Real Estate Glossary - Chicago Buyer's Guide

Abstract of Title

A historical documentation of the proceedings and recorded documents affecting a property’s title.

Acceleration Clause

A clause in a lending agreement that gives a lender the right to call all money owed to the lender due and payable immediately upon the occurrence of a specific event, such as a property sale or late repayment.

Addendum

An attachment that is used to make changes to contracts.

Adjustable Rate Mortgage (ARM)

A mortgage whose interest rate is adjustable — it can go up or down at specified periods in accordance with changes in specified market indices.

Adjustment Period

The length of time between interest rate changes on an ARM loan.

Agency

The legal relationship between a Buyer or Seller and his Realtor®. Realtors® owe loyalty to their "principals," or clients.

Amortization

The schedule that establishes the amount of payment to be applied to the principal and the amount to be applied to interest throughout the full term of the loan.

APR (Annual Percentage Rate)

Total loan costs including interest, points, and loan fees, used to compare different lenders’ mortgage proposals.

Application Fee

A one-time fee charged by a mortgage company for processing a loan application.

Appraisal

An estimate of the value of a property by a professional third party, required by virtually all lenders, and paid for by Buyers.

Appreciation

An increase in the value of property.

Assessment

Fees paid by a condominium owner to the condominium association to cover protection and maintenance of common areas, or by a homeowner in a townhome or gated community to the homeowner’s association. Also the statistic used by local governing agencies to determine your property tax.

Assumable (Assumption of Mortgage)

A feature of some mortgages that allows the debt undertaken by the Seller of a home to be assumed by another person or organization — typically the Buyer.

Back-end Ratio

A borrower’s monthly debt (including housing expenses) divided by the borrower’s gross monthly income. Used by lenders to prequalify borrowers for mortgages.

Backup Offer

An offer to buy a property that is accepted secondarily, subject to the failure of the initial offer.

Balloon Payment

The payment of a loan’s entire principal due at a specified time — for instance, at the end of five years. When a balloon payment comes due, the homeowner must either refinance to pay off the principal or have enough cash to pay it off.

Beneficiary Statement

A document issued by a lender outlining important loan information including loan balance, interest rate, and monthly payment.

Bridge Loan

A short-term loan that helps a Buyer close on a new property before receiving the funds from closing on another property.

Buyer’s Realtor®

A Realtor® who represents the Buyer exclusively, rather than the Seller.

Cap

The limit on how much an interest rate or monthly payment can change, either at adjustments or over the life of a mortgage.

Cash Reserves

The amount of liquid cash a Buyer has remaining after making a down payment and paying closing costs.

CC & Rs

An acronym for covenants, conditions and restrictions — a document that controls the use, requirements and restrictions of a property.

Certificate of Title

A document issued by a local government agency to a homeowner, naming the homeowner as the owner of a specific piece of property. This title transfers to the Buyer during a property transaction.

Closing

The settlement when funds and deeds are transferred and the mortgage is finalized.

Closing Costs

Funds needed at the time of closing in addition to the down payment.

Closing Statement

A financial disclosure statement that accounts for all funds expected and received at a closing.

Commission

The amount of money paid to the broker by the Seller as compensation for selling the home. The Seller then splits the commission with the Buyer’s Realtor®.

Commitment Period

The period for a which a loan approval is valid.

Comparative Market Analysis (CMA)

A comparison of the prices of similar houses in the same general geographic area, used to help determine the value of a property, either for a Seller or a Buyer.

Condominium

A form of property ownership whereby the owner receives title to a particular unit within a larger building, also with proportionate ownership of common spaces. The space of ownership is generally defined by the interior surfaces (walls) of the unit.

Contingencies

Conditions — or “safety valves” — written into real estate offers and contracts to protect the Buyer.

Conventional Mortgage

A type of mortgage loan that is underwritten by a bank, savings and loan, or other type of mortgage company. These can also be sold to private institutional investors in the secondary market, subject to certain restrictions.

Cooperative

A form of multiple ownership in which a business trust or corporate entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

Counteroffer

An amended offer given by a Seller or Buyer in response to a purchase bid.

Credit Report

A report that lists credit accounts, and any debts or late payments, as reported by credit companies. Lenders use credit reports to determine whether or not to give you a loan, based on your credit history.

Debt Service

The total amount of debt that an individual is carrying.

Debt-to-Income Ratio

A borrower’s total debt expressed as a percentage of total gross income.

Deed

The document that, when recorded with your local government, determines ownership of a property; the deed is transferred from Seller to Buyer at closing.

Due-On-Sale Clause

A clause in a lending agreement that requires full payment of a mortgage when the property changes ownership.

Earnest Money

The deposit the Buyer makes along with an offer to the Seller, held by the Seller’s Realtor® in escrow until closing and applied to the down payment at closing.

Equity

The difference between the market value of a property and any outstanding mortgages or loans against it.

Escrow

Funds held in reserve by a third party both before closing (earnest money held by the Seller’s Realtor®) and after closing (property taxes and homeowner’s insurance, held by the mortgage company).

Federal Home Loan Mortgage Corporation (FHLMC)

An institution that is part of the secondary loan market, used to purchase loans from savings and loan lenders within the Federal Home Loan Bank Board. Commonly called "Freddie Mac."

Federal National Mortgage Association (FNMA)

A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the Veteran’s Administration (VA), as well as conventional mortgages. Commonly known as "Fannie Mae."

Fee Simple

The most basic type of property ownership, under which owners have the right to use and dispose of the property as they wish.

FHA Loan

A loan insured by the Federal Housing Administration.

Fixed-Rate Mortgage

A mortgage loan whose interest rate is established at its origination and continues unchanged through the life of the loan.

Foreclosure

The process through which a lender takes back property from a defaulting owner and re-sells it.

Good Faith Estimate

Lenders are required to give potential borrowers a written Good Faith Estimate of closing costs within three days of an application submission.

Graduated Payment Mortgage

Lenders are required to give potential borrowers a written Good Faith Estimate of closing costs within three days of an application submission.

Hazard Insurance

Insurance that covers a property from damages that might materially affect its value.

Home Inspection Report

A report from a qualified home inspector that evaluates a property’s overall condition, usually including evaluations of both structural and mechanical systems.

Homeowner’s Association

A group of home owners in a particular subdivision or area who come together to address common property and interests.

Home Warranty Plan

A plan protecting against the failure of mechanical systems on a property, including plumbing, heating, electrical, and installed appliances.

Interest

Money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the loan charged annually for the use of the funds.

Joint Tenancy

Ownership by two or more persons, each with undivided, equal interest in the property during his lifetime. Upon the death of a joint tenant, the other joint tenant(s) become the sole owner(s) of the property. The estate of the deceased joint tenant has no interest in the property.

Jumbo Loan

A mortgage loan that exceeds the loan amount acceptable for sale in the secondary market. Jumbo loans must be packaged and sold differently to investors, and therefore have separate underwriting guidelines.

Leverage

The use of borrowed money to purchase an asset that is likely to appreciate, growing your profit. The larger your loan as a proportion to the home’s value, the greater your leverage and potential gain.

Lien

A legal claim against a property that can prevent it from being sold unless the lien is satisfied (paid off). Liens can be filed by unpaid contractors or other debtors in a legal process so that they will be paid when a property is sold.

Listing

A property for sale by a real estate brokerage and Realtor®

Loan Commitment

A written promise from a lending institution to make a loan for a specific amount based on defined terms.

Loan Origination Fee

A charge imposed by a lender, payable at closing, for processing a loan.

Lock-in

An agreement by a lender — at the time of mortgage application or shortly thereafter — to lend funds at a specific interest rate, whether market rates rise or fall between the lock-in date and the closing.

LTV (Loan-To-Value Ratio)

The amount of a mortgage expressed as a percentage of the appraised value of the property.

Maintenance Fee

Monthly or annual fees charged to condo, co-op, or townhome owners, paid into a general fund, and used for the maintenance of common property and interests. Also called assessments.

Margin

The number of percentage points a lender adds to the index rate to calculate ARM interest rates at different adjustment periods.

MLS (Multiple Listing Service)

A computerized listing of all the properties for sale by real estate brokerages in a given geographical area.

Mortgage Banker

A company or corporation that lends its own funds to borrowers.

Mortgage Broker

A company or individual that brings together multiple lenders and borrowers and uses their service offerings to process mortgage applications.

Origination Fee

A fee for work involved in evaluating, preparing and submitting a proposed mortgage loan.

PITI

Principal, Interest, Taxes, and Insurance.

PMI (Private Mortgage Insurance)

A type of insurance that protects the lender in the event of default on a loan, required on virtually all conventional loans with less than 20% down payment. FHA loans include a Mortgage Insurance Premium as well.

Points

One point is equal to 1% of the loan value, paid at closing. Points can be loan origination fees or “discount points” which reduce the interest rate of the loan (in effect the Buyer pays a finance charge up front). When a lender, for example, quotes a rate of 6½% with 1 ? 1 points, 1 point is for the origination fee and 1 point is for the discount fee.

Power of Attorney

The legal authorization given to an individual to act on behalf of another individual.

Prequalification

The first stage of a mortgage application where a potential lender will run a basic credit report and determine debt-to-income ratio in order to see how much mortgage a Buyer qualifies for.

Principal

The amount borrowed for a mortgage loan. The monthly mortgage payment includes payment for both interest and principal.

Property Tax

An annual or semi-annual tax paid to one or more governmental jurisdictions based on the amount of a property assessment, often paid as part of a monthly mortgage payment.

Purchase Agreement

A written document in which a Buyer agrees to purchase a property and a Seller agrees to sell the property based on stated terms and conditions.

Rate Gap

The difference between where a rate is currently and where it can adjust to on an ARM loan.

Recording

The process of filing official documents at a government office. Upon being "recorded," the documents become part of the public record.

Realtor®

1) A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors®. 2) A licensed Realtor® who represents a Seller (Seller’s Realtor®), a Buyer (Buyer’s Realtor®) or both (Dual Realtor®) in the purchase or sale of real estate. Licensed by the state in which he / she works, a Realtor® must work for a broker or brokerage firm.

Reserve

The amount of money set aside by a condo, co-op or homeowners’ association for future capital improvements.

Rider

A document detailing additional conditions and / or stipulations that are being added to an existing contract.

Settlement Statement

A statement that details the monies paid out by the Buyer and received by the Seller at closing.

Special Assessment

A one-time charge levied by a condo or co-op board in order to pay for a capital improvement or other unforeseen expenses.

Tax Lien

A lien that is attached to a property if the owner does not pay his real estate taxes or federal income taxes. If overdue property taxes are not paid, the property may be sold at auction for the amount owed in back taxes.

Tenancy by the Entirety

Joint ownership of an estate by a husband and wife, in which the survivor receives the entire estate. This estate cannot be terminated without the consent of both parties.

Tenancy in Common

Ownership by two or more persons who hold undivided interest without right of survivorship; interests need not be equal.

Title Insurance

Protects your title — your ownership rights — from claims against it. Paid at closing, title insurance may be the responsibility of the Buyer, the Seller, or both, depending on locality.

Underwriter

One who underwrites a loan for another. Your lender will have an investor underwrite your loan.

VA Loan

A loan that is partially guaranteed by the Veterans Administration, made by a private lender.

Variable Interest Rate

An interest rate that rises and falls according to a particular economic indicator.

Warranty

A legally binding promise given to the Buyer at the closing by the Seller, in regards to the condition of the home and property.

Zoning

Laws that govern specifically how a zoned area can be used. For example, an area may be zoned for single family residential, condominium, commercial or retail, or a mix of two or more uses.