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Deductible Homeowner Expenses

Deductible Homeowners Expenses

One of the advantages of owning your own home is that the home mortgage interest and real estate taxes paid can be deducted from your federal income tax*. To do so, you’ll need to comply with current tax laws and complete the appropriate federal tax forms and itemized deduction schedules.

Home Mortgage Interest

For your home mortgage interest to be deductible, it must be for a first or second mortgage, a home improvement loan or a home equity loan. Additionally

• The mortgage loan must be secured by your main home or a second home
• Only interest paid for that tax year can be deducted

The amount you can deduct can be limited if your mortgage balance is more than $1 million ($500,000 if married filing separately) or the mortgage was taken out for reasons other than to buy, build or improve your home.

Points

Points (aka loan origination fees, maximum loan charges, loan discount, or discount points) are generally treated as pre-paid interest and, as such, the full amount cannot be deducted in the year paid.  Rather, the deduction must be taken over the term of the loan.

Real Estate Taxes

State or local real estate taxes can be deducted from your income if they are paid in the tax year. To qualify, the tax must be levied on the property’s assessed value, the taxing authority must charge a uniform rate for properties in its jurisdiction, and the tax must not be for your special privilege but for the benefit of the general welfare.

Restrictions on Itemized Deductions

The amount of itemized deductions you can take are restricted by your adjustable gross income. In 2003, the limits were $139,500 for single persons, persons filing as head of household or qualified widow(er), or married persons filing jointly; and $69,750 for married persons filing a separate return.

Non-deductible items

Many of the expenses related to owning your own home cannot be deducted from your income tax. These non-deductible items can include:

• Most settlement costs, including (but not limited to) appraisal fees, notary fees, VA funding fees, and mortgage preparation costs
• Insurance
• Local assessments that generally add value to your home, such as sidewalks, sewers, etc.
• Utilities
• Domestic help
• Depreciation

Check with the IRS

*The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. You’ll need to consult with your tax attorney, CPA, or the IRS for current tax year rules, restrictions and regulations. 

Saving Money During the Holidays

Save money during the holidays and buy that dream house in the New Year

The holidays can put a dent in your savings especially if you’re planning to buy a home. But there are several ways to cut costs so your finances aren’t in the red by New Year’s Day. Consider the following money saving tips:

• In lieu of buying presents for every family member, suggest a gift exchange and draw names out of a hat.
• Agree on a spending limit for gifts for friends and family and stick to it.
• Make your holiday meals a potluck and assign each guest an item to bring.
• To prevent the urge to overspend when shopping, use cash and leave your credit cards at home.
• Consider buying a joint gift rather than individual gifts for a family such as a zoo membership or movie tickets.
• Instead of holiday wrap, buy monochromatic wrap in holiday colors such as green, red, or gold that can be used all year.
• For young children, half the fun of holidays is often opening the gifts. Wrap small, inexpensive items separately – coloring books, crayons and picture books or novels, even stocking stuffers work well. Or recycle hand-me-down toys by wrapping them up and putting them under the tree.
• Instead of spending a lot of money on gifts from the mall, give homemade treats like fudge, truffles, cookies or jams and jellies.
• To cut down on postage and holiday card costs, send mail only to out-of-town friends and family you’re not likely to see throughout the year. Or send e-cards, which are usually free.
• To keep your electricity bill down, use a timer to turn outdoor lights on and off at designated hours.
• If you know you won’t be able to pay your credit card off right away, make sure you use a single low-interest card to make purchases – that way you can easily track them.
• When traveling during the holidays, try to fly on the day of the actual holiday (Thanksgiving Day, Christmas Day). It’s usually cheaper and there are plenty of seats.
• Subscribe to receive e-newsletters from your favorite online merchants. They will often e-mail coupons to use for savings on purchases and shipping costs. Or subscribers may receive private sale information.
• Sometimes buying an item online is cheaper than going to the store since many sites don’t charge sales tax and offer free shipping. Use the savings to have the gift mailed directly to the recipient instead of standing in line at the post office.
• Instead of buying an expensive gift, make a donation to a worthy cause in a friend or family member’s name.

Eliminating Private Mortgage Insurance

How to Eliminate your PMI: 

For loans made after July 1999, lenders are required by federal law to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of your purchase price — not when you achieve 22 percent equity, which will happen much more quickly with rising property values. (Certain “higher risk” loans are excluded.) But you have the right to cancel PMI (for loans made after July 1999) once your equity reaches 20 percent, regardless of the original purchase price.

Keep track of your principal payments.  Also keep track of what other homes are selling for in your neighborhood.  If your loan is under five years old, chances are you haven’t paid down much principal — it’s been mostly interest.  But property values in many parts of the country have gone through the roof lately.  And that can earn you 20 percent equity even if you haven’t paid down much principal.

When you think you’ve reached 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments!  You will need to notify your mortgage lender that you want to cancel PMI payments and you’ll need to submit proof that you have at least 20 percent equity.  A state certified appraisal on the appropriate form (URAR- 1004 uniform residential appraisal report for single family homes) is the best proof there is — and most lenders require one before they’ll cancel PMI.

Buying Down Your Interest Rate

Buydown options

A buydown is a type of financing where the buyer or seller pays extra points (also called discount points) to reduce the interest rate on a loan.

 Buydowns make it easier to qualify for a loan because they lower a loan’s interest rate. They can also allow you to buy more house for your money.  There are generally two types of buydowns: a permanent buydown and a temporary buydown. A permanent buydown lets you pay extra points to get a low interest rate over the life of your loan.

A permanent buydown can be paid by the seller or the builder as an incentive to finalize a sale by creating lower monthly payments. Sellers can also benefit from assisting with a buydown with a difficult to sell property or during slower market conditions. It increases the buyer’s ability to qualify for a loan, therefore, allowing the home to be sold quicker. Plus, a buydown offer is usually less than a price reduction on the home.

In a temporary buydown, you prepay interest in exchange for a lower rate during the early years of a loan. The most common temporary buydown is called 3-2-1, meaning the mortgage payment in years one, two and three is calculated at rates 3 percent, 2 percent and 1 percent, respectively, below the rate on the loan. On a 2-1 buydown, the payment in years one and two is calculated at rates 2 percent and 1 percent below the loan rate. And on a 1-0 buydown, the payment in year one is calculated at 1 percent below the loan rate.

A temporary buydown can be a benefit to a buyer whose current income is low but anticipates that it will increase during the next two years. First-time homebuyers who need to purchase all of the furnishings that go into a new home may also find a temporary buydown appealing.

The Cost of Refinancing Your Home

What does it cost to refinance? What are the benefits?

Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least two points lower? That may have been true years ago, but with refinancing dropping in cost over the last few years, it’s never the wrong time to think about a new loan! Refinancing has a number of benefits that often make it worth the up-front expenditure many times over.

When you refinance, you might be able to lower your interest rate and monthly payment — sometimes significantly. You might also be able to “cash out” some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation — whatever! With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage.

All these benefits do cost something, though. When you refinance, you’re paying for most of the same things you paid for when you obtained your original mortgage. These might include settlement costs and other fees, an appraisal, lender’s title insurance, underwriting fees, and so on.

You might have to pay a penalty if you refinance your previous mortgage too quickly. That depends on the terms of your existing mortgage. These penalties are illegal in some places, and more often than not when you have one of these penalties on your current mortgage it applies only for the first year or two. We’ll help you figure it out.

You might pay points to get a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You should be aware that the IRS has recently said that points paid for the purpose of refinancing your mortgage cannot be deducted in their entirety in the year you pay them, unless the refinanced loan is primarily for home improvements. Consult your tax professional before deducting points you pay on your new mortgage from your federal income taxes.

Speaking of taxes, if you lower your interest rate, naturally you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. This is another cost that some borrowers consider. We can help you do the math!

Ultimately, for most people the amount of up-front costs to refinance are made up very quickly in monthly savings. We’ll work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes.

Choosing the Refinancing Option for You

Which refinancing option is best for you?

There aren’t quite as many loan programs as there are borrowers, but it seems like it sometimes! We’ll work with you to qualify you for the best loan program to fit your needs. But there are some general considerations you can have in mind in advance.

Are you refinancing primarily to lower your rate and monthly payments? Then your best option might be a low fixed-rate loan. Maybe you have a fixed-rate mortgage now with a higher rate, or maybe you have an ARM — adjustable rate mortgage — where the interest rate varies. Even if it’s low now, unlike your ARM, when you qualify for a fixed-rate mortgage you lock that low rate in for the life of your loan. This is especially a good idea if you don’t think you’ll be moving within the next five years or so. On the other hand, if you do see yourself moving within the next few years, an ARM with a low initial rate might be the best way to lower your monthly payment.

Are you refinancing primarily to cash out some home equity? Maybe you want to pay for home improvements, pay your child’s college tuition bill, take your dream vacation, whatever. Then you’ll want to qualify for a loan for more than the balance remaining on your current mortgage. If you’ve had your current mortgage for a number of years and/or have a mortgage whose interest rate is higher, you may be able to do this without increasing your monthly payment.

You want to cash out some equity to consolidate other debt? Good idea! If you have the equity in your home to make it work, paying off other debt with higher interest rates than the interest rate on your mortgage — for example, credit cards, home equity loans, car loans, some student loans — means you can save possibly hundreds of dollars a month.

Do you want to build up home equity more quickly, and pay off your mortgage sooner? Consider refinancing with a shorter-term loan, such as a 15-year mortgage. Your payments will be higher than with a longer-term loan, but in exchange, you will pay substantially less interest and will build up equity more quickly. If you have had your current 30-year mortgage for a number of years and the loan balance is relatively low, you may be able to do this without increasing your monthly payment — you may even be able to save! For example, let’s say years ago you took out a $150,000 30-year mortgage at eight percent. Your payment is about $1,100, exclusive of taxes, insurance and so on. If your balance today is down to $130,000, you might take out a 15-year mortgage at six percent and have an almost identical monthly payment. This is a great option for people whose main goal is not to save money on their monthly payment but rather want to build up equity and pay off their home more quickly.

Annually Reviewing Your Mortgage Plan

Give your mortgage an annual once over

If the last time you looked at your mortgage was when you closed on your loan, it’s time to take it out for an annual once over. New loan programs and opportunities to leverage your home equity can bring you lower mortgage payments and new investment opportunities.

Is a fixed rate mortgage the best choice for you?

Many of us opt for the certainty of a 20 year or 30 year fixed rate mortgage when we get our first mortgage. If you anticipate selling your home within the next 10 years, one of our new hybrid loans may be a better financial fit for you. Hybrid loans typically have a lower fixed rate than a traditional 20 or 30 year mortgage. The savings you receive can well be worth switching to a hybrid loan.

Are you paying for Private Mortgage Insurance (PMI)?

There are a lot of new loan programs available that can help you eliminate PMI, even if you have less than 20% equity in your home. The monthly savings adds up quickly.  This money can be put to better use to help you achieve other short-term and long-term financial goals.

Are your taxes and insurance up to date?

Even though your mortgage servicer is responsible for paying your taxes and insurance out of your escrow account, it just makes sense to periodically check to see that these payments are being made properly. While you’re at it, you’ll want to review your homeowner’s insurance policy. It’s a good idea to review your policy every two to three years to make sure it covers recent home improvements, replacement costs for the contents of your home, and that its reconstruction coverage is keeping pace with inflation.

Do you have a Home Equity Line of Credit (HELOC) for emergencies?

Many homeowners are making the proactive choice to secure a Home Equity Line of Credit (HELOC) for emergencies.  A HELOC is a revolving line of credit that only charges interest when you actually draw money from the line of credit. As you repay the balance of the draw, the credit becomes available again. Securing a HELOC in advance can be a great help if you’re ever laid off or have an unexpected medical or other emergency.

How’s your credit report?

The information in your credit report has a huge impact on whether or not you will again qualify for a mortgage loan.  That’s why it’s important to periodically check your credit report.

Now it’s even easy to do so. A recent amendment to the federal Fair Credit Reporting Act (FCRA) mandates that each credit reporting company provide you with a free copy of your credit report, at your request, once a year. To request your free credit report, visit http://www.annualcreditreport.com.  (Free reports are being phased in over a nine-month period, rolling from the west coast to the east beginning December 1, 2004.  By September 1, 2005, free reports will be accessible to all consumers.)

Are you making the most of your home’s equity?

With rising home prices, you may have more equity in your home than you realize.  Taking out a home equity loan to payoff credit card debt, car loans and other higher interest debts makes good financial sense.

Is it time to refinance?

The timing might be right to refinance your mortgage loan.  New rates may help you significantly lower your monthly payment. Or you might want to “cash out” some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation – whatever! Perhaps by refinancing you can even pay off your mortgage sooner! 

We’ll work with you to determine if the timing is right to change your loan program, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your future plans.

Real Estate Glossary

REAL ESTATE GLOSSARY

ABSORPTION RATE   Back to top
The ratio of the number of properties in an area that have been sold against the number available. Used to show the volatility of a market.

ABSTRACTION METHOD   Back to top
This method of estimating the value of property uses similar properties available in the same market to extract the value of a parcel of land.

ACCELERATION CLAUSE   Back to top
A provision in a mortgage that gives the lender the right to demand immediate payment of the outstanding loan balance under certain circumstances. Usually when the borrower defaults on the loan.

ACCESSORY BUILDING   Back to top
A building separate from the main structure on a property. Often used for a specific purpose, such as a workshop, storage shed or garage.

ACCRETION   Back to top
The natural growth of a piece of land resulting from forces of nature

ACRE   Back to top
43,560 square feet. A measurement of area.

ACTUAL AGE   Back to top
The amount of time that has passed since a building or other structure was built. See also: EFFECTIVE AGE

ADJUSTMENT DATE   Back to top
The date the interest rate changes on an adjustable rate mortgage.

AD VAL OREM TAX   Back to top
Taxes assessed based on the value of the land and improvements

ADDENDUM   Back to top
A supplement to any document that contains additional information pertinent to the subject. Appraisers use an addendum to further explain items for which there was inadequate space on the standard appraisal form.

ADJUSTABLE-RATE MORTGAGE (ARM)   Back to top
A type of mortgage where the interest rate varies based on a particular index, normally the prime lending rate.

ADJUSTED BASIS   Back to top
The value of an asset (property or otherwise) that includes the original price plus the value of any improvement, and less any applicable depreciation.

ADJUSTED SALES PRICE   Back to top
An opinion of a property’s sales price, after adjustments have been made to account for differences between it and another comparable property.

AESTHETIC VALUE   Back to top
The additional value a property enjoys based on subjective criteria such as look or appeal.

AFFIRMATION   Back to top
A declaration that a certain set of facts are truthful.

AFFORDABILITY ANALYSIS   Back to top
A calculation used to determine an individual’s likelihood of being able to meet the obligations of a mortgage for a particular property. Takes into account the down payment, closing costs and on-going mortgage payments.

AGENT   Back to top
A person who has been appointed to act on behalf of another for a particular transaction.

AMENITY   Back to top
Any feature of a property that increases its value or desirability. These might include natural amenities such as location or proximity to mountains, or man-made amenities like swimming pools, parks or other recreation.

AMERICAN SOCIETY OF APPRAISERS   Back to top
An organization of appraisal professionals and others interested in the appraisal profession.

AMORTIZATION   Back to top
The repayment of a loan through regular periodic payment.

AMORTIZATION SCHEDULE   Back to top
The breakdown of individual payments throughout the life of an amortized loan, showing both principal contribution and debt service (interest) fees.

AMORTIZATION TERM   Back to top
The length of time over which an amortized loan is repaid. Mortgages are commonly amortized over 15 or 30 years.

AMPERAGE   Back to top
A measure of electric current describing the magnitude.

ANNUAL PERCENTAGE RATE (APR)   Back to top
The rate of annual interest charged on a loan.

ANNUITY   Back to top
A sum of money paid at regular intervals, often annually.

APPLICATION   Back to top
A form used to apply for a mortgage loan that details a potential borrower’s income, debt, savings and other information used to determine credit worthiness.

APPRAISAL   Back to top
A ”defensible” and carefully documented opinion of value. Most commonly derived using recent sales of comparable properties by a licensed, professional appraiser.

APPRAISAL FOUNDATION   Back to top
A not-for-profit educational organization established by the appraisal profession in the United States in 1987. It is dedicated to the advancement of professional valuation and responsible for establishing, improving, and promoting the Uniform Standards of Professional Appraisal Practice (USPAP).

APPRAISAL INSTITUTE   Back to top
A world-wide organization dedicated to real estate appraisal education, publication and advocacy.

APPRAISAL PRINCIPLES   Back to top
The basic building blocks of the property valuation process, including property inspection, market analysis and basic economics.

APPRAISAL REPORT   Back to top
The end result of the appraisal process usually consists of one major standardized form such as, the Uniform Residential Appraisal Report form 1004, as well as all supporting documentation and additional detail information. The purpose of the report is to convey the opinion of value of the subject property and support that opinion with corroborating information.

APPRAISAL STANDARDS BOARD (ASB)   Back to top
An independent board of the APPRAISAL FOUNDATION, which writes, amends, and interprets USPAP. The ASB is composed of up to seven appraisers appointed by the Foundation’s Board of Trustees. The ASB holds public meetings throughout the year to interpret and amend USPAP.

APPRAISED VALUE   Back to top
An opinion of the fair market value of a property as developed by a licensed, certified appraiser following accepted appraisal principals.

APPRAISER   Back to top
An educated, certified professional with extensive knowledge of real estate markets, values and practices. The appraiser is often the only independent voice in any real estate transaction with no vested interest in the ultimate value or sales price of the property.

APPRECIATION   Back to top
The natural rise in property value due to market forces.

ARMS LENGTH TRANSACTION   Back to top
Any transaction in which the two parties are unconnected and have no overt common interests. Such a transaction most often reflects the true market value of a property.

ASSESSED VALUE   Back to top
The value of a property according to jurisdictional tax assessment.

ASSESSMENT   Back to top
The function of assigning a value to a property for the purpose of levying taxes.

ASSESSMENT RATIO   Back to top
The comparative relationship of a property’s assessed value to its market value.

ASSESSOR   Back to top
The jurisdictional official who performs the assessment and assigns the value of a property.

ASSET   Back to top
Any item of value which a person owns.

ASSIGNMENT   Back to top
Transfer of ownership of a mortgage usually when the loan is sold to another company.

ASSUMABLE MORTGAGE   Back to top
A mortgage that can be taken over by the buyer when a home is sold.

ASSUMPTION   Back to top
When a buyer takes over, or “assumes” the sellers mortgage.

ATTACHED HOUSING   Back to top
Any number of houses or other dwellings which are physically attached to one another, but are occupied by a number of different people. The individual houses may or may not be owned by separate people as well.

BACKFILL   Back to top
The slope of the ground around a house.

BALL COCK VALVE   Back to top
The valve inside a toilet tank that controls the filling of the tank.

BALLOON MORTGAGE   Back to top
A mortgage loan in which the monthly payments are not large enough to repay the loan by the end of the term. So at the end of the term, the remaining balance comes due in a single large payment.

BALLOON PAYMENT   Back to top
The final large payment at the end of a balloon mortgage term.

BANKRUPTCY   Back to top
When a person or business is unable to pay their debts and seeks protection of the state against creditors. Bankruptcies remain on credit records for up to ten years and can prevent a person from being able to get a loan.

BEAM   Back to top
A structural supporting member.

BILL OF SALE   Back to top
A physical receipt indicating the sale of property.

BIWEEKLY MORTGAGE   Back to top
A mortgage where you make “half payments” every two weeks, rather than one payment per month. This results in making the equivalent of 13 monthly payments per year, rather than 12, significantly reducing the time it takes to pay off a thirty year mortgage.

BLIGHTED AREA   Back to top
Any region of a city or town that has fallen into disrepair or otherwise has become undesirable.

BONA FIDE   Back to top
Any genuine offer, made without intent to defraud or deceive.

BRIDGE FINANCING   Back to top
An interim loan made to facilitate the purchase of a new home before the buyer’s current residence sells and its equity is available to fund the new purchase.

BRIDGING   Back to top
Structural members used between beams to strengthen the structure.

BROKER   Back to top
An individual who facilitates the purchase of property by bringing together a buyer and a seller.

BTU   Back to top
British Thermal Unit. A unit of measurement used to describe heating or cooling capacity.

BUFFER ZONE   Back to top
A segment of land between two disparate municipal zones which acts as a shield to keep one zone from encroaching upon the other. Often used to separate residential districts from commercial areas.

BUILDING CODE   Back to top
Regulations that ensure the safety and material compliance of new construction within a municipality. Building codes are localized to ensure they are adequate to meet the risk of common hazards.

BUILDING LINE OR SETBACK   Back to top
The statutory distance between buildings and the property line, imposed by municipalities, home associations, or other agreements.

BUILT-INS   Back to top
Specific items of personal property which are installed in a real estate improvement such that they become part of the building. Built-in microwave ovens and dishwashers are common examples.

BUNGALOW   Back to top
A one-story, home-style dating from the early twentieth century. Often characterized by a low-pitched roof.

BUY DOWN   Back to top
Extra money paid in a lump sum to reduce the interest rate of a fixed rate mortgage for a period of time. The extra money may be paid by the borrower, in order to have a lower payment at the beginning of the mortgage. Or paid by the seller, or lender, as incentive to buy the property or take on the mortgage.

BX CABLE   Back to top
Electrical cable shrouded in a galvanized steel outer cover.

CALL OPTION   Back to top
A clause in a mortgage which allows the lender to demand payment of the outstanding balance at a specific time.

CAP   Back to top
Associated with Adjustable Rate Mortgages. A limit on how high monthly payments or how much interest rates may change within a certain time period or the life of the mortgage.

CAPE COD COLONIAL   Back to top
A single-story house style made popular in New England. Often characterized by a steep roof with gables.

CAPITAL   Back to top
Accumulated goods and money which is most often used to generate additional income.

CAPITAL EXPENDITURE   Back to top
An outlay of funds designed to improve the income-producing capabilities of an asset or to extend its economic life.

CASH-OUT REFINANCE   Back to top
Refinancing a mortgage at a higher amount than the current balance in order to transform a portion of the equity into cash.

CAULKING   Back to top
A pliable material used to seal cracks or openings such as around windows.

CAVEAT EMPTOR   Back to top
Literally translated: ”Let the buyer beware.” A common business tenet whereby the buyer is responsible for verifying any and all claims by the seller of property.

CERTIFICATE OF DEPOSIT   Back to top
A document showing that the bearer has a certain amount of money, at a particular amount interest, on deposit with a financial institution.

CERTIFICATE OF DEPOSIT INDEX   Back to top
An index based on the interest rate of six month CD’s. Used to set interest rates on some Adjustable Rate Mortgages.

CERTIFICATE OF ELIGIBILITY   Back to top
A document issued by the Veterans Administration that certifies eligibility for a VA loan.

CERTIFICATE OF OCCUPANCY   Back to top
Issued by an appropriate jurisdictional entity, this document certifies that a building complies with all building codes and is safe for use or habitation.

CERTIFICATE OF REASONABLE VALUE (CRV)   Back to top
Usually based on an independent appraisal, a CRV for a particular property establishes the maximum amount which can be secured by a VA mortgage.

CERTIFICATE OF TITLE   Back to top
A document designating the legal owner of a parcel of real estate. Usually provided by a title or abstract company.

CERTIFIED GENERAL APPRAISER   Back to top
Generally, any professional who has met the local or state requirements, and passed the appropriate certification exam, and is capable of appraising any type of property.

CERTIFIED RESIDENTIAL APPRAISER   Back to top
A sub-classification of appraiser who is only licensed to appraise residential property, usually up to four units.

CHAIN OF TITLE   Back to top
The complete history of ownership of a piece of property.

CHATTEL   Back to top
Any personal property which is not attached to or an integral part of a property. Chattel is not commonly taken into consideration when appraising the value of real property.

CIRCUIT BREAKERS   Back to top
Electrical devices which automatically open electrical circuits if they are overloaded.

CLEAR TITLE   Back to top
Ownership of property that is not encumbered by any counter-claim or lien.

CLOSING   Back to top
A torturous process designed to induce cramping in a home buyer’s hands by requiring signature on countless pieces of documentation that nobody has ever read. Or, the process whereby the sale of a property is consummated with the buyer completing all applicable documentation, including signing the mortgage obligation and paying all appropriate costs associated with the sale (CLOSING COSTS).

CLOSING COSTS   Back to top
All appropriate costs generated by the sale of property which the parties must pay to complete the transaction. Costs may include appraisal fees, origination fees, title insurance, taxes and any points negotiated in the deal.

CLOSING STATEMENT   Back to top
The document detailing the final financial arrangement between a buyer and seller and the costs paid by each.

CO-BORROWER   Back to top
A second person sharing obligation on the loan and title on the property.

COLLATERAL   Back to top
An asset which is placed at risk to secure the repayment of a loan.

COLLECTION   Back to top
The process a lender takes to pursue a borrower who is delinquent on his payments in order to bring the mortgage current again. Includes documentation that may be used in foreclosure.

CO-MAKER   Back to top
A second party who signs a loan, along with the borrower, and becomes liable for the debt should the borrower default.

COMMON LAW   Back to top
As opposed to statute law. Laws that have been established by custom, usage and courts over many years.

COMMISSION   Back to top
A percentage of the sales price or a fixed fee negotiated by an agent to compensate for the effort expended to sell or purchase property.

COMMON AREA ASSESSMENTS   Back to top
Fees which are charged to the tenets or owners of properties to cover the costs of maintaining areas shared with other tenets or owners. Commonly found in condominium, PUD or office spaces.

COMMON AREAS   Back to top
Any areas, such as entryways, foyers, pools, recreational facilities or the like, which are shared by the tenets or owners of property near by. Commonly found in condominium, PUD or office spaces.

COMMUNITY PROPERTY   Back to top
In many jurisdictions, any property which has been acquired by a married couple. The ownership of the property is considered equal unless stipulated otherwise by both parties.

COMPARABLES   Back to top
An abbreviated term used by appraisers to describe properties which are similar in size, condition, location and amenities to a subject property whose value is being determined. The Uniform Standards of Professional Appraisal Practice (USPAP) establish clear guidelines for determining a comparable property.

COMPOUND INTEREST   Back to top
Interest paid on the principal amount, as well as any accumulated interest.

CONCESSIONS   Back to top
Additional value granted by a buyer or seller to entice another party to complete a deal.

CONDEMNATION   Back to top
The official process by which a property is deemed to be uninhabitable or unusable due to internal damage or other external conditions.

CONDENSATION   Back to top
The transition of water vapor to liquid. Typically forms in areas of high humidity.

CONDOMINIUM   Back to top
A development where individual units are owned, but common areas and amenities are shared equally by all owners.

CONDOMINIUM CONVERSION   Back to top
Commonly, the conversion of a rental property such as an apartment complex into a CONDOMINIUM-style complex where each unit is owned rather than leased.

CONDUIT   Back to top
The pipe through which electric wiring is run.

CONSTRUCTION LOAN   Back to top
A loan made to a builder or home owner that finances the initial construction of a property, but is replaced by a traditional mortgage one the property is completed.

CONTIGUOUS   Back to top
Connected to or touching along an unbroken boundary.

CONTINGENCY   Back to top
Something that must occur before something else happens. Often used in real estate sales when a buyer must sell a current home before purchasing a new one. Or, when a buyer makes an offer that requires a complete home inspection before it becomes official.

CONTRACT   Back to top
A legally binding agreement, oral or written, between two parties.

CONVENTIONAL MORTGAGE   Back to top
A traditional, real estate financing mechanism that is not backed by any government or other agency (FHA, VA, etc.).

CONVERTIBLE ARM   Back to top
A mortgage that begins as and adjustable, that allows the borrower to convert the loan to a fixed rate within a specific timeframe.

COOPERATIVE (CO-OP)   Back to top
A form of ownership where each resident of a multiunit property owns a share in a cooperative corporation that owns the building. With each resident having rights to a specific unit within the building.

CORPORATE RELOCATION   Back to top
A situation where a person’s employer pays all or some of the expenses associated with moving from one location to another, usually over a substantial distance. Relocation expenses often include the amounts, such as brokerage fees, incurred in the selling and buying of the employee’s primary residence.

COST OF FUNDS INDEX (COFI)   Back to top
An index of financial institutions costs used to set interest rates for some Adjustable Rate Mortgages.

COVENANT   Back to top
A stipulation in any mortgage that, if not met, can be cause for the lender to foreclose.

CREDIT   Back to top
A loan of money for the purchase of property, real or personal. Credit is either secured by an asset, such as a home, or unsecured.

CREDIT HISTORY   Back to top
A record of debt payments, past and present. Used by mortgage lenders in determining credit worthiness of individuals.

CREDITOR   Back to top
A person to whom money is owed.

CREDIT REPORT   Back to top
A detailed report of an individuals credit, employment and residence history prepared by a credit bureau. Used by lenders to determine credit worthiness of individuals.

CREDIT REPOSITORY   Back to top
Large companies that gather and store financial and credit information about individuals who apply for credit.

CUL-DE-SAC   Back to top
A dead-end street. One with only one entrance/exit.

DATE OF APPRAISAL   Back to top
The specific point in time as of which an appraiser designates the value of a home. Often stipulated as the date of inspection.

DEBT   Back to top
An obligation to repay some amount owed. This may or may not be monetary.

DEBT EQUITY RATIO   Back to top
The ratio of the amount a mortgagor still owes on a property to the amount of equity they have in the home. Equity is calculated at the fair-market value of the home, less any outstanding mortgage debt.

DEED   Back to top
A document indicating the ownership of a property.

DEED-IN-LIEU (OF FORECLOSURE)   Back to top
A document given by a borrower to a lender, transferring title of the property. Often used to avoid credit-damaging foreclosure procedures.

DEED OF TRUST   Back to top
A document which transfers title in a property to a trustee, whose obligations and powers are stipulated. Often used in mortgage transactions.

DEED OF RECONVEYANCE   Back to top
A document which transfers ownership of a property from a Trustee back to a borrower who has fulfilled the obligations of a mortgage.

DEED OF RELEASE   Back to top
A document which dismisses a lien or other claim on a property.

DEED OF SURRENDER   Back to top
A document used to surrender any claim a person has to a property.

DEFAULT   Back to top
The condition in which a borrower has failed to meet the obligations of a loan or mortgage.

DELINQUENCY   Back to top
The state in which a borrow has failed to meet payment obligations on time.

DEPOSIT   Back to top
Cash given along with an offer to purchase property, Also called EARNEST MONEY.

DEPRECIATION   Back to top
The natural decline in property value due to market forces or depletion of resources.

DETACHED SINGLE-FAMILY HOME   Back to top
A single building improvement intended to serve as a home for one family.

DISCOUNT POINTS   Back to top
Points paid in addition to the loan origination fee to get a lower interest rate. One point is equal to one percent of the loan amount.

DISTRESSED PROPERTY   Back to top
A mortgaged property which has been foreclosed on.

DOWNSPOUT   Back to top
The pipe that water moves through to reach the ground from the rain gutter.

DUE-ON-SALE PROVISION   Back to top
A clause in a mortgage giving the lender the right to demand payment of the full balance when the borrower sells the property.

DUPLEX   Back to top
A single-building improvement which is divided and provides two units which serve as homes to two families.

DWELLING   Back to top
A house or other building which serves as a home.

DOWN PAYMENT   Back to top
An amount paid in cash for a property, with the intent to mortgage the remaining amount due.

EARNEST MONEY DEPOSIT   Back to top
A cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer.

EASEMENT   Back to top
The right of a non-owner of property to exert control over a portion or all of the property. For example, power companies often own an easement over residential properties for access to their power lines.

EAVE   Back to top
The part of the roof that extends beyond the exterior wall.

ECONOMIC DEPRECIATION   Back to top
The decline in property value caused by external forces, such as neighborhood blight or adverse development.

ECONOMIC LIFE   Back to top
The amount of time which any income-producing property is able to provide benefits to its owner.

EFFECTIVE AGE   Back to top
The subjective, estimated age of a property based on its condition, rather than the actual time since it was built. Excessive wear and tear can cause a property’s effective age to be greater than its actual age.

EMINENT DOMAIN   Back to top
The legal process whereby a government can take ownership of a piece of property in order to convert it to public use. Often, the property owner is paid fair-market value for the property.

ENCROACHMENT   Back to top
A building or other improvement on one property which invades another property or restricts its usage.

ENCUMBRANCE   Back to top
A claim against a property. Examples are mortgages, liens and easements.

ENERGY EFFICIENCY RATIO   Back to top
An efficiency rating system for air conditioning units that corresponds to the number of BTU’s output per watt of electricity used.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)   Back to top
U.S. federal law requiring that lenders afford people equal chance of getting credit without discrimination based on race, religion, age, sex etc

EQUITY   Back to top
The difference between the fair market value of a property and that amount an owner owes on any mortgages or loans secured by the property.

EQUITY BUILDUP   Back to top
The natural increase in the amount of equity an owner has in a property, accumulated through market appreciation and debt repayment.

ERRORS AND OMISSIONS INSURANCE   Back to top
An insurance policy taken out by appraisers to cover their liability for any mistakes made during the appraisal process.

ESCROW   Back to top
An amount retained by a third party in a trust to meet a future obligation. Often used in the payment of annual taxes or insurance for real property.

ESCROW ACCOUNT   Back to top
An account setup by a mortgage servicing company to hold funds with which to pay expenses such as homeowners insurance and property taxes. An extra amount is paid with regular principal and interest payments that go into the escrow account each month.

ESCROW ANALYSIS   Back to top
An analysis performed by the lender usually once each year to see that the amount of money going into the escrow account each month is correct for the forecasted expenses.

ESCROW DISBURSEMENTS   Back to top
The payout of funds from an escrow account to pay property expenses such as taxes and insurance.

ESTATE   Back to top
The total of all property and assets owned by an individual.

EXAMINATION OF TITLE   Back to top
The report on the title of a property from the public records or an abstract of the title.

EXCLUSIVE LISTING   Back to top
An agreement between the owner of a property and a real estate agent giving the agent exclusive right to sell the property.

EXECUTOR   Back to top
The person named in a will to administer the estate.

FACADE   Back to top
The front exposure of any building. Often used to describe an artificial or false front which is not consistent with the construction of the rest of the building.

FAIR CREDIT REPORTING ACT   Back to top
A federal law regulating the way credit agencies disclose consumer credit reports and the remedies available to consumers for disputing and correcting mistakes on their credit history.

FAIR MARKET VALUE   Back to top
The price at which two unrelated parties, under no duress, are willing to transact business.

FANNIE MAE   Back to top
A private, shareholder-owned company that works to make sure mortgage money is available for people to purchase homes. Created by Congress in 1938, Fannie Mae is the nation’s largest source of financing for home mortgages.

FASCIA   Back to top
The boards that enclose the eaves.

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)   Back to top
The U.S. Government agency created in 1933 which maintains the stability of and public confidence in the nation’s financial system by insuring deposits and promoting safe and sound banking practices.

FEDERAL HOUSING ADMINISTRATION (FHA)   Back to top
A sub-agency of the U.S. Department of Housing and Urban Development created in the 1930’s to facilitate the purchase of homes by low-income, first-time home buyers. It currently provides federally-subsidized mortgage insurance for private lenders.

FEE APPRAISER   Back to top
A certified, professional appraiser who forms an opinion of the fair market value of property and receives a set fee in exchange.

FEE SIMPLE   Back to top
A complete, unencumbered ownership right in a piece of property.

FEE SIMPLE ESTATE   Back to top
A form or ownership, or holding title to real estate. It is the most complete form of title, having an unconditional and unlimited interest of perpetual duration.

FHA MORTGAGE   Back to top
A mortgage that is insured by the Federal Housing Administration (FHA).

FINAL VALUE ESTIMATE   Back to top
The opinion of value of a piece of property resulting from an appraisal following the USPAP guidelines.

FIRST MORTGAGE   Back to top
The primary loan or mortgage secured by a piece of property.

FIXED-RATE MORTGAGE (FRM)   Back to top
A mortgage which has a fixed rate of interest over the life of the loan.

FIXTURE   Back to top
Any piece of personal property which becomes permanently affixed to a piece of real property.

FLASHING   Back to top
The metal used around the base of roof mounted equipment, or at the junction of angles used to prevent leaking.

FLOOD INSURANCE   Back to top
Supplemental insurance which covers a home owner for any loss due to water damage from a flood. Often required by lenders for homes located in FEMA-designated flood zones.

FLOOR PLAN   Back to top
The representation of a building which shows the basic outline of the structure, as well as detailed information about the positioning of rooms, hallways, doors, stairs and other features. Often includes detailed information about other fixtures and amenities.

FLUE   Back to top
The furnace exhaust pipe, usually going through the roof.

FLUSH VALVE   Back to top
The valve between the toilet bowl and the tank.

FOOTING   Back to top
The partially buried support for a vertical structural member such as a post.

FORECLOSURE   Back to top
The process whereby a lender can claim the property used by a borrower to secure a mortgage and sell the property to meet the obligations of the loan.

FORFEITURE   Back to top
The loss of property or money due to the failure to meet the obligations of a mortgage or loan secured by that property.

FOUNDATION   Back to top
The solid structural element upon which a structure is built.

FRONTAGE   Back to top
The segment of a property that runs along a point of access, such as a street or water front.

FUNCTIONAL OBSOLESCENCE   Back to top
A decrease in the value of property due to a feature or lack thereof which renders the property undesirable. Functional obsolescence can also occur when the surrounding area changes, rendering the property unusable for its originally intended purpose.

GABLE ROOF   Back to top
A steeply angled, triangular roof.

GALVANIZED PIPE   Back to top
Iron pipe with a galvanized (zinc) coating.

GAMBREL ROOF   Back to top
A ”barn-like” roof, where the upper portion of the roof is less-steeply angled than the lower part.

GENERAL LIEN   Back to top
A broad-based claim against several properties owned by a defaulting party.

GEORGIAN   Back to top
A classic, English-style hose characterized by simple rectangular shape and multiple stories.

GFI   Back to top
Ground Fault Interrupter. A type of circuit breaker required in areas where water is present.

GINNIE MAE   Back to top
A wholly owned corporation created in 1968 within the U.S. Department of Housing and Urban Development to serve low-to moderate-income homebuyers.

GIRDER   Back to top
A main supporting beam.

GOVERNMENT MORTGAGE   Back to top
Any mortgage insured by a government agency, such as the FHA or VA.

GRADE   Back to top
The slope of land around a building. Also ground level.

GRANTEE   Back to top
Any person who is given ownership of a piece of property.

GRANTOR   Back to top
Any person who gives away ownership of a piece of property.

GROSS AREA   Back to top
The sum total of all floor space, including areas such as stairways and closet space. Often measured based on external wall lengths.

GROUTING   Back to top
Material used around ceramic tile.

GUTTER   Back to top
The trough around the edge of the roof that catches and diverts rain.

HALF-SECTION   Back to top
320 acres.

HAZARD INSURANCE   Back to top
Insurance covering damage to a property caused by hazards such as fire, wind and accident.

HEADER   Back to top
The framing elements above an opening such as a window or door.

HEARTH   Back to top
The floor of a fireplace or the area immediately in front of it.

HEIGHT ZONING   Back to top
A municipal restriction on the maximum height of any building or other structure.

HIDDEN AMENITIES   Back to top
Assets of a property which contribute to its value, but are not readily apparent. Examples might include upgraded or premium building materials.

HIGHEST AND BEST USE   Back to top
The most profitable and likely use of a property. Selected from reasonably probable and legal alternative uses, which are found to be physically possible, appropriately supported and financially feasible to result in the highest possible land value.

HOME EQUITY CONVERSION MORTGAGE (HECM)   Back to top
Also known as a reverse annuity mortgage. It allows home owners (usually older) to convert equity in the home into cash. Normally paid by the lender in monthly payments. HECM’s typically do not have to be repaid until the borrower is no longer occupying the home.

HOME EQUITY LINE OF CREDIT   Back to top
A type of mortgage loan that allows the borrower to draw cash against the equity in his home.

HOME INSPECTION   Back to top
A complete examination of a building to determine its structural integrity and uncover any defects in materials or workmanship which may adversely affect the property or decrease its value.

HOME INSPECTOR   Back to top
A person who performs professional home inspections. Usually, with an extensive knowledge of house construction methods, common house problems, how to identify those problems and how to correct them.

HOMEOWNER’S ASSOCIATION   Back to top
An organization of home owners in a particular neighborhood or development formed to facilitate the maintenance of common areas and to enforce any building restrictions or covenants.

HOMEOWNER’S INSURANCE   Back to top
A policy which covers a home owner for any loss of property due to accident, intrusion or hazard.

HOMEOWNER’S WARRANTY   Back to top
An insurance policy covering the repair of systems and appliances within the home for the coverage period.

HUD MEDIAN INCOME   Back to top
Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 STATEMENT   Back to top
A standardized, itemized list, published by the U.S. Department of Housing and Urban Development (HUD), of all anticipated CLOSING COSTS connected with a particular property purchase.

IMPROVED LAND   Back to top
Any parcel of land which has been changed from its natural state through the creation of roads, buildings or other structures.

IMPROVEMENTS   Back to top
Any item added to vacant land with the intent of increasing its value or usability.

IMPROVEMENT RATIO   Back to top
The comparative value of an improved piece of land to its natural, unaltered state.

INCOME APPROACH   Back to top
The process of estimating the value of property by considering the present value of a stream of income generated by the property.

INCOME PROPERTY   Back to top
A piece of property whose highest and best use is the generation of income through rents or other sources.

INDEPENDENT APPRAISAL   Back to top
An estimation of value created by a professional, certified appraiser with no vested interest in the value of the property.

INSPECTION   Back to top
The examination of a piece of property, its buildings or other amenities.

INSURABLE TITLE   Back to top
The title to property which has been sufficiently reviewed by a title insurance company, such that they are willing to insure it as free and clear.

INTEREST RATE   Back to top
A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.

INVESTMENT PROPERTY   Back to top
Any piece of property that is expected to generate a financial return. This may come as the result of periodic rents or through appreciation of the property value over time.

JAMB   Back to top
The side of a door frame.

JOINT TENANCY   Back to top
A situation where two or more parties own a piece of property together. Each of the owners has an equal share, and may not dispose of or alter that share without the consent of the other owners.

JOISTS   Back to top
Horizontal beams laid on edge to support flooring or a ceiling.

JUDGMENT   Back to top
An official court decision. If the judgment requires payment from one party to another, the court may put a lien against the payee’s property as collateral.

JUDICIAL FORECLOSURE   Back to top
A type of foreclosure conducted as a civil suit in a court of law.

JUMBO LOAN   Back to top
A mortgage loan for an amount greater than the limits set by Fannie Mae and Freddie Mac. Often called non-conforming loans.

LALLY COLUMN   Back to top
A concrete filled steel pipe used to support beams.

LATE CHARGE   Back to top
An extra charge, or penalty added to a regular mortgage payment when the payment is made late by an amount of time specified in the original loan document.

LATENT DEFECTS   Back to top
Any defect in a piece of property which is not readily apparent, but which has an impact of the value. Structural damage or termite infestation would be examples of latent defects.

LEASE   Back to top
A contract between a property owner and a tenant specifying the payment amount, terms and conditions, as well as the length of time the contract will be in force.

LEASEHOLD ESTATE   Back to top
A type of property ”ownership” where the buyer actually has a long-term lease on the property.

LEASE OPTION   Back to top
A lease agreement that gives the tenant an option to buy the property. Usually, a portion of the regular monthly rent payment will be applied towards the down payment.

LEGAL DESCRIPTION   Back to top
The description of a piece of property, identifying its specific location in terms established by the municipality or other jurisdiction in which the property resides. Often related in specific distances from a known landmark or intersection.

LENDER   Back to top
The person or entity who loans funds to a buyer. In return, the lender will receive periodic payments, including principal and interest amounts.

LIABILITIES    Back to top
A person’s outstanding debt obligations.

LIABILITY INSURANCE   Back to top
Insurance that covers against potential lawsuit brought against a property owner for alleged negligence resulting in damage to another party.

LIEN   Back to top
Any claim against a piece of property resulting from a debt or other obligation.

LIFE CAP   Back to top
A limit on how far the interest rate can move for an Adjustable Rate Mortgage.

LIKE-KIND PROPERTY   Back to top
Any property which is substantially similar to another property.

LINE OF CREDIT   Back to top
An extension of credit for a certain amount for a specific amount of time. To be used by the borrower at his discretion.

LIQUID ASSET   Back to top
Any asset which can be quickly converted into cash at little or no cost, or cash itself.

LOAN    Back to top
Money borrowed, to be repaid with interest, according to the specific terms and conditions of the loan.

LOAN OFFICER   Back to top
A person that “sells” loans, representing the lender to the borrower, and the borrower to the lender.

LOAN ORIGINATION   Back to top
How a lender refers to the process of writing new loans.

LOAN SERVICING   Back to top
The processing of payments, mailing of monthly statements, management and disbursement of escrow funds etc Typically carried out by the company you make payments to.

LOAN-TO-VALUE RATIO (LTV)   Back to top
The comparison of the amount owed on a mortgaged property to its fair market value.

LOCK-IN    Back to top
An agreement between a lender and a borrower, guaranteeing an interest rate for a loan if the loan is closed within a certain amount of time.

LOCK-IN PERIOD   Back to top
The amount of time the lender has guaranteed an interest rate to a borrower.

MAJOR DEFICIENCY   Back to top
A deficiency that strongly impacts the usability and habitability of a house. Or a deficiency that may be very expensive to repair.

MANUFACTURED HOUSING   Back to top
Once known as ”mobile homes,” manufactured housing is any building which has been constructed off site, then moved onto a piece of real property.

MARGIN   Back to top
The difference between the interest rate and the index on an adjustable rate mortgage.

MARGINAL LAND   Back to top
Land whose value has been diminished due to some internal defect or external condition. In most cases, the cost to correct the flaw or condition is as much or more than the expected return from the property.

MASTER ASSOCIATION   Back to top
An umbrella organization that is made up of multiple, smaller home owner’s associations. Often found in very large developments or condominium projects.

MATURITY   Back to top
The date on which the principal balance of a financial instrument becomes due and payable.

MERGED CREDIT REPORT   Back to top
A credit report derived from data obtained from multiple credit agencies.

METES AND BOUNDS   Back to top
A traditional way of describing property, generally expressed in terms of distance from a known landmark or intersection, and then following the boundaries of the property back to its origin.

METROPOLITAN AREA   Back to top
The accumulated land in and around a city or other municipality which falls under the political and economic influence of that entity.

MINERAL RIGHTS   Back to top
The legal right to exploit and enjoy the benefits of any minerals located below the surface of a parcel of land.

MISREPRESENTATION   Back to top
A statement by one party in a transaction that is incorrect or misleading. Most misrepresentations are deemed to be intentional and thus may constitute fraud. Others, however, some are rendered through simple mistakes, oversights or negligence.

MORTGAGE   Back to top
A financial arrangement wherein an individual borrows money to purchase real property and secures the loan with the property as collateral.

MORTGAGE BANKER   Back to top
A financial institution that provides primary and secondary mortgages to home buyers.

MORTGAGE BROKER   Back to top
A person or organization that serves as a middleman to facilitate the mortgage process. Brokers often represent multiple mortgage bankers and offer the most appropriate deal to each buyer.

MORTGAGEE   Back to top
The entity that lends money in a real estate transaction.

MORTGAGE INSURANCE   Back to top
A policy that fulfills those obligations of a mortgage when the policy holder defaults or is no longer able to make payments.

MORTGAGE INSURANCE PREMIUM (MIP)   Back to top
A fee that is often included in mortgage payments that pays for mortgage insurance coverage.

MORTGAGE LIFE INSURANCE   Back to top
A policy that fulfills the obligations of a mortgage when the policy holder dies.

MORTGAGOR   Back to top
The entity that borrows money in a real estate transaction.

MULTI-FAMILY PROPERTIES   Back to top
Any collection of buildings that are designed and built to support the habitation of more than four families.

NATIONAL ASSOCIATION OF MASTER APPRAISERS (NAMA)   Back to top
A non profit professional association organized in 1982, dedicated to the advancement of professionalism in real estate appraisal.

NATIONAL SOCIETY OF REAL ESTATE APPRAISERS   Back to top
An organization founded in 1956 which promotes standards of professionalism in its members.

NATURAL VACANCY RATE   Back to top
The percentage of vacant properties in a given area that is the result of natural turnover and market forces.

NEGATIVE AMORTIZATION   Back to top
When the balance of a loan increases instead of decreases. Usually due to a borrower making a minimum payment on an Adjustable Rate Mortgage during a period when the rate fluctuates to a high enough point that the minimum payment does not cover all of the interest.

NEIGHBORHOOD LIFE-CYCLE   Back to top
The evolution of neighborhood use and demographics over time. Economic fluctuations, municipal zoning changes and population shifts can effect the life cycle.

NEIGHBORHOOD   Back to top
A subsection of a municipality that has been designated by a developer, economic forces or physical formations.

NET LEASABLE AREA   Back to top
The space in a development, outside of the common areas, that can be rented to tenants.

NEW ENGLAND COLONIAL   Back to top
An architectural style dating from early American history typified by a two-story building with clapboard siding.

NO-COST LOAN   Back to top
Many lenders offer loans that you can obtain at “no cost.” You should inquire whether this means there are no “lender” costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a “no-point” loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.

NO-POINT LOAN   Back to top
A loan with no “points”. The interest rate on such a loan will be higher than a loan with points paid. Also sometimes refers to a refinance loan where closing costs are included in the loan.

NON-CONFORMING USE   Back to top
The use of land for purposes contrary to the applicable municipal zoning specifications. Often occurs when zoning changes after a property is in use.

NONLIQUID ASSET   Back to top
Any asset which can not be quickly converted into cash at little or no cost.

NOTE   Back to top
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

NOTE RATE   Back to top
The interest rate stated on a mortgage note.

NOTICE OF DEFAULT   Back to top
Formal written notice from a lender to a borrower that default has occurred.

OBSOLESCENCE   Back to top
The process of an assets value diminishing due to the development of more desirable alternatives or because of the degradation of its capabilities.

OCCUPANCY   Back to top
A physical presence within and control of a property.

OCCUPANCY RATE   Back to top
The percentage of properties in a given area that are occupied.

OCTOPUS RECEPTACLE   Back to top
An outlet with too many devices plugged into it, using a power strip or other device to multiply the outlets.

OFF-SITE IMPROVEMENTS   Back to top
Buildings, structures or other amenities which are not located on a piece of property, but are necessary to maximize the use of the property or in some way contribute to the value of the property.

OFF-STREET PARKING   Back to top
Designated parking spaces associated with a particular building or other structure which are not located on public streets.

OLD TERMITE ACTIVITY   Back to top
Where no termites are currently active, but indications of past activity can be seen.

ON-SITE IMPROVEMENTS   Back to top
Buildings, structures or other amenities that are erected on a piece of property and contribute to its value.

OPEN SPACE   Back to top
Any land which has not had any significant buildings or structures erected on it. Most often used to describe desirable neighborhood features like parks.

OPEN SPLICE   Back to top
An uncovered electrical connection.

ORIGINAL EQUITY   Back to top
The amount of cash a home buyer initially invests in the home.

ORIGINAL PRINCIPAL BALANCE   Back to top
The total amount of principal owed on a mortgage loan at the time of closing.

ORIGINATION FEE   Back to top
Refers to the total number of points paid by a borrower at closing.

OWNER FINANCING   Back to top
A transaction where the property owner provides all or part of the financing.

OWNER OCCUPIED   Back to top
The state of property wherein the owner occupies at least some portion of the property.

PARGING   Back to top
The cement coat applied to block foundations.

PARTIAL INTEREST   Back to top
A shared ownership in a piece of property. May be divided among two or more parties.

PARTIAL PAYMENT   Back to top
A payment of less than the regular monthly amount. Usually, a lender will not accept partial payments.

PERIODIC PAYMENT CAP   Back to top
The limit on how much regular monthly payments on an Adjustable Rate Mortgage can change during one adjustment period.

PERIODIC RATE CAP   Back to top
The limit on how much the interest rate on an Adjustable Rate Mortgage can change during any one adjustment period.

PERSONAL PROPERTY   Back to top
Owned items which are not permanently affixed to the land.

PERSONAL RESIDENCE   Back to top
The primary domicile of a person or family.

PLANNED UNIT DEVELOPMENT (PUD)   Back to top
A coordinated, real estate development where common areas are shared and maintained by an owner’s association or other entity.

PLAT   Back to top
A plan or chart of a piece of land which lays out existing or planned streets, lots or other improvements.

POINT   Back to top
A percentage of a mortgage amount (one point = 1 percent).

PRE-APPROVAL   Back to top
The process of applying for a mortgage loan and becoming approved for a certain amount at a certain interest rate before a property has been chosen. Pre-approval allows the borrower greater freedom in negotiations with sellers.

PREFABRICATED   Back to top
Any building or portion thereof which is manufactured and assembled off site, then erected on a property.

PREPAYMENT   Back to top
Payment made that reduces the principal balance of a loan before the due date and before the loan has become fully amortized.

PREPAYMENT PENALTY   Back to top
A fee that may be charged to a borrower who pays off a loan before it is due.

PRE-QUALIFICATION   Back to top
Less formal that pre-approval, pre-qualification usually means a written statement from a loan officer indicating his or her opinion that the borrower will be able to become approved for a mortgage loan.

PRIME RATE   Back to top
The interest rate that banks and other lending institutions charge other banks or preferred customers.

PRINCIPAL   Back to top
The amount owed on a mortgage which does not include interest or other fees.

PRINCIPAL BALANCE   Back to top
The outstanding balance of principal on a mortgage. Does not included interest due.

PRINCIPAL, INTEREST, TAXES, AND INSURANCE (PITI)   Back to top
The most common constituents of a monthly mortgage payment.

PRIVATE MORTGAGE INSURANCE (PMI)   Back to top
A form of mortgage insurance provided by private, non-government entities. Normally required when the LOAN TO VALUE RATIO is less that 20%.

PROPERTY   Back to top
Any item which is owned or possessed.

PURCHASE AGREEMENT   Back to top
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

QUADRAPLEX   Back to top
Any building designed to accommodate four families.

QUALIFYING RATIOS   Back to top
Two ratios used in determining credit worthiness for a mortgage loan. One is the ratio of a borrower’s monthly housing costs to monthly income. The other is a ratio of all monthly debt to monthly income.

QUITCLAIM DEED   Back to top
A legal document which transfers any ownership an individual has in a piece of property. Often used when the amount of ownership is not known or is unclear.

RAFTER   Back to top
A structural element of the roof, sloping from the peak to the outer walls.

RANCH HOUSE   Back to top
An architectural style typified by a single-story, low-roof construction. Popular in the western U.S.

RATE LOCK   Back to top
A guarantee from a lender of a specific interest rate for a period of time.

RAW LAND   Back to top
Any land which has not been developed.

REAL ESTATE   Back to top
A piece of land and any improvements or fixtures located on that land.

REAL ESTATE AGENT   Back to top
A licensed professional who facilitates the buying and selling of real estate.

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)   Back to top
A federal law requiring lenders to give full disclosure of closing costs to borrowers.

REAL PROPERTY   Back to top
Land, improvements and appurtenances, and the interest and benefits thereof.

REALTOR®   Back to top
A real estate agent or broker who is a member of the NATIONAL ASSOCIATION of REALTORS®

RECEPTACLE   Back to top
An electrical outlet to plug into.

RECORDER   Back to top
A local government employee whose role it is to keep records of all real estate transactions within the jurisdiction.

RECORDING   Back to top
The filing of a real estate transaction with the appropriate government agent (normally the RECORDER). A real estate transaction is considered final when it is recorded.

REFINANCE TRANSACTION   Back to top
A new loan to pay off an existing loan. Typically to gain a lower interest rate or convert equity into cash.

REGISTER   Back to top
Where air from a furnace or air conditioning system enters the room.

RELOCATION SERVICE   Back to top
Any company or agency that assists corporate employees in relocating from one place to another. Services may include hiring and coordinating real estate agents, moving companies, utilizes and the like.

REMAINING BALANCE   Back to top
The amount of principal, interest and other costs that has not yet been repaid.

REMAINING TERM   Back to top
The amount of time remaining on the original amortization schedule.

REMODEL   Back to top
An activity designed to improve the value or desirability of a property through rebuilding, refurbishing, redecorating or adding on to it.

REPAYMENT PLAN   Back to top
A plan to repay delinquent payments, agreed upon between a lender and borrower, in an effort to avoid foreclosure.

REPLACEMENT RESERVE FUND   Back to top
An account, or fund, setup for the replacement of short life items, such as carpeting, in the common areas of a cooperative property.

RESIDENTIAL PROPERTY   Back to top
A piece of property whose highest and best use is the maintenance of a residence.

REVOLVING DEBT   Back to top
A type of credit that allows the borrower/customer to make charges against a predetermined line of credit. The customer then pays monthly installments on the amount borrowed, plus interest.

RIDGE BOARD   Back to top
The structural member of a roof where the rafters join at the top.

RIGHT OF FIRST REFUSAL   Back to top
An agreement giving a person the first opportunity to buy or lease a property before the owner offers it for sale to others.

ROOF PITCH   Back to top
The degree of slope in a roof.

RURAL   Back to top
An area outside of an established urban area or metropolitan district.

SALE PRICE   Back to top
The actual price a property sells for, exclusive of any special financing concessions.

SALES COMPARISON APPROACH   Back to top
An appraisal practice which estimates the value of a property by comparing it to comparable properties which have sold recently.

SCARCITY   Back to top
An economic principal that dictates the price of a good or service through the interaction of supply and demand. When an item is scarce, its price tends to rise, given a constant demand. Real Estate is a classic example of scarcity.

SECOND MORTGAGE   Back to top
A loan secured by the equity in a home, when a primary mortgage already exists.

SECONDARY MORTGAGE MARKET   Back to top
An economic marketplace where mortgage bankers buy and sell existing mortgages.

SECURED LOAN   Back to top
A loan that is backed by collateral. In the case of a mortgage loan, the collateral is the house.

SECURITY   Back to top
The property used as collateral for a loan.

SEMIDETACHED HOUSING   Back to top
Two residences which share a common wall.

SERVICER   Back to top
A financial institution which collects mortgage payments from borrowers and applies the appropriate portions to principal, interest and any escrow accounts.

SERVICING   Back to top
The processing of payments, mailing of monthly statements, management and disbursement of escrow funds etc Typically carried out by the company you make payments to.

SHEATHING   Back to top
The covering on outside walls beneath the siding or exterior finish such as stucco.

SHEETROCK   Back to top
Also called drywall, the gypsum board commonly used on interior walls.

SILL PLATE   Back to top
The lumber used around the foundation to support exterior wall framing.

SILL COCK   Back to top
Garden hose pipe connection.

SINGLE-FAMILY PROPERTY   Back to top
A property designed and built to support the habitation of one family.

SOFFIT   Back to top
The underside of a cornice at the eaves.

STUCCO   Back to top
A textured plaster exterior (and occasionally interior) wall finish.

STUD   Back to top
A vertical framing piece in a wall, generally 2×4 lumber in interior walls.

SUBDIVISION   Back to top
A residential development that is created from a piece of land which has been subdivided into individual lots.

SUBJECT PROPERTY   Back to top
A term which indicates a property which is being appraised.

SUMP   Back to top
A basin into which water drains and from which the water is pumped out.

SURVEY   Back to top
A specific map of a piece of property which includes the legal boundaries and any improvements or features of the land. Surveys also depict any rights-of-way, encroachments or easements.

SWEAT EQUITY   Back to top
The method whereby a home owner develops equity in a property, either during the purchase or throughout its life, by personally constructing improvements rather than paying to have them built.

TAX-EXEMPT PROPERTY   Back to top
Any property which is not taxed.

TENANCY   Back to top
The right to occupy a building or unit.

TENANCY IN COMMON   Back to top
A form of holding title, whereby there are two or more people on title to a property, ownership does not pass on to the others upon the death of one individual.

THIRD PARTY ORIGINATION   Back to top
When a lender uses a third party to originate and package loans for sale to the secondary market (Fannie Mae, Freddie Mac).

TITLE   Back to top
A specific document which serves as proof of ownership.

TITLE COMPANY   Back to top
An organization which researches and certifies ownership of real estate before it is bought or sold. Title companies also act at the facilitator ensures all parties are paid during the real estate transaction.

TITLE INSURANCE   Back to top
A policy which insures a property owner should a prior claim arise against the property after the purchase has been completed. This also covers a lender should a question of ownership arise.

TITLE SEARCH   Back to top
The process whereby the TITLE COMPANY researches a properties title history and ensures that no outstanding claims exist.

TRANSFER OF OWNERSHIP   Back to top
Any means by which the ownership of a property changes hands.

TRANSFER OF TAX   Back to top
Taxes payable when title passes from one owner to another.

TRAP   Back to top
A bend in water pipe.

TRUSTEE   Back to top
A fiduciary that holds or controls property for the benefit of another.

TRUTH IN LENDING   Back to top
A federal law requiring full disclosure by lenders to borrowers of all terms, conditions and costs of a mortgage.

TUDOR   Back to top
A style of architecture typified by exposed stone, wood and brick construction. Similar in style to English manor homes.

UNDER IMPROVED LAND   Back to top
A piece of land which has been improved, but not to the full extent of its potential.

UNENCUMBERED PROPERTY   Back to top
Any property which has no outstanding claims or liens against it.

UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE (USPAP)   Back to top
Developed in 1986 by the Ad Hoc Committee on Uniform Standards and copyrighted in 1987 by The Appraisal Foundation, USPAP forms the guidelines followed by every licensed and certified real estate appraiser in the United States. The purpose of these Standards is to establish requirements for professional appraisal practice, which includes appraisal, appraisal review, and appraisal consulting. The intent of these Standards is to promote and maintain a high level of public trust in professional appraisal practice.

USEFUL LIFE   Back to top
The span of time over which a property can be used or can provide benefits to its owner.

VACANCY RATE   Back to top
The current percentage of vacant properties in a given area, regardless of why they are vacant.

VA MORTGAGE   Back to top
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

VARIANCE   Back to top
An exception to municipal zoning regulations granted for a specific time period to allow for non-conforming use of the land.

VENT PIPE   Back to top
A pipe allowing gas to escape.

VESTED   Back to top
Having the right to use a portion of a fund such as an IRA. Typically vesting occurs over time. If you are 100% vested, you have a right to 100% of the fund.

VETERANS AFFAIRS, DEPARTMENT OF (VA)   Back to top
The successor to the Veteran’s Administration, this government agency is responsible for ensuring the rights and welfare of our nation’s veterans and their dependents. Among other duties, the VA insures home loans made to veterans.

VOLTAGE   Back to top
An expression of electric force, or pressure. One volt being the force needed to move one amp against one ohm resistance.

WALK-THROUGH INSPECTION   Back to top
A process whereby an appraiser examines a property in preparation for estimating its value. Also, the process of inspecting a property for any damage prior to that property being bought or sold.

WARRANTY   Back to top
An affidavit given to stipulate the condition of a property. The person giving the warranty assumes liability if the condition turns out to be untrue.

WATT   Back to top
An expression of amount of electrical power. Volt times amps equals watts.

WEAR AND TEAR   Back to top
A term used to indicate the normal damage inflicted on a property through every-day use.

WEATHER STRIPPING   Back to top
Material used around windows and doors to prevent drafts.

WEEP HOLE   Back to top
Drainage hole that allows water to escape.

ZERO LOT LINE   Back to top
A municipal zoning category wherein a building or other fixture may abut the property line.

ZONE   Back to top
A specific area within a municipality or other jurisdiction which conforms to certain guidelines regarding the use of property in the zone. Typical zones include single-family, multi-family, industrial, commercial and mixed-use.

Speaking with a Mortgage Professional First

Should you talk to a mortgage professional before house hunting?

Absolutely! Even if you haven’t so much as picked out houses to visit yet, it’s important to see your mortgage professional first.

Why? What can we do for you if you haven’t negotiated a price, and don’t know how much you want to borrow?

When we pre-qualify you, we help you determine how much of a monthly mortgage payment you can afford, and how much we can loan you. We do this by considering your income and debts, your employment and residence situations, your available funds for down payment and required reserves, and some other things. It’s short and to the point, and we keep the paperwork to a minimum!

Once you qualify, we give you what’s called a Pre-Qualification Letter (your real estate agent might call it a “pre-qual”), which says that we are working with you to find the best loan to meet your needs and that we’re confident you’ll qualify for a loan for a certain amount.

When you find a house that catches your eye, and you decide to make an offer, being pre-qualified for a mortgage will do a couple of things. First, it lets you know how much you can offer. Your real estate agent will help you decide on an appropriate offer, but being pre-qualified gives you the confidence to know you can follow through.

More importantly, to a home seller, your being pre-qualified is like you walked into their house with a suitcase full of cash to make the deal! They won’t have to wonder if they’re wasting their time because you’ll never qualify for a mortgage to finance the amount you’re offering for the home. You have the clout of a buyer ready to make the deal right now!

You can always use the calculators available on our site to get an idea of how much mortgage you can afford — but it’s important to meet with us. For one thing, you’ll need a Pre-Qualification Letter! For another thing, we may be able to find a different mortgage program that fits your needs better.

How Much Home Can I Afford?

How much can you afford?

Deciding how much house you can afford is a personal decision. Many factors come into play. How much can I borrow?  How much can I put toward my down payment?  What size monthly payment can I afford? 

There are no black and white answers to these questions.  It’s a matter of give and take.  If you plan on a 30 year mortgage, you can probably make a lower down payment (or perhaps no down payment at all) and still manage the monthly payments.  If, on the other hand, you plan on a 15 year mortgage, you’ll probably want to make a larger down payment to keep your monthly payments in line with what you can afford. 

How large a down payment can I make?

Many buyers look at their cash on hand as their only source for their down payment.  This simply is not the case.  One way to fund or partially fund a down payment is by using a gift.   Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home.  

There are also down payment assistance charities that can help you.  And, of course, if you are selling a home, the equity you’ve built up can be applied to your down payment.

But these are not your only options.  We can help you explore all your down payment options, including low down payment and 100% mortgage financing options that might be right for you. 

What size monthly payment can I afford?

When determining what size monthly payment you can afford, you’ll want to consider what other monthly expenses you have.   Tangible expenses such as car payments, day care and utility bills, all play a role in how large a monthly payment you can afford. 

There are also the intangible expenses or lifestyle expenses that you’ll want to consider.  Things such as dining out, travel and when you buy your next car can affect how much you can afford.  Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment? 

How much can I borrow?

This is a question you’ll want to get answered before you begin your home search.   This is something that we’re here to help you with.  Our mortgage calculators will help you see how your down payment, monthly payment and the amount you borrow are all interrelated. 

We can answer any questions you may have about the mortgage process.  But the best way we can help is by getting you pre-qualified for a mortgage loan.  To get started, simply complete the form below to let us know a good time to contact you.  We look forward to helping you buy your dream home.

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