Glossary of banking terms for new real estate agents

February 24, 2020

Mortgage applications recently reached the highest level since May 2013, according to a seasonally adjusted index from the Mortgage Bankers Association¹. As a real estate professional, you will be asked to wear many different hats, and financial translator may be one. With the recent rise in mortgage applications, consider spending study-time with the Top Producer® Glossary of Banking Terms for New Real Estate Agents!

ADJUSTMENT DATE

The day on which all calculations of interest, tax adjustments and utility bill adjustments (if applicable) are made to either the buyer or seller. This is usually (but not always) the same as the possession date.

ADJUSTABLE-RATE MORTGAGE

There are two types of conventional loans: the fixed-rate and the adjustable-rate mortgage. In an adjustable-rate mortgage, the interest rate can change over the course of the loan at five, seven, or ten year intervals. For homeowners who plan to stay in their home for more than a few years, this is a risky loan as rates can suddenly skyrocket depending on market conditions.

AMORTIZATION

This is the process of combining both interest and principal in payments, rather than simply paying off interest at the start. This allows you to build more equity in the home early on.

APPRAISED VALUE

An estimate of a property’s market value used by lenders to determine the amount of a mortgage.

ASSESSED VALUE

This is how much a home is worth according to a public tax assessor who makes that determination in order to figure out how much city or state tax the owner owes.

BUY-DOWN

When the seller reduces the interest rate on a mortgage by paying the difference between the reduced rate and the market value directly to the lender or buyer.

BUYERS AGENT

This is the agent who represents the buyer in the home-buying process. On the other side is the listing agent, who represents the seller.

CASH RESERVES 

The cash reserves is the money left over for the buyer after paying the down payment and closing costs.

CLOSING

Completion of the real estate transaction; the property’s deed is transferred from the seller to the buyer.

CLOSING COSTS

Additional expenses to the purchase of a property. Examples of closings costs include loan processing costs, title insurance, and excise tax.

COMPARATIVE MARKET ANALYSIS (CMA)

Comparative market analysis (CMA) is a report on comparable homes in the area that is used to derive an accurate value for the home in question.

CONTINGENCIES

The conditions that have to be met in order for the purchase of a home to be finalized. For example, there may be contingencies that the home pass an inspection by the bank. 

CONVEYANCE

The process of transferring the seller’s title to the buyer, usually undertaken by a conveyancing lawyer (or notary) acting for the buyer.

COUNTER OFFER

The offer made from the seller to the buyer altering terms & conditions to the original offer.

DEBT SERVICE RATIO

The percentage of a borrower’s income that can be used for housing costs. 

DEED

The legal document showing ownership of a property.

DUAL AGENCY 

Dual agency is when one agent represents both sides of a transaction, rather than having both a buyer’s agent and a listing agent.

EASEMENT

The legal right-of-way to use or cross another’s property; a common example being a utility company’s right to run wires or pipe across a property which they do not own.

EQUITY

The difference between the price for which a property can be sold and the mortgage(s) on the property; equity is the owner’s stake in the property. Put another way, equity is the difference between the fair market value of the home and the unpaid balance of the mortgage. If you have a $400,000 home, and you still owe $300,000 on it, you have $100,000 in equity.

ESCROW

Escrow is an account that the lender sets up to receive monthly payments from the buyer.

FORECLOSURE

The process by which the lender takes possession and ownership of a property when the borrower fails to meet the mortgage requirements.

GROSS DEBT SERVICE (GDS) RATIO  

The amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and strata fees when applicable).

HOME WARRANTY

This warranty protects from future problems to things such as plumbing and heating, which can be extremely expensive to fix.

INSPECTION

Home inspections are done to check that the house’s plumbing, foundation, appliances, and other features are up to code. Issues that may turn up during an inspection may factor into the negotiation on a final price. Failing to do an inspection may result in surprise costly repairs down the road for the home buyer

LIEN

The legal claim against a property filed to ensure payment of debt.

LISTING

A listing is any home that is for sale. A home is “listed” on a website or in a publication.

LISTING AGENT

This is the agent who represents the seller in the home-buying process. On the other side is the buyer’s agent, who represents the buyer.

MORTGAGE

The contract between a borrower and a lender; the borrower pledges the property as security to guarantee repayment of the mortgage debt.

MORTGAGE INSURANCE

Government-backed or private-backed insurance protecting the lender against the borrower’s default on high-ratio (and other types of) mortgages.

MORTGAGE - BLENDED

Equal or regular mortgage payments with both a principal and an interest component.

MORTGAGE BROKER

The broker is an individual or company that is responsible for taking care of all aspects of the deal between borrowers and lenders, whether that be originating the loan or placing it with a funding source such as a bank.

MORTGAGE - CONVENTIONAL

A first mortgage issued for up to 80% of the property’s appraised value or purchase price, whichever is lower.

MORTGAGE - HIGH RATIO 

A mortgage in which a borrower places a down payment of less than 20% of the purchase price on a home.

MORTGAGE - OPEN

A mortgage that can be prepaid or renegotiated without penalty.

MORTGAGE - VARIABLE RATE

A mortgage for which payments are fixed but whose interest rate changes in relation to fluctuating market interest rates.

MORTGAGE - VENDOR TAKE-BACK

When the seller offers to lend the buyer funds in order to help facilitate the purchase of the property.

OFFER

This is the initial price offered by a prospective buyer to the seller. A seller may accept the offer, reject it, or counter with a different offer.

PRE-APPROVAL LETTER

Before buying a home, a buyer can obtain a pre-approval letter from a bank, which provides an estimate on how much the bank will lend that person. This letter will help determine what the buyer can afford.

PRINCIPAL

The mortgage amount initially borrowed or the portion still owing on the mortgage; the money used to pay down the balance of the loan.

PRIVATE MORTGAGE INSURANCE

Private mortgage insurance (PMI) is an insurance premium that the buyer pays to the lender in order to protect the lender from default on a mortgage. These insurance payments typically end once the buyer builds up 20% equity in a home.

PROPERTY DISCLOSURE STATEMENT

Seller's are obligated to disclose any known defects to a potential buyer by way of this two page document. From zoning and water rights to plumbing, roofing, and structural damage, a property disclosure statement is designed to protect the buyer.

PROPERTY TAXES

A property tax or millage rate is a tax on the value of a property, usually levied on real estate. The tax is levied by the governing authority of the jurisdiction in which the property is located. This can be a national government, a federated state, a county or geographical region or a municipality.

REAL ESTATE AGENT

A real estate agent is a professional with a real estate license who works under a broker and assists both buyers and sellers in the home-buying process.

REAL ESTATE BROKER

A real estate broker is a real estate agent who has passed a state broker’s exam and met a minimum number of transactions. These brokers are able to work on their own or hire their own agents.

REFINANCING

Refinancing is when you restructure your home loan, replacing your old loan with an entirely new loan that has different rates and payment structures. The main reason people refinance their home loans is to get a lower interest rate on their mortgage, and therefore lower not only the monthly payment but also the overall debt owed.

STATEMENTS OF ADJUSTMENTS

Closing statements in a transaction which set out the sources of funds making up the purchase price, adjustments to and from the purchase price, the final amount required from the purchase and the amount due to the seller. Lawyers prepare statements for the seller and buyer.

STATE OF TITLE CERTIFICATE

A copy of the title which lists charges against a property -- e.g. liens, mortgages, rights-of-way, etc.

STRATA COMMON PROPERTY OR COMMON ELEMENTS

The portions of a strata development owned in common (shared) by the unit owners, e.g. pool exercise room, lobby, etc. A strata fee is charged to every unit owner for the use of the common property.

“SUBJECT-TO” CLAUSE

A statement of a condition to be fulfilled before the contract will become firm and binding; must include a specific deadline for removal.

TITLE

The legal evidence of ownership of a property.

TOTAL DEBT SERVICE (TDS) RATIO 

The maximum percentage of a borrower’s income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.

TITLE INSURANCE

Title insurance is often required as part of the closing costs. It covers research into public records to ensure that the title is free and clear, and ready for sale. If you purchase a home and find out later that there are liens on the home, you’ll be glad you had title insurance.

TITLE SEARCH

An examination of the ownership documents ensuring there are no liens or other encumbrances on the property and no questions regarding the seller’s ownership claim.

UTILITY TAXES

A tax on public service businesses; may include the supply of water, sewage, garbage disposal and natural gas.

WORKING WITH A REALTOR® BROCHURE

A brochure given to prospective buyers and sellers that explains the different kinds of agency relationships that may be entered into with a Realtor.

ZONING REGULATIONS

Guidelines set and enforced by municipal governments regulating how a property may or may not be used.

¹Mortgage Applications Increase in Latest MBA Weekly Survey, Mortgage Bankers Association,   Feb.05,2020. 

New agent looking for more free resources and tools? Check out the Top Producer® new agent blog section for more useful content. 

Top Producer® Systems has been a leading real estate CRM provider since 1982. Tens of thousands of agents and brokers use Top Producer® real estate software to help them manage leads and contacts, stay organized, and follow up with home buyers, sellers and owners. Learn more at topproducer.com

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