Washington Buyer and Seller Guide for Title and Escrow

57 GLOSSARY OF TERMS ADJUSTABLE RATE MORTGAGE (ARM): A mortgage in which the interest rate is adjusted periodically in accordance with a market indicator, to more closely coincide with the current rates. Also sometimes known as renegotiable rate mortgage, the variable rate mortgage, or the graduated rate mortgage. AMORTIZATION: Reduction of the principal of a debt in regular, periodic installments. ANNUAL PERCENTAGE RATE (APR): An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan. ASSUMPTION OF MORTGAGE: An obligation undertaken by a new purchaser of land to be liable for payment of an existing note secured by a mortgage. CAPS: Consumer safeguards that limit the amount the interest rate on an adjustable rate mortgage can change at each adjustment or over the life of the loan. CONDITIONS, COVENANTS & RESTRICTIONS (CC&R’S): A document that controls the use, requirements and restrictions of a property. CERTIFICATE OF REASONABLE VALUE (CRV): An appraisal issued by the Veterans Administration showing the property’s current market value. CLOSING (ALSO CALLED “SETTLEMENT”): The completion of a real estate transfer, where the title passes from seller to buyer, or a mortgage lien is given to secure debt. CONDOMINIUM: A statutory form of real estate development of separately- owned units and jointly-owned common elements in a multi-unit project. CONVENTIONAL MORTGAGE: A mortgage securing a loan made by investors without governmental underwriting, i.e., a loan which is not FHA insured or VA guaranteed. DEED: Written instrument which, when properly executed and delivered, conveys title. DISCOUNT POINT: An additional charge made by a lender at the time a loan is made. Points are measured as a percent of the loan, with each point equal to one percent. EARNEST MONEY: A deposit of funds made by a buyer of real estate as evidence of good faith. EASEMENT: A non-possessory right to use all or part of the land owned by another for a specific purpose. EQUITY: The difference between the fair market value and current indebtedness, also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property. FEDERAL HOUSING ADMINISTRATION LOAN (FHA LOAN): A loan insured by the Federal Housing Administration, open to all qualified home purchasers. FARMERS HOME ADMINISTRATION LOAN (FMHA LOAN): A loan insured by the federal government similar to FHA loan, but usually used for residential properties in rural areas.