Glossary of Real Estate Terms:
Affidavit: A written statement made under oath before a Notary Public or other judicial officer.
Amenity: A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (i.e. wooded areas or water) or man-made (i.e. a swimming pool or garden).
Amortization: Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (i.e., 15 or 30 years).
Annual Percentage Rate (APR): Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
Application: The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Appraisal: A document that gives an estimate of a property’s fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraiser: A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly payment amount, however, is usually subject to a Cap.
AS-IS: the physical condition in which the seller delivers the property to the buyer.
Assessed value: The value assigned to real estate by the county/city tax assessor; and upon which property taxes are calculated.
Assessor: A government official who is responsible for determining the value of a property for the purpose of taxation.
Assignment of Funds: The redirection of funds, at the seller’s request, to be applied to another transaction; typically occurs when the sale of the seller’s current home and the purchase of their new home happen within 24-48 hours of each other.
Assumable mortgage: A mortgage that, subject to lender’s approval, can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.
Balloon Mortgage: A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.
Bankruptcy: A federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Broker: Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Building code: Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction and materials used in building.
Cap: A limit, such as that placed on an adjustable rate mortgage (see ARM), on how much a monthly payment or interest rate can increase or decrease.
Cash reserves: A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Clear title: A title that is free of liens or legal questions as to ownership of the property.
Closing: Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays their closing costs, and receives title (Deed) from the seller.
Closing costs: Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.
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.
Commission: An amount, usually a percentage of the property sales price, which is collected by a real estate professional as a fee for negotiating the transaction.
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 condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
Common areas: Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
Condominium: A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.
CFPB (Consumer Financial Protection Bureau): The Federal agency created in 2011 and tasked with the responsibility to promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services.
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 oral or written agreement to do or not to do a certain thing.
Conventional loan: A private sector loan, one that is not guaranteed or insured by the U.S. government.
Cooperative (co-op): A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Credit history: History of an individual’s debt payment; lenders use this information to gauge a potential borrower’s ability to repay a loan.
Credit report: A record that lists all past and present debts and the timeliness of their repayment; it documents an individual’s credit history.
Credit bureau score: A number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.
Debt-to-income ratio: A comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deed: The legal document that transfers ownership of a property.
Deed-in-lieu: Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
Deed of Trust: A lien on the property that secures the Promise to repay a loan; a legal document that transfers ownership of a property to the Lender’s Trustee in the event of default by the borrower; used in place of a Mortgage in certain U.S. states.
Default: The failure to pay monthly mortgage payments in a timely manner or otherwise fail to meet the mortgage terms.
Delinquency: Lateness of payment; failure of a borrower to make timely mortgage payments under a loan agreement.
Depreciation: A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
Discount point: Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.
Down payment: The portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan.
Earnest money: Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.
Easement: A right of way giving persons other than the owner access to or over a property.
Eminent domain: The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
Encroachment: An improvement 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.
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 account: A separate account into which the lender puts a portion of each monthly mortgage payment; funds accumulated in an escrow account are used for the payment of future scheduled expenses such as property taxes, homeowners insurance, mortgage insurance, etc.
Estate: The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
Eviction: The lawful expulsion of an occupant from real property.
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.
Fair Housing Act: A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair market value: The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fannie Mae: Federal National Mortgage Association (FNMA); Fannie Mae is a government-sponsored enterprise (GSE) chartered by Congress with a mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets. Rather than making home loans directly to consumers, Fannie Mae works with mortgage bankers, brokers and other primary mortgage market partners to help ensure they have funds to lend to home buyers at affordable rates.
FHA: Federal Housing Administration; established in 1934 to advance home ownership opportunities for all Americans; assists home buyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower
Fixed-rate mortgage: A mortgage with principal and interest payments that remain the same throughout the life of the loan.
Fixture: Personal property that becomes real property when attached in a permanent manner to real estate.
Flood insurance: Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain the lender will require flood insurance before approving a loan.
Foreclosure: The legal process by which an owner’s right to a property is terminated, usually due to default.
Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); is a stockholder-owned corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing.
Grantee: The person to whom an interest in real property is conveyed.
Grantor: The person conveying an interest in real property.
GFE: Good Faith Estimate, an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
Hazard insurance: Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
Home inspection: An examination of the structure and mechanical systems to determine a home’s safety; makes the potential home buyer aware of any repairs that may be needed.
Homeowners’ association: A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
Home warranty: Offers one year of protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner’s insurance.
Homeowner’s insurance: Also referred to as Hazard Insurance, an insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence (inappropriate action that results in someone’s injury) or property damage.
HUD: Established in 1965, the US Dept of Housing and Urban Development (HUD) works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws. HUD-1 Settlement Statement: also known as the “HUD-1” or “settlement sheet,” is a disclosure of closing costs for both seller and buyer as required by the Real Estate Settlement Procedures Act (RESPA).
Interest: The cost of borrowing money, usually expressed as a percentage.
Interest rate: The amount of interest charged on a monthly loan payment; usually expressed as a percentage.
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.
Judgment: A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor. Alternative spelling is “judgement.”
Lease: A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Leasehold estate: A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
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.”
Lien: A legal claim against property that must be satisfied when the property is sold.
Loan fraud: Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability and/or criminal penalties.
Loan officer: Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.
Loan-to-value (LTv) ratio: A percentage calculated by dividing the amount borrowed by the sales price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.
Lock-in: Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.
Margin: An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.
Mortgage: A lien on the property that secures the Promise to repay a loan; used in place of a Deed of Trust in certain States.
Mortgage broker: A firm that originates and processes loans for a number of lenders.
Mortgage insurance: A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price.
Mortgage Insurance Premium (MIP): A monthly payment, usually a part of the mortgage payment, paid by a borrower for mortgage insurance.
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 written agreement between the borrower and lender which outlines the terms for repayment of the mortgage loan.
Offer: Indication by a potential buyer of a willingness to purchase a home at a specific price; put forth in writing.
Origination: The process of preparing, submitting and evaluating a loan application, generally includes a credit check, verification of employment, and a property appraisal.
Origination fee: the charge for originating a loan; is usually calculated in the form of points and paid at closing.
Owner financing: A property purchase transaction in which the property seller provides all or part of the financing.
PITI: Principal, Interest, Taxes, and Insurance – the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner’s and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
Planned Unit Development (PUD): A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.
PMI: Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
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 lender’s commitment to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Pre-qualify: A lender informally determines the maximum amount an individual is eligible to borrow.
Premium: An amount paid on a regular schedule by a policyholder that maintains insurance coverage.
Prepayment: Payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty.
Principal: The amount borrowed from a lender to be repaid over a specified term; and upon which interest accrues.
Purchase agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Quitclaim deed: A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
Radon: A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.
Real estate: Land; and all man-made improvements attached thereto (i.e. house, garage, shed, fences, etc.).
Real estate agent: An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.
REALTOR®: A real estate agent or broker who is a member of the National Association of Realtors, and its local and state associations.
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.
Refinancing: Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (such as a lower interest rate).
REO: (Real Estate Owned) a property that was “bought back” by the lender at foreclosure auction and is now being sold with the lender as the owner.
RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders, agents, brokers and settlement agents to disclose all settlement costs, practices, and relationships.
Right of survivorship: In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
Settlement: Another name for Closing.
Short Sale: Occurs when a lender agrees to accept less than the full balance of the amount owed in order to release their lien on real property.
Subdivision: A housing development that is created by dividing a tract of land into individual lots for sale or lease
Subordinate: To place in a rank of lesser importance or to make one claim secondary to another.
Survey: A property diagram that indicates the location of improvements (i.e. house, garage, shed, fences, etc.), legal boundaries, easements, encroachments, rights of way, etc.
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.
Third-party origination: A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market .
Title: A document that indicates ownership of a property; collectively the documented history of ownership, liens and encumbrances of a specific property.
Title insurance: Indemnity against loss resulting from disputes over ownership of the property and defects in the title.
Title abstract/search: An examination of public records to confirm that the seller is the actual owner of the property and that there are no unsettled liens or other claims against the property.
Trustee: A fiduciary who holds or controls property for the benefit of another.
Truth-in-Lending (TIL): A disclosure required by federal law; designed to give the borrower information about the estimated annual cost of the loan, as well as the total cost over the life of the loan. This allows the borrower to compare costs between loan programs and/or lenders.
Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan; includes a review of the potential borrower’s credit history and an appraisal of the property value.
VA: Department of Veterans Affairs: a federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.
VHDA: Virginia Housing Development Authority; the State’s mortgage finance agency; created in 1972 by the Virginia General Assembly, it’s mission is to help low and moderate income Virginians obtain quality, affordable housing.