Glossary of Common Real Estate Terms 

Glossary of Common Real Estate Terms 


A Glossary of Common Real Estate TermsFollowing is a glossary of some of the most common Real Estate terms used when buying or selling a home: 

A

Abstract of Title :  A history of ownership of a property and any documents that affect the title during that ownership.

Acceleration Clause:  A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

Addendum:  An addition or change to a contract. 

Adjustable Rate Mortgage (ARM):  A loan with an interest rate that fluctuates according to the movements of a predetermined index.

Ad ValoremTax:  Tax based on assessed property value.

Agent/Sales Associate:  A person licensed by the state to sell real estate through a real estate broker.

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 (such as location, woods, water) or man-made (such as 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:  A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. Lenders use the information on the loan application to evaluate whether or not they can give the loan, and if so, the amount of money they can lend..

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.

Appreciation: The increase in value of a home.

Assessed Value: The valuation placed on property by a public tax assessor for purposes of taxation.

Assumable Loan: An existing mortgage that can be taken over by the buyer — usually on the same terms given to the original buyer.

Assumption Clause:  A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller.

Assumption Fee:  The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Attorney-In-Fact:  One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

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.

Beneficiary:  The person designated to receive the income from a trust, estate or a deed of trust.

Bequeath:  To transfer personal property through a will.

Bill of Sale:  A written document that transfers title to personal property. 

Binder:  A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Breach:  A violation of any legal obligation.

Bridge Loan:  A short-term loan for borrowers who need more time to find permanent financing.

Broker:  A person who has a real estate broker’s license, who may not only make real estate transactions for others in exchange for a fee (or other consideration), but also may operate a real estate business and employ sales associates and other brokers.

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.

Buy Down: A method of lowering the interest rates on a mortgage, either temporarily or for the entire term of the loan. Often points are paid up front to make up the difference between the rate actually charged on the mortgage and the rate at which the buyer pays.

Buyer’s Agent / Broker:  A licensee who has declared to represent only the buyer in a transaction, regardless of whether compensation is paid by the buyer or the listing broker through a commission split.

Buyer’s Market:  A slow real estate market in which buyers have the advantage.

Bylaws:  The rules and regulations that a homeowners association or corporation adopts to govern activities.

C

Caps:  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 Improvement:  Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Certificate of Occupancy:  A document presented by a local government agency or building department certifying that a building and/or the leased premises (tenant’s space) has been satisfactorily inspected and is/are in a condition suitable for occupancy.

Certificate of Title:  A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Clear or Marketable Title:  A title that is free from any encumbrance, obstruction or limitation that would “cloud the title”.

Chain of Title:  The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Chattel:  Personal property.

Clear Title:  A title that is free of liens and mortgages.

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:   Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing including title examination, title insurance, attorney’s fees, lender’s service charges, documentary transfer tax, etc.

Closing Disclosure:  A five-page form, created by the Consumer Financial Protection Bureau (CFPB), that provides final details to a borrower about the mortgage loan selected.

Closing Statement:  See HUD-1 statement

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 a quitclaim deed, release, or court action.

Commission:  The compensation paid to a real estate broker (or by the broker to the salesman) for services rendered. It is usually a predetermined percentage of the selling price.

Commitment Letter:  A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.

Common Area Assessments:  Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners’ association costs and expenses and to repair, replace, maintain, improve or operate the common areas of the project.

Common Areas:  An area inside a housing development that is owned by all residents.

Comparables:  Properties used as comparisons to determine the value of a certain property.

Comparative Market Analysis:  An estimate of the value of a property based on an analysis of sales of properties with similar characteristics.

Compound Interest:  Interest paid on the original principal balance and on the accrued and unpaid interest.

Condominium:  A building or group of buildings in which individuals own separate portions of the building(s) and share common areas.

Condominium Conversion:  Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Construction Loan:  A loan to provide the funds necessary to pay for the construction of buildings or homes. The lender advances funds to the builder at periodic intervals as the work progresses.

Contingency:  An item in a contract dependent on a specific condition for its fulfillment.

Contract of sale/Sales Contract:  (offer to purchase/acceptance of sale/sales contract)An offer of purchase that has been signed by both buyer and seller.

Conventional Mortgage:  A private sector loan, one that is not guaranteed or insured by the U.S. government.

Convertibility Clause:  A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Cooperating Broker:  A real estate broker who finds a buyer for a property listed by another broker.

Cooperative (co-op):  Residents of co-op housing complexes own shares in the cooperative corporation that owns the property. Each resident has the right to occupy a specific dwelling, but they don’t actually own it–they own shares in the corporation that owns it.

Counter Offer:  The rejection of an offer to buy or sell that simultaneously makes a different offer, changing the terms in some way

D

Deed: The legal document that is used to transfer the title from one owner to another.

Deed-In-Lieu:  A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

Department of Veterans Affairs (VA):  An independent governmental agency which guarantees long-term, low- or no-money-down mortgages to eligible veterans.

Down Payment:  The portion of the purchase price of a home that the buyer pays in cash and does not finance.

Due-on-sale clause:  A provision that allows a lender to demand the immediate repayment of the mortgage balance if the borrower sells the home.

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

Encroachment:  An illegal intrusion on someone else’s property. 

Encumbrance:  A lien or claim on a property.

Equal Credit Opportunity Act (ECOA):  A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity:  A homeowner’s financial interest in a property, i.e. the difference between the fair market value of the property and the amount still owed on its mortgage.

Escrow:  Funds that are set aside and held in trust. Usually used for payment of taxes, insurance, etc.

Escrow Account:  The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.

Escrow Disbursements:  The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance and other property expenses as they become due.

Escrow Paymen:  The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due. Known as “impounds” or “reserves” in some states.

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.

Exclusive Agency Listing:  A listing contract in which the agent has the sole right to sell your home for you, though you are not bound to pay the commission if you produce the buyer.

Exclusive Right-To-Sell Contract:  A listing contract in which you give the real estate broker the sole right to sell; the person receives a commission, regardless of who produces the buyer.

F 

Fannie Mae, Federal National Mortgage Association (FNMA):  A corporation created by Congress that purchases and sells conventional, FHA and VA residential mortgages. Makes mortgage money more available and affordable.

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 willing buyer will pay and the lowest a willing seller will accept.

Federal Housing Administration (FHA): A federal agency that insures first mortgages, enabling lenders to lend a very high percentage of the sale price.

Fee Simple:  The greatest possible interest a person can have in real estate.

FHA Mortgage:  A mortgage that is insured by the Federal Housing Administration (FHA)

First Mortgage:  A mortgage that is the primary lien against a property.

Fixed-Rate Mortgag:  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:  Personal property that becomes real property when attached in a permanent manner to real estate.

Flood Insurance:  Insurance that compensates for physical property damage resulting from flooding.

G 

General Warranty Deed:  The type of deed considered to provide the most protection to an owner, since the seller guarantees that he or she is the true owner of the property and that no claim will be brought against the property.

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.

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

Grantor:  The person conveying an interest in real property.

H 

Hazard Insurance:  Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

Home Equity Credit Line:  A mortgage loan that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in a property.

Home Inspection:  A thorough inspection that evaluates the structural and mechanical condition of a property often included as a contingency by the purchaser.

Homeowners’ Association:  A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project.

Homeowner’s Insurance:  An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Homeowner’s Warranty:  A type of insurance that covers repairs to specified parts of a house for a specific period of time.

HUD-1 Statement (Closing Statement):  A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.

HVAC:  Heating, Ventilation and Air Conditioning; a home’s heating and cooling system.

I 

Index:  The rate you pay directly related to a particular interest-rate index.

Insurance Binder:  A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

J

 Joint Tenancy:  A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Jumb Loan:  A loan that exceeds Fannie Mae’s mortgage amount limits. Also called a nonconforming loan.

L

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-Purchase Loan:  n alternative financing option that allows home buyers to lease a home with an option to buy.

Legal Description:  A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

Lien: A legal claim against a property that must be settled before the property is sold.

Listing agreements:

  • Exclusive Right-To-Sell Agreement – the seller pays a fee regardless of who produces the buyer. This fee covers many important services that the sales associate performs above and beyond finding a qualified buyer.
  • Exclusive Agency Listing Agreement – Allows the seller to find the buyer and not pay the commission fee. If the sales associate finds a buyer, then the fee is paid to the real estate company.
  • Open Lasting:  Where several real estate firms are given the authority to sell a property. Used primarily in commercial transactions.

Listing Contract:  A written contract between an owner (principal) and an agent (broker) authorizing the agent to sell, lease or rent the owner’s property in exchange for a compensation.

Loan Application Fee:  A lender’s fee that you must pay when applying for a mortgage.

Loan Oigination Fe:  A fee, usually one to four points, charged by the lender for processing your mortgage.

Loan-To-Value Ratio:  A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased;

M

Margin:  Most lenders will offer adjustable-rate mortgages that state a margin which is added to the index to get the rate upon which payments are based.

Market Value:  The amount that a seller may expect to obtain in the open market.

Master Association:  A homeowners’ association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project.

Master-Planned Community:  A suburban plan that includes homes and commercial, work, educational, and community facilities.

Maturity:  The date on which the principal balance of a loan, bond or other financial instrument becomes due and payable.

Monthly Fixed Installment:  That portion of the total monthly payment that is applied toward principal and interest.

Mortgage:  A lien on the property that secures the promise to repay a loan.

Mortgage Banker:  A company that originates mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker:  An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Mortgagee:  The lender in a mortgage agreement.

Mortgage Insurance:  Money paid to insure the mortgage when the down payment is less than 20 percent

Mortgage Insurance Premium (MIP):  The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

Mortgagor:  The borrower in a mortgage agreement.

N 

NAR (National Association of REALTORS®:  A trade organization for real estate agents and brokers who become members by agreeing to abide by the organization’s code of ethics. Members may call themselves REALTORS®.

Negative Amortization:  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.

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.

O 

Offer to Purchase : A document that lists the price, conditions and terms under which the buyer is willing to purchase the property.

Ogination  Fee:  A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing:  A property purchase transaction in which the property seller provides all or part of the financing.

Periodic Payment Cap:  For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic 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.

Personal Property:  Any property that is not real property.

PITI:  See principal, interest, taxes and insurance

Points:  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.

Prepayment:  A privilege in a mortgage which allows the borrower to make payments before they are due.

Prepayment Penalty:  A penalty charged for paying off a mortgage early.

Principal:  The amount borrowed or remaining unpaid.

Private Mortgage Insurance (PMI):  Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Promissory Note:  A written promise to repay a specified amount over a specified period of time.

PUD (Planned Unit Development):  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.

Purchase Offer / Purchase and Sale Agreement:  A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Q 

Qualified Buyer:  A person who has been pre-approved for a mortgage loan.

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

R 

Radon:  A radioactive gas found in some homes that in sufficient concentrations can cause health problems.

Real Estate Agent:  A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Settlement Procedures Act (RESPA):  A federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to (or at) settlement.

Real Property:  Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals and the interest, benefits and inherent rights thereof.

REALTOR®:  A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the NATIONAL ASSOCIATION of REALTORS®.

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.

Refinance:  The process of paying off one loan with the proceeds from a new loan using the same property as security.

Rent With Option to Buy:  An alternative financing option that allows home buyers to lease a home with an option to buy.

Recision:  The cancellation of a contract.

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.

Right of Survivorship:  In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

S 

Sale-Leaseback:  A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

Second Mortgage:  A mortgage that has a lien position subordinate to the first mortgage.

Secondary Mortgage Market:  The buying and selling of existing mortgages.

Subdivision:  A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Subordinate Financing:  Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

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.

Sweat Equity:  Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

T

Tenancy By The Entirety:  A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife.

 Tenancy In Common:  A type of joint tenancy in a property without right of survivorship.

Title:  The right to ownership in real estate, which is transferred by a deed. Evidence of ownership in real estate.

Title Company:  A company that specializes in examining and insuring titles to real estate.

Title Insurance:  Insurance, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a percentage of the property value.

Title Search:  The process of checking all the records relating to the title to see that it doesn’t have any liens or claims against it that would keep it from being transferred.

Transfer Tax:  State or local tax payable when title passes from one owner to 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.

U 

Underwriting:  The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.

V 

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

Waive:  To give up a claim or right voluntarily, to relinquish. A waiver is a document that evidences that relinquishment.

Walk-Through Inspection:  A final walk-through immediately prior to closing to verify that no changes have taken place and no new damage has occurred.

Wear and Tear:  Normal use and the resulting reduction in value of a property.

Wraparound Mortgage:  A mortgage that encompasses the balance of one mortgage plus an additional mortgage loan. Payments are then made to the mortgagee of the wraparound mortgage, who forwards appropriate portions of that money to the mortgagee of the first mortgage.

 

Zoning:  City regulations determining the character or use of property. Zoning laws divide cities into different areas according to use, from single-family residences to industrial plants. Zoning ordinances control the size, location, and use of buildings within these different areas

I hope the above glossary of Real Estate Terms has been helpful.  If you come across on that I have not included let me know and I will add it to the Real Estate terms.

 

 

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