Glossary of Common Real Estate Terms

ADJUSTABLE-RATE MORTGAGE (ARM)

 The interest rate is tied to a financial index making the monthly mortgage payment go up or down over time. EX. a 5:1 ARM is an adjustable-rate mortgage that begins with an initial five-year fixed interest rate period, followed by a rate that adjusts on an annual basis.

ANNUAL PERCENTAGE RATE

  The percent of interest that will be charged on a home loan.

APPRAISAL

 A report highlighting the estimated value of the property completed by a qualified 3^rd party. This is typically done for the benefit of the buyer’s lender to ensure the property is worth the purchase price.

ASSOCIATION FEE/HOA FEE

 In addition to a mortgage, certain housing communities such as townhomes have a monthly fee for maintaining the common areas and amenities.

BALLOON MORTGAGE

 Not the same as an ARM (see above). A long-term mortgage loan that starts small but has a large payment due at maturity.

CLOSING

  When the new title to the property is officially recorded and ownership of the property transfers to the new buyer.

CLOSING COSTS

  The buyer and seller have expenses associated with the transaction other than the actual cost of the home. For example, the buyer has a variety of fees due for obtaining a new loan and the seller must pay commission to the Realtors.

CLOSING DISCLOSURE / ALTA

 A form that provides the final details about the mortgage loan. It includes loan terms, projected monthly payments, and details any fees or prorations to the buyer and seller.  This is usually sent no earlier than 3 days prior to closing.

COLLATERAL

 Something of value (in this case your home) that is held to ensure repayment of a mortgage or loan.

COMMISSION

 A percent of the sale price of the home that is paid to agents for their services. The seller pays commission to both buyer and listing agent in many cases.

COMPARABLES

 Homes in the area of interest that have recently sold and have similar features. 

CONTINGENCIES

 Conditions which must be met in order to close. Contingencies are typically tied to a date, referred to as a deadline. If the contingency is not satisfied, the contract may be canceled.

COUNTEROFFER

 The response from the seller in regard to an offer.

DEBT TO INCOME RATIO (DTI)

 A lender will evaluate whether a borrower’s income is large enough to handle their payments on existing debts plus their new mortgage payments based on an actuarial formula.

DOWN PAYMENT

 A prepaid percent of the cost of the mortgage (3.5%,10%,20%). The down payment is paid at closing as an up front contribution to the overall mortgage. This will be your first ‘equity’ in the property. EX. If your put 20% down on your home purchase, you will have 20% equity in the property. Your monthly payments will be calculated from the remaining 80% that you still owe plus interest and taxes 

EARNEST MONEY

 The deposit made from the buyer to the seller when submitting an offer. This deposit is typically held in trust by a third party. Upon closing, the money will usually be credited to the down payment or closing cost. (Not in addition to closing costs.)

ESCROW

 This term has multiple meanings: earnest money is typically held by a third party until closing in an “escrow” account. It can also be referred to as the time period from when the contract is written and accepted by the seller to when the home sale actually closes. 

EQUITY

 The difference in the market value of a home versus what is owed on the home.

FHA

 Federal Housing Administration. A mortgage that is financed through a private lender and insured by FHA, often requires a lower down payment and income to qualify. Credit score must be 580 or greater.

FIXED RATE MORTAGE

 The interest rate will remain the same for the entire life of the mortgage.

HOME EQUITY LINE OF CREDIT (HELOC)

 A bank loan or line of credit that your lender may offer using the equity in your hoe as collateral.

HOME INSPECTION

 The process in which a professional inspects the seller’s home for issues that may not be readily apparent, and then creates a report for the buyer to review.

HOME WARRANTY

 A 1 yr service that covers the cost of repairs or replacements to items covered in the plan ( such as stoves, dishwashers, A/C, heaters, etc)

HYBRID LOAN

 A loan that starts with a fixed rate period, then converts to an adjustable rate.

MORTGAGE INSURANCE(PMI)

 Insurance written in connection with a mortgage loan that protects the lender in the event the borrower cannot repay their loan. This is usually not required if the borrower has 20% or more for the down payment. It is rolled into your monthly payment, and you will be able to cancel it once you reach 20% equity in your mortgage.

MORTGAGE NOTE

 A promise to pay a sum of money at a standard interest rate during a specific term that is secured by a mortgage.

MULTI-LIST SERVICE (MLS)

 The national list of real estate properties that are available for sale. These are the most reliable sources to receive up-to-date listing information because they are published by licensed agents. Other online services are available, but the listings can be published by unlicensed individual owners.

PRE-APPROVAL

 The process in which a lender makes an initial evaluation of how much money a buyer might be qualified to borrow based on the preliminary financial information provided. This gives the seller more confidence in the buyer’s ability to close escrow, but it is not a guarantee that the loan will be approved.

PRINCIPAL

 The underlying amount of the loan which is actually borrowed not counting interest.

PROPERTY TAXES

 These are taxes levied and enforced by city, county, and school district entities on your property. Usually they are rolled into your monthly mortgage payment, but sometimes they can be paid separately.

REO

 Real Estate Owned property, or foreclosed properties currently owned by a financial institution such as the bank that made the loan to the previous owner.

REVERSE MORTGAGE

 This is best for seniors and it allows them to convert the equity in their home to cash by selling the equity on their house to the bank over time.

SHORT SALE

 A situation when the seller’s lender is willing to accept an offer and allows the sale to be completed for an amount less than the mortgage amount owed by the seller.

TITLE/DEED

 A Deed is a legal document proving current, free and clear ownership of the property. ‘Title’ comes from the word ‘Entitled’ and is your right to enjoy the property. Title is not an actual document in Real Estate. The Deed is the document. This document highlights the history of the property ownership and transfers.

UNDERWRITING PROCESS

 The process in which the potential home buyer is evaluated for their financial ability to obtain and repay a loan. This normally includes a credit check, deep look into finances, and a property appraisal.

VA LOAN

 Special 0 down payment loans that are available to American Veterans. These loans are issued by private lenders and are guaranteed by the Dept. of Veterans Affairs.