Real Estate Glossary of Common Terms
Sometimes it seems that Real Estate has a language all its own. Here is help with some some of the terminology you’ll be hearing as you undertake to buy or sell your home
Adjustable Mortgage Loans: Mortgage loans under which the interest rate is periodically adjusted to to be in line with current interest rates as indicated by certain indices. The most common indices are the interest rate rates on 1-year constant-maturity US Treasury Notes (CMT) , the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). Some lenders use their own cost of funds as an index, rather than using other indices. It is imperative that you understand how the interest rate is calculated and what it is based upon The amounts and times of adjustment are agreed to at the inception of the loan. Most have a cap on the amount of interest rate increase that can be added at any one time. Also called: Adjustable Rate Loans, Adjustable Rate Mortgages (ARMs), Flexible Rate Loans, Variable Rate Loans.
Amortization: Amortization (or amortisation) is the process of decreasing, or accounting for, an amount over a period. The word comes from Middle English amortisen to kill, alienate in mortmain, from Anglo-French amorteser, alteration of amortir, from Vulgar Latin admortire to kill, from Latin ad- + mort-, mors death.
When used in the context of a home purchase, amortization is the process by which your loan principal decreases over the life of your loan. With each mortgage payment that you make, a portion of your payment is applied towards reducing your principal and another portion of your payment is applied towards paying the interest on the loan. An Amortization table shows this ratio of principal and interest and demonstrates how your loan’s principal amount decreases over time.
Amortization is generally known as depreciation of intangible assets of a firm.
Annual Percentage Rate (A.P.R.): The A.P.R. shows the cost of the loan expressed as a yearly interest rate. It includes the interest, points, mortgage insurance, and other fees associated with the loan. The A.P.R. is disclosed as a requirement of the federal Truth in Lending statutes.
The terms annual percentage of rate (APR), nominal APR, and effective APR (EAR) describe the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage credit card etc. It is a finance charge expressed as an annual rate.
• The nominal APR is the simple-interest rate (for a year).
Buydown: A payment to the lender from the seller, buyer, or third party, or some combination of these, that causes the lender to reduce the interest rate during the early years of the loan.
Buyer’s Agent: The licensed real estate salesperson who represents the interests of, and negotiates on behalf of, the buyer of a home or property.
Cap: In adjustable rate mortgages, the limit on how much the interest rate or monthly payment can change during a prescribed period of time.
Closing: The final procedure during which documents are executed and/or recorded, and the sale (or loan) is completed. It is also refereed to as “closing the mortgage”
Closing Statement: Also called HUD-1 statement or settlement sheet. The statement lists the financial settlement between buyer and seller, and also the costs each must pay including the escrow deposits for taxes, commissions, loan fees, points, hazard insurance, and mortgage insurance..
CMA: CMA, or Comparative Market Analysis, is a comparison of homes similar to a seller’s home in terms of size, style, features, and location that have sold recently or are on the market. A CMA is prepared by a real estate agent to help set a home’s listing price; it is not an appraisal. ( Some refer to this is as Competitive Market Analysts)
Contingency: Commonly, a stated event which must occur before a contract is binding. For example, a home sale may be contingent upon the buyer obtaining financing.
Deposit: A portion of the down payment given by the buyer to the seller or escrow agent with a written offer to purchase. Shows good faith.
Down payment: Cash portion of the purchase price paid by a buyer from his own funds as opposed to that portion which is financed. The “down payment” together with the mortgage amount comprises the purchase price of the property. The two come together at the closing.
Dual Agent: A licensed real estate salesperson who represents both the buyer and the seller in a transaction at the same time. Also applies to a buyer’s agent (see above) when the seller’s agent works for the same company. In either case, both parties must provide written informed consent to Dual Agency.
Escrow: A procedure in which a third (neutral) party holds all funds, documents, etc. necessary to the sale, with instructions from both buyer and seller as to their use and disposition. In real estate you should come across two instances of money held in escrow. As a buyer your “good faith deposit” is usually held in escrow in your realtor’s broker’s account and there will also be moneys held in your attorney’s account
FHA Loan: A loan insured by the Federal Housing Administration, a part of the Department of Housing and Urban Development. FHA insurance enables lenders to make loans to borrowers who might not qualify for conventional mortgages. A mortgage initially offering low monthly payments that increase at fixed intervals and at a predetermined rate.
Short sale: is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan.[ It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency