Basic Terms Used for Real Estate & Mortgages

Abstract (of Title)

The title to the property is a synopsis of all recorded transactions that an attorney or title company has to analyze to find out whether there are any unsuitable problems influencing the title to the property. All problems are then validated before the buyer is issued the title.

Acceleration Clause

A loan provision allowing the lender to have credibility to render all assets owed to the lender promptly. The renter is in infraction of the loan provision, such as the sale of the property, or unable to make payments on time.

Accretion

Enlarging the amount of land through innate forces (water, wind, erosion, etc).

Example : location of new soil by a stream.

Agreement of Sale

A written signed agreement between the seller of a property and the purchaser in which the purchaser agrees to buy real estate and the seller agrees to sell upon the terms of the agreement.

Beneficiary

A person who acquires or is going to acquire benefits from indisputable events.

Example : The beneficiary on a mortgage loan is the lender.

Bi-weekly Mortgage

A mortgage which requires 1/2 the normal monthly payment every two weeks. Over the course of the year, 26 half payments are made which is equivalent to 13 full mortgage payments. As a result of this extra payment the loan amortizes much faster than a loan with normal monthly payments.

Blanket Mortgage

A contract comprising of multiple amounts of property.

Example : A man gets a blanket mortgage for his 3 tracts of land.

Borrower

A person who receives a loan and is responsible to make mortgage payments.

Bridge Loan

A loan used for someone who is having trouble selling his/her current home and needs money to buy a new home. Once the current home is sold the loan is then paid off.

Buy Down

A lower interest rate is offered through a point system set by the lender (buying the rate lower). The rate may last through the life of the loan or for only a year or so. The buy down system is a method for someone to qualify who is not suitable as a potential borrower. With a buy down the monthly payments are lowered.

Buyers Broker

A buyer seeks someone, usually an agent, to find and locate property that is for sale. The broker, a delegate on the behalf of the buyer, tries to deal with the sellers brokers to achieve the best possible deal.

Buyers Market

When buyers are able to bargain with sellers for a lower prices over property this may be a cause known as the buyers market (more sellers then buyers). The market is in favor of the buyers since more property for sale is in abundance. This type of buyers market may be seen during an economic drop or widespread developments.

Bylaws

How an establishment/organization handles business (set of regulations), e.g. a condo community constructs bylaws that define the number of people that may live in one household.

Capital Gains

The money gained from the sale of the property. A seller can delay the taxes on the capital gain by two years if they purchase a more expensive home within that time.

Cash Flow

The money accumulated over a given amount of time from an income producing property. The amount of money coming in from the property should be able to cover the cost of the income producing property (mortgage, basic upkeep, etc.).

Caveat Emptor

Actual definition meaning "let buyer beware". Pre-purchasing and examination of the property is done at the buyers own risk. e.g. a property can be shown/represented without the assurance of condition or quality.

Covenants, conditions, and restrictions - CC&Rs.

The basic rules establishing the rights and obligations of owners of real estate in a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized in order to maintain the property commonly owned by the individual owners. The association is typically made up of all of the home owners.

Certificate of Reasonable Value (CRV)

Appraisals given by an approved VA (Veterans Administration) appraiser. They are to set the maximum value on the VA mortgage loan principal.

Certificate of Occupancy

A form that must be given to the lender prior to closing a loan. The document must state the number of people living in one residency and that the home meets public health and building codes.

Certificate of Title

A statement by an attorney stating the status to the title of property. This certificate does not give the same benefits and protection as title insurance.

Clear Title

A retail title, clear of questionable and controversial issues. Some lenders have a clear title as a requirement before closing.

Closing

Changing ownership of land from the current owner to the buyer.

Closing Costs

Expenses incurred by the buyer and seller in a real estate or mortgage transaction. Types of costs are recurring and non-recurring.

Non-recurring costs are one time costs which include discount and origination points.

Lender fees - underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc.

Title insurance fees

Escrow, attorney or closing agent fees

Recording fees

Inspection and appraisal fees

Real estate brokerage commissions

Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing including Pre-paid interest - interest charges from the date of closing to the end of the month

Cloud on Title

Questionable claims that could jeopardize the owner's title.

Commitment

A lender agreeing or committed to specific terms, on a written document, to a contractor or borrower.

Condemnation

1. Using private property for public use while providing a considerable amount of compensation (usually money) to the owner. The land in turn is usually used for schools, streets and other community projects.

2. A home in violation of housing codes and consequently goes under government regulation.

Conditional Commitment

A lender making a commitment to a loan however, certain conditions must be met before the closing date of the property.

Condominium

Single ownership of a property unit with a shared interest in commonly owned areas and facilities which appeal to everyone in the condo community.

Construction Loan

This type of loan is temporary and used for construction of buildings and homes. A construction loan also gives the contractor small amounts of money over the construction period. It is not till the job is completely finished when a permanent loan is used to pay off the rest of the construction.

Consideration

Anything that would entice a seller into a contract (example: money deposits).

Contingency

Contingencies are conditions usually set forth in the contract that must be met before the buyer will close the purchase of the property. E.G. if the sales contract stated the buyer has 21 days to check all necessary repairs needed to the property and asks the seller to perform them. If the buyer is not pleased with the repairs or if they were not performed the buyer is then allowed to back out of the contract. However, after the 21 days are up the buyer can not back out due to the condition of the property.

Contract

A mutual agreement between the two parties which are involved in buying and selling property. E.G. an acceptable contract for sale contains: an offer, an acceptance, competent parties, consideration, legal purpose, written documentation, description of the property, signatures by principals.

Contract sale or deed

An installment arrangement between the buyer and seller stating that the buyer may reside on the property but the seller holds the title till sale is official and paid.

Conventional Loan

Their are two types of conventional loans: conforming and non-conforming. This is any type of mortgage other then VA and FHA loans.

Conveyance

The change of a real estate title from one party to another.

Co-op - Cooperative

In a cooperative, an apartment building is owned by a corporation that holds the title to the property or real estate. A resident however, is able to buy stock from the corporation which in turn allows him to live in the building unit owned by the cooperative. The person owning the stock does not have a title to the property but they are allowed to remain in their unit as long as they still hold stock.

Convertible ARMs

Certain loans are able to be converted to a fixed loan provided it follows a set formula.

Credit Report

A detailed report showing someone's credit history such as credit cards (revolving accounts) and car loans (installment accounts). Some reports will also show detailed descriptions from tax liens and judgments.

Deed

The title of property, normally changed from one owner to another at closing. The deed contains information about the property and the location. It is given to the buyer at closing.

Deed Restriction

Limiting the use of land by a clause, e.g. not permitted to construct a new road through the land.

Defective Title

The inability to give a clear title.

Deficiency Judgment

Personal claim made against a debtor when the sale of a foreclosed property does not yield sufficient proceeds to pay off mortgages, accrued interest, legal fees, ...

Depreciation

The decreasing value of a house caused by damages to the house or other means.

Discount Points

Decreasing an interest rate by paying fees to a lender.

Documentary Tax Stamps

Stamps on a deed showing the total amount of a transfer tax.

Down payment

The amount paid in advance on a property.

Earnest Money

Money showing evidence of good faith. The money is usually kept in safe keeping with a real estate broker or escrow company.

Easement

Using land for a specific purpose, the easement can either be temporary or permanent.

Eminent Domain

The governments ability to take over property (condemnation) for public use with compensation to the property owner.

Encroachment

Anything that physically lays or touches on the property of another.

Example: A fence being built.

Encumbrance

A legal right or interest in land/property that affects a good or clear title, and reduces the land/properties value. Such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance will not legally prevent the transfer of the property. A title search is typically done to find the existence of encumbrances. It is up to the buyer to determine whether he wants to purchase an encumbered land/property and what can be done to remove the encumbrance.

Equity

Equity (usually given in a percentage) is equal to the property value minus any liens.

Escrow

A neutral third party that deals with the financial aspects of a real estate transaction. A deposit is put into escrow, the mortgage lender funds the loan into escrow, escrow pays the realtor commission, pays of any liens/loans on the property and any property taxes and other costs associated with the transfer. The remaining funds are then transferred to the property seller.

Federal National Mortgage Association (FNMA, Fannie Mae)

Purchases loans from lenders and then sells FNMA mortgage backed securities on Wall street.

Federal Home Loan Bank Board (FHLBB)

Financing for farmers.

Farmer's Home Administration (FMHA)

Programs that assist people who want to buy farms and homes in rural areas.

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)

Purchases loans from members of the Federal Reserve and the Federal Home Loan Bank Systems, and sells FHLMC mortgage backed securities on wall street.

Federal Housing Administration (FHA)

An agency that issues loan guarantees and administers loan programs which makes more housing available.

Federal Reserve System

Provides regulation of the federal bank and gives services to commercial banks. Also sets the nations monetary policy as well.

Fee Simple

The owner that has absolute ownership of the property in the case of this person's death the property is given to their heirs.

Fiduciary

Someone who is to act in the best interest of a client. A realtor is a fiduciary for his/her clients.

Finance Charge

Interest charged by a lender.

First Mortgage

A mortgage with precedence over the second mortgage. In the case of closing on property the first mortgage will we covered before the second.

Flood Insurance

Insurance that covers the cause of damage to a home due to flooding.

Foreclosure

Forcing the sale of property by a default stated in a mortgage, e.g. not meeting payments on time.

Free and clear

A property that has no liens.

FSBO

For sale by owner.

General Warranty Deed

The seller protects the buyer from other requisitions to the title of the property.

Government National Mortgage Association (GNMA, Ginnie Mae)

Branches of a government agency HUD that purchases VA and FHA loans then sells Ginnie Mae securities to investors on Wall street.

Grantee

Buyer named in the deed.

Grantor

Seller named in the deed.

Graduated Payment Mortgage (GPM)

The first few years of the mortgage payments are low then gradually increase until the loan is completely amortized.

Grandfather Clause

A change in the law that conflicts with the previous law. However, under the grandfather clause a business, etc. is still allowed to continue under the previous law set forth.

Hazard Insurance

Fire Insurance-Insurance on the home against fire and other risks.

Homeowner's Insurance-additional coverage against theft and liability.

Homeowners Association

Homeowner's of a particular area, community, planned unit development (PUD), or complex that come to an agreement about the rules and regulations along with property management.

Homestead

A law in which the owner and his family can not be forced into sale because of bad credit or debits that may have incurred.

Homestead Exemption

Available in some states - this causes the assessed value of a principal residence to be reduced by the amount of the exemption for the purposes of calculating property tax.

Home Warranty Plan

Insurance Purchased around the closing period. The insurance that covers appliances, heating/cooling systems, etc.

Housing and Urban Development

Housing and community development project implemented by government agencies.

Housing Code

Residential homes must follow a set of standard safety and health regulations.

HUD 1

A closing agent makes a closing document that states the settlement cost of the loan. Once the agent finishes the document it is sent to the buyer at closing.

Improvements

Adding value to raw land by the development of homes, streets, and buildings, etc.

Impound Account

Partial amounts of the borrower's monthly payments which are used to pay certain services such as taxes, hazard insurance, mortgage insurance, lease payments, and other such things.

Income Property

Property that produces an income, e.g. building offices, townhouses, apartments.

Index

An enumeration that graphs the current economical situation. Indexes are then used to change the rate of the loan.

Ingress and Egress

The ability to pass through a piece of land however not allowing to park on it.

Joint and Several Liability

A creditor can ask to be paid in full by the borrower, in turn the borrower is responsible for paying the full debt not just a prorated portion.

Joint Tenancy

Property owned by 2 or more people and in common behalf they follow the law that if one owner dies the joint owner receives the property (survivorship).

Judgment Lien

The claim made on the property as a result from debt.

Jumbo Loan

A loan larger then the regulations instituted by Fannie Mae or Freddie Mac.

Junior Mortgage

A mortgage which is in lower rank to another. In many cases, other mortgages in higher ranking to the junior mortgage will be paid first.

Land Contract

The buyer is allowed to use and occupy the land however, the deed is not given to the buyer until the seller is given the full sale price.

Lease with Option to Purchase

During the term of the lease or other defined term, the lessee has the option to purchase the property.

Lessee

A person who is renting property by means of a lease.

Lessor

A person who is renting the property to the lessee by means of a lease.

Lien

The claims of debt, judgment, mortgage or taxes brought against a property.

Loan Application

Detailed information required about the borrower and the property. This information must be given to the lender before a loan can be approved.

Loan origination fee or points

The fee charged by a mortgage lender or broker for originating a loan. Not to be confused with discount points which are used to buy down the rate of interest.

Loan to Value Ratio (LTV)

Total amount of loan divided by the property value.

Loan Servicing

The acts of collection of loan payments, property tax and escrows, foreclosing on defaulted loans, remitting payments.

Margin

A fixed amount added to the loan index that is used to determine the interest rate on an adjustable mortgage.

Market Value

The lowest price a seller is willing to accept and the highest a buyer is willing to pay on a given property. Market value may fluctuate during any given period of time.

Mechanics Lien

The ability for an unpaid contractor or subcontractor to process a lien against property for compensation.

Mortgage

A written statement that forms a lien on property as security for the payment of certain debts.

Mortgage Backed Security (MBS)

A bond that is protected/secured by mortgage loans.

Mortgage Banker

One who has expertise in originating mortgage loans, servicing mortgage loans, and selling mortgage loans to investors.

Mortgage Broker

Places appropriate loans with borrowers and lenders. Eventually they (mortgage brokers) are paid when there is a closing on the loan.

Mortgagee

The lender.

Mortgagor

The borrower.

Mortgage Note

A written statement that holds the party responsible (mortgagor) for paying off the loan. The statement is in secured by a mortgage and is used as proof to show indebtedness. In general, the note shows the debt that the mortgage covers and holds the mortgagor responsible for repaying

Negative Amortization

When monthly payments do not cover the interest there is an increase in the principal balance. This is means that the principal balance will increase.

Non-conforming loan

Loans that do not follow the guidelines set by Fannie Mae and Freddie Mac.

Note

An instrument that recognizes a debt and acknowledges the need to pay.

Notary Public

Someone who is duly authorized to take acknowledgements of deeds, contracts, and mortgages.

Notice of Default

A notice sent to the wrongful party as recognition of a default made.

Open House

Used as a way to show a home to prospective buyers and those who are interested in making a purchase. The home is left open and an appointment is not necessary.

Open End Mortgage

Allowing a mortgagor to obtain more money under the same mortgage. There may be some conditions and stipulations to follow however.

Origination Fee

Fee charged in for the service of originating a mortgage loan.

Oral Contract

An agreement about sale, or conditions of sale, for property made verbally.

Owner of Record

A person's whose name appears on the deed which has been noted at the county's office of record.

Owner Occupant

Property which is inhabited by a resident who owns the property.

Partial Release

The release of property that may be used as collateral.

Permanent Loan or Mortgage

A mortgage that is kept for a substantial amount of time.

Permit

Issued by the government and used to take a form of consent, e.g. an occupancy permit grants permission to the owner to occupy or rent property.

PITI (Principal, Interest, Taxes, and Insurance)

All of these can be joined into one monthly mortgage payment.

Planned Unit Development (PUD)

A zoning classification which allows some flexibility in the design and construction of the individual units in a development. Units are individually owned but there are common areas owned by the group.

Plat

Land area that is mapped or planned.

Plat Book

The public record of divisions of land showing specific blocks, roads, and other necessary measurements of the land.

Points

Origination and discount points paid to a lender, e.g. 2 points = 2% of the total loan. If a a loan is $200,000 then 2 points is $4,000.

Portfolio Loan

A type of loan that is held by the bank and is not to sold on the secondary mortgage market.

Power of Attorney

A document authorizing someone (who does not need to be an attorney) the authority to act in the best interest of another.

Prepaid Interest

Prepaid interest is the interest charged to borrowers at closing to pay for the cost of borrowing for the remainder of the current month.

Prepayment

The ability to make a principal payment in full or part before the due date of the loan, e.g. advance monthly payments, refinance...

Prepayment Penalty

Fees assessed when the borrower pays of a mortgage before it is due.

Primary Mortgage Market

Companies like banks, savings and loans, credit union, etc. that originate and service mortgage loans make up the primary mortgage market.

Prime Rate

Short term loans with very low interest rates are often offered at the lowest commercial interest rate available. These loans are normally only available to the most credit worthy customers.

Principal

Balance owed on a loan.

Private Mortgage Insurance (PMI)

Some lenders will allow a down payment smaller then the one normally required if the borrower purchases private mortgage insurance which guarantees the repayment of the mortgage under certain terms.

Property Tax

Government tax that is assigned to a property based on the county's assessment value.

Quit Claim Deed

A deed which transfers the interest the maker of the deed has in a parcel of land. It is often used to clear the title when the grantor's interest in a property is at question. When accepting a quit claim deed, the buyer assumes all the risks involved.

Realtor

A property salesmen who follows the guidelines set by the National Association of Realtors.

Real Estate Broker

An individual, usually owning a company, who is licensed to act for a property seller or buyer.

Real Estate Settlement Procedure Act (RESPA)

Treatment, stated by law, given to people who file for loans and mortgages on 1-4 units, e.g. a lender is required by law to give a good faith estimate of closing costs within 5 days of someone filing for a loan.

Refinancing

The ability to repay an established loan with the monies from a new loan on the same property.

Re conveyance

When a mortgage is fully paid for the property in full the lender will convey the property back to the owner.

Recording

Processing information into a database that would affect the title of property. Lenders require that a deed of trust or a mortgage be recorded as evidence of debt.

Rescission

The ending of contract. When refinancing a mortgage on property, requires the borrower/owner to cancel the contract within 3 days if they decide not to proceed with the refinancing.

Regulation Z (Reg Z)

Regulation set by the federal government requiring creditors to give the full terms and agreements of a loan and the APR (annual percentage rate) to a borrower.

Reverse Mortgage

A mortgage used by the elderly in which they receive an income (payments) as long as they are alive. The principal of the loan increases as these payments are made, hence the term reverse.

Rollover Loan

A loan that is long term (e.g. 30 years) were the interest rate is kept lower for a shorter number of years (e.g. 5). This type of loan can either be rolled over or extended based on the terms of the loan at the end of the shorter period.

Secondary Mortgage Market

The ability to sell mortgages, loans and savings to investors like Fannie Mae and Freddie Mac.

Second Mortgage

Used in the addition to the first mortgage. Second mortgages usually carry higher interest rates and are known as a higher risk to investors due to the fact that they are subordinate to any first mortgages.

Security

In the case of debt property is used as collateral.

Servicing

The servicing of a mortgage by billing, managing, filing, and collecting.

Settlement Statement

A closing agent makes a closing document that states the settlement cost of the loan. Once the agent finishes the document it is sent to the buyer at closing.

Special Assessment

An additional tax on property to pay for improvements in the community.

Sheriff's Deed

A deed given at the sheriff's sale.

Single Family Housing (SFR)

A home with only one dwelling, e.g. Town houses and detached single family homes.

Spec House

A dwelling built with the confidence that someone will buy it.

Standard Uniform Loan Application (Form 1003)

A standard loan application.

Subdivision

An area of land the is divided for the possibility of a housing development.

Subordination

A loan with a lower priority than another, e.g. a second mortgage lien is subordinate to a first mortgage lien.

Survey

A map provided by a licensed surveyor which shows land boundaries, measurements, and charts of property.

Sweat Equity

When improvements to the property are made by the owner, the value of the property rises by a value know as sweat equity.

Tax Lien

Lien for nonpayment of taxes

Tax Sale

The consequence when taxes are not paid for. The property is put on auction by the government for public sale.

Teaser Rate

A mortgage with a low starting interest rate normally used to attract prospective borrowers.

Tenancy for Years

The amount of time a lease is enacted for (8 months, 3 years, etc.).

Tenancy in Common

Two or more people sharing the same residency and share the same belief of survivorship. In this case, if one of the residents shall decease the major beneficiary of the deceased person will inherit the ownership of the residency.

Tenancy in Severalty

A single owner of the property.

Time Share

Usually used in vacation properties. Ownership of the property is usually by a group of people and only for a specified interval in the lease.

Title

Evidence of ownership. Showing the owner of the property and that they are in lawful possession.

Title Insurance

A policy usually for the buyer and the lender. The insurance policy is created as protection from loss and damage caused by problems in the title.

Title Report

A document containing all information pertaining to the title's condition. The information included on this document is: mortgages, liens, easements, covenants, restrictions, and other problems that may be seen.

Title Search

A search conducted to conclude the ownership of property.

Town House

Homes that are generally of the two story nature and attached side-by-side to one another. Commonly found in planned unit developments (PUDs).

Tract

Land that is subdivided for the use of a development or other needs.

Transfer Tax

After the sale of property taxes are taken out and divided between the state, county, city, and other government agencies.

Truth in Lending

Federal Regulation Z defines truth in lending.

Underwriting

A background check given to a future loaner based on the criteria of assets, credit, income, employment, etc. of a potential borrower.

Unencumbered Property

Real estate with a free and clear title.

Unimproved Property

Undeveloped land.

Unrecorded Deed

A transfer of title from one party to another without recording.

Vacation Home

Second home.

VA Loan (U.S. Veterans Administration)

Allows veterans to receive a loan without putting money down and is guaranteed by the U.S. Veterans Administration.

Variable Rate Mortgage

Adjustable Rate Mortgage

Verification of Deposit (VOD)

Verification of account balance and history. This information must be verified through the borrower's bank.

Verification of Employment

Verification that a borrower is employed. The documents states the starting date, job title, salary, and probability of future employment.

Waiver

The voluntary surrender of responsibility or privilege.

Warranty Deed

A deed to property containing a warranty of a clear marketable title.

Wraparound Mortgage

The addition of a new loan to the already existing loan.

Zero Lot Line

A group of homes where the individual unit is a separate lot but the homes are attached to another (town homes).

Zoning

Areas in which are categorized as either residential, commercial, or agricultural. The zoning areas are usually monitored by the city or county.