Real Estate Glossary

 

Agent: In real estate a real estate sales person is called an Agent; represents the seller, and/or buyer in the purchase or sale of real estate.

Amortization: This is an amortization schedule that establishes the distribution amount of the payment consisting of the principal and interest installments to be paid in each repayment of the mortgage loan to the lender for the term of the loan.

Annual Percentage Rate (APR): This is the interest rate of a mortgage, including the stated loan interest as well as any upfront interest paid in securing the loan for one year. The APR will invariably differ from the mortgage rate quoted due to the inclusion of these items. The nominal APR is the simple-interest rate for one year, calculated as rate, for a payment period then multiplied by the number of payment periods in a year. The effective APR is the fee + compound interest rate which is calculated across a year.

Appraisal: This is an estimate of the value of real property (Real Estate) property by a professional third party. Virtually all non-owner financed mortgages will require an appraisal and is generally paid for by the buyer.

Adjustable Rate Mortgage (ARM): A mortgage in which the Interest rate is adjustable, meaning that the rate can go up or down according to prevailing financial market conditions during the term of the loan.  This has been known to result in monthly payments being higher for the buyer.

Assessment: The combination of land and improvements that the taxing authority performs an appraisal of the monetary value of the property and a tax is assessed in proportion to that value.

Buyer's Agent: This is a Real Estate Sales person called an Agent that has made an agreement to represent the buyer exclusively, and not the seller.

 

Comparable Market Analysis (CMA): A comparison of the prices of similar houses in the same general geographic area that have been sold by other real estate professionals; this report is used to help determine the value of a property, either for a seller or a buyer.

Closing: This is the end process in purchasing a home when you have secured a mortgage.  This means the required information from all aspects of the mortgage lender, buyer, seller, their agents and lawyers have all completed and compiled documents by a closing agent or Title Company is ready for signing. 

Closing Costs: Funds needed at the time of closing (separate from and in addition to the down payment) and sometimes the closing cost can be added to the mortgage.  These costs can be Loan origination fees, discount points, Attorney fees, and Recording fees. They often will total from 3% to 5% of the price of the home, payable in cash, credit or might be added to the mortgage.

Contingencies: These are 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; either structurally or financially. 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: Housing where the owner owns only the unit in which they live; from the interior walls inward, generally, as well as a portion of the common area that is shared.  One roof over a house that is actually two houses where there are usually two separate owners.

Debt to Income Ratio: The Debt to Income Ratio (DIT), a borrower’s total of debt as a percentage of your total gross income that goes toward paying debts.  If it is too high a buyer can not purchase a house.

Deed: The document that is recorded with your local government, that determines ownership of a property, real estate. This document is transferred from seller to buyer at closing.

Earnest Money: Also called good-faith money is submitted with an offer to purchase which indicates a buyer's seriousness and good faith in obtaining a home.  In virtually all cases, earnest money will need to be submitted at the time of the offer and remains in escrow until the time of closing, at which time it becomes part of the down payment.

Equity: This is the amount of money you have tied up in an asset.  In a home it is the difference between the value of a property and the difference of any outstanding mortgages or loans against it.

Escrow: Funds held in reserve both prior to closing (for example the earnest money and down payment) by a third party and after closing by the mortgage company if the buyer has designated to pay future taxes and homeowners insurance in their mortgage payments. 

Fixed Rate Mortgage: This is a mortgage loan where the interest rate is established at its origination and continues unchanged through the life of the mortgage.

FSBO (For Sale by Owner): This is real estate property house or land that is sold by the owner without the assistance of a real estate company, broker and/or Sales Agent. 

Foreclosure: This is a legal process through which a lender takes back property from a defaulting owner and re-sells it.

Homeowner's Association: This is usually in sub-divisions and is a home owners group, and is a non-profit organization whether in a condominium, townhouse or single family subdivision that establishes general guidelines for the operation of the community, as well as its standards.  Usually includes snow removal and grass mowing.

Inspection: A whole house inspection of a home being considered for purchase, which looks for defects in the property’s exterior, interior and the crawl space is inspected.

Interest: Interest is added to the principal of a loan for the use of the money.  It is the lenders fee for the use of their money in a mortgage loan and is returned in payments. 

Lien:  A lien can be filed by unpaid contractors or other debtors in a legal process so that they will be paid.  It is a legal claim against a property that can prevent it from being sold unless the lien is satisfied (paid off).

Listing: A real estate listing that has properties listed for sale by a Real Estate company.

Loan Origination Fee: This is a percentage rate usually up to 1% or less imposed by the broker for originating a mortgage.

Lock-in: An agreement by the lender to lock-in the interest rate while the buyer can continue shopping for a home; obviously a good move if rates are rising, not so good if they are falling, may have expiration dates, such as 30, 60 or 90 days in the future.

LTV (Loan to Value): The ratio expresses the amount of the first mortgage as a percentage of the appraised value of the property.

MLS (Multiple Listing Service): This is an updated listing (almost always computerized) of all the properties for sale by Real Estate companies in a given geographical area.

PMI (Private Mortgage Insurance): This is extra insurance that lenders require on just about all conventional loans with less than 20% down payment.  Although the payments for PMI are included in your mortgage payment, it protects the lender should you default on the loan. On FHA loans, you will pay a MIP (Mortgage Insurance Premium) which accomplishes the same purpose.

Points: Points or discount points is an amount of money paid to a lender to obtain a loan at a specific interest rate.  For example:  1 point is equal to 1% of the loan value, paid at closing. Points can be loan origination fees or "discount points" which reduce the interest rate of the loan (you are actually paying a finance charge up front). When a lender, for example, 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.

Prequalification: “How much house can we afford?”  Do a mortgage prequalification which is relatively simple.  It begins with formally applying for a mortgage this is where your credit history along with your debts to see what house in what price range you can afford to buy.

Pre-Pay: 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 borrowed for a mortgage loan, minus the interest.  Your monthly mortgage payment will be applied to both the interest and the principal (the interest portion is paid in the first years of the loan).

Property Tax: An annual or semi-annual tax paid to one or more governmental jurisdictions based on the amount of the property assessment. This tax can be paid in with the mortgage payment.

Recording: This is an act of entering the deed and/or mortgage information into public record with your local government jurisdiction.

Sub-Agent: A Real Estate Sales Agent who is working with a buyer but who represents the seller in the transaction.

Title Insurance: Protects your deed this is your ownership rights from claims against your property.  Paid at closing, title insurance may be the responsibility of the buyer, the seller, or both, depending on what is agreed upon between the seller and buyer.

Warranty: Covers either most of the house in a new home, or selected items (for example the heating and air conditioning system or the water heater) in a used and/or older home.  Warranties can vary widely and are optional in used homes (paid for by either the buyer or the seller).

Zoning: This is a set system used in urban planning to regulate land use in various parts of a state.  For example, an area may be zoned for single family residential, condominiums, commercial and/or retail use only.

 

View our Mortgage Glossary to learn more about mortgage terminology.