REAL ESTATE GLOSSARY
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
(like location, Woods, water) or man-made (like 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
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.
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
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
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
Budget: a detailed record of all income
earned and spent during a specific period of time.
Cap: a limit, such as that placed on an
adjustable rate mortgage, on how much a monthly
payment or interest rate can increase or
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
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.
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
Credit history: history of an
individual's debt payment; lenders use this
information to gouge 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
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
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
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
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
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.
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 loon(s) from
the fair market value of the property.
Escrow account: a separate account into which
the lender puts a portion of each monthly mortgage
payment; an escrow account provides the funds
needed for such expenses as property taxes,
homeowners insurance, mortgage insurance, etc.
Fair Housing Act: a law that prohibits
discrimination in all facets of the homebuying
process on the basis of race, color, national
origin, religion, sex, familial status, or
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
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
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
Foreclosure: a legal process in which
mortgaged property is sold to pay the loan of the
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
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
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
HELP: Homebuyer Education Learning
Program; an educational program from the FHA that
counsels people about the homebuying process; HELP
covers topics like 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
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
Homeowner's insurance: an insurance policy
that .combines protection against damage to a
dwelling and Is contents with protection against
claims of negligence )r inappropriate action that
result in someone's injury or )property
Housing counseling agency- provides counseling
and assistance to individuals on a variety of
issues, including loan default, fair housing, and
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
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.
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
Interest rate: the amount of interest charged
on a monthly loan payment; usually expressed as a
Insurance: protection against a specific loss
over a period of time that is secured by the
payment of a regularly scheduled premium.
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.
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
Lien: a legal claim against property that must
be satisfied When the property is sold.
Loan: money borrowed that is usually repaid
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
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
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.
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 like :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
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.
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.
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
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
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
Prepayment: payment of the mortgage loan
before the scheduled due date; may be Subject to a
Principal: the amount borrowed from a
lender; doesn't include interest or additional
Radon: a radioactive gas found in some
homes that, if occurring in strong enough
concentrations, can cause health
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
Refinancing: paying off one loan by
obtaining another; refinancing is generally done
to secure better loan terms (like a lower interest
Rehabilitation mortgage: a mortgage that
covers the costs of rehabilitating (repairing or
Improving) a property; some rehabilitation
mortgages - like 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
Settlement: another name for
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
Subordinate: to place in a rank of lesser
importance or to make one claim secondary to
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
Title 1: an FHA-insured loan that allows
a borrower to make non-luxury improvements (like
renovations or repairs) to their home; Title I
loans less than $7,500 don't require a property
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
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
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.
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.