Real Estate Glossary Part Two

Deed of Trust: A legal document that conveys title to real estate to a disinterested third
party (trustee) who holds the title until the owner of the property has repaid
the debt. In states where it is used, a Deed of Trust accomplishes essentially
the same purpose as a Mortgage.

Down Payment: A percentage of the cost of the home that is paid up front.

Earnest Money: The deposit you make on the home when you submit the offer. This
money is intended to show the seller that you are serious about wanting
to purchase the property. Earnest money goes into an escrow account,
and if the offer is accepted, the earnest money amount will be applied
to either the down payment or closing costs. If the offer is not accepted,
you will get the money back.

Escrow: An account where money is held, either for earnest money or by the
lender for fees due for taxes or insurance.

Equity: The difference in what you owe on the home and its fair market value.

FHA: Mortgages that are extended by private lenders, but insured by the
Federal Housing Administration, often requiring a significantly lower
down payment and lower incomes to qualify.

Fixed Rate: The interest rate stays the same for the mortgage term.

Foreclosure: The legal process by which an owner’s right to a property is terminated,
usually due to default. Typically involves a forced sale of the property at
public auction, with the proceeds being applied to the mortgage debt.

Hybrid: A loan that starts with a fixed rate period and then converts to an
adjustable rate.

HUD: U.S. Department of Housing & Urban Development

Interest: The payment you make to the lender for the money you borrow.

Interest-Only: A loan in which the borrower pays only the interest on the principal
balance for a set period.

Mortgage: The written instrument used to pledge a title to real estate as security for
repayment of a Promissory Note.

Mortgage Insurance: Insurance written in connection with a mortgage loan that indemnifies the lender in the event of borrower default. In connection with conventional
loan transactions, this insurance is commonly referred to as Private
Mortgage Insurance (PMI).

Mortgage (Promissory) Note: A written promise to pay a sum of money at a stated interest rate during a specified term. It is typically secured by a mortgage.

Net Income: The difference between effective gross income and expense including
taxes and insurance. The term is qualified as net income before
depreciation and debt.

PMI: Private Mortgage Insurance – may be required for first-time buyers.

Pre-Approval: A process in which a customer provides appropriate information on
income, debts and assets that will be used to make a credit only loan
decision. The customer typically has not identified a property to be
purchased, however, a specific sales price and loan amount are used to
make a loan decision. (The sales price and loan amount are based on
customer assumptions)

Pre-Qualification: A process designed to assist a customer in determining a maximum
sales price, loan amount and PITI payment they are qualified for. A pre-
qualification is not considered a loan approval. A customer would provide
basic information (income, debts, assets) to be used to determine the
maximum sales price, etc.

Principal: The amount of your loan that you actually borrow.

REO: Real estate (bank-) owned properties.

Short Sale: When the seller’s lender accepts less than the amount owed to
release the mortgage.

Title: The evidence to the right to or ownership in property. In the case of real
estate, the documentary evidence of ownership is the title deed, which
specifies in whom the legal state is vested and the history of ownership
and transfers. Title may be acquired through purchase, inheritance, devise,
gift or through the foreclosure of a mortgage.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s creditworthiness and
the quality of the property itself.

VA: Loans administered by the Department of Veteran Affairs for Americans
who have served in the armed forces.