Welcome to the world of Minnesota real estate, and all the terminology involved throughout the industry. Some of these real estate terms may be familiar, but a refresher is always a good idea. For those terms that don’t ring a bell, consider this a handy guide to navigating unfamiliar waters when it comes to understanding real estate terms, courtesy of the experts at The Antonov Group!

A

Addendum

A general term for a type of a legally binding addition/supplement to a purchase agreement (ex: contingency addendum, lead-based paint addendum, sold as-is addendum, etc.)

Adjustable Rate Mortgage (ARM)

One of the two most common types of home loan (for the other type, see ‘Fixed-Rate’ under F). This is a financing option that offers a home loan with an interest rate that varies over the life of the agreement contingent on the loan adjustment period.

Amortization

This goes hand-in-hand with phrases like ‘30-year-fixed’ and ‘15-year-payment-plan’, and is the predetermined period and process over which a loan (and its interest) is paid back.

Annual Percentage Rate (APR)

An APR defines the yearly cost of a mortgage loan, and is demonstrated by a percentage of the current loan balance compared to the overall loan costs.

Appraisal

Typically required by lenders, this is an assessment of a properties actual market value, and is typically carried out by an appraisal professional.

Appreciation

A potential home-seller’s favorite word! This means a home’s value has increased.

Assessed Value

Legal (assigned by local government) value primarily used to determine property taxes (also used for tax records, which are used by appraisers)

Assessment Fees

Changes, improvements or public services that can benefit a property will result in assessment fees, which are essentially a tax or charge on a property

Asset

An item or piece of property with value that is owned by a person

Association Fees

Mandatory fee that association members pay for management, upkeep and improvements for shared property.

Automated Underwriting

An electronic method that helps a lender assess loan applications, which contributes to the decision when it comes to loan eligibility

B

Buyer’s Agent

An agent (aka broker) who solely represents a buyer

C

Capacity

A formal projection of a homeowner’s capability to afford their mortgage payments as well as all living expenses through their earned income

Capital

Resources (primarily monetary) available for initial homeownership costs, especially closing costs and a substantial downpayment.

Carbon Monoxide

Gas that home furnaces and some other combustible appliances can produce. Odorless, colorless and deadly.

Charge-offs

Real estate term, used in accounting, indicating that creditor does not believe that collecting the remaining balance owed on an account is possible.

Clear Title

A title with no claims or liens against it

Closing Costs

At closing, buyers and sellers pay expenses/fees for services and the purchase, financing or sale of a property.

Commitment Letter

A major asset to potential home buyers, this is a formal offer via a lender that lays out approved terms for a mortgage

Comparable Market Analysis

A composition or written analysis of properties recently closed (sold) or currently on the market in a specific area.

Consumer Statement

An addition to a credit report that gives the consumer an opportunity to explain specific information that is reflected on their credit report.

Contingency

A addendum, clause or amendment added to an offer or purchase that lays out formal conditions to be satisfied within set period. If these conditions are not met, the agreement can be canceled.

Contract for Deed

An agreement in which a buyer purchases a property from a seller, but the seller retains legal rights and title for the home.

Covenant, Conditions and Restrictions (CC&Rs)

Legally enforceable regulations or agreements. It is mandatory for homeowners and future homeowners to follow CC&Rs.

Credit

Purchase services or products immediately with an agreement to produce payment at a later time.

Credit History

A person’s payment record for credit obligations, spanning 7-10 years, which is assessed and used to determine likeliness of debt repayment

Credit Report

Comprehensive record of a person’s current credit status and history (Home Buyer Tip: See our breakdown of What is a Mortgage, complete with tips to improve your credit score!)

Credit Reporting Agency (credit bureau)

Private company that keeps records based on collecting info regarding how individuals cultivate their credit

Credit Score

The actual number produced as a result of a credit report. This number demonstrates to lenders the likelihood of an applicant’s timely debt repayment.

Creditor

Company or person who is owed money

D

Debt-to-Income Ratio (back-end ratio)

Max % of a potential borrower’s GMI (gross monthly income) available for spending on mortgage payments and additional current debts.

Deed

A formal, legal document that officially transfers ownership of a home or property from seller to buyer

Default

Result of unmet financial obligations, which can lead to a lender foreclosing on the home.

Depreciation

Downward trend in property value (value decrease)

Discretionary Money

Funds available specifically NOT for expense payment

Down Payment

Buyer’s payment for property that is not financed as part of the mortgage loan

Dual Agent

Both buyer’s and seller’s agent in one transaction

E

Earnest Money

Buyer’s deposit submitted at time of signing purchase agreement, intended to provide seller assurance that the buyer intends to purchase the home

Eminent Domain

Legal government privilege allowing the government to seize privately owned property for use by public

Energy Audit

Calculates and establishes overall energy efficiency of the home, and projects potential improvements

Energy Efficient

Demonstrates property features such as insulation, high-efficiency furnace, etc. that will reduce heating or electrical power usage

Entry Cost

Buyer’s up-front expenses involved in home purchase, i.e. earnest money, down payment and general closing costs

Equity

Homeowners percentage that they actually own of their home. Found through subtracting mortgage loan balance from the estimated current market value

Escrow Account

Loan/mortgage servicer managed account, used to accept and hold monthly property tax, homeowner’s insurance and possible mortgage insurance payments

F

Fixed Expense

General expense that will either change by a minimal amount, or by no amount at all

Fixed Rate Loan

Mortgage defined by a rate of interest that does not change throughout full loan term. Both interest and principle are explicitly fixed

Flexible Expense

Controllable, adjustable expense (see opposite- fixed expense)

For Sale by Owner, aka FSBO

A broker and agent-free listing, listed solely by the homeowner

Foreclosure

Process in which the lender can legally take possession of/sell a property, in cases in which the borrower failed to comply with terms of the mortgage

G

Good Faith Estimate

Document that informs all parties of anticipated costs of closing

Grace Period

Absolute final date by which mortgage payment can be received by the lender, with any payment submitted after the date resulting in a late fee being charged

Gross Income

Pre-tax and or/deduction income amount

Ground Lease

Agreement that is legally binding, and defines responsibilities/roles of a homeowner and a Community Land Trust

H

Home Equity Line of Credit

Home equity loan type which permits the homeowner access to loan funds via credit card or check on an as needed basis

Home Equity Loan

Loan calculated based on the equity of a home, also taking into consideration the current market value of the home

Homeowners Association

Group of homeowners living inside a defined community, complex or neighborhood. The group makes maintenance choices and decisions regarding land/common area repair. HOAs often serves as enforcement for covenants and rules, i.e., CC&Rs

Homeowners Insurance

Protection insurance for a property, offering coverage options in event of many common disasters, liability and theft

Homestead

A classification of property tax which applies specifically to homes occupied by an owner. This tax will lower the amount of property taxes that they homeowner will owe.

Housing Ratio (specifically, front-end ratio)

The absolute highest percentage of the borrower’s gross monthly income (see: GMI) with which mortgage payments can be made

I

Identity Theft

Occurs when one individual attempts or succeeds in use of another person’s individual identifying info, including personal info such as social security number or even their name. This is done without the victim’s permission, and is used to commit crimes such as fraud

Installment Credit

An account classified as credit, which features a predetermined amount of payments

Insurance Policy

The actual written contract in which insurance coverage is detailed

Insurance Premium

Actual insurance policy price/cost

Interest

The fee incurred by the borrowing of money

Interest Rates

An amount of money, calculated by taking the percentage of the loan, that is charged for borrowing funds

J

Joint Tenancy

Ownership in which 2+ individuals own undivided, equal interest in a property

Judgement

An amount of money owed by the debtor to the lending party, which is determined by an official court, and can be part of a credit report as well as public record

L

Lead

Usually found in homes that predate 1978, this is a metal that can be hazardous and even the root of health problems if inhaled or ingested.

Lender

A bank or financial institution that extends an offer of credit upon agreement and signature of a contract legally binding the borrower to repayment of the debt. This is including interest, and is paid over the course of a set period of time.

Liability Protection

Insurance for property holders and members other members of the household, which covers against legal responsibility or general personal liability

Lien

The money claim that goes against a home or property. This is determined by a properties value, and is used as collateral or security to guarantee debt repayment

Loan Closing

A meeting during which the transfer of the ownership of a home takes place between the seller and buyer

Loan Servicer

Collector of general, common mortgage payments, in addition to managing accounts related to escrow

Loan-to-Value

Determined by evaluating the amount of the loan in comparison to the actual property value. The relationship observed will be used to calculate the down payment required.

M

Manufactured Home

Built from start-to-finish in a factory, this is a home that is actually delivered to the property.

Market Value

General estimate of actual sale price of a home, which relies heavily on the particular time of sale and state of the local market

Merged Credit Report

Assembled by combining the findings of all 3 main agencies that handle credit reporting

Modular Home

Manufactured in smaller sections in a factory (unlike a Manufactured home- see above), then assembled fully at the permanent home site.

Mold

Fungus that can be found growing on or amongst damp and/or decaying matter, especially in areas with little exposure to sunlight or air

Mortgage Insurance Premium

FHA-insured loans require this insurance, which is purchased by a borrower and provides lenders protection in the event of losses as a result of buyer payment default

Mortgage Life Insurance

A subset of life insurance which will pay the remainder of a mortgage or home loan in the event of the buyer’s death or disability

Mortgage Note

A document that is legally binding, which verifies that a buyer is obligated to mortgage loan repayment at a predetermined rate of interest and period of time

Mortgage Payment

A borrower’s payment, paid out to the servicer of the mortgage loan, which will include the interest, taxes, insurance and of course principal amount of the loan

N

Net Income

Once deductions and taxes have been calculated and removed, this is the income left over

New Construction

Brand new home, built very recently, with no previous residents

Nontraditional Credit

Includes payment records for consistent, timely bill payment. This can include payments for utility companies, past landlords and providers of childcare. Utilized in cases where a borrower may not possess a credit history with forms of credit or loans

O

Origination Fee

Loan processing fee, charged by the lender

P

Perils

Major events/occurrences that can result in property damage, which can include fires, storms, etc.

Periodic Expenses

Expenses paid at irregular intervals, sometimes every quarter or every year

PITI

The final sum of the principal, interest, insurance and property taxes included in a loan payment

Point

A single percentage of the amount of a loan (1%)

Police Power

A right afforded to the government, intended to oversee behavior as well as act in the interest of protecting the public’s welfare and safety

Preapproval

A statement guaranteeing that a lender will loan a set money amount to a prospective buyer, under the condition that they meet predetermined criteria, as well as choose a home within the lender’s requirements

Predatory Lending

Lenders seeking to mislead borrowers through tricking them into agreeing to loans with significantly unreasonable prices and terms

Prequalification

An amount calculated by a lender by assessing debt as well as gross income of a potential borrower. This will serve as an estimate of the amount the lender could provide the borrower for a home purchase

Principal

The loan amount or a loan’s outstanding balance calculated without adding charges such as interest, etc.

Private Mortgage Insurance

Purchased by a borrower, this insurance is sold by a private insurance company, and offers lender’s loss protection if the borrower cannot make their mortgage payments

Property Protection

Home insurance, which includes coverage for the home in addition to structures found on the property and household members’ personal property

Property Taxes

Government tax which directly funds public services, including police, public works maintenance and schools

Purchase Agreement

A contract that is signed by both seller and buyer, detailing conditions and terms of a property transaction and sale

Q

Qualifying Ratios

Lender guidelines implemented to find the amount of gross income that can be allocated to make payments for a mortgage

R

Radon

Radioactive gas associated with development of cancer. Radon has neither odor nor color, and becomes a leak-risk to homes once it has seeped from the earth.

Real Estate Agent or Salesperson

Professional holding a license which allows them to transact sale and purchase, or negotiation, of property

Real Estate Broker

Professional holding a state license which enables them to operate a business in real estate

Redemption Period

Length of time over a set period, determined by a state’s laws, throughout which property can rightfully be redeemed to prevent foreclosure. This requires paying interest and fees on a mortgage, as well as the sale price of the property.

Refinancing

Option in which a mortgage loan can be paid off using a different, new mortgage loan which is allocated to the same property on which the previous mortgage is held

Reserves

Funds which borrowers are required to allocate (set aside) by their lender. These are reserved to make payments on the mortgage, as well as address any repairs that may be needed

Revolving Credit

An agreement pertaining to credit, in which the borrower has the option to pay part of or the entirety of a loan or credit card’s balance. Credit becomes available to the buyer again as the debt is paid off

S

Seller’s (or Listing) Agent

The agent or broker acting as a representative exclusively for the seller

Seller’s Property Disclosure

Required by Minnesota state law, a seller completes this disclosure. The disclosure form establishes any facts that may affect a buyer negatively (of which a seller is aware) in regards to the property

Servicing Disclosure Statement

A lender document stating if the company predicts that a different company will be your loan servicer

Settlement Statement or HUD

A legal document that the Real Estate Settlement Procedure Act requires, which details charges and services in relation to a loan closing as well as property transfer

Sheriff’s Sale

An auction, accessible to the public, executed by a court officer or sheriff, at which borrower’s’ assets seized in a foreclosure are available for sale

Short Sale

Transaction in which a property’s sale price is less than the amount owed on its mortgage. In the event that an owner cannot pay their mortgage, lenders will sometimes agree to this option.

Site-Built Home

Constructed entirely onsite, this type of home is assembled piece-by-piece

Sole Ownership

A single owner holds a property

Spending Plan

A plan laid-out to track spending, manage money and attain goals financially

T

Tenancy-in-Common

2+ individuals have claim to a single property, with each party possibly owning different shares in the property

Term

The set amount of years for repayment of a loan

Title

Document that legally establishes property ownership rights

Title Examination

A search performed to evaluate public records, intended to very the seller’s legal ownership as well as determine if there are any claims or liens against a property’s on the current title

Title Insurance

Purchased in order to protect against loss, in the event that any sort of claim is made against the property’s title

Truth-in-Housing

A document detailing an inspection as well as a report of a property’s condition, which may be required based on the city or county in which the property falls. May be necessary before property is eligible for sale.

Truth-in-Lending Disclosure

Disclosure document detailing costs and accompany terms of the mortgage loan, in addition to APR (Annual Percentage Rate)

U

Underwriting

The analysis process that lenders use to evaluate borrower finances to determine whether a loan should be approved or denied

Universal Default

In the event that payment to one creditor is late, other creditors consider a consumer in default or late automatically

Unsecured Default

Debt with no collateral backing

W

Will

An individual’s legally binding document clearly stating the distribution of their possessions and property in the event of their death

Work Order

Repairs that must be completed, according to an appraiser, before a mortgage can be approved by a lender

Workout Agreement

A borrower and lender’s agreement in special circumstances, which prevents foreclosure by bringing the mortgage loan current