When buying or selling a home, you may hear several terms that you have never heard before – or that are used in a different way than you are used to. Here are some of the more common ones you may hear:
Acceptance – When both parties to a transaction come to an agreement on the terms and conditions of the contract
Ad Valorem Tax – A tax that is based on the assessed value of the property
Adjustable Rate Mortgage (ARM) – A mortgage where the interest rate will vary during the life of the loan
Amortization – The repayment of a loan over time. At the beginning of a loan, more of the payment goes towards interest than the principal, but the gap lessons as you get closer to paying the loan off
Annual Percentage Rate (APR) – The principal amount of the loan, plus all finance charges
Appraisal – The estimated value of a property, as determined by a licensed appraiser
Assessed Value – The value of a property as determined by a government authority, used for taxation purposes
B
Back-Up Contract – A contract that is accepted as secondary to an already accepted contract. If the first contract falls through, the back-up contact becomes the primary contract
Balloon – A mortgage where a lump sum (much larger than the original payments) is due after a certain period of time
Bill of Sale – A document used for the sale of personal property
Bridge Loan – A short term loan used by Buyers to buy a new home while they wait for their current home to sell
C
Certificate of Title – A document that states the owner(s) of a property
Certificate of Occupancy – A document that states that a new construction home is ready to be occupied
Closing – A transaction where ownership of a property is transferred from the Seller to the Buyer
Closing Costs – The expenses incurred in a real estate transaction, including: attorney’s fees, points, title charges, credit report fee, document preparation fee, mortgage insurance premium, inspections, survey, appraisals, prepayments for property taxes, deed recording fee, and homeowners insurance
Common Areas – A space shared by all property owners of a community, like a community swimming pool or clubhouse
Condominium – A building/complex where individual units are privately owned, and where common areas are shared among all of the owners
Conforming Loan – A mortgage that meets underwriting guidelines for Fannie Mae and Freddie Mac
Construction Loan– A short-term loan used to finance the building of a home. Once the home is complete, the Buyer obtains a regular mortgage
Contingency – A condition that must be met before a contract is legally binding. Common examples include financing, home inspection and appraisal contingencies
Conventional Mortgage – A mortgage that is not guaranteed or insured by any government agency. It is the most common type of mortgage
Conveyance – The transfer of title from one party to another
Counteroffer – Change of terms or conditions made to an original offer
Covenant – A stipulation that the owner of a property will abide by certain rules and regulations
Credit Rating – A measure of a person’s credit worthiness
D
Deed – The document that transfers ownership of a property from a seller to a buyer
Default – Failure to make mortgage or tax payments when due
Delinquency – Past-due mortgage payments
Deposit – (also called Earnest Money) – Money paid from a Buyer that shows they intend to purchase a property, showing good faith
Depreciation -The decline in real estate value
Discount Points – An upfront fee on a mortgage that lowers the interest rate of the loan. Each discount point is equal to 1% of the loan amount borrowed
Down Payment – The portion of the purchase price that you pay for yourself out-of-pocket
Dual Agent – An agent who represents both the seller and the buyer in a real estate transaction
Due Diligence – Doing your homework to make sure all information regarding a real estate transaction is accurate
E
Earnest Money (also called Deposit) – Money paid from a Buyer that shows they intend to purchase a property, showing good faith
Easement – A property right giving persons other than the owner the right of way, access, and limited use of the land (utility easements are the most common)
Eminent Domain – The right of local or state government to purchase private property for public use
Equal Credit Opportunity Act – A law making it unlawful for a creditor to discriminate against a borrower based on race, color, religion, national origin, sex, marital status, or age
Equity – The difference between a home’s fair market value and the money owed on it
Escrow – When an impartial third party holds and regulates the payment of a Buyer’s funds
Extension – A written agreement that increases the length of time specified in a contract
F
Fair Credit Reporting Act –Legislation that protects consumers from inaccurate information on their credit report
Fair Market Value – The price a knowledgeable, willing buyer would pay for a home in an open market
Fannie Mae – (FNMA) – Federal National Mortgage Association. A government agency that is a major mortgage investor
FHA – A government agency that’s main activity is the insuring of residential mortgage loans made by banks and private lenders
FHA 203k – A renovation and repair loan through the FHA
Fiduciary – A relationship which implies a position of trust
First Mortgage – The primary loan on the property
First Right Of Refusal – A legal right giving an individual the first opportunity to purchase a property
Fixed Rate Mortgage – A mortgage where the interest rate remains the same over the life of the loan
Flood Insurance – Special insurance issued by the Federal Government in case of flooding
Foreclosure – The legal process when a buyer does not make payments on a property, so the property is sold at auction
Federal National Mortgage Association ( FNMA – also known as Fannie Mae) A federal agency that purchases mortgage loans from lenders as an investor
Federal Home Loan Mortgage Corporation ( FHLMC – also known as Freddie Mac) A publicly held corporation that buys mortgages
G
Grantee – The Buyer in a real estate transaction
Grantor – The seller in a real estate transaction
H
Hazard Insurance –Also known as Homeowner’s Insurance – An insurance policy to cover a property against loss
Home Inspection – An inspection made by a third party that shows the condition of a home
Homeowners’ Association – An association (with annual dues) that enforces the rules of a community
Homeowners Insurance – Also known as Hazard Insurance – An insurance policy to cover a property against loss
Homeowners Warranty – An insurance policy covering specific future repairs
HUD -The U.S. Department of Housing and Urban Development. Responsible for enforcing the federal Fair Housing Act
I
Interest – Charges to borrow money
Investment Property – A property that is not a primary residence, but instead an income producing property
J
Joint Tenancy – when 2 or more parties own a property. If one dies, the property goes to the survivors
Jumbo or Non-conforming loan – A loan that exceeds Fannie Mae’s legal legislated mortgage amount
L
Landlord – The owner of a rented property
Lead Based Paint – Paint that was used in construction prior to 1978 that can be harmful
Lease – A contract between a landlord and a tenant
Legal Description – A written description used to identify the property
Lessee – The renter
Lessor – The landlord
Lien – A monetary claim against a property that must be paid off when a property is sold
Listing Agent – A real estate agent that represents the seller
Listing Agreement – A contract between a property owner and an agent authorizing the agent to sell the property
Loan Commitment – A lender’s written approval for a loan, detailing the loan amount and conditions of the loan
Loan to Value – A ratio of the loan amount to the value of the home.
Lock In – An agreement in which the lender guarantees a specified interest rate for a specified amount of time
M
Maturity Date – The date on which the last payment on a mortgage becomes due
MLS – “Multiple Listing Service.” A marketing database set up by cooperating real estate agents to advertise homes listed for sale
Mortgage – An interest in land as security for a loan
Mortgage Banker – A lender that originates mortgage loans through mortgage brokers for sale to investors such as Fannie Mae, Freddie Mac, or Ginnie Mae.
Mortgage Broker – A company that buys mortgages from mortgage bankers to sell to investors such as Fannie Mae and Freddie Mac.
Mortgage Insurance – Insurance paid by the borrower to insure the lender against default in case of non payment of a mortgage loan, usually required if the buyer puts down less than 20%
Mortgage Insurance Premium ( MIP) – Monthly insurance paid by the borrower to offset any potential loss
Mortgage Interest Rate – The rate lenders charge for mortgage loans
Mortgagee – The lender
Mortgagor – The Buyer
N
Non Conforming Loans – Loan amounts that exceeds FNMA’s maximum lending
Note – The buyers promise to pay
Notice of Default – A formal written notice to a borrower that a default has occurred
O
Offer – A written promise, by a Buyer, to purchase a property with specific conditions and terms
Option – The right to purchase a property within a pre-determined time at a specific price.
Origination Fee – The fee charged by lenders to originate a loan, typically one percent of the loan amount.
Owner Financing – When a seller provides financing to the buyer instead of a financial institution
P
Payment – The monthly amount due on a mortgage
PITI – Principal, interest, taxes and insurance
Points – Charges paid to lower the interest rate on a loan. One point is one percent of the loan amount
Prepaid – Items paid in advance of closing, such as real estate taxes, HOA fees and
homeowner’s insurance
Prepayment Penalty – A fee charged when a borrower pays a mortgage off early (many mortgages do not have a prepayment penalty)
Prequalification – When a lender advises that a buyer qualifies for a particular loan based on financial information provided
Principal – The outstanding loan balance not including interest
Private Mortgage Insurance (PMI) – Insurance that protects the lender if a borrower stops making payments on a mortgage
Property Tax – Taxes payable to the county where the property is located
Purchase and Sale Agreement – The contract between the buyer and seller stating terms, conditions, sales price and other pertinent information about the property being purchased
Q
Qualify – When a Buyer meets the guidelines required to get a mortgage, based on debt, income, and credit worthiness
Qualifying Ratios – The ratio of a borrower’s income to their monthly housing expense, or their income to monthly housing expense plus other debt
Quit Claim Deed – A legal document that states that a person is giving up their interest in a property
R
Radon – A naturally occurring gas
Rate Lock – An agreement between a Buyer and Lender that guarantees the interest rate will not change from the time the agreement is made and the closing date (as long as the Buyer closes before the agreed upon time frame and under the agreed upon conditions)
Real Estate Agent – A person licensed to help Buyers and Sellers in real estate transactions
Real Estate Owned – (REO) – Real estate that is owned by a bank or financial group
Real Estate Settlement Procedures Act –(RESPA) – A federal law which requires lenders to disclose pertinent loan information, including charges, to borrowers in a timely manner
Realtor – A real estate professional that is a member of the National Association of Realtors and must abide by it’s code of ethics
Refinancing – Obtaining a different loan on a property, usually to get better terms
Rent with option to buy – (or lease purchase option) – A financing option that allows buyers to lease a home with an option to purchase at the end of the lease
Reserves – Money that lenders set aside in separate non-interest bearing accounts to pay taxes, homeowners’ association dues and insurance premiums.
Restrictions – A stipulation that the owner of a property will abide by certain rules
Return On Investment (ROI) – The ratio between the net profit and the cost of investment
Right of first refusal – The right of someone to have the first opportunity to buy a property
S
Second Home – Real estate that is not a primary residence
Second Mortgage – A loan that lets you borrow against the equity you have in your home
Settlement – The real estate closing, where the property is transferred from the Seller to the Buyer
Settlement Statement – The form showing all fees, charges and monetary transfers in a real estate transaction
Special assessment – A tax against real property for improvements
Survey – The measurement of a parcel of real estate by a licensed surveyor, showing specific details about the measurement, shape, size and location of the property
Sweat Equity – The equity earned as a result of the owners’ labor in improving the property
T
Tax Deed – A deed that is used to convey title when real estate is purchased from the county, at an auction, to pay off back taxes
Tax Lien – A lien against a property for unpaid taxes.
Ten Thirty One Exchange – (1031 Exchange) – A transaction that allows an investor to sell a property and reinvest the proceeds in a new property to defer capital gain taxes
Tenancy by the Entirety – A type of ownership where a married couple share equal interest in a property, with the right of survivorship when one spouse dies
Tenancy in Common – A type of ownership in which two or more people have an undivided interest in property, without the right of survivorship
Term – The length of time it will take to pay the mortgage in full
Time is of the Essence – The statement in a contract which emphasizes that prompt performance is required by all parties
Title Company – A company that insures the title of a property against liens, ownership claims, and title problems in a real estate transaction
Title Insurance – An indemnity insurance that protects the holder from financial loss sustained from defects in a title to a property
Title Search – A review done by a title company to determine if the title of a property is clear of all liens and claims
Transaction Broker – A real estate professional that helps both the buyer and the seller in a real estate transaction
Transfer Tax – A tax that is collected at closing for the transfer of ownership of real property
Truth in Lending Act – A federal law that ensures consumers are treated fairly by lenders and are informed about the true cost of credit
U
Underwriters – A professional that makes the final decision on whether a loan is approved, approved with conditions, or denied
Underwriting – The final approval or rejection of a loan by a lender
V
VA Funding Fee – An upfront, one-time fee on VA loans, usually between 0-3.3%
VA Mortgage – A 0% down payment mortgage available for military veterans and active military personnel
W
Warranty – A binding promise that certain statements are true
Warranty Deed – A deed warranting that the Seller has clear title and has the right to sell the property
Z
Zoning – Local requirements for the use of real estate in a particular area