Glossary
A
Abstract (of Title) a summary of the public records affecting the title to a particular piece of land. An attorney or title insurance company officer creates the abstract of title by examining all recorded instruments or documents relative to a specific property. i.e. easements, liens, mortgages, etc.
Acceleration Clause a provision in a loan agreement that allows the lender to require the balance of the loan to become due immediately if mortgage payments are not made or there is a breach in your obligation under your mortgage or note.
Addendum any addition or modification to a contract. Commonly referred to as an amendment or rider.
Adjustable Rate Mortgage (ARM) a type of loan in which the interest rate is tied to an economic index which fluctuates with the market. The rate may adjust in relation to the type of ARM, 1 year, 3 year or 5 year terms. The loan may adjust at the end of each of the specified time periods. A 5 year ARM may adjust every 5 years.
Agency the relationship between a broker and a client. example: Listing Broker and Seller have an agency.
Agent the individual that represents a client in the purchase or sale of real property. The agent must be licensed by the state department of real estate and is a representative of a brokerage that holds Agency with a buyer or seller.
Amortization a payment plan that is intended to help a borrower reduce debt gradually through monthly payments over the period of the loan through payments of principal and interest. Amortization tables enable borrowers to see what their payment schedule is and what portion of the payment goes toward interest or principal, dependent on the terms of the loan.
Annual Percentage Rate (APR) total cost of a loan expressed in the form of a percentage rate of interest, including costs associated with creation of the loan such as closing costs and origination fees. Banks must provide you with the APR of any loan you are comparing.
Appraisal a report in which a licensed appraiser provides a client with an estimate of value of real estate at specific point in time and in a certain condition.
Appurtenance anything that is attached to a piece of land or building such that it becomes a part of that property that when sold, is transferred to the new owner. examples: septic tank, orchard, water tower, easement or right of way
Arbitration of Disputes a method of solving disagreements or disputes that generally is less expensive than going to a court of law. The process of arbitration involves a buyer and seller meeting with a neutral third person arbitrator that hears each sides claim and makes a decision based on the presentation of evidence. The decision is final and enforceable as a court decision. For further clarification consult a real estate attorney.
B
Balloon Mortgage a mortgage that may be amortized over a shorter duration. At the end of the loan term the remaining balance of the loan must be paid in one payment.
Broker the individual that works as an agent for the buyer or seller client. Brokers must hold current certification and licensing with their state department of real estate.
Building line the distance from a property’s front, back or side of the lot that dictates where construction or improvements may not extend or encroach on. Building lines vary depending on local government jurisdictions.
Buyer Broker the buyer broker is a real estate broker that represents the buyer exclusively. Unlike the Seller Broker or a conventional Broker the Buyer Broker has a strict fiduciary duty to the buyer in exchange for compensation from the Buyer.
Buyer’s Market a market condition that is in favor of the buyer’s position in a transaction. Generally, a Buyer’s Market is expressed as a large inventory of homes for sale and prices are low.
C
Capital Gains in reference to taxes, Capital Gain is the profit that an individual makes when they sell their home. Refer to Tax Benefits under Benefits of Homeownership for further explanation of current regulations or tax implications.
Capital Improvement money that is spent on your property that results in permanent increase in the value and or useful life. example: a new roof, kitchen remodel, energy efficient windows and insulation.
Cash Reserve the sum of cash that lenders require the buyer to have after closing costs for their home to cover a specified number of payments or to cover a financial emergency.
Certificate of Title the document or instrument issued by the local government agency to a homeowner that names them as the owner of a particular piece of property.
Closing the time when the buyers and sellers have executed the contract and escrow terms and money is exchanged for title to the property. Closing is the finalization of the purchase.
Closing Costs the costs to close escrow and acquire the property, obtain a loan or any other costs associated with purchasing the property due at the close of escrow. Closing costs can include origination fees, escrow fees, title and recording fees, inspector bills, costs for appraisals, title insurance, costs to cover existing liens in some cases and commissions to brokers.
Cloud on Title outstanding claim, encumbrance or instrument that adversely affects the marketability or value of a property.
Commission the sum of money that is awarded to broker by the seller or, in the case of a Buyer Broker, by the buyer as compensation for finding them a home and negotiating the contract.
Community Property a method in which a married couple can take title and possession of a property. Two benefits of taking title this way are the ability of either spouse to transfer interests to whomever they chose by methods such as a will. The other benefit is that a surviving spouse receives favorable tax benefits should the other spouse become deceased.
Comparative Market Analysis an estimate of value often performed by agents based off of current market data, either sold, pending or active. Properties of like kind are analyzed based on their similarities and differences and adjustments are made accordingly to determine the final estimate.
Condominium dwelling of two or more units in which ownership is taken by a buyer in the interior space of the unit and common areas such as lobbies, parking lots and laundry facilities are shared jointly with other Condo owners.
Contingency a condition in a contract set forth that must be satisfied prior to closing or mutually removed by the parties of the contract. If contingencies are not met the party that receives benefit of the contingency may terminate contract. example: loan contingency, buyer’s home inspection, sale of buyers current home
Conventional Mortgage a loan that is underwritten by a bank, savings and loan or other form of mortgage company. The loan may be sold to private institutional investors or other parties in a secondary market. Regulations and requirements may vary from loans funded by government programs like FHA or USDA loans.
Cosigner a cosigner is a friend or relative that can cosigning their name to your loan in the case that your credit is poor or you have a circumstance that prohibits you from qualifying for the loan on your own. The cosigner assumes indebtedness with the borrower for the loan and purchase of the home and is liable should the borrower default on their loan.
Covenants, Conditions and Restrictions (CC&Rs) are set forth by homeowners associations to stipulate how the neighborhood, condominium or association maintenance, repairs and improvements are to be conducted. CC&Rs may dictate how a yard is cared for, when and where garbage is to be left for collection, what color a home can be painted or how common areas such as parking lots are to be cared for. It is not uncommon to see rules pertaining to collection of fees and how they are allocated for said maintenance and repairs.
Credit Report is a report that is available to consumers and lenders that provides a score of a borrowers credit worthiness. Consumers may obtain three reports for free within a 12 month period by accessing the Federal Trade Commission website.
Cu-de-Sac street that ends in a U shape or rounded pavement in which a driver can turn about and exit the street the same way that they entered. There is not a through street which is intended to create less traffic and less noise.
Consecutive Days on Market the duration that a home or property has been marketed for sale without interruption.
Custom Build when a home is built to satisfy the specific needs of an individual homeowner.
D
Debt to income Ratio a ratio used by lenders when qualifying borrowers for a loan. Lenders prefer a ratio of less than 33 to 40 percent determined by dividing your total monthly housing expenses (including mortgage payments), taxes, and insurance by your gross monthly income.
Debt Service the total amount of debt that an individual is carrying at any point in time. Debt includes credit card payments, bills, car payments etc.
Deed the document which conveys title to a real property. The deed is also used to convey possession of property.
Deed in Lieu of Foreclosure an alternative to foreclosure that is a voluntary agreement in which the borrower conveys ownership of the property in default to the lender in exchange for release from the loan.
Default is the term used when a borrower fails to make a payment on their loan on time. Borrowers become officially in default once they miss two or more consecutive payments. Defaulting on a loan is a breach of contract with the lender.
Delinquent the period of time prior to a borrower becoming in default. The borrower does not make payment by the due date of that particular payment.
Down Payment the sum of money that is paid by the buyer up front as part of the purchase price that is not being financed. Higher down payments are more favorable to lenders and can result in more favorable terms in your loan.
Dual Agency is the occasion in which an Brokerage represents both the seller and the buyer in the same transaction. This situation must be disclosed to all parties pertinent to the transaction.
Due-on-Sale Clause a clause contained in the mortgage that gives the lender the ability to demand payment in full for the remaining portion of the loan upon a successful close of escrow.
E
Earnest Money Deposit (EMD) a sum of money deposited in escrow by buyer that will later contribute to buyers downpayment, made to seller as a sign of good faith that the buyer intends to purchase the property.
Easement a right given by a landowner to a third party to use or utilize a specific portion of land in a specific manner stated in a contract and agreed on by both parties.
Eminent Domain the right of the government to condemn private property for the use of the public. For the government to take possession of property via the right of Eminent Domain the owner must be given money equal to Fair Market Value.
Encroachment when a neighboring property owner constructs a structure, roadway or fence that simultaneously occupies a portion of another owners property there is said to be an “Encroachment” on the second owner’s property
Encumbrance a lien, interest or claim against a property by a third party that creates an inability to successfully market or sell a property with a clean title.
Escrow a neutral account in which funds are stored during the time of the transaction of sale which begins when a contract is ratified and ends upon recordation of title in the name of the buyer. This is also a term used to describe the process in which an escrow officer facilitates the transfer of appropriate documents to fund a loan, provide clear title, disburse funds and record transfer of title.
Escrow Period the timeframe that is determined in the purchase contract for the successful transfer of documentation, recordation and funding of necessary items of the transaction.
F
Fannie Mae (Federal National Mortgage Association) the organization that purchases loans from banks, and other mortgage institutions in the secondary market and sells them to investors. Fannie Mae requires very specific guidelines be met for purchase. Government Sponsored Enterprise of the United States, however, a privately-owned corporation
Fee Simple the most basic type of ownership as well as the most absolute form of ownership in which the owner has the right to use and dispose of the property as they choose.
Fiduciary Duty the relationship that exists between a broker and client of which the parties have mutual responsibilities to act honestly and diligently with trust and in one another’s best interest.
First Mortgage the mortgage that supersedes all other voluntary liens.
Fixed Rate Mortgage a mortgage in which the borrower “locks” into an interest rate for the duration of the loan term. The payment may be amortized over the life of the loan but payments will remain constant for the life of the loan.
Fixture Personal property that becomes permanently affixed to the property. example: built in bookcase, water heater, ceiling fan. These become a part of the real property at the time of sale unless otherwise specified.
Foreclosure is the legal action taken by the lender against the borrower in default to assume the rights and interest in the property so that the lender can sell the property in a foreclosure sale to satisfy any outstanding debt.
Freddie Mac (Federal Home Loan Mortgage Corporation FHLMC) the organization that purchases loans from banks, and other mortgage institutions in the secondary market and sells them to investors. Fannie Mae requires very specific guidelines be met for purchase. Government Sponsored Enterprise of the United States, however, a stockholder-owned corporation
G
Gift Letter a letter written by a third party that informs the lender that a sum of cash has been gifted to the borrower so that the may acquire a loan.
Good Faith Estimate(GFE) under current regulations a lender is required to give a borrower a written estimate of closing costs in good faith within three days of the submission of an application for a loan.
Graduated Payment Mortgage a loan in which the borrower’s payments increase as the loan matures allowing the borrower to make smaller payments at the beginning of the loan and larger payments near the ender of the term. Payments increase according to a predetermined formula
H
Hazard Insurance lender required insurance that covers the property from damages that materially affect the value of the home. This is also known as Homeowner’s Insurance.
Home Inspection a thorough inspection performed by a licensed inspection agent that results in a report of all findings that may materially affect the value or marketability of the property. Covers many general aspects of a home including roofs, electrical systems, plumbing and exteriors of the property.
Home Warranty a service that covers repair or replacement for items such as appliances, plumbing, electrical and some cosmetic items. The service usually is based on a one year contract with a base fee and an additional service fee, at a predetermined and oftentimes lower rate, to have a technician evaluate claims.
Homeowners Association a body of homeowners in a particular housing tract, development or area that form an organization that takes care of common property, areas or common interests.
Homeowner’s Insurance an insurance policy that not only includes hazards insurance but incorporates personal liability insurance and theft into the coverage.
I
Index the index is measure of overall levels of interest rates that the lender uses to calculate the specific interest rate on an ARM.
Interest Money that is charged as a cost for borrowing funds from a lender. The interest is usually charged as a percentage of the loan value charged for a period of time, commonly one year.
Interest Only Mortgage a loan that is made where only the interest is charged on a regular payment schedule and the principle is due in full at the end of the loan term.
Interest Rate Cap the maximum percentage points that an ARM may rise over the term of the loan.
J
Joint Tenancy when parties that own title to a property each have equal, undivided interest in a property. In Joint Tenancy there exists a Right of Survivorship, in which, if one party becomes deceased the other party(ies) inherits the others total interest in the property.
L
Late Charge the fee that is charged when a payment on a loan is received after the grace period.
Lease-Option a contract in which an individual is allowed to rent or lease a property with an option to buy the property at a later point in time after sum of money or “option consideration” is paid up front.
Lender the person, company, or entity that lends the borrower the money necessary to acquire a property in exchange for payment in terms of various contracts in which interest is considered compensation for such services.
Lessee a person that is leasing a property.
Lessor the person that is leasing the property to the lessee.
Leverage when an individual uses a small portion of money as a down payment for a loan to buy a property of greater value than the down payment. Obtaining a loan on the downpayment is said to be leveraging a buyers funds in order to buy a home.
Lien a lien is an encumbrance against a property that affects the title of said property. Liens can be either voluntary (mortgage) or involuntary (mechanic’s lien). There are many variations of lien and each has different methods of recordation agains the title.
Listing a property that is listed as “For Sale” with a brokerage by a seller in exchange for compensation. Oftentimes the compensation is expressed as a percentage of the sales price or Commission.
Listing Agent the brokerage that takes a listing is said to be the Listing Agent.
Liquidated Damages the sum of money that a party may take from a failed contract if the other party violates the terms of the contract and causes evident damages to the first party.
Loan a sum of money lent to a borrower to acquire a property with the intention to repay the Lender for the Principal and Interest of the loan.
Loan Commitment a written document that secures that a buyer and lender have entered into an agreement that the lender will give the buyer a sum of money that will be repaid with payments of principal and interest for a specific duration of time. The loan commitment will also include rules and conditions pertaining to the loan set forth by the lender including early termination, payment schedules and foreclosure proceedings.
Loan Origination Fee the fee charged by the lender to generate the funds for the loan. A one time fee is the common practice for this fee.
Loan to Value Ratio (LTV) a ration that compares the amount of a borrowers loan to the value of the property in question. This may be a criteria for a lender to execute a loan based on the property’s ratio.
Lock-In a written commitment from a lender that locks in the interest rate for a borrower for their loan. Lenders typically associate a time period for which the commitment is good, once that time period expires the lock is no good.
M
Margin an amount that is added to the Index to calculate the interest rate on an ARM loan.
Mediation of Disputes an alternative to going to a court of law to resolve real estate disputes. In mediation parties meet with a neutral third party “mediator” to present their case and the mediator helps to develop a solution to the dispute. Unlike an arbitrator the mediator cannot execute final decision. The mediation process is said to be quicker and cheaper than taking an action to court, for further clarification on this legal matter a real estate attorney should be consulted.
Mortgage the document that states that the buyer volunteers to have a lien placed on their property by a lender in exchange for funds to purchase the property. The Mortgage is an instrument that allows the lender to proceed with foreclosure and collection of payments for the property from the borrower.
Mortgage Banker a company or corporation that utilizes it’s own source of funds to provide buyers the necessary money to purchase a property.
Mortgage Broker the party that connects buyers to lenders. Mortgage Brokers may purchase mortgages at a wholesale rate from lenders and resell them to a Borrower at an increased cost.
Mortgagee the legal or contractual name for the Lender
Mortgagor the legal or contractual name for the borrower
Multiple Listing Service (MLS) the digital database of information on all properties either currently or previously listed among a specified board of REALTOR®s, brokers and agents.
N
Negative Amortization condition that exists when the monthly payment of a mortgage becomes less than the amount necessary to pay off the loan over the period of the time or duration of the note. Paying less than the amount necessary means that the actual loan amount increases over time and the borrower can actually end up with negative equity. This loan should be carefully scrutinized by borrowers if not avoided, consult with your lender.
O
Option the situation in which a buyer is allowed to pay for the right or option to purchase a property for an expressed length of time without actually having an obligation to buy the property.
Origination Fee generally referenced as a percentage of the total loan or a “point”. Origination Fee is a term to describe the sum of money charged to the borrower by the lender for allowing the buyer to borrow money.
P
Partnership a method for an unmarried couple to take possession or ownership of a property. Consult with a real estate attorney for details and to get a written partnership agreement in place.
Personal Property generally accepted items that are moveable and not fixed to Real Property. examples: dishwasher, microwave, potted plants, sofas
PITI stands for Principal-Interest-Taxes-Insurance and generally comprise the four parts of a mortgage payment
Point generally expressed as 1 percent of the total loan amount. Commonly seen associated with Origination Fees.
Prepayment Penalty when a borrower pays off a loan before the life of the loan expires or the note comes due they may be assessed a Prepayment Penalty. Prepayment includes the time at which an individual sells their home and receives the money to repay their debt on the home.
Prequalification the statement made by a lender or Mortgage Broker that says a buyer is qualified up to a certain amount of money to borrow.
Principal the actual amount of money that a buyer borrows.
Private Mortgage Insurance (PMI) a type of insurance that is intended to protect 20% of the loan value. PMI is paid in monthly payments by the borrower and may be stopped once 80% of the Principal has been paid off.
Property Taxes the tax that is levied against a property on the value of real estate by a county or local authority. The buyer pays property taxes once a year.
Q
Quit-Claim Deed a deed that releases any rights or interest in a property that a person may have. The grantor may or may not actually have any interest in the property so the grantee should verify that the grantor had a right to ‘quit’.
R
REALTOR® the designation bestowed upon real estate agents that belong to the National Association of REALTOR®s (NAR). Members of NAR hold themselves to a code of ethics and higher requirements for education and professionalism than non-members. Find out more about REALTOR®s at www.realtor.com
Real Estate Settlement Procedures Act (RESPA) a Federal statute passed that contains regulations that govern the way that professionals in a real estate transaction must treat one another as well as the consumers of the the real estate industry.
Recording when documents are filed at the appropriate local government office to make said documents of public record. Also referred to the process at the end of escrow when documents are filed and the buyer becomes the owner of record for a property.
Refinance when a borrower takes out a new mortgage loan to pay off an existing loan.
Regulation Z the Truth in Lending Act is set forth by Congress and requires that lenders provide a written good faith estimate of closing costs to a borrower as well as all other terms of the loan in consideration.
Return on Investment (ROI) calculated as a percentage of profit that a buyer will make on their investment. Calculated by the amount of profit divided by the sum of money needed to make the investment and measured in a percentage.
S
Sale-Leaseback the situation that arises when a seller sells a property to a buyer and then rents the property back from the buyer after Close of Escrow.
Second or Second-Mortgage a secondary mortgage that is made after the primary mortgage. The Second takes second rights for repayment to the primary or first mortgage.
Settlement Statement the document issued by escrow or the lender that outlines the details of money to be allocated at the successful close of escrow.
Short Sale when a property is sold while the borrower is in Default on their payments and the Lender agrees to accept the proceeds from the sale as satisfactory to fulfill the borrowers commitment for the defaulted loan.
Special Assessment the additional charge or fee that is issued to a property owner to pay for capital improvements or other expenses benefiting participants of the assessed area.
T
Tax Deductible payments that a borrower may deduct against their taxable income. see Tax Benefits section for further explanations.
Tax Lien a Lien that is applied to the property if the owner is unable to pay their real estate or income taxes. Tax Liens can create a cloud on title or result in an auction sale to recoup the amount of owed taxes.
Tenants in Common the form of ownership in which multiple parties have undivided interests in the property. The owners may have unequal shares of ownership, the right to sell or transfer their interest and there is no right of survivorship among the owners.
Title document or instrument that indicates ownership of a specific property.
Title Insurance a special kind of insurance that protects the lender and property owner from losses that may result from defects or claims made against the property that question the title or ownership matters pertaining to a specific property.
Townhouse a series of connected or row of homes that share common walls and roofs.
Trust Account an account that Brokers and Escrow agents have where funds are deposited for other individuals and held separately from other funds. This serves as a manner to prevent commingling of funds.
U
Underwriter the individual or company that underwrites a loan for a purchase, often times an investor will underwrite a loan.
V
Variable Interest Rate an interest rate that may rise or fall in relation to a specified economic indicator or Index.
VA or Department of Veterans Affairs Loan the GI Bill of 1944 provides for a loan service offered to active servicemen and veterans of the Unites States Military to help them obtain affordable mortgages, often through lower interest rates or more favorable loan terms.
Void the action taken to make a contract or agreement null or unenforceable
Voluntary Lien a Lien that an individual voluntarily accepts. example: a mortgage is a voluntary lien that borrower accepts in order to receive funds to purchase a home.
W
Warranty a legal and binding contract given to an individual that guarantees the condition, status or quality of a home, property or material item.
Water Heater Statement of Compliance a document that states that a property’s water heater meets or does not meet minimum code standards for safety compliance.
Z
Zoning local governments or municipalities may dictate how a particular area or region can be utilized. Zoning imparts specific rules and guidelines for how a property may be developed, improved or used on a daily basis. Common zones include residential, residential multi-family, commercial service, commercial tourist and manufacturing or industrial.
