Definitions of Common Real Estate Terms

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Earnest Money (Escrow Deposit)

Money paid by the buyer at the time an official offer to purchase is submitted to the seller, intended to demonstrate the good faith of the buyer to complete the purchase. Earnest money is applied against the purchase price when the sale is finalized. Under certain conditions, the earnest money may be forfeited if the buyer fails to complete the purchase under the terms of the sales contract. 

Easement

A right to use the land of another. 

Encroachment

A condition that limits the interest in a title to property such as a mortgage, deed restrictions, easements, unpaid taxes, etc. 

Equity

The difference between the sale price of a property and the mortgage balance owed on the property. 

Equity Mortgage

A mortgage based on the borrower’s equity in their home rather than on their credit worthiness. 

Escrow Account

A third-party account used to retain funds, including the property owner’s real estate taxes, the buyer’s earnest money, or hazard insurance premiums. 

Exchange

The trading of equity in a piece of property for equity in another property. 

Fair Market Account

The highest price an informed buyer will pay, assuming there is no unusual pressure to complete the purchase.  

Fannie Mae

The Federal National Mortgage Association (FNMA) is a privately owned corporation created by congress to buy mortgage notes from local lenders and provide guidelines for most lenders to use to qualify borrowers. 

Fee Appraisal

The act or process of estimating values of real estate or any interest therein for a fee. 

FHA-Insured Mortgage

A loan made by a local lending institution and insured by the Federal Housing Administration, whereas the buyer pays the premium. 

Firm Commitment

A lender’s agreement to make a loan to a specific borrower on a specific property. An FHA or Private Mortgage Insurance (PMI) agreement to insure a loan on a specific property, with a designed purchaser. 

Fixed-Rate Mortgage

A mortgage with a set interest rate for the entire term of the mortgage. 

FMHA Loan

A loan insured by the Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary-mortgage market.   

Foreclosure

A legal procedure whereby mortgaged property is seized and sold as payment for a debt in the event of default. 

Freddie Mac

The nickname for Federal Home Loan Mortgage Corporation (FHLMC), Freddie Mac is a federally controlled and operated corporation to support the secondary-mortgage market. It purchases and sells residential conventional home mortgages. 

Graduated-Payment Mortgage

This mortgage offers low initial monthly payments that increase at a predetermined rate and then cap at a final level for the duration of the mortgage. 

Home Inspection

A formal survey of a home’s structure, mechanical systems, and overall condition, generally performed by an inspector or contractor. 

Home Warranty

A policy available to the buyer or seller as insurance against unanticipated home-repair costs. 

Homeowner’s Policy

A hazard insurance policy covering, at the very least, the appraised value of a house and property. 

Inspection Contingency

A written stipulation contained in an “offer to buy” that makes the sales contract predicated upon the findings of a professional home inspector. 

Installment Debts

Long-term debts that usually extend for more than one month. 

Interest

The predetermined charge or fee paid to a lender by the borrower for the use of monies loaned. 

Investor

The holder of a mortgage or the permanent lender. Any person or institution that invests in mortgages. 

Joint Tenancy

Joint ownership by two or more persons with right of survivorship; all joint tenants own equal interests and have equal rights in the property. 

Land Contract

A contract ordinarily used in connection with the sale of property in cases where the seller does not wish to convey title until all or a certain part of the purchase price is paid by the buyer. 

Lease Purchase Agreement

The buyer makes a deposit for the future purchase of property with the right to lease the property in the interim. 

Lien

A legal claim against a property that must be paid when the property is sold. 

Listing

A contract through which a seller agrees to terms and fees with an agent who will sell the property to a buyer. 

Loan Commitment

A written promise by a lender to make a loan under certain terms and conditions. These include interest rate, length of loan, lender fees, annual percentage rate, mortgage and hazard insurance, and other special requirements. 

Loan-to-Value Ratio

The relationship between the amount of a home mortgage and the total value of the property. 

Lock-In Rate

A commitment made by lenders on a mortgage loan to “lock in” an interest rate pending mortgage approval. Lock-in periods vary.

Last Updated July 29, 2010

Rick Lorenz, Broker, CRS, ABR, CLHMS, CNE The Wells Group Real Estate Brokerage 901 Main Avenue, Durango, CO 81301 (970) 375-7007   (800) 955-0259 ext 1123 E-Mail: Rick@BuyDurango.com Copyright 1999 - 2010 All content is copyright protected as intellectual property of RickLorenz