There are a lot of terms and phrases that are used during a real estate transaction. Today we want to share a glossary of terms that you may hear while applying for a mortgage and purchasing a home. We invite you to bookmark this post for easy reference when you need it!
Acceleration Clause: A contract provision requiring the borrower to repay all their outstanding loan to a lender if specific requirements are not met.
Active Under Contract: Once a seller has accepted an offer with contingencies, they may still want to keep the listing active to attract backup offers if the contingent offer falls through.
Addendum: If a buyer or seller wants to change an existing contract, they can add an addendum outlining the requested changes. An addendum changes a particular part of a contract while leaving the rest intact.
Adjustable-Rate Mortgage (ARM): A mortgage where the interest rate changes periodically. You may start with a lower monthly payment, but fluctuating interest rates can drive those payments up in the future.
Adjustment Date: The date your mortgage begins to accrue interest.
Amortization: The schedule of your mortgage payments spread out over time. In real estate, a buyer’s amortization schedule is usually one monthly payment scheduled over a 15- or 30-year period.
Annual Percentage Rate (APR): the amount of interest charged to your loan every year.
Appraisal: An estimate of how much your home is worth. When buying a home, lenders require an appraisal by a third party to make sure the loan amount is accurate.
Appreciation: The amount a home increases in value over time.
Assessed Value: An assessment determines how much in taxes the property owner will pay.
Assignment: When the seller signs over rights and obligations of the property before the official closing.
Assumable Mortgage: when a seller transfers all terms and conditions of a mortgage to a buyer. Instead of a new mortgage, the buyer takes on the seller’s remaining debt.
Balloon Mortgage: A mortgage paid in one lump sum (balloon payment). Usually used in short-term projects and don’t require collateral.
Bi-weekly Mortgage: Homeowner pays their monthly mortgage in two monthly payments instead of one. Over a year, they make the equivalent of 13 payments instead of 12.
Bridge Loan: short-term loan a homeowner takes out against their property to finance the purchase of another property.
Broker: A person who has passed a broker’s license exam and received education beyond what the state requires of real estate agents.
Buydown: a mortgage-financing technique to lower the buyer’s interest rate for a few years to the loan’s lifetime.
Call Option: a contract giving one party the right to buy and another party the right to sell a piece of property at a future time and specific price.
Cash-out Refinance: Also known as a cash-out refi, it is when a homeowner refinances their mortgage for more than it’s worth and withdraws the difference in cash.
Certificate of Eligibility: Proof from VA loan applicants that they have met the minimum service requirements to qualify for a VA loan.
Certificate of Reasonable Value: Issued by the Department of Veterans Affairs and is required for veterans to receive a VA loan. It establishes the maximum value of the property and, therefore, the maximum amount of the loan.
Chain of Title: Documentation of all past ownership of a property.
Clear Title: Notice that the title is clear of any lien or levy from creditors.
Closing: Final stage of the real estate transaction. The property is legally transferred from seller to buyer on the closing date.
Closing Costs: Fees to close the transaction equal about 2-5% of the home’s total purchase price.
Co-Borrower: If a borrower cannot secure a loan on their own, they can add a co-borrower to the mortgage loan to secure the funding.
Commission: 5-6% of the home’s sale price is usually split between the buyer’s and seller’s agents and is paid by the seller at closing.
Common Area Assessments: Part of your monthly HOA fees for common area maintenance.
Community Property: Property acquired by a married couple and owned equally by both people.
Comparable Sales: An appraiser used previously sold home data to establish how much a home is worth.
Construction Loan: Short-term loan used to finance the construction of a home or real estate project.
Contingent: When a seller accepts an offer from a buyer, the offer is contingent upon the buyer meeting certain conditions before the sale is finalized.
Conventional Mortgage: a loan not guaranteed or insured by the federal government.
Convertible ARM is a program that allows buyers to take advantage of low-interest rates by receiving a loan at an initial low-interest rate. When interest rates fluctuate, the borrower has the option of converting their ARM to a fixed-rate mortgage.
Deed: the legal document transferring a title from the seller to the buyer.
Deed-in-lieu of Foreclosure: document transferring the title of a property from a homeowner to the bank that holds the mortgage.
Default: When a homeowner has not paid the sum they agreed to. Typically, a mortgage default means the homeowner hasn’t made a home loan payment in 90 days or more.
Delinquency: when a scheduled payment is not made. If a payment is more than 30 days late, a lender might begin collection or foreclosure proceedings.
Discount Points: fees homebuyers pay directly to the lender at closing in exchange for reduced interest rates.
Down payment: the amount of cash a home buyer pays at closing.
Due-on-Sale Clause: Protects lenders against below-market interest rates. It’s a contract provision requiring the property seller to repay the mortgage in full when the property is next sold.
Earnest Money: A deposit made by a homebuyer when they enter into a contract with a seller.
Easement: Grants someone else the legal right to use another person’s land or property while leaving the title in the owner’s name.
Eminent Domain: gives the government the ability to use private property for public purposes.
Encroachment: When a property owner violates the rights of a neighbor by building or adding on to a structure that extends onto a neighbor’s land or property line.
Encumbrance: Any claim against a property that restricts its use or transfer, including an easement or property tax lien.
Equal Credit Opportunity Act: Rules it unlawful for creditors to discriminate against applications because of race, color, religion, national origin, sex, marital status, age, or because they receive public assistance.
Equity: The part of the property you own. Your lender also holds interest in your property until your mortgage is paid in full.
Escrow Funds: Often referred to as reserve fees or prepaids, escrow funds are reserved money your lender keeps in a particular account. The funds are used to make payments on your behalf as a part of your regular mortgage payment.
Examination of Title: reviews all public records tied to a property.
Fair Credit Reporting Act: Ensures fairness, accuracy, and privacy of personal information contained in files maintained by credit reporting agencies.
Fair Market Value: Accurate home valuation in the market.
Fee Simple: owner’s rights to the property are indefinite and can be freely transferred or inherited when the owner chooses.
FHA Mortgage: Loan insured by the FHA makes it easier for lenders to offer the homebuyer a better deal, including a lower down payment, low closing costs, and easier credit qualifying.
Fixed-rate Mortgage: The most common type of loan comes with an interest rate that stays the same for the loan’s lifetime.
For Sale by Owner: Homes being sold without the help of a real estate agent.
Foreclosure: When a homeowner doesn’t make a mortgage payment (usually for more than 90 days), the legal process during which the owner forfeits all property rights.
Home Equity Conversion Mortgage: FHA reverse mortgage program allows homeowners to withdraw equity on their home through either a fixed monthly payment, a line of credit, or a combination.
Home Equity Line of Credit: Revolving credit lines can help pay for significant expenses or consolidate higher-interest rate debt on loans.
Home Inspection: Completed by a third party to determine the condition of a property during a real estate transaction.
Homeowner’s Association: A governing body of a neighborhood. When you purchase, you are responsible for the fees paid monthly or yearly.
Homeowner’s Insurance: Policy that covers any losses or damages you might incur, such as natural disaster, theft, or damage.
Lease Option: A rent-to-own option for real estate. It gives the lessee the ability to lease a property with the opportunity to buy.
Lender: Refers to the individual, financial institution, or private group lending money to a buyer to purchase property with the expectation the loan will be repaid with interest.
Lien: Unpaid debt on a piece of property. It’s a legal notice and denotes legal action a lender takes to recover the debt they are owed.
Life Cap: Maximum amount of an interest rate on an adjustable-rate loan can increase over the loan’s lifetime.
Loan Officer: Assist the homebuyer with purchasing or refinancing a home. A loan officer helps borrowers choose the right type of loan, compile their loan applications, and communicate with appraisers.
Loan Origination: The process during which a borrower submits a loan application and a financial institution or lender processes that application.
Loan Servicing: Administrative aspects of maintaining your loan. Tasks include:
- Sending the monthly borrower statements.
- Maintaining payment and balance records.
- Paying taxes and insurance.
Loan-to-Value: The mortgage loan balance divided by the home’s value. It shows how much you’re borrowing from a lender as a percentage of your home’s appraised value.
Lock-in Period: The period in which a borrower cannot repay their loan in full without incurring a penalty fine by the lender.
Mortgage: The agreement between a borrower and a lender gives the lender the right to the borrower’s property if the borrower cannot make loan payments.
Mortgage Banker: A person who works with the lending institution to provide mortgage funds to the borrower.
Mortgage Broker: Acts as a facilitator between the borrower and the lending institutions.
Mortgage Insurance: When a homebuyer makes a down payment of less than 20% of the home’s purchase price, they will usually be required to pay mortgage insurance. This lowers the risk to the lender.
Multiple Listing Service (MLS): A collection of approximately 700 regional databases containing their real estate listings.
Negative Amortization: The process of paying off a loan with regular payments, so the
amount you owe on the loan gradually decreases.
No Cash-Out Refinance: The type of loan is used to improve the rate the borrower pays on the loan.
No-Cost Mortgage: Type of refinancing in which the lender pays the borrower’s loan settlement costs and extends a new loan.
Note rate: The interest rate stated on a mortgage note.
Original Principal Balance: Amount owed on a mortgage before the first payment has been made.
Origination Fee: The fee a borrower pays a lender to cover the costs of processing their loan application.
Owner Financing: Also known as seller financing, occurs when a borrower finances the purchase of a home through the seller.
Pending: A sales term that indicates that all contingencies have been met and the buyer and seller are moving towards closing the transaction.
Per Diem: Per-day fees are charged if the loan is not approved by the date that the loan was scheduled to be completed.
PITI: This stands for principal, interest, taxes, and insurance and refers to the sum of each of these charges.
Planned Unit Development: A housing community of single-family residences, townhomes, condominiums, and possibly commercial units.
Pre-Approval: A lender has checked your credit, verified your information, and approved you for up to a specific loan amount for up to 90 days.
Pre-Qualification: An estimate of how much you can afford to spend on a home.
Prime Interest Rate: Best-available loan rate is usually three points above the federal funds rate.
Principal: Amount of money owed on your loan. As you make monthly mortgage payments, your principal goes down.
Purchase Agreement: Communicates the buyer’s intent to purchase a piece of property and a seller’s intent to sell that property.
Purchase-Money Mortgage: Also known as owner or seller financing, is issued to the buyer by the seller of a home during the purchase transaction.
Quit Claim Deed: Document transferring property ownership from one party to another.
Rate Lock: This allows borrowers to lock in an advantageous interest rate before a real estate transaction closes.
Real Estate Agent: A licensed professional hired to negotiate and coordinate the buying and selling of real estate transactions.
Real Estate Owned: Real Estate owned (REO) refers to property owned by a bank, government agency, or another lender.
Real Estate Settlement Procedures Act: (RESPA) requires lenders to provide disclosures to borrowers informing them of real estate transactions, settlement services, and relevant consumer protection laws.
Refinance: Replaces an existing loan with a new one. Typically offers better terms, including a lower interest rate, lower monthly mortgage payments, or a faster loan term.
Right of Ingress or Egress: A person’s legal right to enter or leave a property.
Right of Survivorship: When joint ownership or tenancy of a property ensures that the surviving owner automatically receives the deceased owner’s share.
Sale-Leaseback: When a buyer closes on a home and then leases back tenancy to the seller.
Second Mortgage: When a property owner borrows against the value of their home.
Secured Loan: backed by the borrower’s assets, including cars, a second home, or other large items that can be used as payment to a lender if the borrower cannot pay back the loan.
Seller Carry-Back: Financing in which the seller acts as a bank or financial institution financing some or all of the transaction.
Short Sale: When a homeowner sells their property for less than what’s owed on the mortgage. Allows the lender to recoup some of the loan owed to them but must be approved by the lender before the seller moves forward.
Title: Document representing the rights to the property.
Transfer of Ownership: The transfer of a property’s deed and title from the seller to the buyer at closing.
Transfer Tax: Transaction fee charged upon transferring a property’s title.
Under Contract: The seller has accepted an offer from the buyer, but the transaction has not closed.
VA Mortgage: A mortgage available to service members, veterans, and eligible surviving spouses can receive a loan guaranteed by the Department of Veteran’s Affairs, which leads to more favorable terms for the borrower.
Leave a Reply