A GLOSSARY OF REAL ESTATE TERMS
An Alphabetical Listing of Real
Estate Terms
A | B
| C | D | E
| F | G | H | I
| J | K | L | M
| N | O | P
| Q | R | S | T
| U | V | W | X
| Y | Z
A
adjustable-rate mortgage (ARM)
A mortgage that permits the lender to adjust its
interest rate periodically on the basis of changes
in a specified index.
adjustment date
The date on which the interest rate changes for an
adjustable-rate mortgage (ARM).
adjustment period
The period that elapses between the adjustment
dates for an adjustable-rate mortgage (ARM).
amortize
To repay a mortgage with regular payments that
cover both principal and interest.
annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate;
includes such items as interest, mortgage
insurance, and loan origination fee (points).
application
A form used to apply for a mortgage loan and to
record pertinent information concerning a
prospective mortgagor and the proposed security.
appraisal
A written analysis of the estimated value of a
property prepared by a qualified appraiser.
Contrast with home inspection.
appraised value
An opinion of a property's fair market value,
based on an appraiser's knowledge, experience, and
analysis of the property.
appraiser
A person qualified by education, training, and
experience to estimate the value of real property
and personal property.
asset
Anything of monetary value that is owned by a
person. Assets include real property, personal
property, and enforceable claims against others
(including bank accounts, stocks, mutual funds,
and so on).
B
balloon mortgage
A mortgage that has level monthly payments that
will amortize it over a stated term but that
provides for a lump sum payment to be due at the
end of an earlier specified term.
C
capital
(1) Money used to create income, either as an
investment in a business or an income property.
(2) The money or property comprising the wealth
owned or used by a person or business enterprise.
(3) The accumulated wealth of a person or
business. (4) The net worth of a business
represented by the amount by which its assets
exceed liabilities.
certificate of deposit
A document written by a bank or other financial
institution that is evidence of a deposit, with
the issuer’s promise to return the deposit plus
earnings at a specified interest rate within a
specified time period.
certificate of deposit index
An index that is used to determine interest rate
changes for certain ARM plans. It represents the
weekly average of secondary market interest rates
on six-month negotiable certificates of deposit.
See adjustable-rate mortage (ARM).
closing costs
Expenses (over and above the price of the
property) incurred by buyers and sellers in
transferring ownership of a property. Closing
costs normally include an origination fee, an
attorney's fee, taxes, an amount placed in escrow,
and charges for obtaining title insurance and a
survey. Closing costs percentage will vary
according to the area of the country; lenders or
realtors® often provide estimates of closing
costs to prospective homebuyers.
collateral
An asset (such as a car or a home) that guarantees
the repayment of a loan. The borrower risks losing
the asset if the loan is not repaid according to
the terms of the loan contract.
condominium
A real estate project in which each unit owner has
title to a unit in a building, an undivided
interest in the common areas of the project, and
sometimes the exclusive use of certain limited
common areas.
contingency
A condition that must be met before a contract is
legally binding. For example, home purchasers
often include a contingency that specifies that
the contract is not binding until the purchaser
obtains a satisfactory home inspection report from
a qualified home inspector.
cooperative (co-op)
A type of multiple ownership in which the
residents of a multiunit housing complex own
shares in the cooperative corporation that owns
the property, giving each resident the right to
occupy a specific apartment or unit.
cost of funds index (COFI)
An index that is used to determine interest rate
changes for certain adjustable-rate mortgage (ARM)
plans. It represents the weighted-average cost of
savings, borrowings, and advances of the 11th
District members of the Federal Home Loan Bank of
San Francisco. See adjustable-rate mortgage (ARM).
credit history
A record of an individual's open and fully repaid
debts. A credit history helps a lender to
determine whether a potential borrower has a
history of repaying debts in a timely manner.
credit report
A report of an individual's credit history
prepared by a credit bureau and used by a lender
in determining a loan applicant's
creditworthiness. See merged credit report.
D
down payment
The part of the purchase price of a property that
the buyer pays in cash and does not finance with a
mortgage.
E
encumbrance
Anything that affects or limits the fee simple
title to a property, such as mortgages, leases,
easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other
creditors to make credit equally available without
discrimination based on race, color, religion,
national origin, age, sex, marital status, or
receipt of income from public assistance programs.
escrow
An item of value, money, or documents deposited
with a third party to be delivered upon the
fulfillment of a condition. For example, the
deposit by a borrower with the lender of funds to
pay taxes and insurance premiums when they become
due, or the deposit of funds or documents with an
attorney or escrow agent to be disbursed upon the
closing of a sale of real estate.
escrow account
The account in which a mortgage servicer holds the
borrower’s escrow payments prior to paying
property expenses.
F
Fair Credit Reporting Act
A consumer protection law that regulates the
disclosure of consumer credit reports by
consumer/credit reporting agencies and establishes
procedures for correcting mistakes on one's credit
record.
Fannie 97®
A financing option for a fixed-rate mortgage that
offers home buyers a 3 percent down payment loan
with either a 25- or 30-year term. The mortgage
features a loan-to-value (LTV) percentage of 97
percent, and is designed to expand homeownership
opportunities for people with modest incomes.
Borrowers must take a pre-purchase home-buyer
education session to qualify for a Fannie 97
mortgage.
Fannie Mae's Community Home Buyer's
ProgramSM
An income-based community lending model, under
which mortgage insurers and Fannie Mae offer
flexible underwriting guidelines to increase a
low- or moderate-income family's buying power and
to decrease the total amount of cash needed to
purchase a home. Borrowers who participate in this
model are required to attend pre-purchase
home-buyer education sessions.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and
Urban Development (HUD). Its main activity is the
insuring of residential mortgage loans made by
private lenders. The FHA sets standards for
construction and underwriting but does not lend
money or plan or construct housing.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not
change during the entire term of the loan.
foreclosure
The legal process by which a borrower in default
under a mortgage is deprived of his or her
interest in the mortgaged property. This usually
involves a forced sale of the property at public
auction with the proceeds of the sale being
applied to the mrotgage debt.
H
hazard insurance
Insurance coverage that compensates for physical
damage to a property from fire, wind, vandalism,
or other hazards.
home inspection
A thorough inspection that evaluates the
structural and mechanical condition of a property.
A satisfactory home inspection is often included
as a contingency by the purchaser. Contrast with
appraisal.
homeowner's insurance
An insurance policy that combines personal
liability insurance and hazard insurance coverage
for a dwelling and its contents.
HUD-1 statement
A document that provides an itemized listing of
the funds that are payable at closing. Items that
appear on the statement include real estate
commissions, loan fees, points, and initial escrow
amounts. Each item on the statement is represented
by a separate number within a standardized
numbering system. The totals at the bottom of the
HUD-1 statement define the seller's net proceeds
and the buyer's net payment at closing. The blank
form for the statement is published by the
Department of Housing and Urban Development (HUD).
The HUD-1 statement is also known as the
"closing statement" or "settlement
sheet."
I
index
A number used to compute the interest rate for an
adjustable-rate mortgage (ARM). The index is
generally a published number or percentage, such
as the average interest rate or yield on Treasury
bills. A margin is added to the index to determine
the interest rate that will be charged on the
ARM.. This interest rate is subject to any caps
that are associated with the mortgage.
insurance
A contract that provides compensation for specific
losses in exchange for a periodic payment. An
individual contract is known as an insurance
policy, and the periodic payment is known as an
insurance premium.
interest rate
The rate of interest in effect for the monthly
payment due.
IRA (Individual Retirement Account)
A retirement account that allows individuals to
make tax-deferred contributions to a personal
retirement fund. Individuals can place IRA funds
in bank accounts or in other forms of investment
such as stocks, bonds, or mutual funds.
L
liabilities
A person's financial obligations. Liabilities
include long-term and short-term debt, as well as
any other amounts that are owed to others.
lifetime rate cap
For an adjustable-rate mortgage (ARM), a limit on
the amount that the interest rate can increase or
decrease over the life of the loan. See cap.
loan-to-value (LTV) percentage
The relationship between the principal balance of
the mortgage and the appraised value (or sales
price if it is lower) of the property. For
example, a $100,000 home with an $80,000 mortgage
has a LTV percentage of 80 percent.
lock-in
A written agreement in which the lender guarantees
a specified interest rate if a mortgage goes to
closing within a set period of time. The lock-in
also usually specifies the number of points to be
paid at closing.
M
margin
For an adjustable-rate mortgage (ARM), the amount
that is added to the index to establish the
interest rate on each adjustment date, subject to
any limitations on the interest rate change.
mortgage
A legal document that pledges a property to the
lender as security for payment of a debt.
mortgage insurance
A contract that insures the lender against loss
caused by a mortgagor's default on a government
mortgage or conventional mortgage. Mortgage
insurance can be issued by a private company or by
a government agency such as the Federal Housing
Administration (FHA). Depending on the type of
mortgage insurance, the insurance may cover a
percentage of or virtually all of the mortgage
loan. See private mortgage insurance (MI).
N
note
A legal document that obligates a borrower to
repay a mortgage loan at a stated interest rate
during a specified period of time.
O
origination fee
A fee paid to a lender for processing a loan
application. The origination fee is stated in the
form of points. One point is 1 percent of the
mortgage amount.
P
personal property
Any property that is not real property.
point
A one-time charge by the lender for originating a
loan. A point is 1 percent of the amount of the
mortgage.
pre-qualification
The process of determining how much money a
prospective home buyer will be eligible to borrow
before he or she applies for a loan.
principal
The amount borrowed or remaining unpaid. The part
of the monthly payment that reduces the remaining
balance of a mortgage.
private mortgage insurance (MI)
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.
promissory note
A written promise to repay a specified amount over
a specified period of time.
R
real property
Land and appurtenances, including anything of a
permanent nature such as structures, trees,
minerals, and the interest, benefits, and inherent
rights thereof.
Rural Housing Service (RHS)
An agency within the Department of Agriculture,
which operates principally under the Consolidated
Farm and Rural Development Act of 1921 and Title V
of the Housing Act of 1949. This agency provides
financing to farmers and other qualified borrowers
buying property in rural areas who are unable to
obtain loans elsewhere. Funds are borrowed from
the U.S. Treasury.
S
settlement
See closing.
settlement sheet
See HUD-1 statement.
survey
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.
T
title insurance
Insurance that protects the lender (lender's
policy) or the buyer (owner's policy) against loss
arising from disputes over ownership of a
property.
title search
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.
transfer tax
State or local tax payable when title passes from
one owner to another.
Treasury index
An index that is used to determine interest rate
changes for certain adjustable-rate mortgage (ARM)
plans. It is based on the results of auctions that
the U.S. Treasury holds for its Treasury bills and
securities or is derived from the U.S. Treasury's
daily yield curve, which is based on the closing
market bid yields on actively traded Treasury
securities in the over-the-counter market. See
adjustable-rate mortgage (ARM).
trustee
A fiduciary who holds or controls property for the
benefit of another.
Truth-in-Lending
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.
two-step mortgage
An adjustable-rate mortgage (ARM) that has one
interest rate for the first five or seven years of
its mortgage term and a different interest rate
for the remainder of the amortization term.
U
underwriting
The process of evaluating a loan application to
determine the risk involved for the lender.
Underwriting involves an analysis of the
borrower's creditworthiness and the quality of the
property itself.
V
Veterans Affairs, Department of (VA)
An agency of the federal government that
guarantees residential mortgages made to eligible
veterans of the military services. The guarantee
protects the lender against loss and thus
encourages lenders to make mortgages to veterans.
A | B
| C | D | E
| F | G | H | I
| J | K | L | M
| N | O | P
| Q | R | S | T
| U | V | W | X
| Y | Z
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