Real Estate Terms

Real Estate Terms

A

Acceptance - A buyer's or seller's agreement to enter into a contract.

Additional Principal Payment - A payment made by a borrower of more than the scheduled principal amount due, in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Adjustable Rate Mortgage (ARM) - An ARM is a mortgage with an interest rate that adjusts periodically to reflect changes in market conditions. Your mortgage payments are adjusted up or down (usually on an annual basis) as the interest rate changes.

Amenity - A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction, although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views, etc. Man-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

Amortization - The gradual repayment of a home loan by periodic installments.

Amortization Schedule - A timetable for payment of a home loan. An amortization schedule shows the amount of each payment applied to interest and principal and the remaining balance after each payment is made.

Amortization Term (period) - The amount of time it takes to pay off the loan. The amortization term is expressed as a number of months. For example, for a 30 year fixed rate loan, the amortization term is 360 months.

Amortize - To repay a loan with regular payments that cover both principal and interest.

Annual Percentage Rate (APR) - This refers to the interest rate that reflects the actual cost of a mortgage as a yearly rate. Because APR includes points and other costs associated with the mortgage, it's usually higher than the advertised simple interest rate. The APR more accurately reflects what you'll be paying and allows you to compare different mortgages based on actual costs.

Application - A form to be completed by a home loan applicant with the lender's assistance to provide pertinent information about a prospective borrower's employment, income, assets, debts and other financial information, about the purpose of the home loan.

Application Fee - A fee usually paid at the time an application is given to a lender for helping to complete and review an application.

Appraisal - An estimate of the value of a home, made by a professional appraiser.

Appraised Value - The dollar figure for a property's estimated fair market value, based on an appraiser's knowledge, experience, and analysis of the property and comparable properties near by.

Appraiser - A person qualified by education, training, and experience to estimate the value of real property.

Appreciation - An increase in the value of a property due to changes in market conditions or other causes. Inflation, increased demand, home improvement, and sweat equity are all causes of appreciation. The opposite of depreciation.

Assessed Value - The value used to determine property taxes, based on a public tax assessor's opinion.

Assessment - The amount of tax due to local government. May also refer to the amount due to local government or to common owners of a property (e.g., a homeowner's association) for a special payment to cover expenses for improvements or maintenance, such as new sewers or roads.

Assessor - A public official who establishes the value of a property for taxation purposes.

Asset - Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assumable Loan - A home loan that allows a new purchaser of the home to take over ("assume") the loan obligations of the seller when a home is sold.

B

Balance Sheet - A financial statement that shows an individual's assets, liabilities, and net worth as of a specific date.

Bankrupt - A person, firm, or corporation that is financially unable to pay debts when due. The debtor seeks relief through a court proceeding to work out a payment schedule or erase debts.

Bankruptcy - A proceeding in a federal court in which a debtor who is financially unable to pay debts when due seeks relief to work out a payment schedule or erase debts.

Bill Of Sale - A written document that transfers title to personal property from seller to buyer.

Bond - An interest-bearing certificate of debt with a maturity date. A real estate bond is a written
obligation usually secured by a mortgage or a deed of trust.

Breach - A violation of terms of any legal obligation.

Break Even Point - Point at which total income equals total expenses.

Bridge Loan - A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower's present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.

Broker - A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction.

Budget - A detailed plan of income and expenses expected over a certain period of time.

C

Capital - (1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

Cash Available For Closing - Borrower funds available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from certain sources, borrower's cash available for closing does not include cash reserves or money from other sources.

Cash-Out Refinance - A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. The borrower effectively borrows against the home equity.

Certificate Of Title - A statement provided by an abstract company, title company, or attorney stating who holds title to real estate based on the public record.

Chain Of Title - The history of all of the documents affecting title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Clear Title - A title that is marketable and is free of liens or disputed legal questions as to ownership of the property.

Closing - The conclusion or consummation of a transaction. In real estate, closing includes the delivery of a deed, the signing of notes and security instruments, and the disbursement of funds necessary to the sale or loan transaction. Also referred to as settlement.

Closing Costs - Various expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include items such as broker's commissions, discount points, origination fees, attorney's fees, taxes, title insurance premiums, escrow agent fees, and charges for obtaining appraisals, inspections and surveys. Closing costs will vary according to the area of the country.

Closing Statement - An accounting of funds given to both buyer and seller before real estate is sold. See HUD-1 settlement statement.

Cloud On Title - An outstanding claim or lien, revealed by a title search, that adversely affects the owner's title to real estate. Usually, clouds on title cannot be removed except by a quit claim deed, release, or court action.

Commission - The fee charged by a broker or agent for negotiating a real estate or loan transaction.

Comparables (comps) - Used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Condominium - A real estate project in which each unit owner has title to a unit in a multi-unit building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Condominium Conversion - Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Contingency - A condition that must be met before a contract is legally binding.

Contract - An oral or written agreement to do or not do something.

Conventional Loan - A home loan that is not insured or guaranteed by the federal government.

Co-Signer - A person who signs a promissory note along with the borrower. A co-maker's signature helps to assure that the loan will be repaid. The borrower and the co-maker are jointly responsible
for the repayment of the loan.

Credit History - An evaluation of an individual's capacity and history of debt repayment. A credit history helps a lender to determine whether a potential borrower is likely to repay a loan in a timely manner.

Credit Limit - The maximum amount that can be borrowed under the home equity line of credit.

Creditor - A person to whom money is owed.

Credit Rating - An expression of creditworthiness based upon present financial condition and past credit history.

Credit Report - A detailed account of the credit, employment and residence history of an individual used by a prospective lender to help determine creditworthiness. Credit reports also list any judgments, tax liens, bankruptcies or similar matters of public record entered against the individual.

Credit Scoring - Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Y

D

Debt - An amount owed to another.

Deed - The legal document conveying title to a property.

Deed-In-Lieu - A deed given by a borrower to the lender to satisfy a debt and avoid foreclosure.

Deed Of Trust - The document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.

Default - Failure to make loan payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency - Failure to make mortgage payments when due.

Deposit - A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. See earnest money deposit.

Depreciation - A decline in the value of property because of physical or economic changes such as wear and tear; the opposite of appreciation.

Discount Points - Amounts paid to the lender at origination to lower the rate on the face of the note.

Document Preparation - This fee covers the expenses associated with this process of preparing some of the legal documents that you will be signing at the time of closing, such as the mortgage, note, and truth-in-lending statement.

Down Payment - The part of the purchase price of a property that the buyer pays in cash and does not finance with a home loan.

Draw Period - The time period in which the borrower may access and use a line of credit.

Due-On-Sale Provision - A provision in a mortgage home loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the loan.

E

Earnest Money Deposit - A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement A right of way giving to persons other than the owner to access to or over a property.

Eminent Domain - The right of a government to take private property for public use upon payment of fair compensation to the owner.

Encroachment - An improvement that physically intrudes or trespasses on another's property.

Encumbrance - Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, deeds, or restrictions.

Equity - The value of your home after the outstanding balance of any loans are subtracted.

Escrow - Can serve two purposes. 1)As a special third-party account set up by the lender in which a portion of your monthly payment funds are held to pay for taxes and insurance and other items. 2)Escrow is most commonly known as a third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement of a real estate purchase.

Escrow Account - The account in which a loan servicer holds the borrower's escrow payments prior to paying property expenses, such as property taxes or homeowners insurance.

Escrow Payment - The portion of a borrower's monthly payment that is held by the loan servicer to pay for taxes, hazard homeowners insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

Estate - The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction - A legal proceeding by a landlord to recover possession of real property from the tenant.

Examination Of Title - The report on the title of a property from the public records or an abstract of the title.

F

Fair Market Value - The price that a buyer, willing but not compelled to buy, and a seller, willing but not compelled to sell, would agree on.

Fannie Mae (Federal National Mortgage Association FNMA) - A New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages.

Federal Housing Administration (FHA) - An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and loan underwriting but does not lend money or plan or construct housing.

Fee Simple - An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA Home Loan - A mortgage home loan that is insured by the Federal Housing Administration (FHA). Also known as a government loan.

First Mortgage (Home Loan) - A home loan that is the primary lien against a property.

Fixed Rate Mortgage - A mortgage with an interest rate that stays the same (fixed) over the life of the mortgage. Monthly payments for a fixed rate mortgage are very stable and will not change.

Fixture - Personal property that becomes real property when attached in a permanent manner to real estate.

Foreclosure - The legal process by which a borrower's interest in mortgaged property is taken because of a default on the loan. T

Forfeiture - The loss of money, property, rights, or privileges due to a breach of legal obligation.

Freddie Mac (Federal Home Loan Mortgage Corporation) - A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

G

Good Faith Estimate - A document provided when you apply for a loan. It provides estimates of all costs associated with obtaining and closing a mortgage loan.

Grantee - The person to whom an interest in real property is conveyed (e.g. the buyer).

Grantor - The person who conveys an interest in real property (e.g. the seller).

H

Homeowner's Insurance (Hazard Insurance) - Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. The policy typically combines personal liability insurance and property hazard insurance coverage for a dwelling and its contents.

Home Equity Line Of Credit (HELOC) - A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.

Home Inspection - A thorough inspection that evaluates the structural and mechanical condition of a property.

Homeowners' Association - A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

HUD-1 Settlement Statement - A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."

I

Income Property - Real estate developed or improved to produce income.

Inflation - An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services.

Interest - The amount the lender charges to lend you money.

Interest Payment - The portion of a monthly payment that goes to interest based on the amortization schedule.

Interest Rate - The percentage rate of return charged for use of a sum of money. This percentage rate is specified in the mortgage note.

Investment Property - A property that is not occupied by the owner and is generally rented to a tenant to produce income.

J

Joint Tenancy - A form of co-ownership that gives each tenant equal undivided interest and rights in the property, including the right of survivorship.

Judgment - A decree by a court of law that one person, a debtor, is indebted to another, a creditor, in a specified amount.

L

Late Charge - The penalty a borrower must pay when a payment is made a stated number of days after the due date.

Lease - A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may use the real estate for a specified period of time and the amount of rent to be paid.

Legal Description - A property description, recognized by law, using a government rectangular survey, metes and bounds, or a plot map to sufficiently locate and identify a property.

Lender's Fees - Fees paid to the lender to cover costs associated with processing, underwriting and closing of the loan.

Liabilities - A person's debts or financial obligations. Liabilities include long-term and short-term debt.

Lien - A legal claim against a property that must be paid off when the property is sold.

Line Of Credit - An agreement by a lender to extend credit up to a certain amount for a certain time without the need for the borrower to file another application.

Liquid Asset - A cash asset or an asset that is easily converted into cash.

Loan Amount - The amount of money you want to borrow to purchase or refinance a home. Also called the principal and is generally repaid over time with interest.

Loan-To-Value Ratio - The ratio of the total amount borrowed on a mortgage against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage on a home with an appraised value of $100,000, the LTV is 80%.

M

Minimum Payment - The minimum amount that must be paid monthly on an account.

Money Market Account - A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

Monthly Debt - A borrower's monthly expenses including credit cards, installment loans, student loan payments, alimony and child support and housing payment expense.

Mortgage - A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker - A company that originates, sells and services mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker - An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

Mortgagee - The lender in a mortgage agreement.

Mortgage Insurance Premium (MIP) - The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

Mortgagor - The borrower in a mortgage agreement.

N

Net Worth - The value of all of a person's assets, including cash, minus all liabilities.

Non-Liquid Asset - An asset that cannot easily be converted into cash.

Notary - An official authorized by law to attest and certify certain documents by his or her hand and official seal.

Note - A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Notice Of Default - A formal written notice to a borrower that a default has occurred and that legal action may be taken.

O

Origination Fee - A fee paid to a lender for processing a loan application, making a home loan, and recording a mortgage against the borrower's real property as security for repayment of the loan. The origination fee is stated in the form of points. One point is 1% of the mortgage amount (e.g., 1,000 on a $100,000 loan).

Owner Financing - A property purchase transaction in which the property seller provides all or part of the financing and takes back a security instrument.

P

Payoff - To pay the outstanding balance of a loan in full.

Personal Property - Any property that is not real property or is not permanently fixed to land. Cash, furniture, and cars are all examples of personal property.

PMI - Stands for Private Mortgage Insurance. PMI is an insurance policy the borrower buys to protect the lender from non-payment of the loan. PMI policies are usually required if you make a down payment that is below 20% of the sales price of the home.

Power Of Attorney - A legal document authorizing one person to act on another's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-Approval - A lender's conditional agreement to lend a specific amount on specific terms to a homebuyer. (subject to satisfactory appraisal and no change in financial condition).

Pre-Paid Items (Prepaids) - Items required by lender to be paid at closing prior to the period they cover such as prorated property taxes, homeowners insurance and pre-paid interest.

Pre-Paid Interest - Mortgage interest that is paid in advance of when it is due.

Prepayment Penalty - A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-Qualification - A preliminary analysis of a borrower's ability to afford the purchase of a home. An affordability analysis takes into consideration factors such as income, liabilities, and available funds, along with the type of home loan, the likely taxes and insurance for the home, and the estimated closing costs.

Primary Residence - The place someone lives most of the time.

Prime Rate - The interest rate that banks charge on short-term loans to its most creditworthy customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal - The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance - The outstanding balance on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

Promissory Note - A written promise to repay a specified amount over a specified period of time.

Public Auction - A meeting in an announced public location to sell property to repay a mortgage that is in default.

PUD (Planned Unit Development) - A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

Purchase Agreement - A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase Price - The total amount paid for a home.

Q

Qualifying Ratios - Calculations that are used in determining whether a borrower can qualify for a mortgage.

Quit Claim Deed - A deed that transfers, without warranty of ownership, whatever interest or title a grantor may have at the time the conveyance is made.

R

Rate - This is the annual interest rate applied to the outstanding balance of the loans.

Real Estate Agent - A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction.

Real Estate Settlement Procedures Act (RESPA) - A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts, and requires notice to borrowers when servicing of a home loan is transferred.

Real Property - Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

RealtorĀ® - A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.

Recording - Filing a document in the public records, thereby giving constructive notice to the world of the existence of the document and its contents.

Reduced Documentation - A method used to determine income when qualifying a borrower(s) for a loan. Borrower(s) provide their income, however no verification documentation is typically required.

Rescission - The act of cancellation or annulment of a transaction or contract by the operation of a law. Borrowers usually have the option to cancel certain credit transactions, including a refinance or home equity transaction, within three business days after consummation.

Recorder - The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

Recording - The noting in a book of public record of the terms of a legal document affecting title to real property, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage.

Remaining Balance - The amount of principal that has not yet been repaid. See principal balance.

Right Of First Refusal - A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Right Of Survivorship - In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

S

Second Home - A property occupied part-time by a person in addition to his or her primary residence.

Second Mortgage - A mortgage that has a lien position subordinate to the first mortgage.

Single Family Residence - A residential structure designed to include one dwelling.

Subdivision - A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Subprime - Subprime Lending is also called B&C lending. It refers to a category of loan programs that offer more lenient underwriting provisions and expanded credit guidelines. These provisions allow more flexibility in approving loans for borrowers who have less-than-perfect credit. Subprime loans are available at various interest rates and terms. They also offer capabilities for debt consolidation allowing borrowers to get a mortgage with enough extra cash to consolidate loans.

Survey - A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Sweat Equity - Contribution to the construction or rehabilitation of a property in the form of labor or services performed personally by the owner.

T

Tax Savings - This is the amount of money you save in income taxes. You save this money because in most cases the interest you pay on your home loan is tax deductible!

Tenancy By The Entirety - A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. One spouse dies the property goes to the other spouse.

Tenancy In Common - A type of joint tenancy in a property without right of survivorship.

Term - The term of a home loan is the number of years the home loan is amortized for. Home loans are generally amortized over 15, 20 or 30 years.

Termite Report - A report that results from an inspection by a professional to determine if the property has termites.

Title - A legal document evidencing a person's right to or ownership of a property.

Title Company - A company that specializes in examining and insuring titles to real estate.

Title Insurance - Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Search - A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Transaction Fee - A fee charged each time the borrower draws on the credit line.

Transfer of Ownership - Any means by which the ownership of a property changes hands.

Transfer Tax - State or local tax payable when title to a property passes from one owner to another.

Truth-in-Lending - A federal law that requires lenders to fully disclose, in writing, the terms and conditions of credit, such as a mortgage, including the annual percentage rate (APR) and other charges.

Trustee - A fiduciary who holds or controls property for the benefit of another.

U

Underwriting - The analysis of risk, the determination of the appropriate loan amount, and the setting of loan terms and conditions, based on the borrower's creditworthiness and the value of the real property that will secure the loan.

V

VA Mortgage - A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

Variable Rate - An interest rate that changes periodically in relation to an index. Payments may increase or decrease per the terms of the loan agreement or note.

Veterans Affairs, Department of (VA) - An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

Y

Year-End Statement - A report sent to the borrower each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.