Peggy Dinger
Direct: (781) 771-3270
Mobile: (781) 771-3270
Fax: (781) 659-6651
Email Me

Real Estate Glossary

Listed below are brief descriptions of some common terms used in real estate transactions. These are general terms and definitions and are not intended to apply to all possible uses of a term. Please let us know if you have any questions regarding these items.

A  B  C  D  E  F  G  H  I  J  K L  M  N  O  P  Q R  S  T  U  V  W X Y Z 

 

Accelerated Clause: Loan verbiage that provides the lender with the right to demand payment of the entire outstanding balance on your home loan, if you miss a monthly payment, sell the home, or otherwise fail to perform as promised under terms of your mortgage.

top

Adjustable Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustable period of one year is called a one-year ARM, which means that the interest rate can change once per year.

top

Adjustable Rate Mortgage (ARM): A mortgage that permits the lender to adjust the interest rate periodically on the basis of changes in a specified index. See Fixed-rate Mortgage.

top

Adjustment Period: How often the rate of an adjustable rate mortgage adjusts (see Adjustable Rate Mortgage).

top

Affidavit: A sworn statement in writing, made before an authorized official.

top

ALTA: Abbreviation for the American Land Title Association.

top

Amortization: Repayment of a loan in equal installments of principal and interest rather than interest only payments.

top

Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points expressed as a percentage of the loan amount).

top

Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser.

top

Appreciation/depreciation: Refers to either the increase (appreciation) or the decrease (depreciation) in a home’s value.

top

Assessed value: The value of a property according to your local tax assessor; determines how much you will pay in property taxes.

top

Assessments: Specific and special taxes (in addition to normal taxes) imposed on real property to pay for public improvements within a specific geographic area.

top

Assumption of Mortgage: A buyer’s agreement to assume the liability on an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to assume the loan.

top

Attorney-in-Fact: An agent authorized to act for another under a power of attorney.

top

Balloon Loan: Requires level payments just as a 15-year or 30-year fixed rate loan. But well before the date it becomes due, the full remaining balance of the loan comes due. Though they can be economical at the outset, beware of balloon loans – you may not be able to refinance the loan.

top

Balloon Payment: A lump sum principal payment due at the end of some mortgages or other long-term loans.

top

Beneficiary: As used in a trust deed, the lender is designated as the Beneficiary, i.e. obtains the benefit of the security.

top

Binder: Sometimes known as an offer to purchase or an earnest money request. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

top

Biweekly payment mortgage: A mortgage requiring payments every two weeks instead of the standard monthly payment. The result is a substantial savings in interest.

top

Bridge loan: If you close on a home before completing the sale of your existing home (not an ideal circumstance by anyone’s estimation), you may need to obtain a bridge loan.

top

Broker: A person who, for a commission or fee, brings parties together and assists in negotiating contracts between them.

top

Buydown: A Veteran’s Administration loan plan available only in some new housing developments. A builder agrees to pay part of the mortgage for the first few yeas. Sellers also may create buydowns by paying lenders a predetermined amount of money so lenders will reduce their interest rates.

top

Buyer’s agent: A person licensed to negotiate and transact the sale of real estate on behalf of the buyer. The buyer’s broker or agent owes allegiance only to the buyer and does not have an agent relationship with the seller.

top

Cap: The limit of how much the interest rate or monthly payment can change either at each adjustment or over the life of the mortgage.

top

Cash reserves: Lenders typically require buyers to have enough cash left over after purchasing a home to make two mortgage payments, to cover a financial emergency.

top

CC & R’s: Covenants, Conditions and Restrictions. A document that controls the use, requirements and restrictions of a property.

top

Certificate of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed loan.

top

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

top

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

top

Closing Costs: Generally total from 2 percent to 5 percent of the home’s purchase price; separate from the down payment. Covers a number of costs including loan document processing fees, appraisal report fees, credit report fees, etc.

top

Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing of the escrow, including deposits or taxes, hazard insurance and mortgage insurance.

top

Collateral: An asset (such as a car or home) that guarantees the repayment of a loan.

top

Commission: The fee charged by a broker or agent for providing services related to a real estate transaction such as procuring the property, bringing the parties together and negotiating a purchase contract or loan.

top

Community Property: One way to hold title to your home.

top

Condominium: A form of real estate ownership. The owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors, and ceilings) serve as its boundaries.

top

Contingencies: Conditions, contained in the Purchase Agreement, which outline the obligations the seller and buyer must fulfill before sale of the property is completed. Can concern the results of your effort to obtain financing, an inspector’s opinion of the condition of the property, etc.   For instance, a sales agreement may be contingent upon the buyer obtaining financing.

top

Conventional Loan: A mortgage loan, which is not insured or guaranteed by a governmental agency.

top

Conversion Clause: A provision in some ARMs that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgages. This conversion feature may cost extra.

top

Cooperative: A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar agreements.

top

Cosigner: If your credit is less than stellar, it may be necessary for you to have a cosigner – that is a friend or relative willing to assume the risk (and actual indebtedness for) your mortgage.

top

Credit Report: The main basis for a lender to determine your "credit worthiness." A historical list of your credit use and bill payment performance.

top

Debt-to-income Ratio: When you apply for a mortgage, the lender looks at the amount of debt you will have relative to your income. Acceptable limits generally range from 33 to 40 percent.

top

Deed: Written instrument by which the ownership of land is transferred from one person to another.

top

Deed of Trust: Written instrument by which title to land is transferred to a trustee as security for a debt or other obligation.

top

Default: You are officially in default when you fail to make two or more monthly mortgage payments on time. This does not automatically indicate that you will lose your home, however. Many lenders will help you work to find a solution, as foreclosure is expensive for the lender.

top

Delinquency: Comes before default. Your loan is in delinquency when you fail to provide one month’s mortgage payment on time.

top

Deposit Receipt: Used when accepting "Earnest Money" to bind an offer for property by a prospective purchaser; also includes terms of a contract.

top

Down Payment: Percentage of the purchase price you will provide in cash up front.

top

Due on Sale Clause: An acceleration clause that requires full payment of a mortgage or deed of trust when secured property changes ownership.

top

Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.

top

Easement: A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another.

top

Equity: A homeowner’s financial interest in a property. Also can mean the difference between the market value of your home and how much you owe on the property.

top

Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

top

Exclusive listing: A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property himself without the payment of a commission.

top

Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

top

Federal National Mortgage Association: Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

top

Fee Simple: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

top

FHA Loan (Federal Housing Administration): A federal agency, created by the National Housing Act of 1934, for the purpose of expanding and strengthening home ownership by making private mortgage financing possible on a long-term, low down payment basis. The vehicle is a mortgage insurance program, with premiums paid by the homeowner, to protect lenders against loss on these higher risk loans. Since 1965, FHA has been part of the newly created department of Housing and Urban Development (HUD).

top

Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit.

top

Fixed-rate Mortgage: A mortgage whose interest rate is locked in for the life of the loan, which commonly ranges from 15 to 30 years in duration. See Adjustable Rate Mortgages (ARMs).

top

Foreclosure: The legal process of the mortgage lender taking possession of and selling the property. When you default on a loan and the lender determines you are incapable of making payment, you may lose your house to foreclosure.

top

Formula: The way in which interest rates are calculated on Adjustable Rate Mortgages. Add the margin to the index to get the interest rate.

top

Graduated Payment Mortgage: A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

top

Grant: A transfer of real property.

top

Grantee: The person to whom a grant is made.

top

Grantor: The person who makes a grant.

top

Home Inspection: A thorough inspection that evaluates the structural and mechanical condition of a property.

top

Home Inspection Report: A qualified inspector’s report on a property’s overall condition. The report usually covers an evaluation of both the structural and mechanical systems.

top

Home Warranty Policy: Insurance that covers repairs to the home, generally for one year. Covers smaller aspects of the home including electrical, plumbing, pest control, etc.

top

Homeowner’s Insurance: Absolutely required to obtain a mortgage, it covers the cost to rebuild your home.

top

Index: The measure of interest rate changes used to determine adjustments in an ARM’s interest rate over the term of the loan.

top

Interest Rate: The percentage fee lenders charge you to use their money. The higher the rate of interest, the higher the risk. For fixed rate mortgages, the interest rate has a corresponding relationship with the points. A high number of points will lower the rate and vice versa. With an adjustable rate mortgage, understand the formula (the index plus the margin) that determines how the interest rate is calculated, after the teaser rate expires.

top

Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon death of any owner, the survivor receives the decedent’s interest in the property.

top

Late Charge: What the mortgage company will add on to your payment if it is received late. Can be as high as 5 percent of the total payment.

top

Lien: A legal hold or claim on property as security for a debt or charge.

top

Life Cap: Determines the total amount that your adjustable mortgage interest rate and monthly payment can fluctuate during the duration of the loan. Different from the Periodic Cap, which limits the extent to which your interest rate can fluctuate during a predetermined adjustment period.

top

Loan Commitment: A written promise to make a loan for a specified amount on specific terms.

top

Loan to Value Ratio: The relationship between the amount of the appraised value of the property, expressed as a percentage of the appraised value.

top

Lock-in: A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within set period of time.

top

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

top

Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.

top

Mortgage Banker: A company or individual engaged in the business of originating mortgage loans with its own funds, selling those loans to long term investors, and servicing the loans for the investor until they are paid in full.

top

Mortgage Broker: A person who buys mortgages wholesale from lenders and then sells them to buyers. Can "shop your loan around" to find the best rate. Good for people with less-than-stellar credit histories.

top

Mortgage Insurance: A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage.

top

Multiple Listing Service (MLS): A cooperative listing of nearly all the homes on the market for real estate agents.

top

Negative Amortization: Occurs when monthly payments fail to cover the interest cost. The interest not covered is added to the unpaid principal balance so that even after several payments, you could owe more than you did at the beginning of the loan.

top

Net worth: The value of all of a person’s assets, including cash, minus all liabilities.

top

Origination Fee: A fee or charge for establishing a loan. See Points.

top

Partnership: Way in which unmarried individuals can take title to a property. Can include domestic partners or business partners. It’s recommended that a real estate lawyer first draw up a written partnership agreement before the purchase.

top

Periodic Cap: Limits the amount that the interest rate of an Adjustable Rate Mortgage can change in one adjustment period.

top

PITI: Principal, interest, taxes and insurance. The basics of your monthly mortgage payment.

top

Planned Unit Development (PUD): A zoning designation for property developed at the same or slightly greater overall density than conventional developments, sometimes with improvements clustered between open, common areas.

top

Point: An amount equal to one percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

top

Pre-Payment Penalty: A fee charged to a mortgagor who pays a loan before it is due. Not allowed for FHA or VA loans.

top

Prime rate: The interest that banks charge to their preferred customers.

top

Principal: The amount borrowed or remaining unpaid.

top

Private Mortgage Insurance (PMI): Insurance written by private companies protecting the lender against loss if the borrower defaults on the mortgage.

top

Probate sale: Sale of a home after a homeowner dies and the property is to be divided among inheritors or sold to pay debts. The executor of the estate organizes the sale, and a probate court judge oversees the process. The highest bidder receives the house.

top

Property Tax: Averages between 1 and 2 percent of a home’s value but may vary by county.

top

Prorations: Items that must be prorated between you and the seller at the close of escrow. Can include Homeowner’s dues, property taxes and other expenses. Generally, you will be responsible for paying a percentage of these taxes and fees beginning on the day you take title.

top

Real Estate Agent: Real estate salespeople who are supervised by a real estate broker. Licensed by the state; typically receive income from commissions.

top

Real Property: Land and buildings as opposed to property or chattels.

top

Realtor®: A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors®.

top

Recordation: Filing for record in the office of the county recorder.

top

Refinance: Taking out a new mortgage loan to receive more favorable terms. Generally recommended for fixed-rate mortgages if rates drop below 1 percent of what you’re currently paying.  However, refinancing can be expensive and time-consuming, so you’ll want to consider this action carefully, and to ask yourself how long you plan to own the property.

top

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

top

Tax Deductible: Payments that you may deduct against your federal and state taxable income; includes the interest portion of your mortgage payments, loan points and property taxes.

top

Teaser Rate: Introductory, lower rate on an adjustable rate mortgage. The loan’s formula is a better way to determine its affordability, however.

top

Tenancy-in-common: A method of taking title to a property generally used among unmarried co-borrowers. See the Escrow section of this guide for more information.

top

Title: Evidence of a person’s right or the extent of his or her interest in the property.

top

Title Insurance Policy: A policy that protects the purchaser, mortgagee or other party against loss arising from disputes over title to the property.

top

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 and other charges.

top

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender.

top

VA Loan: A loan that is partially guaranteed by the Veterans Administration but is made by a private lender.

top

Veterans Administration (VA): An independent agency of the federal government created by the Service Men’s Readjustment Act of 1944 to administer a variety of benefit programs designated to facilitate the adjustment of returning veterans to civilian life. Among the program’s benefits is the home loan guaranty program designated to encourage mortgage lenders to offer long term low down payment financing to eligible veterans by guaranteeing the lender against loss on these higher-risk loans.

top