Amortization A payment plan by which the borrower reduces his or her debt gradually through monthly payments of principal.
Annual Percentage Rate (APR) The cost of credit as a yearly rate.
Appraisal An evaluation of a piece of property to determine its value; i.e., what it would sell for in the marketplace.
Balance An amount in excess especially on the credit side of an account.
Billing Error Any mistake in a monthly statement as defined by the Fair Credit Billing Act.
Binder A receipt for earnest money or a deposit paid to secure the right to purchase a home at terms that have been agreed up on by both the buyer and the seller.
Broker An agent who negotiates contracts of purchase and sale.
CC and Rs The Conditions, Covenants, and Restrictions pertaining to the property you may purchase. These define the use you may make of the property and the protections the developer has made for the benefit of all owners in a subdivision.
Certificate of Title A written opinion or a certificate issued by a title company that states that the seller has a good marketable and insurable title to the property being offered for sale. This certificate offers no protections against hidden defects in the title, which an examination of the records could not reveal.
Check Draft An official approval package, containing a check draft made out for the maximum amount, that is sent in the mail after you have been approved. This is valid at any franchised auto dealer. A customer simply fills in the exact amount of purchase.
Closing Costs Charges paid at settlement to obtain a mortgage loan and transfer real estate title. Usually they are in addition to the price of the home. Be sure your sales contract states whether the buyer or seller will pay these costs and what the costs will be.
Conditional Commitment A promise to insure (generally with FHA loans) payments of a definite loan amount on a particular piece of property for a buyer with satisfactory credit.
Conventional Loan A loan that is not insured by the government.
Credit The balance (as in a bank) in a person’s favor.
Credit History A person’s record of how you have borrowed and repaid debts.
Credit Rating A report ordered by a lender from a credit bureau to help determine a borrower’s credit rating.
Credit Scoring A system that is used to rate credit applicants.
Depreciation The decrease or decline in the value of a vehicle.
Disclosures Information that must be given to consumers about their financial dealings.
Down Payment The amount of money that is paid between the purchase price and loan amount.
Earnest Money The amount of money that is paid upfront as part of the purchase price to bind a transaction that will ensure payment.
Easements Rights of way granted to persons or companies, authorizing access to or over the owner’s land. For example, utility companies may have easement rights to install pipes or wires on or over your land.
Equal Credit Opportunity Act (ECOA) A federal law that requires lenders to loan without discrimination based on race, color, religion, national origin, sex, marital status or income from public assistance programs. Lenders are able to discriminate against credit risks that are known not to pay their bills.
Equity The value of a property or of an interest in it in excess of claims against it.
Escrow A system or document transfer in which a deed, bond, or fund is delivered to a third person to hold until all conditions of a contract are fulfilled.
FHA (Federal Housing Administration) – In order to make mortgages more affordable for consumers and more desirable investments for lenders, Congress established this federal agency in 1934 to insure that mortgage loans were made by FHA-approved lenders on homes that met FHA standards.
Grantee The party in a deed who is the buyer.
Grantor The party in a deed who is the seller.
Guarantee An agreement by which one person undertakes to secure another in the possession of something.
Hazard Insurance Insurance that protects against damage caused to property by fire, windstorm, or other common hazards. Required by many lenders to be carried in an amount at least equal to the mortgage.
Household Income The total income of all members of a household. An important yardstick used by credit card issuers evaluating applications for joint credit.
Installment Loan Monthly payments that are applied to the actual purchase of the vehicle. A person will own the vehicle at the end of the loan by making these monthly payments.
Insured Loan A loan insured by FHA or a private mortgage insurance company.
Interest A charge for borrowed money that is generally a percentage of the amount borrowed.
Jumbo Loan A loan over $200,000.
Liability on an Account Legal responsibility to repay debt.
Lien A legal claim on the property of another for the satisfaction of a debt or duty.
Minimum payment The minimum amount a card holder can pay to keep the account from going into default. Some card issuers will set a high minimum if they are uncertain of the card holders ability to pay. Most card issuers require a minimum payment of 2 percent of the outstanding balance.
Mortgage Pledge of property as security for payment of debt.
Mortgage Commitment A formal written communication by a lender, agreeing to make a mortgage loan on specific property, specifying the loan’s amount, length of time and conditions.
Mortgage Loan A contract, in which the borrower’s property is pledged as collateral, that can be repaid on an installment basis over a long period of time. The mortgagor (the buyer) promises to repay principal and interest, to keep the home insured, to pay all taxes, and to keep the property in good condition.
Mortgage Origination Fee A charge by the lender for the work involved in the preparation and servicing of a mortgage request. (Usually 1% of the loan amount.)
Mortgagee The lender who makes a mortgage loan.
MSRP Manufacturer’s Suggested Retail Price that represents the manufacturer’s recommended selling price for a vehicle and each of its options.
Negative Amortization This occurs when monthly payments are not large enough to pay all the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan. This can result in the borrower owing more than the original amount of the loan.
Net Effective Income (Net Income) A person’s gross income minus federal income tax.
Note A formal document showing the existence of a debt and stating terms of repayment.
PITI Principal, interest, taxes, and insurance. (The four major components of monthly housing payments.)
Point A charge of one percent of the mortgage value. “Points” are a one-time charge assessed by the lender to increase the interest yield from the mortgage loan to a position competitive with the interest yields from other types of investments.
Prime rate The interest rate a bank charges to its best or “prime” customers. Each bank will quote a prime lending rate. The rate given to consumers on their credit cards is often based on the prime rate plus a certain percentage, which represents the lender’s assessment of the risk in lending, plus its profit margin.
Principal The amount of money, minus interest, owned on a loan.
Refinancing Paying off one loan with the proceeds from another loan.
Rule of 72 Divide the number 72 by the percentage rate you are paying on your debt or earning on your investment. This will give you the time it will take in years to double your investment or debt given you make no more deposits or no more payments.
Sales Contract The contract between the buyer and the seller. The contract should explain, in detail, exactly what the purchase includes, who is responsible for providing it, what guarantees there are, when you can move in, what the “closing costs” are and what recourse parties have if the contract is not fulfilled or if you cannot get a mortgage commitment at the agreed upon terms.
Security Something given as a pledge of payment.
Security Interest The creditor’s ability to take property offered as security.
Service Charge Finance charges such as the fee for triggering an overdraft checking account into use, using balance transfer checks, or credit card checks.
Servicing The steps a lender performs to keep a loan in good standing, such as payment of taxes, insurance, collection of payment, etc.
Settlement The closing of a loan agreement.
Settlement Expenses Charges that a buyer or seller has to pay in closing a deal on a house. Settlement costs include insurance and tax payments, special assessments for improvements to municipal facilities and sales commissions. (See Closing Costs.)
Title A document that is evidence of an individual’s ownership of property.
Trustee A person to whom property is legally committed in trust.
VA (Veterans Administration) – A federal agency which in 1944 established a loan guarantee program to encourage private lending agencies to give liberal mortgages to honorably-discharged veterans and their widows. Check your local Veterans Administration Office for more information.
Verification of Employment A document that is signed by the borrower’s employer indicating that the borrower is employed with their company and the dollar amount the borrower makes per year.
Zoning Classification of real property for varying uses. A municipality has a right to determine and regulate the use of property.