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real estate terms

  • Glossary


    Adjustable rate mortgage (ARM) -- A mortgage on which the interest rate moves up or down periodically in accordance with changes in a specified financial index.
    Annual Percentage Rate (APR) -- The "true" cost of money borrowed, reflecting the stated interest rate plus points and fees charged for the loan. Lenders are required to disclose the APR as well as the stated interest rate.
    Application Fee -- The amount, usually non refundable, that a lender charges for processing a borrower's application for a loan.
    Appraisal -- An estimate of the market value of the property, usually based upon the sale prices of other properties in the same neighborhood. Lenders will base the size of the mortgage they are willing to approve in part on the appraised value as determined by a professional appraiser.
    Assessment -- The value of a property as established by local officials for purposes of calculating the property taxes owed. The assessed valued may be, but is not always, equal to the appraised value.
    Assumable Mortgage -- A loan issued to the owner of a property, which can be taken over by the new owner of the property, who then accepts the responsibility for making the payments. Fixed-rate mortgages typically are not assumable; VA, FHA, and adjustable-rate mortgages usually are.
    Binder -- Earnest money, or a deposit, given by the buyer to the seller or broker of a property, as a sign of the buyer's good-faith intent to complete the transaction.
    Buyer's Broker -- A licensed agent who represents only the buyer in a transaction, regardless of source of compensation. This differs from the typical arrangement, in which the broker acts as the agent of the seller and is paid commission by the seller from the proceeds of the sale.
    Capital Gains -- The taxable "profit" made on the sale of real estate, which must either be recognized (and paid) or deferred.
    Closing -- The legal occasion during which the deed to a property is transferred from the seller to the buyer.
    Closing Costs -- The final fees that must be paid to complete the property transfer. The borrower typically is responsible for paying these fees, but sometimes the seller contributes all or part of the cash required.
    Deed -- A legal instrument conveying title to real property.
    Deed Restrictions -- Any provisions in a deed restricting ownership or use of the property--for example, limitations on rights-of-way, or easements granted to other parties.
    Deferral of Gain -- A legal means of delaying the payment of taxes due on the profit realized from the sale of a primary residence, which takes effect when the replacement residence is purchased for at least as much as the selling price of the original property.
    Deposit -- A percentage of the purchase price, paid by the buyer when the Purchase and Sale agreement is
    signed and typically held in escrow until the transaction is completed.
    Easement -- The legal right to use another person's land for limited purposes, one example would be an easement to use a portion of a neighbor's driveway. Also, a utility easement would give a utility company the right to run wires or lay pipes across a property.
    Encumbrance -- A claim levied against a property, inhibiting the owner's ability to transfer the title. Liens and attachments are the most common forms of encumbrances.
    Equity -- The owners "stake" in a property -- equal to the down payment plus any principal repaid on the mortgage loan, plus any increase in value due to appreciation or improvements the owner has made, less the value of any outstanding mortgages, liens, or other encumbrances.

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    Escrow -- The placing of money (or documents) in the control of a custodian until the conditions of a contract are met. In a real estate transaction, the buyers deposit typically is held in escrow (in a segregated bank account, separate from the assets of the escrow agent) until the closing.
    Exclusion of Gain -- Under federal tax laws, the one-time right, available to homeowners age fifty-five or older, to eliminate their tax liability on a portion of the gain (up to $125,000) realized on the sale of a primary residence.
    Fair Market Value -- What a willing buyer will pay a willing seller for a property.
    Federal Housing Administration Mortgage (FHA) -- A loan insured by the Federal Housing Administration. The fact that down payments of less than 5 percent are acceptable makes FHA loans attractive but there are purchase price limitations.
    Fixed Rate Mortgage -- A loan on which the interest rate remains the same throughout the loan term.
    Good Faith Estimate -- An approximation of closing costs, which a lender is required to give to a prospective mortgage borrower within three days of the time an application for a loan is submitted.
    Graduated Payment Mortgage -- A mortgage loan on which the interest and principal payments start off below market level but increase yearly, possibly rising above the payments on a conventional mortgage.
    Hazard Insurance -- A homeowner's policy typically required by mortgage lenders, insuring the property against damage or loss.
    Home Inspection -- The professional scrutiny of a home to assess its overall condition and identify existing
    or potential structural and/or mechanical problems.
    HUD-1 Form -- Also known as the RESPA statement, detailing all the loan closing costs and itemizing all payments made by and due from both the buyer and the seller.
    Income-to-Debt Ratio -- A lender's calculation of the percentage of income represented by a borrower's housing payments plus all other revolving debt payments.
    Index -- The guide used by lenders to determine periodic adjustments in adjustable rate mortgages.

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    Joint Tenancy -- A form of ownership; in which two or more individuals have an equal interest in a property, which passes to the surviving owner or owners if one dies.
    Lien -- Any legal claim against a property, filed to ensure payment of a debt or discharge of an obligation.
    Listing Agreement -- A contract between a real-estate broker an a property owner, specifying the terms under which the broker is authorized to sell or lease the owner's property and the terms under which a commission is due the broker.
    Loan-to-Value Ratio -- The relationship between the mortgage on a property and its value. If the mortgage is $80,000 and the property is worth $100,000, the loan-to-value ratio is 80 percent.
    Mortgage -- A legal document in which the owner of a property pledges it as security to guarantee
    repayment of a loan.
    Multiple Listing Service (MLS) -- A system for disseminating, to participating members, information on properties for sale.
    No-Documentation Loan -- A program offered by some lenders, requiring less extensive verifications than
    a standard loan-approval process. Typically available only to borrowers able to make relatively large down
    payments.
    Odd Day's Interest -- The interest due on a loan from the closing date until the first day of the following month.
    Origination Fee -- A fee charged by the lender for processing a borrower's loan application. Typically calculated in "points", as a percentage of the loan, and due to be paid at the closing.
    PITI-- Lender's shorthand for the key components of the monthly mortgage payment: principal, interest,
    taxes, insurance.
    Points -- The fee mortgage lenders charge for processing a loan, usually due at the closing. Each point represents one percent of the mortgage amount. As a form of prepaid interest, points charged for loans on a primary residence generally are tax deductible.
    Pre-approval -- The process of obtaining preliminary approval for a mortgage before application is complete. May or may not constitute a formal commitment by the lender to make the loan.
    Pre-qualification -- An informal estimate of the maximum mortgage a borrower could obtain, based on a calculation of available income and existing debt.
    Private Mortgage Insurance -- An insurance policy that protects the lender should the borrower default on the mortgage. Usually required for borrowers whose down payment represents less than 20 percent of the purchase price.
    Purchase and Sale Agreement -- A legal document requiring the purchaser to buy and the owner to sell a property under the terms and conditions specified.
    Quit-claim Deed -- The seller relinquishes whatever interest he has in the property but makes no assurances about how good his claim to the property might be.

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    Real Estate Settlement Procedures Act (RESPA) -- A federal law that requires lenders to specify in detail all the costs involved in a real-estate closing.
    Realtor -- A licensed real estate agent who belongs tot he local or state affiliate of the the industry's professional trade association, the National Association of Realtors (NAR).
    Recording Fees -- In a real-estate transaction, the charges for filing the documents effecting the transfer of
    ownership and clearing the title.
    Refinancing -- The process of obtaining a new mortgage, typically at a lower rate, to repay and replace and existing loan.
    Second Mortgage -- An additional loan behind the first mortgage, also secured by a property. Usually written with a higher interest rate and for a shorter term than the first mortgage.
    Setback Requirements -- The local rules specifying the distances required between homes, between structures and rear lot lines, and between homes and streets.
    Special Warranty Deed -- In most jurisdictions, a limited warranty of title, in which the seller promises not to file any claim a and to defend the title against any claims filed by or through the seller or the seller's heirs.
    Survey -- A drawing that shows the legal boundaries of a property and the location of the house and other buildings on a lot.
    Tenancy by the Entirety -- A form of joint ownership available only to married couples, in which the ownership interest of a deceased spouse passes automatically to the surviving spouse. The arrangement normally cannot be severed during the marriage without the consent of both spouses.
    Tenancy in Common -- A form of joint ownership by which a deceased owner's interest in the property goes to his or her heirs rather than to the other owner or owners.
    Title -- The legal evidence of ownership, a document containing basic evidence by which ownership is based.
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    Title Flaw -- Any encumbrance on a title that interferes with the owner's ability to transfer ownership.
    Title Search -- A detailed examination of the ownership documents, undertaken to ensure that there are no
    liens or other encumbrances on the property and no questions about the seller's ownership claim.
    Truth in Lending Disclosure Statement -- A form required by federal law to be presented to the borrower, providing detailed information about the terms and costs of the loan
    VA (Veterans Administration) Loan -- Mortgages issued by lenders but guaranteed by the Veterans
    Administration and available only to eligible veterans and their spouses and dependents.
    Variance -- A limited exemption from local zoning requirements.
    Warranty -- A written or implied guarantee that property (including mechanical systems or appliances) is in the condition described and will perform as promised.
 
 

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