Basic Real Estate Terms

Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is periodically adjusted to reflect changes in the Index. The frequency and amount is determined at the inception of the loan.

Adjustment Interval: The period of time between adjustments for an adjustable rate mortgage. Common intervals are one, three and five years.

Annual Percentage Rate (APR): The annual interest percentage of the loan that reflects the total finance charges paid (interest, fees, points & other finance charges). This must be disclosed to borrowers by lenders under the Truth-in-Lending Act. The APR is usually higher than the interest rate. Be wary of APRs that are MUCH higher than the interest rate quoted. It generally means you are paying excess or inflated fees.

Appraisal: An estimate of the value of a property made by a qualified professional (appraiser).

Buydown: An amount paid by the borrower to the lender to reduce the interest rate of the loan.

Cap: The limit of how much an interest rate or monthly payment amount can change in adjustable rate mortgages.

Closing costs: The costs associated with the transfer in ownership of a property. Both buyer and seller generally incur separate costs when transferring ownership. These costs include insurance, taxes, lender fees, certifications, title charges, etc. and are typically between 3-6 percent of the mortgage. See Help With Closing Costs.

Closing: The final transaction when all conditions are satisfied (loan funding, title recording, etc.) and the transfer of ownership is complete.

Competitive Market Analysis (CMA): A comparison of homes similar in size, features and location that are currently on the market or have recently sold. Also known as “comps.” Prepared by a real estate professional to help the seller set an asking price or a buyer determine comparable value.

Credit report: A report that documents a person’s credit history. Includes information such as outstanding credit card balances, late payments, employers, auto leases, closed accounts, etc.

Debt-to-income ratio (DTI): The ratio of the borrower’s monthly payment obligation (debt) to his/her income expressed as a percentage. Generally, the lender will only include long term debts in DTI calculations.

Deposit: An amount paid by the buyer to the seller (held by the escrow company until closing) upon offer to purchase a property to show good faith and intent. Buyer’s agent generally requires a good faith deposit prior to writing the purchase offer.

Down Payment: A cash amount the buyer pays from his own funds to supplement the amount financed. Down payment + amount financed = purchase price. All or part of this amount can be gifted from a family member, depending on the lender’s requirements.

Equity: A property’s fair market value (FMV) minus the owner’s indebtedness. Generally, if the FMV of your property is $300K and you owe $250K on your mortgage, you have $50K in equity.

Escrow: A procedure in which a neutral third party carries out the instructions of both buyer and seller. The escrow company holds all funds and documents necessary to the sale, including taxes, insurance and the buyer’s deposit. Selection of the escrow company can be by the buyer or seller and sometimes the lender, specified prior to agreement of sale.

FHA loan: A loan insured by the Federal Housing Administration. They generally offer lower down payments than conventional loans and have lower income requirements.

Fixed Rate Mortgage: A mortgage in which the interest rate remains fixed (does not fluctuate) for the life of the loan. Common fixed rate mortgages are for a period of 15 and 30 years.

Foreclosure: A legal procedure in which property used as security for a debt is sold to satisfy the debt. For example, if you don't pay your mortgage, you risk losing your home to the lender, thereby causing it to go into foreclosure.

Good Faith Estimate: A required written estimate given to the borrower by the lender estimating the predicted costs for closing a loan.

Hazard Insurance: An insurance policy that protects a homeowner against loss. Also known as “homeowner’s insurance.” Generally required by the lender as a stipulation to fund the loan.

Index: An economic indicator that determines changes in the interest rate of an ARM.

Interest: The amount paid by the borrower to the lender for providing the loan expressed as a percentage based on the amount of the loan.

Interest-only Loan: A loan in which payments are made toward interest only, not principal. Generally lowers the monthly payment but is not recommended for homeowners who wish to keep their homes long-term because the amount of the loan never decreases.

Loan-to-Value Ratio: The ratio of the amount of a mortgage loan to the appraised value of the property expressed as a percentage.

Margin: The amount a lender adds to the Index to establish the actual interest rate on an ARM, expressed as a percentage.

Multiple Listing Service (MLS):. A service, accessible to real estate professionals, that lists properties for sale.

Mortgage: Simply put, a loan to finance a property. Technically, a mortgage is a security that guarantees a lender legal ownership of a property if the borrower defaults on his/her loan (You don’t really own your house until it is completely free and clear of all debt, until then your lender owns it). See Help With Mortgage Payments.

Mortgage Broker: The middleman between the lender and the borrower. A broker finds a lender for the borrower.

PITI: Stands for Principal, Interest, Taxes and Insurance, the four main components that make up the buyer’s monthly mortgage payment.

Points: A percentage of the total amount of the loan charged by a lender for his/her services. One point represents one percent of the loan amount (one point on a $300,000 mortgage is $3,000). These are negotiable! See A Word About Lenders & Brokers.

Pre-payment penalty: A fee charged by the lender to the borrower for paying off the loan prior to the ending of the term. Pre-payment penalties vary with different restrictions. Some do not penalize you for refinancing but will penalize you if you sell your home.

Pre-qualification letter: A document given to the borrower by the lender that states the borrower has been pre-qualified for a loan up to a certain amount. This ensures agents and sellers that the buyer has the means to buy the property. Also called a "pre-qual."

Private Mortgage Insurance (PMI): An insurance policy bought by the borrower to protect the lender if the borrower defaults on the loan. The amount is added to the borrower’s monthly mortgage payment. Generally required when a buyer’s down payment is less than 20% but not always necessary depending on the lender.

Title Insurance: An insurance policy that protects an owner’s and a lender’s interest in the property against undiscovered defects in the title.

VA loan: A loan insured by the government, guaranteed by the Department of Veteran’s Affairs. Available only to veterans of the armed services, active military or reserves and their spouses. They generally offer little to no money down programs.


	BASIC REAL ESTATE TERMS *(aka: if you think "escrow" is a French word for "snail," this page is for you!)*
	Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is periodically adjusted to reflect changes in the Index. The frequency and amount is determined at the inception of the loan. Adjustment Interval: The period of time between adjustments for an adjustable rate mortgage. Common intervals are one, three and five years. Annual Percentage Rate (APR): The annual interest percentage of the loan that reflects the total finance charges paid (interest, fees, points & other finance charges). This must be disclosed to borrowers by lenders under the Truth-in-Lending Act. The APR is usually higher than the interest rate. Be wary of APRs that are MUCH higher than the interest rate quoted. It generally means you are paying excess or inflated fees. Appraisal: An estimate of the value of a property made by a qualified professional (appraiser). Buydown: An amount paid by the borrower to the lender to reduce the interest rate of the loan. Cap: The limit of how much an interest rate or monthly payment amount can change in adjustable rate mortgages. Closing costs: The costs associated with the transfer in ownership of a property. Both buyer and seller generally incur separate costs when transferring ownership. These costs include insurance, taxes, lender fees, certifications, title charges, etc. and are typically between 3-6 percent of the mortgage. See Help With Closing Costs. Closing: The final transaction when all conditions are satisfied (loan funding, title recording, etc.) and the transfer of ownership is complete. Competitive Market Analysis (CMA): A comparison of homes similar in size, features and location that are currently on the market or have recently sold. Also known as “comps.” Prepared by a real estate professional to help the seller set an asking price or a buyer determine comparable value. Credit report: A report that documents a person’s credit history. Includes information such as outstanding credit card balances, late payments, employers, auto leases, closed accounts, etc. Debt-to-income ratio (DTI): The ratio of the borrower’s monthly payment obligation (debt) to his/her income expressed as a percentage. Generally, the lender will only include long term debts in DTI calculations. Deposit: An amount paid by the buyer to the seller (held by the escrow company until closing) upon offer to purchase a property to show good faith and intent. Buyer’s agent generally requires a good faith deposit prior to writing the purchase offer. Down Payment: A cash amount the buyer pays from his own funds to supplement the amount financed. Down payment + amount financed = purchase price. All or part of this amount can be gifted from a family member, depending on the lender’s requirements. Equity: A property’s fair market value (FMV) minus the owner’s indebtedness. Generally, if the FMV of your property is $300K and you owe $250K on your mortgage, you have $50K in equity. Escrow: A procedure in which a neutral third party carries out the instructions of both buyer and seller. The escrow company holds all funds and documents necessary to the sale, including taxes, insurance and the buyer’s deposit. Selection of the escrow company can be by the buyer or seller and sometimes the lender, specified prior to agreement of sale. Escargot: French word for "snails." FHA loan: A loan insured by the Federal Housing Administration. They generally offer lower down payments than conventional loans and have lower income requirements. Fixed Rate Mortgage: A mortgage in which the interest rate remains fixed (does not fluctuate) for the life of the loan. Common fixed rate mortgages are for a period of 15 and 30 years. Foreclosure: A legal procedure in which property used as security for a debt is sold to satisfy the debt. For example, if you don't pay your mortgage, you risk losing your home to the lender, thereby causing it to go into foreclosure. Good Faith Estimate: A required written estimate given to the borrower by the lender estimating the predicted costs for closing a loan. Hazard Insurance: An insurance policy that protects a homeowner against loss. Also known as “homeowner’s insurance.” Generally required by the lender as a stipulation to fund the loan. Index: An economic indicator that determines changes in the interest rate of an ARM. Interest: The amount paid by the borrower to the lender for providing the loan expressed as a percentage based on the amount of the loan. Interest-only Loan: A loan in which payments are made toward interest only, not principal. Generally lowers the monthly payment but is not recommended for homeowners who wish to keep their homes long-term because the amount of the loan never decreases. Lender: The individual or company who loans money to a borrower. Lien: A legal claim on property as security for payment of a debt. Loan origination fee: The fee charged by a lender for his/her services. This is negotiable! See A Word About Lenders & Brokers. Loan-to-Value Ratio: The ratio of the amount of a mortgage loan to the appraised value of the property expressed as a percentage. Margin: The amount a lender adds to the Index to establish the actual interest rate on an ARM, expressed as a percentage. Multiple Listing Service (MLS):. A service, accessible to real estate professionals, that lists properties for sale. Mortgage: Simply put, a loan to finance a property. Technically, a mortgage is a security that guarantees a lender legal ownership of a property if the borrower defaults on his/her loan (You don’t really own your house until it is completely free and clear of all debt, until then your lender owns it). See Help With Mortgage Payments. Mortgage Broker: The middleman between the lender and the borrower. A broker finds a lender for the borrower. PITI: Stands for Principal, Interest, Taxes and Insurance, the four main components that make up the buyer’s monthly mortgage payment. Points: A percentage of the total amount of the loan charged by a lender for his/her services. One point represents one percent of the loan amount (one point on a $300,000 mortgage is $3,000). These are negotiable! See A Word About Lenders & Brokers. Pre-payment penalty: A fee charged by the lender to the borrower for paying off the loan prior to the ending of the term. Pre-payment penalties vary with different restrictions. Some do not penalize you for refinancing but will penalize you if you sell your home. Pre-qualification letter: A document given to the borrower by the lender that states the borrower has been pre-qualified for a loan up to a certain amount. This ensures agents and sellers that the buyer has the means to buy the property. Also called a "pre-qual." Principal: The face value of a loan. Does not include interest. Private Mortgage Insurance (PMI): An insurance policy bought by the borrower to protect the lender if the borrower defaults on the loan. The amount is added to the borrower’s monthly mortgage payment. Generally required when a buyer’s down payment is less than 20% but not always necessary depending on the lender. Title Insurance: An insurance policy that protects an owner’s and a lender’s interest in the property against undiscovered defects in the title. VA loan: A loan insured by the government, guaranteed by the Department of Veteran’s Affairs. Available only to veterans of the armed services, active military or reserves and their spouses. They generally offer little to no money down programs.	Read our Owner/Builder Real Estate Blog Click here for FREE info to help you get started in Real Estate!
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