Glossary of Real Estate Terms

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 license person who represents the buyer or seller and who provides market assessment, buying or sales strategy, recommends various services and sources important to the buyer or seller.

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, current condition, and style of architecture.

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.

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. Purchaser's expenses usually include: cost of tile examination, premiums for title policies, survey, attorney's fees, lender service fees, and recording charges.

Commission

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

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.

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.

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 Payment

That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, leas payments, and other items as they become due, known as impounds in some states.

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 mortgages 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.

Loan to Value Ratio

The ratio of the mortgage loan principal (amount borrowed) to the property's appraised value (selling price). On a $100,000 home, with a mortgage loan principal of $80,000, the loan to value ratio is 80%.

Market Price

The actual price at which a property is sold.

Mortgage

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

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.

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.

Origination Fee

A fee or charge for work involved in the evaluation, preparation, and submission of a proposed mortgage loan. Typically it is equal to 1% of the loan amount.

PITI

Principal, interest, taxes and insurance. Formula used in calculations of amount the purchaser is qualified to borrow.

Point

One percent of the loan amount often charged by the lender in addition to various fees and interest.

Prepayment Penalty

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

Prequalification

An informal estimate of the "financing potential" of a prospective borrower.

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.

Private Mortgage Insurance

Insurance premium paid by the borrower on loans that have less than a 20% down payment. On an FHA loan this is referred to as Mortgage Insurance Premium and may be able to be financed through an FHA loan.

Qualify

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

Second Mortgage

Second Trust. An additional loan imposed on property with a first mortgage. Generally at a higher interest rate and shorter term than a "first" mortgage.

Settlement

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

Straight Loan

A loan with periodic payments of interest only; the principal sum due in one lump sum upon maturity.

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 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 Buidling Inspector's department or office, or The Planning and Zoning Board.

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