Terminology

Some terms U should know.

To help you along, here’s a list of the 50 most important terms in real estate. And don’t worry if some of these sound confusing – our trained associates are here to answer any and all of your questions during this exciting time.


	1. Acceptance An offeree’s consent to enter into a contract and be bound by the terms of the offer. 2. Additional Principal Payment A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan. 3. Adjustable-Rate Mortgage (ARM) A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index. 4. Amortization The gradual repayment of a mortgage loan by installments. 5. Annual Percentage Rate (APR) The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points). 6. Appraisal A written analysis of the estimated value of a property prepared by a qualified appraiser. 7. Bridge Loan A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as a "swing loan." 8. Budget A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses. 9. Certificate of Title A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner. 10. Change Frequency The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM). 11. Closing A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement." 12. Closing Cost Item A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement. 13. Closing Costs Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or Realtors® often provide estimates of closing costs to prospective homebuyers. 14. Commission The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan. 15. Convertible ARM An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions. 16. Credit History A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner. 17. Credit Report A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. 18. Deed The legal document conveying title to a property. 19. Down Payment The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage. 20. Earnest Money Deposit A deposit made by the potential home buyer to show that he or she is serious about buying the house. 21. Easement A right of way giving persons other than the owner access to or over a property. 22. Equal Credit Opportunity Act (ECOA) A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. 23. Equity A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage. 24. Escrow An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. 25. Escrow Account The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses. 26. Fixed-Rate Mortgage (FRM) A mortgage in which the interest rate does not change during the entire term of the loan. 27. Fully Amortized ARM An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term. 28. Home Equity Line of Credit A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property. 29. Home Inspection A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. 30. Homeowner's Insurance An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents. 31. Initial Interest Rate The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser." 32. Interest Rate The rate of interest in effect for the monthly payment due. 33. Line of Credit An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit. 34. Mortgage A legal document that pledges a property to the lender as security for payment of a debt. 35. Mortgage Banker A company that originates mortgages exclusively for resale in the secondary mortgage market. 36. Mortgage Broker An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services. 37. Negative Amortization A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization. 38. Original Principal Balance The total amount of principal owed on a mortgage before any payments are made. 39. Origination Fee A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount. 40. Prepayment Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized. 41. Pre-Qualification The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan. 42. Prime Rate The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates. 43. Principal The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage. 44. Principal, Interest, Taxes, and Insurance (PITI) The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance. 45. Realtor® A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors®. 46. Survey A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features. 47. Title A legal document evidencing a person's right to or ownership of a property. 48. Title Company A company that specializes in examining and insuring titles to real estate. 49. Title Insurance Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property. 50. Underwriting The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.