Common Real Estate Terms

Below are some common real estate terms that I have defined.

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the renegotiable rate mortgage or the variable rate mortgage.
Annual Percentage Rate (APR)
Is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.
An estimate of the value of property, made by a qualified professional called an "appraiser".
Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Buyer's Agent
A real estate agent who acts or works exclusively on behalf of the buyer.
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement.
Closing Costs
Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.
Conventional Loan
A mortgage not insured by FHA, guaranteed by the VA, or having deferred interest, which is when a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.
Credit Report
A report documenting the credit history and current status of a borrower's credit standing.
Credit Report Agencies (Credit Bureau)
A company that collects information from various sources and provides credit information for individuals. There are three main credit reporting agencies in the United States. They are:
- Equifax
- Experian
- TransUnion
Credit Score
A numerical value assigned based upon what is in your credit report
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans).
Deed of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note.
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10% to 20% of the sales price on conventional.
Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
The value an owner has in real estate over and above the obligation against the property.
Funds that are set aside and held in trust, usually for payment of taxes and insurance on real property. Earnest money is held in an escrow account pending loan closing.
Federal Housing Authority (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. There are limits to the size of FHA loans, but these loans allow for downpayments as low as 3.5%.
Fixed-Rate Mortgage
A mortgage in which the interest rate will remain the same throughout the term of the mortgage for the original borrower.
Homeowners or Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Identity Theft
A form of stealing where one assumes the identity of another person, typically in order to access resources or obtain credit.
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
Mortgage Insurance Premium (MIP)
Paid on FHA-insured loans. It is either paid as an upfront fee of 1.75% of your loan size or as an annual fee. MIP is only paid until the Loan-to-Value ratio reaches 78%. On 30-year mortgages, you must pay MIP for at least 5 years.
The lender
The homeowner or borrower
Multi-Listing Service (MLS)
This is the service provided by real estate professionals with all the homes for sale in the area in which the seller has agreed to pay for the home to be sold.
Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
Points (Loan Discount Points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
Private Mortgage Insurance (PMI)
In the event that you do not have a 20% down payment, lenders will allow a smaller down payment - as low as 5% in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0% to 5.0% of your mortgage amount and may require an additional monthly fee depending on you loan's structure. On a $75,000 house with a 10% down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.
A real estate agent or broker holding active membership in a local real estate board affiliated with the NATIONAL ASSOCIATION OF REALTORS®.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.
Seller's Agent
A real estate agent who acts or works exclusively on behalf of the seller.
Seller's Disclosure
This is a document filled out by the seller providing updated information to the buyer concerning repairs that were made to the home or items that may have been replaced since their ownership.
A document that gives evidence of an individual's ownership of property.
Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
VA Loan
A long-term, low- or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.