BY MIKE HEAYN Unscrambling jargon is the first step
Have you ever heard someone using real estate “lingo” and wondered what it really meant? Like all industries, real estate has specific vocabulary that can be daunting to a new participant. Many people do not understand real estate definitions and are too shy to ask what they mean. Real estate words are important, as they help explain terms, ideas and documents. Below, a few real estate definitions and examples are given: Spread: In real estate, it has nothing to do with what you put on your sandwich. A spread, also known as a margin, is the amount of profit a lender takes as part of a loan’s rate. For example, if a loan is tied to the prime interest rate, currently 8.25 percent, with a spread of 200 over, it simply means that the interest rate is 2 percent, or 200 basis points over the prime rate making the starting interest rate 10.25 percent.
Basis point: Also known as a BPT (pronounced “bip”) is 1 one hundredth of a percent. If a loan officer tells you that a loan is 100 basis points over the 10-year treasury, he is saying that the loan is 1 point (1 percent) over the treasury.
Point: Equals percent, plain and simple. If a realtor tells you a lender is charging 2 points for a loan, all she is saying is that the lender is charging 2 percent of the loan amount as a cost.
Loan origination fee: Have you ever heard a loan officer say that they can get you a loan for a zero-point loan origination fee? The loan officer is saying that lender will not charge you a fee for the loan at closing. How does a lender make money if the loan is zero points, or par, as it is known in the industry? A lender will do what is known as “pricing up the loan.” That means they will add basis points to the margin. For example, a lender charges no loan origination, but charges a 300 basis point margin instead of 200 basis point margin, making the interest rate 1 percent higher.
“What...”
“did my loan officer just tell me?” — you think to yourself
“With a rate of 125 BPTS over the 10 year T-bill and loan costs of zero points, plus title, escrow and junk fees I’d say you are getting a great deal.”
In lieu of: A popular term, means “instead of”or “in place of.” For example, in lieu of a lender application a 1003 form may be used.
Junk fees: Today, due to the Truth in Lending Act (TICA), lenders must disclose all fees. A generic term,“junk fees,” are used to categorize small fees such as a flood certificate fee, tax service fee, wire fee, etc. Many junk fees are county or nominal lender fees.
Escrow: A neutral third party that handles the collection of paper work and organizes the real estate transaction. Basically it works like this: When you are dealing with thousands or millions of dollars and documents that need to be recorded, you want to make sure a third party with no emotional or financial interest in the deal handles the transaction. Escrow plays the role of the neutral third party and makes sure the deal closes correctly.
Title insurance: Title insurance is the only insurance that protects you, and the lender, from any one making a claim on the property. For example if you buy a home and a year later someone knocks on your door telling you that he was a contractor who was not paid, title insurance will protect you against the claim and go to court and fight it for you. Most lenders require title insurance.
Real estate is not unlike other industries, which have commonly used terms. When dealing with a real estate transaction it is good to know what everything means, even if it means asking for help along the way. (Mike Heayn is a multi-family loan consultant. He (310) 428-1342, or e-mailed at For more information, log onto www.re101.net.)
Originally published in the Santa Monica Daily Press print edition on July 26, 2006. Read the original PDF.