Glossary of Homebuying Terms
Speak with home owners, realtors, and mortgage professionals, and you will quickly realize that there is another language devoted to the homebuying process. This glossary contains a number of terms that you will hear and should probably know as you make your way through the home buying process.
Acceleration Clause A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.
Acceptance A party's consent to enter into a contract and be bound by the terms of the offer.
Adjustable Rate Mortgage (ARM) A mortgage whose interest rate changes over time based on a pre-determined economic index.
Administrative Fee A fee charged by a lender to cover the administrative costs of processing your loan request (e.g., a lender fee).
Amenities Features of real property that enhance its attractiveness and increase the satisfaction of the occupant or user, even though the feature is not essential to the property's use (e.g., a swimming pool).
The gradual repayment of a mortgage by installments.
Annual Percentage Rate
(APR) The total yearly cost of a mortgage stated as a
percentage of the loan amount, including the base interest rate, primary
mortgage insurance, and loan origination fee (points).
A form used by the lender to collect information about a prospective borrower
and the property being used as collateral.
Deposit Funds required by a lender in advance of processing
a loan request. Generally, a deposit is collected to cover the costs of an
appraisal and credit report and may or may not be refundable.
An evaluation of the property to determine its value for purposes of the
mortgage loan. An appraisal is concerned chiefly with market value, or what the
home would sell for in the marketplace.
An increase in the value of a property.
The valuation placed on property by a public tax assessor for the purposes of
The process of placing a value on property for the strict purpose of taxation.
Assessment may also refer to a levy against a property for a special purpose
(e.g., a sewer assessment).
Mortgage A mortgage that can be taken over ("assumed" by the
buyer) when a home is sold.
1/100th of one percent.
A preliminary agreement, secured by the payment of earnest money, under which a
buyer offers to purchase real estate.
Local or state building regulations that govern the design, construction and
materials used in a building.
A broker who represents the buyer in a fiduciary capacity.
A situation in which the supply of properties available exceeds demand. As a
result, sellers are forced to lower their prices to attract buyers.
provision of an ARM limiting how much the interest rate or mortgage payments
may increase or decrease in any single adjustment or over the life of the loan.
See also Lifetime Cap.
Title Like a car title, this is the paper that signifies
ownership of a home.
City/County Tax Stamp
A tax that is required in some municipalities if a property changes hands or a
new mortgage is obtained. The amount of this tax can vary with each state, city
A title that is free of clouds, liens, disputed interests or legal questions
with regard to ownership of the property.
Sometimes called settlement costs, these are costs in addition to the price of
the home, including mortgage service charges, title search and insurance, and
transfer of ownership charges.
The date on which the title for property passes from the seller to the buyer,
and/or the date on which the borrower signs the mortgage.
A form that provides final details about your mortgage loan, including loan terms, projected monthly payments, and closing costs.
Letter A formal offer by a lender stating the terms under
which the lender agrees to loan money to a borrower.
A type of property that includes individual ownership of one unit in a
multi-unit dwelling, and an undivided interest in the common area and
facilities that serve the entire multi-unit project.
A condition that must be met before a contract is legally binding.
Another person who signs your loan and assumes equal responsibility for it.
An agency that gathers and keeps your credit record (e.g., Experion, Equifax
A report of an individual's credit history prepared by a credit bureau and used
by a lender in determining a loan applicant's credit worthiness.
legal document that transfers ownership of a property from one person to
Failure to make mortgage payments on a timely basis or to comply with other
conditions of a mortgage.
A decline in the value of a home as the result of time, changes in the housing
market, wear and tear, adverse changes in the neighborhood and its patterns, or
any other reason.
An initial payment on a home, usually a specific percentage of the home
purchase price, that is required of a borrower at the time of loan closing.
The deposit money given to the seller by the potential buyer to show that
he/she is serious about buying the home. If the deal goes through, the earnest
money is usually applied toward the downpayment. If the deal does not go
through, it may be forfeited.
A right of way granted to a person or company authorizing access to or over the
owner's land. Electric companies often have easement rights across your
Equal Credit Opportunity
Act (ECOA) A federal law that prohibits lenders from denying
mortgages on the basis of the borrower's race, color, religion, national
origin, handicap, age, sex, marital status, or receipt of income from public
The difference between the market value of the home and the amount of money you
still owe on it.
The holding of documents and money by a neutral third party prior to closing;
also an account held by the lender into which a homeowner pays money for taxes
The account in which funds are held by the lender for the payment of real
estate taxes and/or homeowner’s insurance. This can also refer to the account
in which that funds are held for the completion of repairs or improvements to a
property that cannot be completed prior to closing.
Money, or papers representing transactions, that are given to a third party to
hold until all conditions in a contract are fulfilled.
Fair Credit Reporting Act
A consumer protection law that sets up a procedure for correcting mistakes on
one's credit record.
Federal National Mortgage Association. A quasi-public corporation that
purchases loans through the secondary mortgage market.
Fixed Rate Mortgage
A mortgage in which the interest rate does not change during the entire term of
Insurance required for properties in federally designated flood areas.
The process by which a mortgaged property may be sold by the mortgage lender
when the homeowner fails to pay the monthly mortgage payment. The mortgage is
considered in default.
Insurance Insurance to protect the homeowner and the lender
against physical damage to a property from fire, wind, vandalism or other
Homeowner's Association Fee
A term related to a condominium association’s collection of money from the
owners of each condominium. In determining whether you can afford the property,
the lender will calculate the homeowner's association fee as part of your
housing-to-income ratio. The fee pays for common expenses including insurance,
maintenance, trash removal and is used to establish reserves for future major
A complete and detailed inspection that examines and evaluates the mechanical
and structural condition of a property. A complete and satisfactory home
inspection is often required by the home buyer.
Insurance Insurance that protects a homeowner against the
cost of damages to a property caused by fire, windstorms, and other common
hazards. Also referred to as hazard insurance.
Home Mortgage Loan
A loan used to buy a home.
known as the U.S. Department of Housing and Urban Development; among other
things, HUD ensures that home mortgage loans made by lenders meet minimum
The fee charged for borrowing money.
A form of co-ownership that gives each tenant equal interest and equal rights
in the property, including the right of survivorship.
The penalty a borrower must pay when a payment is made after the due date.
The bank, mortgage broker or financial institution providing the loan funds to
A person's financial obligations, including both long-term and short-term debt,
as well as any other amounts that are owed to others.
legal claim against a property that must be paid when the property is sold.
A provision of an ARM that limits the total increase or decrease in the loan
interest rate over the life of the loan.
Loan-to-Value Ratio (LTV)
The relationship between the amount of a mortgage and the total value of the
A written agreement guaranteeing the home buyer a specified interest rate,
provided the loan is closed within a set period of time.
The set percentage that the lender adds to the index rate to determine the
interest rate of an ARM.
Commitment The written notice from the bank or other lender
saying that it will advance you the mortgage funds in a specified amount to
enable you to buy the home.
The legal document that pledges a property to the lender as security for
payment of debt.
The bank or lender who loans the money to the mortgagor.
The homeowner who is obligated to repay a mortgage loan on a purchased
Any assets that cannot easily be converted into cash (e.g., property).
Offer to Purchase Real
Estate A promise by a buyer to enter into an agreement to
purchase real estate, provided certain terms and conditions are met by the
A fee charged for the work involved in preparing and processing a proposed
mortgage loan. This is stated as a percentage of the mortgage amount, or
points, and is usually paid at closing.
(P)rincipal, (I)nterest, (T)axes and (I)nsurance; a reference to the total
monthly payment required to repay a mortgage in accordance with its term, as
well as monthly escrow payments for taxes and insurance.
A one-time charge by the lender to increase the yield of the loan. A point is
1% of the mortgage amount.
Expenses The initial deposit at the time of closing for
taxes, hazard insurance, and the subsequent monthly deposits made to the lender
for that purpose. Expenses may also include an interest amount.
Items/Expenses Obligations paid in advance at a real estate
The process of determining how much money a prospective home buyer will be
eligible to borrow before a loan is applied for.
The amount borrowed or remaining unpaid; also, that part of the monthly
mortgage payment that reduces the outstanding balance of a mortgage.
Private Mortgage Insurance
(PMI) Insurance provided by non-government insurers that
protects lenders against loss if a borrower defaults.
Fee A fee charged by a lender to cover the administrative
costs of processing a loan request.
Purchase and Sale Agreement
(P&S) A written contract signed by the buyer and seller
stating the terms and conditions under which a property will be sold.
Taxes based on the assessed value of the home, paid by the homeowner for
community services such as schools, public works and other costs of local
government. Property taxes are sometimes paid as part of the monthly mortgage
Guidelines applied by lenders to determine how large a loan may be granted to a
A naturally appearing radioactive gas, found in some buildings, that in
sufficient concentrations may cause health problems.
An agreement by a lender to guaranty the interest rate offered for a mortgage
provided the loan closes within a specified period of time.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf
of an owner or a seller.
Real Estate Settlement
Procedures Act (RESPA) A consumer protection law that
requires lenders to give borrowers advance notice of closing costs.
A fee charged by the local government to record mortgage documents into the
public record so that any interested party is aware that a lender has an
interest in the property.
The process of paying off one loan with the proceeds from a new loan secured by
the same property.
Repair and Maintenance
The costs incurred in replacing damaged items or maintaining household systems
to prevent damage.
A mortgage with rights that are subordinate to the rights of the first mortgage
An economic situation that favors the seller because the demand for property
exceeds the supply.
Assessment A tax for a specific purpose such as providing
paved streets or new sewers. People whose properties abut the improved streets
or tie into the new sewer system must pay the tax. Condominium owners may also
be assessed for major repairs done in common areas of their building.
A drawing that shows the legal boundaries of a property.
Entirety A type of joint ownership of property available
only to a husband and wife.
Tenancy in Common
A type of joint ownership in a property without the right of survivorship.
The evidence of a person's legal right to possession of property, normally in
the form of a deed.
A company that specializes in insuring title to property.
This special insurance protects lenders against a loss of interest in a
property due to unforeseen occurrences that have already occurred and might be
traced to legal flaws in previous ownerships (e.g., forged deed). An owner can
protect his interest by purchasing separate coverage.
A check of the title records to ensure that the seller is the legal owner of
the property, and that there are no liens or other claims outstanding.
Total Debt Ratio A standard calculation performed by mortgage lenders to determine if a borrower qualifies for a specific loan type. Total debt ratio is calculated by dividing the monthly housing expense (PITI plus all other monthly debt obligation) by the borrower’s monthly gross income. This is also referred to as a "back-end ratio" or "bottom ratio."
Truth-in-Lending A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.