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Real Estate Terms can be confusing, browse our extensive list of Real Estate and Mortgage terms and definitions below to be in the know. |
Adjustable Rate Mortgage (ARM)–A mortgage which the Interest rate is adjustable, which means that a rate can go up or down according to prevailing financial market conditions.
Adjustable Rate–An interest rate that changes periodically due to an index. Payments can increase or decrease accordingly.
Agent–An individual that represents a seller, buyer or both when purchasing or selling real estate.
Amortization–A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of interest and principal. Most of the payment is applied toward the interest owed during the first few years. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Amortization–The schedule of loan payments on a monthly basis, which establishes the amount of a payment to be applied to the principal and the amount to be applied to interest, for the full term of the loan.
Annual Membership—Also referred to as “participation fee”. An amount that may be charged annually for having a line of credit available and is often charged regardless of whether or not you use the line.
Annual Percentage Rate (APR)–The cost of credit on a yearly basis and is expressed as a percentage. It’s required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. It 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. It does not include appraisal, credit report, and title insurance. The total interest rate of a mortgage, including the stated loan interest and any upfront interest paid in securing the loan. Due to the inclusion of these items the APR will invariably differ from the mortgage rate quoted.
Application–An initial statement of financial and personal information which is required to approve your loan.
Application Fee– An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50). They are fees that are paid upon application.
Appraisal–A fee charged by an appraiser which renders an opinion of a market value of a specific date. It’s required by most lenders to obtain a loan.
Appraisal–An estimate by a professional third party of the value of a Real Estate property. Virtually all non-owner financed mortgages will require an appraisal which is generally paid for by the buyer.
Assessment– Local tax jurisdiction determines the value of a property, which determines the amount of your property taxes.
Assumption of Mortgage–An agreement of a purchaser to become primarily liable for the payments on a mortgage loan. The seller may remain secondarily liable for payments unless otherwise specified by the lender.
Buyer’s Agent–A Real Estate Agent that makes an agreement to represent the buyer exclusively, rather than the seller.
Balloon Payment–A payment for the unpaid balance of the loan that is a lump sum.
Cap–The maximum allowable increase, for a specified amount of time on an adjustable rate mortgage, for either the interest rate or payment.
Cash Out—allows one to receive money back when refinancing your present mortgage.
Ceiling- Maximum allowable interest rate of an adjustable rate mortgage over the life of the loan.
Comparable Market Analysis (CMA)–A comparison of the prices of similar houses within the same general geographic area. A CMA is used to help determine the value of a property, either for a buyer or a seller.
Closing–The process which effects the final transfer of the deed from the seller to the buyer, while finalizing all aspects of the mortgage of the property.
Closing Costs–Funds needed at the closing time (separate from and in addition to the down payment). They will often total from 3% to 5% of the price of the home, payable in cash. Some items that may be included are attorney fees, loan origination fees, discount points, recording fees and pre-paids.
Conforming Loan— Qualifying ratios and underwriting methods are standardized to a large degree. Generally is a mortgage loan under $203,150.
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.
Contingencies–Conditions or “safety valves” written into Real Estate offers and contracts to prevent a buyer from being forced to buy a house that is unsatisfactory, structurally or financially. Two Examples of contingencies are “This contract is subject to the buyer obtaining a satisfactory whole house inspection. ” or “Subject to the buyer being able to obtain a mortgage.”
Condominium—A housing where the owner owns only the unit in which they live in. It includes the interior walls inward, generally as well as a portion of the common area.
Credit Limit–The maximum amount under a home equity plan that you can borrow.
CRS–Certified Residential Specialist
Debt Service–The total amount of auto, credit card, mortgage or other debt you must pay.
Debt to Income Ratio-Ratio of a borrower’s total debt as a percentage of their total gross income.
Deed—A document that when is recorded with your local government will determine the ownership of a property. It is transferred from the seller to the buyer at closing.
Deed of Trust– the agreement used to pledge your home or other real estate as security for a loan that is similar to a mortgage and is used in many western states.
Discount Points (or Points)–Amount paid to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan. (i.e.two points on a $100,000 mortgage would equal $2,000).
Down Payment–The difference between the portion of the purchase price being financed and the purchase price. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties must be disclosed to the lender are sometimes acceptable.
Due on Sale–A clause in a mortgage agreement stating that, if the mortgagor (the borrower) sells, transfers, or, encumbers the property, the mortgagee (the lender) then has the right to demand the outstanding balance in full.
Earnest Money–Money that is submitted with an offer to purchase which indicates a buyer’s seriousness and good faith. Earnest money remains in escrow until the time of closing and will need to be submitted at the time of the offer, at which time it becomes part of the down payment.
Effective Interest Rate--The cost of credit is expressed as a percentage on a yearly basis. It includes up-front costs paid to obtain the loan, and is usually a higher amount than the interest rate stipulated in the mortgage note. It is very useful in comparing different rates with point’s loan programs.
Encumbrance–A claim by another party against a property, which usually will affect the ability to transfer the ownership of the property.
e-pro–Realtors who completed a course of study designed to give them a level of proficiency in working with clients over the internet.
Equity–The difference between your outstanding mortgage balance and the fair market value (appraised value) of your home.
Equity–The difference between the total of any outstanding mortgages or loans against it and the value of a property.
Escrow–Funds held in reserve both prior to closing by a third party, after closing by the mortgage company to pay future taxes and homeowners insurance. In some areas it refers to the closing process.
FHA Loan– “FHA Insured Loan. ” A loan which the Federal Housing Administration insures the lender against losses. The lender may also incur due to your default.
First Mortgage–A mortgage which is in the first lien position. Therefore it takes priority over all other liens (which are financial encumbrances).
Fixed Rate–An interest rate that is fixed for the term of the loan. Payments are also fixed at one amount.
Fixed Rate Mortgage–A mortgage loan that continues unchanged through the life of the loan and the interest rate is established at its origination.
FSBO (For Sale By Owner)–Real Estate that is sold without the assistance of an Agent. FSBO can refer to the individual selling the property “They are a FSBO. ” It can also refer to the property itself “that house is a FSBO.”
Foreclosure–Process which a lender takes property back from a defaulting owner and re-sells it.
Good Faith Estimate–A written estimate which a lender must provide to you within three days, of submitting an application, of the costs of closing.
Grace Period–A period of time that a loan payment can be paid, after its due date, but will not incur a late penalty. These payments may be reported on your credit report.
GRI–Graduate Realtor Institute
Gross Income–The income of the borrower before taxes or expenses are deducted for qualifying purposes.
Hazard Insurance–A contract between an insurer and a purchaser that compensates the insured for loss of property due to hazards for a premium.
Home Equity Line of Credit–A loan providing you with the ability to borrow funds in the amount you choose up to the maximum credit limit which you qualify for at that time. The repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. It’s often used for debt consolidation, expenses, home improvements, or major purchases.
Home Equity Loan—An adjustable or fixed rate loan obtained for a variety of purposes and is secured by the equity in your home. The interest paid is usually tax -deductible. It is often used for freeing of equity for investment in other real estate or investment for home improvement. It’s 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, education loans, and medical debt.
Homeowner’s Association–An owners group, whether in a condominium, single family, or townhouse subdivision that establishes general guidelines for the operation of the community, as well as standards.
HUDI Settlement Statement–A form utilized at loan closing that itemize the costs associated with purchasing the home. It’s used universally by the Department of Housing and Urban Development and mandate of HUD.
Index–A number that is usually a percentage that future interest rates for adjustable rate mortgages are based off of. Common indexes include the average rate of a one year Government Treasury Security and the Cost of Funds for the Eleventh Federal District of banks.
Inspection–A whole house inspection that looks for defects in the property of a home being considered for purchase.
Interest—The portion of a mortgage payment for using the lender’s funds that is considered the “charge”.
Interest Rate–The periodic charge that is expressed as a percentage, for credit use.
Jumbo Loan—Effects mortgage loans over $203,150. The underwriting requirements and terms may vary from conforming loans.
Lien– A legal claim against a piece of property which can prevent it from being sold unless the lien is satisfied (paid off). Liens can be filed in a legal process by unpaid contractors or other debtors so that they will be paid when a property is sold.
Listing–A property for sale by a Real Estate agent or brokerage.
Loan Origination Fee–A charge payable at closing, imposed by the lender, for processing the loan.
Loan to Value Ratio (LTV)–A ratio that is determined by dividing the sales price or appraised value into the loan amount and is expressed as a percentage. For example, a sales price of $100,000 and a mortgage loan of $80,000 would result in your loan to have a value ratio of 80%. Loans with an LTV over 80% may require Private Mortgage Insurance.
Lock-in–An agreement at the time of mortgage application or shortly thereafter by the lender, to write the mortgage at a specific interest rate, whether rates rise or fall up to the date of closing. it’s a good move if rates are rising and not so good if they are falling. Lock-ins have specific expiration dates, such as 30, 60 or 90 days in the future.
Lock or Lock In–A commitment that you obtain from a lender which assures you a particular interest rate or feature for a definite time period. This provides protection if the interest rates rise between the time you apply for a loan, acquire loan approval, and close the loan and receive the funds you have borrowed.
LTV (Loan to Value)–A ratio of the amount of the mortgage as a percentage of the value of the property.
Margin–An amount based in a percentage that is added to the index to determine the interest rate for adjustable rate mortgages.
Minimum Payment–The minimum amount that you must pay monthly, on a line of credit or on a home equity loan. The minimum payment may be “interest only,” (simple interest) in some plans. While other plans, the minimum payment may include principal and interest (amortized).
MLS (Multiple Listing Service)–A Real Estate Brokerage list (almost always computerized) of all the properties for sale, in a given geographical area.
Mortgagee–The lender in a mortgage loan transaction.
Mortgage Banker–Originates mortgage loans, and allows loaning you their funds and closing the loan in their name.
Mortgage Broker–Like mortgage bankers, takes the loan application and processes the necessary paperwork. Unlike a mortgage banker, they work on behalf of several investors, such as mortgage bankers, S and L’s, banks, or investment bankers while brokers do not fund the loan with their own money.
Mortgage Insurance (MIP or PMI)--Insurance that is purchased by the borrower to insure the government against loss should you default or the lender. Mortgage Insurance Premium, (MIP) is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). You may be entitled to a small refund of MIP if you pay off a government-insured loan in advance of maturity. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. Your lender may waive PMI at your request when you have accumulated 20% of your home’s value as equity. 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 collateral or security 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.
Mortgager–The borrower in a mortgage loan transaction.
Negative Amortization–Amortization that the payment made is insufficient to fund and complete repayment of the loan at its termination. This usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment that should be paid is added to the remaining balance owed. In return the balance owed may increase, rather than decrease over the life of the loan.
PMI (Private Mortgage Insurance)—It’s required on virtually all conventional loans with less than 20% downpayment. The payments for PMI are included in your mortgage payments which protects the lender if you default on the loan. You will pay a MIP (Mortgage Insurance Premium) on FHA loans, which accomplishes the same purpose.
PITI–Principal, interest, taxes and insurance that comprises your monthly mortgage payment.
Points—It’s paid at closing where 1 point is equal to 1% of the loan value. Points can be “discount points” or loan origination fees, which reduce the interest rate of the loan (you are actually paying a finance charge up front). For example when a lender quotes a rate of 8 1/2% with 1 + 1 points, 1 point is for the origination fee and 1 point is for the discount fee.
Points–The amount paid either to lower the interest rate charged or maintain it. Each point equals one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).
Prequalification–The first stage in a mortgage application, where the lender will run a basic credit report to determine your debt to income ratio in order to see how much mortgage you qualify for.
Pre-paids—Cash payment at closing for such items as real estate taxes for several months and homeowners insurance for one year.
Prepayment Penalty–A fee that is paid to the lending institution for paying a loan prior to the scheduled maturity date.
Principal–The amount borrowed for a mortgage loan. The monthly mortgage payment will be applied to the principal and the interest (be assured, though, that the lions share will go to the interest portion in the first years of the loan).
Property Tax–A semi-annual or annual tax paid to one or more governmental jurisdictions based on the amount of the property assessment. It is generally paid as part of the mortgage payment.
Qualifying Ratios–Comparisons of gross monthly income and a borrower’s debts.
Recording–The act of entering mortgage information or a deed into public records with your local government jurisdiction.
Right to Rescission–The legal right to cancel or void your mortgage contract in such a way to treat the contract as if it never existed. The right of rescission is not applicable to mortgages made to purchase a home. Rather it may be applicable to other mortgages, such as home equity loans.
Security Interest–An interest that a lender takes in the borrower’s property that assures repayment of a debt.
Servicing a Loan–The ongoing process of collecting your monthly mortgage payment, that includes accounting for and payment of your yearly tax and/or homeowners insurance bills.
Sub-Agent–A Real Estate Agent who represents the seller in the transaction but works with a buyer.
Title–The written evidence proving the right of ownership of a specific piece of property.
Title Insurance–Protection for homeowners or lenders against financial losses resulting from legal defects in the title.
Title Insurance–Protects both your ownership rights and your title from claims against it and is paid at closing. The title insurance may be the responsibility of the buyer, the seller, or both, depending on what is traditional in your locality.
Transaction Fee–A fee that may be charged each time you draw on a home equity credit line.
Underwriting—A process of verifying data and then approving a loan.
VA Loan– “VA Insured Loan.” A loan which the Veteran’s Administration insures the lender against losses the lender may incur due to your default. The available is only to veterans possessing a Certificate of Eligibility.
Variable Rate–An interest rate that changes periodically according to an index. In return the payments may increase or decrease accordingly.
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Warranty–Covers either selected items (for example the heating and air conditioning system or the water heater) in a used home or most of the house in a new home. Warranties are optional in used homes (paid for by either the buyer or the seller)and can vary widely.
Zoning–Laws that specifically govern how a zoned area can be used. For example, an area may be zoned for single family residential, commercial, condominiums, or retail, or a mix of two or more uses.