Real Estate Terms

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