Financial Terms Glossary

ABCDEFGHIJKLMNOPQRSTUVWXYZ

Adjustable-Rate Mortgage (ARM)

A mortgage whose interest rate changes periodically based on changes in a specified index.

Adjustment Date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period

The period that elapses between adjustment dates for an adjustable-rate mortgage (ARM).

Amortization

The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.

Amortization Term

The amount of time required to amortize the mortgage loan, usually expressed in months.

Annual Percentage Rate (APR)

The cost of a mortgage stated as a yearly rate, including interest, mortgage insurance, and loan origination fees.

Appreciation

An increase in the value of a property due to changes in market conditions or other causes, opposite of depreciation.

Asset

Anything of monetary value owned by a person, including real property, personal property, and enforceable claims against others.

Assignment

The transfer of a mortgage from one person to another.

Assumable Mortgage

A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.

Assumption

The transfer of the seller’s existing mortgage to the buyer.

Assumption Clause

A provision in an assumable mortgage allowing a buyer to assume responsibility for the mortgage from the seller without paying it off.

Assumption Fee

The fee paid to a lender resulting from the assumption of an existing mortgage.

Balance Sheet

A financial statement showing assets, liabilities, and net worth as of a specific date.

Balloon Mortgage

A mortgage with level monthly payments amortized over a term but with a lump sum payment due at the end of an earlier specified term.

Balloon Payment

The final lump sum payment due at the maturity date of a Balloon Mortgage.

Basis Point

One hundredth of a percentage point, used to denote changes in interest rates or fees.

Binder

A preliminary agreement secured by an earnest money deposit in which a buyer offers to purchase real estate.

Biweekly Payment Mortgage

A mortgage requiring payments every two weeks instead of monthly, resulting in 26 (or possibly 27) payments each year.

Blanket Mortgage

A mortgage secured by a cooperative project rather than individual units within the project.

Breach

A violation of any legal obligation.

Bridge Loan

A short-term loan collateralized by the borrower’s present home, allowing the proceeds to be used for closing on a new house before the present home is sold.

Broker

A person who brings parties together and assists in negotiating contracts between them for a commission or fee.

Buydown Mortgage

A mortgage with an initial lump sum payment to reduce the borrower’s monthly payments during the first few years.

Call Option

A provision in a mortgage allowing the lender to call the mortgage due and payable at the end of a specified period.

Cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

Capital Improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash-Out Refinance

A refinance transaction where the borrower receives additional cash that can be used for any purpose.

Certificate of Deposit (CD)

A deposit with a bank bearing a maturity date and specified interest rate, often subject to penalties for early withdrawal.

Certificate of Eligibility

A document certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)

A document issued by the Department of Veterans Affairs (VA) establishing the maximum value and loan amount for a VA mortgage.

Certificate of Title

A statement provided by an abstract company, title company, or attorney stating the legal ownership of real estate.

Chain of Title

The history of all documents transferring title to a parcel of real property from the earliest existing document to the most recent.

Change Frequency

The frequency in months of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Clear Title

A title free of liens or legal questions regarding ownership of the property.

Closing

A meeting finalizing the sale of a property where the buyer signs mortgage documents and pays closing costs.

Closing Cost Item

A fee or amount paid by a home buyer at closing for a service, tax, or product, such as origination fees or attorney’s fees.

Closing Statement

A final statement of costs incurred to close a loan or purchase a home, also known as the HUD-1.

Cloud on Title

An invalid claim or encumbrance on real property that adversely affects the owner’s title.

Collateral

Property pledged as security for a debt, such as real estate securing a mortgage.

Commission

A fee paid to a real estate broker or agent for negotiating and completing a real estate transaction.

Common Area

Areas of a building, land, or development that are owned or used by all owners or tenants, such as hallways, parking lots, and recreational facilities.

Comparables

Similar properties used to help determine the market value of a subject property, often used in a comparative market analysis (CMA).

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Condemnation

The process by which private property is taken for public use without the owner’s consent, usually with fair compensation through the power of eminent domain.

Condominium

A type of ownership in real property where the owners hold title to individual units and a proportionate share of common areas.

Construction Loan

A short-term loan used to finance the construction of real estate projects, often replaced by a long-term mortgage after construction is complete.

Contingency

A condition that must be met before a contract is legally binding, such as the buyer obtaining financing or a satisfactory home inspection.

Contract

A legally binding agreement between parties that outlines the terms and conditions of a real estate transaction.

Conversion Clause

A provision in an adjustable-rate mortgage (ARM) allowing the borrower to convert the ARM to a fixed-rate mortgage during a specified time.

Cooperative

A type of housing where residents own shares in a corporation that owns the entire property, rather than owning individual units.

Cost Approach

An appraisal method that estimates the value of real estate by calculating the cost of reproducing or replacing the improvements, deducting depreciation, and adding the value of the land.

Counteroffer

A response to an offer to purchase or lease real estate that amends or rejects some of the terms of the original offer.

Credit

A provision of money, goods, or services with the expectation of future payment, often with interest.

Credit Report

A detailed report of an individual’s credit history, used by lenders to assess creditworthiness.

Credit Score

A numerical representation of an individual’s creditworthiness, based on factors such as payment history, credit utilization, and length of credit history.

Caveat Emptor

A Latin phrase meaning “let the buyer beware,” indicating that buyers are responsible for evaluating the quality and condition of the property they purchase.

Debt

An obligation owed by one party to another, often in the form of money borrowed and repaid with interest.

Debt-to-Income Ratio (DTI)

A financial metric used by lenders to assess a borrower’s ability to manage monthly payments by comparing total monthly debt payments to gross monthly income.

Deed

A legal document that conveys ownership of real property from one party to another.

Deed in Lieu of Foreclosure

An alternative to foreclosure where a borrower voluntarily transfers the deed to the property to the lender to avoid foreclosure proceedings.

Deed of Trust

A legal document used in some states instead of a mortgage that conveys title to real property to a trustee as security for a loan until the debt is repaid.

Default

The failure to fulfill a legal obligation, such as making mortgage payments, which may result in foreclosure.

Delinquency

A failure to make payments on time, often used to describe late mortgage payments.

Demand Note

A promissory note that can be called due at any time by the lender, often used for short-term loans.

Deposit

Money given by the buyer as evidence of good faith when making an offer to purchase real estate.

Depreciation

A decrease in the value of real property due to physical deterioration, functional obsolescence, or economic factors.

Discount Points

Prepaid interest paid by the borrower to the lender at closing to reduce the interest rate on the mortgage.

Down Payment

The portion of the purchase price of a property that the buyer pays in cash upfront, often expressed as a percentage of the total purchase price.

Due Diligence

The investigation and evaluation of a property or investment opportunity to ensure its legality, financial viability, and compliance with regulations.

Earnest Money

A deposit made by the buyer to the seller as a sign of good faith when entering into a purchase agreement, often held in escrow until closing.

Easement

A legal right to use another person’s land for a specific purpose, such as a right-of-way for utilities or access to a landlocked property.

Easement by Necessity

An easement granted by a court when a landowner is landlocked and has no other means of ingress or egress.

Easement by Prescription

An easement acquired through continuous, open, and notorious use of another person’s land without permission for a statutory period.

Encroachment

An unauthorized intrusion or trespass onto another person’s property, such as a fence or building extending beyond property lines.

Encumbrance

Any claim or liability that affects the title to real property, such as mortgages, liens, easements, or deed restrictions.

Equity

The difference between the market value of a property and the amount owed on mortgages or liens secured by the property.

Escrow

A neutral third party that holds funds, documents, or property until specific conditions are met in a real estate transaction.

Estate

All of an individual’s possessions and property, including real estate and personal property, upon death.

Eviction

The legal process of removing a tenant from rental property for violating terms of the lease or rental agreement.

Exclusive Agency Listing

A listing agreement where a seller employs one broker to sell a property but reserves the right to sell the property independently without paying a commission.

Exclusive Right to Sell Listing

A listing agreement where a seller employs one broker to sell a property, and the broker is entitled to a commission regardless of who sells the property during the listing period.

Fannie Mae

The Federal National Mortgage Association, a government-sponsored enterprise that buys mortgages on the secondary market, providing liquidity to mortgage lenders.

Federal Housing Administration (FHA)

A government agency that insures mortgages, providing lenders with protection against losses resulting from borrower default on FHA-insured loans.

Fee Simple

The highest and most complete form of ownership of real property, giving the owner absolute ownership with all rights associated with the property.

FHA Loan

A mortgage loan insured by the Federal Housing Administration (FHA), popular for first-time homebuyers due to low down payment requirements and more flexible qualification criteria.

Fiduciary

A person or entity in a position of trust and confidence, legally bound to act in the best interests of another party, such as a real estate agent representing a client.

Flood Insurance

Insurance coverage that protects against property loss from flooding, typically required for properties located in designated flood hazard areas.

Foreclosure

The legal process by which a lender repossesses and sells property used as collateral for a mortgage when the borrower defaults on loan payments.

For Sale by Owner (FSBO)

A property listed for sale by the owner without the representation of a real estate agent or broker.

Freddie Mac

The Federal Home Loan Mortgage Corporation, a government-sponsored enterprise that buys mortgages on the secondary market, providing liquidity to mortgage lenders.

FSBO

See “For Sale by Owner.”

General Partnership

A business structure where two or more individuals manage and operate a business and are equally liable for its debts and obligations.

Good Faith Estimate (GFE)

A standardized form provided to borrowers by lenders that outlines the estimated costs associated with a mortgage loan.

Government Mortgage

A mortgage loan insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

Graduated Payment Mortgage

A mortgage with initial lower monthly payments that gradually increase over time, often used by borrowers expecting their income to rise.

Grant Deed

A legal document used to transfer ownership of real property from one party to another, guaranteeing the grantor has not transferred the property to anyone else and that there are no undisclosed encumbrances.

Gross Income

The total income earned before taxes or expenses are deducted.

Hard Money Loan

A short-term loan secured by real estate, typically provided by private investors or individuals rather than traditional lenders, and often at higher interest rates.

Home Equity Loan

A loan that allows homeowners to borrow against the equity in their home, using the home as collateral.

Home Inspection

An examination of a property’s condition, typically conducted by a professional home inspector, to identify any issues or defects before completing a purchase.

Homeowners Association (HOA)

An organization that manages and enforces rules and regulations for a community, typically funded by fees paid by homeowners.

Homestead Exemption

A legal provision that protects a portion of a homeowner’s equity from creditors or bankruptcy proceedings, intended to protect the family home.

Housing Starts

The number of new residential construction projects begun during a specific period, including both single-family homes and multi-unit buildings.

HUD

See “Department of Housing and Urban Development.”

HUD-1 Settlement Statement

A standardized form used in real estate transactions to itemize all charges and credits to the buyer and seller at closing.

Improvement

Any structure or feature added to real property that increases its value or enhances its utility.

Index

A benchmark used to adjust the interest rate of an adjustable-rate mortgage (ARM), typically based on changes in financial market conditions.

Indemnification

A contractual obligation to compensate for losses or damages, often included in real estate contracts or insurance policies.

Inheritance

Assets, including real estate, received from someone who has died.

Installment Sale

A method of selling real estate where the seller receives

Scroll to Top