Glossary of Terms
ACRE A measurement of land equal to 43,560 square feet.
ADJUSTABLE RATE MORTGAGE (ARM)
A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.
AMORTIZATION The process of paying the principal and interest on a loan through regularly scheduled installments.
ANNUAL PERCENTAGE RATE (APR)
The cost of the loan expressed as a yearly rate on the balance of the loan.
APPLICATION FEE The fee that a lender charges to process a loan application.
APPRAISAL An opinion of the value of a property at a given point in time.
APPRECIATION An increase in the value of a home or other property.
ASSESSED VALUE A tax assessor’s determination of the value of a home in order to calculate a tax base.
ASSESSMENT The estimated value of a piece of real estate or a levy
placed on property in addition to taxes.
ASSUME A LOAN A buyer assumes the responsibility to repay an existing loan as a condition of sale.
BALLOON PAYMENT The final lump sum payment due at the end of a balloon mortgage
BUILDING CODES A comprehensive set of laws that controls the construction or remodeling of a home or other structure.
BUYER’S AGENT A real estate agent that has made an agreement to represent the buyer exclusively, rather than the seller.
CAP A limit on the amount the interest rate or monthly payment can increase in an adjustable-rate mortgage.
CAPITAL GAINS Profits an investor makes from the sale of real estate or investments.
CAPITAL LOSS The loss derived from the sale of a capital asset.
CERTIFICATE OF TITLE A written opinion on the status of a piece of property based on an examination of the public record.
CLOSING The final procedure in which documents are signed and recorded, and the property is transferred.
CLOSING COSTS Expenses incidental to the sale of real estate, including loan, title and appraisal fees.
COMMISSION The negotiable percentage of the sales price of a home that is paid to the agents of the buyer and seller.
COMMUNITY PROPERTY Property accumulated through the joint efforts of husband and wife. It is a classification of property peculiar to certain states.
COMPARABLES Properties used as comparisons to determine the value of a certain property.
COMPARATIVE MARKET ANALYSIS ( CMA)
An estimate of the value of a property based on an analysis of sales of properties with similar characteristics.
CONDOMINIUM Individual units in a building or development in which MORTGAGE (ARM parking lots, community rooms and recreational areas are owned by all the residents.
CONTINGENCY A condition specified in a purchase contract, such as a satisfactory home inspection.
CONTRACT An agreement between two or more parties that creates or modifies an existing relationship.
CONVENTIONAL LOAN A long-term loan a lender makes for the purchase of a home, not insured by HUD or guaranteed by the Department of Vetrerans Affairs.
CONVEY To transfer property or title from one person to another.
CONVEYANCE The transfer of title to property.
CO-SIGNER A second party who signs a promissory note and takes responsibility for the debt.
DEBT TO INCOME RATIO The ratio of a borrowers total of debt as a percentage of their total gross income.
DEED The legal document that transfers ownership of a piece of property.
DEED RESTRICITONS Any provisions in a deed restricting ownership or use of the property—for example, limitations on rights-of-way, or easements granted to other parties.
DEPOSIT Money given by the buyer with an offer to purchase property. See also earnest money.
DOWN PAYMENT The amount of money a buyer agrees to give the seller when a sales agreement is signed. Complete financing is later secured with a lender.
EARNEST MONEY Money a buyer gives with a an offer to purchase a property. See also deposit.
ENCUMBRANCE A claim or lien on a property which complicates the title process.
EQUITY A determination of the value of a property after existing liens are deducted.
ESCROW A neutral third party holds the documents and money involved in a real estate transaction and ensures that all conditions of a sale are met. Escrow also refers to a special account that a lender establishes to hold monthly installments from the borrower to cover property taxes and insurance.
FIXED RATE MORTGAGE A home loan with an interest rate that will remain at a specific rate for the term of the loan. About 75 percent of all home mortgages have fixed rates.
FIXTURE Personal property permanently attached to a house, such as drapery rods, toilets, built-in bookcases or a furnace.
FOR SALE BY OWNER ( FSBO) The owner acts as the agent to avoid paying a sales commission.
FORECLOSURE The legal process reserved by a lender to terminate the borrower’s interest in a property after a loan has been defaulted. When the process is completed, the lender may sell the property and keep the proceeds to satisfy its mortgage and any legal costs. Any excess proceeds may be used to satisfy other liens or be returned to the borrower.
GOOD FAITH ESTIMATE An estimate from an institutional lender that shows the costs a borrower will incur, including loan-processing charges and inspection fees.
HAZARD INSURANCE This provision of homeowners insurance covers damage by fire, wind or other disaster. It is required by all lenders before a loan is approved.
HOME INSPECTION An examination of a home’s construction, condition and internal systems by an inspector or contractor prior to purchase.
HOMEOWNER’S ASSOCIATION A group that governs a modern subdivision or planned community. An association collects monthly fees from all owners to pay for maintenance of common areas, handle legal and safety issues, and enforce the covenants, conditions and restrictions set by the developer.
HUD A closing statement or settlement sheet that outlines all closing costs on a real estate transaction or refinancing.
INCOME TO DEBT RATIO A lender’s calculation of the percentage of income represented by a borrower’s housing payments plus all other revolving debt payments.
INSPECTION REPORT An examination of a home’s exterior, foundation, framing, plumbing, electrical system, heating, air conditioning, fireplace, kitchen, bathroom, roofing and interior.
INTEREST The fee borrowers pay to obtain a loan. It is calculated based on a percentage of the total loan.
LIEN A claim laid by one person or company on the property of another as security for money owed.
LISTING A piece of property placed on the market by a listing agent.
LOAN ORIGINATION FEE Most lenders charge borrowers an origination fee-or points-for processing a loan. A point is 1 percent of the total loan amount.
LOAN TO VALUE RATIO A technical measure used by lenders to assess the relationship of the loan amount to the value of the property.
LOCK IN When interest rates are volatile, many borrowers want to “lock in” an interest rate and many lenders will oblige, setting a limit on the amount of time the lock-in is in effect.
MARKET PRICE The actual price at which a property sold.
MARKET VALUE The price that is established by present economic conditions, locations and general trends.
MORTGAGE A legal document specifying a certain amount of money to purchase a home at a certain interest rate, and using the property as collateral.
MORTGAGE COMMITMENT A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.
MULTIPLE LISTING SERVICE (MLS) The service combines the listings for all available homes in an area, except For-Sale-By-Owner (FSBO) pro-perties, in one directory or database.
ORIGINATION FEE A fee charged by most lenders, also called points, for processing a loan. A point is 1 percent of the total loan amount.
P.I.T.I. Principal, interest, taxes and insurance, forming the basis for monthly mortgage payment.
PLAT A map or chart of a lot, subdivision or community drawn by a surveyor or showing boundary lines, buildings, improvements on the land, and easements.
POINT Fees charged by lenders at the time a loan is originated. A point is equal to 1 percent of the total loan amount.
POWER OF ATTORNEY A document that authorizes an individual to act on behalf of someone else.
PRE-APPROVAL LETTER A letter from a lender that informs a seller about the amount of money that a potential buyer can obtain.
PREPAYMENT Payment of mortgage loan, or part of it, before due date.
PREPAYMENT PENALTY Lenders can impose a penalty on a borrower who pays a loan off before its expected end date.
PRE-QUALIFICATION Many lenders will prequalify a borrower who is shopping for a loan by completing a preliminary assessment of the buyer’s ability to pay for a home.
PRE-PAIDS Paid for (in cash) at closing for such items as homeowners insurance for one year and real estate taxes for several months.
PRINCIPAL The amount of money that the borrower owes on a mortgage.
PRIVATE MORTGAGE INSURANCE (PMI) A special type of loan insurance that many lenders require borrowers to purchase if the borrower’s down payment is less than 20 percent of the home’s purchase price
PROMISSORY NOTE A written agreement promising to repay a loan.
PROPERTY TAX Property taxes are calculated at about 1.5 percent of the current market value.
PRORATION Agreed-upon percentages of certain expenses associated with a piece of property that must be paid by the buyer or the seller at the time of closing.
PURCHASE AGREEMENT A document which details the purchase price and conditions of the transaction.
REALTOR® A designation for an agent or broker who is a member of the National Association of Realtors.
RECORDING The filing of a specific document to the appropriate government entity.
SETTLEMENT All financial transactions required to make the contract final.
SUB-AGENT When an agent brings a buyer to a property, they in effect act as a subagent to the listing agent.
SURVEY A precise measurement of a piece of property by a licensed surveyor.
TITLE The actual legal document conferring ownership of a piece of real estate.
TITLE INSURANCE A policy issued to lenders and buyers to protect any losses because of a dispute over the ownership of a piece of property.
TITLE SEARCH A check of public title records to ascertain that the seller is the legal owner and that there are no claims or liens against the property.
VARIANCE A limited exemption from local zoning requirements.
VETERANS ADMINISTRATION LOAN (VA) The U.S. Department of Veterans Affairs operates a variety of programs to help veterans. One of the key plans it oversees is the VA loan program, which allows most veterans to purchase a house without a down payment.
WARRANTY A legally binding promise to do something in the future.
ZONING Regulations that control the use of land within a jurisdiction.
ZONING ORDINANCES The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.
ZONING VARIANCE A one-time modification of existing zoning law.
(back to top)
