 80% of the value of the property, with the borrower making a 20% downpayment. |
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Mortgage Banker: Company that uses its own money to provide home loans and then usually sells them to investors (insurance companies) and Fannie Mae. |
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Mortgage Broker: A company that receives payment from a lender for matching the lender with borrowers who meet the lender's criteria. |
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Multiple Listing Service (MLS): Service combining the listings, in one database, of all the available homes, except those being sold by the owner, in a specific area. |
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Offer: An expression of willingness to purchase a property at a specified price; presenting for acceptance a price for a property parcel; the bid price in a real estate or security transaction |
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Pre-Approval: means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a preapproval letter, which shows your borrowing power. You can visit as many lenders as you like and get several preapprovals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports. Although not a final loan commitment, the preapproval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained. |
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Pre-Qualification: The process that a lending company (bank, credit union, etc...) or Mortgage Broker uses to determine how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan. Your Social Security Number is sometimes required for a pre-qualification. |
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Private Mortgage Insurance (PMI): insures conventional loans, as FHA does for government loans; generally affects loans with less than 20% downpayment. |
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Underwriting: The determination of the risk a lender would assume if a particular mortgage loan application is approved. Ability and willingness to abide by the mortgage loan terms, as well as the value of the property involved, are critical to the underwriting analysis. |
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