Definitions of Commonly Used Real Estate TERMS ADJUSTED LOAN AMOUNT VS. LOAN AMOUNT: The Loan Amount is the amount you are borrowing to buy the house, after your down payment has been subtracted from the purchase price. The Adjusted Loan Amount is your loan figure after any financed closing costs have been added. Typical costs that are financed are the VA funding fee and the FHA Mortgage Insurance Premium (MIP). AITD: An ALL-INCLUSIVE TRUST DEED or WRAPAROUND MORTGAGE: One of the most misunderstood terms in Real Estate. The Buyer purchases a home from the Seller. The Seller gives the Buyer a Wraparound Mortgage. This mortgage may be for exactly what the Seller owes on the property or more. The Buyer sends their payment to the Seller, then the Seller pays the lender they originally took out their loan with. A very risky transaction for both parties, especially the buyer. Consult a good Real Estate Attorney. BALLOON PAYMENT: Some loans (5/30, 7/30) have balloon payments. You would make a specified monthly payment for a certain number of years, then you would owe the remaining balance of the loan all at once. At that time your choices would be to either refinance the loan or sell the property in order to make the balloon payment. DEED OF RECONVEYANCE: This is the piece of paper your lender records, and gives a copy of to you, when you have paid off your loan. Very important paper, keep it in a safe place. EQUITY: The difference between what your property is worth and the amount of money you owe on the property. If you could sell your property for $100,000 and you have two loans worth $65,000, then your equity is $35,000. ESCROW: In most states, the sale of a home is handled by an escrow or settlement company. This may be a division of a title company. In some states these functions are handled by attorneys. The escrow company is instructed by the Buyer and the Seller and their Realtors to collect the proper amount of money from the buyer and a property Grant Deed from the Seller. When all contingencies have been met, they give the Grant Deed to the Buyer, and the money to the Seller. FANNIE MAE, FREDDIE MAC, and GINNIE MAE: FANNIE MAE, (FNMA), FEDERAL NATIONAL MORTGAGE ASSOCIATION . FREDDIE MAC, (FHLMC), FEDERAL HOME LOAN MORTGAGE CORPORATION. GINNIE MAE, (GNMA) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. Organizations who infuse hundreds of millions of dollars into the mortgage market by buying home mortgages. They set many of the regulations that lenders use to underwrite their conventional loans. They only purchase loans up to $227,150. GOOD FAITH ESTIMATE: A written estimate of all closing cost associated with your purchase and loan. This good faith should be given to you by your loan representative when you do your loan application. GRANT DEED: This the actual piece of paper granting you the property. It will be signed and notarized by the Sellers, even if the Sellers are a bank or HUD. This is a very important piece of paper, keep it in a safe place. IMPOUND ACCOUNT: All government loans, and most loans where the buyer is putting down less than 20%, require the buyer to pay insurance and taxes monthly. The impound account is established for those monthly payments to go into, so the lender will have adequate funds to pay insurance & property tax bills when they become due. LOCK-IN: When you are "locked in" you are guaranteed your interest rate for a specific amount of time. Typical lock in times are 12, 30, 60 days. Remember, if you lock in your rate, it cannot be changed, no matter if interest rates go up or down. Most lenders will penalize you if you do not close your loan within the specified lock in time. MMI: This is FHA's monthly mortgage insurance. Much like PMI on conventional loans, you make this payment monthly if you are getting a FHA loan. Not to be confused with MIP or PMI. MIP: Mortgage Insurance Premium. This is the one time fee charged by FHA on their loans. You can pay this in cash up front or finance it in with your loan. Not to be confused with MMI or PMI, which are monthly mortgage insurance premiums. NEGATIVE AMORTIZATION: Negative Amortization occurs when your loan balance is growing, getting larger as you make your payments. This can occur with Graduated Payment Mortgages & some Adjustable Rate Mortgages. NON RECURRING CLOSING COSTS: These are the closing costs that are one time costs, at the time of purchase. They may include any of the following: escrow fees, title fees, loan fees (underwriting, processing, compliance inspection, loan origination, document), recording and notary fees, wire charges, etc. ORIGINATION FEE: Most FHA & VA (and some other) loans have a Loan Origination Fee. This fee is usually 1% of the loan amount. This is the lenders profit on that loan. PI/PITI: Monthly payments are usually quoted as PI or as PITI. PI means just principal and interest. PITI means your payment includes principal, interest, taxes, insurance plus mortgage insurance, if any. PMI: On most conventional loans where the buyer is making less than a 20% down payment, Private Mortgage Insurance is required. You will pay a certain amount up front, and then also a monthly amount, much like the MMI in FHA loans. POINTS/DISCOUNT POINTS: A discount point is 1% of the loan amount. Discount points are paid up front to lower the interest rate. Points normally can be paid by the Seller or the Buyer. As points are considered prepaid interest, they may be tax deductible (even if paid by the seller), consult your accountant. PRE-PAIDS (RECURRING CLOSING COSTS): These are the fees collected by escrow to establish your impound account. Normally they included a few months of fire insurance, private mortgage insurance, and property taxes. TRUST DEED: This is the piece of paper describing how you are going to pay back your loan. It includes all the terms of the loan and the original loan amount. TITLE INSURANCE: Title Insurance insures the Buyer(s) and Lender against fraud in the chain of Title. (See our report "Why Title Insurance".) VA FUNDING FEE: This is a one-time fee charged by the Veterans Administration in order for a VA loan to fund. This amount can be paid up front in cash or financed in with the loan amount. This fee varies according to such specifications as how often the veteran has used his VA eligibility, how much the veteran is putting down, and whether the loan is for a purchase or a refinance. VA NO-NO: A VA loan where the Veteran gets into the property without any up front investment. There is no down payment and all of the Veteran's Closing Costs are paid by the Seller.