Appreciation: When the value of a property increases over time. This may be due to the location, market changes, inflation, or a number of other factors. Inversely, depreciation refers to when a property’s value decreases over time.
Appraisal: A written estimate of a property’s value given by an individual who is authorized to do so. Appraisals can be conducted to determine a reasonable selling price or for tax purposes, and is based in part on the value of similar homes in the area.
Closing costs: There are two types of expenses that must be paid when closing the sale of a home—pre-paid and non-recurring. Pre-paid closing costs are recurring items that include homeowners insurance, association dues, and property tax. Non-recurring costs are one-time payments that include title company expenses, lender’s costs, and broker fees.
Common areas: This term is used in reference to townhomes or condominiums, and indicates the parts of the property that are managed by the homeowner’s association (or a planned unit development) and are to be shared by unit owners. Examples of common areas include parking garages and recreational facilities.
Equity: The difference between the market value of a home and the total amount of liens and mortgages still owed. As a homeowner, your home equity will increase as you make more mortgage payments or if the property value appreciates.
Fair market value: The lowest price that a seller would accept on their home, and the highest price that a buyer would be willing to pay.
Mortgage insurance: An insurance policy that can be public or private in which the borrower pays a higher interest rate that protects the lender against any losses due to the default of a mortgage loan. Mortgage insurance is often required when the down payment is below 20 percent.
PITI: Stands for principle, interest, taxes, and insurance. This is used by lenders to calculate your debt-to-income ratio.
Right of egress or ingress: The right to leave (or enter) the premises of a specified property.
Truth-in-Lending: Refers to the Truth in Lending Act of 1968 that requires lenders to provide written disclosure of all terms and conditions of a mortgage.