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Real Estate Terminology


Adjustable Rate Mortgage or ARM – An ARM is a loan that has a varying interest rate and payment based on an adjustment period. The adjustment is dependent on the variation in a benchmark index, usually the LIBOR or prime rate. This loan is also known as a variable rate mortgage.

Annual Percentage Rate or APR – The APR is the actual effective rate of interest charged on a loan expressed on a yearly basis and represents the full cost of all elements associated with obtaining a full mortgage into a single formula. The APR is a useful device for making comparisons between mortgage products.

Appraisal – An appraisal is the evaluation of a property by a licensed appraiser on its price based on previous sales of similar properties. The appraised value is used by a bank to determine the lending limit on a given property. A seller may also have a property appraised to determine the offering price during a sale.

Assessed Value – An assessed value is the dollar value assigned to a property to measure applicable taxes. Assessed valuation determines the value of a residence for tax purposes and takes comparable home sales and inspections into consideration.

Attorney & Inspection Review – The Attorney & Inspection Review Period is the phase of the contract negotiation in which both the seller’s and buyer’s attorneys review the purchase contract and property inspection report.


Balloon Mortgage – A balloon mortgage is a short-term mortgage with fixed installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at the end of the term.

Broker (see Real Estate Broker)

Bridge Loan – A bridge loan is a short term loan used to cover an interval between two transactions, typically the buying of one house and the selling of another.

Buy Down – Buy down is the voluntary paying of discount points by a borrower to reduce mortgage interest rate at the time the loan is made.

Buyer’s Broker – A buyer’s broker is a broker who represents the buyer in effectuating a purchase. Normally in residential real estate transactions, the buyer’s broker shares the commission received by the listing broker, who represents the seller.

By-Laws – By-laws are the rules by which the cooperative corporation or condominium operates, including those regulating elections, officers, and authorizations.

Cash Flow – Cash flow is the income produced by an investment property after deducting operating expenses and debt.

Cash Reserve – In a mortgage commitment, some lenders require that the borrower have on deposit in their bank accounts at the time of the closing an amount equal to a predetermined number of months of the cost of principal, interest, taxes, and insurance, which is referred to as a cash reserve.

Certificate of Occupancy (C of O) – The Certificate of Occupancy is a certificate issued by a local governmental entity responsible for the use of land in the community where the property is located stating that the structures on the property or any improvements made to these structures comply with the codes, ordinances and regulations of that governmental entity and that they may be occupied. 

Chain of Title – Chain of Title is a successive conveyance of title to a specific parcel of land. 

Closing – The closing is when the transfer of ownership of a property from the seller to the buyer occurs according to the sales contract. 

Closing Costs – Closing costs are the expenses incurred in the purchase and sale of real property paid at the time of settlement or closing.  Some examples of closing costs are title insurance, attorney fees, appraisal fees, recording fees and taxes. 

Closing Statement -A closing statement is an accounting of the funds received and distributed in a real estate transaction.

Code of Ethics – The Code of Ethics is a standard of conduct required by license laws and by the National Association of Realtors. 

Commercial Zones  – Commercial zones allow usage for retail stores, restaurants, hotels and service businesses. 

Commingling – Commingling is the mixing of money or property of others with personal or business funds or other property. 

Commission – The commission is the payment to the broker for his or her efforts on marketing and selling the property, and is usually a percentage of the total purchase price.

Commitment Letter – A commitment letter solidifies a lender’s pledge toward a home loan. When an applicant successfully completes the underwriting process, a mortgage commitment letter may be issued to validate the financing terms.

Comparables –  Comparables are recently sold properties that are of similar size, condition, age, location, and other amenities that are used to determine fair market value. Utilized for a Comparative Market Analysis (CMA).

Condominium – A condominium is a building in which ownership has been partitioned into unit interests.  Each apartment owner receives a unit deed and owns an individual unit, but common areas are shared with the other unit owners of the building. 

Conforming Loan – A conforming loan is a mortgage issued within the framework of FNMA/FHLMC (Fannie Mae/Freddie Mac) guidelines in terms and amount.  In general, any loan which does not meet these guidelines is a non-conforming loan.  A loan which does not meet guidelines specifically because the loan amount exceeds the guideline limits is known as a jumbo loan.  The Office of Federal Housing Enterprise Oversight (OFHEO) set the criteria on what constitutes a conforming loan limit that Fannie Mae and Freddie Mac can buy.  Criteria include debt-to-income ratio limits and documentation requirements.  The maximum loan amount is based on the October-to-October changes in median home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it. 

Construction Loan or Mortgage – A construction loan is a short-term loan to obtain funds to construct an improvement. 

Contingency – Contingency is a condition in a contract relieving a party of liability if a specified event occurs or fails to occur. 

Contract – A contract is a legally binding agreement between two parties, and in order to have a valid Contract of Sale in real estate there must be: an offer, an acceptance, competent parties, consideration, legal purpose, written documentation, description of the property, and signatures of the principals. 

Conventional Mortgage Loan – A conventional mortgage loan is a loan in which the federal government does not insure or guarantee payment to the lender, but is under the amount of a jumbo mortgage.

Conveyance – Conveyance is the transfer of title to real property. 

Counter-offer – A counter-offer is a new offer made by either the buyer or seller when rejecting a previous offer. 

Credit Score – A credit score is a numerical rating provided on a credit report that establishes creditworthiness based upon a person’s past credit/payment history and their current credit standing.

Debt-to-Income Ration or Debt-Service Ratio – The debt-to-income ratio is the relationship of a borrower’s monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage.  It is also known as bottom ratio. 

Deed – A deed is a written instrument transferring an interest in real property when delivered to the grantee. 

Deed in Lieu of Foreclosure – Deed in lieu of foreclosure is the conveyance of title to the mortgagee by a mortgagor in default to avoid a record of foreclosure. 

Deficiency Judgement – Deficiency judgment is a court judgment obtained by a mortgagee for the amount of money a foreclosure sale proceed was deficient in fully satisfying the mortgage debt. 

Department of Housing and Urban Development (HUD) – See U.S. Department of Housing and Urban Development. 

Depreciation – Depreciation is the expensing of the original cost of an asset, plus any qualified improvements, over its scheduled life as defined by the IRS.  Depreciation deductions are permitted only for assets held by the production of income or used in a trade or business.  The current term for depreciating residential real estate is 27.5 years. 

Discount Points – Discount points are a one-time payment by the borrower to the lender at closing to obtain a lower interest rate on the mortgage loan.  One point equals 1% of the loan amount; therefore, two points on a $100,000 mortgage would cost $2,000.  It is also referred to as points.

Down Payment – The down payment is the amount of money a buyer pays at closing in order to purchase a property.  

Dual Agent – A dual agent is a broker or salesperson who represents both the buyer and seller in the same transaction. 

Due Diligence – Due diligence is the investigation and review of a property to determine any legal liability. 

Earnest Money Deposit – Earnest money deposit is the deposit a buyer makes at the time of submitting an offer to demonstrate the true intent to purchase.  It is also called a binder or good faith deposit. 

Encroachment – Encroachment is the trespassing on the land of another by a structure or other object. 

Encumbrance – An encumbrance is a claim, lien, charge or liability attached to and binding upon real property. 

Equity – Equity is the difference between what something is worth and any loan secured by the asset (i.e. the value of a property less the outstanding mortgage).  For example, if a home is worth $100,000 and the owner/borrower owes $65,000 on the mortgage loan secured by the borrower’s home, then the borrower’s equity is $35,000 or 35% equity in the home. 

Escrow – Escrow refers to money held by a third-party on behalf of multiple parties. 

Executed Contract – An executed contract is an agreement that has been signed by all parties. 

Fair Market Value (FMV) – The fair market value is the price for a property agreed upon between a buyer and seller in a competitive market. 

Fannie Mae – Fannie Mae is the nickname for the Federal National Mortgage Association (FNMA), a privately owned corporation that purchase FHA, VA, and conventional mortgages. 

Federal Housing Administration (FHA) – The Federal Housing Administration is a federal agency that is part of the Department of Housing and Urban Development (HUD) that sets policy for mortgage underwriting and provides insurance for residential mortgages. 

Financing – A loan secured by personal property, such as real estate property.  The stock and lease of a cooperative corporation also constitute such personal property, and a loan secured by these instruments is referred to as a financing loan.  Generally, real estate brokers refer to these financing loans as mortgages because they operate in the same manner, even though technically they are not. 

First Mortgage – A first mortgage is a mortgage whose lien is superior to the lien of any other mortgage on the same property.  This lien is superior either because it was recorded prior to all other mortgages or because the mortgagee of another mortgage which had been recorded ahead of this mortgage has agreed to have a lien subordinated to the lien of this mortgage. 

Fixed-Rate Mortgage – A loan secured by real estate that has a fixed interest rate and payment amount for the term of the loan (normally 15 or 30 years). 

Fixture – A fixture is an item (appliance, light fixture, etc.) that is permanently attached to a property. 

Foreclosure – Foreclosure is the legal process that begins when the borrower fails to make payments (defaults) to a lender on a mortgaged property. 

Good Faith Estimate – A Good Faith Estimate is an estimate of the fees a mortgage borrower will be required to pay at closing.  It is required by Federal law that the lender provides the Good Faith Estimate within three business days of the initial loan application. 

Home Inspection – An examination of a property by a qualified inspector or engineer to understand the condition and to check for structural damage, termites, any required repairs or equipment replacement, etc. 

Homeowners’ Association (HOA) – An association which collects dues from residents for the upkeep of common areas and the building. 

Jumbo Loan – A mortgage issued in an amount exceeding the threshold stipulated under Fannie Mae (FNMA) regulations for a conforming loan. 

Lease – A lease is a written agreement to rent a property or part of a property from an owner. 

Lien – A lien is an encumbrance on property which acts as security for the payment of a debt or the performance of an obligation.  A mortgage is a lien.  A lender will want most, if not all, liens on a property removed before making a mortgage loan. 

Lis Pendens – Lis pendens means a “lawsuit pending”.  See Notice of Lis Pendens. 

Listing – The term used by brokers to market an apartment for sale or rent. 

Listing Broker – The listing broker represents the interests of the seller or landlord in the sale or rental of his or her property. 

Loan Commitment – The loan commitment is the written obligation from a lending institution to provide a mortgage to a borrower.

Loan Origination Fee – The loan origination fee is the financing charge required by a lender. 

Loan-to-Value Ratio (LTV) – The loan-to-value ratio is the mortgage amount divided by the lower of the purchase price or the appraised value of the property.  This ratio is expressed as a percentage.  A lender will use this ratio in determining the maximum mortgage loan that it will make on the property. 

Lock-In / Rate Lock Agreement – A lock-in is an agreement by the lender guaranteeing the applicant a specified interest rate on the mortgage loan provided the loan closes within a set period of time. 

Market Value – The market value of a property is an estimation of the price for a property in relation to the current real estate market. 

Mechanic’s Lien – A mechanic’s lien is a statutory lien available to anyone supplying labor or material to the construction of an improvement of land that ahs not been properly compensated. 

Mortgage – A mortgage is a pledge of real estate collateral to secure a debt.  Also, it is a legal document describing and defining the pledge.  The mortgage may also include the terms of repayment of the debt.  It is also referred to as a deed of trust.

Mortgage Banker – A mortgage banker is an institution that performs services similar to those of a mortgage broker.  However, a mortgage banker is also legally permitted to lend its own funds. 

Mortgage Broker – A real estate professional who represents an array of banks seeking to issue mortgages.  The mortgage broker meets with a customer, assists with the application, and facilitates the mortgage process on behalf of the borrower and the bank.  Generally, in the case of residential mortgages, the mortgage broker is paid a fee by the bank for this service. 

Mortgage Insurance (or Private Mortgage Insurance / PMI) – Mortgage insurance is insurance that protects the lender in case the home buyer does not make their mortgage payments.  Typically, a borrower would be required to pay a fee for mortgage insurance if their down payment is less than 20%.  

Mortgage Note – A mortgage note is a document signed at closing which states the borrower’s promise to re-pay a sum of money.  The note states an interest rate and a fixed period of time (term) for repayment. 

Multiple Listing Service (MLS) – A MLS is a central service for real estate listings available to member brokers. 

Offer – An offer is made to purchase a property at a specific price.  Once an offer is accepted, then a contract of sale is issued by the seller’s attorney. 

Origination – Origination is the first step in the mortgage loan process consisting of the completion of the application. 

Origination Fee – The origination fee is a service charge by a lending institution for a mortgage. 

Parcel – A parcel is a specific portion of land such as a lot. 

PITI – PITI is an acronym for a mortgage payment that includes principal, interest, taxes and insurance. 

Points – Points refer to the payment made to a lender as consideration for issuing a mortgage, usually based on a percentage of the loan amount.  Each point is equal to 1% of the principal of the mortgage. 

Pre-Approval – A pre-approval is a process in which a conditional commitment is issued after a loan profile is underwritten with all standard documentation except a property appraisal and a title search. 

Primary Residence – Generally, a primary residence of an owner or renter is one that they occupy the majority of time, usually considered to be 6 months and 1 day out of every year. 

Principal – The principal in the mortgage is the amount that is borrowed and on which interest is paid or received. 

Private Mortgage Insurance (PMI) – see Mortgage Insurance

Property Tax – The tax issued by a municipality on the ownership of a property. 

Radon – Radon is a colorless, odorless gas present in soil that enters a home through small spaces and openings. 

Rate Cap – A rate cap is the limit on interest rates during the term of an adjustable rate mortgage. 

Rate Lock – The rate lock is an agreement between the borrower and the mortgage lender that guarantees a rate for a set period of time (typically 30, 60 or 90 days). 

Ratios – Ratios are guidelines applied by the lender during underwriting a mortgage loan application to determine how large a loan to grant an applicant.  The ratios the lenders use are generally the Loan-to-Value Ratio, Housing-to-Income Ratio, and Debt-to-Income ratio. 

Real Estate Broker – A real estate broker is an individual employed on a fee or commission basis as an agent to bring buyers and sellers together and assist in negotiating real estate contracts between them. 

Real Estate Investment Trust (REIT) – An REIT is a trust owned by shareholders that buys and initiates mortgage loans. 

Real Estate Settlement Procedures Act (RESPA) – RESPA is a federal law that regulates the activities of lending institutions in making mortgage loans. 

Recording Fees – Recording fees are the fees charged by the recorder’s office to record a document such as a mortgage, deed of trust, deed and UCC Financing Statement. 

Refinancing – Refinancing are the proceeds of a new loan used to pay off an existing mortgage on the same property. 

Sale Price – The sale price, also referred to as the purchase price, refers to the amount of money paid by the purchaser to the seller. 

Seller’s Agent – A seller’s agent is the listing agent that works in the best interests of the seller. 

Short Sale – A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished. 

Survey – A survey is a document indicating measurements, boundaries and the area of a property. 

Title – Title is the means rights by which one owns a piece of property. 

Title Insurance – Title insurance is an insurance policy protecting the insured from financial loss caused by a defect or question about the title to real property. 

Title Search – Title search is a process that examines local public records, laws and related court decisions to determine if any other parties have valid claims against the subject property (such as past due taxes, judgments or mechanics’ liens).  It also discloses past and current facts about the subject property’s ownership. 

Transfer Tax – Real estate transfer taxes are taxes imposed by states, counties, and certain municipalities on the transfer of property ownership from one party to another. 

Truth-in-Lending Disclosure – Federal law requires that the lender must give this document to the home buyer within three business days after the loan application.  This disclosure gives details of the mortgage payments along with the corresponding APR and finance charges. 

Underwriting – In mortgage lending, underwriting is the decision-making process used to determine whether the loan risk is acceptable to the lender.  Underwriting involves the satisfactory review of the property appraisal and examination of the borrower’s ability and willingness to repay the debt and sufficiency of collateral value of the property. 

VA Guaranteed Loan / VA Mortgage – A VA guaranteed loan is a mortgage loan in which the loan payment is guaranteed to the lender by the Department of Veteran Affairs. 

Walk-Through Inspection  – The walk-through inspection of a property occurs right before a closing to ensure that the property is being delivered as stipulated in the contract of sale. 

Zoning  – Zoning are the laws regulating land use.