Glossary of Real Estate Terms

Abstract of Title - A condensed version of the history of title to land, consisting of a summary of the various links in the chain of title and a statement of all liens, charges or encumbrances affecting the property.

Adjustable Rate Mortgage (ARM) – A loan that allows the interest rate to periodically be adjusted up or down, depending on a specified financial index.

Annual Percentage Rate (APR) – The actual finance charge for a loan, including points and loan fees, in addition to the stated interest rate.

Amortization – A method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of principal to interest changes over time.

Appraisal – An expert opinion of the value or worth of a property.

Assumption of Mortgage – Buyer assumes liability for an existing mortgage note held by the seller. This is usually subject to approval by the lender, who must be willing to approve the buyer and release the seller.

Balloon Mortgage – A mortgage that has a substantial amount of the principal due at the maturity of the note.

Binder – A small amount of money accompanying an offer to buy, along with written agreement to go to contract for the sale of property.

Broker – A Real Estate professional who has a higher level of training than an Agent. Generally, the Broker is the one who is the legal representative or proprietor of the office.

CAP – Limit on how much the interest rate can be changed in an ARM.

Certificate of Title – Document, signed by a title examiner, stating that a seller has an insurable title to the property.

Closing – The meeting where the deed to property (ownership) is legally transferred from the seller to the buyer.

Closing Costs – All financial transactions required to make the contract final. These include funds paid by both the seller and buyer for the closing of a real estate transaction that conveys title to a property.

Contingency – A condition in a contract that must be met for the contract to be binding.

Contract – A binding legal agreement between two or more parties that outlines the conditions for the exchange of value.

Conversion Clause – A provision that allows converting an ARM to a fixed-rate loan after a specified time.

Cooperative (Co-op) – A particular type of real estate ownership where all shareholders own the whole property, but each has proprietary occupancy rights for specific units.

Deed – A legal document that formally conveys ownership of property from seller to buyer.

Down Payment – Percentage of the purchase price of a property that the buyer must pay in cash and may not borrow from the lender.

Earnest Money – Payment given to the seller by a potential buyer indicating the buyer’s intent to complete the purchase of the property.

Equity – The value of the property actually owned by the property owner.  Equity is usually the difference between the purchase price and the amount of the owner’s indebtedness on a property.

Escrow – A fund or account held by a third-party custodian until conditions of the contract are met.  There are also other definitions for this word "escrow."

FHA (Federal Housing Administration) Mortgage – A mortgage loan insured by the Federal Housing Administration that permits mortgage lenders to offer better terms.

Federal National Mortgage Association (FNMA, called "Fannie Mae") – Privately owned corporation created by Congress that buys mortgage notes from local lenders and is responsible for the guidelines a majority of lenders use to qualify borrowers.

Finance Charge – The total cost, including all fees, points and interest payments a borrower pays to obtain credit.

Fixed Rate Mortgage – Interest rates on this type of mortgage remain the same over the life of the loan term.

Foreclosure – A legal process instituted by a lender to have the proceeds from the sale of a property applied to the payment of a defaulted debt.

Home Inspection Report – A report prepared by a qualified home inspector evaluating a property’s structure and mechanical systems.

Interest – The cost of borrowing money.

Lien – A legal claim against a property until a debt is satisfied.

Listing Contract – An agreement whereby an Owner engages a Real Estate Company for a specified period to sell property, for which upon the sale the agent receives a commission.

Loan Origination Fee – The charge paid to a lender by a borrower for processing a mortgage.

Market Price - The actual price at which a property is sold.

Market Value – The price that is established by present economic conditions, location and trends.

Multiple Listing Service (MLS) – A system that provides to its members detailed information about properties for sale.

Negative Amortization – When monthly payments aren’t enough to cover interest costs, they are added to the principal balance, and you may end up with a principal balance which is higher than when you started.

Origination Fee – Application fee(s) for processing a proposed mortgage loan.

PITI – Principal, Interest, Taxes and Insurance, forming the basis for monthly mortgage payments.

Point – One percent of the loan principal. It’s charged in addition to interest and fees.

Prepayment Penalty – A fee paid by a borrower who pays off the loan before it is due.

Pre-Qualification - An informal estimate of how much financing a potential borrower might expect to obtain.

Principal – One of the parties to a contract or the amount of money borrowed, for which interest is charged.

Realtor – a member of the National Association of Realtors.

Settlement – All financial transactions required to make the contract final.

Title – A document that indicates ownership of a specific property.

Title Insurance – Protection against loss from legal defects in the title of the property. It safeguards the owner against loss due to any defects in the title such as, fraud, court proceedings, missing heirs, incompetence of previous seller(s), recording mistakes and un-filed liens. 

Title Search – A painstaking research and investigation of all known documents regarding current and prior ownership of the property you are about to purchase to determine the current status of the title and to ensure that there are no defects in the title of the property.

VA Mortgage (Veteran's Administration) – A mortgage loan guaranteed by the Veterans Administration. The Veterans Administration if an agency of the federal government that provides services for eligible Veterns.