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Abstract or Title Search
The process of reviewing all recorded transactions in the public record to determine whether any title defects exist that could interfere with the clear transfer of ownership of the property.
Acceptance
The seller's written approval of a buyer's offer.
Acre
A measurement of land equal to 43,560 square feet.
Actual age
The number of years a structure has been standing.
Additional Principal Payment
Extra money included in the monthly payment to help reduce the principal and shorten the term of the loan.
Adjustable Rate Mortgage (ARM)
A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.
Adjustment Period
The amount of time between interest rate adjustments in an adjustable-rate mortgage.
Agency
The relationship of trust that exists between sellers and buyers and their agents. The agency is formed through a written contract.
Agency Closing
The process by which a lender uses a title company or other firm as an agent to complete a loan.
Allowance
A budget offered by builders of new homes for the purchase of carpeting and fixtures.
Amortization
The process of paying the principal and interest on a loan through regularly scheduled installments. Initially, most of each payment is applied toward interest owed, and later in the loan term increasingly applied toward principal.
Amortization Tables
Mathematical tables that lenders use to calculate a borrower's monthly payment.
Annual Percentage Rate (APR)
A measure of interest rate that expresses the cost of a mortgage as a yearly rate on the loan balance. The APR assumes the loan is held for its full term. For adjustable-rate loans, the APR assumes the loan's index doesn't change from its initial value.
Annuity
The payment of a fixed sum to an investor at regular intervals.
Appraisal
An opinion of the value of a property at a given point in time.
Appraisal Report
A detailed written report on the value of a property based on recent sales of comparable sites in the area.
Appraised Value
An opinion of the current market value of a property.
Appreciation
An increase in the value of a home or other property.
Approval
A thorough assessment made by a lender of a borrower's ability to pay for a home, and a confirmation of the amount the borrower may obtain.
ARM (adjustable rate mortgage)
A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.
ARM Index
A publicly published number used to adjust the interest rate for an adjustable rate loan (ARM). An index (such as Treasury bills or the prime rate) reflects the lender's cost of credit, and is not controlled by individual lenders.
As-Is Condition
The purchase or sale of a property in its existing condition.
Asking Price
A seller's initial price for a property.
Assessed Value
A tax assessor's determination of the value of a home in order to calculate a tax base.
Assessment
The estimated value of a piece of real estate or a levy placed on property in addition to taxes.
Assessor
An official who determines the assessed value of a property.
Assignment
The transfer of rights to pay a debt from one party to another, with the original party remaining liable for the debt if the second party defaults.
Average Price
The price of a home determined by totaling the sales prices of all houses sold in an area and dividing that number by the number of homes.
Balloon Loan
A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principal.
Balloon Payment
The final lump-sum payment due at the end of a balloon mortgage.
Bankruptcy
A proceeding in which an insolvent debtor can obtain relief from payment of certain obligations. Bankruptcies remain on a credit record for seven to 10 years and can severely limit a person's ability to borrow.
Before-Tax Income
Total income before taxes are deducted.
Beneficiary
The lender who makes a loan, also called a mortgagee. The person borrowing money is the mortgagor.
Bill of Sale
A document that transfers ownership of personal property.
Biweekly Mortgage
A mortgage that requires payments every two weeks and helps repay the loan over a shorter term.
Blanket Mortgage
A mortgage that covers more than one property owned by the same borrower.
Bylaws
The rules and regulations that a homeowners association or corporation adopts to govern activities.
Cap
A limit on the amount the interest rate or monthly payment can increase in an adjustable rate mortgage.
Carryback Financing
Financing in which a seller agrees to take back a note for a set amount of the sale of the home.
Cash Flow
The amount of cash a rental property investor receives after deducting operating expenses and loan payments from gross income.
Cash-Out Refinance
The refinancing of a mortgage in which the money received from the new loan is greater than the amount due on the old loan. The borrower can use the extra funds in any manner.
Central Air Conditioning
A device that generates cold air through an outside unit connected to ductwork inside the house.
Chain of Title
The official record that details the ownership history of a piece of property.
Chattel
Personal property such as furniture, clothing, or a car.
Closing
The final procedure in which documents are signed and recorded and the property is transferred.
Closing Costs
Expenses incidental to the sale of real estate, including loan, title, and appraisal fees. These costs exist in addition to the price of the property and are paid at closing. Some are one-time expenses and some are recurring.
Closing Statement
A document which details the final financial settlement between a buyer and seller and the costs paid by each party.
Comparables
Properties used as comparisons to determine the value of a certain property.
Comparative Market Analysis
An estimate of the value of a property based on an analysis of sales of properties with similar characteristics.
Condominium
Individual units in a building or development in which owners hold title to the interior space while common areas such as parking lots, community rooms, and recreational areas are owned by all the residents.
Conforming Loan
Any loan that meets the qualifications to be purchased by Fannie Mae or Freddie Mac. The current conforming loan limit is $252,700.
Construction-to-Permanent Loan
A construction loan that is converted to a longer-term traditional mortgage after construction has been completed.
Consumer Credit Counseling Service (CCCS)
A nationwide, nonprofit organization that helps consumers get out of debt and improve their credit profile. National headquarters: 8701 Georgia Avenue., Suite 507, Silver Springs, MD 20910. Phone: (800) 388-2227.
Contiguous Lots
Pieces of property that are adjoined.
Contingency
A condition specified in a purchase contract, such as a satisfactory home inspection.
Contract for Deed
A contract in which the seller agrees to defer all or part of the purchase price for a specified period of time.
Conveyance
The transfer of title of property.
Courier Fee
Fee charged at closing to cover the delivery of documents between lenders, escrow companies, and other parties during a real estate transaction.
Credit History
A record of an individual's current and past debt payments.
Credit Rating
The degree of creditworthiness assigned to a person based on credit history and financial status.
Credit Report
A detailed account of an individual's credit, employment, and residence history. A lender uses this report to determine a loan applicant's creditworthiness. The three largest credit bureaus are Trans Union Corp., Equifax, and Experian (formerly TRW).
Credit Repository
Large companies that gather financial and credit information from various sources about individuals who have applied for credit.
Current Value
The value of a home at the time of appraisal.
Debt
Any amount one person owes to another.
Decorating Allowance
An amount of money supplied by the seller and held in escrow for the buyer, to be applied toward negotiated decorating changes.
Deed
The legal document that transfers ownership of a piece of property.
Deed of Trust
A document that gives a lender the right to foreclose on a piece of property if the borrower defaults on the loan.
Deferred Maintenance
Any repair or maintenance of a piece of property that has been postponed, resulting in a decline in property value.
Delinquent Mortgage
A mortgage that involves a borrower who is behind on payments. If the borrower cannot bring the payments up to date within a specified number of days, the lender may begin foreclosure proceedings.
Depreciation
The decline in value of a piece of property.
Disclosure
A statement to a potential buyer listing information relevant to a piece of property, such as the presence of radon or lead paint.
Discount Points
Fees that a borrower pays when the lender makes the loan, to get a lower interest rate. Lenders offer various rate/point combinations, and borrowers pay points to adjust the interest rate to the market rate. One point equals one percent of the loan amount.
Distressed Property
Property that is in poor physical or financial condition.
Documentation Preparation
A fee charged by the settlement agent (escrow company or attorney) to ready the necessary paperwork for closing.
Down Payment
The difference between purchase price and the portion of the purchase price financed by a lender. Most lenders require that the down payment come from the buyer's own funds, but may also allow gifts from relatives.
Due-On-Sale Clause
Standard language in a mortgage which states that the loan must be paid when a house is sold.
Earnest Money
Money a buyer gives with an offer to purchase a property. Also called a deposit.
Easement
A right given to a third party to use a portion of the property for certain purposes, such as power lines or water mains.
Effective age
The age of a structure estimated by its condition rather than its actual age.
Electronic transfer
The process of having a mortgage payment automatically deducted from a borrower's checking or savings account. Many lenders offer this service.
Eminent domain
The government's right to condemn private land for public use, such as the routing of a public highway.
Encumbrance
A claim or lien on a property which complicates the title process.
Equal Credit Opportunity Act (ECOA)
Federal law that prohibits a lender or other creditor from refusing to grant credit based on the applicant's sex, marital status, race, religion, national origin, or age, or because the applicant receives public assistance.
Equifax
Equifax Credit Information Services, Inc., is one of the "Big Three" credit-reporting bureaus that operate nationwide. Address: P.O. Box 740249, Atlanta, GA 30374. URL: http://www.equifax.com. Phone: (800) 685-1111.
Equity
A determination of the value of a property after existing liens are deducted.
Escrow Account
An account that a lender or mortgage servicer establishes to hold funds for the payment of expenses such as homeowners insurance and property taxes. Also known as an impound account.
Estimated Closing Costs
An estimate of expenses incidental to the sale of real estate, including loan, title, and appraisal fees. These costs are in addition to the price of the property, and are prepaid at closing. Some are one-time expenses and some are recurring.
Examination of Title
An inspection by a title company of public records and other documents to determine the chain of ownership of a property.
Experian
Experian, formerly known as TRW Information Systems & Services, is one of the "Big Three" credit-reporting bureaus. Address: 505 City Parkway West, Orange, CA 92868. Phone: (800) 392-1122.
Fair Credit Reporting Act
A federal law designed to regulate procedures and prevent old or inaccurate information from staying in consumer credit files. The act gives individuals the right to inspect their own credit files, although the credit bureau may charge a fee.
Fair Housing Act
Landmark federal law that makes it illegal to refuse to rent or sell to anyone based on race, color, religion, sex, or national origin. The 1988 amendments to the act expanded the protections to include family status and disability.
Fannie Mae
The official name of the Federal National Mortgage Association, it is a congressionally chartered, shareholder-owned company that buys mortgages from lenders and resells them as securities on the secondary mortgage market.
Federal Home Loan Mortgage Corporation (FHLMC)
The Federal Home Loan Mortgage Corporation is commonly known as Freddie Mac. The company buys mortgages from lending institutions, pools them with other loans, and sells shares to investors.
Federal Housing Administration (FHA)
This government agency operates a variety of home-loan programs. Its most popular is the Section 203(b) program, which provides low-rate mortgages to buyers who make a down payment as small as 3 percent.
Federal National Mortgage Association (FNMA)
Now officially dubbed Fannie Mae, this federally chartered agency buys mortgages from lending institutions, pools them with other loans, and sells shares to investors.
Federal Reserve Board
A group of economists and other experts who set the nation's monetary policy. Its chief tool to control inflation is the power to control interest rates.
Fee Simple
This type of ownership, also called fee simple absolute, is the maximum interest a person can have in a piece of real estate. It entitles the owner to use the property in any manner they see fit, in accordance with state and local laws.
FHA Loans
Mortgages that are insured by the Federal Housing Administration (FHA). The FHA operates loan plans for investors and purchasers of rural property, and provides low-rate mortgages to buyers who make a down payment as small as 3 percent.
Financed Closing Costs
Closing costs that are added to the loan amount. This practice saves the borrower cash up front, but increases the borrower's monthly payment.
Fixed-Rate Mortgage
A home loan with an interest rate that will remain at a specific rate for the term of the loan. About 75 percent of all home mortgages have fixed rates.
Flood Certification
The process of determining whether a property is located within a known flood zone. If the property is in a flood zone, the lender will probably require federally provided flood insurance.
Flood Insurance
Hazard coverage that is required in designated flood areas.
Foreclosure
Legal process by which a lender ends the borrower's interest in a property after a loan is defaulted. The lender may sell the property and keep the proceeds for mortgage and legal costs, using excess proceeds to satisfy other liens or return to the borrower.
Freddie Mac
The common name for the Federal Home Loan Mortgage Corporation (FHLMC), a congressionally chartered institution that buys mortgages from lenders and resells them as securities on the secondary mortgage market.
Functional obsolescence
A loss in value to an improvement resulting from functional problems caused by age or poor design.
Good-Faith Estimate (GFE)
An estimate from an institutional lender that shows the costs a borrower will incur, including loan-processing charges and inspection fees.
Government National Mortgage Association (GNMA)
Commonly known as Ginnie Mae, this agency buys home loans from lenders, pools them with other loans and sells shares to investors. Unlike similar agencies Fannie Mae and Freddie Mac, Ginnie Mae only purchases loans backed by the federal government.
Hazard Insurance
Also known as homeowner's insurance or fire insurance, hazard insurance covers physical risks such as fire and wind damage. Lenders usually require coverage for at least the replacement value of the home.
Home Equity Line of Credit (HELOC)
An open-ended line of credit based on a homeowner's accumulated equity. Most loan amounts are limited to 75 to 85 percent of home's appraised value; withdrawals can be made at any time within the credit line's guidelines.
Home Equity Loan
A loan that allows owners to borrow against the equity in their homes.
Home Inspection
An examination of a home's construction, condition, and internal systems by an inspector or contractor prior to purchase.
Homeowner's Insurance
This insurance includes hazard coverage for any damages that may affect the value of a house, in addition to personal liability and theft coverage.
HUD
Abbreviation of (the U.S. Department of) Housing and Urban Development, a federal agency that oversees the Federal Housing Administration (FHA) and a variety of housing and community development programs.
HUD-1 Uniform Settlement Statement
A closing statement or settlement sheet that outlines all closing costs on a real estate transaction or refinancing.
HVAC
Heating, ventilation, and air conditioning.
Individual Retirement Account (IRA)
A tax-deferred savings account in which a person may accrue retirement funds.
Interest Rate
The fee, expressed as a percentage, charged for a loan. The interest rate also helps determine the monthly payment. For adjustable-rate loans, the interest rate may change from its initial level.
Investment Property
Real estate that generates income, such as an apartment building or a rental house.
Joint Tenancy
Ownership by two or more people that gives equal shares of a piece of property. Rights pass to the surviving owner or owners.
Judgment
The decision of a court or law. If a court decides that a person must repay a debt, a lien may be placed against that person's property.
Lease Option
A lease that contains the right to purchase the property for a specific price within a certain time frame.
Leasehold
The limited interest in a property held by a tenant; primarily the right to inhabit it for a specified period of time. At the end of the lease, the property reverts to the owner or landlord.
Lender
A bank, savings institution, or mortgage company that offers home loans.
Liabilities
A borrower's debts and financial obligations.
LIBOR
Acronym for "London Interbank Offered Rate." An index used to determine interest rate changes for adjustable rate mortgages.
Liquid Assets
Cash and all other assets that can be converted to cash relatively quickly. Liquid assets can include money in savings and checking accounts, money-market accounts, and most certificates of deposit.
Loan Application
The first step toward submitting a home loan requires the borrower to itemize basic financial information.
Loan Officer
An official lending institution representative who is empowered to act on behalf of the lender within certain limits.
Loan Origination Fee
The lender requires a loan origination fee (or points) to cover the direct costs of arranging the loan.
Loan-to-Value Ratio (LTV)
The ratio of the total loan amount to the value of the property. For lending purposes, the value is equal to the purchase price or the appraised value, whichever is lower.
Lock-In Period
A period of time during which the borrower is guaranteed an agreed-upon interest rate, even if market rates rise. The longer the period, the higher the cost (in points) to the borrower.
Mechanic's Lien
Subcontractors or suppliers sometimes will file an encumbrance, or mechanic's lien, against a property to seek payment.
Merged Credit Report
A report that draws information from the Big Three credit-reporting companies: Equifax, Experian, and Trans Union Corp.
Mixed-Use Development
A project that combines several different functions, such as residential space above a commercial establishment or an entire development combining commercial, residential, and public accommodations.
Mortgage
In casual use, a sum of money borrowed to purchase a home at a certain interest rate using the property as collateral. In formal use, a mortgage is the legal document that pledges property as collateral for a loan.
Mortgage Banker
A company that provides home loans using its own money. The loans are usually sold to investors such as insurance companies and Fannie Mae.
Mortgage Broker
A company that matches lenders with prospective borrowers who meet the lender's criteria. The mortgage broker does not make the loan, but receives payment from the lender for services.
Mortgage Insurance
Required by lenders on some loans to protect lenders from a possible default. Most conventional loans with down payments or home equity percentages that are less than 20 percent of the home value require private mortgage insurance (PMI).
Mortgage-Interest Deduction
The tax write-off that the Internal Revenue Service allows most owners to claim for annual interest payments made on real estate loans.
No-Cash-Out Refinance
The amount of the new mortgage covers the remaining balance of the first loan plus closing costs and any liens, and yields no more than 1 percent of the new loan's principal in cash.
Non-Conforming Loan
A non-conforming loan is any loan that doesn't meet the qualifications or is too large to be purchased by Fannie Mae or Freddie Mac.
Note Rate
The interest rate specified in a mortgage note.
Original Principal Balance
The amount of principal owed on a loan before a borrower makes any payments.
Origination Fee
A fee charged by most lenders to cover the direct costs of arranging the loan; also called points. A point is 1 percent of the total loan amount.
Owner Financing
A transaction in which the seller of a property agrees to finance all or part of the purchase.
PITI (principal, interest, taxes, and insurance)
A payment amount calculated by the lender to include the principal, interest, taxes, and insurance on an amortizing loan. The figure is designed to represent the borrower's actual monthly mortgage-related expenses.
PMI (private mortgage insurance)
A form of insurance required by a lender when the borrower's down payment or home equity percentage is less than 20 percent of the home value. This insurance partially protects the lender if the borrower defaults on the loan.
Point
An amount equal to 1 percent of the loan amount. Points may be paid by the borrower at the time the loan is made to get a lower interest rate. Lenders offer various rate/point combinations.
Portfolio lender
A lender that makes loans with its own funds and keeps the loans on the company's books-in other words, inside the institution's portfolio-rather than selling loans on the secondary market.
Possession
A buyer officially takes possession of a house upon signing the closing papers and receiving the keys.
Power of Attorney
A document that authorizes an individual to act on behalf of someone else.
Prequalification
A lender's preliminary assessment of a buyer's ability to pay for a home, and an estimate of how much the buyer may borrow.
Prepayment Penalty
A penalty that a lender may impose on a borrower who pays a loan off before its expected end date.
Prime Lending Rate
The minimum short-term interest rate charged by commercial banks to their most creditworthy clients. Home loan rates typically are several points above the prime rate, which is also used as the basis for mortgages, business loans, and personal loans.
Processing Fee
A fee charged by some lenders for gathering information necessary to process the loan.
Property Tax
Tax paid on privately owned property. Property taxes are usually paid semiannually, or monthly if the lender requires. The amount is based on local tax rates and assessed property value.
Property Tax Deduction
The U.S. tax code allows homeowners to deduct the amount they have paid in property taxes.
PUD (planned unit development)
A highly designed residential project that features relatively dense clusters of houses, which are usually surrounded by areas of commonly owned open space maintained by a nonprofit community association.
Purchase Agreement
A document that details the purchase price and conditions of the transaction.
Qualifying Ratio
A ratio calculated by a lender to determine how much a potential buyer can borrow.
Quitclaim Deed
A document that releases a party from any interest in a piece of real estate.
Real Estate
Land and anything permanently affixed to it, including buildings.
Real Estate Settlement Procedures Act (RESPA)
A federal law designed to make sellers and buyers aware of settlement fees and other transaction-related costs. RESPA also outlaws kickbacks in the real estate business.
Recorder
A public official responsible for keeping record of all real estate transactions.
Refinancing
The process of replacing an older mortgage with a new mortgage that has better terms.
Real Property
Land and any permanent fixtures on it, including buildings, trees, and other fixtures.
Replacement Cost
The current cost of rebuilding a structure to its original specifications.
Reverse Mortgage
A special type of loan available to equity-rich, older owners. Repayment is not necessary until the borrower sells the property.
Right to Rescission
A provision in the federal Truth in Lending Act that allows borrowers to cancel certain kinds of loans within three days of signing.
Seller Financing
The seller allows the borrower to use a portion of the equity in the property to finance the purchase.
Settlement or Closing Fees
Fees paid to the escrow agent (and often a title insurance company) for carrying out the written instructions of the agreement between buyer and seller and/or borrower and lender.
Settlement Statement
A document that details who has paid what to whom.
Sweat Equity
The non-cash value added to a piece of property by the owner, such as do-it-yourself home improvements.
Tax Lien
A lien placed against a property for nonpayment of taxes.
Tenancy by the Entirety
Ownership by a husband and wife in which they together hold title to the whole property with right of survivorship.
Tenancy in Common
A form of ownership in which two or more owners hold an undivided (though not necessarily equal) interest in the property, with no right of survivorship.
Title
The legal document conferring ownership of a piece of real estate.
Title Insurance
A policy issued to lenders and buyers to protect against loss due to disputed property ownership.
Title Search
The process of reviewing all recorded transactions in the public record to determine whether any title defects exist that could interfere with the clear transfer of ownership of the property.
Trans Union Corporation
Trans Union Corporation is one of the "Big Three" credit-reporting bureaus that operate nationwide. Address: 760 Sproul Road, P.O. Box 390, Springfield, PA 19064-0390. Phone: (800) 888-4213 .
Transfer of Ownership
Any legal means by which a piece of real estate changes hands.
Transfer Tax
An assessment by state or local authorities at the time a piece of property changes hands.
Treasury Index
An index used to determine interest rate changes for adjustable rate mortgages.
Truth in Lending Act
A federal law that allows a consumer to cancel a home-improvement loan, second mortgage, or other loan until midnight of the third business day after a contract is signed, if the home was pledged as security (except for a first mortgage or first trust deed).
Underwriting
The process in which lenders evaluate the risks posed by a particular borrower and set appropriate conditions for the loan.
Underwriting Fee
A fee charged by the lender to verify information on the loan application, authenticate the property's worth as collateral, and make a final determination about whether to grant a loan to the applicant.
U.S. Department of Housing and Urban Development
Also known as HUD. A federal agency that oversees the Federal Housing Administration and a variety of housing and community development programs.
VA loan
A loan through the Veterans Administration program, which allows most veterans to purchase a house without a down payment.
Verification of Deposit
Part of the loan process, in which a lender will ask a borrower's bank to sign a statement verifying the borrower's account balances and history.
Verification of Employment
Part of the loan process, in which a lender asks the borrower's employer for confirmation of the borrower's position and salary.
Waiver
A voluntary relinquishing of certain rights or claims.
Walk-Through
A buyer's final inspection of the home to determine if conditions in the purchase agreement have been satisfied.
Zero-Net
When the seller receives little or no net proceeds from the property sale.
Zoning
Regulations that control the use of land within a jurisdiction.
Zoning Variance
A one-time modification of existing zoning law.
