Reference
Glossary
The vocabulary of home equity, defined without jargon. Terms appear throughout our guides.
- Appraisal
- A licensed professional's formal opinion of a home's market value, typically ordered by lenders before approving a mortgage or equity loan.
- After-Repair Value (ARV)
- The estimated market value of a property once repairs and renovations are complete. Investors price as-is purchases backward from ARV.
- Cash-Out Refinance
- Replacing an existing mortgage with a larger new one and receiving the difference in cash. The whole balance takes on the new loan’s rate and term.
- Closing Costs
- Fees paid to complete a real estate or loan transaction — origination, appraisal, title, recording, and related charges. Often several percent of the loan or sale amount.
- Comparable Sales ("Comps")
- Recent sales of similar nearby homes used to estimate what a given home would sell for today.
- Deed
- The legal document that transfers ownership of real property. Forged deeds are the mechanism behind title fraud.
- Draw Period
- The years during which a HELOC borrower may draw funds, often around ten, usually with interest-only minimum payments. Followed by the repayment period.
- Equity
- The current market value of a home minus all debts secured by it. The owner’s stake.
- Foreclosure
- The legal process by which a lender takes and sells a home after sustained non-payment of a debt the home secures.
- HELOC (Home Equity Line of Credit)
- A revolving credit line secured by a home, drawn as needed during the draw period and repaid during the repayment period. Rates are usually variable.
- Home Equity Loan
- A lump-sum second mortgage repaid in fixed installments, usually at a fixed rate, while the first mortgage stays in place.
- Lien
- A legal claim against a property as security for a debt — mortgages, tax liens, contractor (mechanic’s) liens. Liens must generally be paid off when the home sells.
- Loan-to-Value Ratio (LTV)
- Total debt secured by a home divided by its value, expressed as a percentage. The key gauge of leverage: higher LTV means a thinner equity cushion.
- Reverse Mortgage
- A loan (commonly the federally insured HECM, generally for owners 62+) that pays a homeowner from equity with no monthly repayment; due when the owner sells, moves out, or dies.
- Second Mortgage
- Any loan secured by a home that sits behind the first mortgage in priority — home equity loans and HELOCs are the common forms.
- Title
- The legal right of ownership in a property. Title insurance protects against defects such as forged documents and undisclosed liens.
- Underwater (Negative Equity)
- Owing more on a home than it is currently worth, so a sale would not cover the debt.