Federal Trade Commission Real Estate Marketplace Glossary

Comprehensive vocabulary terms and definitions regarding real estate, mortgage markets, and consumer protection based on Federal Trade Commission (FTC) guidelines.

Annual Percentage Rate (APR)

The cost of a loan or other financing as an annual rate, including the interest rate, points, broker fees, and certain other credit charges.

Appraisal

A professional analysis used to estimate the value of the property, including examples of sales of similar properties.

Appreciation

An increase in the market value of a home due to changing market conditions and/or home improvements.

Arbitration

A process where disputes are settled by referring them to a fair and neutral third party who hearing both sides and makes a binding decision.

Asbestos

A toxic material once used in housing insulation and fireproofing; linked to certain lung diseases and no longer used in new homes.

Assessed Value

The value placed on property, typically by a public official, for the purpose of taxation.

Asset

Anything of monetary value that is owned by a person or company, such as real property, stocks, or mutual funds.

Assumable Mortgage

A mortgage loan that a buyer can take over from the seller when the home is sold, provided the lender consents if there is a due-on-sale clause.

Automated Underwriting

A technology-driven process that streamlines loan application processing and provides recommendations for approval or manual review.

Balance Sheet

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

Balloon Mortgage

A mortgage with monthly payments often based on a 30-year schedule, but with the unpaid balance due in a lump sum at the end of a specific period, usually $5$ or $7$ years.

Bona fide

In good faith, without fraud.

Bridge Loan

A short-term loan secured by the borrower's current home, allowing proceeds to be used for a new house before the current home is sold; also known as a swing loan.

Building Code

Local regulations setting standards for construction, maintenance, and occupancy to provide for public safety and health.

Buydown

An arrangement where a developer or third party provides an interest subsidy to reduce the borrower’s monthly payments, typically in the early years of the loan.

Cap

A limitation on the amount the interest rate or mortgage payments may increase or decrease on an adjustable-rate mortgage (ARM).

Capacity

The borrower's ability to make mortgage payments on time, based on income stability, assets, savings, and existing debts.

Certificate of Eligibility

A document issued by the U.S. Department of Veterans Affairs (VA) certifying a veteran's eligibility for a VA-guaranteed mortgage loan.

Chain of Title

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

Closing

The process of completing a financial transaction, including signing documents, disbursing funds, and transferring property ownership; also known as settlement or escrow.

Closing Costs

Upfront fees charged in connection with a mortgage, such as origination fees, title insurance, surveys, and prepaid escrow deposits.

Collateral

An asset, such as a house, pledged as security for a loan; the borrower risks losing it if the loan is not repaid.

Commission

A fee for services performed, usually a percentage of the sale price, earned by a real estate agent.

Common Areas

Portions of a building or land, such as corridors or recreational facilities, used by all unit owners in a PUD or condominium project.

Condominium

A unit in a multiunit building where the owner owns the unit itself and shares rights to common areas, which are managed by an association.

Contingency

A condition that must be met, such as a home inspection, before a sales contract becomes legally binding.

Conventional Mortgage

A mortgage loan that is not insured or guaranteed by the federal government or its agencies.

Debt-to-Income Ratio

The percentage of gross monthly income that goes toward paying monthly housing expenses and other installment or revolving debts.

Deed

The legal document used to transfer ownership or title of a property.

Default

The failure to fulfill a legal obligation, such as failing to make a scheduled payment or maintain a leased property.

Delinquency

Failure to make a payment when it is due; generally used for loans that are $30$ or more days past due.

Discount Point

A fee paid at closing to reduce the interest rate; one point equals $1\%$ of the loan amount.

Due-on-Sale Clause

A mortgage provision allowing the lender to demand full repayment if the property securing the mortgage is sold.

Earnest Money Deposit

A deposit made to show commitment to buying a home, which is typically non-refundable after the seller accepts the offer unless contingencies are unfulfilled.

Easement

A right to use or access land owned by another party.

Encumbrance

Any claim on a property, including liens, mortgages, or easements.

Equal Credit Opportunity Act (ECOA)

A federal law requiring lenders to make credit equally available without regard to race, religion, age, sex, marital status, or source of income.

Equity

The value of a home above the total amount of liens against it.

Escrow Account

An account established by a mortgage servicer to pay taxes, insurance premiums, or other charges on behalf of the borrower.

Fair Credit Reporting Act (FCRA)

A law governing credit bureaus and users of credit reports, allowing consumers to challenge errors and limiting the sale of reports to those with legitimate business needs.

Fannie Mae

A public company with a federal charter that is the nation's largest source of home mortgage financing, purchasing loans from primary lenders.

Fixed-Rate Mortgage

A mortgage with an interest rate that remains unchanged for the entire term of the loan.

Foreclosure

A legal action ending all ownership rights in a home when the borrower fails to make payments or defaults on mortgage terms.

Good-Faith Estimate

A form required by RESPA disclosing an estimate of charges the borrower is likely to incur for settlement services.

Hazard Insurance

Insurance coverage compensating for physical damage to a property from fire, wind, vandalism, or natural disasters.

Home Equity Line of Credit (HELOC)

A revolving loan allowing homeowners to obtain multiple advances up to a specified percentage of their equity.

HUD-1 Settlement Statement

A final listing of closing costs, sales price, and down payment for both the buyer and seller in a mortgage transaction.

Lien

A legal claim or charge on a property for the payment of a debt, granting the lender the right to take the title if payments are not made.

Loan-To-Value (LTV) Ratio

The relationship between the loan amount and the value of the property, expressed as a percentage.

Mortgage Broker

An individual or firm that brings borrowers and lenders together to originate loans, often processing applications.

Mortgage Insurance (MI)

Insurance protecting lenders against losses from a borrower's default, typically required if the down payment is less than $$20\%.

Negative Amortization

An increase in loan balance occurring when monthly payments do not cover the interest due, causing unpaid interest to be added to the principal.

PITI

An acronym for the four components of a monthly mortgage payment: principal, interest, taxes, and insurance.

Pre-Approval

A process where a lender reviews a borrower's credit and income to indicate how much they are eligible to borrow before they find a property.

Principal

The amount of money borrowed or the remaining unpaid portion of a loan, excluding interest.

Real Estate Settlement Procedures Act (RESPA)

A federal law requiring lenders to provide cost disclosures before settlement and prohibiting kickbacks in the mortgage industry.

Survey

A precise measurement by a licensed professional showing the legal boundaries of a property and the location of improvements.

Title Insurance

Insurance that protects lenders and homeowners against legal problems related to the ownership history or title of a property.

Truth-In-Lending Act (TILA)

A federal law requiring the disclosure of the total cost of credit, including the Annual Percentage Rate (APR).

Underwriting

The process of evaluating the property and the borrower’s credit and ability to pay to determine loan approval.