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While they aren't intended for legal purposes, these definitions will take some of the mystery out of buying a home.
Acceleration Clause
Allows the payee/beneficiary of a note or trust deed to declare the entire unpaid balance due and payable when a given condition occurs, such as the sale of a property.
Adjustable Rate Mortgage (ARM)
Also referred to as an adjustable mortgage loan (AML) or variable rate mortgage (VRM). This type of mortgage has an interest rate that fluctuates with the current cost of money.
Adjustment Period
The period of time between changes in the interest rate on an ARM. For instance, an ARM that only changes its rate once each year has a one-year adjustment.
Amortization
The process of repaying a loan in equal installments of principal and interest, versus interest-only payments.
Annual Percentage Rate (APR)
The cost of a mortgage stated as yearly rate. APR includes interest, mortgage insurance and points.
Appraisal
A professional evaluation of the fair market value of land and improvements.
Appreciation
An increase in the value of property due to changes in market conditions or other causes.
Assessments
Special local levies on a property in the immediate vicinity of an improvement, such as flood control and street lighting districts.
Assignment
The written transfer of an asset from one party to another, such as a deed of trust.
Assumption
One party agrees to assume or take on an obligation previously owed by another (i.e. assuming an existing trust deed loan by a new owner).
Balloon Payment
A lump sum payment on the principal due at the end of a mortgage or other long-term loan.
Beneficiary
A party who obtains the benefit of the security. In a trust deed, the lender is the beneficiary.
Binder
An offer to purchase or an earnest money receipt. It acknowledges a deposit and is accompanied by a brief written agreement to enter into a real estate contract of sale.
Cap
On an adjustable mortgage, it is the limit on an interest rate, either at each adjustment or over the life of the mortgage.
CC&Rs
A document of Covenants, Conditions and Restrictions. It is an agreement to control the use, requirements, and restrictions of a property per the rules of the document.
Closing Statement
Settlement of escrow. For the buyer, it shows deposits made, the loan received or assumed, and any credits by escrow instructions, less the sale price, loan costs, insurance, prorate items, etc. For the seller, it includes an accounting of the sales price minus any charges assessed to the seller and any payoffs made on the seller's behalf.
Contingency
A condition to meet or satisfy before a contract is binding. (Such as a sales agreement contingent on the sale of a buyer's current home.)
Conventional Mortgage
A mortgage that is not insured or guaranteed by the federal government.
Conversion Clause
A provision in some ARMs that allows the buyer to change the loan to a fixed rate, usually after the first adjustment period. The new fixed rate is usually set at the prevailing interest rate for fixed rate mortgages. This feature may cost extra.
Deed
A document that conveys the ownership of real property (or real estate) from one person to another.
Deed of Trust
A document whereby the owner of real property uses that property as a security for the payment of a note or other obligation.
Default
Failure to pay an obligation or perform a duty.
Demand
An order for funds. When the seller's loan is to be paid in full through escrow, escrow must request and receive a written demand for payment in order to prepare the documents necessary to release the loan.
Earnest Money
An initial deposit of money given as part of the purchase price of a home to bind the agreement between buyer and seller.
Easement
An interest in or right regarding a property, such as a right to pass through another person's property to reach yours.
Encumbrance
A lien affecting the land and improvements, i.e., a deed of trust.
Equity
The market value of a property, minus mortgage or any other liens.
Escrow
An impartial third party that acts as an agent for both buyer and seller, to carry out instructions, deliver papers and documents and disburse funds.
Fannie Mae
It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages.
FHA Loan
A loan issued by the Insuring Office of the Department of Housing and Urban Development; the Federal Housing Administration.
Foreclosure
A proceeding to enforce a lien by the sale of the real property in order to satisfy the debt.
Government Mortgage
A mortgage insured by the FHA or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS).
Graduated Payment Mortgage
A mortgage with monthly payments that start at a low level and increase at a predetermined rate.
Grantee
The buyer of a deed.
Grantor
The seller of a deed.
Impound Account
A type of savings account held by the lender where the borrower places monthly deposits for taxes, insurance, etc.
Homeowners Association (HOA)
Governs expenditures and regulations of a particular complex. Each homeowner is an association member with voting privileges.
Legal Description
Description of real estate as used in legal documents. Not the same as a street address, legal descriptions usually refer to recorded maps, surveys or other public documents.
Lien
A security interest in property which places the lien holder in a position prior to the rights of the general creditors of the owners (such as trust deeds, mortgages, mechanic's liens, taxes).
Loan Commitment
A written promise to make a loan for a specified amount and term.
Loan Policy
A policy of title insurance insuring the interest of a lender.
Loan-to-Value Ratio
The relationship between the mortgage amount and the appraised value of the property, expressed as a percentage of the appraised value.
Lock-In
An agreement in writing in which the lender guarantees a specified interest rate if a mortgage closes within a set period of time. The lock-in usually specifies the points to be paid at closing, as well.
Mello-Roos
A special community Facilities District tax designed to ensure the timely construction of facilities such as new schools, water and sewer improvements, fire stations, roads, etc. Taxes vary with each district.
Negative Amortization
Occurs when monthly payments (held down by an interest cap) fail to cover the interest cost. The interest that isn't covered is added to the unpaid principal balance, which could result in a higher principal amount than originally borrowed.
Note
A valuable document that indicates written evidence of a debt, including a promise of payment in accordance with specified terms. Usually secured by a deed of trust in real estate.
Notice of Default
Written, recorded notice that a default has occurred under a deed of trust and/or note.
Ordinance
A legislative enactment of a city or county.
Origination Fee
A fee or charge for the process of evaluating, preparing and submitting a proposed mortgage loan.
PITI
Principal, Interest, Taxes and Insurance, the four components of a monthly mortgage payment.
Payee
The person to whom money is to be paid.
Personal Property
All property which is not land or improvements permanently affixed to land, such as stocks, bonds, furniture, promissory notes, etc.
Points
A charge made by the lender for the cost of the loan. One point equals one percent of the loan amount.
Power of Attorney
A written authorization for an agent to perform specified acts on his or her behalf. This may be granted as either a general or a limited power.
Preliminary Title Report
A title company's report regarding the present condition of title, made prior to issuing a title policy.
Prepayment Penalty
A specified penalty for the full or partial payment of a note before its maturity.
Prime Rate
The interest rate banks charge their preferred customers. Changes in the prime influence changes in other interest rates including mortgages.
Private Mortgage Insurance (PMI)
Insurance written by a private lender. It protects lender against loss if borrower defaults on mortgage.
Pro-Rata
Adjustments such as taxes, insurance, and interest on loans.
Purchase Agreement
Also known as a sales contract. A document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under certain stated terms.
Qualifying Ratios
The two calculations used to determine if a borrower qualifies for a loan. These are a housing expense as a percent of income ratio and a total debt obligations as a percent of income ratio.
Quitclaim Deed
Conveys a person's right, title or interest in a property to another person or entity. There is no guarantee implied by a quitclaim deed.
Real Property
Land and improvements permanently affixed to the land.
Realtor®
A real estate broker or associate who is an active member in a local real estate board affiliated with the National Association of Realtors®.
Reconveyance
A document evidencing that a deed of trust has been paid in full and that the lender and trustee no longer have any interest in the property.
Recordation
Filing for record in the office of the county recorder.
Regulation Z
The set of rules governing consumer lending under the Consumer Protection Act.
Swing Loan
A short-term loan obtained on a seller's equity.
Title
Evidence of a person's claim of interest in real property.
Title Insurance Policy
Protects the purchaser, mortgage or other party against losses.
Truth-in-Lending
A federal law that requires lenders to fully disclose in writing all the terms and conditions of a mortgage.
Variable Interest Rate
Interest rate that fluctuates up or down according to the current cost of money.
Zoning
A local government's regulation of the use of real property.
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