Glossary

A loan with a fixed interest rate for a specified amount of time and a floating rate for the remainder of the period. The most common ARMs are for 5, 7, or 10 years.

The estimation of a home’s market value by a licensed appraiser based on comparable recent sales of homes in the neighborhood. A loan underwriter compares this appraisal price to the agreed-upon purchase price to ensure that the value of the home is equal to or greater than the purchase price. Loan financing may fail if the home appraises at a price less than what the buyer and seller agreed upon. If this happens, the buyer may want to re-negotiate with the sellers to determine a lower purchase price.

A transaction between a buyer and seller where both are acting in their own best interests to get the best price. Presumably, the seller wants the highest price possible, and likewise the buyer wants to pay the least possible. This ends up determining the fair market value of the home. The majority of private party real estate transactions proceed in this way.

The value of real property established by the tax assessor for the purpose of levying real estate taxes.

A type of mortgage loan that a home-seller can transfer to the potential buyer. Taking over a seller’s mortgage may make sense if the mortgage assumed has a lower interest rate than what you’d get for a new mortgage. But, the mortgage principal amount may not be enough to fully finance the home. In that case, the buyer would have to purchase a second mortgage. Assumable mortgages were popular 15

A property with this status is to be sold at auction The list price is the starting bid (or reserve) price.

An additional offer on a home for sale where the sellers already accepted an offer.

Type of mortgage loan which matures with a balance still owed at the end of the term.

A United States government program created to honor schools. The Blue Ribbon award is considered the highest honor an American school can achieve.

A short-term loan used until long-term financing is secured. They can be used for up to one year and usually have higher interest rates. For example, they can be used to purchase another home before a buyer is able to sell his current home. Also, qualified buyers can get a bridge loan to pay in cash up-front for a home at an auction. Then, they can apply for a mortgage loan to pay for the home over time.

Similar to an appraisal, a Broker Price Opinion is an estimate of a home’s value, as determined by a real estate broker. Banks often order BPOs instead of appraisals during short sales, foreclosures, or loan refinancing, since BPOs are usually less than half the cost of an appraisal.

A permanent improvement to real estate, usually extending the useful life and value of a property.

A Certificate of Occupancy (“C of O”) is a document issued by a government authority certifying that a new construction home is ready and fit for occupancy.

Homes of similar size, condition, age, and style that recently sold in a certain neighborhood. Evaluating comparable homes and their prices can help determine the fair market value for a home

An evaluation of similar, recently sold homes (called comparables) that are near a home intended to be bought or sold. It establishes a price estimate based on current market activity that can be used as a guide for pricing a home. Real estate agents create a CMA when they are preparing to handle a purchase or sale for their Clients.

A benefit or discount to help close a deal. Usually specified during negotiations, concessions are made by both buyers and sellers. Examples include covering the costs of new appliances, moving expenses or repairs to the home before the new owners move in. Concessions are usually included in the closing costs of the deal.

A multi-family or apartment building in which each apartment owner owns his or her own apartment plus a percentage of the ownership of the common areas of the entire property. Each owner receives a unit deed, proof of that ownership.

Insurance that covers the interior walls, fixtures, and personal property inside a condominium. It is distinct from the master policy held by a condo homeowners association, which covers common areas

Completion of certain acts or events must take place before the property can close. Contingencies may include any of the following: Buyer financing, Inspections, Probate court approval, Release of liens to show clear title, Sale of buyer’s property, Short sale approval and Zoning approval.

Also known as a Purchase of Sales Agreement, is a written agreement between seller and purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon conditions and terms set forth therein.

A mortgage loan not insured by any government program, conventional loans are the most common type of mortgage.

Also known as FICO scores, a formula that measures how likely a borrower is to default on a loan. It allows lenders to determine credit risk and is based on bill payment history, length and type of credit, along with many other factors. In general, the minimum credit score to be eligible for a conventional loan will vary depending on market conditions. Borrowers with credit scores of 740 and up are considered to be the most qualified to get a mortgage loan.

The legal document conveying title to a property.

Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure.

Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount. It is done to lower the interest paid on the loan.

The process of examining a property, related documents, and procedures conducted by or for the potential lender or purchaser to reduce risk.

Also known as a Deposit or Down Payment, is made by a purchaser of real estate as evidence of good faith.

An improvement such as a fence that intrudes illegally on another’s property. This should be noted on the Seller’s disclosure and/or survey.

A home-owner’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 and other liens.

A neutral third party or attorney that handles the exchange of money and documents once mutual acceptance is reached on an offer. Escrow handles the transfer of the buyer’s loan documents and property taxes and works with a buyer’s lender and real estate agent to make sure that the title of the home is clear of liens before the transfer of ownership. In addition, escrow agents prepare the HUD-1 settlement form that lists the costs of the transactions that both the buyer and sellers must pay at closing.

Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-deferred. Under a fully qualified Section 1031 exchange, real estate is traded for other like-kind property. All capital gains taxes are deferred until the newly acquired real estate is disposed of in a taxable transaction.

An agreement between a broker and a seller which designates the broker as the seller’s sole representative. Under this agreement, a commission is due to the broker even if the property is sold directly by the owner.

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.

The most common type of land ownership, owners have complete ownership of the land and the home.

A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

A legal relationship of confidence between two parties that gives one the right to act on behalf of the other.

A mortgage in which the interest rate does not change during the entire term of the loan.

A real estate term for buying a home and then turning around and reselling it for a profit.

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Foreclosure is a process that transfers the right of home ownership from the homeowner to the bank or lender.

Along with Fannie Mae, Freddie Mac is a government-sponsored entity that buys loans from mortgage lenders, packages them together and sells them to outside investors to make sure they have funds to continue buying loans

An estimate of closing costs the lender is required (under the federal Real Estate Settlement Procedures Act) to give to the buyer within at least three days of applying for a mortgage loan.

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)

The person to whom an interest in real property is conveyed.

The person conveying an interest in real property.

Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

A person who inherits or who is entitled to inherit real estate by provisions of law or under the provisions of a will.

A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project.

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

A document that provides an itemized listing of the funds that were paid at closing.

A loan in which, for a set term, the borrower pays only the interest on the principal balance, with the principal balance unchanged.

The percentage of a sum of money charged for its use.

The a readily available supply of a given commodity.

A type of ownership of real or Personal Property by two or more persons in which each owns an undivided interest in the whole.

A jumbo mortgage is a home loan with an amount that exceeds conforming loan limits imposed by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy mortgages from lenders. The limit is $417,000 in most parts of the United States, but is $625,500 in the highest-cost areas and in-between in others.

A legal right or claim upon a specific property which attaches to the property until a debt is satisfied.

Sometimes called a notice of default, a lis pendens is a public document filed by a lender that notifies a borrower that he has fallen two payments behind on his mortgage. The receipt of this document begins the foreclosure process in which the lender will repossess the home. However, the borrower still has the option to try to sell the home as a short sale or refinance to stay in the home. But, the home is considered to be in pre-foreclosure from the time a lis pendens is filed until the property is sold at an auction.

A term used by brokers for a property for sale after it has been “listed” by the broker in its system.

Also known as the Exclusive Broker, is the broker who represents the interests of the seller.

A lender’s promise to provide a borrower with a loan at an agreed upon interest rate and terms over a certain period of time.

The amount of money borrowed in relation to the total market value of a property.

Most probable price that a property should bring if exposed for sale in the open market for a reasonable period of time, with both the buyer and seller aware of current market conditions, neither being under duress.

A legal document that pledges a property to the lender as security for payment of a debt.

A middle man between borrowers and banks who shops around to find a borrower the best loan.

Insurance that protects a mortgagee against loss because of default in payments by a mortgagor.

One’s assets, less one’s liabilities. Liquid net worth (that which is cash or can be immediately converted to cash) is what cooperatives focus on.

On a government loan the loan origination fee is one percent of the loan amount.

A policy of title insurance usually insuring an owner of real estate against loss occasioned by defects in, liens against, or unmarketability of the owner’s title.

A private agreement between a property owner and a broker,in which the owner agrees to pay a commission if the broker produces a buyer, but there is no listing agreement, no obligation to market the property,and no signage or advertising.

A point is 1 percent of the amount of the mortgage.

A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

A letter from a bank or a lender referencing how much they’ll lend a borrower.

A clause in the mortgage which gives a mortgagor the privilege of paying the mortgage indebtedness before it becomes due.

Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

A legal process in which a court oversees the settlement of an individual’s estate after his/her death.

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

Long-term movements or tendencies in the demand for real estate.

A real estate agent who is a member of the National Association of Realtors.

The process of paying off one loan with the proceeds from a new loan using the same property as security.

Short for “real estate owned,” REOs are foreclosed homes owned by banks and lenders.

Short for Real Estate Settlement Protection Act, RESPA is a set of laws passed by Congress in 1974 to protect the rights of consumers during a closing of a real estate transaction

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

The buying and selling of existing mortgages, usually as part of a “pool” of mortgages.

Documents completed by the seller of a home listing any known issues with the property.

A home that is listed for sale at a price lower than the amount owed on the mortgage.

Fees that Homeowners Associations will charge to owners to cover the costs of building repair that exceed the amount in the current budget.

Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

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.

Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

Likely users or investors whose needs match the property

The ability of real estate investments to reduce an investor

As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.

A legal document evidencing a person’s right to or ownership of a property.

A company that specializes in examining and insuring titles to real estate.

Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

An individual working for mortgage lenders who determines whether or not a borrower’s loan is approved.

A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

The final inspection of a home by the buyers before it’s sold. Buyers will complete a final walk-through of the home to make sure any requests for repairs or appliances have been fulfilled before the closing papers are signed.

A deed that guarantees a clear title to the buyer of real property.

A housing development where homes may be attached to one another, meaning there may not be room for a yard.

The designation of specific areas by a local planning authority within a given jurisdiction for the purpose of legally defining land use or land use categories.