Smith Rothchild Rehab Loans

Glossary of Real Estate Terms

Here are some common terms that you may encounter when buying, financing, and selling property.

Amortization - The systematic and continuous payment of an obligation through installments until the debt has been paid in full.

Annual Percentage Rate (APR) - A figure that indicates the true total cost of the loan as a yearly percentage rate. The APR is higher than your interest rate because other costs (such as borrower-paid origination fees, mortgage insurance, processing and loan fees) are included.

Appraisal - A report that sets forth an estimate or opinion of the value of the property. As Is Value: Value based on the property's current "pre-rehab" condition. Future Market Value: Value based on the property's "post-rehab" condition.

Balloon Mortgage - A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum (hence the term "balloon") at a specified date in the future, usually at the end of the term.

Cash-Out Refinance - A refinance transaction in which the amount of money received from the new loan is greater than the total amount needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens.

Closing Costs - Money paid by the borrower or the seller for various services provided in connection with the closing of a mortgage loan.

Closing Statement - A financial disclosure giving an account of all funds received and expected at closing, including escrow deposits and taxes, hazard insurance, and mortgage insurance.

Collection Account - A collection account is an account in default of the contractual terms, and has been assigned to additional collection efforts by the creditor, or sold or consigned to a professional collection agency.

Comparables ("comps") - Properties used for comparative purposes in the appraisal process that have been recently sold and have characteristics similar to property being appraised, thereby indicating the approximate fair market value of the subject property.

Condominium - A real estate project in which each unit owner holds tide to a unit in the building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Conforming Loan - A mortgage loan that meets the underwriting guidelines, loan amount limits, and regulatory parameters set by Freddie Mac and Fannie Mae.

Conventional Mortgage - A mortgage not insured or guaranteed by a federally insured program such as FHA or VA.

Co-Signer - A person who agrees to assume the debt obligation if the principal borrower defaults on the mortgage payments.

Credit Report - A detailed account of the credit, employment, and residence history of an individual used by a prospective lender to help determine creditworthiness. Credit reports also list any judgments, tax liens, bankruptcies, or similar matters of public record entered against the individual.

Credit Score - A number summarizing an individual's credit profile that indicates the likelihood that a borrower will repay future obligations.

Debt-to-Income Ratio (DTI) - A borrower's monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage.

Draw - An advancement of money such as periodic advancing of funds according to schedule of payments in a construction loan agreement. Also referred to as an advance, disbursement, payout and escrow (repair) draw.

Earnest Money - A portion of the down payment delivered to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith.

Fixed Rate Mortgage - The interest rate on fixed rate mortgages is set, or fixed, for the term of the loan. If the interest rate changes because of enforcement of the due-on-sale provision, the mortgage is still considered a fixed rate mortgage.

Flood Certificate - This certification identifies the current flood zone in which a property resides. Flood insurance is only required for properties located in special flood hazard areas or flood zones.

Floor - On an adjustable rate mortgage (ARM), the minimum interest rate the loan could reach over the adjustment periods.

Interest Rate - The percentage paid for the use of money, usually expressed as monthly or annual percentage.

Joint Tenancy - Joint ownership by two or more persons giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Lease - A written agreement between an owner and the tenant of a property stipulating the conditions for possession and use of real estate for a specified period of time and rent.

Loan-to-Value (LTV) Ratio - The ratio between the amount of a given mortgage loan and the price, appraised value or estimated repaired value.

Mixed Use Property - Property that consists of a mix of residential and commercial space (typically store fronts).

Mortgage - A legal instrument that conveys an interest in real estate property given as security for the payment of a debt.

Multi-family Property - Property that consists of multiple apartment units.

Payoff - Payment-in-full of a loan at or before maturity.

P&I - Principal and Interest

PITI - Principal, Interest, Taxes, and Insurance

Prepayment Penalty - A charge that a borrower may be required to pay during the early months or years of a mortgage if it is paid in full or if a large payment is made in order to reduce the unpaid balance.

Principal - Amount of a debt, not including interest.

Sales Contract - A written agreement between competent parties stating terms and conditions of a sale on real estate.

Second Mortgage - A mortgage that has rights secondary to the first mortgage.

Single Family Residence - A residential property on a single lot designed for the use of one family. It can be an attached or a detached dwelling.

Source of Funds - The source of the buyer's funds for the required cash investment.

Survey - A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any improvements.

Title - The evidence of the right to or ownership in property. Title may be acquired through purchase, inheritance, and gift or through foreclosure of a mortgage.

Underwriting - The process of analyzing the loan application and supporting information to decide whether the loan is acceptable and at what terms.

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