Real Estate Glossary (A-Z)

adjustable-rate mortgage (ARM)
An adjustable-rate mortgage loan is classified as a loan with a fluctuating interest rate. In other words, the interest rate shifts up and down as market conditions change. Typically, an ARM will afford a lower initial interest rate, but your mortgage payments may change (usually semiannually or annually).

adjustment date
The date the interest rate changes on an adjustable-rate mortgage.

affidavit of title
A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which the grantor:
(1) identifies him- or herself and indicates marital status; (2) certifies that since the examination of the title on the date of the contract no defects have occurred in the title; and (3) certifies that he or she is in possession of the property (if applicable).

amortization schedule
A table showing how much of each payment will be applied toward principal and how much will be applied toward interest over the life of the loan. It also displays the gradual decrease of the loan balance until it reaches zero.

APR (Annual Percentage Rate)
This is not the actual note rate on your loan. It is the value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. Put simply, it is the total yearly cost of a loan which is stated as a percentage of the loan amount. The figure Includes the base interest rate, primary mortgage insurance, and loan origination fee (points).

application fee
This fee is often non-refundable and it applied by the lender to cover a portion of the costs of processing your loan application. The application itself is used for various purposes, including: to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.

appraisal
A professional, written justification or opinion of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby. This assumes the market value of the property in question.

appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.

assessed value
The valuation placed on property by a public tax assessor for purposes of taxation.

assessor
A public official who establishes the value of a property for taxation purposes.

assumable mortgage
A mortgage that can be assumed by the buyer when a property is sold.

balloon mortgage
A mortgage loan that offers lower interest rates for a shorter term financing, usually seven years, and requires final payment or refinancing at the end of the specified term. For example, a loan may be amortized as if it would be paid over a thirty year period. However, at the end of the tenth year the entire remaining balance must be paid.

balloon payment
A balloon payment is the final lump sum payment of a loan that extinguishes the balloon mortgage debt.

bankruptcy
This option is for borrowers looking to relieve themselves of some debts and liabilities. By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. The most common type of bankruptcy for an individual is the "Chapter 7 No Asset" bankruptcy, which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

bill of sale
A written document that transfers the title of personal property from one party to another.

buy down
The payment of additional points to lower the interest rate of the loan. Generally, a buy down refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, typically one to three years. Once that period has expired and for the remainder of the term, the borrower’s payment is calculated at the note rate.

CAP
The limitation applied to how much the adjustable rate mortgage loan may increase or decrease over a six month period, an annual period, and over the life of the loan. This safeguard protects the buyer from dramatic changes in monthly payments.

capital gain
The taxable profit derived from the sale of a capital asset. The capital gain is the monetary difference between the sale price and the basis of the property, after making appropriate adjustments for closing costs, fixing up expenses, capital improvements, allowable depreciation, etc.

cash-out refinance
This occurs when a borrower refinances a mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, such as the purchase of a car, college tuition, or home improvements.

closing costs
Expenses, such as loan fees, title fees, and appraisal fees, which exceed the price of the property, incurred by buyers and sellers in the transfer of property ownership. Also called "settlement costs." Closing costs may be paid by the buyer, the seller or shared by both. In some cases, all or a portion of these costs may be included in the financing amount.

co-borrower
An individual, in addition to the primary borrower, who is both obligated on the loan and is on title to the property.

collateral
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

common law
An unwritten body of law based on general custom in England and used to an extent in some states.

community property
In some states, particularly the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, with the exception of special circumstances.

construction/end loan
A construction loan is exactly what it states: a mortgage loan that finances the construction of a home. At the construction’s completion, the loan converts to permanent financing. It benefits the borrowers by allowing them to deal with only one lender, file only one credit application, and pay only one set of closing costs.

contingency
A specific condition that must be met before a contract is legally binding.

contract
An oral or written agreement to do or not to do a certain thing.

conventional mortgage loan
A home mortgage loan, with the exception of government loans such as FHA and VA, secured by investors. Both fixed rate and adjustable rate loans are available with conventional financing.

convertible ARM
This is an adjustable rate mortgage which allows the borrower to change the ARM to a fixed-rate mortgage at specified times. This is generally allowed within the first five years of the loan.

credit report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

deed
The legal document conveying title to a particular property.

deed of trust
Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.

depreciation
The decline in the value of a property; basically, the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income.

discount points
Discount points refer to the "points" paid in addition to the one percent loan origination fee. Points may be paid by either the buyer or seller. This does not usually apply to government-secured loans, such as FHA and VA.

down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with the mortgage loan.

dual agency
Some states permit a real estate licensee to potentially act as a dual agent, that is, to represent more than one party to the transaction. Written disclosure and informed consent by the parties involved is required by law.

earnest money deposit
The money deposited by a buyer under the terms of a contract, that is to be forfeited if the buyer defaults but applied on the purchase price if the sale is closed.

equity
Equity is the monetary difference between the fair market value of the property and the amount still owed on its mortgage and other liens. It is the market value of a property minus the amount of any existing loans or liens.

escrow account
A separate account for accumulating the portion of your monthly payments that will pay future taxes, insurance, fees, assessments and so forth.

escrow agent
A disinterested third party appointed to act as custodian for documents and funds during the transfer of property from seller to buyer.

estate
The ownership interest of an individual in real property. This is the sum total of all the real property and personal property owned by an individual at the time of death.

eviction
Eviction is the lawful expulsion of an occupant from real property.

fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

FHA financing
A loan insured by the Federal Housing Administration (FHA) and made by an approved lender in accordance with the FHA's regulations. Often referred to as a government loan.

financial index
An agreed upon basis for making interest rate changes on an adjustable rate mortgage. One example of a financial index could be the cost of U.S. Treasury Bonds.

fixed-rate mortgage
A mortgage loan in which the interest rate does not shift up or down during the entire term of the loan.

flood insurance
Insurance that compensates for physical property damages resulting from flooding. It is required for properties located in federally designated flood areas.

foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

initial interest rate
The interest rate charged for the first six or 12 months of an adjustable rate mortgage (before the first interest rate adjustment).

interest rate cap
Limit on the amount an adjustable rate mortgage may increase or decrease during specific intervals and over the term of the loan.

loan commitment
This is a written guarantee made by a lender to make a loan under certain terms and conditions. These include interest rate, length of the loan, lender fees, annual percentage rate, mortgage and hazard insurance and other special requirements.

LTV (loan to value ratio)
The ratio of the mortgage loan principal (amount borrowed) to the property's appraised value. On a $ 100,000 home, with a mortgage loan of $ 80,000, the loan to value ratio is 80%

mortgage broker
The mortgage broker, either an individual or company, hired to act as an intermediary between borrowers and lenders.

mortgage pre-approval service
A service offered by many lenders that allows the borrower to pre-qualify for financing before finding a property to buy.

note
A written promise to pay a certain amount of money at a certain time at a certain interest rate.

origination fee
The fee charged by the lender for making a real estate loan. The amount is typically a percentage of the amount loaned, such as one percent. This is different from the application fee.

PITI (Principal, Interest, Taxes, Insurance)
Stands for principal, interest, taxes, and insurance.

prepayment privilege
The right given to a buyer to pay all or part of a debt prior to its maturity. The mortgage cannot be compelled to accept any payment other than those originally agreed to.

pre qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for. Also see mortgage pre-approval service.

rate guarantee
The lender's guarantee, usually for a specified period of time, that the interest rate in effect the date you apply for a loan (or at the time of approval) will be the final rate on your loan when closed.

refinance
When refinancing, the borrower replaces an existing loan with a new one to get a lower rate, switch from one loan type to another, or convert equity to cash.

term
The number of years before a loan is paid in full; 15- to 30-year terms are most common for home mortgages.

title
A legal document evidencing a person's right to ownership of a property.

title insurance
Insurance secured to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of property.

underwriting
The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's credit worthiness and the quality of the property itself.

VA financing
A loan guaranteed by the Veterans Administration (VA) to a qualified veteran and made by an authorized lender on an approved property. Fixed and adjustable rates are available with VA loans.

warranty deed
A legal document used to convey title.