Real Estate Finance Glossary

Amortization: Gradual debt reduction. Normally, the reduction is made according to a pre-determined schedule for installment payments.

Annual Percentage Rate (APR): A term used in the Truth in Lending Act to represent the full cost of a loan including interest and loan fees.

Appraisal: A formal, written estimation of the current market value of a home.

Appraiser: The appraiser decides the market value of a home, based on its condition and the selling prices of comparable homes recently sold in the area. His or her job is to compute a fair estimate of market value to help the lender decide a reasonable loan amount.

Appreciation: An increase in value, the opposite of depreciation.

Assessed Valuation: The value that a taxing authority places upon personal property for the purpose of taxation.

Borrower: A mortgagor who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.

Building Code: The local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Chattel: Personal property.

Closing: The conclusion of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.

Closing Agent/Attorney: A closing agent or attorney assures that all documentation related to the sale of a house has been completed properly, including the title search and title insurance. The closing agent explains all closing documents to the buyer and the seller, obtains their signatures where necessary and records the documents.

Closing Costs: All of the costs to the buyer and seller individually that are associated with the purchase, sale, or financing of real property. They include, but are not limited to, prorating of agreed items such as taxes and rents, the cost of title insurance policies, and the cost of credit reports, recording fees and escrow fees. Synonyms: closing costs, settlement costs.

Closing Statement: A financial disclosure giving an account of all funds received and expected at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

Collateral: Property pledged as security for a debt, such as the real estate as security for a mortgage.

Commission: REALTOR®’s fee for negotiating a real estate or loan transaction, often expressed as percentage of the sales price.

Commitment: An agreement, often in writing, between a lender and a borrower to loan money at a future date, subject to compliance with stated conditions.

Condominium: A form of ownership of real property. The purchaser receives title to a particular unit and a proportionate interest in certain common areas.

Condominium Declarations: The basic condominium document that must be registered by the developer before the first unit is sold. The declaration thoroughly describes the entire condominium entity, including each unit and all common areas.

Contingency: A condition that must be met before a contract is binding. For example, the sale of a house might be contingent upon the seller paying for certain repairs.

Contract to Purchase: A document in which the purchaser agrees to buy certain real estate (or personal property) and the seller agrees to sell under stated terms and conditions.

Conventional Loan: A mortgage loan not insured by FHA or guaranteed by VA or Farmers Home Administration.

Credit Rating: A rating given to a person to establish willingness to pay obligations based upon one’s past history of timely payment.

Credit Report: A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

Debt-to-Income: Long-term debt expenses as a percentage of monthly income. Lenders use this ratio to qualify borrowers for mortgage loans, typically setting a maximum debt-to-income ratio of 36 percent.

Earnest Money: A sum of money (partial down payment) given to bind a sale of real estate; a deposit.

Easement: Right or interest in the land of another entitling the holder to a specific limited use, privilege, or benefit such as laying a sewer, putting up electric power lines or crossing the property.

Equity: The homeowner’s interest in a property; the difference between fair market value and the current amount the owner owes on the property.

Escrow Account: An amount set up by the lender into which the borrower makes periodic payments, usually monthly, for taxes, hazards insurance, assessments, and mortgage insurance premiums. The funds are held in trust by the lender who pays the sums as they become due.

Fair Market Value: The price at which property is transferred between a willing buyer and a willing seller, each of whom has reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

First Mortgage: A real estate loan that creates a primary lien against real property.

Gross Monthly Income: The amount of consistent and stable income that an individual receives each month, averaged over a period of time. This amount includes overtime pay, bonuses, commissions and income from dividends or interest, provided that the individual can show a consistent history of receiving such income.

Hazard Insurance: A contract that pays for loss on a home from certain hazards, such as a fire.

Homeowners Association: An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Homeowners Policy: A multiple peril insurance policy commonly called "package policy." It is available to owners of private dwellings and covers the dwelling and contents in the case of fire or wind damage, theft, liability for property damage, and personal liability.

Housing Expense Ratio: A homeowner’s monthly expense as a percentage of his or her monthly income.

Inspector: The property/mechanical inspector examines a home to evaluate its plumbing, electrical work, appliances, heating and cooling systems, roof and structural stability.

Interest: Money paid for the use of money—that is, money paid for a loan.

Loan-to-Value Ratio: The relationship between the amount of a home loan and the total value of the property. For example, if you receive a loan of $33,250 on a home that costs $35,000, the loan-to-value ratio is 95 percent.

Market Value: The highest price that a willing buyer would pay and the lowest a willing seller would accept.

Mortgage: An interest in real property given as security for the payment of an obligation.

Mortgage Life Insurance: A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mortgagee: A lender to whom property is conveyed as security for a loan.

Mortgagor: One who borrows money, giving as security a mortgage or deed of trust on real property.

PITI: Principal, Interest, Taxes, and Insurance are the components of a mortgage payment.

Point: A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount. Also called discount points.

Principal: The original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.

Real Estate Broker: The seller of the house pays the real estate broker to attract potential buyers and help negotiate the contract between the seller and the buyer. The broker identifies available properties for buyers and shows them homes that meet their criteria.

REALTOR: A member of the National Association of REALTORS®, who subscribes to a strict code of ethics.

RESPA: Real Estate Settlement Procedures Act. RESPA is a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.

Servicer: After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance, and manages delinquent payments. Lenders often "release" servicing to another business, which means that a home buyer will not necessarily send house payments to the original lender.

Settlement: The closing of a mortgage loan.

Title: The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed. Title may be acquired through purchase, inheritance, gift or through foreclosure of a mortgage.

Title Insurance: Insurance which provides for the payment of a specific amount of funds for loss caused by defects in the title to real estate.

Zoning: City or county laws specifying how property may be used in specific areas.