Real Estate Glossary of Terms

International buyers as well as first-time home buyers may find the following glossary of common real estate terms useful during the home buying process.

203(b): FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
203(k): This FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.

Accounting: The fiduciary duty that requires the agent to promptly report to the principal/client all money and property received and paid out, and upon request, to tender an account of these actions. This duty also requires the agent to safeguard money or property held on behalf of the principal/client.
Accredited Buyers Representative: The ABR designation is the benchmark of excellence in buyer representation. This coveted designation is awarded to REALTORS by the Real Estate BUYERS AGENT Council (REBAC) of the NATIONAL ASSOCIATION of REALTORS who meet the specified educational and practical experience criteria.
ABRMSM (Accredited Buyers Representative Manager): The ABRMSM designation is the only Buyer Representation Designation for Managers, Brokers and Owners affiliated with the NATIONAL ASSOCIATION OF REALTORS. The ABRMSM designation is awarded by the Real Estate BUYER'S AGENT Council (REBAC) of the NATIONAL ASSOCIATION OF REALTORS to those members who meet the extensive specified educational and practical experience criteria.
Agent: A party who is authorized to act in the best interests of a principal/client, and is obligated to place the principals interests before the interests of any other parties, including the agents own interests regardless of whether the agency relationship is with the seller of the property or the buyer.
Amenity: A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, Woods, water) or man-made (like a swimming pool or garden).
Amortization: Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)
Annual Percentage Rate (APR): Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
Application: The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Appraisal: A document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraiser: A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.
Assessor: A government official who is responsible for determining the value of a property for the purpose of taxation.
Assumable Mortgage: A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

Balloon Mortgage: A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.
Bankruptcy: A federal law Whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Broker: A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Building Code: Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.
Budget: A detailed record of all income earned and spent during a specific period of time.
Broker: A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buyer's Representative: A real estate buyer's representative represents the consumer who is purchasing property in a real estate, not the seller. State law varies but usually a buyer's representative works for, and owes fiduciary responsibilities (see fiduciary duties) to, the real estate buyer and has buyer's best interests in mind throughout the entire real estate transaction.
Buyer Representation Agreement: An that agreement specifies the duties and the scope of services a buyer representative agrees to provide to the buyer as well as specifying the buyers responsibilities. In some states, where there is no written agreement required, the agent will be presumed to be representing the buyer. Consult with your local REALTOR for complete details when you first start the search for any real estate property.

Cap: A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.
Cash Reserves: A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Certificate of Title: A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Client: A party whose interests are to be served by the words and deeds of an agent with or without a contract according to state law. Also referred to as a principal. Regardless of whether the duties owed in a particular state are traditional, common law fiduciary duties or are statutorily defined, they are still owed to any principal/client.
Closing: Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.
Closing Costs: The fees, costs and taxes associated with the purchasing of a home, the borrowing of money and the preparation of necessary paperwork to finalize the sale. The total amount of the closing costs will vary depending on where the new home will be located, what type of property it is, the price of the home and the complexity of the transaction. It is extremely important that the buyer work closely with your buyers representative and lender in the early stages of the home buying process to determine what these costs could be, since closing costs can easily represent thousands of dollars. There are four categories of closing costs: (1) discounts points to buying down the mortgage; (2) the costs of originating the mortgage; (3) taxes and other local fees; (4) the cost of documentation.
Code of Ethics: The Code of Ethics and Standards of Practice of THE NATIONAL ASSOCIATION OF REALTORS establishes obligations that a REALTOR must comply with to ensure that all parties to the transaction are treated fairly.
Collateral: An asset (such as a car or a home) that guarantees the repayment of a loan.
Commission: The fee charged by a broker or agent for providing services related to a real estate transaction such as marketing the property, bringing the parties together, and negotiating a purchase contract or loan.
Comparative Market Analysis (CMA): A document provided by a real estate professional that surveys like properties in a given area or of a certain type for the purpose of determining the relative value of a given property. Condominium: a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.
Confidentiality: The fiduciary duty that prohibits the agent from communicating personal information about the principal that was given to or acquired by the agent within the scope of employment as an agent to the principal. Personal information must be kept confidential unless the client releases the agent, or subagent, from this duty. However, the material facts and defects of a property are not confidential.
Conventional Loan: A private sector loan, one that is not guaranteed or insured by the U.S. government.
Cooperative (Co-op): Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.
Credit History: History of an individual's debt payment; lenders use this information to gauge a potential borrower's ability to repay a loan.
Credit Rating: An assessment of a persons ability of debt repayment. Most information in a credit rating comes from companies that an individual has credit with such as the banks, department stores, finance companies etc. as well as from certain public records such as lawsuits, tax liens, judgments and bankruptcies.
Credit Report: A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.
Credit Bureau Score: A number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.
Customer: A party with a non-agency relationship with another party in a transaction. Duties still may be owed to a customer, but not all of the traditional (fiduciary) duties owed to a principal/client.

Debt-to-income Ratio: A comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deed: The document that transfers ownership of a property.
Deed-in-lieu: To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Default: The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Delinquency: failure of a borrower to make timely mortgage payments under a loan agreement.
Designated Agent: The party selected to represent a principal/client in a designated agency office. Designated agency has been legislatively created in many states, allowing the management of a brokerage to establish an office policy, whereby the managing broker appoints, or designates, a licensee associated with that brokerage to act as the exclusive agent of a principal/client, buyer or seller. No other licensee in the brokerage has an agency relationship to represent that principal/client.
Discounts Points (to Buying Down the Mortgage): A closing cost that is optional and can vary significantly from 0.5 to 3 points on the total of the mortgage. It is a one-time charge that is calculated based on the amount of the mortgage loan. A buyer would pay this amount up front to reduce the ongoing cost of the mortgage over the life of the loan. This charge is fully deductible as mortgage interest.
Disintermediated: One that no longer acts as an agent between persons.
Down payment: The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.
Dual agent: A broker who works with both parties in a real estate transaction buyer and seller, landlord and tenant.

Earnest Money Deposit: Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.
e-Buyer: 1) Electronic buyer. 2) The collective that describes consumers who conduct research on and/or buy products via the Internet. 3) Customers the real estate industry has always worked with, who just come to the table better informed and with clearer ideas about what they want, because they have Internet Information.
EEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase.
Equity: An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.
Escrow Account: A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Facilitator and Transaction Broker: Some states have passed statutes/regulations that allow a real estate licensee to act as a non-fiduciary, neutral mediator to bring parties together, without representing either party as a client. Some states allow real estate brokerages to act in a non-fiduciary capacity for both parties to a transaction. A facilitator or transaction broker has a duty to exercise reasonable care, provide an accounting to all parties and, in some states, may have additional duties imposed by the statute.
Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on ones credit record.
Fair Housing Laws: Local, state, and federal fair housing laws that prevent discrimination against any individual or group of individuals based upon race, color, religion, sex, handicap, national origin or familial status. A real estate agent may not lawfully disclose the racial, ethnic or religious composition of any neighborhood, community, or building, nor whether persons with disabilities are housed in any home or facility, except that the agent may identify housing facilities meeting needs of a disabled buyer.
Fair Market Value: The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.
FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
Fiduciary Duties: The term fiduciary is defined as of relating to or involving a confidence of trust. Fiduciary duties include: confidentially, undivided loyalty, obedience, reasonable care and diligence, full disclosure, and accounting. Regardless of whether the duties owed in a particular state are traditional, common law fiduciary duties, or are statutorily defined, they are owed to any principal/client.
Fixed-rate Mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Flood Insurance: Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.
For Sale By Owner (FSBO): A property for sale that is not listed by a real estate professional.
Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers.
Full Disclosure: The fiduciary duty that requires the agent to disclose affirmatively and honestly all information concerning the transaction (and property) which might affect the decisions a principal/client makes, informing the principal/client what the agent knows.

Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders
Good Faith Estimate: An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Home Inspection: An examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.
Home Warranty: Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; ,overage extends over a specific time period and does not cover the home's structure.
Home Ownership Cycle: The sequence that begins with assisting with property selection and contract negotiation, providing home improvement resources, and assisting in the sale when that time comes.
HELP: Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the homebuying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.
Homeowner's Insurance: An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence and inappropriate action that result in someone's injury or property damage.
Housing Counseling Agency: A housing counseling agency provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and homebuying.
HUD: The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
HUD1 Statement: Also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing.
HVAC: Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

Index: A measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.
Inflation: The number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.
Insurance, Certificate of: A document, issued by the insurance company, setting out the particulars of the insurance coverage for a particular property.
Insurance, Master: A policy owned by condominium association that covers the condominium building, commonly owned property, and liability insurance for the association. Does not cover losses to your unit.
Insurance, Mortgage: Insurance for the lender in the event that the borrower defaults on the loan. This can also be called private mortgage insurance.
Insurance, Title: A policy that protects a buyer against errors or omissions or defects in the title of the property.
Interest: A fee charged for the use of money .
Interest Rate: The amount of interest charged on a monthly loan payment; usually expressed as a percentage.
Insurance: Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Judgment: A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Lease Purchase: Assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.
Lien: A legal claim against property that must be satisfied When the property is sold
Loan: Money borrowed that is usually repaid with interest.
Loan fraud: Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.
Loan-to-value (LTV) Ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.
Lock-in: Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.
Loss Mitigation: A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan

Margin: An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Banker: A company that originates loans and resells them to secondary mortgage lenders like :Fannie Mae or Freddie Mac.
Mortgage Broker: A firm that originates and processes loans for a number of lenders.
Mortgage Insurance: A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.
Mortgage Insurance Premium (MIP): A monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.
Mortgage Modification: A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Multiple Listing Services (MLS): A database of all properties for sale listed by members of a specified MLS.

NATIONAL ASSOCIATION OF REALTORS (NAR): Since its inception in 1908, the NATIONAL ASSOCIATION OF REALTORS has worked successfully to advance home ownership, real estate investment, private property rights and the free enterprise system in the halls of Congress and the Federal agencies. NAR is the acknowledged leader in developing standards for efficient, effective, and ethical real estate business practices. It is widely recognized as one of America's strongest, most effective lobbying organizations, with more than 760,000 members across America, NAR is the "Voice for Real Estate" in the nation's capital.
Net Worth: The value of all of a persons assets, including cash, minus all liabilities.

Offer: Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
Origination: The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination Fee: The charge for originating a loan; is usually calculated in the form of points and paid at closing.

Partial Claim: A loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.
PITI: Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
PMI: Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
Pre-approve: Lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Pre-foreclosure Sale: Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
Pre-qualify: A lender informally determines the maximum amount an individual is eligible to borrow.
Premium: An amount paid on a regular schedule by a policyholder that maintains insurance coverage.
Prepayment: Payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.
Prime Rate: The interest that banks charge to their preferred customers.
Principal: The amount borrowed from a lender; doesn't include interest or additional fees.
Purchase Contract: The purchase contract is the legally binding document that sets forth the terms of the sale, establishes the rights and obligations of the parties involved, specifies the actions to be taken in order to close the sale, and establishes the time frames for those steps to be completed.

Radon: A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.
Real Estate Agent: an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.
Real Estate Buyers Agent Council (REBAC): The Real Estate Buyers Agent Council was founded in 1988 to promote superior buyer representation skills and services. An affiliate of THE NATIONAL ASSOCIATION OF REALTORS (NAR) since 1996, REBACs is the worlds largest organization of real estate professionals concentrating on buyer representation. Members who meet all course and professional experiential requirements are awarded the ABR (Accredited Buyers Representative) and/or ABRMSM (Accredited Buyers Representative Manager) designation(s). Both are the only designations of their type recognized by NAR.
REALTOR: a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.
Reasonable Care and Diligence: The fiduciary duty that requires the agent to protect the principal/client from foreseeable risks of harm, recommending that the principal obtain expert advice or assistance when the principals needs are outside the scope of the agents expertise.
Refinancing: Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).
Rehabilitation Mortgage: A mortgage that covers the costs of rehabilitating (repairing or improving) a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.
RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships

Settlement: Another name for closing.
Single Agent: A broker who works for just one party-client in a real estate transaction the buyer or the seller, the landlord or the tenant, not both with primary fiduciary duties to that party only.
Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.
Subagent: A party who is authorized to act on behalf of, traditionally, a sellers agent, which is to say, an agent for an agent. A subagent owes the same fiduciary duties to the principal/client as the agent does.
Subordinate: To place in a rank of lesser importance or to make one claim secondary to another.
Survey: A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.
Sweat Equity: Using labor to build or improve a property as part of the down payment

Taxes and Other Local Fees: A closing cost that will vary according to the requirements of local governments. Some may demand that the property taxes be pro-rated according to when the buyer will officially become the owner of the house. There can also be personal property taxes, homeowner's association dues, and other assessments that are specific to the area that you are moving into.
Title 1: An FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don't require a property lien.
Title Insurance: Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.
Title Search: A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Truth-in-Lending: A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.
Undivided Loyalty: The fiduciary duty that prohibits the agent from advancing any interests adverse to the principals interest or conducting the principals business in such a way as to benefit a customer, a subagent, the agent or any other party to the detriment of the principals interest.

VA: Department of Veterans Affairs: a federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

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