Real Estate Dictionary.

Click on a section to see the terms in that section,
then click on a term to see it's definition.

A

Abstract: It reflects the history of transactions pertaining to a specific property. This information can be found in public records.
Acceleration Clause: This clause is found in a mortgage giving the lender the right to demand payment of the outstanding loan balance. The right to take this action is triggered by a violation of the terms of the loan; such as the borrower defaults on this loan or transfers ownership without informing the lender.
Adjustable Rate Mortgage (ARM): A mortgage in which interest rates change based on the periodic changes of a monitored index ( definition of index below).
Affidavit: A written statement made under oath and witnessed by a notary public or other judicial officer.
Agreement For Deed: A method of selling and financing property. The seller retains title to the property and the buyer takes possession and makes the mortgage payments.
Amortization: A portion of the mortgage payment is applied to pay the accruing interest on a loan, the rest is applied to the principal. As time passes, the interest portion decreases and the amount applied to principal increases. The loan is amortized bases on a specific amount of time.
Annual Percentage Rate (APR): A value created based on a government formula which reflects the annual cost of borrowing expressed as a percentage. The items that are calculated into the APR are determined by the Federal government. If the interest rate on a loan is 8.0%, the APR would typically be around 8.3% to 9.0%, depending on what fees were charged and the amount of each fee.
Appraisal: A report from an independent party (an appraiser), who uses the sales price of comparable properties to determine the fair market value of real estate.
Appraised Value: There are different types. Values determined for insurance purposes reflect replacement cost of the improvements (the structure on the land). Values needed for commercial properties are primarily based on net operating income (or potential net operating income). Values for residential properties are commonly determined on the basis of comparable sales.
Appreciation: The increase in the value of real estate based on changes in the market, inflation, or other causes.
Assessment: The valuation of real estate for the purposes of taxes or special improvement charges.
Assignment: When ownership of a mortgage is transferred from one company or individual to another.
Assumption: When a buyer assumes the seller's mortgage and takes over the payments.

B

Balloon Mortgage: A loan where the remaining principal balance is paid in full at a specific point in time.
Balloon Payment: The last lump sum that is due at the end of the balloon mortgage.
Bankruptcy: The restructuring or relief of debts and liabilities when filed in federal bankruptcy court. There are various types of bankruptcies. Most commonly individuals file a Chapter 7 No Asset bankruptcy which relieves the borrower of most types of debts. It usually takes two years after the bankruptcy has been discharged for the borrower to qualify for another loan. The ability to repay debt has to re re-established.

C

Cap: Adjustable Ratio Mortgages are usually limited as to the amount of interest that can be charged over the life of the loan. These limitations are referred to as caps.
Cash Out Refinance: When a mortgage is being refinanced at a higher amount than the current loan balance for the purpose of getting out money for personal use.
Certificate of Deposit(CD): A deposit which is held for a specified amount of time in return for a higher interest rate.
Certificate of Deposit Index: One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.
Chain of Title: A record of the transfers of title to a property over the years.
Clear Title: A title free of liens or legal questions as to the ownership of the property.
Closing: In some states, the closing is a meeting where all documents are signed and money changes hands. In other states the closing is not official until the documents record at the local recorders office.
Closing Costs: There are non-recurring and pre-paid costs. Non-recurring closing costs are paid only once as a result of buying a property or obtaining a loan. Pre-paid costs recur over time, such as property taxes and homeowners insurance.
Cloud on Title: Any adverse conditions revealed by a title search that could impair the title.
Collateral: In a home loan, the property is the collateral.
Common Area Assessments: Often referred to as Homeowners Association Fees. Each homeowner pays fees to the planned unit development (PUD). The monies are generally used to maintain the property and common areas.
Community Property: In some states, property acquired by a married couple during their marriage is owned jointly.
Comparable Sales: Recent sales of similar properties in the same area used to determine the market value of a property.
Condemnation: 1)The destruction of private property (by the government) that poses a safety hazard to the public. 2) The taking of private property for a public purpose under the right of eminent domain with compensation to the owner.
Condominium: A type of ownership of portions (units) in a multi-unit structure, combined with joint ownership of common areas.
Construction Loan: A short term temporary loan to finance the cost of construction. The lender makes periodic payments to the builder as the work progresses.
Contingency: A condition that must be met before the contract is considered legally binding; such as a satisfactory home inspection report before buyer is obligated to buy the property.
Contract: An agreement, oral or written, to do or not to do a specific thing.
Conventional Mortgage: Home loans other than government loans (VA & FHA).
Convertible ARM: An adjustable rate mortgage that can be changed to a fixed rate mortgage within a specific time.
Credit Repository: An organization that gathers and stores financial and public records about the payment records of individuals who are being considered for credit.
Creditor: One to whom money is owed.
Conforming Loan: A loan which has strict underwriting guidelines consistent with those of Fannie Mae, Freddie Mac, FHA or VA.

D

Debt: A sum owed to another.
Deed: A legal document transferring ownership to a property.
Deed of Trust: A legal document which conveys ownership, but involves three parties - the borrower, lender and trustee. The trustee holds the property in trust as security for payment of debt and can sell the property if the borrower defaults.
Deed-In-Lieu: Deed in lieu of foreclosure conveys title to lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities. Regardless, the avoidance and non repayment will probably show on a credit history. The deed-in-lieu may prevent having the documents preparatory to a foreclosure from being recorded and become a matter of public record.
Default: Failure to meet all the terms and obligations specified in the mortgage or deed of trust. It usually gives the lender the right to start the foreclosure process.
Delinquency: Failure to make mortgage payments when due. When a payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
Depreciation: A drop in value because of ordinary wear and tear, destructive action of the elements, or functional or economic obsolescence.
Discount Points: One point is one percent of the loan amount. Lenders charge points to obtain a higher yield. Discount points refer to any points paid in addition to the one percent loan origination fee.
Down Payment: A cash portion of the purchase price by the buyer to the seller. It is not part of the loan amount.
Due Diligence: The act of reviewing and verifying all facts and issues before proceeding. Banks perform their due diligence by verification of employment, savings and income of prospective borrowers. Also, a review of the appraisal, credit report, and status of the title is checked.
Due-On-Sale: A clause in the mortgage that allows the bank to collect the outstanding balance of the loan to be paid in full on the sale of the property or the transfer of any interest in the property.

E

Earnest Money Deposit: Deposit given by the potential home buyer as evidence to show that he/she is serious about buying the property.
Easement: The right of way giving someone other than the home owner access to a property. For example, an easement may entitle its holder to install and maintain utility lines.
Effective Age: An appraiser's evaluation of the condition of a structure. The actual age may be shorter or longer than its effective age.
Eminent Domain: The right of a government to take private property for public use subject to payment of its fair market value.
Encroachment: An improvement that illegally intrudes on another's property; such as a fence or driveway.
Encumbrance: Any interest, lien or liability attached to a property (such as unpaid taxes, mortgages, leases) that represent a charge upon the property.
Equity: Equity is the difference between the fair market value and the amount owed on its mortgage and other liens.
Escheat: When an owner dies leaving no legal heirs or claimants the property reverts to the state.
Escrow: A deposit with a third party to be delivered when a specific condition is met. For example, an earnest money deposit is put into escrow until delivered to the seller at closing.
Estoppal Letter: When a lender verifies the amount owed on a loan, it's interest rate, and other particulars of the loan in the form of a letter.
Estate: All the real property and personal property owned by an individual at the time of death.
Eviction: The legal removal of an occupant from real property.
Exclusive Listing: A contract that gives a real estate agent the exclusive right to sell a property. This contract is for a specific amount of time.

F

Fair Market Value: The highest price a buyer would pay and the lowest price a seller would accept.
Fannie Mae (FNMA) Federal National Mortgage Association: is a federally chartered corporation that purchases mortgages and packages them to sell as securities.
Federal Housing Administration (FHA): A U.S. Department of Housing and Urban Development agency. Its main function is insuring residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting. It does not lend money, plan or construct housing.
Fee Simple: The highest interest a person can have in real estate.
FHA Mortgage: A mortgage which is insured by the Federal Housing Administration.
First Mortgage: The mortgage that is in first place before any other loans recorded against the property. Usually refers to the date in which the loans are recorded.
Fixed Rate Mortgage: A mortgage with an interest rate that does not change through the life of the loan.
Fixture: If personal property is permanently attached to real property it it considered a fixture.
Foreclosure: The legal process by which a lender takes the property from the borrower who is in default. This process usually results in the sale of the real estate at the court house steps.
Freddie Mac (FHMLC) Federal Home Mortgage Loan Corporation: It is a federally chartered corporation that purchases mortgages and packages them to sell as securities.

G H I J K

Grantee: The person to whom an interest in real property is conveyed.
Grantor: The person conveying an interest in real property.
Gross Monthly Income: Income before any deductions (taxes, social security, etc.).
Hard Money Loans: These loans are usually approved within days and can be funded within nine days. They are often made on properties that need repair and to individuals who can manage the repair and the sales process of the property. The interest rate for hard money is higher than for the standard loan.
Hazard Insurance: Insurance that provides compensation for damages that occur because of hazards such as fire, wind, vandalism.
Home Equity Conversion Mortgage: Usually this is a reverse annuity mortgage. Instead of making payments to a lender, the lender makes monthly payments to the borrower (owner). It allows older home owners to Mortgage convert their equity into cash. This loan does not have to be repaid until the borrower no longer occupies the property.
Home Equity Line of Credit: A mortgage loan which allows the borrower to obtain cash drawn against the equity of his property.
Home Owner's Warranty: Insurance purchased by homeowners that will cover repairs to certain items, such as heating and air conditioning.
HUD-1 Settlement Statement: A document that provides an itemized listing of the expenses paid at closing. The totals at the bottom of the statement show the seller's net proceeds and the buyer's net payment at closing. The HUD-1 is also known as a closing statement. Mortgage equity into cash. This loan does not have to be repaid until the borrower no longer occupies the property.
Index: The published cost of money that is the basis for determining the interest rate for an adjustable rate mortgage. Some commonly used alternatives are the Prime Rate (Prime), The London Interbank Offering Rate (LIBOR), the Cost of Funds (CoF) and the 1 year Treasury Bill (1year T). Loans which allow monthly interest rate adjustments commonly use the Prime Rate. Loans that adjust semi-annually may use LIBOR. The 1 year Treaesury and the Cost of Funds are often used for loans which adjust annually.
Joint Tenancy: Taking title to a property where each party owns the whole property and that ownership is not separate. If one party dies the survivor owns the property in its entirety.
Judgement: A decision made by a court of law. If a judgement requires repayment of a debt, the court may place a lien against the debtor's real property as collateral for the creditor.
Jumbo Loan: A loan that exceeds the maximum allowed by conforming loans. Fannie Mae's and Freddie Mac's loan limits are in the low $200,000's. Banks and mortgage brokers can quote the current threshold. Typically the interest rates for these loans are slightly higher.

L

Land Trust: A revocable living trust which has real estate as its asssets.
Lease: A written agreement, between landlord and tenant, that states the payment, period of time and conditions under which the tenant may occupy the real estate.
Lease Option: A means of financing that allows home buyers to lease a property with an option to buy it. Each month's payment may consist of rent and an additional amount which is applied to the down payment on a previously specified price.
Leasehold Estate: A means of holding title to a property where the mortgagor does not own the property but has a recorded long-term lease on it.
Liabilities: Ones financial obligations, including long-term and short-term debt.
Liability Insurance: Coverage offering protection against claims alleging to a property owner's negligence which resulted in bodily injury or property damage to another party. Usually it's part of a homeowner's insurance policy.
Lien: A legal claim against a property of another as security for money owed, such as, mortgages, mechanics' liens and unpaid taxes.
Lien Waver: Also known as "waver of liens". A waver of mechanics' lien rights, signed by contractors or sub contractors.
Loan Origination: Refers to the process of obtaining new loans by banks.
Loan-to-Value (LTV): The relationship between the amount of the loan and the value of the property expressed in a percentage. If the loan is $80,000 and the value of the property is $100,000 the LTV is 80% ($80,000/$100'000).
Loan Package: A group of documents that contain all the information required to obtain an underwriting decision of loan approval or denial.

M N O

Margin: The difference between the index and the interest rate on an adjustable mortgage. Over the life of the loan the margin remains stable and the index moves up and down.
Mechanic's Lien: A lien against real estate that secures the payment of debts due to individuals who performed services or furnished materials during the construction or improvement of the property.
Mortgage: A lien against real estate given by a borrower to a lender as securiy for the loan.
Mortgagee: The person or entity to whom the mortgage is given (the lender).
Mortgage Insurance Premium (MIP): The payment made by individuals of FHA insured mortgages to provide a protective reserve for lenders against losses from very high loan-to-value loans.
Mortgagor: The borrower in a mortgage agreement.
Multi Dwelling Units: Structures which provide separate housing units for more than one family.
Negative Amortization: This occurs when the monthly payments on a loan are insufficient to pay the interest accruing on the principal balance. The unpaid principal is added to the remaining principal due. The loan balance then grows larger instead of smaller, which is why it is called negative amortization.
No Income Verification Loan: This type of loan is usually limited to the self-employed and is underwritten based on the borrower's written statement of their annual income. Higher rates for these loans compensate for their higher risks.
Non-Conforming Loans: Loan not meeting the underwriting requirements of Freddie Mac and Fannie Mae.
Note: A legal document obligating a borrower to repay a mortgage loan at a specific interest rate during a stated period of time. .
Origination Fee: A fee paid to a broker or a lender for arranging and/or processing the loan. On government loans the fee is one percent of the loan amount, but additional points may be charged which are called discount points. On a conventional loan, the total number of points the borrower pays is the origination fee. One point is one percent of the loan amount.
Owner Financing: A real estate transaction in which the seller provides all or part of the financing.

P

Periodic Rate Cap: In an adjustable-rate mortgage, an increase or decrease in the interest rate is limited during any one adjustment period.
Personal Property: Any property that is not real property.
Personal Property Trust: A revocable living trust that contains personal property as its assets.
PITI: Stands for principal, interest, taxes and insurance.
Point: A point is one percent of the mortgage amount.
Portfolio Loan: A non-conforming loan held by the original lender. It has not been sold on the secondary market.
Power of Attorney: A legal document giving another person authority to act on one's behalf. It can grant complete authority or it can be limited to specific acts and/or certain periods of time.
Pre-approval: Generally, it means a borrower has completed a loan application and provided income, savings and debt documentation which an underwriter has reviewed and approved.
Prepayment Penalty: A bank may charge a fee to a borrower who pays off the loan before its due.
Pre-qualification: Usually refers to a loan officer's written opinion as to the ability of a borrower to qualify for a home loan. This process differs from a pre-approval in that the loan officer had made inquiries about the borrowers debt, income, and savings.
Principal: The amount of the loan or the remaining unpaid portion of the loan. As a loan is paid, some of the payment is applied to the principal thereby lowering the principal balance.
Private Mortgage Insurance (PMI): An insurance premium paid by a borrower to protect lenders against losses from loans where the borrower defaults. Most lenders usually require PMI for a loan with a loan-to-value percentage higher than 80%.
Purchase Subject to Mortgage: A purchase where the existing mortgage remains in place and the buyer makes the monthly mortgage payments. The original borrower remains liable if the purchaser fails to make the payments. Quitclaim Deed A deed that transfers ownership without a waurantee of any possible interest that the grantor may have in the property.

Q R

Quit Claim Deed: A deed that transfers without waurantee of any possible interest that the grantor may have in the property.
Real Estate Settlement Procedures Act: A law that requires lenders to give borrowers advance notice of closing costs.
Recording: The noting in a public office of the details of a legal document, such as a deed or a mortgage, which affect the title to the real estate. This record becomes a matter of public record.
Refinance: The process of paying off one loan with the proceed from another loan.
Rent Loss Insurance: Insurance that protects a landlord against loss of rent or value due to a casualty that renders the rental unit unavailable for use and as a result the tenant does not have to pay rent.
Restrictions: Limitations on the use of property created by documents in the chain of title. For example a restriction may prohibit the placement of a trailer.
Right of First Refusal: A clause in a document that requires the owner of a property to give another individual the first opportunity to purchase or lease the property before it is offered for sale or lease to others.
Right of Ingress or Egress: The right to enter or leave a specific property.

S

Sale and Leaseback: The process in which an asset is sold to a buyer who immediately leases it back to the seller.
Seasoned Loan: Most of the time loans in force for six months to a year are deemed to be "seasoned" and have the borrower's payment history associated with them.
Second Mortgage: A mortgage that is a lien subordinate to the first mortgage.
Secondary Market: Usually the buying and selling of a pool of existing mortgages.
Seller Carry-Back: When the seller of a property agrees to provide financing.
Settlement Statement: The HUD1 Settlement Statement. (see above)
Subdivision: A housing development which is created by dividing a tract of land into individual lots.
Subordinate Financing: A mortgage or other lien that has a lower priority than that of the first mortgage.
Subordination: An agreement that allows an inferior lien (one filed later in time) to take a superior position. Often a lender considering a loan request for a large mortgage will require that a second mortgage already in place remain in second position by using a subordination agreement.
Survey: A drawing showing the exact legal boundaries of a property and the location of the improvements, rights of way, easements, encroachments, and other physical features.
Sweat Equity: A payment in the form of labor (instead of cash) towards the construction or rehabilitation of a property.

T

Tenancy In Common: When there are two or more individuals on title to a property. As opposed to joint tenancy, this type of ownership does not pass to the other individuals in the event of death.
Term: The length of time of a loan.
Title: A document showing the highest legal right to own, possess, control, and dispose of real estate.
Title Company: A company that examines and insures titles to real estate.
Title Insurance: Insurance that protects the lender (lender's policy) or the buyer (buyer's policy) against loss due to disputes over ownership of real estate.
Title Search: A research of the title records to confirm that the seller is the legal owner of the property and that there are no liens or other outstanding claims.
Transfer Tax: State or local tax due when title passes from one owner to another.
Townhouse: Houses that share a common wall between units and usually the owner holds a fee simple title on the structure and the land upon which the structure is situated.
Trust: A fiduciary relationship in which one person (the Trustee) holds the title to property for the benefit of another (the beneficiary).
Trustee: A party who has legal control of a property for the benefit of another.
Truth-in-Lending: A Federal law requiring lenders to fully disclose, in writing, the terms and conditions of a mortgage loan, including the annual percentage rate and other charges.
Two-Step Mortgage: An adjustable rate mortgage which has one interest rate during the first five or seven years of its term and a different interest rate for the rest of the amortization term.

U V W X Y Z

Underwriting: The act of using formal guidelines to determine whether or not a loan should be approved.
VA Mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs.
Warranty Deed: A deed which usually contains the covenants of possession, quiet enjoyment, encumbrances, further assurance, and warranty for ever.
Wraparound Mortgage: A mortgage that incorporates any existing mortgages and is subordinate to them.
Zoning: Local laws regulating the size, type, structure, nature and use of land or buildings.