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Real Estate Terminology

Acceleration Clause
A provision in a mortgage agreement that makes the entire outstanding loan balance immediately due and payable in the event of a specified occurrence such as default, demolition or assignment or sale.

Adjustible Rate Mortgage
A loan that allows the interest rate to be changed periodically.

Agency
A legal relationship in which an owner-principal engages a broker-agent to market the owner's property or a buyer-principal engages a broker-agent to locate and negotiate for purchaser of property on satisfactory terms.

Amortization
The gradual reduction in the balance of a mortgage by periodic payments.

Annual Percentage Rate (APR)
A rate that represents the total finance charges-interest, loan fees, points, etc. It is expressed as a percentage of the loan principal. This figure must be disclosed to a borrower under the Federal Truth in Lending Law.

Appraisal
A report made by a qualified person setting forth an opinion or estimate of property value

Appreciation
An increase in the value of a property due to a rise in its market price, appraised value, or other measure of current value.

Assessed Value
The valuation placed in property by a public tax assessor as the basis of property tax.

Assumption of Mortgage
Agreement by the buyer to assume responsibility for a mortgage owned by the seller; the seller remains liable to the lender unless the lender agrees to release him.

Balloon Mortgage
A mortgage that has a substantial amount of principal due at the maturity of the note.

Basis Point
One hundredth of one percent (0.01 percent). For example, 50 basis points equal one-half percent (0.5 percent). Used to describe the amount of change in interest rates yields.

Blanket Mortgage
A loan secured by more than one property pledged as security. Often used to finance adjacent properties or proposed subdivisions.

Bridge Loan
A short-term loan on one property that is applied toward the purchase of another property prior to the sale of the first property. Used when a buyer needs the proceeds of a sale before purchasing another property.

Broker
A person licensed by a state real estate commission to act independently in conducting real estate brokerage business. Although the requirements vary from state to state, an individual usually must have one or more years of experience in the industry and pass an examination.

Buyer-Brokerage
Agreement whereby the agent is representing the buyer. The seller's agent and prospective sellers must be advised of this relationship.

Buy Down
A mortgage plan whereby a seller or developer pays a portion of a buyer's monthly interest expense during the initial years of a loan. In effect, the buyer pays a lower interest rate during this period as a result of the seller's "buying down" the loan's rate.

Cap
A maximum interest amount or ceiling that can be charged.

Closing
The final step in transferring ownership of a property from seller to buyer.

Closing Costs
Fees and expenses, not including the price of the home, payable by the seller and the buyer at the time of closing (e.g., brokerage, commissions, title insurance premiums, and inspection and appraisal fees).

Conventional Loan
A fixed rate, fixed term loan that is made without government insurance.

Deed
A legal document conveying title to a property.

Discount Point
Amount payable to the lending institution by the borrower or seller. One point is equal to one percent of the loan amount.

Earnest Money
A down payment given to the seller by a potential buyer indicating the buyer's intent to complete the purchase of the property.

Escrow
The placement of money or documents with a third party for safekeeping pending the fulfillment.

Equity Loan
A loan that is based on the borrowers equity in real property rather than on the creditworthiness of the borrower.

Exclusive Right to Sell Listing
A written agreement by which the owner retains a broker as the exclusive marketing agent and promises to pay the broker a commission if a ready, willing and able buyer is found for the property during the listing period, regardless of whether the broker is responsible for finding that buyer.

FHA Mortgage
A mortgage loan insured by the Federal Housing Administration.

Fixed Rate Mortgage
A loan that has only one stated interest rate.

Gift Letter
A standardized form signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

Jumbo Mortgage
Any mortgage loan that exceeds the conforming loan amounts established by Fannie Mae or Freddie Mac.

Lien
A legal claim against a property.

Listing Contract
An agreement between a homeowner and a licensed real estate broker authorizing the broker to offer the owner's property for sale during a given time period.

Market Value
The highest price a ready, willing and able buyer will pay and the lowest price a seller, not under duress, will accept.

Origination Fee
The amount charged for services performed by the company handling the initial application and processing of the loan. Customarily expressed as a percentage of the loan amount.

PITI (Principal, Interest, Taxes and Insurance)
The most common components of a monthly mortgage payment.

Points
A dollar amount, expressed as a percentage of the mortgage amount, which is paid to a lender as consideration for making the loan. A point is one percent of the mortgage loan; also called discount points.

Prepayment Penalty
A penalty for the payment of a mortgage before it comes due.

Principal
A person who appoints another as a representative. It also refers to the capital sum lent on interest.

Principal & Interest Payment
(P&I) A periodic (usually monthly) payment that includes the interest charge for the period plus an amount applied to amortization of the principal balance.

Private Mortgage Insurance
(PMI) When applying for a conventional loan with less than 20% down, this insurance is written by a private company protecting the mortgage lender against loss resulting from a mortgage default.

REALTOR®
Registered collective membership marks that identify real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS® and subscribe to its strict Code of Ethics.

Real Estate Settlement Procedures Act (RESPA)
A Federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and the disclosure of settlement costs.

Tax Service Fee
A one time fee charged to borrowers to set up an escrow account with a third party to insure timely tax and insurance payments.

Title
Evidence of ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed, which specifies in whom the legal deed is vested and the history of ownership and transfers.

Title Insurance
Protection for lenders and homeowners against financial loss resulting from legal defects in the title.

Title Search
A check of title records to identify liens, encumbrances, and ownership right to property.

VA Mortgage
A mortgage loan guaranteed by the Veterans Administration, an agency of the federal government that provides services for eligible veterans.

Zoning
A specified restriction on use of a defined area.