The real estate industry loves its terminology.

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Abstract of Title
Abstract of title is a historical summary of the recorded instruments and proceedings on the title of a property.

Adjustable Rate Mortgage or ARM
An ARM is a loan that has a varying interest rate and payment based on an adjustment period.  The adjustment is dependent on the variation in a benchmark index, usually the LIBOR or prime rate.  This loan is also known as a variable rate mortgage.

Adjusted Sales Price
Adjusted sales price is the price on the contract less all credit concessions by the seller.

Amenities are the enhancements that a community offers it’s owners.  These may include a community pool, playgrounds, walking trails and work out facility.

Amortization is the periodic payment of principal and interest on a liability (including a mortgage), or the write-off of a non-depreciable asset over a scheduled term.

Annual Percentage Rate or APR
The APR is the actual effective rate of interest charged on a loan expressed on a yearly basis and represents the full cost of all elements associated with obtaining a full mortgage into a single formula.  The APR is a useful device for making comparisons between mortgage products.

An appraisal is the evaluation of a property by a licensed appraiser on its price based on previous sales of similar properties.  The appraised value is used by a bank to determine the lending limit on a given property.  A seller may also have a property appraised to determine the offering price during a sale.


Buyer’s Broker
A buyer’s broker is a broker who represents the buyer in effectuating a purchase.  Normally in residential real estate transactions, the buyer’s broker shares the commission received by the listing broker, who represents the seller.


Certificate of Occupancy (C of O)
The Certificate of Occupancy is a certificate issued by a local governmental entity responsible for the use of land in the community where the property is located stating that the structures on the property or any improvements made to these structures comply with the codes, ordinances and regulations of that governmental entity and that they may be occupied.

The closing is when the transfer of ownership of a property from the seller to the buyer occurs according to the sales contract.

Closing Costs
Closing costs are the expenses incurred in the purchase and sale of real property paid at the time of settlement or closing.  Some examples of closing costs are title insurance, attorney fees, appraisal fees, recording fees and taxes.

Closing Statement (also referred to as a HUD statement)
A closing statement is an accounting of the funds received and distributed in a real estate transaction.

Commitment Letter
A letter issued by the lender to the applicant that states funds will be provided subject to written terms and conditions.

Common Area or Common Elements
The common area is the area in the property or in the building that is available for use by all owners and tenants.

Comparables (Comps) or Comparative Market Analysis
Comps are used in assessing or establishing the fair market value of a property, a property which has been sold recently that is similar in size, condition, location and amenities.

Conforming Loan
A conforming loan is a mortgage issued within the framework of FNMA/FHLMC (Fannie Mae/Freddie Mac) guidelines in terms and amount.  In general, any loan which does not meet these guidelines is a non-conforming loan.  A loan which does not meet guidelines specifically because the loan amount exceeds the guideline limits is known as a jumbo loan.  The Office of Federal Housing Enterprise Oversight (OFHEO) set the criteria on what constitutes a conforming loan limit that Fannie Mae and Freddie Mac can buy.  Criteria include debt-to-income ratio limits and documentation requirements.  The maximum loan amount is based on the October-to-October changes in median home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it.

Contingency is a condition in a contract relieving a party of liability if a specified event occurs or fails to occur.

A contract is a legally binding agreement between two parties, and in order to have a valid Contract of Sale in real estate there must be: an offer, an acceptance, competent parties, consideration, legal purpose, written documentation, description of the property, and signatures of the principals.

Conventional Mortgage Loan
A conventional mortgage loan is a loan in which the federal government does not insure or guarantee payment to the lender, but is under the amount of a jumbo mortgage.

Counter Offer

A counter offer is an offer made in response to a previous offer by the other party during negotiations for a final contract. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract.


Debt-to-Equity Ratio
The debt-to-equity ratio, also referred to as the loan-to-value ratio, is a rule used by banks requiring that a borrower invest a minimum amount of equity cash (usually 10% to 25% of the purchase price) as a condition to obtaining a mortgage.  The rule is used in conjunction with the carrying-cost rule to determine how much money a bank will lend.  A ratio of 1 means 100% leverage of a property, and higher than 1 means negative equity.

Debt-to-Income Ratio or Debt-Service Ratio
The debt-to-income ratio is the relationship of a borrower’s monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage.  It is also known as bottom ratio.

A deed is a written instrument transferring an interest in real property when delivered to the grantee.

Discount Points
Discount points are a one-time payment by the borrower to the lender at closing to obtain a lower interest rate on the mortgage loan.  One point equals 1% of the loan amount; therefore, two points on a $100,000 mortgage would cost $2,000.  It is also referred to as points.


Earnest Money Deposit
Earnest money deposit is the deposit a buyer makes at the time of submitting an offer to demonstrate the true intent to purchase.  It is also called a binder or good faith deposit.

An easement is a non-possessory right of the use of land.

Effective Interest Rate
Effective interest rate is the actual rate of interest paid on a loan.

A state where consideration, benefits, legal rights, document, or a sum of money is held by one person in trust for another, for the purpose of assuring performance under an agreement.  Normally in a residential real estate sale, the attorney for the seller is the escrow agent for the deposit money securing the deal until closing.  The money is held in an escrow account.

Exclusive Agency Agreement (Exclusive Listing)
An exclusive agency agreement is between a broker and a seller designating the broker as the seller’s sole agent for the purpose of selling his or her property.  This agreement does not preclude the owner from effectuating a sale on his own.

Exclusive Right To Sell Agreement
An exclusive right to sell agreement is between a broker and a seller designating the broker as the seller’s sole representative for the purpose of selling property.  In contrast to an exclusive-agency agreement, under an “exclusive-right-to-sell agreement”, a commission is due to the broker even if the apartment is sold directly by the owner.

Executed Contract
An executed contract is an agreement that has been fully performed.


Fair Market Value
The fair market value is the price for a property agreed upon between a buyer and seller in a competitive market.

Fannie Mae
Fannie Mae is the nickname for the Federal National Mortgage Association (FNMA), a privately owned corporation that purchase FHA, VA, and conventional mortgages.

The fascia is the area facing the outside of a soffit in house construction.

Federal Housing Administration (FHA)
The Federal Housing Administration is a federal agency that is part of the Department of Housing and Urban Development (HUD) that sets policy for mortgage underwriting and provides insurance for residential mortgages.

FHA Insured Loan
An FHA insured loan is a mortgage insured by the Federal Housing Administration.

Finance Charge
The finance charge is the amount imposed on the borrower in a mortgage loan, consisting of origination fee, service charges, discount points, interest, credit report fees, and finders’ fees.

A loan secured by personal property, such as real estate property.  The stock and lease of a cooperative corporation also constitute such personal property, and a loan secured by these instruments is referred to as a financing loan.  Generally, real estate brokers refer to these financing loans as mortgages because they operate in the same manner, even though technically they are not.

Fixed-Rate Mortgage
A loan secured by real estate that has a fixed interest rate and payment amount for the term of the loan (normally 15 or 30 years).

A fixture is an item (appliance, light fixture, etc.) that is permanently attached to a property.

Flashing is a metal material used in parts of the roof or walls to prevent water from penetrating the structure.

The footing is the concrete base below the frost line that supports the foundation of the structure.

Foreclosure is an enforcement process in which the lender under a defaulted mortgage takes title to the property for the purposes of selling it to recoup moneys owed under the mortgage.

Freddie Mac
Freddie Mac is the nickname for Federal Home Loan Mortgage Corporation (FHLMC), a corporation wholly owned by the Federal Home Loan Bank System that purchases FHA, VA, and conventional mortgages.


Good Faith Estimate

A Good Faith Estimate is an estimate of the fees a mortgage borrower will be required to pay at closing.  It is required by Federal law that the lender provides the Good Faith Estimate within three business days of the initial loan application.



Headers are wooden reinforcements for the placement of doors and windows.

Home Equity Loan

A home equity loan is a loan made against the equity in a home.

Home Warranty

A home warranty is a warranty for certain features or systems of a house for a limited period of time (usually one year). The scope of the home warranty differs with the plans, but usually includes appliances, HVAC, roofing, some plumbing, etc.  In new construction a home warranty may cover materials used to build the house or the quality of construction.


HVAC is an acronym that stands for heating, ventilation and air conditioning.


Interest Rates

The interest rate is the cost of borrowing money from a lender.  Rates will vary and will change over time.

Interim Financing

Interim financing is a short-term or temporary loan such as a construction or bridge loan.


A home inspection is completed within a few days of the binding contract.  The inspection will include a whole home inspection and termite inspection and may also include a radon inspection, mold inspection and other inspections as recommended by the Buyer’s agent or the Home Inspector.



A lien is an encumbrance on property which acts as security for the payment of a debt or the performance of an obligation.  A mortgage is a lien.  A lender will want most, if not all, liens on a property removed before making a mortgage loan.

Listing Broker

The listing broker represents the interests of the seller or landlord in the sale or rental of his or her property.

Loan Commitment

The loan commitment is the written obligation from a lending institution to provide a mortgage to a borrower.

Loan Origination Fee

The loan origination fee is the financing charge required by a lender.

Loan-to-Value Ratio (LTV)

The loan-to-value ratio is the mortgage amount divided by the lower of the purchase price or the appraised value of the property.  This ratio is expressed as a percentage.  A lender will use this ratio in determining the maximum mortgage loan that it will make on the property.

Lock-In / Rate Lock Agreement

A lock-in is an agreement by the lender guaranteeing the applicant a specified interest rate on the mortgage loan provided the loan closes within a set period of time.


Market Value

The market value of a property is an estimation of the price for a property in relation to the current real estate market.  Market value is determined by an appraiser.

Master Deed

A master deed is the instrument that legally establishes a condominium.  It is also referred to as a condominium declaration.

Mechanic’s Lien

A mechanic’s lien is a statutory lien available to anyone supplying labor or material to the construction of an improvement of land that has not been properly compensated.


A mortgage is a pledge of real estate collateral to secure a debt.  Also, it is a legal document describing and defining the pledge.  The mortgage may also include the terms of repayment of the debt.  It is also referred to as a deed of trust.

Mortgage Banker

A mortgage banker is an institution that performs services similar to those of a mortgage broker.  However, a mortgage banker is also legally permitted to lend its own funds.

Mortgage Broker

A real estate professional who represents an array of banks seeking to issue mortgages.  The mortgage broker meets with a customer, assists with the application, and facilitates the mortgage process on behalf of the borrower and the bank.  Generally, in the case of residential mortgages, the mortgage broker is paid a fee by the bank for this service.

Mortgage Insurance (or Private Mortgage Insurance / PMI)

Mortgage insurance is insurance that protects the lender in case the home buyer does not make their mortgage payments.  Typically, a borrower would be required to pay a fee for mortgage insurance if their down payment is less than 20%.

Mortgage Note

A mortgage note is a document signed at closing which states the borrower’s promise to re-pay a sum of money.  The note states an interest rate and a fixed period of time (term) for repayment.


The mortgagee is the lender in a mortgage transaction.


The mortgagor is the borrower in a mortgage transaction.

Multiple Listing Service (MLS)

A MLS is a central service for real estate listings available to member brokers.



An offer is made to purchase a property at a specific price.  Once an offer is accepted, and has been signed by all parties, the contract is considered binding.

Origination Fee

The origination fee is a service charge by a lending institution for a mortgage.



Percolation is the movement of water through soil.

Percolation (Perc) Test

A perc test determines if the soil is sufficiently porous for the installation of a septic tank.


Points refer to the payment made to a lender as consideration for issuing a mortgage, usually based on a percentage of the loan amount.  Each point is equal to 1% of the principal of the mortgage.


A pre-approval is a process in which a conditional commitment is issued after a loan profile is underwritten with all standard documentation except a property appraisal and a title search.


A pre-qualification is a process in which a loan officer calculates the housing-to-income ratio and the total debt-to-income ratio to determine an approximate maximum mortgage loan amount.


The principal in the mortgage is the amount that is borrowed and on which interest is paid or received.

Private Mortgage Insurance (PMI)

See Mortgage Insurance.


Processing is the second step in the mortgage application process which involves the verification of information stated on the application.  Credit reports and the appraisal are also ordered at this time.

Property Condition Disclosure Form

This form is a comprehensive checklist pertaining to the condition of the property including its structure and any environmental issues in and around the property.

Property Tax

The tax issued by a municipality on the ownership of a property.



Radon is a colorless, odorless gas present in soil that enters a home through small spaces and openings.

Rate Cap

A rate cap is the limit on interest rates during the term of an adjustable rate mortgage.


Ratios are guidelines applied by the lender during underwriting a mortgage loan application to determine how large a loan to grant an applicant.  The ratios the lenders use are generally the Loan-to-Value Ratio, Housing-to-Income Ratio, and Debt-to-Income ratio.

Real Estate Broker

A real estate broker is an individual employed on a fee or commission basis as an agent to bring buyers and sellers together and assist in negotiating real estate contracts between them.

Real Estate Settlement Procedures Act (RESPA)

RESPA is a federal law that regulates the activities of lending institutions in making mortgage loans.

Real Property Tax Lien

This lien is a tax levied against real property by the local government and has priority over all other liens.


Recording is registering the ownership, lien, or claim of a party to a specific parcel of real estate with the local county.

Recording Fees

Recording fees are the fees charged by the recorder’s office to record a document such as a mortgage, deed of trust, deed and UCC Financing Statement.


Refinancing are the proceeds of a new loan used to pay off an existing mortgage on the same property.

Reverse Annuity Mortgage

A reverse annuity mortgage is a type of mortgage that retirees on fixed incomes can use to generate income out of the equity in their homes while they continue to live in the home.

R-Factor or R-Value

The R-Factor is a rating that measures the degree of resistance to heat transfer.


Sale Price

The sale price, also referred to as the purchase price, refers to the amount of money paid by the purchaser to the seller.

Seller Contribution

The seller contribution is a payment by the seller of a property of some, or all, of the buyer’s closing costs.

Seller’s Agent

A seller’s agent is the listing agent that works in the best interests of the seller.


Servicing are activities the lender performs such as collecting the payments and/or paying taxes and insurance from an escrow account.


A soffit is the area under the roof extension of a structure that can be made of wood, vinyl or aluminum.

Square Footage

The area measured in square feet of a certain property.  Square footage can be measured in different ways and is usually considered approximate.  Condominium apartments have specific laws that determine the way in which the apartment is measured and usually more accurately reflect the actual square footage within a property.

Standing Mortgage

A standing mortgage is an interest-only mortgage with no principal reduction over time.  See “Balloon Mortgage”.

Subject to Financing

A clause in the contract of sale for a cooperative apartment stipulating that the agreement is conditioned upon the buyer’s obtaining financing from a financial institution in an agreed-upon amount.


Tax Deductible

A tax deductible expense helps to reduce taxable income.  The tax deductible expenses related to real estate are interest payments on mortgages and real estate taxes.

Tenancy by the Entirety

Tenancy by the entirety refers to co-ownership limited to husband and wife, with the right to survivorship.

Tenancy in Common

Tenancy in common is co-ownership that does not include the right of survivorship.


The title of a property is the evidence or documentation that an owner is in lawful possession of the property, such as a property deed.

Title Insurance

Title insurance is an insurance policy protecting the insured from financial loss caused by a defect or question about the title to real property.

Title Search

Title search is a process that examines local public records, laws and related court decisions to determine if any other parties have valid claims against the subject property (such as past due taxes, judgments or mechanics’ liens).  It also discloses past and current facts about the subject property’s ownership.

Title Transfer Tax

Title transfer tax is a tax imposed on the conveyance of title to real property by deed.

Truth-in-Lending Disclosure

Federal law requires that the lender must give this document to the home buyer within three business days after the loan application.  This disclosure gives details of the mortgage payments along with the corresponding APR and finance charges.



In mortgage lending, underwriting is the decision-making process used to determine whether the loan risk is acceptable to the lender.  Underwriting involves the satisfactory review of the property appraisal and examination of the borrower’s ability and willingness to repay the debt and sufficiency of collateral value of the property.

U.S. Department of Housing and Urban Development (HUD)

A federal agency that administers funding for projects related to housing.


VA Guaranteed Loan

A VA guaranteed loan is a mortgage loan in which the loan payment is guaranteed to the lender by the Department of Veteran Affairs.


Valuation establishes an opinion of value utilizing an objective approach based on facts related to the property, such as age, square footage, location, cost to replace, etc


Walk-Through Inspection

The walk-through inspection of a property occurs right before a closing to ensure that the property is being delivered as stipulated in the contract of sale.



An area of a municipality or specific building that is zoned for a specific use, such as residential, commercial, etc.


Zoning are the laws regulating land use.