Glossary of Terms
Real Estate has its own language. Here’s a primer:
Abstract of Title: A summary of the public records relating to the ownership of a particular piece of land. It represents a short legal history of an individual piece of property, and traces the ownership of that property from the time of the first recorded transfer to present.
Adjustable-rate Mortgage: A mortgage that allows the interest rate to be changed periodically.
Agency: A legal relationship in which an owner-principal engages a broker-agent in the sale of property or a buyer-principal engages a broker-agent in the purchase of property.
Appraisal: An evaluation of a piece of property to determine its value.
Asbestos: A mineral fiber used in some building materials such as flooring, siding, insulation and roofing. It is presently banned for most uses in real property.
Assessed value: The valuation placed on property by a public tax assessor as the basis of property taxes.
Bridge loan: A short-term mortgage made until a longer-term loan can be made; It is sometimes used when a person needs money to build or purchase a home before the present one has been sold.
Broker: A person licensed by a state real estate commission to act independently in conjunction with a real estate brokerage business. Although requirements vary from state to state, an individual must usually have at least one year of experience in the industry and pass an examination to earn a broker’s license.
Building codes: State and local laws that regulate the construction of new property and the rehabilitation of existing property.
Closing: The final step in the sale and transfer of ownership of a property. The title is transferred from the seller to the buyer; the buyer signs the mortgage and pays costs of settlement; any money due the seller and purchaser are paid.
Closing costs: Fees and expenses, not including the price of the home, payable by the seller and the buyer at the closing (e.g., brokerage commissions, title insurance premiums, and inspection, appraisal, recording, and attorney’s fees).
Comparables: Properties similar in size and character to the one being bought or sold.
Condominium: Ownership of a unit only, rather than the entire building with the land.
Contingency: A condition that must be satisfied before a contract is binding.
Conventional mortgage: A fixed rate, fixed term mortgage not insured by the federal government.
Disclosure laws: State and federal regulations which require sellers to disclose such conditions as whether a house is located in a flood plain or whether there are known defects in or affecting the property.
Earnest money: A portion of a down payment given to the seller by a potential buyer indicating the buyer’s intent to complete the purchase of the property.
Escrow: The placement of money or documents with a third party for safekeeping pending the fulfillment or performance of a specified act or condition.
Federal Housing Administration (FHA): An agency within the Department of Housing and Urban Development (HUD) that administers loan guarantee programs and loan insurance programs to make more housing available.
Lien: A legal claim against a property that must be paid when the property is sold.
Loan-to-value ratio: The relationship between the amount of a home mortgage and the total value of the property. Lenders may limit their maximum mortgage to 80-95 percent of value.
Lock-in-rate: A commitment made by lenders on a mortgage loan to “lock in” a civilian rate pending mortgage approval. Lock-in periods vary.
Market value: The highest price a buyer will pay for a property and the lowest price the seller will accept.
Mortgage broker: An individual or company that obtains mortgages for others by finding lending institutions, insurance companies, or private sources to lend the money; may also make collections and handle disbursements.
Mortgage insurance: A policy that provides protection for the lender in the case of default and guarantees repayment of the mortgage if the borrower becomes disabled or dies.
Points: A dollar amount paid to a lender as a consideration for making the mortgage. A point is 1% of the loan amount; also called discount points.
Principal, interest, taxes, and insurance (PITI) payment: A periodic (typically monthly) payment that includes the principal and interest payment plus a contribution to the escrow account established by the lender to pay insurance premiums and property taxes on the mortgage property.
Private mortgage insurance (PMI): Insurance issued to a lender by a private company to protect the lender against loss on a defaulted mortgage loan. Its use is usually limited to loans with high loan-to-value ratios. The borrower pays the premiums.
Radon: A colorless, odorless gas formed by the breakdown of uranium in subsoils. It can enter a house through cracks in the foundation or in water and is considered to be a health hazard.
Savings and loan association (S&L): Depository institutions that specialize in originating, servicing, and holding mortgage loans, primarily on owner-occupied residential property.
Saving bank: A financial institution organized to hold individual depositors’ funds in interest-bearing accounts and to make long-term investments, such as home mortgage loans.
Title: A document that’s evidence of ownership.
Title insurance: Protection for lenders and homeowners against financial loss resulting from legal defects in the title.
Zoning restrictions: Local municipal ordinances that classify property according to specific uses such a single family, residential, commercial, industrial, multi-family, etc.