Real Estate Glossary

Adjustable-Rate Mortgage (ARM): A mortgage in which the interest rate changes periodically, according to corresponding fluctuations in the market. The opposite would be a fixed-rate mortgage.

Amortization: The paying off of a debt in installments over time.

Amortization Schedule: A schedule showing, throughout the life of the mortgage, the amount that goes toward principal and the amount that goes toward interest.

Appraised Value: An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc. of the property and surroundings.

Assessed value: The value placed on property for the purposes of taxation. This is determined by your local tax assessor.

Assumption Transfer Fee: A fee assessed by the lender to the buyer to assume an existing loan.

Bill of Sale: A written document that transfers title, usually used by the seller to document their funds.

Cap: A limit to the amount an adjustable-rate mortgage can change over any given period or over the life of the loan.

Certificate of Eligibility: A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.

Certificate of Reasonable Value (CRV): In a VA loan, this is a certificate issued by the Veterans Administration once the property has been appraised.

Chain of Title: This history of a property’s ownership over time.

Closing: The final step to buying or sell a home, in which all of the documents are signed and the money changes hands.

Closing Costs: The one-time costs associated with buying or selling a house or other property. See Buyer’s Closing Costs or Seller’s Closing Costs.

Collateral: Any item of value, which the borrower puts at risk in the event that he defaults on a loan. In the case of a mortgage or home loan, the property is the collateral.

Collection: The process of attempting to collect past-due payments on a loan by referring the loans to a collection agency.

Commission: The percentage of the price of a house or the amount of the loan retained by the agent or broker in payment for their services.

Common Areas: The parts of a building or community which are used by all the members of that community, paid for and maintained by the Homeowners Association. Streets, swimming pools, parking, and recreational areas are typical common areas.

Condominium Conversion: Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Conventional Mortgage: As opposed to Government Loans, refers to home loans not provided by the government.

Convertible ARM: An adjustable-rate mortgage that allows the borrower to lock in the rate (thus changing to a fixed-rate mortgage) within a specific time.

Cooperative (co-op): A type of multiple ownership in which the residents of a multiunit housing complex own shares in the total property.

Credit Report: A report on the past ability of a loan applicant to pay installment payments.

Deed: The legal document conveying title to a property.

Default: Failure to make the mortgage payment within a specified period of time.

Discount Points: The amount a lender charges; may be paid by either buyer or seller on conventional loans; number of points fluctuates with mortgage money market.

Document Preparation Fee: A charge by an attorney for preparing legal documents for a transaction.

Down Payment: The amount paid by the purchaser of the property up front, rather than financed with a mortgage.

Equity: The amount of the property actually owned by the homeowner (as opposed to the amount owned by the bank or lender).

Escrow: Money held by a third party for payment of property taxes, homeowners insurance, or other items.

Escrow Fee: A fee charged by the title company to service the transaction. The amount varies with company, and is usually split between buyer and seller.

Fair Market Value: The highest price that a willing buyer would pay, and the lowest price a willing seller would accept.

Federal Housing Administration (FHA): A US agency that insures residential mortgage loans and sets standards for construction and underwriting. Visit FHA’s website.

FHA Mortgage: Any mortgage that is insured by the Federal Housing Administration (FHA).

Fixed-Rate Mortgage: A mortgage in which the interest rate does not change during the entire term of the loan. The contrast with adjustable-rate mortgage.

Foreclosure: The process of seizing a property on which the loan has been defaulted and selling it at public auction, applying the proceeds to the mortgage debt.

Government Loan (Mortgage): A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Homeowners’ Association: The members of a community, which manages the common areas of a development or condominium project.

Homeowner’s Insurance: Protects the property and contents in case of damage or loss; must be for at least the loan amount or for 80% of the value of improvements, whichever is greater.

Homeowner’s Warranty: A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, in the event that they break down within the coverage period.

Index: An established market rate of interest, upon which an adjustable-rate mortgage is based.

Inspections: An examination of property for various reasons such as termite inspections; inspection to see if required repairs were made before funds are received, etc.

Interest: Cost of loan funds, as a percentage of the remaining balance.

Lease Option: An alternative financing option, in which a homebuyers can lease a home with an option to buy.

Lien: A legal claim to a property, such as a mortgage, which must be paid off when the property is sold.

Loan Application Fee: Paid to the lender at time of application; check with lender for amount.

Loan Origination: The process of obtaining a new loan.

Maintenance Fee: Charged by the homeowner’s association as set out in subdivision restrictions.

Margin: The difference between the interest rate and the index on an adjustable rate mortgage.

Mortgage: A home or property loan. There are dozens of different kinds of mortgages, including adjustable-rate, fixed rate, and combinations thereof.

Note: A legal document in which a borrower promises to repay a mortgage loan, with interest, over a specified period of time.

Original Principal Balance: The total amount of principal owed on a mortgage before any payments are made.

Origination Fee: A fee the buyer pays the lender to originate a new loan.

Point: 1% of loan amount.

Power of Attorney: The authority of one person to sign legal documents or otherwise act on another’s behalf.

Pre-approval: Certification that a borrower has been approved for a loan up to a certain amount. Contrast with pre-qualification.

Prepayment Penalty: A fee that the lender may charge for paying off a loan before it is due.

Pre-qualification: A loan officer’s nonbinding written opinion of a borrower’s ability to qualify for a mortgage. Contrast with pre-approval.

Prime Rate: The most common index used as a basis for any kind of loan, this is the interest rate that banks charge to their preferred customers.

Principal: The amount borrowed or unpaid.

Principal Balance: The amount of a mortgage that is remaining unpaid.

Private Mortgage Insurance (PMI): Insurance against loss by lender in the event the borrower defaults on the loan.

Purchase agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Real Estate Agent: A person licensed to negotiate and transact the sale of real estate. Contrast with Realtor^®.

Realtor^®: A member of the National Association of Realtors^®. Find out more about the differences between a real estate agent and a Realtor^®.

Realtor^® Fees: An amount paid to the Realtor^® as compensation for his services.

Recording Fees: Fees charged by the County Clerk to record documents in the public records.

Restrictions: Certified copy of deed restrictions required by lender.

Security: The property being pledged as collateral for a loan.

Survey: A drawing or map identifying the legal boundaries of a property as well as rights of way, physical features, encroachments, etc.

Tax Certificates: Certificates issued by taxing authorities showing the current year’s taxes, the last year the taxes were paid, and any delinquencies to be collected at closing.

Title: A document showing ownership of a property.

Title Company: A company that specializes in examining and insuring titles to real estate.

Title Policy: Insurance against claims to the property title. Required by the lender as a condition of the mortgage, and the purchaser will usually buy one as well to protect themselves.

Transfer of Ownership: Any means by which the ownership of a property changes hands.

VA Mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs (VA).