Have you ever been talking to someone in real estate or mortgage and thought to yourself, “It’s like they are speaking a different language!”. Don’t worry, you’re not alone! In real estate and mortgage there are A LOT of specialized words. We thought you might appreciate a quick explanation of what some of those more commonly used real estate and lending terms mean. Let us know if you have questions on any other terms and we’d be happy to send you over the definition and an example.
Annual Percentage Rate (APR): The cost of other financing as an annual rate. The APR includes the interest rate, points, broker fees and certain other credit charges
Appreciation: An increase in the market value of a home due to changing market conditions and/or home improvements.
Broker: An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker. See also “Mortgage Broker.”
Capacity: Your ability to make your mortgage payments on time. This depends on your income and income stability (job history and security), your assets and savings, and the amount of your income each month that is left over after you’ve paid for your housing costs, debts and other obligations.
Clear Title: Ownership that is free of liens, defects, or other legal encumbrances.
Closing: The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as “escrow,” a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions.
Closing Costs: The upfront fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney’s fee, and prepaid items, such as escrow deposits for taxes and insurance.
Concession: Something given up or agreed to in negotiating the sale of a house. For example, the sellers may agree to help pay for closing costs.
Contingency: A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection contingency; the sales contract is not binding unless and until the purchaser has the home inspected.
Counter-offer: An offer made in response to a previous offer. For example, after the buyer presents their first offer, the seller may make a counter-offer with a slightly higher sale price.
Debt-to-Income Ratio: The percentage of gross monthly income that goes toward paying for your monthly housing expense, alimony, child support, car payments and other installment debts, and payments on revolving or open-ended accounts, such as credit cards.
Earnest Money Deposit: The deposit to show that you’re committed to buying the home. The deposit usually will not be refunded to you after the seller accepts your offer, unless one of the sales contract contingencies is not fulfilled.
Equity: The value in your home above the total amount of the liens against your home. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 of equity.
Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
Judgment Lien: A lien on the property of a debtor resulting from the decree of a court.
Liabilities: A person’s debts and other financial obligations.
Lien: A claim or charge on property for payment of a debt. With a mortgage, the lender has the right to take the title to your property if you don’t make the mortgage payments.
Loan Origination Fees: Fees paid to your mortgage lender or broker for processing the mortgage application. This fee is usually in the form of points. One point equals one percent of the mortgage amount.
Lock-In Rate: A written agreement guaranteeing a specific mortgage interest rate for a certain amount of time.
Market Value: The current value of your home based on what a purchaser would pay. An appraisal is sometimes used to determine market value.
Mortgage Insurance (MI): Insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan. MI typically is required if the borrower’s down payment is less than 20 percent of the purchase price.
PITI: An acronym for the four primary components of a monthly mortgage payment: principle, interest, taxes, and insurance (PITI).
Point: One percent of the amount of the mortgage loan. For example, if a loan 1 Glossary is made for $50,000, one point equals $500.
Real Estate Settlement Procedures Act (RESPA): A federal law that requires lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as well as information during the life of the loan regarding servicing and escrow accounts. RESPA also prohibits kickbacks and unearned fees in the mortgage loan business.
Real Property: Land and anything permanently affixed thereto — including buildings, fences, trees, and minerals.
Settlement Statement: A document that lists all closing costs on a consumer mortgage transaction.
Taxes and Insurance: Funds collected as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s, or funds paid by the borrower for, state and local property taxes and insurance premiums.
Title Insurance: Insurance that protects lenders and homeowners against legal problems with the title.
Underwriting: The process used to determine loan approval. It involves evaluating the property and the borrower’s credit and ability to pay the mortgage.
We hope you found this short list of some of the more commonly used real estate and lending terms, and what the heck they mean, helpful. We LOVE being your resource in the real estate market. Please call or email us with any other questions you may have. As always, click here to check your current home value - no obligation and no cost to you! Preparing to buy (or just love looking at houses for sale)? Click HERE and you can search the MLS like a realtor.
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