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REAL ESTATE GLOSSARY OF DEFINITIONS A Acceleration Clause: The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant. Accrued Items: On a closing statement, items of expense incurred but not yet payable, such as interest on a mortgage loan or taxes on real property. Adjustable-rate mortgage (ARM): A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index. Adverse Possession: The actual, open, notorious, hostile and continuous possession of another´s land under a claim of title. Possession for a statutory period may be a means of acquiring title. Agency: The relationship between a principal and an agent, usually a property owner and a real estate broker. Agent: One who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a real estate broker to be his or her agent. 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 (like location, Woods, water) or man-made (like 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 (for example, 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. Appreciation: An increase in the worth or value of a property due to economic or related causes, which may prove to be either temporary or permanent. 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. Assessor: a government official who is responsible for determining the value of a property for the purpose of taxation. Assumable mortgage: a mortgage that 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. Attorney-in-fact: A person who performs one or more acts for another person according to the authority granted to them in a document known as a Power of Attorney. Automatic extension: A clause in a listing agreement that states that the agreement will continue automatically for a certain period of time after its expiration date. In many states, use of this clause is discouraged or prohibited. B 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. Blanket Loan: A mortgage covering more than one parcel of real estate, providing for each parcel´s partial release from the mortgage lien upon repayment of a definite portion of the debt. 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. Breach of Contract: Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due. Broker: One who acts as an intermediary on bhalf of others for a fee or commission. 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. Budget: a detailed record of all income earned and spent during a specific period of time. Buffer Zone: A strip of land, usually used as a park or designated for a similar use, separating land dedicated to one use from land dedicated to another use. Building Code: An ordinance that specifies minimum standards of construction for buildings to protect public safety and health. Building Permit: Written governmental permission for the construction, alteration or demolition of an improvement, showing compliance with building codes and zoning ordinances. Buydown: A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder, buyer, or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for the set time. C Cap: a limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease. Capital Gain: The taxable profit derived from the sale of a capital asset. It is the difference between the sales price and the basis of the property after making adjustments for closing costs, capital improvements, and allowable depreciation. 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. Certificate of title: a document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims. 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 all closing costs, and receives title 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 document, claim, unreleased lien or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title. Clustering: The grouping of homesites within a subdivision on smaller lots than normal, with the remaining land used as common areas. Commission: an amount, usually a percentage of the property sales price, that is collected by a real estate professional as a fee for negotiating the transaction. Common Law: The body of law based on custom, usage and court decisions. Community Property: A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A holdover of Spanish law, found predominantly in western states; the system was unknown under English common law. Comparables: Properties used in an appraisal report that are substantially equivalent to the subject property. Comparable Market analysis (CMA): A comparison of the process of recently sold homes that are similar to a listing seller´s home in terms of location, style, and amenities. Conditional-use Permit: Written governmental permission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area. 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. Construction Loan: A short-term loan usually made during the construction phase of a building project. Contingency: A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding. Contract: A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed. Conventional loan: a private sector loan, one that is not guaranteed or insured by the Cooperative (Co-op): residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan. Counteroffer: A new offer made as a reply to an offer received. It has the effect t of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror. Covenant: A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases and contracts for deed. Credit: On a closing statement, an amount entered in a person´s favor-either an amount the party has paid or an amount for which the party must be reimbursed. Credit history: history of an individual's debt payment; lenders use this information to gouge 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. D Debit: On a closing statement, an amount charged; that is, an amount that the debited party must pay. 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 document that transfers ownership of a property. Deed-in-lieu: to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure. Deed Restrictions: Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions-for example, they may limit the density of buildings, dictate the types of structures that can be erected or prevent buildings from being used for specific purposes or even from being used at all. Default: the inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms. Delinquency: failure of a borrower to make timely mortgage payments under a loan agreement. Depreciation: A loss of value in property due to any cause, including physical deterioration. Developer: One who attempts to put land to its most profitable use through the construction of improvements. 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. Disclosed Dual Agent: An agent who has received the informed, written consent of a buyer and seller to represent both parties to a transaction. Discount Point: A unit of measurement used for various loan charges; one point equals one percent of the amount of the loan. Down payment: the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. Dual Agency: Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states. E 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 to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land. EEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase Eminent Domain: The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner. Encroachment: A building or some portion of it-a wall or fence for instance- that extends beyond the land of the owner and illegally intrudes on some land of an adjoining owner or a street or alley. Encumbrance: Anything-such as a mortgage, tax or judgment lien, an easement, a restriction on the use of the land or an out-standing dower right- that may diminish the value of a property.
Escrow account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc. F Fair Housing Act: a law that prohibits discrimination in all facets of the homebuying 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); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages. Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change. Fixture: An item of personal property that has been converted to real property by being permanently affixed to the realty. 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: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders With funds for new homebuyers. G Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders. 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. H HELP: Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the homebuying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price. Home Equity Loan: A loan (sometimes called a line of credit) under which a property owner uses his or her residence as collateral and can then draw funds up to a prearranged amount against the property. Home inspection: an examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed. Home warranty: offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; ,overage extends over a specific time period and does not cover the home's structure. Homeowner's insurance: an insurance policy that .combines protection against damage to a dwelling and Is contents with protection against claims of negligence )r inappropriate action that result in someone's injury or )property damage. Housing counseling agency- provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and homebuying. HUD: the U.S. Department of Housing and Urban Development; established in 1965, 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. HUD1 Statement: also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing. HVAC: Heating, Ventilation and Air Conditioning; a home's heating and cooling system. I Improvement: 1.Any structure, usually privately owned, erected on a site to enhance the value of the property-for example, building a fence or a driveway. 2. A publicly owned structure added to or benefiting land, such as a curb, sidewalk, street or sewer. Index. a measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage. Inflation: the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value. Interest: a fee charged for the use of money . Interest rate: the amount of interest charged on a monthly loan payment; usually expressed as a percentage. Insurance: protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium. J Joint Tenancy: Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent´s interest passes to the surviving joint tenant or tenants by the right of survivorship. Judgment: a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.
Lease purchase: assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment. Lien: a legal claim against property that must be satisfied When the property is sold Listing Agreement: A contract between an owner and a real estate broker by which the broker is employed as agent to find a buyer for the owner´s real estate on the owner´s terms, for which service the owner agrees to pay a commission.
Loan fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties. Loan-to-value (LTV) ratio.- a percentage calculated by dividing the amount borrowed by the 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. Loss mitigation: a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan M Margin: an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage. Market Value: The most probable price property would bring in an arm´s-length transaction under normal conditions on the open market. Master Plan: A comprehensive plan to guide the long-term physical development of a particular area. Mechanic´s Lien: A statutory lien created in favor of contractors, laborers and materialmen who have performed work or furnished materials in the erection or repair of a building. Mortgage: a lien on the property that secures the Promise to repay a loan. Mortgage banker: a company that originates loans and resells them to secondary mortgage lenders like :Fannie Mae or Freddie Mac. 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 part of the mortgage payment - paid by a borrower for mortgage insurance. Mortgage Modification: a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments. Multiple-listing Service (MLS): A marketing organization composed of member brokers who agree to share their listing agreement with one another in the hope of procuring ready, willing and able buyers for their properties more quickly than they could on their own. O Offer: indication by a potential buyer of a willingness to purchase a home at a specific price; generally 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. P Partial Claim: a loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date. Personal Property: Items, called chattels, that do not fit into the definition of real property; movable objects. 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. Plat Map: A map of town, section or subdivision indicating the location and boundaries of individual properties. 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. Pre-approve: lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. Pre-foreclosure sale: allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure. Prepaid Items: On a closing statement, items that have been paid in advance by the seller, such as insurance premiums and some real estate taxes, for which he or she must be reimbursed by the buyer. 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; doesn't include interest or additional fees. Promissory Note: A financing instrument that states the terms of the underlying obligation, is signed by its maker and is negotiable. Prorations: Expenses, either prepaid or paid in arrears, that are divided or distributed between buyer and seller at the closing. Q Quitclaim Deed: A conveyance by which the grantor transfers whatever interest he or she has in the real estate, without warranties or obligations. R Radon: a radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems. Real Estate: Land; a portion of the earth´s surface extending downward to the center of the earth and upward infinitely into space, including all things permanently attached to it, whether naturally or artificially. 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 act of entering or recording documents affecting or conveying interests in real estate in the recorder´s office established in each county. Until it is recorded, a deed or mortgage ordinarily is not effective against subsequent purchasers or mortgagees. Refinancing: paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate). Rehabilitation mortgage: a mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan. Release Deed: A document, also known as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid. RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships S Settlement: another name for closing. Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments. Subdivision: A tract of land divided by the owner, known as the subdivider, into blocks, building lots and streets according to a recorded subdivision plat, which must comply with local ordinances and regulations. Subordinate: to place in a rank of lesser importance or to make one claim secondary to another. Survey: a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Sweat equity: using labor to build or improve a property as part of the down payment T Title 1: an FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don't require a property lien. Title insurance: insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. Title search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property. Trust Deed: An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust. Truth-in-Lending: a federal law obligating a lender to give fuII written disclosure of aII fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan. U Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value. V 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. Value: The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities. Variance: Permission obtained from zoning authorities to build a structure or conduct a use that is expressly prohibited by the current zoning laws; an exception from the zoning ordinances. W Warranty Deed: A deed in which the grantor fully warrants good clear title to the premises. Used in most real estate deed transfers, a warranty deed offers the greatest protection of any deed. Z Zoning Ordinance: An exercise of police power by a municipality to regulate and control the character and use of property. |