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By Jonathan Lansner
Like any other industry, real estate has its own lingo. Here’s a brief slice of the vocabulary needed to succeed in covering this beat.
Adjustable-rate mortgage: Interest rate and the resulting monthly house payments of these “ARM” home loans vary over time. Some ARMs offer teaser rates with initial, discounted payments. It was a key culprit in the real estate debacle as lenders allowed borrowers to get these loans despite the fact the borrower could not pay for the higher adjusted rate.
Annual Percentage Rate: Or the “APR,” this math measures of the cost of credit in terms of a yearly rate. It’s not just the stated interest rate, it includes the cost of acquiring that credit. Federal law details the formula for APRs quoted by lenders.
Appraisal: Third-party evaluation of the value of real estate typically done for application for a mortgage as part of a refinance or purchase transaction.
Appraised value: Value set on a real estate property and/or a home by a government agency that collects taxes based on a rate set against this valuation.
Cap rate: The “capitalization rate” is one estimate of potential income on a real estate investment based on the expected income that the property will generate. The math? Expected income generated divided by purchase price or value of the property.
Closing costs: Expenses involved in making a mortgage including the paying of points, or loan fee, to the lender for advancing the funds.Closed sale: These homes have formally changed ownership with a transaction recorded in government databases.
Commercial real estate: Big properties that are owned typically by investors seeking investment income. Property can run from office buildings to malls to hotels to factories and warehouses.
Commission: What is paid — typically a percentage of the property sales price – to a real estate professional for negotiating the transaction. Traditionally, homeseller pays. The rate is negotiable and for residential properties it can run up to 6 percent.
Comp: Information about transaction of like properties – or “comparative” sales – used to determines a property’s value by comparing similar properties recently sold.
Conforming mortgage: Home loan below the dollar limit for loans bought by federal mortgage guarantee agencies. Currently, that’s $417,000 in many municipalities. These mortgages have traditionally offered lower rates due to the government backing.
Credit score: Various credit trackers have scoring tools that measure a person’s likelihood of repaying their loans. This is a key ingredient in the loan application process.
Deed-in-Lieu:Used to avoid the pain and hassle of foreclosure, a strategy whereby owner simply turns ownership of a property to the lender to fulfill the debt.
Default: When borrower fall behind on real estate loan payments, lender will officially notify the borrower that they are in legal “default” of the terms of their mortgage. This typically leads to the start of the foreclosure process.
Delinquency: When a loan back by real estate has late payments.
Direct mortgage lender: Person or entity that makes home loans with their own funds of funds or money collected from investors.
Earthquake insurance: Policies bought – frequently through government-sponsored programs — to protect against the damage caused earthquakes. Such damages typically not covered by a standard homeowners policy.
Effective rent: Measure of what landlords effectively get from their tenants – the rate of rent asked for minus whatever concessions it takes to get those tenants into a rental unit or apartment.
Equity: Funds put in a real estate deal, such as a downpayment; or the value of the property above the amounted borrower against it.
Eviction: Legal process where owner of a property has a tenant, former owner or the like physically removed from the premises.
Existing home: Old or “used” homes vs. newly constructed residences. Many groups, notably National Association of Realtors, track sales of existing homes.
FHA: The Federal Housing Administration’s goal is to advance home ownership in the nation. A primary service is mortgage insurance to lenders to cover losses if borrowers defaults.
Flipping: Where an investor buys a property — perhaps improves it a little — and then resells it quickly in hopes of profit
Flood insurance: Policies bought – frequently through government-sponsored programs — to protect against the damage caused by rising water. Such damages typically not covered by a standard homeowners policy.
Foreclosure: The act of selling a property whose owner has not made their real estate loan payments. Often, a foreclosure results in the lender taking back the property but investors a private parties can go to the foreclosure auction and buy such a distress property.
FSBO or “fizz-bo”: Homes that “For Sale By Owner” are marketed by the owner with little or no help from professional real estate sales people.
Ginnie Mae: The Government National Mortgage Association or “GNMA” is a government-owned agency overseen by the U.S. Department of Housing and Urban Development. It pools mortgages backed by Federal Housing Administration and the Veterans Administration for resale to investors.
Government Sponsored Enterprise: Federally sponsored home-loan agencies –- Fannie Mae and Freddie Mac — that buy mortgages from private lenders; guarantee repayment; and then converts the loans into securities for sale to investors. This helps replenish to supply of money for real estate lending. Federal government seized both after they collapsed due to losses from the foreclosure wave created by real estate downturn.
Home Equity Line of Credit: Typically a second mortgage on a property where borrower can access a set amount of the excess value of the property above the amount owed on the first money. These loans usually are for a set amount that the borrower can choose to access and repay at their choosing over a 15-year period.
Homeowners Association: Often called “HOAs,” these legal entities – elected by owners of properties in a community — govern certain aspects of ownership within those communities. (These are frequently seen keeping the spirit of a master-planned community.) These homeowners associations collected dues and can legislate everything from the type of landscape homes use; to design and color of homes; as well as maintaining recreational facilities and landscaping in common areas in the community.
Homeowners’ policy: Insurance for property owners to protect the property against certain damages – fire, for example; theft; and for personal liability resulting from ownership of the property. Flood or earthquake damages is typically not covered.
In-fill project: Development space in highly developed communities. Often created by tearing down old structures. In such older, densely population markets, this is often the only way to get new housing or commercial projects developed.
Jumbo mortgage: Home loan that exceeds the dollar limit for loans bought by federal mortgage guarantee agencies. Currently, that’s $417,000 in many municipalities. Jumbo mortgages have traditionally offered higher rates due to the risk of to their larger size and the lack of government backing.
Loan modification: When a borrower a cannot afford a mortgage, they can approach a lender for new loan terms. If terms of the old mortgage are altered – changes in interest rate or size of amount owed – then borrower has acquired a “loan modification.” Several government programs have tried to motivate lenders to approve such actions.
Loan to Value Ratio: The often-called “LTV” is a percentage showing the amount borrowed vs. price paid or appraised value of a property being financed. In a purchase transaction, it is the reverse of the percent of down payment put forth by the buyer. (That is, 20 percent down equals 80 percent LTV.)
Master planned community: Neighborhood where a developer may plan out the entire community’s life — from housing, rental and owned; schools and parks; office space and shopping centers – from the start of the project. These projects often have common architecture, landscaping, etc. Famous master-planned communities are Irvine, Calif. and Columbia, Md.
Median price: This statistical benchmark measures the midpoint of a series of data points, such as the median selling price of homes in a given period. Unlike an average, it is not easily swayed by one unusually large or tiny price. Unfortunately, medians can be swayed by the change of mix of homes sold, such as more or less expensive homes being sold in a given period. National Association of Realtors tracks this.
Mortgage broker: Independent licensed person or agency that helps make mortgages. They typically offer funding from various third parties.
Mortgage interest deduction: This tax advantage allows the interest cost of a mortgage to be written off for income-tax purposes. That can reduce the cost of ownership. There is fear that elimination or scaling back of this deduction will hurt home prices.
Mortgage-backed securities: An “MBS” or mortgage bond are derived from pools of home loans that have been packaged into tradable securities. Once viewed as ultra-safe investments, the placement of risky subprime loans into these pools help create the recent real estate debacle.
Multiple Listing Service: The “MLS” is a broker-operated electronic service that tracks and publicizes properties for sale in a region. Thus, when a home is put on the market it is “listed.”
Negative amortization: The “neg am” loans allow borrowers monthly payments that due not cover the full interest and principal due to pay off the mortgage on time. That is, the loan balance grows rather than shrinks during a set period of a mortgage. These loans allowed borrowers to mistakenly buy more home than they could afford during the housing boom that collapsed into the real estate downturn.
Occupancy rate: A measure of how much of a commercial real estate property – or pools of such properties –is leased out. It’s one way to compare the tenant interest for a specific type of commercial real estate.
Pending sales: Home purchases that are under contract but not yet closed. These pending sales indicate the current level of homebuying activity. National Association of Realtors tracks this.
Points: Fees or other charges the borrower pays to lender complete a home loan that are a set percentage of the loan amount.
Pre-approved: A borrower who has gotten a lender to commit to lend a fixed loan amount based on a completed and approved loan application. Pre-approved borrowers still must acquire a property that meets various lender standards.
Property taxes: Government levies on the value of real estate, often based on a set percentage of the appraised value of the taxed property. These taxes are often major funding vehicles for local municipalities.
Raw land: Undeveloped property bought by speculators and/or developers for future projects.
Real estate agent: Salesperson for housing or other real estate. They need not be a Realtor.
Real estate investment trusts: These “REITs” or “reets” are pooled investments that owns commercial real estate from malls to office towers to storage units. Investors get income from rents collected by the REIT management – plus the hope of appreciation. REITs can be traded like stocks on Wall Street, though, some REITs are privately held.
Real estate owned: “REO” are properties that lenders have taken back from former borrowers and sit in their portfolio. Frequently, banks sell REO homes and other real estate at discounted prices.
Realtor: Specific trademarked professional designation from the National Association of Real Estate, a trade group for people who sell homes or other real estate.
Renters insurance: Policy bought by apartment dwellers or others who lived in rented properties to protect their own property against damage caused by fires, etc. Property owner landlord likely has insurance only to protect their structure from damage.
Reverse Mortgage: Home borrowings for seniors that converts equity in their home into available income – either monthly payments or line of credit. Ownership remains with the senior until death, when the lenders gets control of the home to be repaid.
Servicer: Slice of the mortgage business that collects mortgage payments from borrowers and advances those monies – minus a fee – to owner of the mortgage. This is frequently a different entity than the lender who made the loan.
Short sale: When homeowner is selling a home for less than the amount owed to the lender. These deals required banker approval and are very tricky to complete.
Subprime mortgage: Home loans made to borrowers with risky credit histories. Traditionally a niche business, it became a hugely popular way to borrow in the last decade and the risks involved eventually helped to create the real estate debacle.
Tear down: Situation where an existing building is bought for its land value and the new property owner plans to demolish it for a new structure.
Teaser rate: Discounted starting interest rate on an adjustable-rate mortgage, good for up to 10 years depending on the deal structure. When this rate ends, borrower has to pay the often-higher “fully indexed” rate set by a benchmark rate. Borrowers got in financial trouble in recent downturn when lenders did not check if borrower could afford payments after teaser rate ended.
Title insurance: Financial protection for both by buyer and seller of real estate to protect them from any legal challenges resulting from the transfer of the property where ownership or encumbrances later becomes in question.
Underwater mortgage: Situation will borrower owes more than a property is worth. These borrowers are thought to be more susceptible to foreclosure. This states is also called being “upside down” for being in “negative equity.”
Jonathan Lansner is The Orange County Register‘s business columnist and real estate blogger. Since 1986, he has covered the Orange County economy — and its real estate scene — as a reporter, editor and columnist for The Register. The “Lansner on Real Estate” blog was launched in March 2006.