REAL ESTATE GLOSSARY
“Real Estate has a language all its own. See below for helpful real estate and mortgage terminology along with definitions for both home buyers and sellers."
Adjustable Mortgage Loans: A mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).
Amortization: A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.
Annual Percentage Rate (A.P.R.): A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.
Appraisal: A document from a professional that gives an estimate of a property's fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
As-is Condition: The purchase or sale of a property in its existing condition without repairs.
Asking Price: A seller's stated price for a property.
Buydown: A payment to the lender from the seller, buyer, or third party, or some combination of these, which causes the lender to reduce the interest rate during the early years of the loan.
Cap: In adjustable rate mortgages, the limit on how much the interest rate or monthly payment can change.
Certificate of Title: A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Closing: The final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed. Closing Statement: The statement which lists the financial settlement between buyer and seller, and also the costs each must pay.
CMA: A Comparative Market Analysis is a comparison of homes similar to a seller’s home in terms of size, style, features, and location that have sold recently or are on the market. A CMA is prepared by a real estate agent to help set a home’s listing price.
Contingency: Commonly, a stated event which must occur before a contract is binding. For example, a home sale may be contingent upon the buyer obtaining financing.
Counter Offer: A rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.
Debt-to-Income Ratio: A comparison or ratio of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deed: A document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.
Deposit: A portion of the down payment given by the buyer to the seller or escrow agent with a written offer to purchase to show good faith.
Down payment: Cash portion of the purchase price paid by a buyer from his own funds as opposed to that portion which is financed.
Equity: An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.
Escrow: A procedure in which a third (neutral) party holds all funds, documents, etc. necessary to the sale, with instructions from both buyer and seller as to their use and disposition.
Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).
FHA Loan: A loan insured by the Federal Housing Administration, a part of the Department of Housing and Urban Development. FHA insurance enables lenders to loan a very high percentage of the sale price.
FICO Score: FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.
Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).
Graduated Payment Mortgage: A mortgage initially offering low monthly payments that increase at fixed intervals and at a predetermined rate.
Hazard Insurance: Otherwise known as homeowners’ insurance. This is a usual requirement of a mortgage lender and an advisable safeguard for any homeowner to protect against loss.
Home Equity Loan: A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.
Home Inspection: An examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.
Home Warranty: Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.
Index or Rate Index: A measure of interest rate changes used to adjust the interest rate of an Adjustable Mortgage Loan. Example: the change in U.S. Treasury securities (T-bills) with a 1-year maturity, based upon their weekly average yield.
Interest Rate: The amount of interest charged on a monthly loan payment, expressed as a percentage.
Lien: A legal claim or charge on property as security for payment of a debt or for the discharge of an obligation.
Listing Agreement: A contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.
Loan-to-Value Ratio: The ratio – expressed as a percentage – of the amount of a mortgage loan to the appraised value or selling price of the property.
Lock box: A key storage system placed on a home entrance that is accessible only by active, licensed real estate agents who must abide by a strict set of guidelines when showing a seller’s home.
Margin: In Adjustable Mortgage Loans, the number of percentage points the lender adds to the index rate to determine the new interest rate at each adjustment.
Market Value: The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.
MLS: MLS stands for "Multiple Listing Service", by which member brokers cooperate in the sale of each other’s listings. Sellers may choose not to allow their property into multiple listing, if they wish.
Mortgage: A lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.
PITI (Principal, Interest, Taxes, and Insurance): Used to indicate the four major items included in a monthly mortgage payment.
Points: A fee charged by a lender as a service charge or as an amount needed to make the yield on a mortgage competitive with other types of investments. Each point represents 1% of the loan amount.
Pre-Approval: A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
Price Trend Analysis: A tool developed and used exclusively by Weichert, Realtors to help set a home's listing price by projecting local trends, used in conjunction with a CMA, or Comparative Market Analysis. Because home values appreciate over time, a Price Trend Analysis maximizes listing prices.
Principal: Amount of debt, not including interest; the face value of a loan.
Private Mortgage Insurance: Insurance issued by a private company against a loss by a lender in the event of default. Private mortgage insurance is generally required for conventional financing whenever less than 20% is put down.
Second Mortgage: A mortgage which ranks after the first mortgage lien in priority.
Settlement: Same definition as closing.
Title Insurance: Insurance against loss resulting from defects of title of public record.
VA Loans: Loans partially guaranteed by the Veteran’s Administration, enabling veterans to buy a home with little or no down payment.
Walk Through: The final inspection of a property being sold by the buyer to confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.