Buying and selling a home can be a lot of work, but the process gets even more overwhelming when you throw in confusing jargon. If you’re a first-time home buyer or seller or just not clear on the technical terms, we’re here to help you break down some of the most common real estate terms.. Browse our comprehensive glossary below to get a better understanding of the terminology you’ll see throughout your home purchase or selling experience.

Amenity

An amenity is a property characteristic that gives a home more worth or value, because it is seen as an advantage that isn’t a basic part of the property. Such characteristics can be natural environment traits that surround the property or an extra that has been added onto it.

Amortization

Amortization refers to the process of reducing a mortgage by making a regular monthly payment according to a schedule put in place by your mortgage lender (comprised of both the principle amount and the incurred interest).

Annual Percentage Rate (APR)

The APR calculation will help you determine how much a particular loan will cost by using a specific formula.

Application

The initial form a potential home buyer will have to fill out when they first request a mortgage. The lending company will take this information into account when deciding whether to give a loan to the applicant.

Appraisal

An appraisal is just another way to refer to the estimation of the value of the property. It allows a lender to know how much a property is worth according to the fair market value before they give a loan on it.

Appraiser

Someone who is qualified to give a property appraisal (see above).

ARM

An acronym for Adjustable Rate Mortgage, an ARM means your mortgage rate will change as the current market rate changes. So, when the market rate goes down, so will your rate and vice versa.

Assessor

Someone who is qualified to give a property appraisal for tax purposes.

Assumable Mortgage

This mortgage occurs when a seller passes the mortgage on a property to the buyer, and the buyer assumes full responsibility for the remaining payment.

Balloon Mortgage

A mortgage in which the borrower will make regular monthly payments for 5-10 years — much shorter than a traditional mortgage — and then make a large final payment at the end of that time.

Bankruptcy

When the legal system has confirmed that a person no longer has the financial resources to pay the debts that he or she may owe, that person will fall into bankruptcy.

Borrower

A borrower is someone who applies, is approved, and receives money for a mortgage.

Building Code

Standards of safety that a building must comply to or risk being cited and/or shut down.

Budget

A budget refers to the log of how much one has made and spent over a specified amount of time. It can also be an estimate of how much money a person has for a particular need.

Cap

A maximum value on how much a payment or interest rate can increase.

Cash Reserves

Cash reserves are funds that a borrower may be required to have, aside from the funds to pay for a down payment and closing costs.

Certificate of Title

A paper verifying that the title belongs to the title holder and no one else.

Closing

Closing is one of the most exciting parts of buying and selling, when a property is transferred from one owner to another after it is sold.

Closing Costs

Money that needs to be paid when a property is transferred from one owner to another after it is sold.

Commission

The amount of money that a real estate agent collects for selling a property.

Condominium

A property that has multiple units which are individually owned.

Conventional Loan

Loans that are financed by an investor who will determine the requirements for the borrower and the loan terms.

Cooperative (Co-op)

A co-op refers to a multi-unit building owned by several tenants who all share in the financial responsibility of the property.

Credit History

The record of a person’s ability to pay off loans, credit card debts, or other debts.

Credit Report

A report listing the record of a person’s ability to pay off loans, credit card debts, or other debts.

Credit Bureau Score

A number derived by a person’s ability to pay off past debts.

Debt-to-Income Ratio

The debt one has compared to the income they receive, in the form of a percent. Most lenders have a set debt-to-income ratio that a borrower must exceed to be approved for a mortgage.

Deed

A document which outlines the provisions of a property rights transfer that occurs between a seller and a buyer.

Deed-in-Lieu

An option to prevent foreclosure where the deed from the property is given to the lending company as repayment.

Default

When a mortgage installment becomes severely delinquent, it’s referred to as a default.

Delinquency

When a mortgage installment becomes overdue, it’s then a delinquency.

Discount Point

A discount, usually worth 1% per point, that is applied to the mortgage interest rate.

Down Payment

Part of the property price that is paid by the buyer at closing time, rather than by the lending company. The mortgage principle will be the selling price of the property minus the down payment.

Earnest Money

Funds placed on a property by a potential buyer to show that he or she is sincere about buying the property. If the sale goes through, these funds will be combined with the down payment and deducted from the selling price.

EEM

An acronym for Energy Efficient Mortgage, which is a program (funded by the FHA) that makes it possible for those buying a new home to add energy efficient amenities onto it, so that the heating costs will be lower once the new owners move in.

Equity

The fair market value price of a house minus the remaining mortgage value.

Escrow Account

Money or assets that are held by a third party until certain conditions are met. In a mortgage situation, such an account is put in place to pay taxes and insurance.

Fair Housing Act

The FHA is a law put in place to protect potential home buyers from discrimination.

Fair Market Value

A price that a buyer and seller agree on when they both are acting without force and are aware of all necessary facts.

Fannie Mae

Another name for the Federal National Mortgage Association, which purchases mortgages to resell to investors so that the funds may be used to provide a loan for potential home buyers through the mortgage process. Owned by private stock holders.

Federal Housing Administration (FHA)

An agency which was created in 1934 to help potential home buyers with funding for a new home, the FHA especially aids those who may not qualify for a typical mortgage.

Fixed-Rate Mortgage

A mortgage that has a fixed monthly payment during the entire life of the loan, rather than changing over time.

Flood Insurance

Insurance which will pay the home owner to fix damages in the event of flood damage. This may be required for some mortgages.

Foreclosure

A legal course of action where a home is resold to pay off the mortgage. A foreclosure happens when a home buyer becomes severely delinquent in their mortgage payments.

Freddie Mac

Another name for the Federal Home Loan Mortgage Corporation, which purchases mortgages to resell to investors so that the funds may be used to provide a loan for potential home buyers through the mortgage process.

Ginnie Mae

Another name for the Government National Mortgage Association, which sells FHA and VA loans to investors so that the funds may be used to provide a loan for potential home buyers through the mortgage process. A US Government agency.

Good Faith Estimate

An estimate of the closing costs associated with buying a home, which must be provided to the potential home buyer within 3 days of their mortgage application.

HELP

Acronym for the Homebuyer Education Learning Program, HELP educates potential home buyers about the process of buying a new home. Provided by the FHA.

Home Inspection

A home inspection happens before closing so that the potential home buyer will know of any issues that need attention before they buy the home.

Home Warranty

Coverage for items in a home against unforeseen repairs which are not already protected by homeowner’s insurance. May include items such as fixtures and appliances.

Homeowner’s Insurance

Coverage for a home in the event of damage to the structure and certain items inside the home. Homeowner’s insurance also protect the insured against claims of negligence that happened on property.

Housing Counseling Agency

An agency which gives support and assistance to home buyers on issues concerning the mortgage and home buying process.

HUD

The acronym for the Department of Housing and Urban Development. HUD works to improve the quality of living conditions in the country by creating housing programs and laws. Est. in 1965.

HUD1 Statement

An estimate of the closing costs associated with buying a home through a HUD program, which must be provided to the potential home buyer by closing. Also called a settlement sheet.

HVAC

Acronym for Heating, Ventilation, and Air Conditioning.

Index

A tool that is used for an ARM to figure out the interest rate changes that will occur.

Inflation

Inflation occurs when the value of the dollar decrease and prices typically increase.

Interest

An extra cost that one has to pay in order to borrow money. The longer you have a loan or credit account, the more interest you will eventually pay.

Interest Rate

Interest expressed as a percentage.

Insurance

Coverage for specific items. One will pay a monthly fee to receive this protection.

Judgment

When a decision is made by the court system, it’s called a judgement.

Lease Purchase

A lease purchase happens when a person makes monthly lease payments on a property with the intention to buy. Each time a payment is made, it will be deducted from the purchase price.

Lien

A judgment against someone’s property, usually for failure to make payments on a loan, mortgage, or other credit account. The funds from the sale of the property are used to repay the debtor.

Loan

A term for the amount of money borrowed from a lender.

Loan Fraud

Loan Fraud occurs when a buyer tries to dupe a lender by lying on a loan application.

Loan-to-Value (LTV) Ratio

The loan amount borrowed divided by the property’s fair market value, expressed as a percent. The higher the LTV, the better for a borrower.

Lock-in

The guarantee of a specific interest rate if the loan is paid off within a specified amount of time.

Loss Mitigation

Loss mitigation occurs when a defaulted borrower receives help from a lender to avoid foreclosure on the property.

Margin

An additional quantity added to the index that is used to figure out the interest rate of an ARM.

Mortgage

An amount that a borrower receives from a lender to fund a real estate purchase, or when a borrower takes out a loan against their current home, putting it up as collateral.

Mortgage Banker

A company that secures loans, that they then sell to secondary lenders.

Mortgage Broker

A company that secures loans for a lender.

Mortgage Insurance

Coverage for lenders against a borrower who may default on their loan. The borrower is required to make the premiums, and the lender will receive the funds if the buyer defaults. May be required for some borrows in order to obtain a loan.

Mortgage Insurance Premium (MIP)

The premium paid for mortgage insurance coverage that is paid by the borrower.

Mortgage Modification

A choice that is utilized during the loss mitigation process that enables the defaulted borrower to lengthen the life of the mortgage or completely refinance in order to lower the mortgage payments.

Offer

An offer is made by the buyer to the seller to show a serious interest in buying a property and indicating a price that they’re willing to pay.

Origination

When a loan application is created, submitted, and reviewed.

Origination Fee

The amount charged for creating, submitting, and reviewing a loan; usually paid with other closing costs.

Partial Claim

A choice that is utilized during the loss mitigation process that enables the defaulted borrower to receive a loan from HUD for an amount that will pay off their past due mortgage payments. This loan does not carry interest.

PITI

Acronym for Principal, Interest, Taxes, and Insurance, which are the parts that make up a mortgage payment.

PMI

Acronym for Private Mortgage Insurance, which is offered by some privately owned businesses for borrowers who are paying a down payment less than 20%.

Pre-Approve

Pre-approval happens when a borrower is approved for a specific loan amount before they make a property purchase. They will continue to be approved at the time of purchase unless their qualification circumstances change.

Pre-Foreclosure Sale

An option open to borrowers who have defaulted on their mortgage where they can choose to sell the property and pay off their mortgage instead of facing foreclosure.

Pre-Qualify

When a lender calculates how much they could possibly lend the borrower before the approval process.

Premium

Payments made on a specified schedule to continue insurance protection.

Prepayment

A mortgage payment before the due date.

Principal

A mortgage or loan amount before interest and other fees.

Radon

Radon is a dangerous gas that can cause health problems if exposed. It’s not found in all homes, but doing a quick test during an inspection is your best bet.

Real Estate Agent

A middle man who is licensed to help a seller sell a property or to help a buyer find a property to purchase.

Realtor

A licensed real estate professional that is also a member of the National Association of Realtors.

Refinancing

Refinancing is when people choose to obtain a second loan to pay off the first. Most people refinance in order to get a better interest rate or to arrange lower monthly payments.

Rehabilitation Mortgage

A loan for the costs associated with improving a home.

RESPA

Acronym for Real Estate Settlement Procedures Act, which is a law that requires lenders to tell an applicant of all the information needed to make a fully informed decision about a mortgage.

Settlement

When a property is transferred from one owner to another after it is sold, also known as closing.

Special Forbearance

A choice that is utilized during the loss mitigation process that enables the lender to offer the defaulted buyer special terms, such as a decrease or deferment of payments for a specified period of time.

Survey

A detailed diagram of a property to determine where its borders begin and end, where it can be improved upon, etc.

Sweat Equity

To physically work on a property that one wants to purchase in order to lower the required down payment.

Title 1

A loan for the costs associated with improving a home for reasons other than luxury, typically FHA-insured.

Title Insurance

Coverage for a property’s title to help protect a lender or home owner in the event of claim disputes.

Title Search

The checking of public property records to ensure that that the said owner is legally the owner and that there are no outstanding claims on the property.

Truth-in-Lending

A law which requires lenders to reveal (in writing) any and all fees, credit terms, and conditions of a loan.

Underwriting

When a loan application is reviewed to find out how much risk will be associated with the loan if approved.

VA

Acronym for the Department of Veterans Affairs, which gives coverage to lenders who loan to veterans, incase the loan is defaulted.

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