Real Estate Glossary

Glossary of Housing Terms

A

Amenity:     a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, Woods, water) or man-made (like a swimming pool or garden).

Amortization: repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)

Annual Percentage Rate (APR): calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Application: the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal: a document that gives an estimate of a property^’s fair market value; 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.

Appraiser: a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly payment amount, however, is usually subject to a Cap.

Assessor: a government official who is responsible for determining the value of a property for the purpose of taxation.

Assumable mortgage: a mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

B

Balloon Mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.

Bankruptcy: a federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Borrower: a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Building code: based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Budget: a detailed record of all income earned and spent during a specific period of time.

C

Cap: a limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Cash reserves: a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

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: also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing costs: customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.

Commission: an amount, usually a percentage of the property sales price, that is collected by a real estate professional as a fee for negotiating the transaction.

Condominium: a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.

Conventional loan: a private sector loan, one that is not guaranteed or insured by the U.S. government.

Cooperative (Co-op): residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.

Credit history: history of an individual’s debt payment; lenders use this information to gauge a potential borrower’s ability to repay a loan.

Credit report: a record that lists all past and present debts and the timeliness of their repayment; it documents an individual’s credit history.

Credit bureau score: a number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.

D

Debt-to-income ratio: a comparison of gross income to housing and non-housing expenses; With the IHA, the-monthly mortgage payment should be less than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 40% of income.

Deed: the document that transfers ownership of a property.

Deed-in-lieu: to avoid foreclosure (“in lieu” of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn’t allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

Default: the inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Delinquency: failure of a borrower to make timely mortgage payments under a loan agreement.

Discount point: normally paid at closing and generally calculated to be equivalent to l~/o of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Down payment: the portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan.

E

Earnest money: money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.

LEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase

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 account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

F

Fair Housing Act: a law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair market value: the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

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.

FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Flood insurance: insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

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.

G

Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Good faith estimate: (GFE) an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

H

Home inspection: an examination of the structure and mechanical systems to determine a home’s safety; makes the potential homebuyer aware of any repairs that may be needed.

Home warranty: offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner’s insurance; ,overage extends over a specific time period and does not cover the home’s structure.

Homeowner’s insurance: an insurance policy that combines protection against damage to a dwelling and Is contents with protection against claims of negligence )r inappropriate action that result in someone’s injury or )property damage.

HUD: the U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HUD1 Statement: also known as the “settlement sheet,” it itemizes all closing costs; must be given to the borrower at or before closing.

I

Index: a measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.

Inflation: the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar’s value.

Interest: a fee charged for the use of money.

Interest rate: the amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Insurance: protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Judgment:   a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor’s claim by providing a collateral source.

L

Lease purchase: assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lien: a legal claim against property that must be satisfied when the property is sold.

Loan: money borrowed that is usually repaid with interest.

Loan fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan-to-value (LTV) ratio: a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LW, the less cash a borrower is required to pay as down payment.

Lock-in: since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Loss mitigation: a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan

M

Margin: an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Mortgage: a lien on the property that securesthe Promise to repay a loan.

Mortgage banker: a company that originates loans and resells them to

secondary mortgage lenders like :Fannie Mae or Freddie Mac.

Mortgage broker: a firm that originates and processes loans for a number of lenders.

Mortgage insurance: a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20°/n of the home’s purchase price.

Mortgage insurance premium (MIP): a monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.

Mortgage Modification: a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

O

Offer:   indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Origination: the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination fee: the charge for originating a loan; is usually calculated in the form of points and paid at closing.

P

Partial Claim: a loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.

PITI:   Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner’s and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

PMI:    Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Pre-approve: lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-foreclosure sale: allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-qualify: a lender informally determines the maximum amount an individual is eligible to borrow.

Premium:      an amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment: payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.

Principal:     the amount borrowed from a lender; doesn’t include interest or additional fees.

R

Radon: a radioactive gas found in some homes that,if occurring in strong enough concentrations, can cause health problems.

Real estate agent: an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

REALTOR: a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.

Refinancing:    paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

Rehabilitation mortgage: a mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages - like the FHA’s 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships

S

Settlement: another name for closing

Short Sale: a real estate process of negotiation with the lender to reduce the loan amount on the property, therefore expediting the sale of a pre-foreclosed property.

Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Subordinate: to place in a rank of lesser importance or to make one claim secondary to another.

Survey: a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat equity: using labor to build or improve a property as part of the down payment

T

Title 1: an FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don’t require a property lien.

Title insurance: insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.

Title search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

U

Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower’s credit history and a judgment of the property value.

V

VA:      Department of Veterans Affairs: a federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

Definitions courtesy of the Department of Housing and Urban Development

Agent
An authorized person who manages or transacts business for another. Laws governing real estate--especially relating to agents--vary considerably from state to state. While some standardization has been achieved, it is best to check the particulars in each state.

Buyer Agent
An agent who represents the buyer in a real estate transaction. A buyer agent may be paid by the buyer, seller, or listing agent at closing, provided all parties consent.

Dual Agent
An agent representing both parties in a transaction. In almost every state, dual agency is illegal and unethical without the written consent of both the buyer and the seller.

Listing Agent
The agent who represents the seller.

Selling Agent
The agent who obtains a buyer. A selling agent may represent the buyer, or may be a subagent of the seller.

Subagent
A salesperson who works for an agent.

Amenities
Features that enhance the value or desirability of a property. 

Amortize
To pay a debt in periodic amounts until the total amount, including any interest, is paid.

Appraisal
A qualified party's opinion of the value of a property. This may include examples of sales of similar properties.

Appreciation
An increase in value

Arbitration
A process where disputes are mortgage to cover processing costs. settled by referring them to a fair and neutral third party (arbitrator). The disputing parties agree in advance to agree with the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator makes a decision.

ARM (Adjustable Rate Mortgage)
A financing technique in which the lender can raise or lower the mortgage interest rate according to a set index, such as six-month Treasury bills. 

Assessment / Assesed Value
An official valuation of property for tax purposes. Payments made by condominium or cooperative owners for their share of building maintenance expenses.

Balloon Payment/Mortgage
A mortgage with monthly payments often based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a specific period of time (usually 5 or 7 years). The mort-gage may contain an option to “reset” the interest rate to the current market rate and to extend the due date if certain conditions are met.

Bankruptcy
Legally declared unable to pay your debts. Bankruptcy can severely impact your credit and your ability to borrow money.

Broker
An independent business person who sets real estate office policies, hires employees, determines their compensation, and supervises their activities.

CLO (Computerized Loan Origination)
A computer network of major lenders that allows agents to initiate mortgage applications in their office. HUD has approved the procedure as long as 1) full disclosure is made of the fee; 2) multiple lenders are displayed on the computer screen to give borrowers a basis for comparison; 3) the fee charged is a dollar amount rather than a percentage of the loan.

Closing
The point at which real estate formally changes ownership. Closing costs are fees paid for services associated with a home's closing such as title insurance, surveying fees, recording fees, deeds, and affidavits.

CMA (Competitive Market Analysis)
A method of determining the value of a property by comparing the prices paid for similar properties.Code of Ethics A written standard of ethical conduct embraced by the NATIONAL ASSOCIATION OF REALTORS®, a trade organization of more than 700,000 members representing all branches of the real estate industry.

Commission
Compensation paid to a real estate agent (usually by the seller) for services rendered in connection with the sale, exchange, or lease of property.

Condominium (Condo)
Individual ownership of a portion of a building, with common areas shared by all owners. Maintenance fees called "assessments" are paid to the condominium association to maintain, repair, or improve the property.

Conventional Loan
A fixed-rate, fixed term loan that is not insured by the government.

Co-operative (Co-op)
An arrangement in which a corporation made up of residents owns a building. The buyer owns a proprietary lease, rather than real property, and a corresponding number of shares in the corporation.

Counter Offer
A new offer as to price, terms, and conditions, made in response to a prior, unacceptable offer. A counter offer terminates an original offer.

CRS (Certified Residential Specialist)
A professional designation awarded to experienced agents who complete an advanced course of study in residential real estate and demonstrate proficiency in sales and production. CRS Designees are members of the Residential Sales Council, a not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS^®. 

Deed
A legal document transferring ownership of a property from one party to another.

Deed in Lieu of Foreclosure
The voluntary surrender of property by an owner or borrower to a lien holder (such as a bank) that eliminates the need to continue foreclosure action by the lien holder. The lien holder can refuse to accept the Deed in Lieu and file a Notice of Non Acceptance with the County Recorder.

Disclosure
Revealing what previously was private knowledge. Any statement of fact that is required by law.

Down Payment
A percentage of the purchase price the buyer pays in cash.

Earnest Money
A buyer's partial payment to the seller as a show of good faith in completing the transaction.

Equity
The difference between the current market value of a property and the claims--such as the unpaid portion of a mortgage--that exist against it.

Escrow
The closing of a real estate transaction through a neutral third party who holds funds and/or documents for delivery after specific conditions have been met.

Exclusive Listing
A written agreement in which the seller appoints only one agent to market the property for a specific period of time. If the owner sells the property himself, he is not required to pay a commission.

Exclusive Right of Sale Listing
A written agreement between an agent and a property owner stating that the owner will pay a commission to the agent if the property is sold during a specific time period--whether or not the agent is responsible for the sale.

Fannie Mae (Federal National Mortgage Association)
Fannie Mae purchases home mortgages, thus serving as a source of funds for mortgage lenders. It is a privately owned corporation whose shares are traded on the New York Stock Exchange, but it is subject to the strict supervision of the secretary of the U.S. Department of Housing and Urban Development (HUD).Federal Fair Housing Law Refers to Title VIII of the Civil Rights Act, and stipulates that discrimination based on race, color, sex, familial status, handicap, religion, or national origin is illegal in connection with the sale or rental of most dwellings. 

FHA (Federal Housing Administration)
A federal agency established to improve housing standards and conditions. The FHA provides mortgage insurance to approved lending institutions.

Forbearance Agreement
An agreement between a mortgage holder and a borrower that specified a loan payment plan and halts the foreclosure action if borrower meets requirements and terms of the agreement. The payment plan generally includes provisions for repayment to the mortgage holder of all delinquent interest and fees and could include extending the life of the mortgage beyond it's original term.

Foreclosure
The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower's loan.

Freddie Mac (Federal Home Loan Mortgage Corporation)
A federally chartered corporation established to purchase mortgages in the secondary, or resale, market. Freddie Mac's policies are designed to serve the needs of savings and loan associations. It is subject to oversight by the U.S. Department of Housing and Urban Development (HUD).

Guaranty
A pledge made by one person (the guarantor) to ensure that another person (the obligor) will fulfill an obligation to a third party (the obligee).

HUD (U.S. Department of Housing and Urban Development
A federal department active in a variety of national housing programs including urban renewal and public housing.

Improvements
Additions intended to increase the value of a property.

Inspection
An examination of a property by the buyer, agent, title insurance company, or other interested party.

Lien
A charge or claim by one party on the property of another as security for the payment of a debt.

Listing
A written agreement between a property owner and a real estate broker authorizing the broker to find a buyer.

Loss Mitigation
Banks and lenders look to limit losses on delinquent mortgages by working out solutions with borrowers through a Loss Mitigation Department, generally operated by the bank or lender to deal specifically with delinquent accounts.

Market Value
The price a property will command on the open market.

MLS (Multiple Listing Service)
A means by which agents are informed of the properties offered for sale by other agents.

Mortgage
A legal document pledging property as security for the payment of a loan.

Mortgage Insurance
An insurance plan that protects the lender if the borrower does not repay a loan. Mortgage insurance is required when a home buyer makes less than a 20% down payment at the time of purchase. Private mortgage insurance (PMI) covers conventional (fixed-year, fixed-rate) loans. The Federal Housing Administration charges a mortgage insurance premium (MIP) on FHA loans.

NATIONAL ASSOCIATION OF REALTORS ^®
A trade organization serving over 700,000 members from all branches of the real estate industry. Members subscribe to a strict Code of Ethics which governs their conduct.

NOD
Abbreviation for Notice Of Default.

Notice of Default
An official notice filed and recorded by a designated trustee at the request of a lender indicating lender has commenced foreclosure action.

Offer
A proposal to purchase property at a specified price and terms.

Open House
The common real estate practice of showing "For Sale" homes to the public during established hours.

Origination Fee
A lender's charge for establishing and processing a new mortgage loan. It is generally computed as a percentage of the loan and may be tax deductible.

Owner of Record
The person named in the public record as the owner of a property or mortgage.

Points
A one-time charge paid to the lender for issuing a loan. Each point equals one percent of the loan amount and is used to obtain revenue in addition to the interest rate.

Principal
The amount of money upon which interest is paid.

Qualified Buyer
A buyer who has demonstrated the financial ability to afford the asking price of a home. Prequalifying with a lender can expedite the home buying transaction.

REALTOR^®
A registered trade name that may only be used by members of the NATIONAL ASSOCIATION OF REALTORS®, an organization with over 700,000 members who represent all branches of the real estate industry. REALTORS® subscribe to a strict Code of Ethics which governs their conduct.

Refinance
Obtaining a new loan to pay off an existing loan. Refinancing is a popular practice when interest rates drop.

Residential Sales Council
A not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS^®. The Council awards the Certified Residential Specialist (CRS) Designation, to experienced members who have completed an advanced course of study in residential real estate.

Serious delinquency
A single-family mortgage that is 90 days or more past due, or a multifamily mortgage that is two months or more past due.

Short Refinance
Short refinance is the replacement of a mortgage, usually with a reduced mortgage, when the borrower is already in default. This is done to transition the borrower to a more affordable payment structure. The lender has to write off the difference between the old mortgage and the new mortgage, but in some cases this may be preferable to foreclosure.

Short Sale
To sell a home through negotiation with the bank or lender, who agrees to accept less than the full amount owed to satisfy the debt allowing the debt to be ‘paid off’, short. Short sales are subject to bank approval and are often used as options in lieu of foreclosure.

Title
Lawful ownership of property.

Title Insurance
An insurance policy that protects against losses arising from title defects such as forged or misfiled documents

Title Search
An examination of the public records to determine whether the current title is clear or defective.

Town House
Also known as a row house, generally refers to a type of dwelling having two floors, with the living area and kitchen on the first floor, and the bedrooms on the second. Town houses share a common wall between units.

VA (Veterans Administration)
A federal agency designed to
 help veterans enter the housing market.

VA Loan
A loan guaranteed by the U.S. Department of Veterans Affairs (VA). VA loans are made to honorably discharged veterans or their unremarried widows or widowers. Such loans require a minimal or no down payment and offer lower interest rates.

Walk-Through
A final inspection of a property before it changes ownership.