GLOSSARY OF REAL ESTATE TERMS
Add-On Rate
A type of loan repayment schedule that breaks the principal into equal installments. The interest payment is added on to the principal. Total monthly payments are high in the beginning but, over time, the interest payment is reduced as the principal balance is reduced.
Adjustable Rate Mortgage (ARM)
Interest rates on this type of mortgage are periodically adjusted up or down, depending on a specified financial index.
Agent
Acts on behalf of another, representing that person's interests and serving as an intermediary.
Amortization
A method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, principal repayment is very small and interest repayment very high; at the end of the loan, that relationship is reversed.
Annual Percentage Rate (APR)
The actual finance charge for a loan, including points and loan fees, in addition to the stated interest rate.
Appraisal
An expert opinion of the value or worth of a property.
Assumption of Mortgage
Buyer assumes liability for an existing mortgage note held by the seller. This is usually subject to approval by the lender, who must be willing to approve the buyer and release the seller.
Assessed Value
The value placed on property by a municipality for purposes of levying taxes. It may differ widely from appraised or market value.
Balloon Payment
A large principal payment due all at once at the end of some loan terms.
Binder
Small, but serious, amount of money ($100 to $1,000) accompanying an offer to buy, along with a brief written agreement to go to contract for the sale of property.
Broker
A real estate professional who has a higher level of training than an agent. Generally, this is one who is the legal representative or proprietor of the office.
Cap
Limit on how much the interest rate can change in an ARM.
Certificate of Title
Document, signed by a title examiner, stating that a seller has an insurable title to the property.
Closing
"Closing the deal," the meeting where the deed to property is legally transferred from seller to buyer.
Commission
Fee (usually a percentage of total transaction) paid to an agent or broker for services performed.
Comparative Market Analysis (CMA)
A survey of attributes and selling prices of comparable houses on the market or recently sold; used to help determine correct pricing strategy for a seller's property.
Condominium (Condo)
Type of real estate ownership where the owner has title to a specific unit and shared interest in common areas.
Contingency
A condition in a contract that must be met for the contract to be binding.
Contract
Binding legal agreement between two or more parties that outlines the conditions for the exchange of value (for example: money exchanged for title to property).
Conversion Clause
A provision that allows converting an ARM to a fixed-rate loan after a specified interval.
Cooperative (Co-op)
Type of real estate ownership where all shareholders own the whole property, but each has proprietary occupancy rights for specific units.
Deed
Legal document that formally conveys ownership of property from seller to buyer.
Down Payment
Percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender.
Earnest Money
In some locations, the same as "Binder." In others, it's a large deposit paid when the sale contract is signed before the closing.
Equity
The value of the property actually owned by the homeowner : purchase price, plus appreciation, plus improvements, less mortgage and liens.
Escrow
A fund or account held by a third-party custodian until conditions of a contract are met.
Federal National Mortgage Association (FNMA, Fannie Mae)
Privately owned corporation created by Congress that buys mortgage notes from local lenders and is responsible for the guidelines a majority of lenders use to qualify borrowers.
Finance Charge
The total cost, including all fees, points and interest payments a borrower pays to obtain credit.
Fixed Rate Mortgage
Interest rates on this type of mortgage remain the same over the life of the loan term.
Fixture
A recognizable entity (such as kitchen cabinet, or light unit) that is permanently attached to the property and belongs to the property when it is sold.
Graduated Payment Mortgage
Monthly payments start low and increase at a predetermined rate.
Hazard Insurance
Compensates for property damage from specified hazards such as fire and wind. More complete coverage is given by all-risk homeowner's insurance.
Home Inspection Report
Prepared by a qualified inspector, it evaluates a property's structure and mechanical systems
Interest
The cost of borrowing money, usually expressed as a percentage over time
Lien
A security claim on property until a debt is satisfied.
Listing Contract
Agreement whereby an owner engages a real estate company for a specified period to sell property, for which upon sale the agent receives a commission.
Market Value
The price that is established by present economic conditions, location, and general trends.
Market Price
The actual price at which a property sold.
Mortgage
Security claim by a lender against property until the debt is paid.
Multiple Listing Service (MLS)
A system that provides to its members detailed information about properties for sale.
Negative Amortization
When monthly payments aren't enough to cover interest costs, they are added to the principal balance, and you may end up owning more than when you started. This is most likely to occur with ARMs that have payment caps.
Origination Fee
Application fee(s) for processing a proposed mortgage loan.
PITI
Principal, interest, taxes, and insurance, forming the basis for monthly mortgage payments.
Point
One percent of the loan principal. It's charged in addition to interest and fees.
Prepayment PenaltyA fee paid by a borrower who pays off the loan before it is due.
Prequalification
Informal estimate of how much financing a potential borrower might expect to obtain. Done before paying substantial loan application fees.
Principal
One of the parties to a contract; or the amount of money borrowed, for which interest is charged.
Prorate
Divide or assess proportionately.
Realtor®
A member of the National Association of Realtors®.
RESPA Statement (Real Estate Settlement Procedures Act)
A precise breakdown of closing costs for both sellers and buyers.
Settlement
All financial transactions required to make the contract final
Title
A document that indicates ownership of a specific property
Title Insurance
Protects against loss from legal defects in the title.
Title Search
Detailed examination of the entire document history of a property title to make sure there are no legal encumbrances.
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