Glossary of Real Estate Terms

Acceleration Clause

A provision that gives a lender the right to collect the balance of a loan if a borrower misses a payment.

Addendum

An addition or change to a contract.

Adjustable Rate Mortgage (ARM)

A loan with an interest rate that is periodically adjusted to reflect changes in a specific financial index.

Adjustment Period

The adjustment period is the period between rate adjustments in an Adjustable Rate Mortgage (ARM).

Ad Valorem Tax

A tax based on assessed property value.

Amortization

The process of paying the principal and interest on a loan through regularly scheduled installments.  Initially, most of each payment is applied toward interest owed.  Later in the loan term, increasingly larger amount are applied toward principal.

Appraisal

An opinion of value of a property as a given moment in time

Appreciation

An increase in the value of a home or other property.

Arbitration

A method of resolving a dispute in which a third party makes a decision to which both disputing parties have previously agreed to be bound.

Asbestos

A fire-resistant mineral used for insulation and home products that has been found to pose a health hazard.

Asking Price

The Seller’s initial price for a property.

As-Is Condition

The purchase or sale of a property in its existing condition, although the buyer does have a right to inspect the property prior to accepting it.

Assessed Value

A tax assessor’s determination of the value of a home in order to calculate a base for property tax.

Assets

Items of value including cash, real estate, securities, and investments.

Back-Up Offer

A secondary bid for a property that the seller can accept if the first offer fails.

Bankruptcy

A proceeding in which an insolvent debtor can obtain relief from payment of certain obligations.  Bankruptcies remain on a credit record for 7 to 10 years, and can severely limit a person’s ability to borrow.  Under certain conditions a sale of the debtor’s personal property may be forced to partially satisfy creditors.

Basis Point

A basis point is one one-hundredth of one percentage point.  For example, the difference between a loan at 8.25 percent and mortgage at 8.37 percent is 12 basis points.

Breach of Contract

The failure to perform provisions of a contract without a legal reason.

Building code

A comprehensive set of laws that controls the building construction or remodeling of a home or other structure.

Buyer’s Market

A real estate market in which buyers have the advantage.

Cancellation Clause

A clause that specifies the conditions under which each party may terminate the contract or agreement.

Cap Rate

How much interest you can be charged. There are two types of interest rate caps asociates with Adjustable Rate Mortgages: (1)  Periodic Caps limit the amount your interest rate can increase from one adjustment period to the next.  Not all ARMs have periodic rate caps.  (2)  Overall caps limit how much the interest rate can increase over the life of the loan.  Overall caps have been required by law since 1987.

Capital Gains Tax

A tax placed on profits from the sale of real estate or investments.

Carryovers

If an interest rate cap has held your interest down even though the index went up, the amount of the inrease can be carried over to the next adjustment period.

Clear Title

A title to property that does not have any liens, defects, or other legal encumbrances.

Closing

The final procedure in which documents are signed and recorded and title to the property is transferred.

Closing Costs

Expenses incidental to the sale of real estate, including but not limited to loan costs, title search and transfer, appraisal costs, doc stamps taxes on the deed and on the mortgage note, processing fees, title insurance, and attorneys fees.  There may also be expenses for  pro-rations of the current year’s property taxes.

Closing Statement

A document which details the final financial settlement between a buyer and seller and the costs paid by each party.

Cloud on Title

An invalid encumbrance on the title to real property.  It will need to be cleared for assure clear title.

Comparative Market Analysis

An estimate of the value of a property based on an analysis of similar properties sold.

Condominium

Individual units in a building or development in which owners hold title to the interior space, while common areas such as community rooms, recreational facility and parking lots are considered common elements and are owner by all the residents.

Contingency

A condition specified in a purchase contract, such a satisfactory home inspection.

Conveyance

The transfer of title of property.

Counteroffer

A response to an offer.

Credit Rating

The degree of creditworthiness assigned to a person based on credit history and financial status.

Credit Report

A detailed account of an individual’s credit, employment, and residence history.  A lender uses this report to determine a loan applicant’s creditworthiness.  The three largest credit bureaus are Trans Union Corp., Equifax, and Experian (formerly TRW).

Deed of Trust

A document that gives a lender the right to foreclose on a piece of property if the borrower defaults on the loan.

Disclosure

A statement to a potential buyer listing information relevant to a piece of property, such as the presence of radon or lead-based paint.

Discount Points

Discount points are fees paid to a lender at closing in order to lower your interest rate.  Each point is equal to one percent of the loan amount.  For instance, for a $200,000 loan one discount point equals $2,000.   

Dry Rot

A fungal decay that causes wood to become brittle and crumble.

Escrow Account

A special account that a lender users to hold a portion of the borrower’s monthly payments which will be used for payment of property tax and insurance (homeowners insurance and flood insurance) at a later date.

Escrow Agent

A neutral third party holding documents and money for a real estate transaction, ensuring that all conditions of a sale are met before funds are released. 

Fee Simple

This type of ownership is the maximum interest a person can have in a piece of real estate.  It entitles the owner to use the property in any manner they see it, in accordance with state and local laws.

Fixed-Rate Mortgage

A home loan with an interest rate that will remain at a specific rate for the term of the loan.

Foreclosure

A legal process by which a lender ends the borrower’s interest in the property after a loan is defaulted.  The lender may sell the property and keep the proceeds for mortgage and legal costs, using excess proceeds to satisfy other liens or return excess proceeds to the borrow.

Home Inspection

An examination of a home’s construction, condition, and internal systems by a qualified inspector or contractor prior to purchase.

Homeowners Insurance

This insurance includes hazard coverage for any damages that may affect the value of the property, in addition to personal liability and theft coverage.  It may have separate deductibles for hurricane coverage, and may or may not include coverage for terrorism.

Home Warranty

A type of insurance that covers repairs to certain parts of a house and some fixtures.

Index

The index is an indicator table the lender uses to measure interest rate changes.  Common indexes used by lenders include 1-, 3-, and 5-year Treasury bills, but there are others.  Each Adjustable Rate Mortgage (ARM) is linked to a specific index.

Interest 

The fee, expressed as a percentage, charged for a loan.  On adjustable rate loans, the interest rate may change from its initial level from time to time, according to the terms of the loan. 

Interest Rate Caps

Rate caps limit how much interest you can be charged. There are two types of interest rate caps asociates with Adjustable Rate Mortgages: (1)  Periodic Caps limit the amount your interest rate can increase from one adjustment period to the next.  Not all ARMs have periodic rate caps.  (2)  Overall caps limit how much the interest rate can increase over the life of the loan.  Overall caps have been required by law since 1987.

Joint Tenancy

Ownership by two or more people that gives equal shares of a piece of property.  Rights pass to the surviving owner or owners.

Lender

A bank, savings institution, or mortgage company that offers home loans.

Liabilities

A person’s debts and financial obligations.

Loan Application

The first step toward submitting a home loan requires the borrowed to itemize basic financial information.

Margin

The margin is the lender's markup.  It is an interest rate that represents the lender's cost plus the profit they make on the loan.  The margin is added to the index rate to determine the total interest rate.  The margin usually stays the same during the life of the loan.

Market Value

The price that a piece of property sells for at a particular pointing time.

Mortgage

The legal document in which the buyer pledges the property as collateral for a loan.

Mortgage Banker

A company that provides home loans using its owner money.  The loans are usually sold to investors such as insurance companies and Fannie Mae.

Mortgage Broker

A company that matches lenders with prospective borrowers who meet the lender’s criteria.  The mortgage broker does not make the loan, but receives payment for the lender for services.

Mortgage Interest Deduction

The tax write-off that the Internal Revenue Service allows most homeowners to claim for interest paid on real estate loans.

Mortgage Loan

A sum of money borrowed to purchase a home at a certain interest rate using the property as collateral.

Mortgage Note

The note which buyers sign obligating themselves to repay the amount of money borrowed.  The note will show the interest rate and the repayment terms.

Motivated Seller

A seller with a strong incentive to sell.  The seller may be in urgent need of money or need to move elsewhere.

Negative Amortization

When payments are not large enough to cover the cost of interest, the unpaid interest is added back to the loan where it generates even more interest debt.  If this continues, the borrower could make several payments but still owe more than he did at the beginning of the loan.  Negative amortization generally occurs when a loan has a payment cap that keeps monthly payments from covering the cost of interest.

Open House

A marketing tool in which a listing agent opens a house to the public for viewing.

Open Listing

A property given to a number of brokers to market at the same time.

Origination Fee

A fee charged to process your loan.  It typically costs one point, but should not be confused with a discount point which is a separate fee, if applicable.

Overall Caps

Overall caps limit how much the interest rate can increase over the life of the loan.  Overall caps have been required by law since 1987.

Payment Caps

A payment cap limits the amount your monthly mortgage payment can increase at each adjustment.  Adjustable Rate Mortgages (ARMs) with payment caps often do not have periodic rate caps.

Periodic Caps

Periodic aps limit the amount your interest rate can increase from one adjustment period to the next.  Not all ARMs have periodic rate caps. 

Pest Control Inspection

A common pest-control inspection is a termite inspection.

Points

An amount equal to 1 percent of the loan amount.  Points may be paid by the borrower at the time the loan is made to get a lower interest rate.  Lenders offer various rate/point combinations.

Prepaid Interest

Interest paid before it is due. For example, at the close of a real estate transaction the borrower may prepay interest that will accrue between closing and the first monthly payment.

Prepayment Penalty

A penalty that a lender may impose on a borrower who pays a loan off before its expected end date.

Pre-Qualification

A lender’s preliminary assessment of a buyer’s ability to pay for a home and an estimate of how much the buyer may borrow.

Prime Lending Rate

The minimum short-term interest rate charged by commercial banks to their most creditworthy clients.  Home loan rates typically are several points above the prime rate, which is also used as the basis for mortgages, business loans, and personal loans.

Principal

The amount borrowed.

Private Mortgage Insurance (PMI)

A form of insurance required by a lender when the borrower’s down payment is less than 20 percent of the home value.  This insurance partially protects the lender if the borrower defaults on the loan.

Property Tax

Tax on property based on local tax rates and calculated based on assessed property value.

Property Tax Deduction

A deduction that a homeowner may take on their annual tax return, thus reducing their taxable income by an amount equal to the property tax paid in the tax year.

Property Value

The value of a piece of property based on the price a buyer will pay at a given time.

Prorate

To allocate percentages of certain expenses to be shared between the buyer and the seller at the time of closing.

Radon

A ground-generated radioactive gas that seeps into some homes through pumps, cracks in the foundation and other inlets.  It represents a serious health hazard.

Rate Cap

The maximum interest rate charge allowed on the monthly payment of an adjustable rate mortgage during an adjustment period.

Rate Lock

A lender’s commitment to a borrower to guarantee or “lock in” a specific interest rate for a limited amount of time.

Real Estate Agent

A person licensed by a state to represent a buyer or seller in a real estate transaction in exchange for a commission. 

Real Estate Broker

A person, corporation or partnership licensed by a state to represent a buyer or seller in a real estate transaction in exchange for a commission.  Brokers supervise licensed real estate agents, who then act for the broker.  The broker is legally the principal agent in any transaction.

Realtor

A designation for a real estate agent or broker who is a member of the National Association of Realtors.  A  Realtorâ pledges to uphold the high standards of ethics supported by the Association.

Recorder’s Office

The office of the public official responsible for keeping a record of all real estate transaction.

Seller’s Market

A hot real estate market in which sellers have the advantage and multiple offers are common.

Tax Shelter

A term often applied to real estate investment, referring to various tax advantages of property ownership.

Tenancy by the Entirety

Ownership by a husband and wife in which they together (“the marriage”) hold title to the whole property with right of survivorship. 

Title

The legal document conferring ownership of a piece of real estate.

Title Company

A company that ensures that the property title is clear and provided title insurance to buyers.

Title Insurance

A policy issued to lenders and buyers to protect against loss due to disputed property ownership.

Title Search

The process of reviewing all recorded transaction in the public records to determine whether any title defects exist that could interfere with the clear transfer of ownership of the property.

Townhouse

An attached home that is not a condominium, although owning a townhouse may require membership in a homeowner’s association.

Tract Home

Another term for a mass-produced home, constructed by one builder in a project association.

Walk-through

A buyer’s final inspection of the home to determine if conditions in the purchase agreement have been satisfied and the home has been kept in the same well-maintained condition.