Real Estate Terms

Amortization - refers to the reduction of debt by regular payments of interest and principal sufficient to pay off a loan maturity.

Annual percentage rate (APR) - cost of credit that consumers pay, expressed as a simple annual percentage.

Appraisal - an opinion of value, and is usually required when real property is sold, financed, condemned, taxed, insured, or partitioned. Note that an appraisal is an estimate, not a determination of value.

ARM (Adjustable Rate Mortgage) - a mortgage that may be subject to changes in the interest rates; therefore when rates change the ARM payment may increase or decrease as determined by the lender.

Assumable mortgage - a mortgage that may be transferred from the seller to the buyer; once the transfer occurs the seller is no longer responsible for the payments on said mortgage.

Bankruptcy - state of insolvency of an individual or an organization -- in other words, an inability to pay debts. There are two kinds of legal bankruptcy under US law: involuntary, when one or more creditors petition to have a debtor judged insolvent by a court; and voluntary, when the debtor brings the petition. In both instances, the objective is an orderly and equitable settlement of obligations.

Building code - rules set up by local, state, or municipal governments to regulate building and construction standards. They are designed to provide minimum standards to safeguard the health, safety, and welfare of the public by regulating and controlling the design, construction, quality, use and occupancy, location, and maintenance of all buildings and structures.

Certificate of title - a statement of opinion prepared by a title company, licensed abstracter, or an attorney on the status of a title to a parcel of real property, based on the examination of specified public records.

Closing - the consummation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment by the buyer of the purchase price.

Closing costs - expenses of the sale (or loan refinancing) that must be paid in addition to the purchase price (in the case of the buyer's expense), or which must be deducted from the proceeds of the sale (in the case of the seller's expense). Some closing costs result from legal requirements; others are a matter of local custom and practice.

Conventional loan - a loan made with real estate as security and not involving government participation in the form of insuring (FHA) or guaranteeing (VA) the loan. The mortgagee can be an institutional lender or a private party. Conventional loans included those loans insured by private mortgage insurance companies.

Cooperative (Co-op) - organization owned by its members; a property whose residents own shares in a cooperative giving them exclusive use of their apartments. Decisions about common areas -- hallways, elevators, grounds -- are made by a vote of members' shares.

Credit history - history of an individuals ability to repay debt; creditors often use this to determine a buyer's ability to repay a loan.

Credit rating - a rating given a person or company to establish creditworthiness based upon present financial condition, experience, and past credit history.

Credit report - a report detailing the credit history of a person or business, used to determine creditworthiness.

Deed - a written instrument containing some transfer, bargain, or contract relating to property -- most often conveying the legal title to real estate from one party to another.

Delinquency - failure to make a payment on an obligation when due.

Down payment - upfront payment of a portion of a purchase price, thereby reducing the balance.

Earnest money - the cash deposit (including initial and additional deposits) paid by the prospective buyer of real property as evidence of good-faith intention to complete the transaction.

Equity - that interest or value remaining in a property after payment of all liens or other charges on the property. An owner's equity in property is normally the monetary interest the owner retains over and above the mortgage indebtedness.

Escrow - money, securities, or other property or instruments held by a third party until the conditions of a contract are met.

Fair market value (FMV) - an appraisal term for the most probable price in terms of money that a property, if offered for sale for a reasonable period of time in a competitive market, would bring to a seller who is willing but not compelled to sell, from a buyer who is willing, but not compelled to buy, both parties being fully informed of all the purposes to which the property is best adapted.

Fixed rate mortgage - type of loan in which the interested rate does not fluctuate with the general market conditions.

Flood insurance - insurance offered by private companies and subsidized by the federal government, designed to provide coverage for damage from floods or tidal waves.

Foreclosure - process by which a homeowner who has not made timely payments of interest and principal on a mortgage loses the title to the home.

Home inspection - an inspection of the structure and mechanical systems of a property to determine the safety of a property, used to inform potential homebuyers of any repairs that may be needed.

Homeowner's insurance - policy protecting a homeowner against property and casualty perils. Most mortgage lenders require homeowners to obtain adequate insurance coverage before they agree to provide a mortgage.

Housing and Urban Development, Department of (HUD) - cabinet-level federal agency, founded in 1965, which is responsible for stimulating housing development in the United States. HUD has several programs to subsidize low- and moderate-income housing and urban renewal projects, often through loan guarantees.

HVAC - Heating, Ventilation, and Air Conditioning; a home's heating and cooling system.

Inflation - a rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market.

Insolvency - inability to pay debts when due.

Interest - cost of using money, expressed as a rate per period of time, usually one year, in which case it is called an annual rate of interest.

Interest rate - rate of interest charged for use the of money.

Judgment - decision by a court of law ordering someone to pay a certain amount of money.

Lien - creditor's claim against a property.

Loan - money borrowed that is usually repaid with interest

Mortgage - debt instrument by which the borrower gives the lender a lien on property for the repayment of a loan.

Mortgage insurances - an insurance plan that will pay off the mortgage balance in the event of a death or, in some plans, disability of the insured mortgagor.

Offer - an intention to enter into a contract creating the power of acceptance in the other party. The sales contract transmits to the seller a prospective buyer's offer to purchase the seller's property.

PITI - principal, interest, taxes, and insurance, the primary components of monthly mortgage payments.

PMI - Private Mortgage Insurance, type of insurance available from lenders that insures against loss resulting from a default on a mortgage loan and can substitute for down payment money.

Pre-approve - lender commitment to approve a potential buyer provided that buyer still meets requirements at the time of purchase.

Pre-qualify - a lender informally determines the maximum amount of a potential borrower.

Premium - the amount paid monthly for insurance coverage; also an extra payment usually made as an incentive.

Principal - the capital sum. Interest is paid on the principal. An amortized payment includes both principal and interest.

Radon - a colorless, odorless, naturally occurring gas produced from the decay of natural radioactive minerals in the ground. Brokers must disclose known radon problems with a property and advise homeowners to contact state environmental agencies for a determination of whether a property has an elevated level of radon.

Real estate agent - an individual who is licensed to negotiate and arrange real estate transactions.

Realtor - a registered trademark name that may only be used with a real estate agent or broker who is also a member of the National Association of Realtors ®.

Refinancing - extending the maturity date, or increasing the amount of existing debt, or both.

RESPA - Real Estate Settlement Procedures Act, a federal law, enacted in 1974 and later revised, that protects consumers during residential real estate purchase and loan process by requiring lenders to disclose all relationships, practices, and settlement costs.

Settlement - the act of adjusting and prorating the various credits, charges, and settlement costs to conclude a real estate transaction. Many brokers refer to this process as the closing rather than the settlement.

Survey - the process by which boundaries and measured and land areas determined; the on-site measurement of lot lines, dimensions, and position of houses in a lot, including the determination of any existing encroachments, easements, party walls, and compliance with setback requirements.

Title insurances - a comprehensive indemnity contract under which a title insurance company warrants to make good a loss arising through defects in title to real estate or any liens or encumbrances thereon.

Title search - an examination of the public records to determine, what, if any, defects there are in the chain of title.

Truth-in-Lending - a federal law to assure that borrowers and customers in need of consumer credit are given meaningful information with respect to the cost of credit.

VA (Veterans Administration Loan) - a government sponsored mortgage assistance program.

Definitions sited from "The Language of Real Estate" Third Edition, John W. Reilly Copyright © 1989 and Barron's Financial Guides "Dictionary of Finance and Investment Terms" Sixth Edition, John Downes, Jordan Elliot Goodman Copyright © 2003. The term REALTOR® is a registered collective membership mark which identifies real estate professionals who are members of the National Association of REALTORS® and subscribe to a strict Code of Ethics.