Real Estate Terminology
Adjustable rate mortgage loan (ARM) - A type of alternative mortgage
instrument in which the interest rate adjusts periodically according to
a predetermined index and margin. This adjustment results in the mortgage
payment either increasing or decreasing.
Agreement for sale (SALES CONTRACT) - A written document in which
the purchaser agrees to buy certain real estate (or personal property)
and the seller agrees to sell under stated terms and conditions.
Amortization - Repayment of a debt in equal installments of principal
and interest, rather than interest-only payments.
Annual percentage rate (APR) - A rate which represents the relationship
of the total finance charge (interest, loan fees, point) to the amount
of the loan.
Application - A form used to apply for a mortgage loan and to record
pertinent information concerning a prospective mortgagor and the proposed
Appraisal - A report by a qualified person setting forth an opinion
or estimate of value.
Appraised value - An opinion of value reached by an appraiser based
upon knowledge, experience, and a study of pertinent data.
Appraiser - A person qualified by education, training, and experience
to estimate the value of real and personal property.
Appreciation - An increase in value; the opposite of depreciation.
Assessment - The process of placing a value on property for the
strict purpose of taxation. may also refer to a levy against property for
a special purpose, such as a sewer assessment.
Balloon mortgage - A mortgage with periodic installments of principal
and interest that do not fully amortize the loan. The balance of the mortgage
is due in a lump sum at the end of the term.
Balloon payment- The unpaid principal amount of a mortgagee or other
long-term loan due at a certain date in he future, usually the amount that
must be paid in a lump sum at the end of the term.
Binder, insurance - A written evidence of temporary hazard or title
coverage that only runs for a limited time and must be replaced by a permanent
Borrower - One who receives funds with the expressed or implied
intention of repaying the loan in full.
Caps - A limitation on the interest rate increase of either the
periodic or lifetime rate or both for an adjustable rate mortgage.
Certificate Of Occupancy (CO) - Written authorization given by a
local municipality that allows a newly-completed or substantially-completed
structure to be inhabited. The issuing of a CO means that: the home is
SAFE, SOUND & SANITARY, and has matches the PLANS & SPECIFICATIONS
given to the Appraiser at the beginning of the Loan Process.
Certificate of title - A statement furnished by an abstract or title
company or an attorney to a client stating that the title to real estate
is legally vested in the present owner.
Closing - The conclusion or consummation of a transaction. In real
estate, closing includes the delivery of a deed, financial adjustments,
the signing of notes and the disbursement of funds necessary to the sale
or loan transaction.
Closing costs - Expenses incidental to a sale of real estate, such
as loan fees, title fees, appraisal fee, and others.
Commission - An agent's fee for negotiating a real estate or loan
Condominium - A form of ownership of real property. The owner receives
title to a particular unit and a proportionate interest in certain common
areas. A condominium generally defines each unit as a separately owned
space to the interior surfaces of the perimeter wall, floors, and ceilings.
Construction loan- A short-term, interim loan for financing the
cost of construction. The lender makes payments to the builder at periodic
intervals as the work progresses
Conventional loan - A mortgage loan neither insured by FHA nor guaranteed
Cosigner- A person who signs a legal instrument and therefore becomes
individually and jointly liable for repayment or performance of an obligation.
Credit report - A report to a prospective lender on the credit standing
of a prospective borrower or tenant. Used to help determine creditworthiness.
Deed - A written legal document which purports to transfer ownership
of land from one party to another.
Deposit (Earnest Money) - A sum of money given to bind a sale of
real estate, or a sum of money given to assure payment or an advance of
funds in the processing of a loan.
Depreciation - A loss of value in real estate property brought about
by age, physical deterioration, or functional or economic obsolescence.
The opposite of appreciation.
Down payment (EARNEST MONEY) - Cash portion paid by a buyer from
his own funds, as opposed to that portion of the purchase price which is
financed. Draw System - Scheduled payment of money to a builder
during the phases of home construction. Between each draw, the appraiser
must inspect the home to ensure that construction is proceeding as planned.
Due-on-sale Clause - A type of acceleration clause, calling for
a debt under a mortgage or deed of trust to be due in its entirety upon
transfer of ownership of the secured property.
asement - right or interest in the land of another entitling the
holder to a specific limited use, privilege or benefit such as laying a
sewer, putting up electric power lines, or crossing the property.
Eminent domain - The right of a government to take private property
for public use upon payment of its fair value.
Encumbrance - Anything that affects or limits the fee simple title
to property, such as mortgages, leases, easements, or restrictions.
Equity - In real estate, equity is the difference between Fair Market
Value and current indebtedness, usually referring to the owner's interest.
Escrow - A transaction in which a third party, acting as the agent
for the buyer and the seller, carries out instructions of both and assumes
the responsibilities of handling all the paperwork and disbursement of
Escrow payment - That portion of a mortgagor's monthly payment held
by the lender to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due. Known as impounds or reserves
in some states.
Exclusive right to sell (Listing) - A written contract giving a
licensed real estate agent the exclusive right to sell a property for a
specified time. The owner agrees to pay a full commission to the broker
even though the owner may sell the property.
Fair Market Value - The price at which property is transferred between
a willing buyer and a willing seller, each of whom has a reasonable knowledge
of all pertinent data and neither of whom is under any compulsion to buy
Federal Home Loan Mortgage Corporation (FHLMC) - a private corporation
authorized by Congress to provide secondary mortgage market support for
conventional mortgages. Also know as Freddie Mac.
Federal Housing Administration (FHA) - A division of HUD. Its main
activity is the insuring of residential mortgage loans made by private
lenders. FHA does not lend money.
Federal National Mortgage Association (FNMA) - A privately owned
corporation created by Congress to support the secondary mortgage market.
Also known as Fannie Mae.
Fee Simple - An estate under which the owner is entitled to unrestricted
powers to dispose of the property, and which can be left by will or inherited.
The greatest interest a person can have in real estate.
Fiduciary - A person in a position of trust and confidence for another.
Firm commitment - A lender's agreement to make a loan to a specific
borrower of a specific property.
First mortgage - a mortgage having priority over all other voluntary
liens against certain property.
Foreclosure - An authorized procedure taken by a mortgage or lender
under the terms of a mortgage or deed of trust for the purpose of having
the property sold and the proceeds applied to the payment of a defaulted
Graduated Payment Mortgage - Residential mortgage which has monthly
mortgage payments that start at a low level and increase at a predetermined
Hazard insurance- A contract whereby an insurer, for a premium,
undertakes to compensate the insured for loss on a specific property due
to certain hazards.
Holdback - That portion of a loan commitment not funded until some
additional requirement such as rental or completion is attained. In construction
it is a percentage of the contractor's draw held back to provide additional
protection for the interim lender, often in an amount equal to the contractor's
HUD - The Department of Housing and Urban Development, established
by the Housing and Urban Development Act of 1965 to supersede the Housing
and Home Finance Agency. It is responsible for the implementation and administration
of government housing and urban development programs.
Index - An economic measurement that is used to measure periodic
interest rate adjustments for an adjustable rate mortgage.
Interest rate- The percentage of an amount of money which is paid
for its use for a specified time. Usually expressed as an annual percentage.
Investor - An person or institution investing in mortgages.
Involuntary lien - A lien imposed against property without consent
of an owner. Examples include taxes, special assessment, federal income
tax liens, mechanics liens, and materials liens.
Judgment lien - A lien upon the property of a debtor resulting from
the decree of a court.
Land contract - A contract ordinarily used in connection with the
sale of property in cases where the seller does not wish to convey title
until all or a certain part of the purchase price is paid by the buyer.
This financing vehicle is often used when property is sold on a small down
Lease - A written document containing the conditions under which
the possession and use of real or personal property are given by the owner
to another for a stated period and for a stated consideration.
Legal description - A property description recognized by law which
is sufficient to locate and identify the property without oral testimony.
Lessee (tenant) - The person(s) holding rights of possession and
use of property under terms of a lease.
Lessor (landlord) - The one leasing property to a lessee.
Lic. Mortgage Broker - The licensed person who, for a commission
or a fee, brings parties together and assists in negotiating contracts
between them. A firm or individual bringing the borrower and lender together
and receiving a commission. A mortgage broker does not retain servicing.
Lien - A legal hold or claim of one person on the property of another
as security for a debt or charge. The right given by law to satisfy a debt.
Limited partnership - a partnership that consists of one or more
general partners who are fully liable and one or more limited partners
who are liable only for the amount of their investment.
Loan - A sum of money loaned at interest to be repaid.
Loan Processing - (1) A System by which a Buyer is evaluated for
loan approval. The system compares the stated income, debt, savings and
credit against documentation provided by the buyer (or alternative Federal
documents). Calculations of Debt-To-Income, Loan-To-Value, Net Worth, Cash
Reserves and Compensating Factors are used to develop and Underwriting
Opinion. (2) The system of structuring a Buyer's financial situation
and documentation in such a way that an Underwriting Opinion can be reached.
Loan submission - a package of pertinent papers and documents regarding
specific property or properties. It is delivered to a prospective lender
for review and consideration for the purpose of making a mortgage loan.
Loan-to-value ratio - The relationship between the amount of the
mortgage loan and the appraised value of the security expressed as a percentage
of the appraised value.
Margin - The number of basis points a lender adds to the index to
determine the interest rate of an adjustable rate mortgage.
Metes and bounds - A description in a deed of the land location
in which the boundaries are defined by directions and distances.
Mortgage (Latin = `dead pledge') - A conveyance of an interest in
real property given as security for the payment of a debt.
Mortgage company - A private corporation whose principal activity
is the origination and servicing of mortgage loans which are sold to other
Mortgagee - a person or firm to whom property is conveyed as security
for a loan made.
Mortgage insurance - The function of mortgage insurance is to insure
a mortgage lender against loss caused by a mortgagor's default. This insurance
may cover a percentage of the mortgage loan depending on the type of mortgage
Mortgage life insurance - A type of term life insurance often bought
by mortgagors. The amount of coverage decreases as the mortgage balance
declines. In the event that the borrower dies while the policy is in force,
the debt is automatically satisfied by insurance proceeds.
Mortgage note (NOTE) - A written promise to pay a sum of money at
a stated interest rate during a specified term. It is secured by a mortgage.
Mortgagor - One who borrows money, giving a mortgage or deed of
trust on real property as security.
Origination - The process of originating mortgages. Solicitation
may be from individual borrowers, builders, or brokers.
Origination fee - A fee or charge for the work involved in the evaluation,
preparation, and submission of a proposed mortgage loan.
Originator - A person who solicits builder, brokers, and others
to obtain applications for mortgage loans. origination is the process by
which the mortgage lender brings into being a mortgage secured by real
PITI(principal, interest, taxes, and insurance) - The principal
and interest payment on most loans is fixed for the term of the loan; the
tax and insurance portion may be adjusted to reflect changes in takes or
NOTE: In cases where the buyer puts down less than 20% of the Sales
Price, Mortgage Insurance will be required as part of the Total Monthly
Plans and specifications - Architectural and engineering drawings
and specifications for construction of a building or project, including
a description of materials to be used and the manner in which they are
to be applied.
Point - An amount equal to one percent of the mortgage loan. Loan
discount points are a one-time charge assessed at closing by the lender
to increase the yield on the mortgage loan.
NOTE: Basically, the borrower is offering the lender upfront
money to get a lower interest rate. The upfront money is to compensate
the lender for loss of yield (profit) on the loan because of the lower
rate given to the borrower.
Preclosing - A transaction preceding the formal closing, often used
to settle outstanding issues (survey, pest inspection, hazard insurance,
flood insurance (if required), with the formal closing shortly thereafter.
Prepayment privilege - The right given a borrower to pay all or
part of a debt prior to its maturity.
Principal - Amount of debt, not including interest. The face value
of a note, mortgage, etc.
Principal balance - The outstanding balance of a loan.
Private mortgage insurance (PMI) - Insurance written by a private
company protecting the mortgage lender against loss by a mortgage default.
Quitclaim deed - A deed that transfers (with no warranty) only such
interest, title, or right a grantor may have at the time the conveyance
Realtor - A real estate broker or an associate holding active membership
in a local real estate board affiliated with the National Association of
Re conveyance - The transfer of land from one person to the immediately
preceding owner. It is used when the performance of debt is satisfied under
the terms of a deed of trust.
Redemption period - That period of time in those states where it
is allowed in which a foreclosed mortgagor has to buy back his property
by paying principal amount and interest and fees.
Release of lien - An instrument discharging secured property from
Right of survivorship - In joint tenancy, the right of survivors
to acquire the interest of a deceased joint tenant.
Right-of-way - A privilege operating as an easement upon land, whereby
a land owner, by grant or agreement, gives another the right to pass over
land. Also knows as easement.
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, usually on a long-term basis.
ales Contract - Another name for a sales agreement, purchase agreement,
etc. Not to be confused with a land contract, which is a conditional sales
Satisfaction of mortgage - The recordable instrument given by the
lender to evidence payment in full of the mortgage debt. Sometimes knows
as a release deed.
Secondary financing - 'Financing real estate with a loan, or loans,
subordinate to a first mortgage or first trust deed.
Secondary mortgage market- The market where existing mortgages are
bought and sold. It contrasts with the primary mortgage market, where mortgages
are just originated, and packaged for delivery to the secondary market.
Servicing - The duties of the mortgage lender as a loan correspondent
as specified in the servicing agreement for which a fee is received. Consists
of operational procedures covering accounting, bookkeeping, insurance,
tax records, loan payment follow-up, delinquency loan follow-up and loan
Takeout commitment - A promise to make a loan at a future specified
time. It is commonly used to designate a higher cost, shorter term, backup
commitment as a support for construction financing until a suitable permanent
loan can be secured.
Tax lien - A claim against property for the amount of its due and
Tenancy - A holding of real estate under any kind of right of title.
Tenancy at will - A holding of real estate that can be terminated
at the will of either the lessor or the lessee, usually with notice.
Tenancy by entirety - The joint ownership of property by a husband
and wife where both are viewed as one person under common law that provides
for the right of survivorship.
Tenancy in common - In law, the type of tenancy or estate created
when real or personal property is granted, devised or bequeathed to two
or more persons, in the absence of expressed words creating a joint tenancy.
There is no right of survivorship.
Term - The period of time between the commencement date an termination
date of a note, mortgage, legal document, or the contract.
Title - The evidence of the right to or ownership in property.
Title insurance policy - A contract by which the insurer, usually
a title insurance company, agrees to pay the insured a specified amount
for any loss caused by defects (clouds) of title to real estate, wherein
the insured has an interest as purchaser, mortgagee, or otherwise.
Underwriting - The analysis and matching of risk to an appropriate
rate and term.
Unencumbered property - A property the title to which is free and
Usury - Charging more for the use of money than allowed by law.
Variable rate mortgage - A mortgage agreement that allows for adjustment
of the interest rate in keeping with a fluctuating market and terms agreed
upon in the note.
Warehousing - The holding of a mortgage on a short term basis pending
either a sale to an investor or other long term financing.
Warranty deed - A deed in which the grantor or seller warrants or
guarantees that good title is being conveyed, as opposed to a quitclaim
deed that contains no representation or warrant as to the quality of title
Zoning - The act of city or county authorities specifying the type
of use to which property may be put in specific areas.
Disclaimer: There are many more terms
and more complete definitions used in the Real Estate industries. This
list is made available to provide basic definitions of common real estate
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