Real Estate Glossary
Get passed the seemingly confusing real estate jargon.
INDEX
A B C D E F G H J L M N O P Q R S T V W
A
abstract of title
The summary of the public records relating to the ownership of a particular piece of land. It represents a short legal history of an individual piece of property from the time of the first recorded transfer to present.
acceptance
Consent to an offer to enter into a contract.
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
agency
A mutual-consent, legal relationship in which a seller or buyer engages a broker-agent in the sale or purchase of property.
agent/REALTOR®
A licensed person who represents the seller and/or buyer who provides market assessment, offers sales or buying strategy, recommends various services and sources important to seller or buyer, is a member of the National Association of REALTORS (NAR), and subscribes to NAR's strict Code of Ethics.
amortization
A method by which monthly mortgage payments are equalized over the life of a loan, despite the fact that the proportion of principle to interest changes.
annual percentage rate (APR)
The total finance charge (interest, loan fees, points) expressed as a percentage of the mortgage amount.
appraisal
A professional and unbiased written opinion of a property's value that is based on recent, comparable sales; quality of construction and current condition; and style of architecture.
appraiser
An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes. Opposite of depreciation.
assessed value
The valuation placed on property by a public tax assessor for purposes of taxation. May or may not reflect market value.
assignment
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.
assumable mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.
assumption
The term applied when a buyer assumes the seller's mortgage.
B
balloon mortgage
A short term mortgage, generally at a fixed rate of interest, to be paid back in predetermined, equal monthly payments with a large final payment (balloon payment) for the balance of the loan to be paid at the end of the term.
bridge loan
A short-term mortgage made until a longer-term loan can be made; it's sometimes used when a person needs money to build or purchase a home before the present one has been sold.
broker
A person licensed to represent homebuyers or sellers for a contracted fee. Brokers manage real estate offices and employ licensed agents to sell properties.
building codes
State and local laws that regulate the construction of new property and the rehabilitation of existing property.
C
cap
A limit on the total amount an interest rate can be increased in a specified time and over the lifetime of an adjustable-rate mortgage
certificate of eligibility
A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.
chain of title
An analysis of the transfers of title to a piece of property over the years.
clear title
A title that is free of liens or legal questions as to ownership of the property.
closing
The final settlement at which time the title is transferred from seller to buyer, accounts are settled, new mortgages are signed, and all fees and expenses are dispersed or satisfied.
closing costs
All fees, taxes, charges, commissions, surveys, lender fees, inspection fees, ,and other costs paid by the buyer and/or seller at the closing.
closing statement
See HUD-1 Settlement Statement.
cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
co-borrower
An additional individual who is both obligated on the loan and is on title to the property.
collateral
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
collection
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to "collection." As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
commission
A previously agreed upon percentage of the home's sale price paid to the listing and selling agent.
common area assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a subdivision, condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
community property
Property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances.
comparable sales
Similar properties in type, size, price, and amenities that have sold recently, been adjusted, and are used for comparison in the appraisal report. Also referred to as "comps."
Condominium (condo)
Real estate ownership in which a property owner has title to a specific unit but shared interest in common areas.
contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
contract
An agreement to do or not to do a certain thing.
conventional mortgage
Refers to home loans other than government loans (VA and FHA).
convertible ARM
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.
counteroffer
An offer made by a buyer or seller to the other party, responding to the asking price or a subsequent adjustment to that price or other conditions in the purchase contract to complete a purchase of sale.
credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
credit history
A record of an individual's repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.
creditor
A person to whom money is owed.
credit report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
CRV
Certificate of Reasonable Value. A document of appraisal issued by the VA establishing their opinion of the maximum value of a property.
curb appeal
A term used by REALTORS that encompasses all that a buyer sees from the street that may induce the buyer to look more closely at the property.
D
debt
An amount owed to another.
deed
The legal document conveying title to a property.
default
Failure to make the mortgage payment within a specified period of time.
deposit
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an "earnest money deposit."
depreciation
A decline in the value of property; the opposite of appreciation.
discount points
In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.
down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
E
earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house. Earnest money is applied against the purchase price when the sale is finalized.
easement
A right of way giving persons other than the owner access to or over a property.
encroachment
An anything that intrudes illegally on another's property.
encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
examination of title
The report on the title of a property from the public records or an abstract of the title.
exclusive listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form.
F
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.
fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.
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 underwriting but does not lend money or plan or construct housing.
fee simple
The greatest possible interest a person can have in real estate.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
firm commitment
A lender's agreement to make a loan to a specific borrower on a specific property.
first mortgage
The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.
fixed-rate mortgage
A mortgage in which the interest rate does not change during the entire term of the loan. fixture Personal property that becomes real property when attached in a permanent manner to real estate. Example, ceiling fans, blinds, etc.
flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
foreclosure
The legal process by which mortgaged property is seized and sold as payment for a debt in the event of default. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Freddie Mac
The nickname for Federal Home Loan Mortgage Corporation (FHLMC), Freddie Mac is a federally controlled and operated corporation to support the secondary-mortgage market. It purchases and sells residential conventional home mortgages.
G
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)
H
hazard insurance
Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
home equity line of credit
A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.
home inspection
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
homeowners' association
A nonprofit association that manages the common areas of a subdivision, planned unit development (PUD) or condominium project.
homeowner's insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
homeowner's warranty
A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
HUD-1 settlement statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet."
J
joint tenancy
A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.
L
late charge
The penalty a borrower must pay when a payment is made a stated number of days. On a first trust deed or mortgage, this is usually fifteen days.
lease option
An alternative financing option that allows home buyers to lease a home with an option to buy. Each month's rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.
legal description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
lender
A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as "lenders."
liabilities
A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
lien
A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.
loan
A sum of borrowed money (principal) that is generally repaid with interest.
loan commitment
A written promise by a lender to make a loan under certain terms and conditions. These include interest rate, length of loan, lender fees, annual percentage rate, mortgage and hazard insurance, and other special requirements.
loan origination
How a lender refers to the process of obtaining new loans.
loan-to-value (LTV)
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).
lock-in rate
An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.
M
margin
The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.
market price
The actual price at which a property is sold.
market value
The price that is established for a property by existingn economic econditions, property location, size, etc.
merged credit report
A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.
mortgage
A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.
mortgage broker
A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
mortgage insurance (MI)
Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value ratio higher than eighty percent.
mortgage insurance premium (MIP)
The amount paid by a mortgagor 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.
Multiple Listing Service (MLS)
A system through which participating brokers agree to share commissions on a predetermined percentage split on the sale of properties listed on the system.
N
negative amortization
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.
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
This fee is a supplemental fee paid by buyers to lenders, usually stated as a percentage or as points. On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.
owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
P
partial payment
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.
periodic rate cap
For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
personal property
Any property that is not real property. Examples: money, savings accounts, appliances, cars, boats, etc.
PITI
Common real estate acronym meaning, Principal, Interest, Taxes and Insurance. The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
point
A point is 1 percent of the amount of the mortgage.
power of attorney
A legal document that authorizes another person to act on one'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 loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
prepayment penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
pre-qualification
An informal estimate of the "financing potential" of a prospective borrower.
principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
private mortgage insurance (PMI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require mortgage insurance for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
promissory note
A written promise to repay a specified amount over a specified period of time.
Pro-ration
Proportionate division of expenses based on days or time occupied or used by the seller and/or buyer.
purchase agreement
A written, legally binding contractual agreement between a buyer and a seller for the purchase of real estate.
Q
qualifying ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The "top" or "front" ratio is a calculation of the borrower's monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner's association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as will as all other monthly debt.
quitclaim deed
A deed that transfers, without warranty, whatever interest or title a grantor may have at the time the conveyance is made.
R
rate lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
real estate agent
A person licensed to negotiate and transact the sale of real estate.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
real property
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
RealtorŪ
A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
recording
The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
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 ingress or egress
The right to enter or leave designated premises.
right of survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
S
sale-leaseback
A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
second mortgage
A mortgage that has a lien position subordinate to the first mortgage.
secondary market
The buying and selling of existing mortgages, usually as part of a "pool" of mortgages.
secured loan
A loan that is backed by collateral.
security
The property that will be pledged as collateral for a loan.
seller carry-back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
settlement statement
See HUD1 Settlement Statement.
subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
subordinate financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
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.
T
tenancy in common
As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.
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 defect
An outstanding claim or encumbrance on property that affects marketability.
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, errors, omissions, or any defects in the title.
title search
A highly detailed search 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.
transfer tax
State or local tax payable when title 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 a mortgage, including the annual percentage rate (APR) and other charges.
V
VA mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Veterans Administration (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.
W
Walk-through inspection
The final inspection by the buyers, usually in the company of the buyers' real estate sales agent, to ensure that all conditions noted in the offer to purchase and all seller-related contingencies have been met. This inspection is most often completed immediately prior to the closing and after the seller vacates the premises.
