Real Estate Glossary

Add-on Rate
A type of loan repayment plan arranged to divide the principal into equal installments. Interest is added-on to the principal, resulting in high initial monthly payments that, over time, are reduced as the principal balance is reduced.

Adjustable Rate Mortgage (ARM)
A mortgage in which interest and payment rates vary periodically, based on a specific index, such as 30 year Treasury bills or the Cost-of-Funds index.

Adjustments
Money credited to either/both buyer and seller at closing, including real estate taxes, price adjustments based on disclosures in the inspection, etc.

Agent
A licensed person who represents the seller (and/or buyer) and who provides market assessment, sales or buying strategy, recommends various services and sources important to the seller or buyer.

Amortization
A method by which monthly mortgage payments are equalized over the life of the loan despite the fact that the proportion of principal to interest changes.

Appraisal
Professional and unbiased written opinion of property's value based on recent, comparable sales, quality of construction and current condition, and style of architecture.

Appraiser
An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

Appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.

Asking Price
The price at which the property has been placed on the market for sale.

Assessed value
The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment
The placing of a value on property for the purpose of taxation.

Assessor
A municipal or county official who determines the value of properties for the purpose of taxation.
Asset
Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

Assumption of Mortgage
The buyer assumes liability for an existing mortgage held by the seller, subject to approval by the lender.

Balloon Mortgage
A short-term mortgage, generally at a fixed rate of interest, to be paid back in pre-determined, equal monthly payments, with a large, final payment for the balance of the loan paid at the end of the term.

Bankruptcy
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Bill of Sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

Binder
Generally a small amount of money from the buyer, accompanying a brief written offer to buy. (See Earnest Money.)

Biweekly mortgage
A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.

Bridge loan
Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.

Broker
A person licensed to represent home buyers or sellers for a contracted fee. Most real estate offices are managed by a broker who employs licensed sales agents to sell the properties.

Cap
A limit on the total amount an interest rate can be increased. (See ARM.)

Closing
The final settlement at which time the title is transferred from seller to buyer, accounts are settled, new mortgages signed and all fees and expenses dispersed or satisfied.

Closing Costs
All fees, taxes, charges, commissions and other costs paid by buyer and/or seller at the closing.

Commission
A previously agreed upon percentage of the home's sale price paid to the listing and selling agent(s).

Comparables
Closely similar properties in type, size and price that have changed hands with in recent months, used for comparison in the appraisal report.

Condominium (Condo)
Real estate ownership in which a property owner has title to a specific unit, but shared interest in the common areas.

Contract of Sale
This is the legal document that spells out all the details of the purchase of a property. Both the seller and the buyer must agree upon the conditions set forth in this document for the sale to be completed.

Conventional Mortgage
Most popular home financing form not insured by FHA or guaranteed by VA. Available from many lenders at varying rates, terms and conditions.

Conversion Clause
Clause in an ARM permitting conversion from an adjustable to a fixed-rate loan.

Cooperative (Co-op)
Real estate ownership in which all property owners (shareholders) own the entire property and each shareholder has proprietary rights to specific units.

Counter Offer
An offer made by a buyer or seller to the other party, responding to the asking price or a subsequent adjustment to that price to complete a purchase or sale.

Curb Appeal
A term used by Realtors including all that a buyer sees from the street that may induce the buyer to look more closely at the property.

Deed
A legal "instrument" that conveys the title to a property from seller to buyer.

Down Payment
The buyer's payment to the seller at the time the sales contract has been mutually agreed to, or at closing, for the percentage of the total purchase price required by the buyer's mortgage loan.

Earnest Money
Money paid by the buyer at the time an official offer to purchase is submitted to the seller intended to demonstrate the good faith of the buyer to complete the purchase. Earnest money is applied against the purchase price, however, It may be forfeited if the buyer fails to complete the purchase under the terms of the sales contract.

Equity
The difference between the sale price of a property and the mortgage on the property.

Escrow Account
A third party account used to retain funds including the property owner's real estate taxes, buyer's earnest money or hazard insurance premiums.

Fair Market Value
The highest price an informed buyer will pay, assuming there is no unusual pressure to complete the purchase.

Fannie Mae
Federal National Mortgage Association (FNMA), is a privately owned corporation created by Congress to buy mortgage notes from local lenders and provide guidelines for most lenders to use to qualify borrowers.

FHA Insured Mortgage
The Federal Housing Administration makes available through banks and other lenders, insured mortgages with low down payment requirements.


Fixed-Rate Mortgage
A mortgage that has a set interest rate and is basically unaffected by interest rate changes.

Graduated Payment Mortgage
This mortgage offers low initial monthly payments which increase at a pre-determined rate, then cap at a final level for the duration of the mortgage.

Hazard Insurance
Often confused with "Home Owner's" insurance, it's designed to compensate for specific hazards including fire and wind. An "all-risk home owner's policy" provides more complete coverage.

Home Inspection
A formal survey of a home's structure, mechanical systems and overall condition, generally performed by a licensed professional inspector.

Home Warranty
A policy available to the buyer or seller as assurance against unanticipated home repair costs.

Homeowner's Policy
A hazard insurance policy covering at the very least the appraised value of a house and property.


Inspection Clause
A written stipulation contained in an offer-to-buy that makes the sales contract contingent upon the findings of a professional home inspector.

Interest
The pre-determined charge or fee paid to a lender by the borrower for the use of monies loaned.

Lease-Purchase Agreement
An agreement between owner and tenant specifying a portion of monthly rent, during a specified period, to be credited toward purchase of property.

Listing
A contract through which a seller agrees to terms and a fee with the agent who will sell the property to a buyer.

Market Price
The actual price at which a property is sold.

Market Value
The price that is established by existing economic conditions, property location and market style and size preferences.

Mortgage
A legal claim received by the lender on a property as security for the loan made to a buyer to facilitate the purchase.

Mortgage Broker
An independent, third-party, licensed broker who arranges loan transactions between lenders and borrowers by facilitating the application and approval process and by securing favorable terms.

Mortgage Cancellation Insurance
A life insurance policy to pay off the balance on your home mortgage, thus leaving your dependants with a deed, not just a debt.

Multiple Listing Service (MLS)
A system through which participating brokers agree to share commissions, on a pre-determined percentage split, on the sale of properties listed by any broker in the system.

Negative Amortization
Most likely to occur with ARMs when monthly payments are not sufficient to cover interest costs. Additional interest is added to principal balance and the borrower may end up owing more than at the initiation of the loan.

Offer
A legally binding, written contract that defines how much a buyer will pay for a property, depending on satisfactory agreement with a list of contingencies.

Open House
A period of time when the seller's house is open to prospective buyers to view the house in a low-pressure environment usually without their own sales agent.

Origination Fee
Similar to a point, this fee is a supple mental fee paid by buyers to lenders.

Over Improvement
Additions or improvements in which the cost is greater than the value added.

Pre-approved
Your mortgage lender has reviewed your formal mortgage application and financial records, completed a satisfactory credit check and approved you for a specific loan amount, subject to an appraisal and possibly an inspection of the home you decide to purchase.

PITI
Common real estate acronym meaning Principal, Interest, Taxes, Insurance.

Point
A single percent of the loan principal, often charged by the lender in addition to various fees and interest.

Prepayment
Borrower pays off an entire mortgage before the scheduled date.

Prepayment Penalty
A fee included in the mortgage agreement requiring borrower to pay in the event the loan is paid before the due date.

Pre-qualification
An Informal estimate of the "financing potential" of a prospective borrower.

Pre-qualified
Your income, employment history and your available down payment qualify you as a potentially approvable mortgagee, subject to a mortgage lender's approval of a completed application, satisfactory credit check, home appraisal, and home inspection.

Principal
The amount of money borrowed against which interest and possibly fees will be charged. (A second meaning: one of the parties to a contract.)

Prorate

Proportionate division of expense based on days or time occupied or used by the seller and/or buyer.

Purchase Agreement
Same as Contract of Sale.

Qualify
Ability of a borrower to satisfy a lender's mortgage approval requirements.

Rate Cap
See definition of Cap.

Referral
The recommendation by one agent of a potential buyer and/or seller to another agent either locally or long-distance.

Refinancing
The process of applying for a new mortgage to gain better terms or use of equity.

Relocation Specialists
A firm or person specializing in advising buyers or sellers on relocating to different and/or new communities.

RESPA
Statement The Real Estate Settlement Procedures Act requires a precise listing of all closing costs for both sellers and buyers

Return On Investment (ROI)
The profit gained as the result of money spent on an improvement or addition to a home or property.

Settlement
This term relates to all legal and financial transactions required to finalize the con tract between buyer and seller, at the conclusion of which closing takes place

Settlement Disclosure Statement
A statement or list providing a complete breakdown of costs involved in finalizing a real estate transaction, prepared by the lender's agent prior to and reviewed at closing by buyer and seller.

Title
A legal document that defines the property, right of ownership and possession.

Title Insurance
An insurance policy that protects the buyer against errors, omissions or any defects in the title.

Title Search
A highly detailed search of the document history of a property title for the purpose of identifying any/all legal encumbrances to the property, prior to title transfer to a new owner.

VA Mortgage
The Department of Veterans Affairs has made guaranteed mortgages available through banks and other lending institutions, to active military personnel, veterans, or spouses of veterans who died of service-related injuries.

Walk-Through Inspection
The final inspection by the buyer, usually in the company of the buyer's real estate sales agent, to ensure that all conditions noted in the offer-to-purchase and all seller-related contingencies have been met. This inspection is most often completed immediately prior to the official act of closing, after the seller has vacated the premises.

Zoning
Virtually all local communities have established specific restrictions for land use, new construction, remodeling and/or improvements made to existing structures. Records of all recent construction and/or remodeling activity are available to you through a local regulatory department such as The Building Inspector's department or office, or The Planning and Zoning Board (P&Z).