Real Estate Glossary & Terms

A
  • ABSTRACT OF TITLE: A written document produced by a title insurance company (trustee), giving the history of who owned the property from the first owner forward. It also indicates any liens or encumbrances that may affect the title. A lender will not make a loan, nor can a sale be affected until the title to the property is clear.
  • ACCELERATION CLAUSE: This accelerates the payments in a mortgage, where the entire amount becomes
    immediately due and payable. Most mortgages have this clause, which comes into effect when, for example, you sell the property. This is also called the “Alienation Clause.”
  • ACCRUED INTEREST: Interest that has accumulated but has not been paid.
  • ACQUISITION LOAN: Money borrowed to purchase a property.
  • ADJUSTABLE RATE MORTGAGE (ARM): A mortgage loan that allows the interest rate to be changed or adjusted at specific periods over the entire life of the loan.
  • ADJUSTMENT DATE: The day on which an adjustment is made in an adjustable rate mortgage. It may occur monthly, every 6 months, or once a year, or whenever agreed upon.
  • AGREEMENT OF SALE: Also known as the Purchase Contract, Purchase Agreement, or Sales Agreement. It outlines the agreement of the seller to sell and the buyer to buy a certain property. It must be signed by both parties in order to be legally binding.
  • ALIENATION CLAUSE: The clause that specifies that if the property is sold or transferred to another person, the mortgage becomes immediately due and payable.
  • AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS
    (MAI):
    An association whose members undergo a rigorous training process as appraisers.
  • AMERICAN LAND TITLE ASSOCIATION (ALTA): The more complete and extensive policy of land title
    insurance that most lenders insist upon. It involves a physical inspection and often guarantees the property’s
    boundaries. Lenders will often insist on an ALTA policy with themselves named as beneficiaries.
  • AMERICAN SOCIETY OF APPRAISERS: A professional organization of appraisers.
  • AMORTIZATION: Gradual repayment of a loan (principal) by way of regular installments.
  • AMORTIZATION SCHEDULE: A table that shows monthly payments, interest and principal requirements,
    and unpaid balances over the life of a loan.
  • ANNUAL CAP: The limit on the number of times an interest rate can be adjusted on an adjustable-rate mortgage over a 12-month period.
  • ANNUAL PERCENTAGE RATE (APR): The rate of interest for a loan over a one year period, expressed as a percentage value. This disclosure is required by the federal Truth-In-Lending Law.
  • ANNUITY: Series of equal or near-equal monthly payments.
  • APPLICATION FEE: A fee for applying for a mortgage. This fee often includes the cost of a full credit report on the borrower, and a property appraisal. The typical amount may be $350.
  • APPRAISAL: Estimate (or professional opinion)of the value of a property, given by a professional appraiser who visits the property being sold or bought and estimates its market value. This kind of information included in the appraisal ranges from the type of property, its condition, and its comparable value in the area of its location.
  • ASSIGNMENT OF MORTGAGE: The lender may sell your mortgage without permission from you (which he is entitled to do), and the document that records the transfer of the mortgage from lender A to lender B is the assignment.
  • ASSUMABLE LOAN: A mortgage loan that lets a purchaser of a home assume the obligation of the mortgage
    already on that house, without any changes to the loan terms. This is possible for loans that do not have a
    due-on-sale clause, and FHA and VA mortgages (see Glossary for these terms).
  • ASSUMPTION OF MORTGAGE: Purchase of property where the buyer accepts and assumes the mortgage that already exists on the property. The seller, in turn, remains responsible to the lender for the loan.
  • AUTOMATIC GUARANTEE: Some lenders who make VA loans are empowered to guarantee the loans without first checking with the VA. Such lenders can often make the loans quicker.
B
  • BALLOON PAYMENT: Final payment on a loan that is greater than the previous monthly installments. This
    pays off the loan entirely and in full.
  • BIWEEKLY MORTGAGE: Payments are made twice a month (or every two weeks), and the additional payment is used to reduce the principal amount.
  • BLANKET MORTGAGE: A single mortgage that covers several properties. It is often used by developers and builders.
  • BRIDGE LOAN: Financing that “bridges” the period between the end of one loan and the beginning of another.
  • BUY-DOWN: The payment of additional Discount Points (see Glossary) to a lender in return for a reduced interest rate on a loan.
C
  • CAP: Limit placed on the number of adjustments in order to protect the borrower from large increases in interest rates or payment levels.
  • CDPE:  A Certified Distressed Property Expert® is a Realtor® who has completed the required coursework to achieve the designation and demostrated proficiency in the sale of distressed properties such as short sales.
  • CERTIFICATE OF ELIGIBILITY: Issued by the Veterans Administrations to those who may qualify for VA loans.
  • CERTIFICATE OF REASONABLE VALUE (CRV): When getting a VA loan, the Veteran’s Association will secure an appraisal of the property, and will issue the Certificate establishing what they deem the maximum value of the property.
  • CHAIN OF TITLE: This gives the history of ownership of a property. The title to property forms a chain going back to the first owner.
  • CLOSING: The act of transferring ownership of a property from seller to buyer according to the sales contract. Also, that period of time when a closing is to take place.
  • CLOSING COSTS: The fees and expenses paid by the buyer and seller at the time of a real estate closing (these are also known as Transaction or Settlement Costs).
  • CO-BORROWER: Another party who signs for the mortgage loan. Income, debts, assets and credit histories
    of both borrowers are combined in order to qualify for the mortgage.
  • COMMITMENT: A written promise by a lender given to the borrower to offer a mortgage at a set amount, a certain interest rate, and cost. Such a commitment will have a time limit on it; usually 30-60 days.
  • CO-MORTGAGOR: A co-signer of a mortgage who is jointly responsible for the repayment of the loan amount. Such a person also receives a share of ownership in the mortgaged property.
  • CONFORMING LOAN: Also called a Conventional Mortgage that adheres to the loan amounts and mortgage
    guidelines set by the Federal National Mortgage Association (FNMA, or Fannie Mae) and/or the guidelines
    of the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac). A conforming loan is a mortgage under $203,150. A non-conforming or jumbo loan exceeds $203,150.
  • CONSTRUCTION LOAN: Used to finance subdivision costs or property improvements.
  • CONVENTIONAL LOAN: A mortgage loan that is other than the one guaranteed by the Veterans
    Administration or insured by the Federal Housing Administration.
  • CO-SIGNOR: A second borrower who signs in conjunction with the first borrower for the mortgage loan. A co-signor is equally responsible for the repayment of the loan.
  • CREDIT RATING: The evaluation of a person’s history and capacity of debt repayment. Such a rating is available from a credit bureau in the form of a report.
  • CREDIT REPORT: A report of a person’s credit history issued by one of three national credit bureaus. The report mentions any delinquent payments, or any failures to pay, as well as bankruptcies and foreclosures. Lenders use such reports to determine the credit-worthiness of a borrower.
D
  • DEED OF TRUST: A legal instrument used in many states in place of a mortgage, where title to the property is vested in one or more trustees to secure the repayment of the loan.
  • DEFAULT: The failure to fulfill a promise or pledge such as the timely (monthly) repayment of a loan.
  • DEFICIENCY JUDGMENT: A court order stating that the borrower still owes money when the security for
    a loan does not fully satisfy a defaulted loan.
  • DISCOUNT POINTS: Amounts paid to the lender (often by the seller) to make up the difference between the market interest rate and the lower face rate of the Note (see Glossary).
  • DOWN PAYMENT: The amount paid for a property in addition to the mortgage loan; usually expressed as a
    percentage value.
  • DUE-ON-ENCUMBRANCE: A seldom-used clause in mortgages that allows the lender to foreclose if the borrower gets additional financing, such as a second mortgage.
  • DUE-ON-SALE CLAUSE: Provision in a mortgage that states that the loan is due upon the sale of the property.
E
  • EFFECTIVE RATE: The true rate of return that takes into account all relevant financing expenses.
  • ENCUMBRANCE: Also known as a Lien, where a claim is made against a property by a third party. Such an act ensures that a property cannot be transferred without first clearing such a Lien or Encumbrance.
  • EQUITY: The true value that an owner has in a property over and above the debt upon it.
  • ESCROW: The placing of property or funds with a third party (usually an attorney) for safe-keeping, pending the fulfillment or performance of a condition or act.
  • EXCULPATORY CLAUSE: A provision in a mortgage that allows the borrower to surrender the property to the lender without personal liability for the loan.
F
  • FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): A private corporation authorized by federal law to provide secondary mortgage market support for conventional real estate loans. It is popularly known as “Freddie Mac.”
  • FEDERAL HOUSING ADMINISTRATION (FHA): An agency of the U.S. government, Department of Housing and Urban Development, that administers many loan programs, loan guarantee programs and loan insurance programs in order to make housing more widely available.
  • FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): A federally chartered, semi-public corporation that purchases conventional and government guaranteed real estate loans. Their stock is traded on the New York Stock Exchange. The FNMA is popularly known as “Fannie Mae.”
  • FIRST MORTGAGE: That mortgage which has priority as a lien (see Glossary) or debt over all other mortgages. In case of foreclosure, the first mortgage must be paid before any other mortgage or lien.
  • FIXED RATE MORTGAGE: A mortgage loan that has a constant interest rate for the entire term of the loan.
  • FORECLOSURE: Termination of all rights of ownership of a borrower in a property covered by the mortgage. Statutory foreclosure can be effected without a court-order.
G
  • GRADUATED PAYMENT MORTGAGE: A mortgage where the payments vary over the term of the loan, usually starting low, then slowly rising, until they reach a plateau where they remain for the remainder of the term. This mortgage is useful if you want low initial payments.It is often used by first-time home buyers and is often combined with a fixed-rate or an adjustable-rate mortgage.
  • GROWING EQUITY MORTGAGE: A rarely used type of mortgage where the payments increase according to set a schedule. The purpose is to pay additional money into the principal in order to pay off the loan earlier, and save interest charges.
  • GUARANTEE: The agreement to indemnify the holder of a loan all or some of the unpaid principal balance in case of default by the borrower.
I
    • INDEX: A measurement of an established interest rate used to establish the periodic rate adjustments for adjustable-rate mortgages. There are a wide variety of indexes used, including Treasury bill rates, cost of funds to lenders, and a few others.
    • INSURANCE: The policy purchased by a borrower which shall indemnify the lender in case of foreclosure of the loan.
    • INTERIM FINANCING: A loan where the property owner is unable or unwilling to arrange permanent financing. Such financing is usually arranged for less than 3 years.
J

 

  • JUNIOR MORTGAGE: A mortgage which is paid only after prior mortgages are settled.
L
  • LIEN: The charge against a property, thus making it security for the payment of a loan, judgment, mortgage, or taxes. It is also a type of encumbrance on a property. A Personal Lien is against all the property owned by the indebted person.
  • LIFE OF LOAN CAP: The limitation on the maximum interest rate that can be charged on an adjustable-rate
    mortgage during the term of the loan.
  • LOAN APPLICATION: Documentation required by a lender before issuing a loan commitment.
  • LOAN COMMITMENT: An agreement to lend a specified amount of money, at specified terms and conditions.
  • LOAN-TO-VALUE RATIO (LTV): The proportion of the amount borrowed compared to the cost or value of the property purchased.
M
  • MARGIN: The constant amount added to the value of the index (percentage of interest) for the purpose of adjusting the interest rate on an adjustable-rate mortgage.
  • MATURITY: The due date of a loan.
  • MORTGAGE: The written instrument that creates a lien upon property as security for the payment of a specified loan. All mortgages are valued according to the chronological order in which they are put placed onto a property. The first mortgage on a property is called a “first” in time, the next mortgage is “second” in time, and the next one after that is called “third” in time, and so on. This order is important because in the event of foreclosure, all the money from a foreclosure will go to pay off the lender of the first. Only if there is any money left over will it go to pay off the holder of the second and the third. The earlier the number, the more superior the mortgage is considered. Usually, when a first mortgage is paid off, the second takes the place of the first, and the third becomes the second, and so on.
  • MORTGAGE CONSTANT: The percentage ratio between the annual debt service and the loan principal. The formula is expressed in this way: Annual Debt/Loan Principal =mortgage constant.
  • MORTGAGE LIEN: The encumbrance on a property used to secure a loan. The holder of the lien has a claim to the property in case of default. The priority itself depends upon the agreements and conditions of the loan.
N
  • NEGATIVE AMORTIZATION: The increase in the outstanding balance of a loan resulting from failure to make the monthly installments on a loan.
  • NOTE: The written instrument that acknowledges a loan and states a promise to pay.
O
  • ORIGINATION FEES: The charges to the borrower to cover the costs of issuing the loan, such as, credit checks, appraisals and title expenses.
P
  • PERSONAL PROPERTY: Any property that does not go with the land. This includes cars, clothing, and furniture. Some items are disputable, such as, appliances and floor and wall coverings.
  • PITI: Principal, Interest, Taxes and Insurance. These are the monthly payments required for most home mortgage loans.
  • POINTS: A point is equal to one percentage (1%) of a mortgage amount. Lenders use the term “basis points”.  A basis point is one hundredth of a point. Thus, for example, ½% is 50 basis points.
  • PREPAYMENT PENALTY: Fees that must be paid by the borrower for retiring (see Glossary) a loan early.
  • PRINCIPAL: The owner of a property. A broker’s or agent’s client. The amount of money raised by a mortgage, separate from the interest paid upon it.
  • PRINCIPAL AND INTEREST PAYMENT (P&I): Monthly payment that includes the interest charges for the period, plus an amount applied to amortization of the principal balance.
  • PRIVATE MORTGAGE INSURANCE (PMI): Insurance on a conventional loan, provided by a private insurance company.
  • PURCHASE MONEY MORTGAGE: A mortgage given by a buyer to a seller in partial payment of the purchase price of property.
R
  • REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA): This act requires lenders to provide the buyer with specified information regarding the cost of securing financing, along with a break-down of actual costs.
  • REAL PROPERTY: Another term for real estate, including the house and the adjoining land.
  • REFINANCE: The substitution of a new loan for an old loan.
  • REO: A property that is owned by a bank or lending institution, typically the result of foreclosure or a deed-in-lieu of foreclosure.
  • RETIRING (a debt): To fully pay off the principal on a loan
S
  • SAVINGS AND LOANS ASSOCIATIONS (S&Ls): Institutions that specialize in giving, servicing, and holding mortgage loans, primarily on owner-occupied, residential property.
  • SECOND MORTGAGE: A subordinated lien, created by a mortgage loan, over the amount of a first mortgage.
    Second mortgages are often used to reduce the amount of a cash down payment.
  • SHORT SALE:  A sale in which the mortgage balance exceeds the value of the property. The lender must agree to release the mortgage for less than that owed.
  • SOCIETY OF REAL ESTATE APPRAISERS (SREA): A professional association to which most qualified appraisers belong. It is best to use an SREA designated appraiser.
  • SUBJECT PROPERTY: The property being appraised.
  • SUBJECT-TO MORTGAGE: Condition in which the buyer takes title to a mortgaged property but is not personally liable for the payment of the amount due. The buyer does have to make payments in order to keep the property. In case of default, only the buyer’s equity in the property is lost.
  • SUBORDINATION CLAUSE: A clause that can be inserted into a mortgage document to keep the mortgage
    secondary to any other mortgages. (See Mortgage for more details).

 

T
  • TAX BRACKET: Marginal rate for income taxes. It is the percentage of each additional dollar in income required to be paid as income taxes.
  • TEASER RATE: Interest rate charged on an adjustable-rate mortgage for the initial adjustment interval that is usually much lower than the fully indexed rate. The Teaser Rate is an incentive to encourage borrowers to accept an adjustable-rate mortgage loan. Usually, the interest rate jumps back to the indexed rate at the adjustment date.
  • TERM: The period of time during which principal and interest payments must be made on a regular basis.
  • TITLE: This is evidence that you actually have the right of ownership of real property. It takes the form of a deed that specifies the kind of title you have (whether joint, common, or some other).
  • TITLE INSURANCE POLICY: An insurance policy that covers the title to your home. It may list you or the lender as a beneficiary. This policy is issued by a title insurance company, or by an attorney (underwritten by an insurance company). The policy states that if for any covered reason your title is defective, the company will correct the title or pay you up to a specified amount (usually the purchase price or mortgage). Before issuing this policy, an insurance company fully investigates the chain of title and notifies all parties of any defect (such as liens). These must then be paid off.
  • TRANSACTION COSTS: Costs associated with buying and selling a home. These include: Appraisal Fee, Brokerage Commission (paid by the seller), Legal Fees, Mortgage Discount Points, Mortgage Origination Fees, Recording Fees, Survey Fees, and Title Search Fees.
V
  • VA LOANS: Home loans guaranteed by the Veterans Administration (VA) under the Servicemen’s Readjustment Act of 1944 and its later revisions. The VA guarantees payment to the lender in case of default. The home must be the buyer’s principal place of residence.
W
  • WRAP-AROUND OR WRAP FINANCING: This is a combination of two mortgages. If the lender is the seller,
    then he does not get all cash. Instead of giving the buyer/borrower a simple second mortgage, the lender combines the balance due on a previous, existing mortgage (usually a first) with an additional loan. In this way, the wrap-around includes both the second and the first mortgages. The borrower then makes payments to the lender, who keeps part of the payment, and then makes payments on the existing mortgage. The wrap is typically used by a seller who either does not trust the buyer to make payments on a first, or who wants to get a higher interest rate.