Glossary

Adjustable Rate Mortgage (ARM) – interest rates on this type of mortgage are periodically adjusted up or down, depending on a specified financial index.

Amortization – repayment of a mortgage debt with equal periodic payments both principal and interest, calculated to retire the obligation at the end of a fixed period of time.

Annual Percentage Rate (APR) – the actual finance charge for a loan, including points and loan fees, in addition to the stated interest rate.

Application Fee – a one-time fee charged by the mortgage company for processing your application for a loan. Also known as the “origination fee.”

Appraisal – an expert opinion of the value or worth of a property.

Broker – an individual who acts as the agent of the seller or buyer. A real estate broker must be licensed by the state.

Buy-Down Mortgage – a mortgage with a below market interest rate made by a lender in return for a interest rate subsidy in the form of additional discount points paid by the builder, seller, or buyer.

Buyer’s Market – economic conditions in which the supply of housing exceeds demand. Sellers may be forced to make substantial price concessions.

Cap – limit on how much the interest rate can increase in an ARM.

Closing – “closing the deal,” the meeting where the deed to property is legally transferred from seller to buyer.

Commission – fee (usually a percentage of total transaction) paid to an agent or broker for services performed.

Comparative Market Analysis – a survey of attributes and selling prices of comparable houses on the market or recently sold; used to help determine pricing strategy for a seller’s property.

Condominium (condo) – type of real estate ownership where the owner has title to a specific unit and shared interest in common areas.

Contingency – a condition in a contract that must be met for the contract to be binding.

Contract – binding legal agreement between two or three parties that outlines the conditions for the exchange of value.

Cooperative (Co-op) – real estate ownership where all shareholders own the whole property, but each has proprietary occupancy rights for specific units.

Counteroffer – when the seller or buyer responds to a bid. If you decide to offer $100,000 for a home listed at $150,000, the seller might counter your offer and propose that you purchase the home for $140,000. That new proposal, and any subsequent offer, is called a counteroffer.

Credit Report – a credit report lists all of your credit accounts such as charge cards, and provides detail on payment history. Lenders use this information in determining eligibility for loans.

Down Payment – percentage of the purchase price that the buyer must contribute with their own funds.

Earnest Money – a deposit paid when the sale contract is signed before the closing. In some locations it is called the “Binder.”

Equity – the difference between the market value of the property and what is owed on the property.

Escrow – a fund or account held by a third-party custodian until conditions of a contract are met.

Fee Simple – the most basic type of ownership, under which the owner has the right to use and dispose of the property at will.

Fixed-Rate Mortgage – interest rates on this type of mortgage remain the same over the life of the loan term. Compare to “Adjustable Rate Mortgage.”

Foreclosure – the legal action taken to extinguish a homeowner’s right and interest in a property, so that the property can be sold in a foreclosure sale to satisfy a debt.

Graduated Payment Mortgage (GPM) – monthly payments start low and increase at a predetermined rate. Compare to “ARM.”

Hazard Insurance – compensates for property damage from specified hazards such as fire and wind, also called “Homeowner’s Insurance.”

Home Warranty – a service contract that covers appliances (with exclusions) in working condition in the home for a certain period of time, usually one year.

Interest – the cost of borrowing money, usually expressed as a percentage over time.

Lien – a security claim on property until a debt is satisfied.

Loan-to-value Ratio (LTV) – the ratio of the loan amount compared to the value of the property.

Market Value – the price that is established by present economic conditions, location, and general trends.

Market Price – the actual price at which a property sells.

Mortgage – security claim by a lender against property until the debt is paid.

Multiple Listing Service (MLS) – a system that provides to its members detailed information about properties for sale.

PITI – principal, interest, taxes, and insurance, forming the basis for monthly mortgage payments.

Point – one percentage of the loan principal paid up front to reduce the interest rate on the loan.

Prepayment Penalty – a fee paid by a borrower who pays off the loan before it is due.

Prequalification – informal estimate of how much financing a potential borrower might expect to obtain. Completed before the borrower pays substantial loan application fees.

Principal – the amount of money borrowed, for which interest is charged.

Mortgage Insurance (MI) – special insurance that protects the lender in case of borrower default. It’s typically required when the borrower makes less than a 20% down payment.

Title – document that indicates ownership of a specific property

Title Insurance – protects against loss from legal defects in the title.

Title Search – detailed examination of the entire document history of a property title to make sure there is no legal encumbrances.