Glossary

A federal law that outlaws discrimination by home sellers, landlords and their agents on the basis of race, color, national origin, sex, religion, family situation or physical handicap. Real estate professionals must abide by the law when advertising and showing homes. Buyers and renters should be aware of the rights they have under the law.

An agency that provides insurance of up to $100,000 per account in commercial banks and savings and loan associations. Federal insurance, up to $100,000 per account, provides depositors confidence in the banking system and each bank. Banks and savings and loan associations add liquidity to real estate.

A federally chartered bank that supplies credit to member banks. Most savings and loan associations are members of the FHLB system. Helps assure a flow of money to savings and loan associations, which provide money for local real estate needs.

Nicknamed Freddie Mac; buys mortgage loans primarily from savings and loan associations.

U.S. government agency that insures the repayment of real estate loans to lenders. The FHA is instrumental in assuring that financing is available for those of low and moderate income levels. Programs include single-family homes, condomimiums, apartments, nursing homes and new towns.

Agency that buys and sells existing residential mortgages; known as "Fanny Mae." FNMA significantly increases liquidity in the mortgage market. Without FNMA, it might be difficult for lenders who originate loans to find buyers for those loans. FNMA has standardized the loan submission and approval process and brought the mortgage finance business on par with other national credit markets.

A defunct agency that once insured deposits in federal savings and loan institutions.

Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during his or her life, and the property descends to heirs and legal representatives upon his or her death intestate. Also called fee absolute. When buying real estate, the seller can give only the rights he or she has. A buyer should determine whether complete ownership will be deeded.

A mortgage loan insured by the Federal Housing Administration (FHA). FHA loans generally reduce the required down payment to 3 percent or less but require FHA mortgage insurance, in addition to interest, at 1/2 percent annually.

A person who, on behalf of or for the benefit of another, transacts business or handles money or property belonging to another. Founded on trust; the nature of trust. A fiduciary or one in such capacity must act in the best interest of the party who has placed trust.

Banks, credit unions and savings associations. These institutions, along with mortgage bankers, are potential sources of mortgage loans.

Alternative ways to borrow money to purchase real estate. These include various types of first mortgage loans, combinations of loans, loan assumptions and seller financing. Not every borrower has the same financial situation. Financing options allow more ways to borrow money.

The important characteristics of a loan, such as interest rate, amount (or loan-to-value ratio), points, fees and maturity. If the interest rate is adjustable, additional terms are important, such as adjustment interval, index, margin and caps. Shopping for or negotiating financing terms can be as important as finding and bargaining for a house. Over time, these terms determine the total cost of the purchase.

A mortgage that has priority as a lien over all other mortgages. Generally, the first mortgage is the one recorded first. When a first mortgage is retired, existing mortgages of lower priority will move up. In case of foreclosure, the first mortgage will be satisfied before other mortgages.

A buyer who has never owned a home. First-time buyers often find the home especially difficult to finance. They usually have lower income and less cash than repeat buyers. Special government programs are available for buyers who have not owned a house in the previous three years. These programs feature lower interest rates or a lower down payment or both compared to typically available financing.

An interest rate on a loan that remains at its original level during the entire term of the loan. The two most common types of home loans are fixed-rate and adjustable-rate interest. Fixed loans usually originate at a higher rate than the initial rate on adjustable-rate loans.

A mortgage loan with a fixed interest rate. Fixed-rate mortgage loans are the predominant type of financing used to purchase homes. Many borrowers like the security offered by a loan with constant monthly payments (for principal and interest).

Personal property attached to the land or improvements that become part of the real estate. When buying or selling real estate, it is best to specify which appliances remain and which do not. Unless otherwise specified, fixtures remain with the property.

Bought by a property owner to cover the cost of property damage in the event of rising water from a river or stream. Coverage is encouraged by the federal government, though provided by private carriers.

An area prone to flooding, though it may occur only once in 100 or 500 years.

A legal procedure whereby property pledged as security for a debt is sold to pay the defaulted debt. Foreclosure gives a lender the right to sell property that was pledged for a debt. All parties to a mortgage contract should recognize its consequences.

Loss of money or anything of value because of failure to perform under contract.

The base upon which a house is built. Many modern homes are built on concrete slab foundations without basement or crawl space. A homebuyer should have a foundation inspected before closing. Cracked foundations are common and may require expensive repairs.

The intentional use of deception to purposely cheat or deceive another person, causing that person to suffer loss. Fraud is far worse than misrepresentation, which is the act of putting forth an incorrect or untrue statement. Consequently, punishment for fraud is more severe.

Describes property that has no liens, leases or other encumbrances.

An interest in real estate without a predetermined time span. For example, a fee simple or a life estate.

A standard measurement of land, applied at the frontage of its street line. Used for city lots of generally uniform depth. Prices often are quoted as the number of dollars per front foot.

Linear distance of a property along a street, highway, lake or river. Frontage on a well-traveled road or a waterway can add value to both residential and commercial property.

Loss of value from all causes within the property, except those resulting from physical deterioration. Examples include a poor floor plan or outdated plumbing fixtures.

See functional depreciation.