What does that mean? The Language of Real Estate
Have you ever taken on a major project and felt you’re the only one who doesn’t know what’s going on? Real Estate seems to have a language all its own, and most of us don’t have a grasp on the thousands of terms being tossed around as we’re in the process of buying our home. To help you make sense of some of this terminology, here is a very BASIC list of the many terms you may hear. This list is probably 10% of the terms that are out there on real estate vocabulary lists – there are plenty more. Information is good – too much information can make your head explode. As you enter your home buying or selling process, take a few minutes to acquaint yourself with the language of real estate.
Lender Dictionary
A.R.M Adjustable Rate Mortgage A loan with an interest rate that changes periodically in keeping with a current index, like one-year treasury bills. Typically, however, ARMs can't jump more than two percentage points per year or six points above the starting rate.
Amortization The repayment of loan principal through equal payments over a designated period of time consisting of both principal and interest.
Appraisal An expert judgment or estimate of the quality or value of real estate as of a given date.
Balloon Note A form of promissory note that calls for the minimum payment of principal and the payment of interest at regular intervals. This type of note requires a substantial final payment, which represents all the principal.
CHFA Colorado Housing and Finance Authority A state program offering financing options to low-income buyers
Conventional A type of mortgage with specific parameters, typically offering buyers a lower interest rate because of higher credit scores or higher downpayment.
Credit Rating A credit rating is also known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit bureau at the request of the lender (Black's Law Dictionary). Credit ratings are calculated from financial history and current assets and liabilities.
Down Payment A percentage of the purchase price paid by a buyer in cash.
Equity The market value of real property, less the amount of existing liens.
FHA Federal Housing Administration - a homeloan guaranteed by the federal government
Interest A charge paid for borrowing money.
Interest Rates The rate of charge paid for borrowing
Lender Any person or entity advancing funds which are to be repaid. A general term encompassing all mortgagees and beneficiaries under deeds of trust.
Loan Approval The point which all requirements are met for a buyer to obtain a loan from a bank.
Loan Balance The amount of money remaining to be paid on an amortizing loan at a given time.
Loan Conditions Parameters which must be met by borrower before loan approval.
Lock in Rate A guarantee, for which you are usually charged a fee, that you will receive a specific rate when you close your mortgage.
Mortgage A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.
Mortgage Insurance Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price.
PITI Abbreviation for principal, interest, taxes and insurance, all of which are lumped together in your monthly mortgage payment.
PMI Private Mortgage Insurance. An insurance contract which insures that the named lender will recover a specific percentage of the loan amount from the insurer in the event the loan goes bad. Many lenders require this on higher percentage loans.
Points A one-time-only fee you pay up front to your lender, sometimes in exchange for a slightly lower mortgage rate. One point equals one percent of the total amount you plan to borrow.
Pre-Payment Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.
Pre-qualification A lender's ability to pre-determine the ability of a buyer to purchase a property before making an offer.
Principal The basic element of the loan as distinguished from interest and mortgage insurance premium. In other words, principal is the amount upon which interest is paid.
Refinance The process of the same mortgagor paying off one loan with the proceeds from another loan. Often sought by homeowners for better loan terms, such as interest rate.
Survey A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.
Truth in Lending Act Promotes the informed use of consumer credit, by requiring disclosures about its terms, cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.
Underwriting An insurance company that issues insurance policies to the public or to another insurer. In Lending, the underwriter gives final sign-off to a loan.
VA Veteran's Administration - VA-backed loans are guaranteed by the VA.