Many people do not understand some of the terms that come up during a real estate transaction. Whether it is contract or financing related, it is important to understand what you read, especially that which you sign. Hopefully, you may find this real estate glossary helpful in learning the "ABC's" of real estate.

Glossary Terms Defined:

0 - B | C - E | F -L | M - P | R - Z

Margin - The number of percentage points added to the index on a one-year adjustable rate mortgage (ARM). For example, if the index rate is 9 percent and the margin is 3 percent, then the fully indexed rate is 12 percent.

Maturity - The date on which the principal balance of a loan becomes due and payable.

Mortgage - A legal document that uses property as collateral to secure payment of a debt.

Mortgage banker - The lender that originates the mortgage loan; the one making the loan directly and closing the loan.

Mortgage broker - An individual or company that brings borrowers and lenders together for the purpose of loan origination. Unlike a mortgage banker, brokers do not fund the loan but work on behalf of several lenders. Brokers typically require a fee or a commission for their services. See broker premium.

Mortgage insurance - A policy that insures the lender against loss should the homeowner default on a mortgage. Depending on the loan, the insurance can be issued by a government agency such as the Federal Housing Administration (FHA) or a private company. It is part of the monthly mortgage payment. See also private mortgage insurance (PMI).

Negative amortization - A gradual increase in mortgage debt that happens when the monthly payment does not cover the entire principal and interest due. The shortfall is added to the remaining balance to create "negative" amortization.

No-doc or low-doc loan - These no-documentation or low-documentation loans are designed for the entrepreneur or self-employed, for recent immigrants with money in foreign countries or for borrowers who cannot or choose not to reveal information about their incomes. You need a substantial down payment, excellent credit history and will usually pay a higher interest rate.

Note - The document giving evidence of mortgage indebtedness, including the amount and terms of repayment. 

Origination fee - A fee paid to a lender for processing a loan application.

Owner financing - A transaction in which the seller of a house provides all or part of the financing. Sellers may provide financing because they need to sell the property right away or they are having difficulty selling the house and want to provide financing as an incentive to a buyer.

Periodic rate cap - In an adjustable-rate mortgage (ARM), it limits how much an interest rate can increase or decrease during any one adjustment period. See caps.

PITI - Stands for principal, interest, taxes, and insurance, which are the usual components of a monthly mortgage payment.

PITI reserves - A cash amount that a home buyer must have on hand after making a down payment and paying all closing costs. The reserves required by the lender must equal the amount a home buyer would pay for PITI for a specified number of months.

Planned Unit Development (PUD) - A type of real estate project that gives each unit owner title to a residential lot and building and a nonexclusive easement allowing access to the project's common areas. See common area assessment.

Plat - A map that shows a parcel of land and how it is subdivided into individual lots. Plat maps also show the locations of streets and easements.

PMI - See private mortgage insurance.

Points - A point equals 1 percent of a mortgage loan. Lenders charge points as a way to make a profit. Borrowers may pay discount points to reduce the loan interest rate. Buyers are prohibited from paying points on HUD or VA guaranteed loans. On a conventional mortgage, points may be paid by either buyer or seller or split between them. Within limits, points are usually tax deductible. Also see interest tax deduction.

Pre-approval - This process goes a step further than pre-qualification. It means the lender has contacted the borrower's employer, bank and other places to verify all claims of earnings and assets. In return, the borrower receives a letter stating the lender is willing to grant a mortgage for a specified amount, within a limited period of time.

Prepayment penalty - A fee imposed by certain lenders if the first mortgage is paid off early.

Prepayment plan - Similar to a biweekly mortgage, but operated by a third party. In it, the borrower pays to the third party half the monthly mortgage payment every two weeks. At the end of the year, the plan operators typically take the extra money that results from the process and send lump sum payments to the participants' lenders. Instead of 12 monthly payments of $665, or $7,980 a year, on the 30-year mortgage, the borrower would make 26 biweekly payments of $332.50, or pay $8,645 annually. As a result, total interest would shrink by $34,130 and the loan term would shorten to less than 24 years.

Pre-qualification - An early evaluation by a lender of a potential home buyer's credit report plus earnings, savings and debt information. The home buyer gets a nonbinding estimate of the mortgage amount the borrower would qualify for, or how much house the borrower can afford. Buyers who pre-qualify can go a step further and seek pre-approval.

Private mortgage insurance, or PMI Insurance - Protects mortgage lenders against default on loans by providing a way for mortgage companies to recoup the costs of foreclosure. PMI is usually required if the down payment is less than 20 percent of the sale price. Home buyers pay for the coverage in monthly installments. PMI is usually terminated when the home buyer has built up 20 percent equity in the property.

Quit claim deed - The formal document by which a claim in property is denied. Often used to clear a cloud on title.

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