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Glossary of Real Estate Terms

A B C D E F G H I L M N O P R S T

Add-On Rate - A type of loan repayment schedule that breaks the principal into equal installments. The interest payment is added onto the principal. Total monthly payments are high in the beginning, but over time, the interest payment is reduced as the principal payment 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 interest and serving as an intermediary.

Agreement of Sale - See "Contract."

Amortization - A method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of the principal to interest changes over time. In the early part of the loan, principal repayment is very small and interest repayment is very high; at the end of the loan, that relationship is reversed. Compare to "Add-on Rate."

Annual Percentage Rate - The actual finance charge for a loan, including points and loan fees in addition to the stated interest rate.

Appraisal - An expert judgement of the value or worth of a property.

ARM - See "Adjustable Rate Mortgage."

Assumption of Mortgage - Buyer assumes liability for an existing mortgage note held by the seller. This is 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-$1000) 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, the legal representative or proprietor of the office.

Cap - Limit on how much the interest rate can change in an ARM.

Certificate of Title - A 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.

Closing Costs - See "Settlement."

CMA - See "Comparative Market Analysis."

Commission - Fee (usually a percentage of the total transaction) paid to an agent or broker for services performed.

Comparative Market Analysis - 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) - A 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 delineates the conditions for the exchange of value (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) - A type of real estate ownership where all shareholders own the whole property, but each has proprietary occupancy rights for specific units.

Deed - A legal document that formally conveys ownership of property from seller to buyer.

Downpayment - Percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender.

Earnest Money - In some locations, this is the same as a "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 mortgages and liens.

Escrow - A fund or account held by a third-party custodian until conditions of a contract are met.

Fannie Mae - See below.

Federal National Mortgage Association (FNMA, called "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. Compare to "Adjustable Rate Mortgage."

Fixture - A recognizable entity (such as a toilet bowl, kitchen cabinet or light unit) that is permanently attached to property and belongs to the property when it is sold.

Graduated Payment Mortgage - Monthly payments start low and increase at a predetermined rate. Compare to "ARM."

Hazard Insurance - Compensates for property damage from specific 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.

Homeowner's Insurance - Lenders require home buyers to purchase homeowner's insurance. This protects you against fire, and in some areas, floods as well. Most policies also protect the homeowner against theft and liability (responsibility), should someone be injured on the property.

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 a owner engages a real estate agent for a specified period to sell property, for which 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 is sold.

MLS - See "Multiple Listing Service."

Mortgage - Security claim by a lender against property until the debt is paid.

Multiple Listing Service - 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 owing 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 - Making early or extra payments toward the loan principal.

Prepayment Penalty - A 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.

Private Mortgage Insurance - Insurance the buyer carries to guarantee that the lender is paid off if the buyer defaults (fails to pay) on a mortgage. This is different from homeowner's insurance. It is generally required for all mortgages with less than a 20% downpayment.

Prorate - Divide or assess proportionately.

Purchase Agreement - See "Contract."

RealtorŪ - A member of the National Association of RealtorsŪ.

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 - A detailed examination of the entire document history of a property title to make sure there are no legal encumbrances that effect the seller's right to sell.