Real Estate Glossary



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 A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Adjustable-rate mortgage (ARM): A mortgage whose interest rate changes periodically based on the changes in a specified index.

Adjustment date: The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment period: The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Amortization: The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.

Amortization term: The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Annual percentage rate (APR): The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

Annual percentage yield (APY): The rate of interest earned by an account owner in a year, if no withdrawals occur. All financial institutions must calculate the APY in the same way.

Annuity:An amount paid yearly or at other regular intervals, often at a guaranteed minimum amount. Also, a type of insurance policy in which the policy holder makes payments for a fixed period or until a stated age, and then receives annuity payments from the insurance company.

Application: A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security.

Application Fee:The fee that a mortgage lender or broker charges to apply for a mortgage to cover processing costs

Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser.

Appraiser:  A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation: An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
Arbitration:A process where disputes are settled by referring them to a fair and neu
trial third party (arbitrator). The disputing parties agree in advance to agree with the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator makes a decision.

Asbestos: A toxic material that was once used in housing insulation and fireproofing. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.

Assessed Value: Typically the value placed on property for the purpose of taxation.

Assessor: A public official who establishes the value of a property for taxation purposes.


Asset: Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assignment of mortgage: The transfer of a mortgage from one person to another.

Assumable mortgage: A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

Assumption: The transfer of the seller's existing mortgage to the buyer.

Assumption clause: A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption fee: The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Automated Clearing House (ACH): ACH securely and efficiently transfers funds electronically through participating financial institutions.
                         
 

B

Balance sheet:
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon mortgage: A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Balloon payment: The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankrupt: A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy: A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Basis point: A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.

Before-tax income: Income before taxes are deducted.

Beneficiary: The person designated to receive the income from a trust, estate, or a deed of trust.

Binder: A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly payment mortgage: A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.

Blanket mortgage: The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Bona fide:In good faith, without fraud.

Bond: An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Breach: A violation of any legal obligation.

Bridge loan: A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

Broker: An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker. See also “Mortgage Broker.”

Building Code: Local regulations that set forth the standards and requirements for the construction, maintenance and occupancy of buildings. The codes are designed to provide for the safety, health and welfare of the public

Buy down mortgage: A temporary buy down is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buy down reduces the interest rate over the entire life of a mortgage.

Buydown Account: An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.
                         
 

C

Call option:
A provision in the mortgage that gives the mortgage the right to call the mortgage due and payable at the end of a specified period for whatever reason.

Cap: A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

Capacity:Your ability to make your mortgage payments on time. This depends on your income and income stability (job history and security), your assets and savings, and the amount of your income each month that is left over after you’ve paid for your housing costs, debts and other obligations.

Capital improvement: Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash-out refinance: A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Certificate of deposit: Commonly known as a "CD," certificates of deposit bear a maturity date and a specified rate of interest. Penalties may apply for early withdrawal.

Certificate of eligibility:
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of reasonable value (CRV): A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of title: A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Chain of title: The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Orders:A change in the original construction plans ordered by the property owner or general contractor.

Change frequency: The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Clear title: A title that is free of liens or legal questions as to ownership of the property.

Closing: A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

Closing Agent:The person or entity that coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions.) Typically, the closing is conducted by title companies, escrow companies or attorneys.

Closing Costs: The upfront fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney’s fee, and prepaid items, such as escrow deposits for taxes and insurance.

Closing cost item: A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement. Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.

Closing Date: The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.

Closing statement: Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.

Cloud on title: Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

Co-borrower:Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note.

Collateral: An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection: The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Combination loan: With this type of loan, you receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans--known as 80/10/10 loans or 80/20's. Note: these types of loans are no longer available in today's market. They are sub-prime loans which have proven to be high risk for the lender and have had a higher than average default rate in 2008 & 2009

Combined loan-to-value (CLTV): The unpaid principal balances of all the mortgages on a property (first and second usually) divided by the property's appraised value.

Co-maker: A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

Commission: The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment letter: A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

Common areas: Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Community Home Improvement Mortgage Loan: An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

Community property: In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Comparables (or Comps): An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparable's help the appraiser determine the approximate fair market value of the subject property.

Compound interest: This refers to any interest earned on an account holder's principal balance, as well as any prior interest.

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

Condominium conversion:
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Conforming loan: The current conforming loan limit is $417,000 and below. Conforming loan limits change annually.

Concession: Something given up or agreed to in negotiating the sale of a house. For example, the sellers may agree to help pay for closing costs.

Construction loan: A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer reporting agency (or bureau): An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Contingency: A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contract: An oral or written agreement to do or not to do a certain thing.

Conventional Mortgage:A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS). Contrast with “Government Mortgage.”

Conversion Option:A provision of some adjustable-rate mortgage (ARM) loans that allows the borrower to change the ARM to a fixed-rate mortgage at specified times after loan origination.

Convertibility clause: A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframe's after loan origination.

Convertible ARM: An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

Cooperative (co-op): A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Corporate relocation: Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Cost of funds index (COFI): An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

Counter-offer: An offer made in response to a previous offer. For example, after the buyer presents their first offer, the seller may make a counter-offer with a slightly higher sale price.

Covenant: A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Credit: An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit history: A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Life Insurance:A type of insurance that pays off a specific amount of debt or a specified credit account if the borrower dies while the policy is in force.

Credit report: A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit Score:A numerical value that ranks a borrower’s credit risk at a given point in time based on a statistical evaluation of information in the individual’s credit history that has been proven to be predictive of loan performance.

Creditor:
A person who extends credit to whom you owe money.

Credit repository: An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
Creditworthy:Your ability to qualify for credit and repay debts

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D

Debt:
An amount owed to another.

Debt-to-Income Ratio:
The percentage of gross monthly income that goes toward paying for your monthly housing expense, alimony, child support, car payments and other installment debts, and payments on revolving or open-ended accounts, such as credit cards.

Deed: The legal document conveying title to a property.

Deed in lieu: A deed given by a mortgagor to the mortgage to satisfy a debt and avoid foreclosure.

Deed of trust: The document used in some states instead of a mortgage; title is conveyed to a trustee.

Default:
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency: Failure to make mortgage payments when mortgage payments are due.

Deposit: A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Depreciation:
A decline in the value of property; the opposite of appreciation.

Down payment: The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Due-on-sale provision: A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
 
           
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Earnest money deposit: A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement: A right of way giving persons other than the owner access to or over a property.

Effective age: An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective gross income: Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Eighty-ten-ten loan:
See "combination loan".

Electronic funds transfer (EFT): EFT allows account holders to transfer funds from an account electronically. This method of transfer is not only highly secure, but also extremely efficient and easy to transact.

Encroachment:The intrusion onto another’s property without right or permission.

Encumbrance: Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Endorser: A person who signs ownership interest over to another party. Contrast with co-maker.

Equal Credit Opportunity Act (ECOA): A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity: A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow account: An account that a mortgage servicer establishes on behalf of a borrower to pay taxes, insurance premiums, or other charges when they are due. Sometimes referred to as an “impound” or “reserve” account.

Escrow analysis: The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow collections: Funds collected by the service and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance, and hazard insurance.

Escrow disbursements: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow payment: The portion of a mortgagor's monthly payment that is held by the service to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

Estate: The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction:
The lawful expulsion of an occupant from real property.

Examination of title:
The report on the title of a property from the public records or an abstract of the title.
                         
Exclusive Right-to-Sell Listing:The traditional kind of listing agreement under which the property owner appoints a real estate broker (known as the listing broker) as exclusive agent to sell the property on the owner’s stated terms, and agrees to pay the listing broker a commission when the property is sold, regardless of whether the buyer is found by the broker, the owner or another broker. This is the kind of listing agreement that is commonly used by a listing broker to provide the traditional full range of real estate brokerage services. If a second real estate broker (known as a selling broker) finds the buyer for the property, then some commission will be paid to the selling broker.
Exclusive Agency Listing:A listing agreement under which a real estate broker (known as the listing broker) acts as an exclusive agent to sell the property for the property owner, but may be paid a reduced or no commission when the property is sold if, for example, the property owner rather than the listing broker finds the buyer. This kind of listing agreement can be used to provide the owner a limited range of real estate brokerage services rather than the traditional full range. As with other kinds of listing agreements, if a second real estate broker (known as a selling broker) finds the buyer for the property, then some commission will be paid to the selling broker.

Executor: A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.
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F

Fair Credit Reporting Act:
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair market value: The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae: A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Fannie Mae's Community Home Buyer's Program: An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Fannie Mae-Seller/Servicer:A lender that Fannie Mae has approved to sell loans to it and to service loans on Fannie Mae’s behalf.
Fannie Mae/Freddie Mac Loan Limit:The current 2006 Fannie Mae/Freddie Mac loan limit for a single-family home is $417,000 and is higher in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. The Fannie Mae loan limit is $533,850 for a two-unit home; $645,300 for a three-unit home; and $801,950 for a four-unit home. Also referred to as the “conventional loan limit.”

FDIC insured: E-LOAN is a subsidiary of Banco Popular North America (BPNA). E-LOAN and BPNA combine account balances for insurance purposes. The Federal Deposit Insurance Corporation (FDIC) insures the total balances up to the maximum allowed by law.

Fee simple: The greatest possible interest a person can have in real estate.

Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA-Insured Loan:A loan that is insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD).

FHA mortgage: A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FInder's fee: A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

First adjustment: When you can expect the first rate adjustment in your ARM loan.

First mortgage: A mortgage that is the primary lien against a property.

First-Time Home Buyer:A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.
 
Fixed-Period Adjustable-Rate Mortgage:An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term. Also known as a “hybrid loan.”
Float down option:An option to choose a lower rate within 30 days before the closing of your loan and "float down" to a lower rate than the previously locked-in rate. This allows you to pick the best rate within that time period.

Fixed-rate mortgage (FRM): A mortgage in which the interest rate does not change during the entire term of the loan.

Fixed second mortgage: See home equity loan.

Flood Certification Fee:A fee charged by independent mapping firms to identify properties located in areas designated as flood zones.

Flood insurance: Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Foreclosure: The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Forfeiture:The loss of money, property, rights, or privileges due to a breach of a legal obligation.

Fully amortized ARM: An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

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G

General Contractor
: A person who oversees a home improvement or construction project and handles various aspects such as scheduling workers and ordering supplies.

Gift Letter: A letter that a family member writes verifying that s/he has given you a certain amount of money as a gift and that you don’t have to repay it. You can use this money towards a portion of your down payment with some mortgages.

Good faith estimate: An estimate of charges which a borrower is likely to incur in connection with a settlement.
Government Mortgage:A mortgage loan that is insured or guaranteed by a federal government entity such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).
Government National Mortgage Association (Ginnie Mae):A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Popularly known as “Ginnie Mae.”
Gross Monthly Income:The income you earn in a month before taxes and other deductions. It also may include rental income, self-employed income, income from alimony, child support, public assistance payments, and retirement benefits.
Ground Rent:Payment for the use of land when title to a property is held as a leasehold estate (that is, the borrower does not actually own the property, but has a long-term lease on it).
Growing-Equity Mortgage (GEM):A fixed-rate mortgage in which the monthly payments increase according to an agreed-upon schedule, with the extra funds applied to reduce the loan balance and loan term.
                         

H

Hazard insurance:
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

Home equity line of credit: A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.

Home Equity Conversion Mortgage (HECM):A special type of mortgage developed and insured by the Federal Housing Administration (FHA) that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Sometimes called a “reverse mortgage.”

Home equity loan: a loan secured by a second deed of trust on a house, typically used as a home improvement loan.
Home Inspection:A professional inspection of a home to determine the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and pest infestation.
Homeowner’s Insurance:A policy that protects you and the lender from fire or flood, which damages the structure of the house; a liability, such as an injury to a visitor to your home; or damage to your personal property, such as your furniture, clothes or appliances
Homeowner’s Warranty (HOW):Insurance offered by a seller that covers certain home repairs and fixtures for a specified period of time.

Housing expense ratio: The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio.

HUD: The U.S. Department of Housing and Urban Development.
HUD-1 Settlement Statement:A final listing of the closing costs of the mortgage transaction. It provides the sales price and down payment, as well as the total settlement costs required from the buyer and seller.
Hybrid Loan:An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term. 
                         
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I

Impound account: An impound account is an account established by the lender to pay a borrower's tax and insurance costs. The borrower's monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. Lenders typically prefer this arrangement because it reduces the possibility of a lapse in tax or insurance payments that could diminish the value of the lender's investment (your house). Therefore, while it is often possible to opt out of an impound account it will result in additional charges. 
 
Income Property: Real estate developed or purchased to produce income, such as a rental unit.

Index: A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on
U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, stated in the note.
Individual Retirement Account (IRA): A tax-deferred plan that can help you build a retirement nest egg.
Inflation: An increase in prices.
Initial Interest Rate: The original interest rate for an adjustable-rate mortgage (ARM). Sometimes known as the “start rate.”
Inquiry: A request for a copy of your credit report by a lender or other business, often when you fill out a credit application and/or request more credit. Too many inquiries on a credit report can hurt your credit score; however, most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time.
Installment: The regular periodic payment that a borrower agrees to make to a lender.
Installment Debt: A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).
you. Interest is usually expressed as a percentage of the amount borrowed.

Interest: The cost you pay to borrow Keogh Funds: A tax-deferred retire-money. It is the payment you make to ment-savings plan for small business a lender for the money it has loaned to owners or self-employed individuals who have earned income from their trade or business. Contributions to the Keogh plan are tax-deductible.

Interest-only loan option: Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. These special loans minimize your monthly payments by eliminating the need to pay down your balance during the interest-only period, giving you greater cash flow control and/or increased purchasing power.
Interest Accrual Rate:The percentage rate at which interest accumulates or increases on a mortgage loan.
Interest Rate Cap:For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.
Interest Rate Ceiling:For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
Interest Rate Floor:For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
Investment Property:A property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower’s primary residence. Contrast with “second home.” 
 
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Judgment Lien:
A lien on the property of a debtor resulting from the decree of a court.
 
Jumbo Loan: A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae or Freddie Mac. Also called “non-conforming loan.”
Jumbo mortgage:The current loan limit for a conforming loan is $417,000. Loan amounts of $417,001 and above are considered non-conforming or jumbo mortgages and are usually subject to higher pricing.

Junior Mortgage: A loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage. 
   

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Late Charge:
A penalty imposed by the lender when a borrower fails to make a scheduled payment on time.

Lease-Purchase Option: An option sometimes used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs.
Liabilities: A person’s debts and other financial obligations.
Liability Insurance: Insurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party.

Lien: An encumbrance against property for money due, either voluntary or involuntary.

Lender: The bank, mortgage company, or mortgage broker offering the loan.

LIBOR: LIBOR stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for U.S. dollar deposits between a group of London banks. There are several different LIBOR rates, defined by the maturity of their deposit. The LIBOR is an international index that follows world economic conditions. LIBOR-indexed ARMs offer borrowers aggressive initial rates and have proven to be competitive with popular ARM indexes like the Treasury bill.

Lifetime cap: A provision of an ARM that limits the highest rate that can occur over the life of the loan.
Loan Origination:The process by which a loan is made, which may include taking a loan application, processing and underwriting the application, and closing the loan.
Loan Origination Fees:Fees paid to your mortgage lender or broker for processing the mortgage application. This fee is usually in the form of points. One point equals one percent of the mortgage amount.

Loan to value ratio (LTV): The unpaid principal balance of the mortgage on a property divided by the property's appraised value. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.

Lock period: The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.

Lock-in-rate: A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Low-Down-Payment Feature:A feature of some mortgages, usually fixed-rate mortgages, that helps you buy a home with a low down payment.
                         

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Manufactured Housing:
Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). Manufactured homes may be single-or multi-section and are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law, and may be financed with a mortgage. Homes that are not permanently affixed to a foundation generally are classified as personal property, and are financed with a retail installment sales agreement.

Margin: The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.

Market Value:The current value of your home based on what a purchaser would pay. An appraisal is sometimes used to determine market value.

Maturity date: A pre-set date informing account owners when they can withdraw principal funds without incurring a penalty. (Please note that you may withdraw any generated interest before reaching an account's maturity date at E-LOAN.)

Merged Credit Report: A credit report issued by a credit reporting company that combines information from two or three major credit bureaus.
Modification: Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.
Money Market Account: A type of investment in which funds are invested in short-term securities.

Mortgage:
A legal document that pledges a property to the lender as security for payment of a debt .

Mortgage Broker:An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans. A mortgage broker also may close the loan.

Mortgage disability insurance: A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.

Mortgage insurance (MI): Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.
Mortgage Insurance Premium (MIP): The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (PMI) company.
 
Mortgage Lender: The lender providing funds for a mortgage. Lenders also manage the credit and financial information review, the property and the loan application process through closing.
 
Mortgage Life Insurance: A type of insurance that will pay off a mortgage if the borrower dies while the loan is outstanding; a form of credit life insurance.
Mortgage Rate: The interest rate you pay to borrow the money to buy your house.
Mortgagee: The institution or individual to whom a mortgage is given.
Mortgagor: The owner of real estate who pledges property as security for the repayment of a debt; the borrower.
Multifamily Mortgage: A mortgage loan on a building with five or more dwelling units.
Multifamily Properties: Typically, buildings with five or more dwelling units.
Multiple Listing Service (MLS): A clearinghouse through which member real estate brokerage firms regularly and systematically exchange information on listings of real estate properties and share commissions with members who locate purchasers. The MLS for an area is usually operated by the local, private real estate association as a joint venture among its members designed to foster real estate brokerage services.
Mutual Funds: A fund that pools the money of its investors to buy a variety of securities.
                         

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Negative amortization:
Negative Amortization, or "deferred interest," occurs when the mortgage payment is less than a loan's accruing interest. This causes a loan's balance to grow instead of reduce or "amortize."
Net Monthly Income:Your take-home pay after taxes. It is the amount of money that you actually receive in your paycheck.
Net Worth:The value of a company or individual’s assets, including cash, less total liabilities.

Non-conforming loan: Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $333,701 and above.

Non-Liquid Asset:An asset that cannot easily be converted into cash.

Note: A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.

Note Rate: The interest rate stated on a mortgage note, or other loan agreement.
                         
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Open House: When the seller’s real estate agent opens the seller’s house to the public. You don’t need a real estate agent to attend an open house.
 
Original Principal Balance: The total amount of principal owed on a mortgage before any payments are made.

Origination fee: A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

Owner financing: A property purchase transaction in which the property seller provides all or part of the financing.

Owner-Occupied Property:A property that serves as the borrower’s primary residence.
                         
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Partial Payment: A payment that is less than the scheduled monthly payment on a mortgage loan.

Payment Change Date: The date on which a new monthly payment amount takes effect, for example, on an adjustable-rate mortgage (ARM) loan.
Payment Cap: For an adjustable-rate mortgage (ARM) or other variable rate loan, a limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic cap: The maximum rate increase for a specific period for a specific loan (ARM) only.

Personal Property: Any property that is not real property.

PITI: Principal, interest, taxes and insurance--the components of a monthly mortgage payment.

PITI Reserves:A cash amount that a borrower has available after making a down payment and paying closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned unit developments (PUD): A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

Points: Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.
Power of Attorney:A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Pre-Approval:A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant’s credit history and may involve the review and verification of income and assets to close.
Pre-Approval Letter:A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer

Predatory Lending:
Abusive lending practices that include making mortgage loans to people who do not have the income to repay them or repeatedly refinancing loans, charging high points and fees each time and “packing” credit insurance onto a loan. .
Pre-Qualification:A preliminary assessment by a lender of the amount it will lend to a potential home buyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.
Pre-Qualification Letter:A letter from a mortgage lender that states that you’re pre-qualified to buy a home, but does not commit the lender to a particular mortgage amount.

Prepaid's: Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

Prepayment penalty: A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

Principal: This term refers to the total amount of money originally deposited into a Savings or CD account. When taking out a loan however, it refers to the amount of debt, not including interest.

Private mortgage insurance (PMI): Insurance provided by non government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

Promissory Note:A written promise to repay a specified amount over a specified period of time.

Property Appreciation: See “Appreciation.”

Purchase and Sale Agreement: A document that details the price and conditions for a transaction. In connection with the sale of a residential property, the agreement typically would include: information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid, and any special contingencies.

Purchase Money Mortgage:
A mortgage loan that enables a borrower to acquire a property.

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Qualifying Guidelines:
Criteria used to determine eligibility for a loan.

Qualifying ratios: The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

Quality Control:A system of safeguards to ensure that loans are originated, underwritten and serviced according to the lender’s standards and, if applicable, the standards of the investor, governmental agency, or mortgage insurer.
                         
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Radon:
A toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses.

Rate: The annual rate of interest on a loan, expressed as a percentage of 100.

Rate cap: A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

Rate lock: A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.

Ratified Sales Contract:A contract that shows both you and the seller of the house have agreed to your offer. This offer may include sales contingencies, such as obtaining a mortgage of a certain type and rate, getting an acceptable inspection, making repairs, closing by a certain date, etc.
Real Estate Professional:An individual who provides services in buying and selling homes. The real estate professional is paid a percentage of the home sale price by the seller. Unless you’ve specifically contracted with a buyer’s agent, the real estate professional represents the interest of the seller. Real estate professionals may be able to refer you to local lenders or mortgage brokers, but are generally not involved in the lending process.
Real Estate Settlement Procedures Act (RESPA):A federal law that requires lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as well as information during the life of the loan regarding servicing and escrow accounts. RESPA also prohibits kickbacks and unearned fees in the mortgage loan business.
Real Property:Land and anything permanently affixed thereto — including buildings, fences, trees, and minerals.

Rebate: Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points" (see above).
Recorder:The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”
Recording:The filing of a lien or other legal documents in the appropriate public record.

Refinancing: The process of paying off one loan with the proceeds from a new loan using the same property as security.
Rehabilitation Mortgage:A mortgage loan made to cover the costs of repairing, improving, and sometimes acquiring an existing property.
Remaining Term:The original number of payments due on the loan minus the number of payments that have been made.
Repayment Plan:An arrangement by which a borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.
Replacement Cost:The cost to replace damaged personal property without a deduction for depreciation.

Residential mortgage credit report (RMCR): A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.

Rescission:The cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers have a right to cancel certain mortgage refinance and home equity transactions within three business days after closing, or for up to three years in certain instances.

Real Estate Settlement Procedures Act (RESPA): Under this federal action HUD requires loan originators to provide borrowers with a standard Good Faith Estimate that clearly discloses key loan terms and closing costs and that closing agents provide borrowers with a new HUD-1 settlement statement. New RESPA regulations were published November 17, 2008 and became effective on January 1, 2010. The "New RESPA Rule FAQs" were comprised from industry questions and are posted to facilitate implementation of these new requirements.

Revolving Debt: Credit that is extended by a creditor under a plan in which
(1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid. 

Right of First Refusal:
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
Rural Housing Service (RHS):An agency within the U.S. Department of Agriculture (USDA), which operates a range of programs to help rural communities and individuals by providing loan and grants for housing and community facilities. The agency also works with private lenders to guarantee loans for the purchase or construction of single-family housing. 

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Securities:A financial form that shows the holder owns a share or shares of a company (stock) or has loaned money to a company or government organization (bond).
Sale-Leaseback: A transaction in which the buyer leases the property back to the seller for a specified period of time.

Second Mortgage: A mortgage that has a lien position subordinate to the first mortgage.
Secondary Mortgage Market: The market in which mortgage loan and mortgage-backed securities are bought and sold.
Secured Loan: A loan that is backed by property such as a house, car, jewelry, etc.
Security: The property that will be given or pledged as collateral for a loan.

Securities:A financial form that shows the holder owns a share or shares of a company (stock) or has loaned money to a company or government organization (bond).

Seller Take-Back: An agreement in which the seller of a property provides financing to the buyer for the home purchase. See also “Owner Financing.”
Servicer: A firm that performs servicing functions, including collecting mortgage payments, paying the borrower’s taxes and insurance and generally managing borrower escrow accounts.
Servicing: The tasks a lender performs to protect the mortgage investment, including the collection of mortgage payments, escrow administration, and delinquency management.
Settlement: The process of completing a loan transaction at which time the mortgage documents are signed and then recorded, funds are disbursed, and the property is transferred to the buyer (if applicable). Also called closing or escrow in different jurisdictions. See also “Closing”
Settlement Statement: A document that lists all closing costs on a consumer mortgage transaction.

Servicemembers Civil Relief Act: A federal law that restricts the enforcement of civilian debts against certain military personnel who may not be able to pay because of active military service. It also provides other protections to certain military personel. Settlement
Statement: A document that lists all closing costs on a consumer mortgage transaction. Securities: Financial forms that shows the holder owns a share or shares of a company (stocks) or has loaned money to a company or government organization (bonds).

Seller carry back: An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Simple interest: An amount earned on an account holder's principal, according to a specified rate. This does not include any compounding interest.

Single-Family Properties:One- to four-unit properties including detached homes, townhouses, condominiums, and cooperatives, and manufactured homes attached to a permanent foundation and classified as real property under applicable state law.

Soft Second Loan: A second mortgage whose payment is forgiven or is deferred until resale of the property.

Stated/documented income: Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.

Subordination: If you are refinancing your first mortgage and have an existing second or home equity line, one option is to "subordinate" the second mortgage: request that your second mortgage holder go back into the second lien position when you replace your existing first mortgage with the new refinance loan.
Subordinate Financing: Any mortgage or other lien with lower priority than the first mortgage.
Survey: A precise measurement of a property by a licensed surveyor, showing legal boundaries of a property and the dimensions and location of improvements.
Sweat Equity: A borrower’s contribution to the down payment for the purchase of a property in the form of labor or services rather than cash.
                         

T

Taxes and Insurance:
Funds collected as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s, or funds paid by the borrower for, state and local property taxes and insurance premiums.

Tenants in common: An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

Term: The length of time your money must remain in a CD without incurring an early withdrawal penalty. This term also refers to the period of time that covers the life of a loan.

Termite Inspection:An inspection to determine whether a property has termite infestation or termite damage. In many parts of the country, a home must be inspected for termites before it can be sold.

Third-Party Origination:
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package a mortgage loan. See also “Mortgage Broker.”

Title: The evidence one has of right to possession of land.

Title insurance: Insurance against loss resulting from defects of title to a specifically described parcel of real property.

Title search: An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.

Total debt ratio: Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

Trade Equity:Real estate or assets given to the seller as part of the down payment for the property.
Transfer Tax:State or local tax payable when title to property passes from one owner to another.
Treasury Index:An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions by the U.S. Treasury of Treasury bills and securities.

Truth in Lending Act: A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions and was created under RESPA.
Two- to Four- Family Property:A residential property that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed; a loan secured by such a property is considered to be a single-family mortgage.
   

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V

Variable rate:
An interest rate that may change once an account opens.

Veterans Administration (VA): A government agency guaranteeing mortgage loans with no down payment to qualified veterans.

Veterans Affairs (U.S. Department of Veterans Affairs): A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance, and guaranteed home loans.
VA Guaranteed Loan:A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA).

W

Walk-Through:
A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing, for example, within the 24 hours before closing.
Warranties:Written guarantees of the quality of a product and the promise to repair or replace defective parts free of charge.

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