Real Estate Glossary
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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
(such as location, woods, water) or man-made (such as 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.
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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.
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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.
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Debt-to-Income ratio
A comparison of gross income to housing and non-housing
expenses. With the FHA, the-monthly mortgage payment should be
no more than 29% of monthly gross income (before taxes) and the
mortgage payment combined with non-housing debts should not
exceed 41% 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 1% 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.
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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.
EEM
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 loan(s)from
the fair market value of the property.
Escrow account
A trust account created by a third party to hold money. A
mortgage escrow account is an account set-up to pay taxes and
insurance. Monthly mortgage payments may include 1/12 of annual
property taxes and insurance. When the bills comes due, lenders
use the money in the escrow account to pay them.
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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.
Federal Housing Administration (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.
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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
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.
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HELP
Homebuyer Education Learning Program; an educational program
from the FHA that counsels people about the home buying process;
HELP covers topics such as budgeting, finding a home, getting a
loan, and home maintenance; in most cases, completion of the
program may entitle the homebuyer to a reduced initial FHA
mortgage insurance premium-from 2.25% to 1.75% of the home
purchase price.
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 it's contents with protection against claims of
negligence or inappropriate action that results in someone's
injury or property damage.
Housing counseling agency
provides counseling and assistance to individuals on a variety
of issues, including loan default, fair housing, and home
buying.
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.
HVAC
Heating, Ventilation and Air Conditioning; a home's heating and
cooling system.
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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.
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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.
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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 LTV, 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
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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 secures the promise to repay a loan.
Mortgage banker
A company that originates loans and resells them to secondary
mortgage lenders such as 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% 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.
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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.
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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.
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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 (such as a lower
interest rate).
Rehabilitation mortgage
a mortgage that covers the costs of rehabilitating (repairing or
improving) a property; some rehabilitation mortgages such as 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
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Settlement
Another name for closing
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.
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Title 1
an FHA-insured loan that allows a borrower to make non-luxury
improvements (such as 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.
Truth-in-Lending
A federal law obligating a lender to give fuII written
disclosure of aII fees, terms, and conditions associated with
the loan initial period and then adjusts to another rate that
lasts for the term of the loan.
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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.
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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.
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