Real Estate From A to Z
Real estate seems to have a language all it’s own, and even industry insiders have a hard time keeping up with definitions, acronyms, and jargon. Buyers and sellers can greatly benefit from understanding the basic concepts and terms associated with a real estate purchase. We’ve highlighted many of the most common words and phrases used in real estate transactions and defined* them in an easy to understand format.
Click on the word or phrase below to reveal the definition…
What is Amortization?
The process of paying the principal and interest on a loan through regularly scheduled installments
Annual Percentage Rate (APR)
What is APR? What does APR stand for?
The cost of a loan’s interest expressed as a yearly rate on the amount borrowed.
What is an Appraisal?
An opinion of the value of a property at a given point in time.
What is Assessed Value?
A tax assessor’s determination of the value of a home in order to calculate real estate taxes.
What does Caveat Emptor mean?
A legal principle derived from Latin than means “let the buyer beware.”
What is Chattel?
Personal property such as furniture, clothing or a car.
What is a Clear Title?
A property that does not have liens, defects or other legal encumbrances.
What is a Real Estate Closing?
The final procedure in which documents are signed and recorded, and the property is transferred.
What are Closing Costs?
Expenses often associated with a real estate purchase that are paid at closing, including loan and title fees.
What is a real estate agent’s commission?
The fee paid to real estate agencies for the purposes of assisting buyers and sellers with a real estate purchase.
Comparative Market Analysis (CMA)
What is a Comparative Market Analysis? What is a CMA?
An estimate of property’s value based on an a basic analysis of sales of properties with similar characteristics. CMA are usually performed by a real estate agent, as opposed to a licensed appraiser.
What is a Contingency?
A condition specified in a purchase contract that the agreement hinges upon. For Example: A buyer makes an offer on a home, but the contract states they must sell their current home before they can complete the purchase. The offer is “contingent” upon the buyer selling their current home.
What is a Conventional Loan?
A standard home loan that is not guaranteed by the government.
What is a credit score?
A credit score is a system developed by credit reporting agencies to help lenders and other creditors easily evaluate a borrower’s propensity to pay their debts in a timely manner. Your credit score correlates to your payment history, credit available and recent inquires of your credit report. See also FICO Score
Days on Market (DOM)
What does days on market mean? What does DOM stand for?
The period of time a property is listed for sale until it is sold or taken off the market . If a home was listed on January 1 and it was still on the market on January 15th of that same year then the home information would state the home has 15 days on market or 15 DOM.
What is a deed?
The legal document that transfers ownership of a piece of property.
What is a Disclosure? What is a Seller’s Disclosure? What is a Property Disclosure?
A statement to a potential buyer listing information relevant to a piece of property, such as past damage or extensive remodeling that has been done to the home since it was built as known by the seller. An example of things listed on the disclosure is “In 2006 there was a small fire in the kitchen area”.
What are discount points? How much are points?
A fee the borrower would pay at closing to a lender in an effort to reduce the interest rate on their loan. For example: If a buyer was being given a 5% interest rate with no points they might pay one discount point to the lender and the rate would be reduced to 4.75%. A point is equaled to 1% of the loan value, so if the loan amount was $100,000 then the buyer’s one point would be $1,000 extra in closing costs.
What is a down payment?
This is the amount of money the buyer pays at closing against the principle. For example if the purchase price of a home is $100,000, and the buyer pays a 10% down payment and finances 90% then the buyer must provide a down payment of $10,000 cash up front and gets a loan for $90,000.
What is dual agency? What is a dual agent?
When an agent or broker represents both parties (Buyer and Seller) in a transaction.
What is a duplex?
One building with two separate housing units inside.
What is Early Occupancy?
When a buyer moves into a property before closing and before title has passed from buyer to seller.
What is earnest money? What is an earnest money deposit?
Money given from buyer to seller as good faith gesture when submitting an offer to purchase property. Basically earnest money is offered up to say, “If I back out of this deal before closing you can have this money to keep”.
What is an easement?
Legal permission given to a third party to cross, and/ or use a parcel of property. Utility companies often have an easement in place allowing them to build and maintain power, gas, and water lines on someone’s property.
What does encroachment mean?
Something, such as a fence or building constructed across the property line and at least partially residing on the neighbor’s property.
What does equity mean? What is owner’s equity?
Basically the difference between the value of a property and how much is owed on the property. For example: If your home had a market value of $100,000 and you had a loan against the property of $90,000 then you would have equity of $10,000.
What is escrow? What is an escrow account?
Money that is held by a third party (usually the listing office or title company) until closing. An escrow account is most commonly used for depositing earnest money after the offer is accepted. If closing does not occur then there is usually an arbitration that takes place to determine the rightful recipient of the funds.
What is an exclusive listing?
An agreement, usually between the seller and a real estate agent, that states only one company or entity can offer the property for sale.
What are FHA loans? What does FHA stand for?
Mortgages partially guaranteed by the Federal Housing Administration (FHA) for the purposes of encouraging lenders to make loans to lower income and weaker credit borrowers.
Fannie Mae (FNMA)
Who is Fannie Mae? What is Fannie Mae? What does Fannie Mae stand for?
Federal National Mortgage Association, is a government sponsored enterprise (GSE) that purchases mortgages from lending institutions on the secondary mortgage market. Basically this a company that the government started to buy mortgages from banks and other lenders, so that those lenders could in turn lend more money to consumers.
Farmer’s Home Administration FMHA
What is Farmer’s Home Administration? What is the FMHA?
An agency of the US department of Agriculture (USDA) that was developed for the purposes of encouraging development in rural and farming communities by either lending directly or partially guaranteeing loans made by other lenders. Also known as Rural Development.
What is a First Mortgage?
The primary loan that takes priority over all other loans made against a property.
For Sale by Owner (FSBO)
What does For Sale by Owner mean? What is a Fizbo? What does FSBO stand for?
A home listed for sale by the owner without using a real estate agent.
What does foreclosure mean?
The legal process used by a mortgagee(lender) or other lien holder to take ownership of the property when the mortgagor (home owner) has defaulted on their mortgage conditions. The conditions may include: failure to make the required payments over a specified period of time, significantly damaging the property, or not using it for its intended purpose.
Freddie Mac (FHLMC)
Who is Freddie Mac? What does Freddie Mac stand for?
Federal Home Loan Mortgage Corporation is a government sponsored enterprise that operates very similarly to Fannie Mae and provides lenders with a secondary market buyer for home loans. The primary difference between the two entities is Fannie Mae buys mortgages primarily from banks and Freddie Mac buys primarily from Thrifts.
Ginnie Mae (GNMA)
Who is Ginnie Mae? What does Ginnie Mae stand for? What does Ginnie Mae do?
The Government National Mortgage Association is a government owned corporation that guarantees bonds backed by real estate mortgages. Like Fannie Mae and Freddie Mac, it was created to help lenders loan more money to consumers, but Ginnie Mae does not actually buy mortgages. Rather it insures the bonds that are backed by mortgages, so that investors will feel more secure in purchasing the bonds and thus provide the lenders with more favorable terms and that allows them to turn around and lend more money at better rates to the home buying public.
Good Faith Estimate (GFE)
What is a Good Faith Estimate? What is a Good Faith? What is a GFE?
An estimate of lending fees and total closing costs provided by a lender to a home buyer. This is usually presented to the buyer several times during the home buying process, at qualification and/or application, at loan approval, and at the closing.
HUD U.S. Department. of Housing and Urban Development
What is HUD? What does HUD stand for?
A far-reaching agency of the US government to oversees all things housing related. From the HUD.GOV Website: HUD’s business is helping to create a decent home and suitable living environment for all Americans, and it has given America’s cities a strong national voice at the Cabinet level. HUD’s programs include:
- Providing mortgage insurance to help individuals and families become homeowners;
- Development, rehabilitation and modernization of the nation’s public and Indian housing stock;
- Development of HUD-insured multifamily housing;
- Development, improvement and revitalization of America’s urban centers and neighborhoods;
- Providing rental subsidies to lower-income families to help them obtain affordable housing; and,
- Enforcement of Federal Fair Housing laws.
What is a HUD home?
A term usually referring to a FHA foreclosure.
HUD-1 Uniform Settlement Statement
What is a HUD-1?
The statement of closing costs, including down payment, fees and credits, related to the real estate transaction presented to the buyer and seller are the closing proceedings. EXAMPLE LINK
Home equity loan, Home Equity Line of Credit
What is a home equity loan?
A loan that allows owners to borrow against the equity in their homes.
What is a home inspection? What does a Home Inspector do?
An inspection of the property performed for the purposes of evaluating: structural, mechanical, electrical, plumbing, and overall condition of a property..
What is a Home Warranty?
Similar to insurance or an auto warranty, it covers basic structural, mechanical, and electrical malfunctions during a specified period of time.
Homeowners’ association (HOA)
What is a Homeowners Association? What is the HOA?
A group, typically made up of property owners within a subdivision, that enforces the bylaws and restrictions for the subdivision that were set up by the developer.
What is homeowners insurance? What is home insurance?
The insurance policy that protects the owner’s against loss by way of damage to or liability of the property.
What is Interest?
The fee charged by a lender to a borrower for the use of borrowed money. For example: A lender lets you borrow $100 for a week, but to borrow the money you must agree to pay back $110. The additional $10 is the interest.
Interest rate (I-rate)
What is an interest rate? What is I-Rate?
The rate of return (usually expressed as a percentage of the original loan amount) a lender receives for loaning money to a borrower. The percentage is usually calculated for annual periods. For example: If a lender charges 6% interest on a loan, it would mean that over the life of a loan the average annual rate of interest is 6% each year of the loan amount
What is an interest only loan?
A loan where the payments only cover the interest charges, and do not reduce the principal (original loan amount) at all. For example if you borrowed $100 on a two year loan and made interest only payments, at the end of the two years you’d still owe the lender $100.
What is a Jumbo Mortgage? What is a Jumbo Loan?
A loan that exceeds the lending limits of Fannie Mae and Freddie Mac. The government set the lending limits to $729,750, but that amount will be reduced to $625,250 on October 1, 2011. Loan amounts exceeding the limit usually have higher rates than smaller conforming loans. It should be noted that many lenders still apply higher rates to loans that exceed the old lending limits of $417,000.
What is a legal description?
A specific description of a parcel of property that generally correlates to county assessor records and allows for identification of the property. Rural Example: E 3/4 OF W 1/2 SE 1/4 33.36 ACRES Subdivision Example: WOODLANDS S/D Lot: 038
What is a lien? What is a tax lien? What is a mechanic’s lien?
A claim against property made in an effort to recoup an unpaid debt. Examples of Liens: Tax Lien placed on your property by the county assessor because of unpaid real estate taxes. Mechanic’s Lien is placed on your property by a contractor who performed work on your home, but they were never paid some or all of their fee.
What is a listing?
A property that has been placed on the market by a listing agent.
Loan-to-Value Ratio (LTV)
What is loan to value? What does LTV stand for?
An indicator that lender’s use to determine how much they are lending vs. how much the property is worth. Example: A home is valued at $100,000 by a real estate appraiser. The borrower wants to put up $20,000 as a down payment and have the bank provide a loan for the rest, in this case $80,000. $80,000 is 80% of $100,000, so the LTV is 80%
Loan application fee
What is a loan application fee?
Most lenders charge this fee as an upfront cost at the time of application. It usually covers the cost of having your credit report pulled, but can also include the cost of an appraisal.
What is a loan officer?
A representative for a lending institution that is usually the person responsible for beginning the loan process and your primary point of contact throughout the loan process.
Loan Origination Fee
What is a loan origination fee?
The fee charged by lenders for providing a loan to a borrower. This is most commonly expressed as “points” on the loan and one point is the most common loan origination fee, but it varies from lender to lender.
Loan Processing Fee
What is a loan processing fee?
A fee often charged to borrowers for the processing and information gathering stage of the loan approval process.
What does the term “low ball” mean? What is a low-ball offer?
An offer made by a potential buyer that is significantly lower than the MARKET VALUE for a home in that area. Offers that are significantly lower than the listing price are not always true low ball offers.
What is market value?
The value of a property as determined by current market conditions. Recent comparable sales and competing listings are usually the best indicators of a home’s market value.
What is a Mechanic’s Lien?
An encumbrance or security interest placed on your property by a contractor or subcontractor that has provided materials for or done work on the property but wasn’t paid all or part of their fee. Basically the lien is placed on the property and recorded by the county. If the owner tries to sell the property then they must pay the mechanic’s lien in full before the title can be transferred to the new owner.
What is a mortgage? Who is the Mortgagee? Who is the Mortgagor?
A contract between a mortgagee (lender of the money) and a mortgagor (borrower of the money) that states the mortgagor will put up their property as collateral against a loan.
What is a mortgage banker?
A state-licensed banking entity that loans its own money. These loans are generally sold to investors, and primarily Fannie Mae and Freddie Mac.
What is a Mortgage Broker?
The company that facilitates or originates that loan. Basically the mortgage broker matches a potential borrower with a bank or investor and then they are paid a fee by the borrower or lender (Usually both) if the loan is closed.
What is mortgage insurance?
Protection provided to the lender (or in the case of FHA loans, the FHA) against partial or total loss in the event of default. Mortgage insurance is required in most cases where the lender is loaning more than 80% of the value of the property.
Multiple Listing Service (MLS)
What is the multiple listing service? What is the MLS?
The cooperative system that combines all of the properties listed in a given area. This service enables the real estate agents to share information about the properties, and provides a basis for cooperation between agencies.
What is a Note?
The portion of the mortgage document that obligates the borrower to repay the mortgage. This document also specifies the loan amount, and rate of interest. Also referred to as promissory note, because it basically states that borrower “promises” to repay the loan with interest in a specific amount of time.
What is an open house?
Just as it sounds, it is a home that is available, or “open” for potential buyers to view without an appointment.
See Loan Origination Fee
What is Owner Financing?
When the seller agrees to personally finance all or part of the purchase for the buyer.
What does per-diem mean? What is Per-diem Interest? What is per-diem rent?
Latin for “Per Day” or “Each Day”. This term is used to refer to any daily charges related to the transaction. Most settlement statements list per diem charges such as interest or insurance. The daily rental fee charged to the seller for the time they occupy the property after closing is known as pier diem rent.
What is personal property?
In a real estate transaction, personal property would be defined as anything that is not permanently affixed to the property or something that easily movable. Furniture and free standing appliances are an example of personal property. Also known as Chattel.
What is a pre-approval letter?
A letter from a lender stating the borrower’s ability to qualify for a loan has been verified and approved by an underwriter.
What are pre-paid expenses? What are pre-paids?
In order to cover anticipated expenses such as property taxes, insurance, PMI, and special assessments most lenders require borrowers to “fund” an escrow account at the time of closing. During the first year new homeowners will have several expenses coming due, and the lender wants to make sure that those items are paid on time. In an attempt to guarantee those payments are made, the lender keeps a certain reserve account (escrow account) that always has several months( some items have a full year or more) worth of payments available at all times.
What is pre-paid interest?
Very simply…interest paid before it is due. Prepaid interest covers the interest expense due to the lender before the regular mortgage payments begin.
What is a prepayment penalty?
A fee imposed by lenders upon borrowers who try to pay off their loan early or before the agreed upon time frame.
Pre-qualification (Pre Qual)
What is a Prequalification? What is a Prequal?
A basic determination of a potential borrower’s ability to qualify for a loan. SEE….
What is the Principal? What does principal balance mean?
The amount of money a borrower still owes of the total borrowed. Let’s say your loan was $100,000 and your monthly payments are $1,000. A portion of that payment would go towards paying the interest expense and the remaining portion would go to paying down the amount owed on the property, or the principal. If the interest expense in this case was $500 and the principal amount was $500 then your principle balance after the payment was applied would be $99,500.
Private Mortgage Insurance (PMI)
What is private mortgage insurance? What is PMI?
Protection provided to the lender against partial or total loss in the event of default. Mortgage insurance is required in most cases where the lender is loaning more than 80% of the property’s value.
What are property taxes?
Taxes assessed on a property by the local taxing authority, usually the county assessor.
What is a punch list?
A list of items that the buyer (and appraiser on FHA, VA, and USDA loans) require to be fixed by the seller prior to closing.
What are qualifying ratios?
Ratios used by lenders to determine if the buyer has a sufficient amount of income to cover their existing debts and the new loan payment. For example a common qualifying ratio for loans is 30/36 which means the loan payment can’t exceed 30% and the total recurring debts including the loan payment can’t exceed 36% of the of the borrowers monthly income.
What is a quitclaim deed?
A deed that transfers an individual’s rights to a property For example: A property was left to two siblings as an inheritance and one wanted to sell their ownership interest in the property. The selling sibling would relinquish all rights to the property by providing a quitclaim deed to the buying sibling.
Real Estate Broker
What is a real estate broker?
The term broker is thrown around quite a bit to describe a real estate agent, but a broker is actually the person responsible for the real estate agents. Not necessarily their boss (but often can be), the broker is usually responsible for executing contracts and overseeing the agents activities to ensure they operating according the license laws.
What is a recording fee?
A fee charged by your local government for recording the documentation associated with a real estate transaction (such as a deed) into the public records.
What is a reverse mortgage?
Available to older homeowners who have a lot of equity, this loan is somewhat similar to a home equity loan. The homeowner borrows against their equity and they can set it up where the bank actually pays them every month. The mortgage can be paid off at anytime, but repayment is generally not required until the homeowner decides to sell or vacate the home.
What is a second mortgage?
Much like it sounds, the second mortgage is taken out in addition to your first mortgage on a property. An example of this would be an 80/20 loan. The borrower would get a first mortgage to cover the standard 80% of the purchase price and get a second mortgage to cover the remaining 20% ultimately ending up with 100% of the home financed. Second mortgages generally have higher rates, because the second mortgage holder is only compensated in the case of default AFTER the first mortgage holder.
Square footage (SQFT)
What is square footage? What is SQFT?
When used in a real estate transaction, this term is usually referring to the actual livable space in the home. The square footage of a room would be calculated by multiplying the length of a room by the width of a room. For example a room that is 10 feet long and 10 feet wide would have 100 SQFT.
What is a subdivision?
The process in which the owner of a large piece of property divides it into smaller parcels. A subdivision is usually referring to a platted neighborhood with numerous lots.
What is a tax lien?
An encumbrance placed on your property, usually by the county, for failure to pay back taxes.
What is a title?
The right of ownership recognized by law that allows you to own, use, and sell a property.
What is title insurance?
An insurance policy that protects buyers, sellers, and lenders against mistakes made by the title researcher and preparer when transferring a property’s title from the current owner to the new owner.
What is a title search?
A check of public title records to determine if the title can be transferred from the buyer to the seller. The title searcher will verify if the seller can legally sell the property and if the property has any liens levied upon it.
What is a transfer tax?
A tax by your state and/or local government that is paid every time a property changes owners.
What is credit underwriting?
The process that lenders go through to evaluate the risks posed by a particular borrower and to set appropriate conditions for the loan.
What does Usury mean?
A term used to describe loans that have illegally high interest rates.
What is a VA Loan?
A government guaranteed loan program that provides special terms (such as no down payment required) to Military veterans.
*DISCLAIMER: The definitions provided in this portion of the website are very basic, paraphrased summations of common real estate words and phrases. They are not to be construed as advice, or legal definitions for these concepts. We advise you to make this section the BEGINNING of your research, and to consult several other sources of information before making any decisions associated with a real estate transaction.