Real Estate Terminology

Addendum/Addenda - Also called riders, addenda are supplements to a real estate contract. The addenda overwrites any conflicting terms in the contract.

Appraisal - An expert assessment of the value of a property. In order to keep the value from being influenced by any party to the transaction on financed deals, the lender hires the appraiser through a middleman so no one will know which appraiser is going to be assigned.

ARM – Adjustable Rate Mortgage – A mortgage where the interest rate varies over the life of the loan after a fixed period of time. Because the rate varies, the monthly payment varies as well. The initial rate is usually lower than fixed rate loans, but there is no way to know what will happen to the rate in the future.

Closing – Also called Settlement, it is the final step in the purchase of real estate and is usually handled by a title company. When the buyer and seller will sign all the necessary documents, and the buyer and their lender will provide the funds to finalize the transfer of the property.

Closing Costs – This term includes a variety of expenses above the purchase price for a property. Some people include the down payment in this amount. Some people are referring to the amount you need to bring to closing. Some people are referring to all extra costs.

CMA – Comparative Market Analysis – An in-depth analysis of a property’s market value.

Comps – Comparable Properties – Other similar properties on the market and that have sold recently used to analyze the market value of a property.

Conventional Mortgage – Mortgage not guaranteed or insured by any government agency.

Contingency – A condition of the sales contract that needs to occur in order for the transaction to keep moving forward. Typical contingencies are the inspection period and appraisal contingency.

DTI – Debt to Income Ratio – A ratio that compares your monthly debt payments to your monthly gross income.

Equity – Amount of financial interest in a property. The amount of your home that you own.

Escrow – Also called Escrow Deposit, Earnest Money, Good Faith Money or EMD, generally refers to deposit money held by a third party. Also refers to the account the mortgage company uses to pay property tax and insurance during the term of the mortgage. The term “In Escrow” typically refers to a property that is under contract but has not yet closed.

FHA Loan – A mortgage that’s insured by the Federal Housing Administration, also known as a government mortgage.

FICO Score – The most widely used credit score in the US. This 3-digit number ranging from 300-850 is calculated based on many types of information on your credit report.

Home Warranty – A one-year service agreement covering the repair of important home appliances and systems.

Listing – A property that is on the market with a real estate agent.

Loan to Value Ratio – The relationship between the principal balance of the mortgage and the appraised value. For example, a $100,000 home with an $80,000 mortgage has a LTV of 80%.

MLS – Multiple Listing Service – Database of properties on the market listed by Realtors. The MLS feeds out to many other real estate web sites such as Zillow and Realtor.com.

NAR – National Association of Realtors – A real estate agent must join NAR through their local MLS in order to be considered a Realtor.

Offer – A legal document used to outline a potential real estate transaction. An offer is submitted on a contract form. Once all parties agree to and sign off on all terms, that same document becomes the contract.

Pending – When a property is in pending status it means a seller has accepted an offer from a buyer, but the deal has not yet closed.

PITI – A mortgage term referring to Principal, Interest, Taxes, and Insurance. Basically, it means your mortgage payment. For FHA loans, this insurance is permanent.

Pre-Approval – A commitment from a lender to provide you with a mortgage up to a certain amount based on your credit history, income, and other financial credentials.

PMI – Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders require mortgage insurance until you have a loan to value in excess of 80%.

Points – A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000, one point means $1,650 to the lender. Points are usually paid at closing to reduce your interest rate.

Rate Lock – A commitment issued by a lender to a borrower guaranteeing a specified interest rate and lender costs for a specified period of time.

Rider – See Addendum

Survey – A map detailing a property’s boundary lines and where any structures fall on the property.

Title Company – Typically handles real estate closings in Florida. They review the title, issue title insurance policies, facilitate closings, and file and record paperwork including the deed.

Title Commitment – The document by which a title insurer discloses to all parties in a real estate transaction all liens, defects, burdens, and obligations that affect a property.

Title Insurance – Owner’s Policy/Lender’s Policy – Protects either the owner or the lender against loss occurring from liens, encumbrances, or defects in the title (ownership) of a property. Unlike traditional insurance which protects against future events, title insurance protects against claims for past occurrences.

VA Loan – A government guaranteed mortgage offered through the Department of Veterans Affairs program which is available to active and veteran military personnel and their families.