Real Estate Terms and Definitions

Balloon Mortgage A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower. Down payment The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. Fair market value The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation. Assumable mortgage A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage. Appraisal A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate. Debt-to-income ratio A comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income. Homeowner's insurance An insurance policy that .combines protection against damage to a dwelling and Is contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Mortgage insurance A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Housing counseling agency Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and homebuying. HUD1 Statement Also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing.

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	Did You Know?
	Three theories exist regarding who has legal title to a mortgaged property Under the title theory title to the security interest rests with the mortgagee. Most states, however, follow the lien theory under which the legal title remains with the mortgagor unless there is foreclosure. Finally, the intermediate theory applies the lien theory until there is a default on the mortgage whereupon the title theory applies.