Real Estate Definitions
When involved in real estate transactions it can sometimes feel like people are speaking a different language. Here are some definitions of key terms to help you!
PMI – Private mortgage insurance is what borrowers have to pay when they take out a mortgage
from a commercial lender and pay a down payment of 20 percent or less. PMI insures the
mortgage for the lender in the event that the borrower defaults.
Earnest Money – A deposit made to a seller that represents a buyer’s good faith to buy a home.
Appreciation – The increase in a home’s value over time.
Depreciation – The loss in value to a building over time due to age, wear and tear, and
Appraisal – A licensed appraiser’s opinion of a home’s market value based on comparable
recent sales of homes in the neighborhood.
LTV – Loan-To-Value (LTV) ratio is a financial term used by lenders to express the ratio of a loan
to the value of an asset purchased.
Home Inspection – A limited, non-invasive examination of the condition of a home.
Final Walkthrough – Ensures that the property’s condition hasn’t changed since your last visit
and that the terms of your contract will be met.
Repair List – Involves the diagnosis and resolution of problems in a home.
Pending Sale – Means the seller has accepted an offer but the deal hasn’t closed yet. (aka Under Contract.)
Settlement Statement – A document that summarizes all of the fees and charges that a
borrower and lender face during the settlement process of a loan transaction.
Closing Costs – Fees paid at the closing of a real estate transaction. Common closing costs
include loan application fees, points, prepaid homeowners’ insurance, an appraisal fee,
inspection fees, transfer taxes, escrow fees, attorney fees, recording fees, prepaid interest,
prepaid private mortgage insurance, title insurance, and title search costs.
PITI – Principal, interest, taxes, insurance (PITI) is the sum of a mortgage payment that includes
the principal amount, loan interest, property tax, and homeowner’s property and private
mortgage insurance premiums.
Flood Certificate – A document that states the flood zone status of real property.
HOA – Home Owners Association (HOA) is an organization of homeowners of a particular
subdivision, condominium or planned unit development.
Deed – A written document which transfers title (ownership) or an interest in real property to
Short Sale – A sale of real estate in which the net proceeds from selling the property will fall
short of the debts secured by liens against the property.
REO – Real Estate Owned or REO is a term used to describe a class of property owned by a
lender—typically a bank, government agency, or government loan insurer—after an
unsuccessful sale at a foreclosure auction.
Title Company – A company involved in examining and insuring title claims for real estate
purposes. The company verifies ownership of real property and determines the valid owner
through a thorough examination of property records in a Title Search. The title company usually
does an abstract of title.
Abstract of Title – A summary giving details of the title deeds and documents.
Lein – A claim on a residential property for the homeowner’s unpaid bills.
Clear Title – Used to state that the owner of real property owns it free and clear of
Clouded Title – Any document, claim, unreleased lien, or encumbrance that might invalidate or
impair a title to real property or make the title doubtful. Clouds on title are usually discovered
during a title search.
Mortgage – A legal agreement by which a bank or other creditor lends money at interest in
exchange for taking title of the debtor’s property, with the condition that the conveyance of title
becomes void upon the payment of the debt.
Property Disclosure Statements – Essentially outline any flaws that the home sellers (and their
real estate agents) are aware of that could negatively affect the home’s value.
Easement – A right to cross or otherwise use someone else’s land for a specified purpose.
Debt to Income Ratio – The percentage of a consumer’s monthly gross income that goes
toward paying debts.
Origination Fee – A fee charged by a lender on entering into a loan agreement to cover the cost
of processing the loan.
Points – Are fees paid directly to the lender at closing in exchange for a reduced interest rate.