A
Acceleration Clause
A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

Acceptance
An offeree's consent to enter into a contract and be bound by the terms of the offer.

Additional Principal Payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjustable Rate Mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

Adjusted Basis
The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Administrator
A person appointed by a probate court to administer the estate of a person who died intestate.

Affidavits
A formal sworn statement of fact. As part of the closing process, you're likely to sign numerous affidavits. You may be required, for example, to sign an affidavit of occupancy. It states that you will use the property as a principal residence. Or, you and the seller may have to sign an affidavit stating all of the improvements to the property required in the sales contract were completed before closing.

Your lender can provide additional information regarding any of these documents you will sign.

Affordability Analysis
A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.

Amenity
A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

Amortization
The gradual repayment of a mortgage loan by installments.

Amortization Term
The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Amortize
To repay a mortgage with regular payments that cover both principal and interest.

Amortization Schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Annual Mortgagor Statement
A report sent to the mortgagor each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

Annual Percentage Rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

Annuity
An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

Application
A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.

*See also "Loan Application" entry.

Appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection.

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment
The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.

Assessment Rolls
The public record of taxable property.

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

Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assignment
The transfer of a mortgage from one person to another.

Assumable Mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

A provision in an assumable mortgage allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon the sale or transfer of the property.

Assumption
The transfer of the seller's existing mortgage to the buyer.

*See also "Assumable Mortgage" entry.

Assumption Clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Attorney-In-Fact
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

Automated Underwriting
After you complete your loan application with a lender, it is sent to "underwriting" for review. In short, underwriting is the process used to analyze how you have managed credit obligations in the past, whether you have the ability to repay the mortgage loan you are applying for (i.e., your income and assets), and whether the price you are willing to pay for the home is supported by the price of the property.

 

B
Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Balloon Payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Before-Tax Income
Income before taxes are deducted.

Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.

Bequeath
To transfer personal property through a will.

Betterment
An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

Bill of Sale
A written document that transfers title to personal property.

Binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly Mortgages
Your lender will probably tell you that a biweekly mortgage is structured just like a traditional fixed-rate, level-payment, fully amortizing mortgage. However, you make your payments every 14 days instead of once a month. The monthly payment is split in half, resulting in the same total monthly mortgage, but the resulting 26 and sometimes 27 biweekly payments a year translate into 13 monthly payments, or one extra monthly payment per year.

Borrowers can qualify for a 30-year monthly payment amount, but get a loan that pays off in approximately 22 years at current interest rates. At higher rates, the actual term declines.

If you are looking to build up equity in your home faster without the higher mortgage payments that come with a shorter-term mortgage, you may want to consider the biweekly mortgage. Payments can be deducted from your bank account and scheduled to coincide with your payroll deposits to simplify budgeting. Lenders may charge an initial set-up fee to automatically debit your checking account.

Blanket Insurance Policy
A single policy that covers more than one piece of property (or more than one person).

Blanket Mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Bona Fide
In good faith, without fraud.

Bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Breach
A violation of any legal obligation.

Bridge Loan
A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Budget
A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Budget Category
A category of income or expense data that you can use in a budget. You can also define your own budget categories and add them to some or all of the budgets you create. "Rent" is an example of an expense category. "Salary" is a typical income category.

Building Code
Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Buydown Account
An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

Buydown Mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

 

C
Call Option
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

*See also "lifetime payment cap", "lifetime rate cap", "periodic payment cap", and "periodic rate cap".

Capacity
Lenders will want to know if you can repay the mortgage debt you incur -- this is known as your capacity. Lenders will base their evaluation on employment information, how long you've worked, and how much you are paid. Lenders will also review your expenses and any other debt obligations you have. This means they'll want to know how many dependents you have and whether you pay any alimony or child support, for example.

Capital 

Money used to create income, either as an investment in a business or an income property.
The money or property comprising the wealth owned or used by a person or business enterprise.
The accumulated wealth of a person or business.
The net worth of a business represented by the amount by which its assets exceed liabilities.
Capital Expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.

Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash-Out Refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

CD-Indexed (Certificate of Deposit) ARMs
The Certificate of Deposit index represents the weekly average of secondary market interest rates on six-month negotiable CDs.

The initial interest rate and payments adjust every six months after an initial six-month period.

ARMs with this index typically come with a per-adjustment cap of 1 percent and a lifetime rate cap of 6 percent.

Certificate of Deposit
A document written by a bank or other financial institution that is evidence of a deposit, with the issuer's promise to return the deposit plus earnings at a specified interest rate within a specified time period.

*See also "Adjustable-Rate Mortgage" entry.

Certificate of Deposit Index
An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit.

*See also "Adjustable-Rate Mortgage" entry.

Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of Title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Chain of Title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Change Orders
After construction begins, you may discover that you need to make unplanned and necessary changes to the work. The contingency reserve covers unforeseen repairs or deficiencies found during renovation. Unnecessary additions or changes are treated differently.

These change orders are considered discretionary and must first be approved by your lender. You must deposit additional funds to pay for the work in the escrow account before work on the changes begins. These change orders - as well as any that result from unforeseen repairs - must be added as amendments to your construction contract.

Chattel
Another name for personal property.

Clear Title
A title that is free of liens or legal questions as to ownership of the property.

Closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement".

*See also "Settlement" entry.

Closing Agent
As a potential home buyer, you will need a closing (or "settlement") agent to coordinate the various closing activities. These can include but are not limited to preparing and recording the closing documents and disbursing funds.

The types of services provided by a closing agent depend on the person you hire, but typically the closing is conducted by title companies, escrow companies or attorneys. It is usually held at the lender's or real estate sales professional's office.

Closing Cost Item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement.

Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or REALTORS® often provide estimates of closing costs to prospective homebuyers.

Closing Date
After your lender has approved your mortgage and you accept the commitment letter, the next step is to set a closing date. Many times, your real estate sales professional coordinates the setting of this date with you, the seller, the closing agent, and your lender.

Remember, you need to ensure that the closing occurs before your lender's commitment letter - and the rate lock-in, if there is one - expire. You can now finalize your moving plans.

Cloud on Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

Co-Maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment.

Coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

Coinsurance Clause
A provision in a hazard insurance policy that states the amount of coverage that must be maintained - as a percentage of the total value of the property - for the insured to collect the full amount of a loss.

Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Commercial Banks
Commercial banks, like thrifts, originate and service mortgage loans. In some cases, commercial banks may have mortgage banking subsidiaries that perform this function. Banks may choose to hold a loan in their own portfolio or sell the loan to an investor.

Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money to a homebuyer. Also known as a "loan commitment".

Common Area Assessments
Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

Common Areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Common Law
An unwritten body of law based on general custom in England and used to an extent in the United States.

Community Land Trust Mortgage Option
An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.

Community Property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Community Seconds
An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

Comparables
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.

Condemnation
The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.

Condition of the Home
Potential homeowners should know of major problems in a home before they make an offer. As a potential buyer, you should carefully examine all elements of the home. Ask questions to the seller and the real estate sales professional about any concerns you may have. Both the seller and the real estate agent can be held liable if they do not disclose any defects they know about in the home.

Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

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

Condominium Hotel
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

Construction Contract
The terms and conditions of any major renovation job should be part of a formal, legally binding contract between you and your contractor - this is called the construction contract. The lender you choose will likely want to review this contract before you sign it.

Construction Loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Contingencies for Repairs
In your purchase offer, you may consider stating that the seller must make sure the electrical systems, heating and cooling, plumbing, and mechanical systems are functioning properly at the closing. You may also state that your purchase is contingent upon the satisfactory completion of a professional home inspection, which will check these systems and other elements more completely. These are both ways to ensure that surprises don't arise when your moving day arrives.

If you do not include this clause in your contract, you are essentially accepting the house "as is."

Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contingency for Clear Title
Your purchase contract should include a contingency that the purchase is subject to your receiving clear title to the property. This process includes a title search and title insurance.

Contingency for Financing
When you make a formal offer on a house, your contract should include a financing contingency. It specifies if you don't get the money you need to purchase the house at the terms you want, the offer is void and you will be refunded your deposit.

Don't be surprised if the seller includes a clause in the contract that states you must make a "good faith effort" to get the mortgage. This is the seller's way to ensure that you explore all options to get a mortgage loan.

Contingency for Personal Property
Your purchase contract should specify appliances, fixtures, and other personal property that must remain in the home. You can avoid any surprises by listing in your contract everything that is to be left behind when the seller moves out.

Contingency Reserve
Most mortgages for purchase-renovation require an additional 10 percent of the total cost of the project to be put aside into a reserve account. This contingency reserve is only used when unforeseen repairs or deficiencies are found during renovation.

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

Contractor
A general contractor is a person who oversees a construction project and handles aspects such as scheduling workers and ordering supplies.

Conventional Mortgage
A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.

Convertibility Clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

Cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Cooperative Corporation
A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements. A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

Cooperative Mortgages
Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

Cooperative Project
A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

Corporate Relocation
Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

*See also "adjustable-rate mortgage (ARM)".

Costs of Settling Into Your Home
When figuring out how much home you can afford, you need to account for the costs associated with getting into your home.

These can include the cost for repairs that need to be made before you can occupy your residence. There may also be the cost of purchasing appliances, such as a washer and dryer, refrigerator, or stove.

The bottom line is you do not want to spend all your money on purchasing the home and not have any left to pay these types of costs.

Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit Bureau
The three main credit reporting agencies, or credit bureaus, are Equifax, Experian, and Trans Union. You can order a copy of your credit report (a nominal fee may apply) via telephone at:

* Equifax: (800) 685-1111

* Trans Union: (800) 916-8800

* Experian: (800) 682-7654

Credit History
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Life Insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Credit Profile
There are several ways to ensure you have a good credit report and credit score. One of the most effective is to manage your existing credit in a positive way.

Ask your lender for suggestions about ways to control the amount of money you owe. Or, you can choose a credit counselor from the list provided on this site. Some lenders may view consumers as a greater risk if they have used most or all of their available credit. Consumers who are considered "overextended" may be viewed this way even if they have made all their debt payments on time.

Missing a payment on a bill should be avoided, as should late payments on any of your credit obligations. Experiencing a mortgage foreclosure, filing for bankruptcy, or having your vehicle repossessed can also affect your credit score and credit report, limiting your ability to get new credit at a reasonable rate.

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.

Credit Report Fee
The credit report fee covers the lender's cost for ordering your credit report from a credit bureau.

This report will verify some of the information you provided on your loan application as well as additional information from the credit agency's files and from public records.

When a credit report is received, your lender will check it against your application and look for any discrepancies. You may be asked to explain information in your credit report.

Credit Reporting Agency
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

The three main credit reporting agencies, or credit bureaus, are Equifax, Experian, and Trans Union. You can order a copy of your credit report (a nominal fee may apply) via telephone at:

* Equifax: (800) 685-1111

* Trans Union: (800) 916-8800

* Experian: (800) 682-7654

Credit Repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Credit Scoring
Your credit score is based on all the information in your credit report. This information is converted into a number - a credit score - that the lender uses to determine whether you are likely to repay your loan in a timely manner. The scores used in mortgage lending are typically in the 300 to 900 range. A general guide is that the higher your score the better. But you should keep in mind that your credit score is just one of several factors that will be used to evaluate your mortgage loan application.

Credit Unions
A credit union is a financial institution that is owned and run by its members. It is a nonprofit, cooperative institution that offers members a place to save and borrow. A credit union often works by having its members pool their funds so additional loans can be made to other members.

Creditor
A person to whom money is owed.

 

D
Days on market (DOM)
Simply put, this measures the number of days a property is for sale, from the day it is listed on the multiple listing service (MLS) to the day a buyer and seller are under contract.

As a seller’s agent, you’re counting the days a listing is on the market. Chances are your client is, too, which is why she’s calling you before breakfast.  

Deed
The deed is a legal document recording the transaction of title (or official ownership transfer) from the seller to the buyer. It is recorded at the local county clerk’s office. It’s really just a combo of legalese and paperwork, but everyone feels better having a tangible representation of ownership.

Deed in lieu of foreclosure
This is when a homeowner turns a deed over to the mortgaging bank to avoid going into foreclosure. This allows the borrower to avoid personal liability for the remaining unpaid debt. In some cases, they may be able to continue living on the property.

Default
To default on a mortgage loan means the borrower has stopped submitting monthly payments.

Delinquency
Borrowers can go into delinquency if they have stopped paying their monthly mortgage loan payments for a certain time period. At this point, the lender has the option to start foreclosure proceedings.

Debt-to-income ratio (DTI)
As the name suggests, this is the ratio of a homebuyer’s debt to their income. This is an important calculation for lenders when considering mortgage applications and whether borrowers can afford to make payments. You can help your clients calculate their DTI by adding together all of their monthly payments and dividing the total by their gross monthly income.

Discount points
Borrowers may pay these fees at closing to secure a lower interest rate.

Down payment
A down payment is the amount of money a buyer pays for a property up front, usually a percentage of the total purchase price. A crucial question for your clients: How much can you put down? After a good look at their finances, a nice long chat with their financial advisers, and an extensive application with a mortgage lender, they might finally have an answer. 

Conventional loans often require 20% of the purchase price, while government-backed mortgages could require much less (sometimes nothing!). Loans with less than 20% down often require buyers to pay private mortgage insurance (PMI) until they reach a certain equity ratio.

Due diligence period
This period is a specified amount of time after an offer is made during which the buyer can inspect the property and review relevant documents. It’s a chance for the buyer to be sure in their decision to move forward with the purchase. It’s also a period when seller’s agents tend to bite their nails, breathe rapidly into paper bags, and — oh, yes, they will have that third margarita, thank you!

Due-on-sale clause
Also called an acceleration clause, this requires the borrower to repay the loan in full when a property (or collateral) is sold. It all goes back to that riveting Garn-St. Germain Depository Institutions Act, which was put into place to protect lenders from assumable mortgages.

 

E

Earnest Money Deposit
A sum of money provided by the buyer as a demonstration of their seriousness and commitment to the transaction. It is typically paid upfront and is held in escrow until the closing of the transaction, at which point it is applied towards the buyer's down payment or closing costs.
Equity
The difference between the value of a property and the amount of money that is owed on it.
Encumbrance
A lien or other claim against a property, such as a mortgage or a judgment.
Equity Loan
A loan that is secured by the equity in a property.
Escrow
A neutral third party who holds the funds associated with a real estate transaction until the closing.
Estate
The total assets, including property, money, and possessions, owned by a deceased person that are subject to administration and distribution according to the laws of inheritance.
Eviction
The legal process of removing a tenant from a property.
Exclusions
Items that are not included in the sale of a property, such as personal property or appliances.

 

F

Fair Market Value
Refers to the estimated price at which a property would sell assuming a reasonable time frame and in an open and unrestricted market, without any undue influence or pressure, and with both parties having access to relevant information.
Fee Simple
The highest and most complete form of property ownership, where the owner has absolute and unrestricted rights over the property for an indefinite period.
FHA Loan
A type of mortgage that is insured by the Federal Housing Administration. An FHA loan is designed to help low- and moderate-income borrowers qualify for home financing. Borrowers can obtain an FHA loan with a lower credit score and down payment than a conventional loan, but have to pay mortgage insurance premiums, which protect the lender in case of default.
Fiduciary Duty
A legal obligation that a real estate agent owes to their client to act in their best interest.
Fixed-Rate Mortgage
A mortgage with an interest rate that does not change over the life of the loan.
Foreclosure
The legal process by which a lender takes possession of a property after the borrower defaults on their mortgage.
Foreign Investment in Real Property Tax Act (FIRPTA)
A U.S. federal law that imposes withholding requirements on the sale of real estate by foreign individuals or entities. It requires the buyer to withhold a portion of the sale proceeds and remit it to the Internal Revenue Service (IRS) to ensure payment of any applicable taxes on the transaction by the foreign seller.
Foundation
The part of a building that supports the weight of the structure.
Furniture Allowance
A sum of money that is given to a buyer to help offset the cost of purchasing furniture for a new home.

 

G

Government loan
A loan that is insured or guaranteed by the government, such as a VA loan or an FHA loan.
Grant
A sum of money that is given to someone for a specific purpose, such as buying a home.
Grantee
The party who receives ownership or interest in a property from the grantor through a legal transfer.
Grantor
The party who legally transfers ownership or interest in a property to another party, known as the grantee.
Gross Rent
The total amount of rent that is paid for a property, before any deductions.
Guarantor
A person who agrees to be responsible for the repayment of a loan if the borrower defaults.
 

H

Home Builder
A company involved in the construction and development of residential properties. They are responsible for overseeing the entire process of building a home, including planning, design, construction, and ensuring adherence to building codes and regulations.
Home Inspection
A home inspection is a professional evaluation of a residential property conducted by a certified inspector during a real estate transaction. It involves a comprehensive examination of the home's structure and systems, such as plumbing, electrical etc.
Homeowners Association (HOA)
A group of homeowners who manage the common areas of a property, such as a condo or a townhouse.
Home Warranty
A contract that protects the buyer of a home from unexpected repairs or replacements.
Housing Market
The conditions in the market for buying and selling homes.
HUD-1 Statement
A document that lists all of the costs associated with buying a home.

 

I

Impound Account
A savings account that is maintained by the mortgagee on behalf of the mortgagor, which is used to pay the property taxes and hazard insurance.
Improved Land
Property that has undergone development or construction, such as the addition of buildings, infrastructure, or other enhancements, increasing its utility and value.
Income Property
A property that is rented out to tenants.
Inspection Contingency
A clause in a real estate contract that allows the buyer to cancel the contract if the home inspection reveals any major problems.
 Interest
The amount of money that is charged on a loan, expressed as a percentage of the principal.
 Interest Rate
The amount of interest that is charged on a loan, expressed as a percentage of the principal.
 

J

Joint Tenancy
A form of property ownership where multiple individuals have equal and undivided ownership rights. It includes the right of survivorship, meaning that when one joint tenant passes away, their share automatically transfers to the remaining joint tenants.
Jumbo Loan
A mortgage that is larger than the conforming loan limit.
Junior Lien
A lien that is subordinate to another lien, such as a mortgage.
Judgment
A court order that requires a person to pay a debt.
Just Cause
A legal requirement that a landlord must have in order to evict a tenant.

 

K

Key Money
A sum of money that is paid to a landlord in order to secure a lease.
Kick-Out Clause
A clause in a real estate contract allowing a seller to continue marketing a property and accept other offers. If the seller receives a better offer, the original buyer has a set period of time to remove their contingencies and proceed with the purchase, or the contract is canceled.
 

L

Landlord
The owner of a property that is rented out to tenants.
Lease
A contract between a landlord and a tenant that outlines the terms of the rental agreement.
Legal Description
A detailed and precise description of a property's boundaries and location, using specific survey measurements, landmarks, and reference points that are legally recognized.
Lien
A legal claim against a property, such as a mortgage or a judgment.
Life Estate
A type of property ownership where an individual, known as the life tenant, possesses the right to use and enjoy the property for the duration of their lifetime, after which ownership reverts to another party, known as the remainderman.
Loan
A sum of money that is borrowed from a lender and repaid over time with interest.
Loan Origination
The process of creating and initiating a new loan, including the application, underwriting, and approval stages, before the funds are disbursed to the borrower.
Loan-to-Value Ratio (LTV)
The ratio of the amount of money that is borrowed to the value of the property that is being financed.
Listing
A property that is being offered for sale by a real estate agent.
Listing Agreement
A contract between a seller and a real estate agent that outlines the terms of the listing.
Lot
A parcel of land that is used for building a home or other structure.

 

M

Market Value
The price that a property would sell for in an open market.
Mortgage
A loan that is secured by a property.
Mortgage Broker
A licensed professional who helps borrowers find and obtain mortgages.
Mortgage Insurance
Insurance that protects the lender in the event that the borrower defaults on their mortgage.
 Multiple Listing Service (MLS)
A database of properties that are for sale or rent.
 

N

New Construction
The process of building residential properties / homes, typically on vacant land or lots. It involves the complete construction of a dwelling, including the foundation, structural components, interior and exterior finishes, and the installation of necessary systems such as plumbing and electrical.
Non-Conforming Loan
A mortgage that is larger than the conforming loan limit.
Note
A legal document that outlines the terms of a loan.

 

O

Offer
A written proposal to purchase a property.
Option
A contract that gives the buyer the right, but not the obligation, to purchase a property at a specified price within a specified period of time.
Open House
An event where a property is open to the public for viewing.
Origination Fee
A fee that is charged by a lender to process a loan application.
Overbid
An offer that is higher than the asking price of a property.
Owner Builder
An individual who acts as both the owner and the builder of a residential property. They assume the responsibility of managing and overseeing the construction process themselves, including obtaining permits, hiring contractors, and ensuring compliance with building codes and regulations.
Owner's Title Insurance
Insurance that protects the owner of a property from title defects.

 

P

Paid-In-Full
A term used to describe a loan that has been fully repaid.
Personal property
The movable assets that are not permanently affixed to real property. It includes items such as furniture, appliances, electronics, vehicles, and other belongings that can be easily transported.
Piggyback Loan
A second mortgage that is taken out in addition to a first mortgage.
PITI
An acronym that represents the four main components of a monthly mortgage payment: Principal, Interest, Taxes, and Insurance.
Point
A fee that is charged by a lender for processing a loan application.
Pre-Approval
A lender's commitment to lend a certain amount of money to a borrower, subject to certain conditions.
Pre-Qualification
A lender's estimate of how much money a borrower can borrow, based on the borrower's financial information.
Property Taxes
Taxes that are assessed on the value of a property.
Purchase Agreement
A legally binding contract between a buyer and seller that outlines the terms and conditions of the property purchase, including the purchase price, contingencies, and closing details.

 

Q

Qualifying Ratio
A measure of a borrower's ability to repay a loan, calculated by dividing the borrower's monthly debt payments by their monthly income.
Quitclaim Deed
A quitclaim deed is a type of deed that conveys ownership of a property without any warranties or representations. This means that the seller is not guaranteeing that the property is free of liens or other encumbrances. Quitclaim deeds are often used when the seller does not have clear title to the property, or when they are simply giving up their interest in the property.

 

R

Real Estate Agent
A licensed professional who helps buyers and sellers buy, sell, or rent real estate.
Real Estate Investment Trust (REIT)
A company that invests in real estate.
Real Estate Market
The conditions in the market for buying and selling real estate.
Real Estate Mortgage Investment Conduit (REMIC)
A type of security that is backed by mortgage loans.
Real Estate Owned (REO)
Refers to a type of property that is owned by a bank or lender as a result of foreclosure proceedings.
Refinance
To obtain a new mortgage to replace an existing mortgage.
Remainder Estate
A future interest in a property that is granted to a third party and takes effect after the termination of a prior estate or interest, such as a life estate.
Residential Property
A type of real estate that is primarily used by individuals and families for residential purposes. It can include various types of dwellings, such as single-family homes, townhouses, condominiums, apartments, and duplexes.

 

S

Satisfaction
The complete repayment of the mortgage debt by the borrower, resulting in the release of the mortgage lien on the property, indicating that the mortgage obligation has been fulfilled.
Second Mortgage
A mortgage that is taken out in addition to a first mortgage.
Settlement
The final step in a real estate transaction, in which the buyer and seller exchange the property and money.
Sold-As-Is
A term used to describe a property that is being sold in its current condition, with no repairs or improvements made.
Speculation
The act of buying a property with the intention of selling it for a profit in the future.
Survey
A professional assessment or measurement of a property's boundaries, features, and physical characteristics.
 

T

Tenants in Common
A form of property ownership where two or more individuals hold separate and distinct ownership shares in a property. Tenants in common do not have the right of survivorship. Each tenant has the freedom to transfer, sell, or mortgage their share independently, and their share is inherited by their designated heirs upon their death. The ownership shares can be unequal.
Title
The legal document that proves ownership of a property.
Title Company
A firm that conducts title searches to identify any issues that may affect the property's ownership, provides title insurance to protect against future claims, and facilitates the smooth transfer of funds and legal documents during the closing process.
Title Insurance
Insurance that protects the buyer of a property from title defects.
Title Search
The process of examining public records to verify the ownership history, liens, encumbrances, and other relevant information about a property in order to determine the legal status of its title.
Townhouse
A type of housing that is attached to other units on one or more sides.
Transaction Costs
The fees and expenses associated with buying or selling a property, such as closing costs, appraisal fees, and origination fees.
Turnkey Property
A property that is ready to move into, with no repairs or improvements needed.

 

U

Underwriting
The process of evaluating a loan application to determine the risk of default.
Undisclosed Principal
A person who is involved in a real estate transaction but whose identity is not disclosed to the other parties.
Unimproved Land
Land that does not have any buildings or other improvements on it.

 

V

Valuation
The process of estimating the value of a property.
 Variance
A permit that allows a property to be developed in a way that is not in accordance with zoning regulations.
 Vested Interest
A legal right to ownership of a property.

 

W

Waiver
The act of giving up a right or claim.
Walk-Through
A final inspection of a property that is being purchased. Typically performed just before closing, to ensure that the property being conveyed is in the condition that was agreed to between buyer and seller.
Waterfront Property
Property that is located on a body of water, such as a lake, river, or ocean.
Wetlands
Refers to areas of land that are characterized by the presence of water, either permanently or seasonally. Real estate development projects that involve wetlands may require special permits and approvals to ensure compliance with environmental regulations.

 

X

Xeriscaping
A type of landscaping that uses drought-tolerant plants.

 

Y

Year-Round Property
A property that can be used year-round, as opposed to a seasonal property.
 

Z

Zoning
The regulations that govern the use of land in a particular area.