Value of Home Improvements

Glossary

Talking the talk in real-estate land

Z

Zestimate: A Zestimate® is Zillow's estimated market value of a home. We compute this figure by taking zillions of data points and entering them in a proprietary formula.

Zillow: An online real estate company based in Seattle offering innovative services to anyone interested in the real estate process. (Note: You're here; this is us!)

Zindex: The Zindex® is Zillow's housing index. It is the median Zestimate for a given geography during a given time period.

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A

Acre: A U.S. measure of land or sea equaling 4,840 square yards, or 43,560 square feet. It's roughly the size of one football field, without the end zones. (Note: Acre comes from the Anglo-Saxon aecer, meaning land, or anything sown. It was based on the amount of land that could be plowed by one man behind an ox in one day.)

Adjustable Rate Mortgage (ARM): A mortgage loan with payments usually lower than a fixed rate initially, but is subject to changes in interest rates. There are a variety of ARMs that can have an initial interest rate that lasts three to 10 years, adjusting annually thereafter. They are described as 3/1, 5/1, 7/1 and 10/1. A 3/1 ARM starts out with a low rate that lasts three years, then is adjusted annually. A 5/1 ARM has an introductory rate that lasts five years, and 7/1 and 10/1 ARMs have intro rates that last seven and 10 years. The monthly payment amount is usually subject to a cap.

Amortization: Repayment of a mortgage loan through regular monthly installments of principal and interest. At the end of the scheduled payments (e.g., monthly payments for 15 or 30 years), you will own your home.

Annual Percentage Rate (APR): Calculated by using a standard formula, the APR is expressed as a yearly rate (e.g., 8.107% APR) and includes the interest, points (discount and origination), mortgage insurance, and other fees. The APR on a mortgage will usually be higher than the stated interest rate because the APR includes fees and the interest rate doesn't.

Appraisal: Prepared by a qualified professional (an appraiser), it is an estimation of a property's fair market value. A lender usually requires an appraisal before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser: A qualified professional who uses his or her experience and knowledge to prepare the appraisal. An appraiser must have a state license before his or her appraisals may be used as the basis for a federally-backed mortgage.

Assessment: Value placed on real estate by governmental assessors as a basis for collecting property taxes.

Assumable mortgage: A mortgage that can be transferred from a seller to a buyer. The buyer then takes over payment of an existing loan.

Automated Underwriting System: A computerized system used to assess information provided by a borrower, plus public information about the borrower, to quickly determine whether a loan should be pre-approved.

Automated valuation models (AVM): Computer programs that use data to provide real estate market analysis and estimates of value. Real estate professionals use AVMs to support their work in determining an estimated market value of a property.

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B

Balloon mortgage: A mortgage that typically offers low rates for the first 3 to 10 years, at which point the principal balance needs to be paid in full. Borrowers usually sell before the balance is due or refinance the loan.

Bankruptcy law: A federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts.

Bathrooms: In real estate, bathrooms are computed based on the presence of a bath tub, shower, toilet and sink, and are totaled in quarter increments. For example, a quarter-bath is a sink or a toilet; a half-bath is a sink and toilet; a three-quarters bath is a sink, toilet and shower; and a full bath is a room with a toilet, sink and bathtub. A full bath may or may not include a shower.

Bedroom: Generally, bedrooms are defined as having a minimum of 70 square feet of usable space, with a window and closet. A bedroom may be below ground level. A room cannot be considered a bedroom if it is used to access another room, unless the other room is a bathroom.

Binder: An informal contract between a buyer and seller in purchasing real estate. It could include earnest money which would be forfeited if the buyer changes his or her mind.

Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Breach of contract: Violation of any of the terms or conditions of a contract without legal excuse.

Bridge loan: A loan that "bridges" the gap between the purchase of a new home and the sale of the borrower's current home. Usually up to 6 months long.

Building code: Regulations that determine the design, construction, and materials used in building according to local and area municipalities.

Buyer's agent: A real estate professional representing the buyer in the purchase of real estate.

Buyer's market: When the supply of homes on the market exceeds the demand provided by buyers in the market.

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C

Cap: A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Caveat emptor: From Latin, it means "buyer beware." In other words, it is up to the buyer to investigate the property and purchase at his or her own risk.

Certificate of title: A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner. Before the title is transferred at closing, it must be free and clear of all liens or other claims. Title searches also sometimes clarify issues such as easements. (Also see: Title)

Closing: Also known as settlement, this is the final phase of a real estate transaction when the property is formally transferred from the seller to the buyer. It is usually handled by a title company, though some states require an attorney at closing. Closing is when the buyer takes on any loan obligations and receives title from the seller.

Closing costs: Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing. These fees could include: Loan Fees, Cost of Abstract, Recording Deed and Mortgage, Documentary Stamps on Deed, Escrow Fees, Real Estate Commissions, Attorney's Fees, Title Insurance, Survey Charge, Appraisal Fees, and Inspection Fees.

COFI: Acronym for 11th District Cost of Funds Index, a common index to which loans are tied. The COFI is tied to interest paid on savings accounts.

Collateral: In real estate, property offered to secure [or offered as security for] repayment of a loan, though not with the intention of transferring property ownership.

Commission: An amount, usually a percentage of the property sales price, collected by a real estate professional as a fee for negotiating the transaction. It can also be a fee for other services such as showing a house, pricing a house, or advising on other real estate needs.

Comps or comparables: Comps are recently sold properties that are similar in size, location and amenities to the home for sale.

Comparative Market Analysis (CMA): Using comps, an analysis done to establish a home's market value.

Conditions: Provisions in a contract that some or all terms of the contract will be altered or cease to exist upon a certain event.

Condominium: A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. Condo owners also share financial responsibility for common areas and usually pay a monthly or annual fee.

Cooperative (Co-op): Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for a property lease.

Covenant: Also referred to as a restrictive covenant, it is an agreement, promise or obligation made in a deed that is inseparable from the property. The restrictions must be enforced by subsequent buyers of the property. Examples include: Maintaining a property in a reasonable state of repair; preserving a sight-line for a neighboring property; and not building on parts of the property.

Credit report: A detailed history of an individual's credit worthiness. This is used by lenders to gauge a potential borrower's ability to repay a loan.

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D

Deed: The document that transfers ownership of a property.

Default: The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Delinquency: A borrower's failure to make mortgage payments when they are due.

Discount point: Discount points are paid to a lender (usually at closing) to reduce the interest rate on a loan. Each point is equal to 1% of the total loan amount. (Also see: Points)

Down payment: The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. It is frequently 10%-30% of the home's purchase price.

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E

Earnest money: Money deposited by a potential buyer to show that he or she is serious about purchasing the home. Depending on the agreement, it becomes part of the down payment if the offer is accepted, may be returned if the offer is rejected, or may be forfeited if the buyer pulls out of the deal.

Easement: A right-of-way giving individuals other than the owner permission to use a property for a specific purpose.

Encumbrance: A legal right or interest that affects or limits complete ownership and control over a property. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, pending legal action, unpaid taxes or restrictive covenants. An encumbrance does not necessarily prevent transfer of the property to another, but may diminish its value. A title search will usually reveal the existence of encumbrances, and it is up to the buyer to determine whether he or she wants to purchase the property with the encumbrance.

Equity: Calculated by subtracting the amount still owed on the mortgage loan and any liens from the fair market value of the property. Equity grows as the mortgage is paid down and the property appreciates in value.

Escrow account: A neutral third-party account holding documents and money during a real-estate transfer until the sale is finalized. It can also be an account in which money for property taxes, homeowners insurance, and mortgage insurance is paid. (Note: The word "escrow" comes from the Middle English word "escrowl", which means "scroll" or parchment.)

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F

Fair Housing Act: A 1968 law that prohibits discrimination in all stages of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair market value: The theoretical price that a willing buyer and seller would agree to in an arms-length transaction.

Fannie Mae: A private, shareholder-owned company that purchases residential mortgages and converts them into securities for sale to investors. Fannie Mae supplies funds that lenders may loan to potential homebuyers. Its original name was Federal National Mortgage Association (FNMA), started by the federal government in 1938.

The Fed: The Federal Reserve System, a network of twelve Federal Reserve Banks and affiliated branches that serves as the central bank of the United States. "The Fed" also often refers to the Board of Governors of the Federal Reserve System. The Fed Board sets overnight lending rates for banks. This is what banks charge each other for borrowing money overnight, which they do when they need to replenish their reserves. The Fed uses these rates to control inflation: if it lowers these rates, more money flows in the form of loans to consumers and businesses; if it raises rates, there are fewer loans. Mortgage rates are not tied to the Fed's rates, but they are influenced by it.

Federal Housing Administration (FHA): The FHA was established in 1934 to advance homeownership opportunities for all Americans. It provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories.

FICO: An acronym for the Fair Isaac Corporation, the company that developed the most commonly used credit scoring system. Credit reporting agencies issue FICO scores to lenders who in turn use them to calculate the risk on a loan.

Fixed-rate mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms do not change.

Flood insurance: Covers a homeowner for property damage from natural flooding. If a home is located in an area prone to flooding, the lender will require flood insurance before approving a loan.

Foreclosure: The legal process by which a bank or lender sells or repossesses a mortgaged property because the borrower could not pay the loan.

Freddie Mac: Created in 1970 by the federal government as the Federal Home Loan Mortgage Corporation, it is a stockholder-owned corporation chartered by Congress to increase the supply of funds that mortgage lenders, such as commercial banks, mortgage bankers, savings institutions and credit unions, can make available to homebuyers and multifamily investors.

Fully amortized loan: If the payment schedule on a loan is met, the loan principal will be entirely paid off at the end of the term.

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G

Ginnie Mae: A government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment. Like Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders. Ginnie Mae stands for Government National Mortgage Association (GNMA).

Good faith estimate (GFE): A written estimate of all expected closing fees including pre-paid and escrow items as well as lender charges. It must be given to the borrower, by a potential lender, within three days after submission of a mortgage loan application. By law, brokers and lenders are required to make as accurate an estimate as possible.

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H

Half-bath: A bathroom with a toilet and sink, but no tub or shower.

Home inspection: An examination of the structure and mechanical systems by a professional to determine a home's safety, defects, and potential repairs.

Home warranty: Insurance offering protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance. Coverage extends over a specific time period and does not cover the home's structure.

Homeowner's association dues: Monthly or annual fees owners of homes — usually condos, townhouses or co-ops — pay to their homeowner's association for services it supplies to common areas such as lawn care, pool maintenance, snowplowing, and general building maintenance.

Homeowner's insurance: Provides damage protection for your home and personal property from a variety of events, including fire, lightning, burglary, vandalism, storms, explosions, and more. All homeowner's insurance policies contain personal liability coverage, which protects against lawsuits involving injuries that occur on and off your property. It is required by most lenders.

HUD: The U.S. Department of Housing and Urban Development. Established in 1965, HUD works to create a decent home and suitable living environment for all Americans by addressing housing needs, improving and developing American communities, and enforcing fair laws.

HUD-1 Statement: Also known as the "settlement sheet," it is an itemized listing of closing costs. The closing costs can include a commission, loan fees and points, and sums set aside for escrow payments, taxes and insurance. It is signed by both the buyer and the seller, who may share closing costs.

HVAC: Stands for Heating, Ventilation and Air Conditioning. It is the home's heating and cooling system.

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I

Index: A measurement used by lenders to determine changes to the interest rate charged on an adjustable rate mortgage.

Inflation: A rise in the general level of prices. Inflation is usually calculated as the annual change in the Consumer Price Index, also known as the retail price index.

Interest: A rate or fee charged for the use of borrowed money.

Interest rate: Usually expressed as a percentage, it is the amount of interest charged that determines a monthly loan payment.

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L

Leaseback: When one party sells a property to a buyer and the buyer immediately leases the property back to the seller. This is sometimes done when the initial buyer needs to free up cash invested in an asset to make other investments, but the asset is still needed to operate. The lessor benefits by getting stable payments for a period of time. This is also called "sale and leaseback."

Lease purchase: A contract that allows potential buyers to lease a home with an option to buy. The tenant/buyer pays the landlord/seller a sum that is equivalent to the rental amount, usually on a monthly basis. A portion of that monthly payment is then applied to the purchase price of the home. During, or at the end of the lease period, the tenant/buyer has exclusive rights to buy the home under the terms to which both parties have previously agreed.

Lien: A legal claim against a property that must be satisfied. A lien holder has the right to sell the property to obtain the money, or to recover the money when the property is sold.

Lender: An institution, such as a bank or broker, which loans money to be repaid with interest. Learn more about lenders.

Loan: Money borrowed that is usually repaid with interest.

Loan application: The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Loan-To-Value ratio (LTV): The loan amount divided by either the lesser of the sales price of a property, or its appraised value. The LTV ratio is used during the loan approval period to gauge risk: the higher the LTV ratio, the higher the interest rate, and vice versa.

Lock-in: A guarantee of an interest rate if a loan is closed within a specific time.

Loft: This pertains to usually older commercial buildings such as warehouses, factories, hospitals, schools or office buildings that are renovated and converted into apartments, condominiums, or even studios and offices. They usually have high ceilings (12-14 feet), oversized windows, and have an open floor plan.

Lot square footage: The size of a lot is usually expressed in square feet or as a percentage of an acre (e.g. 5,000 sq ft / 0.11 acres) and can include developed and undeveloped land. This figure is derived from assessor's records and is usually determined by survey when the plat was created.

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M

Market assessed value: It is the price the government tax assessor determines the property would sell for on the open market. This is based on the actual sales of similar properties.

Manufactured home: A single-family structure that is designed, constructed or manufactured in one location, then moved to a site to be assembled and placed on a foundation. This includes pre-fabricated and mobile homes.

Margin: Expressed in percentage points, the amount a lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Median price: The median price is one way to specify the midpoint of transaction prices in a period of time. Half of all transactions are above the median price and half are below. (Note: This differs from a mean average where the sum of the values is divided by the number of values (e.g. 2 + 3 + 7 = 12, then 12 ÷ 3 = 4. Four is the mean average of that set of numbers. Three is the median).

Mortgage: A lien against real estate given by a buyer or property owner to the lender as security for money borrowed. Essentially, it is a legal agreement that means if the borrower stops making payments, the lender can take possession of the house. (Note: Literal translation is "death pledge." It comes from Latin: mort ["death"] + gage ["pledge"]).

Mortgage banker: One who originates, sells, and services mortgage loans and resells them to secondary mortgage lenders such as Fannie Mae or Freddie Mac.

Mortgage broker: A firm that originates and processes loans for a number of lenders.

Mortgage insurance: A policy protecting lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Also known as PMI (Private Mortgage Insurance).

Mortgage Insurance Premium (MIP): Also known as Private Mortgage Insurance (PMI), a monthly payment by a borrower for mortgage insurance. This protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Mortgage insurance usually is required if the down payment is less than 20 percent of the sale price.

Multi-family home: Residential buildings with two to four dwelling units; i.e., duplexes, triplexes, fourplexes

My Estimator: "My Estimator" is a tool that you can use — for free — to create your own estimated market value of a home.

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N

Negative amortization: When the payment on a loan is less than the interest that accrues on the principal. The balance of interest owed is added to the total loan.

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O

Offer: Usually in writing, a potential buyer's expression of willingness to purchase a home at a specific price. If the offer is accepted as written, it becomes a binding contract. When the conditions of the offer are met (e.g. inspection, sale of another property, loan approval), the sale will be completed.

Origination: The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination fee: The fee a lender charges for processing a loan. This includes the cost to prepare loan documents, check a borrower's credit history, and inspect the property.

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P

Par rate: A rate of interest on a loan for which the lender does not charge (nor pay) points. An interest rate lower than the par rate would cost the broker money; an interest rate higher than the par rate would pay the broker a commission. [The par rate can vary, depending on the qualifications of a particular borrower.]

Plat: A map of a specific area of land (such as a town or subdivision) showing the boundaries of individual parcels, and usually showing parks, streets, and easements. Plats are mapped out by surveyors when land is subdivided and then filed with the county recorder's office. Individual parcels are identified in the county records by the name of the plat, and the block number and lot number shown on the plat map.

Points: A point equals 1 percent of a mortgage. Lenders sometimes charge "origination points" to cover expenses of making a loan. Also, borrowers sometimes pay "discount points" to reduce the loan's interest rate.

Pre-Approval: A commitment in writing from a lender that a borrower would qualify for a particular loan amount based on income and credit information.

Pre-qualify: When a lender informally evaluates a borrower's finances to determine how much he or she can afford to borrow and on what terms.

Prime Rate: The published interest rate at which banks make short-term unsecured loans to their best customers. The rate generally is the same across all major banks, and adjusts at the same time.

Principal: The original amount of a debt; a sum of money agreed to by the borrower and the lender to be repaid on a schedule. Interest is calculated as a percentage of principal.

Principal, Interest, Taxes, and Insurance (PITI): The four elements that make up a monthly mortgage payment. The principal and interest payments go towards repaying the loan, while taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

Private Mortgage Insurance (PMI): (See Mortgage insurance)

Principal: The amount of money borrowed from a lender, not including interest or additional fees.

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R

Real estate: Also known as real property. It is land, including all the natural resources and permanent buildings on it.

Real estate agent: An individual who has a current real estate license and is able to represent buyers and sellers in the purchase and sale of real property. An agent must be affiliated with a licensed real estate broker in order to practice as an agent.

Real estate broker: An individual who holds a real estate broker's license, and who may act as an associate broker representing buyers and sellers in the purchase and sale of real property. A broker may also create his own real estate brokerage. A broker can also be the actual company which has real estate agents and associate brokers working under their sponsorship.

Realtor™: A real estate agent or broker who is a member of the National Association of Realtors and its local and state associations.

Refinancing: The act of paying off one loan by obtaining another. Refinancing is generally done to secure better loan terms, such as a lower interest rate.

RESPA: The Real Estate Settlement Procedures Act is a 1974 law aimed at protecting consumers by requiring disclosures (including a Good Faith Estimate) and forbidding kickbacks for referrals among the service providers involved in the sale of a home. For example, a real estate agent may not receive a payment for referring the client to a particular title insurance company.

Roof type: This refers to the type of material from which a home's roof is made. Some examples include wood shake or shingle, asphalt, fiberglass, clay tile, or composition.

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S

Seller paper: When the seller, rather than a bank, provides financing by "carrying paper" for a buyer. This can be in the form of a real estate contract, or more typically, with a promissory note secured by a deed of trust on the property.

Seller's market: When the demand for homes in a given marketplace exceeds the supply of properties on the market.

Settlement: (See Closing)

Single family home: A residential structure designed as one dwelling; includes town homes that have shared walls, but independent access to the outside. (Note: Search results may include "miscellaneous" homes that may be single family, but are not classified as such.)

Square footage: Generally, only finished, heated space counts, such as the main finished floors, a finished basement, and/or a finished attic. A finished garage that is attached to and part of the residence may be included in this calculation as well. Square footage is computed by multiplying the length and width dimensions of a finished area.

Stick-built home: This is a home built piece-by-piece at the site.

Stories of a home: This is determined by adding up the horizontal levels of a building, which includes floors 1-4 and excludes finished and unfinished basements and finished and unfinished attics.

However, if a basement is "daylight" on more than two sides, it's considered to be a story of the house and not a basement.

Survey: A precise measurement of a parcel's legal boundaries, easements, encroachments, rights of way, improvement locations, contours.

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T

Tax appraised value: It is the value of real or personal property based on the valuation established by a government tax assessor.

Tax assessed value: This figure varies throughout the U.S. since it is determined by the taxing authority of the city, county, or state where you live. Sometimes it is the same as the market assessed value and other times counties will multiply the market value by an assessment ratio to get the tax assessed value, which is often lower than the market assessed value. For example, suppose where you live, homes are assessed at 100% of market value. If you have a home that has a market value of $150,000, your home will be assessed at $150,000. However, if your taxing authority assesses homes at 70% of value, your $150,000 market value home will have a tax assessed value of $105,000.

Tear-down: A property where the value of the lot as a potential site for a new home exceeds the value of the existing home on the lot.

Where an existing home that is considered more valuable demolished and a new one — possibly larger — is built in its place.

Title: The lawful ownership of particular property. (Also see Certificate of Title)

Title company: A company that examines and verifies titles to real estate and also may issue title insurance.

Title insurance: Insurance protecting the lender (or a homeowner) against any claims that could arise from arguments about ownership of the property. Should a problem arise, the title insurer pays any legal damages.

Title search: A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Three-quarters bath: A room with a toilet, sink and shower. It does not include a bathtub.

Total rooms: As defined by the local assessor's office, it is the number of rooms in the residence such as bedroom, bathroom, dining room, family room, kitchen, living room, attic, basement, and garage.

For homes with open floor plans, areas that have distinct and separate uses can be counted as a room. For example, a kitchen that flows into another larger room that has a dining room table may be considered two rooms; a "breakfast bar" or breakfast nook would not. Ancillary rooms such as basements, garages and sun rooms that are finished and enclosed can be counted as a room.

Truth-in-Lending: A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan's initial period and any adjustments to the remaining term of the loan.

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U

Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan. It includes a review of the potential borrower's credit history and a judgment of the property value.

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V

Value range: The value range on Zillow indicates the certainty of the Zestimate valuation. The wider the range, the less data used in developing a Zestimate; the narrower the range, the more accurate the Zestimate.

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Y

Yield Spread Premium: A percentage of the loan amount, the YSP is what a lender pays a broker for a loan with a higher interest rate, and lower fees.

Year built: The year a residence was built. Any work done to a residence would be considered a remodel unless it was torn down completely; in some cases, the assessor's tax records may show the original year of construction, as well as an "effective year built" showing the year of a substantial remodel. A tear-down would indicate a new year for a newly constructed home on the same lot.

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