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Helpful Real Estate Term Glossary

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Adjustable Rate Mortgage - Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan.

Agent - A person who acts, or has the power to act for another. A real estate agent acts on behalf of the principal (the buyer or seller) and has fiduciary responsibilities towards the principal.

Amortization - A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Appraisal Fee - A fee paid to determine the estimated market value of the property. The Appraisal Fee is generally paid by the buyer.

Appraised Value - The estimated of the value of the property offered as security for a mortgage loan. This appraisal is done for mortgage lending purposes and may be less than the purchase price of the property.

Bridge Loan - A loan to "bridge" the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also known as a swing loan.

Buyer's Market - A market condition which occurs in real estate where more homes are for sale than there are interested buyers.

Capital Gains - Profit on the sale of an asset such as timber, land, or other property. The difference between the selling price of a capital asset and its basis. Reporting timber sales as capital gains can have tax advantages over reporting revenues as ordinary income.

Closing Costs - Costs associated with the underwriting and funding of a loan that are paid when the loan is about to be disbursed and the borrower about to take possession of the asset. Mortgage closing costs include title search, appraisal fee, legal and escrow service fees, and mortgage points.

Credit Report - A report that contains information about your borrowing habits and money-managing skills. Lenders use it to determine whether to approve a loan and to set the terms. A person with a good credit report is likely to get a better interest rate than someone with a poor credit report.

Debt-to-Income Ratio - Measures how much you can borrow based on your proposed mortgage payments, property taxes and insurance in relation to your total monthly income. Lenders experience shows that you may borrow from 33% to 40% of your monthly income.

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Deed - A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee.

Down Payment - A down payment is the cash you deposit towards the purchase of a home, business property, or vehicle. The larger the down payment, the less you need to borrow. For home loans, a down payment of 20% of the home purchase price is generally required to avoid private mortgage insurance.

Equity - The difference between the fair market value (appraised value) of the home and the outstanding mortgage balance.

Escrow - An account in which a neutral third party holds the documents and money in a real-estate transfer until all conditions of a sale are met. Also, an account in which money for property taxes and insurance is held until paid; money is added to the account every time a mortgage payment is made.

Escrow Company - A neutral third party who holds the documents and money in a real-estate transfer until all conditions are met.

FHA Loan - A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.

Fixed-rate Mortgage - A home loan whereby interest remains fixed for the entire loan term.

Foreclosure - A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

FSBO - For sale by owner. A property for sale that is not listed with a real estate broker.

Home Equity Loan - A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for vehicle purchases, home improvement or freeing of equity for investment in other real estate or investments. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.
Income Property - Property that produces income from residential or commercial rentals and profits attributable to real estate other than rent. Residential or commercial property that produces income and profits in ways other than rents.

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Interest Rate Cap - Caps limit the range that the interest rate on an adjustable rate mortgage can change in an adjustment interval during the term of the loan.

Letter of Intent - A formal method of stating that a prospective developer, buyer or lessee, is interested in property.

Lien - A lien is an ownership right to a piece of property. When a financial institution loans money to someone purchasing a vehicle, the financial institution has a lien on the vehicle. Other types of liens include mechanic's liens and child support liens.

Listing - An agreement between an owner of real property and a real estate agent, whereby the agent agrees to secure a buyer or tenant for specific property at a certain price and terms in return for a fee or commission.

Mediation - Mediation is a process of negotiation, generally used when a dispute exists among two or more parties, conducted by a trained mediator who works with all parties involved so that their true interests are identified and a resolution is achieved that responds effectively and fully to those interests.

MLS -MLS stands for multiple listing service, by which member brokers cooperate in the sale of each other's listings. Sellers may choose not to allow their property into multiple listing, if they wish.

Mortgage Banker - An entity or individual active in the field of mortgage banking. Mortgage bankers, as local representatives of regional or national institutional lenders, act as correspondents between lenders and borrowers.

Mortgage Broker - A person, or entity, that specializes in loan originations and receives a commission for matching borrowers with lenders. The mortgage broker performs some or most of the loan processing functions such as taking loan applications, ordering credit reports, appraisals and title reports. Typically, the mortgage broker does not underwrite the loan and generally does not use its own funds for closing.

Owner Financing - A transaction in which the seller of a property agrees to finance all or part of the purchase.

Personal Property - Any property of an insured other than real property. Homeowner policies protect the personal property of family members, and commercial forms are used to protect many types of business personal property of an insured.

Probate sale - A real estate sale triggered by the death of the owner, with proceeds to be divided among heirs or creditors.

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Property Tax - The sum of money collected from a tax levied against the value of property.

Proration - The allocation of property taxes, interest, insurance premiums, rental income, etc., between buyer and seller proportionate to time of use.

Second Mortgage - A loan using a home's equity as collateral and which is subordinate to the original mortgage (ie, the first mortgage has priority before all others).

Seller's Market - When demand for property is greater than supply. The result is greater opportunity for owners to find buyers willing to pay asking price or greater for a property.

Sub-Agent - A Real Estate Agent who is working with a buyer but who represents the seller in the transaction.

Tax Lien - A lien on a property by local, state or federal government for the amount of due and unpaid taxes.

Title Insurance - A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchaser, mortgagee, or otherwise.

Variable Interest Rate - An interest rate which is tied to an index, such as the Wall Street Journal Prime, and fluctuates during the life of the line of credit.

Walk-Through - A buyer's final inspection of the home to determine if conditions in the purchase agreement have been satisfied.

Wraparound Mortgage - A loan arrangement in which an existing loan is retained and an additional loan is combined with the existing loan. The new lender accepts the obligation to make payments on the old loan. The existing loan generally carries an interest rate below the rate on new loans. Sellers are the most common wraparound lenders.

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