Glossary for Real Estate, Mortgage and Tax

• Amortization: The process of paying off a loan over time through regular payments. Each payment covers both principal and interest.

• Appraisal: A professional estimate of the market value of a property, usually required by lenders before approving a mortgage.

• As-Is: A term indicating that the seller will not make repairs or improvements to the property and that the buyer will accept it in its current condition.

• Broker: A licensed real estate professional who can represent buyers or sellers in a real estate transaction. Brokers often oversee real estate agents.

• Buyer’s Market: A real estate market condition where there are more homes for sale than buyers, typically resulting in lower home prices.

• Closing: The final step in a real estate transaction where all documents are signed, payments are made, and ownership of the property is officially transferred to the buyer.

• Closing Costs: Fees and expenses (beyond the purchase price) that buyers and sellers incur during the closing of a real estate transaction. These can include appraisal fees, title insurance, and attorney fees.
• Comparative Market Analysis (CMA): A report used by real estate agents to estimate a property’s value by comparing it to similar properties recently sold in the area.

• Contingency: A condition that must be met for a real estate contract to become binding. Common contingencies include inspections, appraisals, and financing approval.

• Deed: A legal document that transfers ownership of property from the seller to the buyer.

• Down Payment: The amount of money a buyer pays upfront toward the purchase of a home. It is typically expressed as a percentage of the total sale price.

• Earnest Money: A deposit made by a buyer to show their good faith and commitment to purchasing the home. The money is applied toward the purchase price if the deal goes through or may be refunded if certain contingencies aren’t met.
• Equity: The difference between the market value of a home and the outstanding mortgage balance. It represents the amount of the property that the homeowner truly "owns."

• Fair Market Value: The price a property would sell for on the open market, assuming both buyer and seller are knowledgeable and acting without pressure.

• FHA Loan: A mortgage insured by the Federal Housing Administration, often used by first-time homebuyers due to its lower down payment and credit requirements.

• Fixed-Rate Mortgage: A mortgage with an interest rate that remains constant for the entire term of the loan, resulting in stable monthly payments.

• Good Faith Estimate (GFE): An estimate provided by the lender of the total closing costs associated with buying a home. This form has been replaced by the Loan Estimate in recent years.

• Grantee: The person who receives the title to a property.

• Grantor: The person who transfers the title to a property.

• Home Inspection: An examination of a property’s condition by a licensed inspector to identify any issues or repairs that need to be made before the sale is finalized.

• Homeowner’s Association (HOA): An organization in a condominium or planned community that makes and enforces rules for the properties and residents. Residents typically pay monthly or annual fees to support the maintenance of common areas.
• Homeowner’s Insurance: A policy that protects homeowners from financial losses related to their home, such as fire, theft, or certain natural disasters.

• Interest Rate: The percentage charged by a lender for borrowing money, expressed as an annual percentage of the loan balance.

• Inspection Contingency: A clause in a real estate contract that allows the buyer to have a home inspected and possibly renegotiate or withdraw their offer based on the results.

• Joint Tenancy: A form of ownership where two or more people hold equal shares of a property, with rights of survivorship. If one owner dies, their share automatically passes to the surviving co-owner(s).

• Listing: A property for sale that is marketed by a real estate agent on behalf of the seller.

• Loan Estimate: A form provided by a lender that outlines the key terms, interest rate, and costs associated with a mortgage loan. Replaced the Good Faith Estimate (GFE).

• Loan-to-Value Ratio (LTV): A ratio comparing the loan amount to the value of the property, often used by lenders to assess risk. Higher LTV ratios may require mortgage insurance.

• MLS (Multiple Listing Service): A database of properties for sale that is accessible to real estate professionals. It allows agents to share information about properties and find homes for their clients.

• Mortgage: A loan used to purchase a property, with the property itself serving as collateral for the loan.

• Net Proceeds: The amount of money a seller receives from the sale of a property after deducting closing costs, mortgage balances, and other expenses.

• Offer: A formal bid from a buyer to purchase a property. It includes the proposed purchase price and terms of the sale, and it may be subject to certain contingencies.

• Open House: A scheduled period during which a property for sale is open for viewing by potential buyers without an appointment.

• Pre-Approval: A commitment from a lender that a buyer qualifies for a mortgage of a certain amount based on their financial situation. This is usually done before the buyer starts looking at homes.

• Private Mortgage Insurance (PMI): Insurance that protects the lender if a borrower defaults on the loan. It’s often required when the down payment is less than 20% of the property’s value.

• Principal: The original amount borrowed in a mortgage, excluding interest.

• Refinancing: The process of obtaining a new mortgage to replace an existing one, often to lower interest rates or change loan terms.

• Real Estate Agent: A licensed professional who represents buyers or sellers in real estate transactions.

• Right of First Refusal: A contractual right that gives a party (such as a tenant) the opportunity to purchase a property before the owner can sell it to someone else.

• Seller’s Market: A real estate market condition where there are more buyers than available homes for sale, typically resulting in higher prices and faster sales.

• Short Sale: The sale of a property for less than the balance owed on the mortgage, with the lender’s approval. This is often a last resort to avoid foreclosure.
• Survey: A map or drawing of the property that shows its boundaries and any structures, as well as any easements or encroachments.

• Title: The legal right to ownership of a property.

• Title Insurance: A policy that protects the buyer and lender against losses resulting from disputes over the property’s title.

• Transfer Tax: A tax imposed by the government on the transfer of ownership of real property from one person to another.

• Underwriting: The process a lender uses to assess the risk of providing a loan to a borrower. It involves verifying the borrower’s income, assets, debt, and the value of the property being purchased.

• VA Loan: A mortgage loan offered to veterans and active-duty service members that is guaranteed by the U.S. Department of Veterans Affairs. VA loans typically have favorable terms, including no down payment.

• Walkthrough: A final inspection of a home before the closing to ensure that the property is in the agreed-upon condition and that any required repairs have been completed.

• Zoning: Local laws that define how a property can be used (e.g., residential, commercial, industrial). Zoning ordinances regulate building size, location, and use.

This glossary covers many important real estate terms that buyers, sellers, and investors encounter during real estate transactions. Let me know if you need further clarification or additional terms!

• Amortization: The process of paying off a mortgage over time through regular payments. Each payment covers both principal and interest.
• Annual Percentage Rate (APR): A measure of the total cost of a mortgage, including interest and fees, expressed as an annual percentage rate. APR helps compare different loan offers.

• Balloon Mortgage: A mortgage with lower monthly payments and a large lump sum (balloon) payment due at the end of the loan term.

• Borrower: The person or entity that takes out a loan and agrees to repay it under the specified terms.

• Closing Costs: Fees and expenses that borrowers pay when finalizing a mortgage, including appraisal fees, title insurance, attorney fees, and taxes. Typically range from 2% to 5% of the loan amount.

• Collateral: The property being purchased serves as collateral, meaning it can be seized by the lender if the borrower defaults on the loan.

• Conventional Loan: A mortgage that is not insured or guaranteed by a government entity such as the FHA, VA, or USDA. These loans typically require a higher credit score and larger down payments.

• Debt-to-Income Ratio (DTI): A ratio that compares a borrower's total monthly debt payments to their gross monthly income. Lenders use DTI to determine a borrower’s ability to manage monthly payments.

• Down Payment: The portion of the home’s purchase price paid upfront by the buyer. A larger down payment typically results in lower monthly mortgage payments.

• Earnest Money: A deposit made by the buyer when submitting an offer on a home to show good faith. If the deal falls through, the buyer may lose the earnest money, depending on the circumstances.

• Escrow: An account used to hold money for taxes and insurance that is paid as part of the borrower’s mortgage payment. Lenders use the funds in escrow to pay property taxes and insurance premiums on the borrower’s behalf.

• FHA Loan: A government-backed loan insured by the Federal Housing Administration (FHA), typically requiring a lower down payment and lower credit score than conventional loans.

• Fixed-Rate Mortgage: A mortgage with an interest rate that remains the same throughout the life of the loan, resulting in consistent monthly payments.

• Good Faith Estimate (GFE): A document that provides an estimate of closing costs for a mortgage loan. It has since been replaced by the Loan Estimate.

• Grantor/Grantee: The grantor is the person who transfers ownership of a property, while the grantee is the person who receives it.

• Home Equity: The difference between the current market value of the home and the outstanding mortgage balance. Home equity increases as the borrower pays down the mortgage or if the home’s value appreciates.

• Homeowners Insurance: A policy that protects the homeowner and the lender against financial loss from events like fire, theft, or natural disasters.

• Interest Rate: The percentage charged by the lender for borrowing money. This can be either fixed or adjustable, depending on the loan type.

• Interest-Only Loan: A mortgage where the borrower only pays interest for a specified period, after which they begin paying both principal and interest.

• Jumbo Loan: A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. These loans often require larger down payments and higher credit scores.

• Loan Estimate: A document provided by the lender that outlines the key terms and estimated costs of the mortgage, including interest rates, fees, and closing costs. It helps borrowers compare loan offers.

• Loan-to-Value Ratio (LTV): The ratio of the loan amount to the appraised value of the property. A higher LTV may require private mortgage insurance (PMI) and indicates more risk for the lender.

• Mortgage: A loan used to purchase a property, with the property itself serving as collateral. The borrower agrees to repay the loan over time with interest.

• Mortgage Insurance: Insurance required by lenders to protect against loss if the borrower defaults on the loan. It is typically required for loans with a down payment of less than 20%.

• Mortgage Note: A legal document that outlines the terms of the mortgage, including the loan amount, interest rate, repayment schedule, and the borrower’s promise to repay.

• Points: Fees paid to the lender at closing to lower the interest rate on a mortgage. One point equals 1% of the loan amount.

• Pre-Approval: A formal evaluation by a lender that determines how much a borrower can afford to borrow based on their financial information. Pre-approval is stronger than prequalification and can give buyers an advantage when making an offer.

• Principal: The original amount of money borrowed for a mortgage, excluding interest.

• Private Mortgage Insurance (PMI): Insurance that protects the lender if the borrower defaults on a mortgage. It is typically required if the borrower’s down payment is less than 20% of the home’s value.

• Rate Lock: An agreement between the borrower and lender that guarantees a specific interest rate for a set period, protecting the borrower from rate increases during the mortgage process.

• Refinancing: The process of replacing an existing mortgage with a new one, typically to lower the interest rate, reduce monthly payments, or change the loan term.

• Second Mortgage: A mortgage taken out on a property that already has an existing mortgage. The second mortgage is subordinate to the first, meaning it is repaid after the first mortgage in the event of default.

• Seller’s Market: A real estate market condition in which demand for homes exceeds supply, often resulting in higher home prices and more competitive bidding.

• Title: The legal document that proves ownership of a property.

• Title Insurance: Insurance that protects the buyer and lender against losses from disputes over property ownership or legal defects in the title.

• Truth-in-Lending Disclosure (TIL): A document that outlines the terms of the mortgage, including the interest rate, APR, and total cost over the life of the loan.

• Underwriting: The process by which a lender evaluates a borrower’s financial information, including income, credit history, and debt, to determine if they qualify for a mortgage.

• VA Loan: A mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, and certain military spouses. VA loans often require no down payment and no private mortgage insurance.

• Walkthrough: A final inspection of a property by the buyer before closing to ensure that the home is in the agreed-upon condition and that any necessary repairs have been made.

This glossary covers the key mortgage terms you and your clients may encounter during the home buying process. Let me know if you'd like to expand on any terms or need further clarification!

• Adjusted Gross Income (AGI): Your total gross income from all sources, minus specific deductions, such as student loan interest, retirement contributions, and certain health insurance premiums. AGI is used to determine your eligibility for various tax credits and deductions.
• Alternative Minimum Tax (AMT): A parallel tax system designed to ensure that high-income taxpayers pay at least a minimum amount of tax, even if they qualify for many deductions and credits.

• Basis: The original value or purchase price of an asset, used to determine capital gains or losses when the asset is sold.
• Business Expenses: Ordinary and necessary costs incurred in running a business, which can be deducted from business income to reduce taxable income.

• Capital Gains: The profit from selling an asset, such as stocks, real estate, or other investments. Long-term capital gains (for assets held for over a year) are taxed at a lower rate than short-term capital gains (for assets held for a year or less).
• Child Tax Credit (CTC): A tax credit for eligible taxpayers with qualifying children under 17, designed to reduce the tax liability for families.
• Credits: Tax credits reduce your tax liability directly, dollar for dollar, unlike deductions, which reduce taxable income. Examples include the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC).

• Deduction: An amount that reduces your taxable income. There are standard deductions and itemized deductions. Common deductions include mortgage interest, charitable contributions, and medical expenses.
• Dependent: A person, usually a child or a relative, for whom a taxpayer provides financial support and can claim as an exemption or for specific tax credits.

• Earned Income: Income derived from active work, such as wages, salaries, tips, and self-employment earnings. It differs from investment or passive income.
• Earned Income Tax Credit (EITC): A tax credit for low- to moderate-income working individuals and families. Eligibility depends on income, marital status, and number of children.
• Estimated Tax Payments: Quarterly tax payments made by self-employed individuals, independent contractors, and others who don’t have taxes withheld from their income throughout the year.

• Filing Status: A category that defines your tax-filing requirements and determines your standard deduction amount and tax brackets. Common statuses include Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er).
• Form W-2: A form provided by employers to employees that shows total income earned and taxes withheld during the year. Employees use this form to file their income taxes.
• Form 1099: A form used to report income from sources other than wages, such as freelance earnings, interest, dividends, and other non-employee compensation.

• Gross Income: The total income you receive before any taxes, deductions, or credits are applied. Gross income includes wages, interest, dividends, and other forms of compensation.

• Health Savings Account (HSA): A tax-advantaged account used to pay for qualified medical expenses. Contributions to an HSA can reduce taxable income, and earnings in the account grow tax-free.

• Income Tax: A tax imposed by federal, state, or local governments on income earned by individuals or businesses. In the U.S., individuals pay income tax to the IRS and often to their state government.
• Itemized Deductions: Specific expenses that can be deducted from taxable income if they exceed the standard deduction. Common itemized deductions include mortgage interest, state and local taxes, and medical expenses.

• Local Taxes: Taxes imposed by local governments, such as city or county taxes, that can include property taxes, school taxes, and income taxes.

• Marginal Tax Rate: The tax rate applied to the last dollar of your income. As income increases, it may be taxed at progressively higher rates under a progressive tax system.
• Medicare Tax: A federal tax that funds the Medicare program, part of the Social Security system. Employees and employers each pay 1.45% of earnings, and higher-income earners may pay an additional 0.9%.

• Net Income: Your total income after all deductions, exemptions, and credits have been applied, representing the amount subject to income tax.

• Payroll Taxes: Taxes employers withhold from employees’ paychecks to fund federal programs such as Social Security and Medicare. Self-employed individuals pay the full amount of payroll taxes, while employees share this cost with their employers.
• Personal Exemption: A set amount taxpayers used to be able to deduct for themselves and dependents, though the personal exemption was eliminated starting in tax year 2018 under the Tax Cuts and Jobs Act.

• Qualified Dividends: Dividends that are taxed at the lower long-term capital gains tax rate rather than the higher ordinary income tax rate. Dividends must meet specific IRS criteria to qualify.

• Refund: The amount of money returned to the taxpayer by the IRS if the taxpayer overpaid taxes throughout the year through withholding or estimated payments.
• Roth IRA: A type of retirement account where contributions are made with after-tax dollars, and qualified withdrawals during retirement are tax-free.

• Standard Deduction: A fixed dollar amount that reduces your taxable income, available to all taxpayers who do not itemize deductions. The amount varies based on filing status.
• Self-Employment Tax: A tax paid by self-employed individuals to cover both the employer and employee portions of Social Security and Medicare taxes.

• Taxable Income: The amount of income used to calculate taxes, determined by subtracting deductions and exemptions from gross income.
• Tax Bracket: The range of income taxed at a specific rate under a progressive tax system. Higher income levels are taxed at higher rates.
• Tax Credit: A dollar-for-dollar reduction of your tax liability. Unlike deductions, which reduce taxable income, credits reduce the actual tax owed. Some credits are refundable, meaning they can generate a refund even if you owe no taxes.
• Tax Deduction: A reduction in taxable income based on specific qualifying expenses, such as student loan interest, charitable donations, and mortgage interest.

• Unemployment Compensation: Benefits paid to individuals who have lost their job. Unemployment compensation is generally considered taxable income.

• Withholding: The portion of an employee’s wages that an employer withholds and sends directly to the federal, state, or local tax authorities as a prepayment of the employee’s income tax.

• Year-to-Date (YTD): The period from the beginning of the year up to the current date, often used to report total income, deductions, or contributions for tax purposes.

This glossary covers important terms that are essential for understanding the income tax process. If you'd like further explanation on any of these terms or need to expand the glossary, feel free to ask!