Real Estate Glossary
We get it. There are a lot of terms used in real estate. Let us help you better understand Wisconsin real estate with this Glossary of Real Estate Terms.
A
Acceleration Clause
An acceleration clause contract provision requires the borrower to repay all of their outstanding loan to a lender if certain requirements (outlined by the lender) aren’t met. Ultimately, the remaining balance of the loan is accelerated and due at the time the lender enforces this provision.
Acceptance
Acceptance in real estate is when a buyer and seller reach an agreement on the purchase of a property. The offer (or counteroffer) is accepted in writing and then delivered back to the other party. When this occurs, there is a binding contract.
Active Contingent
When a seller accepts an offer from a buyer, that offer is contingent upon the buyer’s ability to meet certain conditions before finalization of the sale. Contingencies may include the buyer selling their home, receiving mortgage approval, or reaching an agreement with the seller on the home inspection. Sometimes homes are listed as “contingent” and sometimes as “active.”
Adjustable Rate Mortgage (ARM)
The interest rate on an adjustable-rate mortgage changes periodically. The terms vary, so be sure to speak with a trusted lender about what an adjustable-rate mortgage would mean for your situation.
Agent
There are two main types of real estate agents involved in a real estate transaction: a buyer’s agent and a listing agent. Real estate agents are licensed by their state to help facilitate real estate transactions for their clients and customers.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) is the annual cost of a loan expressed as an interest rate. It often includes loan origination fees, most closing costs, mortgage interest, and any discount points.
Application Fee
An application fee is a fee a mortgage lender or broker may charge to apply for a mortgage to cover processing costs.
Appraisal
An appraisal is a professional analysis used to estimate the value of a property. This includes examples of similar properties. Lenders typically require an appraisal to make sure the loan amount requested is accurate.
Appraiser
An appraiser is a professional who analyzes a property, including examples of sales of similar properties to develop an estimate of the value of the property. The analysis is called an “appraisal.”
Appreciation
Appreciation is an increase in the market value of a home over time due to changing market conditions and/or home improvements.
Arbitration
Arbitration is a process where disputes are settled by referring them to a fair and neutral third party (an arbitrator). Parties opt for a private dispute resolution procedure instead of going to court, and they agree in advance to agree with the decision of the arbitrator.
Asbestos
Asbestos is a heat-resistant mineral that was once used in materials for housing insulation and fireproofing. It is no longer used in new homes because it has been linked to several serious diseases. Some older homes may still have asbestos in these materials.
Assessed Value
The assessed value is typically the value placed on a property for taxation.
Assessor
An assessor is a public official who calculates the value of a property for taxation purposes.
As-Is Condition
Generally, “as is” condition means the seller 1) will not complete a Real Estate Condition Report (RECR) or other seller condition reports, leaving the buyer primarily responsible for determining the condition of the property, and 2) will not repair the property or “cure” any defects. The seller usually wants the buyer to accept the home in its current condition.
Balloon Mortgage
A balloon mortgage is a mortgage with monthly payments often based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a specific period (typically 5 or 7 years). The mortgage may contain an option to “reset” the interest rate to the current market rate and to extend the due date if certain conditions are met.
B
Bankruptcy
Bankruptcy is a legal proceeding for people or businesses that are unable to pay their debts. Bankruptcy can severely impact your credit and your ability to borrow money.
Bridge Loan
A bridge loan is a temporary loan used while permanent financing is being secured. Bridge loans often have higher interest rates. They are most often used when a seller needs funds for a new property before selling their own home.
Broker
Real estate brokers are agents who continue their education, pass a broker’s license exam, and receive a broker license. Real estate agents are required to work under the supervision of a broker.
Buydown
A buydown is a mortgage-financing technique that lowers the buyer’s interest rate for anywhere from a few years to the lifetime of the loan. Usually, the property seller or contractor makes payments to the mortgage lender lowering the buyer’s monthly interest rates, which, in turn, lowers their monthly payments.
Buyer’s Market / Seller’s Market
The real estate market varies in whether it favors buyers or sellers. In a buyer’s market, conditions favor those looking to buy real estate. This happens when the supply of homes for sale exceeds purchase demand. During a seller’s market, the demand for housing exceeds the supply of available houses.
C
Clear Title
A “clear title” or “good title” doesn’t have any kind of lien or levy from creditors. It means there’s no question about legal ownership of the property, such as building code violations or bad surveys.
Closing
Closing is the final stage of a real estate transaction. The date is agreed upon when both the buyer and seller go under contract on a home. On the closing date, the property is legally transferred from seller to buyer.
Closing Costs
Closing costs are fees you pay when finalizing a real estate transaction for things like recording the deed, applying for a mortgage, appraising the property’s value, originating and underwriting the loan, and searching property records to ensure a clean title. Closing costs can vary between 2-6% of the purchase price of the home. These fees are typically paid on the closing date.
Closing Statement / HUD-1 Settlement Statement
A closing statement or HUD-1 Settlement Statement is a final listing of the closing costs of the mortgage transaction. It provides the sale price and down payment, as well as the total settlement costs required from the buyer and seller.
Commission
Commission is the fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns for helping clients buy or sell a house).
Commitment Letter
A commitment letter is a binding offer from your lender that includes the amount of the mortgage, the interest rate, and repayment terms.
Comparables
Comparables is an abbreviation for “comparable properties,” which are used as a comparison in determining the current value of a property that is being appraised.
Concession
Concession is something given up or agreed to in negotiating the sale of a house. For example, the sellers may agree to help pay for the closing costs.
Construction Loan
A construction loan is a loan for financing the cost of construction or improvements to a property. A lender disburses payments to the builder at periodic intervals during the construction process.
Contingency
If a property is contingent, or the contract contains a contingency, certain events must transpire or the contract can be considered null. For example, a contingency may be that the home must pass an appraisal. Another contingency could be that the buyer must sell their home by a certain date.
- Related: Read our Home Buyer’s Guide to see What Happens Before & After the Contingency Period
Conventional Mortgage
A conventional mortgage is a loan that is not insured or guaranteed by the federal government or one of its agencies, such as the Federal Housing Administration (FHA), the U.S. Department of Veteran Affairs (VA), or the Rural Housing Service (RHS).
Counter-Offer
A counter offer is an offer made in response to a previous offer. For example, after the buyer presents their first offer to purchase, the seller may make a counter-offer with a slightly higher sale price.
Credit
Credit is the ability of a person to borrow money, or buy goods by paying over time. Credit is extended based on a lender’s opinion of the person’s financial situation and reliability, among other factors.
Credit Score
A credit score is a number that predicts how likely you are to pay a loan back on time based on a statistical evaluation of information in your credit history. Credit scores usually range from 300 to 850. Within that range, scores can usually be placed into five categories: poor, fair, good, very good, and excellent.
D
Deed
A housing deed is a legal document that transfers a title from the seller to the buyer.
Depreciation
Depreciation is a decline in the value of a house due to changing market conditions or lack of upkeep on a home.
Discount Points
Discount points are also known as mortgage points. These are fees homebuyers pay directly to the lender at the time of closing in exchange for reduced interest rates.
Down Payment
A down payment is a portion of the price of a home that is not borrowed and paid in cash upfront. Down payments are usually between 3-20%, although some loans are offered with zero down payment.
E
Earnest Money Deposit
The earnest money deposit is money paid to confirm a contract. It’s a good-faith deposit to demonstrate your seriousness about buying a home. In our area, 1% of the house price is a typical earnest money deposit.
Easement
An easement is a right to the use, or access to, land owned by another.
Encumbrance
An encumbrance is any claim on a property by a party that is not the owner, such as a lien, mortgage, or easement.
Equity
Equity is the value of your home above the total amount of the liens against your home. For example, if you owe $100,000 on your house but it is worth $300,000, you have $200,000 of equity.
Escrow
Escrow is part of the homebuying process. It happens when a third party holds something of value during the transaction, such as the buyer’s earnest money check. When the transaction is complete (usually at closing), the third party releases those funds to the seller.
F
Fair Market Value
A property’s fair market value is its accurate valuation in a free and open market under the condition that buyers and sellers are knowledgeable about the asset, acting in their best interest, and free of undue pressure to complete the transaction.
Federal Housing Administration (FHA)
The Federal Housing Administration (FHA) is an agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.
FHA Mortgage
FHA stands for Federal Housing Administration. FHA mortgage loans have been around since 1934 and are meant to help first-time homebuyers. The FHA insures the loan, making it easier for lenders to offer the homebuyer a better deal, such as a lower down payment, lower closing costs, and lower qualifying credit score.
First Mortgage
A first mortgage is a mortgage that is the primary lien against a property.
Fixed-Rate Mortgage
A fixed-rate mortgage is a mortgage with an interest rate that does not change during the entire term of the loan.
Flood Insurance
Flood insurance is insurance that compensates for physical property damage caused by flooding. Any homeowner can buy flood insurance, however, it is required by lenders for certain properties located in high-risk flood zones.
For Sale By Owner (FSBO)
Homes listed for sale by owner (FSBO for short) are being sold without the help of a real estate agent.
Foreclosure
If homeowners can’t keep up with their mortgage payments, they could face foreclosure. The lender goes through a legal process to take and sell the property.
Forfeiture
Forfeiture is the loss of money, property, rights, or privileges due to a breach of a legal obligation.
G
General Contractor
A general contractor is a person who oversees a home improvement or construction project and handles various aspects, such as scheduling workers and ordering supplies.
H
Home Inspection
A home inspection is carried out by a trained and licensed home inspector to establish the condition of a property before or during a real estate transaction. An inspector will report on things such as the home’s foundation, the condition of the roof, and the home’s heating system. A home inspection is limited and meant to identify major issues that might affect the value of the home.
Home Warranty
A home warranty is a service contract that covers general wear and tear. Home warranties may cover things like home appliances, electrical, plumbing, and heating and air conditioning (HVAC) systems.
Homeowner’s Association
A homeowner’s association (HOA) makes and enforces rules for a subdivision, planned community, or condominium building.
Homeowner’s Insurance
When you buy a home, it’s necessary to also buy homeowner’s insurance to cover any losses or damages you might incur, such as natural disaster, theft, or damage. It also protects the homeowner from liability against accidents in the home or on the property. Insurance payments are sometimes included in your monthly mortgage payments.
I
Income Property
An income property is a real estate property bought or developed to produce income by renting, leasing, or price appreciation.
Interest
Interest is the cost you pay to borrow money. It is the payment you make to a lender for the money it has loaned to you. Interest is usually expressed as a percentage of the amount borrowed.
Interest Rate Cap
For an Adjustable-rate mortgage (ARM), the interest rate cap is a limit on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.
Investment Property
An investment property is a property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower’s primary residence.
L
Lien
A lien is a claim or charge on a property for repayment of a debt. With a mortgage, the lender has the right to take the title to your property if you don’t make the mortgage payments.
Loan Officer
Loan officers, or mortgage loan officers, assist homebuyers with purchasing or refinancing a home. Loan officers are often employed by larger financial institutions and help borrowers choose the right type of loan, complete their loan application, and communicate with appraisers and real estate agents.
Loan Origination
Loan origination is the process by which a loan is made, which may include taking a loan application, processing and underwriting the application, and closing the loan.
Loan Origination Fee
Loan origination fees are the fees paid to your mortgage lender for processing your mortgage application.
Lock-In Rate
A lock-in rate is a written agreement that guarantees a specific mortgage interest rate for a certain amount of time.
M
Manufactured Home
Manufactured houses are homes that are built in a factory in accordance with a federal building code administered by the U.S. Department of Urban Development, known as the “HUD code.” Manufactured homes are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under state law and may be financed with a mortgage. Homes that are not permanently affixed to a foundation are generally classified as personal property.
Mortgage
A mortgage is a loan that uses your home as collateral. This term may also be used to indicate the amount of money you borrow, with interest, to buy your house. The amount of your mortgage often is the purchase price of the home minus your down payment.
Mortgage Broker
A mortgage broker is an individual or firm that matches borrowers with potential lenders for the purpose of loan origination. Mortgage brokers typically take loan applications. They also may process loans and close the loan.
Mortgage Insurance / Private Mortgage Insurance
Mortgage insurance protects the lenders against losses caused by a borrower not paying their mortgage loan. Mortgage insurance is typically required if the borrower’s down payment is less than 20 percent of the purchase price. This may be paid to a government agency, such as the Federal Housing Administration (FHA) or a Private Mortgage Insurance (PMI) company.
Mortgage Lender
The mortgage lender is the lender providing funds for the mortgage. Mortgage lenders have specific borrowing guidelines to verify your ability to repay a loan. They set key aspects of your mortgage, such as the terms, interest rate, and repayment schedule.
Mortgage Rate
The mortgage rate is the interest rate you pay to borrow money to purchase your house.
Multifamily Properties
Typically, a multifamily property is a building with five or more dwelling units.
Multiple Listing Service (MLS)
A multiple listing service (MLS) is a database through which member real estate brokers and agents exchange information about properties for sale. The MLS for an area is usually operated by the local, private real estate association as a joint venture among its members to connect homebuyers and sellers.
O
Offer
An offer is a formal bid from a home buyer to a home seller to purchase a home.
Owner Financing / Seller Financing
Owner financing or seller financing is a transaction in which the property seller provides all or part of the financing for the buyer.
P
Pending
A home sale is considered “pending” if all contingencies have been met and the buyer and seller are waiting for closing. At this point, the sale is likely to happen, and it is unlikely anything will fall through.
Point
A mortgage point is one percent of the amount of the mortgage loan. For example, if a loan is made for $100,000, one point equals $1,000. It is essentially a form of prepaid interest you can choose to pay upfront in exchange for a lower interest rate and monthly payments (also known as “buying down” your interest rate).
Pre-Approval
Pre-approval is the process by which a lender gives a prospective borrower an indication of how much money he or she will be eligible to borrow when they apply for a mortgage. Lenders typically review an applicant’s credit history and verify income and assets.
Pre-Approval Letter
The pre-approval letter is a letter from a lender that indicates you qualify for a mortgage of a specific amount after your financial information has been verified. It is often valid for 60 or 90 days.
Pre-Qualification
Pre-qualification is a preliminary estimate by a lender of the amount it will lend a potential home buyer. This first step gives you an idea of how much you will qualify to borrow.
Pre-Qualification Letter
A pre-qualification letter is a letter from a mortgage lender that states a potential borrower is pre-qualified to buy a home based on information provided by that borrower, but it does not commit the lender to a particular mortgage amount. Pre-qualification letters typically do not hold as much weight as pre-approval letters.
Principal
The principal is the amount of money borrowed or the amount of the loan that has not yet been repaid to the lender. This does not include the interest you will pay to borrow that money.
Promissory Note
A promissory note is a written promise to repay a specified amount over a designated period of time.
R
Rate Lock
A rate lock allows borrowers to lock in an advantageous interest rate before a real estate transaction closes. A rate lock allows the borrower to lock in that interest rate for a specific period of time to protect against market fluctuations.
REALTOR®
A REALTOR® is a real estate professional who is a member of the National Association of REALTORS®. Most work under a broker or brokerage.
Residential Offer to Purchase
Sometimes referred to as an “Offer to Purchase” or “Purchase and Sale Agreement,” the residential offer to purchase is a document that details the price and conditions for a real estate transaction. These typically include information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, length of time the offer is valid, and any contingencies.
- The WB-11 Residential Offer to Purchase is a standard form used in Wisconsin
Radon
Radon is an odorless radioactive gas that can be formed in soil.
Real Property
Real property includes land and anything permanently affixed to land, such as buildings, fences, and trees.
Refinance
Refinancing is getting a new mortgage with all or some portion of the proceeds used to pay off the prior mortgage. Typically, the new loan has a lower interest rate.
Right of Egress or Ingress
The right of egress is a legal right to exit a property and the right of ingress is the legal right to enter a property. These may be used in rental or easement situations in which a tenant needs access to a shared driveway or the owner of a landlocked property needs access to their land.
Right of First Refusal
Right of first refusal is a provision in an agreement that requires the property owner to give another party the first opportunity to purchase or lease the property before it is offered for sale or lease to others.
Right of Survivorship
The right of survivorship is commonly used when there is joint ownership of a property. If a property has a right of survivorship designation, then the surviving owner, or owners, automatically receive the deceased owner’s share of the property.
Rural Housing Service (RHS)
Rural Housing Service is an agency within the U.S. Department of Agriculture (USDA), which operates programs to offer loans and grans to help rural communities and individuals. The RHS agency also works with private lenders to guarantee loans for the purchase of construction or single-family housing.
S
Second Mortgage
A second mortgage is a mortgage on a property that already has a mortgage. Second mortgages have a lien position subordinate to the first mortgage.
Secured Loan
A secured loan is a loan that is backed by property, such as a house, car, or jewelry, or financial assets such as stocks and bonds.
Secondary Offer
A secondary offer is a 2nd offer that is written on a property after an offer has already been accepted on that property. The first offer is called the primary offer and it stays primary until a contingency cannot be fulfilled on the contract by buyer #1.
Settlement Statement / Closing Disclosure
The settlement statement is a document that summarizes all costs and credits associated with a mortgage loan. This also is sometimes called a closing disclosure. This tells the buyer how much money will be due at closing, and to whom.
Short Sale
A short sale occurs when a homeowner sells their property for less than what’s owed on the mortgage. A short sale allows the lender to recoup some of the loan that’s owed to them, but these must be approved by the lender before the seller can move forward.
Single-Family Properties
Single-family properties are one-to-four-unit properties including detached homes, townhouses, condominiums, and manufactured homes affixed to a permanent foundation and classified as real property under applicable state law.
T
Taxes and Insurance
Taxes and insurance are funds that may be collected as part of the borrower’s monthly payment and held in escrow for the payment of state and local property taxes and insurance premiums.
Termite Inspection
A termite inspection is an inspection to determine whether a property has termite infestation or termite damage. In some areas, termite inspections are required before a property before it can be sold.
Title
The title is the right to and the ownership of, property. A title or deed is sometimes used as proof of land ownership.
Title Insurance
Title insurance protects lenders and homeowners against legal problems with the title.
Title Search
Title search is a review of public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.
Transfer Tax
Transfer tax is state or local tax payable when title to property transfers from one owner to another.
U
Underwriting
Underwriting is the process used to determine loan approval. It involves evaluating the property and the borrower’s credit and ability to pay the mortgage.
Unsecured Loan
An unsecured loan is a loan that is not backed by collateral.
V
Veterans Affairs
The U.S. Department of Veterans Affairs is a federal government agency that provides benefits and their dependents, such as health care, educational assistance, financial assistance, and guaranteed home loans.
VA Guaranteed Loan
A VA guaranteed loan is a mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs.
W
Walk-Through
A walk-through is a common clause in a real estate sales contract that allows the buyer to walk through and examine the property being purchased at a specified time before closing.
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