Real Estate Terms and Definitions - Home Buying

We've provided definitions of real estate terms for you.  Click on the links for further information on individual topics.  We'll be happy to go over them with you on the phone if you have any questions about home buying terms, so feel free to call us.

Annual Percentage Rate: Annual Percentage Rate (APR) is the total financing rate for a loan, which includes not just the interest rate but also fees and costs that increase the true cost of financing

Amortization: Amortization is a method of equalizing monthly mortgage payments over the life of the loan by adjusting the proportion of principal to interest over time. At first, the interest payment is high and the principal payment is low. At the end of the loan, interest payments are low and principal payments are high. 

Appraisal: Appraisal is a professional opinion as to the value of a home or piece of real estate. 

Adjustable Rate Mortgage: An Adjustable Rate Mortgage (ARM) is a loan where the interest rate is periodically adjusted up or down over the life of the loan based on a specified financial index. The ARM may have "caps" that limit the amount your interest rate may change. An ARM generally carries a lower initial rate than fixed-rate loans because it moves with the market. 

Assessed Value: Assessed Value is the value placed on a property by a municipality for the purpose of levying taxes. The municipality's assessed value may greatly differ from the appraised value of the real estate. 

Closing Costs: Closing Costs are the fees paid by the seller or buyer at the closing of a real estate transaction. They may include title search and escrow fees, attorneys’ fees, title insurance premiums, deed recording fee and transfer taxes.

Commission: Commissions are fees paid to real estate agents or brokers for their services. They are often calculated as a percentage of the sale price, or as a flat fee.

Comparative Market Analysis: A Comparative Market Analysis (CMA) is a survey of comparable homes recently sold or currently on the market used to help determine a fair market value for a seller's property. 

Contingency: A Contingency is condition put in a contract that must be met for the contract to be binding. Common contingencies include financing, inspection, and others which protect buyers of real estate and their earnest money.

Conventional Loan: A Conventional Loan is any loan not insured or guaranteed by a government agency. Institutional lenders make conventional loans, while FHA and VA loans are backed by the government. 

Deed: A Deed is the legal document that conveys ownership of a property from seller to buyer.

Disclosure Statement: Disclosure Statements, in the case of mortgage lending, are detailed explanations of the specific loan for which you are applying. There are also seller disclosure statements, which allow the seller to inform the buyer of material facts about a home.

Discount Points: Discount points are fees paid to buy down the interest rate when obtaining a loan. Each point is one percent of the total loan amount. 

Down Payment: The Down Payment is the amount of the purchase price that a buyer pays to the seller and that is not borrowed from a financial institution. It’s the portion of the sale price that is not included in the mortgage. 

Due On Sale Clause: A “due on sale” clause in a mortgage provides that if the mortgagee sells, transfers, or in any way encumbers the property, the mortgagor has the right to implement the acceleration clause, making the balance of the obligation due. 

Escrow: Escrow is a third party, acting as the agent for the buyer and seller, who carries out instructions of both and assumes the responsibilities of handling all paperwork and disbursement of funds. 

Freddie Mac: The Federal Home Loan Mortgage Corporation, or "Freddie Mac," is a government agency that performs a function similar to that of FNMA ("Fannie Mae"). FHLMC issues its own mortgage-backed securities, which are backed by the conventional mortgages it purchases.

Fixture: A fixture is something that is permanently attached to a property and belongs with the property when it is sold, such as a light fixture, air conditioner etc. 

Ginnie Mae: The Government National Mortgage Association, or "Ginnie Mae," is a government agency supervised by HUD. A primary function of GNMA is to promote investment by guaranteeing the payment of principal and interest on FHA and VA mortgages. It carries out this function through its mortgage-backed securities program. 

HUD: HUD is the U.S government’s Housing and Urban Development Agency. It is also the name given to the closing statement for a sale of real estate.

Index: An index is the interest rate indicator used to determine changes in the mortgage rate. An index reflects current economic conditions and is published regularly for use by lenders. Popular indexes are Treasury bills and Treasury securities. 

Lien: A lien is a debt or security claim on property. Liens usually must be paid prior to sale. 

Market Value: Market Value is the price as established by home condition, economic conditions, location, and a buyer’s willingness based on those factors to pay that price. 

MLS: The Multiple Listing Service (MLS) is a system that provides real estate broker members detailed information about most properties for sale in a given market. 

Negative Amortization: Negative Amortization is a loan payment schedule that increases rather than decreases the outstanding principal balance, because the payments do not cover the full amount of interest due (deferred interest). The unpaid interest is then added to the principal. 

Origination Fee: An Origination Fee is a fee for processing a proposed mortgage loan.  A 1% origination fee is also know as 1 point. 

PITI: PITI is an acronym for Principle, Interest, Taxes, and Insurance. These form the basis for a total monthly mortgage payment calculation. 

PMI: Private Mortgage Insurance (PMI) is insurance written by a private company protecting the lender against loss due to a mortgage default. It is known as MIP for FHA loans. PMI exists for many loans where the home has less than 20 percent equity.

Points: Points are a synonym for one percent. Points may be charged as part of a mortgage, in addition to interest and fees. 

Prepayment Penalty: A prepayment penalty is a fee paid by a borrower who pays off the loan before it is due. Many loans do not have prepayment penalties.

Principal: Principal is the amount of money currently outstanding on the balance of a loan. It can also refer to one of the parties to a contract. 

Qualifying Rate: Qualifying Rate is the interest rate at which a lender will calculate a borrower’s ability to afford payments and thereby qualify for a loan.

Rate Cap: A Rate Cap is a limit on the interest rate which determines loan payments. It sets a maximum amount which the interest rate can change during the loan term. 

Rate Lock: A Rate Lock is an interest rate which is guaranteed to remain the same from the time of your loan application through the time your loan is approved. Whether your loan's index rises or falls during that period, you pay the rate which was current at the time of the rate lock, so long as the loan closes in the timeframe specified in the rate lock.

Reserve Funds: Reserve funds are monies set aside for future payment of items (taxes, insurance, PMI, etc.), sometimes referred to as an impound account. 

Second Mortgage: A second mortgage is an additional loan secured against a piece of real estate while a first mortgage is still in place. The risk to the lender is greater because it is subordinate to the first loan; therefore, the interest rate is usually higher and conditions more stringent.

Title Insurance: Title insurance is an insurance policy on the document that indicates ownership of a specific property. It is a financial safeguard in case the ownership of the property falls into question in the future.

Title Search: Title Search is a detailed examination of the entire document history of a property title to make sure that there are no legal encumbrances. 

Financing Contingency: A Financing Contingency is a condition in a contract that can create financial protections for buyers in the case that their mortgage financing doesn’t come through.

Inspection Contingency: An Inspection Contingency is a condition in a contract that can allow buyers to inspect a property for potential issues before being fully financially committed to close on the sale.

Possession Date: Possession Date is the date on which a home buyer can physically enter or make use of the property.

HOA: An HOA is a homeowner's association, most commonly existing in condominiums.

Resale Certificate: A Resale Certificate is the documentation showing the financial and organizational details of a condominium's management.

Pending: “Pending” is the status of a property which has a signed contract for its purchase, but has not yet closed.

IDX: IDX, or Internet Data Exchange, is the platform for brokers to display each others' listings online.

Syndication: Syndication is the republishing of real estate listings to 3rd party sources for advertising.

FHA Approved Condo: An FHA-approved condo is a condominium building whose condition and finances meet the standards of FHA financing.

Sewer Scope Inpection: A sewer scope inspection is a video scoping of the sewer line from a building to the city sewer lines.

Mold Inspection: A mold inspection is a specialized inspection to determine the existence and/or types of mold in a property.

Lead Paint: Lead based paint is a type of paint that was used widely up until the late 1970s which had lead as an ingredient.

Agency Law: Agency Law is the legal framework that protects real estate agents and their clients by defining their roles.

Bidding War: A bidding war is a real estate sale in which multiple buyers present offers which push the sale price upward.

Multiple Offer Situation: A multiple offer situation is a real estate sale in which more than one offer is submitted for the seller to review.

Sellers Market: A Sellers’ Market is a real estate market where sellers have more control, often when inventory is low.

Buyers Market: A Buyers’ Market is a real estate market where buyers have more control, often when inventory is high.

Escalation Clause: An Escalation Clause is a portion of a real estate purchase offer which allows the buyer to pay a higher price if faced with competitive offers.