Real Estate Glossary of Terms
Adjustable Rate– An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly; a financing technique in which the lender can raise or lower the mortgage interest rate according to a set index, such as six-month Treasury bills.
Amortization– A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Annual Membership– An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a “participation fee.”
Annual Percentage Rate (APR)– The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.
Application –An initial statement of personal and financial information which is required to approve your loan.
Application Fee– Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).
Appraisal– A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan.
Appreciation – An increase in value.
Assessment – An official valuation of property for tax purposes.
Assumption of Mortgage– The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.
Balloon Payment– A lump sum payment for the unpaid balance of the loan.
Broker – An independent business person who sets real estate office policies, hires employees, determines their compensation, and supervises their activities.
Buyer’s Agent — An agent who represents the buyer in a real estate transaction. A buyer agent may be paid by the buyer, seller, or listing agent at closing, provided all parties consent.
Cap –The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.
Capital Gains — The amount by which an asset’s selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit.
Cash Out — Receiving money back when refinancing your present mortgage.
Ceiling –The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.
Certified Funds – funds the buyer is required to bring to closing; can be in the form of a cashier’s check, money order or a bank certified check, made payable in the buyer’s name.
Closing Costs– Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney’s fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.
CMA (Competitive Market Analysis) – A method of determining the value of a property by comparing the prices paid for similar properties.
Conforming Loan– Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.
Contract of Sale –The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.
Conventional Loan – A fixed-rate, fixed term loan that is not insured by the government.
Counterproposal — A new offer as to price, terms, and conditions, made in response to a prior, unacceptable offer. A counter offer terminates an original offer.
Credit Limit– The maximum amount that you can borrow under a home equity plan.
CRS (Certified Residential Specialist) –A professional designation awarded to experienced agents who complete an advanced course of study in residential real estate and demonstrate proficiency in sales and production. CRS Designees are members of the Residential Sales Council, a not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS ® .
Debt Service– The total amount of credit card, auto, mortgage or other debt upon which you must pay.
Deed of Trust –Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.
Discount Points (or Points)– The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).
Disclosure: Revealing what previously was private knowledge. Any statement of fact that is required by law.
Down Payment –The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.
Due on Sale– A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.
Earnest Money — A buyer’s partial payment to the seller as a show of good faith in completing the transaction.
Effective Interest Rate– The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.
Encumbrance –A claim against a property by another party which usually affects the ability to transfer ownership of the property.
Equity– The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.
Escrow — The closing of a real estate transaction through a neutral third party who holds funds and/or documents for delivery after specific conditions have been met.
Exclusive Listing — A written agreement in which the seller appoints only one agent to market the property for a specific period of time. If the owner sells the property himself, he is not required to pay a commission.
Exclusive Right of Sale Listing –A written agreement between an agent and a property owner stating that the owner will pay a commission to the agent if the property is sold during a specific time period–whether or not the agent is responsible for the sale.
Fannie Mae (Federal National Mortgage Association) — Fannie Mae purchases home mortgages, thus serving as a source of funds for mortgage lenders. It is a privately owned corporation whose shares are traded on the New York Stock Exchange, but it is subject to the strict supervision of the secretary of the U.S. Department of Housing and Urban Development (HUD). Federal Fair Housing Law Refers to Title VIII of the Civil Rights Act, and stipulates that discrimination based on race, color, sex, familial status, handicap, religion, or national origin is illegal in connection with the sale or rental of most dwellings.
FHA (Federal Housing Administration) — A federal agency established to improve housing standards and conditions. The FHA provides mortgage insurance to approved lending institutions.
First Mortgage– A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).
Fixed Rate– An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.
Fixed Rate Loan — A loan in which the interest rate does not change during the entire term of the loan. For an individual taking out a loan when rates are low, the fixed rate loan would allow him or her to “lock in” the low rates and not be concerned with fluctuations. On the other hand, if interest rates were historically high at the time of the loan, he or she would benefit from a floating rate loan, because as the prime rate fell to historically normal levels, the rate on the loan would decrease.
FHA Loan– More appropriately termed “FHA Insured Loan.” A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.
Freddie Mac (Federal Home Loan Mortgage Corporation) — A federally chartered corporation established to purchase mortgages in the secondary, or resale, market. Freddie Mac ‘s policies are designed to serve the needs of savings and loan associations. It is subject to oversight by the U.S. Department of Housing and Urban Development (HUD).
Good Faith Estimate– A written estimate of closing costs which a lender must provide you within three days of submitting an application.
Grace Period– A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.
Gross Income– For qualifying purposes, the income of the borrower before taxes or expenses are deducted.
Home Equity Line of Credit– A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.
Home Equity Loan– A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.
Hazard Insurance –A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.
HUD (U.S. Department of Housing and Urban Development — A federal department active in a variety of national housing programs including urban renewal and public housing.
HUD I Settlement Statement– A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.
Improvements –Additions intended to increase the value of a property.
Index– A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.
Inspection — An examination of a property by the buyer, agent, title insurance company, or other interested party.
Interest Rate– The periodic charge, expressed as a percentage, for use of credit.
Investor Loan – a non-owner occupied loan.
Jumbo Loan –Mortgage loans over $203,150. Terms and underwriting requirements may vary from conforming loans.
Lien – A charge or claim by one party on the property of another as security for the payment of a debt.Listing – A written agreement between a property owner and a real estate broker authorizing the broker to find a buyer.
Loan to Value Ratio (LTV)– A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.
Lock or Lock In– A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.
Margin– An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.
Market Value — The price a property will command on the open market.
MLS (Multiple Listing Service) — A means by which agents are informed of the properties offered for sale by other agents.
Minimum Payment– The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be “interest only,” (simple interest). In other plans, the minimum payment may include principal and interest (amortized).
Mortgage Banker– Originates mortgage loans, loaning you their funds and closing the loan in their name.
Mortgage Broker– As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L’s, banks, or investment bankers.
Mortgage Insurance (MIP or PMI)– Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home’s value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.
Mortgage Loan –A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.
Mortgagee– The lender in a mortgage loan transaction.
Mortgagor– The borrower in a mortgage loan transaction.
Negative Amortization –Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.
Offer — A proposal to purchase property at a specified price and terms.
Open House — The common real estate practice of showing “For Sale” homes to the public during established hours.
Origination Fee — A lender’s charge for establishing and processing a new mortgage loan. It is generally computed as a percentage of the loan and may be tax deductible.
Owner of Record –The person named in the public record as the owner of a property or mortgage.
PITI– Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.
Points –The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).
Prepayment Penalty –A fee paid to the lending institution for paying a loan prior to the scheduled maturity date.
Principal – The amount of money upon which interest is paid.
Qualified Buyer — A buyer who has demonstrated the financial ability to afford the asking price of a home. Prequalifying with a lender can expedite the home buying transaction .
Qualifying Ratios– Comparisons of a borrower’s debts and gross monthly income.
REALTOR ® — A registered trade name that may only be used by members of the NATIONAL ASSOCIATION OF REALTORS®, an organization with over 700,000 members who represent all branches of the real estate industry. REALTORS® subscribe to a strict Code of Ethics which governs their conduct.
Refinance — Obtaining a new loan to pay off an existing loan. Refinancing is a popular practice when interest rates drop.
Residential Sales Council — A not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS ® . The Council awards the Certified Residential Specialist (CRS) Designation, to experienced members who have completed an advanced course of study in residential real estate.
Right to Rescission –The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.
Security Interest –An interest that a lender takes in the borrower’s property to assure repayment of a debt.
Servicing a Loan– The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.
Steve Arrington – A highly skilled, highly qualified Real Estate agent.
Title– The written evidence that proves the right of ownership of a specific piece of property.
Title Insurance– Protection for lenders or homeowners against financial loss resulting from legal defects in the title.
Title Search – An examination of the public records to determine whether the current title is clear or defective.
Transaction Fee– A fee which may be charged each time you draw on a home equity credit line.
Underwriting– The process of verifying data and approving a loan.
Variable Rate– An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
VA – A federal agency designed to help veterans enter the housing market.
VA Loan– More appropriately termed “VA Insured Loan.” A loan for which the Veteran’s Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility
Walk-Through – A final inspection of a property before it changes ownership.