Agent – An individual who represents a seller, a buyer or both in the purchase or sale of real estate.
Amortization – The schedule of loan payments that establishes the amount of payment to be applied to the principal and the amount to be applied to interest, usually on a monthly basis, for the full term of the loan.
Annual Percentage Rate (APR) – The annual rate that is charged for borrowing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction. Not to be confused with your Note Rate, the APR reflects the interest rate plus the closing costs you will pay in association with getting a loan. Typically your APR will be slightly higher than the interest rate you pay on the loan amount.
Appraisal – A licensed appraiser’s estimate of Value of a home involved in a real estate transaction. Most lenders will require an appraisal in the processing of a loan to verify the home has a market value equal to what the buyer is paying and to make sure the home is in satisfactory condition.
Adjustable Rate Mortgage (ARM) – A mortgage in which the Interest rate is adjustable, meaning that the rate can go up or down according to prevailing financial market conditions.
Buyer’s Agent – A Real Estate Agent that has made an agreement to represent the buyer exclusively, rather than the seller.
Comparable Market Analysis (CMA) – A comparison of the prices of similar houses in the same general geographic area. A CMA is used to help determine the value of a property, either for a seller or a buyer.
Closing – The process that effects the final transfer of the deed from the seller to the buyer, as well as finalize all aspects of the mortgage of the property.
Closing Costs – see FAQ
Contingencies – These are conditions–or “safety valves” written into Real Estate offers and contracts to prevent a buyer from being forced to buy a house that is unsatisfactory–either structurally or financially. Examples of contingencies are “This contract is subject to the buyer obtaining a satisfactory whole house inspection.” or “Subject to the buyer being able to obtain a mortgage.”
Condominium – Housing where the owner owns only the unit in which they live–from the interior walls inward, generally–as well as a portion of the common area.
Debt to Income Ratio – The ratio of a borrowers total of debt as a percentage of their total gross income.
Deed of Trust – The document that, when recorded with your local government, determines ownership of a property. Transferred from seller to buyer at closing.
Earnest Money – Money that is submitted with an offer to purchase which indicates a buyer’s seriousness and good faith. In virtually all cases, earnest money will need to be submitted at the time of the offer and remains in escrow until the time of closing, at which time it becomes part of the downpayment.
Equity – The difference between the value of a property and the total of any outstanding mortgages or loans against it.
Fixed Rate Mortgage – A mortgage loan where the interest rate is established at its origination and continues unchanged through the life of the loan.
FSBO (For Sale By Owner) – Real Estate that is sold without the assistance of an Agent. FSBO can refer to both the individual selling the property “They are a FSBO,” or the property itself “that house is a FSBO.”
Foreclosure – The process through which a lender takes back property from a defaulting owner and re-sells it.
Homeowner’s Association – An owners group, whether in a condominium, townhouse or single family subdivision that establishes general guidelines for the operation of the community, as well as its standards.
Home Warranty – A warranty that a buyer or seller may elect to purchase that covers the owner against most mechanical or structural breakdowns or deficiencies that may occur after the transaction closes. A home warranty typically will have an expiration date a year or more into the future and the cost of the warranty will vary widely based on the items covered and the term.
Impound Account – A non interest bearing account, managed by a mortgage servicer which is established to collect, retain, and distribute the additional costs of home ownership. Typically, Property taxes, homeowners insurance and mortgage insurance are paid in monthly installments with a homeowners regular mortgage payment, held in the servicers impound account, and then disbursed to the county, the insurance company, ETC when the policies become due. Impound accounts may be a requirement of the loan program a home owner chooses.
Inspection – A whole house inspection of a home being considered for purchase which looks for defects in the property.
Interest – That portion of a mortgage payment that is the “charge” for using the lender’s funds.
Lien – A legal claim against a piece of property that can prevent it from being sold unless the lien is satisfied (paid off). Liens can be filed by unpaid contractors or other debtors in a legal process so that they will be paid when a property is sold.
Listing – A property for sale by a Real Estate Brokerage and Agent.
Loan Origination Fee – A charge imposed by the lender, payable at closing, for processing the loan.
LTV (Loan to Value) – The ratio of the amount of the mortgage as a percentage of the value of the property.
MLS (Multiple Listing Service) – A listing (almost always computerized) of all the properties for sale by Real Estate Brokerages in a given geographical area.
PMI (Private Mortgage Insurance) – Required on most conventional loans, PMI is an insurance policy paid for by the borrower which protects the lender against possible financial loss should the borrower default on the loan. the cost of PMI will vary based on a borrowers credit profile, down payment, and type of mortgage insurance the borrower chooses.
Point – In mortgage lending, One Point is equal to one percent of the loan amount. The word is typically used to describe the closing costs associated with a home loan, expressed as a percentage of the loan amount.
Prequalification – A preliminary evaluation of a borrowers income, asset, and credit profile to determine if a home loan may be possible. Prequalification is the first, best step in preparing for a home purchase or refinance so consumers know what their buying power is, what they can expect their payment to be and what they can expect to pay at closing.
Pre-paids or Pre-paid Costs – Items paid through closing required for home ownership. These items are in addition to the closing costs, and typically include property taxes, homeowners insurance, Homeowners association dues, Pre-Paid interest, ETC.
Principal – The amount borrowed for a mortgage loan. Your monthly mortgage payment will be applied to both the interest and the principal (be assured, though, that the lions share will go to the interest portion in the first years of the loan).
Property Tax – An annual or semi-annual tax paid to one or more governmental jurisdictions based on the amount of the property assessment. Generally paid as part of the mortgage payment.
Rate Lock – A commitment by the lender to guarantee a borrower a specific interest rate provided the loan closes within the agreed upon time frame. Rate Locks are typically offered for 15, 30,45, 60 or even 90 days or longer.
Recording – The act of entering deed and/or mortgage information into public record with your local government jurisdiction.
Reserves – Funds deposited into a borrowers impound account at closing to cover upcoming and ongoing costs of home ownership. Typically consists of property taxes, homeowners insurance, and other costs that may be required like flood insurance, mortgage insurance, ETC.
Reverse Mortgage – A type of mortgage in which a homeowners can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan. The amount that a borrower may qualify for is determined by the applicants age, their life expectancy, and the estimated appreciation and current value of their home and credit history and income information are not required.
Title Insurance – Protects your title–your ownership rights–from claims against it. Paid at closing, title insurance is required if there will be a mortgage on the property being purchased and both the buyer and seller will pay a title insurance premium. On refinance transactions, the homeowner will also pay for a new title insurance policy to protect their and the lenders interests.
Zoning – Laws that govern specifically how a zoned area can be used. For example, an area may be zoned for single family residential, condominiums, commerical or retail, or a mix of two or more uses.