REAL ESTATE TERMS

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ADDENDUM
If a buyer or seller want to change an existing contract, they might add an addendum outlining the specific part of the contract they’d like to adjust and the parameters of that change. The rest of the contract stays the same, regardless of the addendum.

ADJUSTABLE RATE MORTGAGE
The interest rate for an adjustable-rate mortgage changes periodically. You might start with lower monthly payments than you would with a fixed-rate mortgage, but fluctuating interest rates will likely make those monthly payments rise in the future.

ADJUSTMENT DATE
The date in which the interest will begin to accrue on your mortgage, before payment is made on the mortgage. It is usually the date the mortgage funds are dispersed.

AGREEMENT OF SALE
An agreement between the seller (vendor) and buyer (vendee) for the purchase of real property.

AMORITIZATION
The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest.

ANNUAL PERCENTAGE RATE
The annual percentage rate (APR) is the amount of interest charged on your loan every year.

APPRAISAL
An appraisal is the process of creating an estimate of value for real estate property. Fair market value (FMV) is the price a property would sell for given a reasonable amount of time and assumes the buyer and seller know about all the details of the property. For the appraiser to get an accurate value, they must collect appropriate data and apply one or more approaches. He or she will then explain the appraisal decision in a final reconciliation of value.

APPRECIATION
Appreciation refers to the increase in the value of a property or item over time.

ASSESSED VALUE
A municipal or provincial government's determination of a property's worth for tax purposes.

ASSUMABLE MORTGAGE
An assumable mortgage is a type of financing arrangement whereby an outstanding mortgage and its terms are transferred from the current owner to a buyer. By assuming the previous owner's remaining debt, the buyer can avoid having to obtain their own mortgage.

BACKUP OFFER
A bid for a property that the owner will consider if the current transaction falls through.

BALLOON MORTGAGE
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

BANKRUPTCY
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

BILL OF SALE
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale to help document this source of funds.

BROKER
A person who is licensed to represent a buyer or seller of land and the buildings and other improvements on it and collect commissions for the work. Most brokers have agents working for them and collect a portion of their commissions in exchange for providing office space, marketing and other overhead.

CALL OPTION
A call option is a contract giving one party the right to buy and another party the right to sell a piece of property at a future time and specific price.

CASH OUT REFINANCE
A cash-out refinance replaces your existing mortgage with a new home loan for more than you owe on your house. The difference goes to you in cash and you can spend it on home improvements, debt consolidation or other financial needs.

CERTIFICATE OF DEPOSIT
A time deposit held in a bank which pays a certain amount of interest to the depositor.

CERTIFICATE OF ELIGIBILITY
During the VA loan process, lenders require veterans to show proof they’ve met the minimum service requirement to qualify for a VA loan.

CHAIN TITLE
An analysis of the transfers of title to a piece of property over the years.

CLEAR TITLE
A title that is free of liens or legal questions as to ownership of the property.

CLOSING
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs.

CLOSING COSTS
The miscellaneous expenses involved in closing a real estate transaction that are over and above the purchase price. Some of the closing costs include title insurance, appraisal fee.

CONTINGENCY
If a property is contingent, or the contract contains a contingency, certain events must transpire or the contract can be considered null. A contingency might be that the home must past an appraisal or receive a clean inspection.

CONVENTIONAL MORTGAGE
Refers to home loans other than government loans (VA and FHA).

CREDIT HISTORY
A record of an individual's repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.

CREDIT REPORT
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

DAYS ON MARKET
The period between listing and sale, or listing and a property being taken off the market.

DEBT-TO-INCOME RATIO
The percentage of an individual's income that is used to repay debt.

DEED
The legal document conveying title to a property.

DEFAULT
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

DEPRECIATION
A decline in the value of property; the opposite of appreciation.

DISCOUNT POINTS
Discount points are also known as mortgage points. They’re fees homebuyers pay directly to the lender at the time of closing in exchange for reduced interest rates which can lower monthly mortgage payments.

DOWN PAYMENT
The part of the purchase price of a property that the buyer pays in cash at the time of closing. This portion is not financed.

EARNEST MONEY
Earnest money is a deposit made by a homebuyer at the time they enter into a contract with a seller.

EASEMENT
A right of way giving persons other than the owner access to or over a property.

EFFECTIVE AGE
An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

ENCROACHMENT
An improvement that intrudes illegally on another's property.

EQUITY
The difference between the price for which a property can be sold and the mortgage(s) on the property; equity is the owner’s stake in the property.

ESCROW
An account in which a neutral third party holds the documents and money in a real-estate transfer until all conditions of a sale are met. Also, an account in which money for property taxes and insurance is held until paid; money is added to the account every time a mortgage payment is made.

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.

EXAMINATION OF TITLE
A title examination reviews all public records tied to a property. It generally reviews all previous deeds, wills, and trusts to ensure the title has passed cleanly and legally to every new owner.

FAIR CREDIT REPORTING ACT
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

FAIR MARKET VALUE
The highest price that a buyer would pay for a property and the lowest price a seller is willing to accept.

FANNIE MAE (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

FORECLOSURE
The legal process by which the lender takes possession and ownership of a property when the borrower fails to meet the mortgage obligations.

FSBO
For Sale By Owner.

GOVERNMENT LOAN
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

GRANTEE
The person to whom an interest in real property is conveyed.

GRANTOR
The person conveying an interest in real property.

HOME INSPECTION
A home inspection is a professional consulting service that determines the present condition of the home’s major systems, based on a visual inspection of accessible features. It focuses on the performance of the home, rather than cosmetic, code or design issues. Inspections are often performed during a real estate transaction but may be done anytime.

HOMEOWNER'S ASSOCIATION
Also know as HOA,  a Home Owner Association is created by a Real Estate Developer in a subdivision, planned community or condominium that makes and enforces rules for the properties in its jurisdiction.

HOMEOWNER'S INSURANCE
When you purchase a home, it's also necessary to purchase insurance to cover any losses or damages you might incur, such as natural disaster, theft, or damage.

It also protects the homeowner from liability against any accidents in the home or on the property. Usually, insurance payments are included in your monthly mortgage payments.

HOMEOWNER'S WARRANTY
An insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.

IMPLIED CONTRACT
A contract under which the agreement of the parties is demonstrated by their acts and conduct.

INCOME APPROACH
The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.

INCOME PROPERTY
Real estate developed or improved to produce income.

INSURABLE TITLE
A title to land that a title company will insure.

INSURED MORTGAGE
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

INTEREST ACCRUAL RATE
An accrual rate is the interest rate applied to a financial obligation, such as bonds, mortgages, and credit cards.

INTERIM FINANCING
A short-term loan usually made during the construction phase of a building project; often referred to as the “construction loan.”

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.

JUDGEMENT
The official and authentic decision of a court on the respective rights and claims of the parties to an action or suit. When a judgment is entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant for a ten-year period.

LANDLOCKED
Real property having no access to a public road or way.

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.

LICENSEE
A person who has a valid license. A real estate licensee can be a salesperson or a broker, active or inactive, an individual, a corporation, or a partnership.

LIEN
A legal claim against a property that must be paid off when the property is sold.

LIFE CAP
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.

LIQUIDATED DAMAGES
Liquidated damages occur when, by contractual agreement, defaulted earnest money becomes the personal property of the seller.

LOAN OFFICER
Mortgage loan officers help the homebuyer with purchasing or refinancing a home. Loan officers are often employed by financial institutions and help borrowers choose the right type of loan, compile their loan application, and communicate with appraisers.

LOAN ORIGINATION FEE
The loan origination fee covers the administrative costs of processing the loan.

LOAN-TO-VALUE (LTV)
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

MORTGAGE
The contract between a borrower and a lender; the borrower pledges the property as security to guarantee repayment of the mortgage debt.

MORTGAGE BANKER
A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae.

MORTGAGE INSURANCE
Government-backed or private-backed insurance protecting the lender against the borrower’s default on high-ratio (and other types of) mortgages.

MORTGAGE LIEN
A lien or charge on a mortgagor’s property that secures the underlying debt obligations.

MORTGAGE LIFE INSURANCE
Mortgage life insurance is a type of insurance product that pays off a mortgage if the borrower dies.

MORTGAGE- CONVENTIONAL
A first mortgage issued for up to 80% of the property’s appraised value or purchase price, whichever is lower.

MULTIPLE LISTING SERVICE (MLS)
A multiple listing service (MLS) is a database established by cooperating real estate brokers to provide data about properties for sale. A MLS allows brokers to see one another's listings of properties for sale with the goal of connecting homebuyers to sellers.

NEGATIVE AMORITIZATION
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create “negative” amortization.

NEGOTIATION
The transaction of business aimed at reaching a meeting of minds among the parties; bargaining.

NOTARIZE
To certify or attest to a document, as by a notary public.

NOTE
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

NOTE RATE
The interest rate stated on a mortgage note.

OBSOLESCENCE
A type of depreciation of property.

OFFER
The transaction of business aimed at reaching a meeting of minds among the parties; bargaining.

OPEN HOUSE
The common real estate practice of showing a listed home to the public during established hours.

ORIGINATION FEE
On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

PERIOD PAYMENT CAP
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

PERIOD RATE CAP
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

PITI
Stands for principal, interest, taxes, and insurance, and refers to the sum of each of these charges, typically quoted on a monthly basis.

POINTS
A generic term for a percentage of the principal loan amount which the lender charges for making the loan; each point is equal to one percent of the loan amount.

POWER OF ATTORNEY
The authority to act for another person in specified or all legal or financial matters.

PREPAYMENT CLAUSE
In a mortgage, the statement of the terms on which the mortgagor may pay the entire or stated amount of the mortgage principal at some time prior to the due date.

PREPAYMENT PENALTY
A charge imposed on a borrower by a lender for early payment of the loan principal to compensate the lender for interest and other charges that would otherwise be lost.

PRINCIPAL
The mortgage amount initially borrowed or the portion still owing on the mortgage; the money used to pay down the balance of the loan.

PRIVATE MORTGAGE INSURANCE (PMI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults

PURCHASE AGREEMENT
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

QUALIFYING RATIOS
Guidelines used by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.

QUITCLAIM DEED
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

RATE LOCK
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

REAL ESTATE AGENT
A person licensed to negotiate and transact the sale of real estate.

REAL ESTATE OWNED
Real estate owned refers to property owned by a bank, government agency, or other lender.

Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

REALTOR®
A registered trademark term reserved for the sole use of active members of local REALTORS® boards affiliated with the National Association of REALTORS®.

REFINANCE
The act of obtaining a new loan to pay off an existing loan; the process of paying off one loan with the proceeds from another.

RIGHT OF FIRST REFUSAL
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

RIGHT OF INGRESS OR EGRESS
The right to enter or leave designated premises.

SECOND MORTGAGE
A mortgage that has a lien position subordinate to the first mortgage.

SECURED LOAN
A loan that is backed by collateral- financial assets you own, like a home or a car—that can be used as payment to the lender if you don't pay back the loan.

SELLER TAKE-BACK
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

SERVICER
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts on behalf of a trustee.

SHORT SALE
A sale of secured property that produces less money than is owed to the lender, but in order to expedite the sale and avoid foreclosure expense, the lender releases its interest so the property can be sold.

SURVEY
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

TAX LIEN
A charge against property created by the operation of law. Tax liens and assessments take priority over all other liens.

TITLE
A legal document evidencing a person's right to or ownership of a property.

TITLE COMPANY
A company that specializes in examining and insuring titles to real estate.

TITLE INSURANCE
Insurance designed to indemnify the holder for loss sustained by reason of defects in a title, up to and including the policy limits.

TITLE SEARCH
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

TRANSFER OF OWNERSHIP
Refers to transfer of a property’s deed and title from the seller to the buyer at closing.

TRANSFER TAX
State or local tax payable when title passes from one owner to another.

TRUSTEE
A fiduciary who holds or controls property for the benefit of another.

TRUTH-IN-LENDING
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

UNDER CONTRACT
A home is under contract when a seller has accepted an offer from a buyer but the transaction has not yet closed.

UNILATERAL CONTRACT
A contract in which one party makes an obligation to perform without receiving in return any express promise of performance from the other party, such as an open listing contract, where the seller agrees to pay a commission to the first broker who brings in a ready, willing and able buyer.

USEFUL LIFE
In real estate investment, the number of years a property will be useful to the investors.

USERY
The practice of charging more than the rate of interest allowed by law.

VA MORTGAGE
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

VARIANCE
An exception from the zoning ordinances; permission granted by zoning authorities to build a structure or conduct a use that is expressly prohibited by zoning ordinance.

VENDEE
The purchaser of realty; the buyer. The buyer under an agreement of sale.

VENDOR
The seller of realty. The seller under an agreement of sale.