Real Estate Terms & Definitions

Below is a list of popular real estate terms that you may want to review if you need clarification. Click any letter to jump to that section.

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

ABSTRACT OF TITLE

A summarized history of the title of real property listing rights and liabilities such as easements, mortgages, liens, and transfers of title. The abstract reports the status of the chain of title and whether or not the title is clear.
ACCELERATION CLAUSE

A clause in a mortgage that provides, at the option of the lender, that the entire unpaid balance of the note is due immediately upon failure to make a required payment or upon the sale of the property. In the latter case, it is known as a “due-on-sale acceleration clause.”
ACCRETION

The rights and principles the law uses to deal with changes in the size and shape of land due to natural causes.
ACCRUED INTEREST

Accumulated interest earned or due but not yet paid.
ACKNOWLEDGMENT

Legal declaration before a notary or duly authorized officer of a jurisdiction that the one signing an instrument is who he or she claims to be.
ACRE

A quantity of land equal to 43,560 square feet. (For example, a square 208.7′ times 208.7′ or a rectangle 100′ times 435.6′.)
ADDENDUM (OR RIDER)

An attachment to a real estate contract, signed by both parties, that spells out extra items and agreements not covered in the preprinted contract.
ADJUSTABLE-RATE MORTGAGE (ARM)

A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
ADJUSTED COST BASIS

For accounting purposes, the original cost plus improvements minus depreciation or cost recovery taken.
AD VALOREM

A measure of worth based on the value of something. For example, real property taxes calculated on the market value of the property.
ADVERSE POSSESSION

Acquisition of title to real estate by means of wrongful occupancy of a certain period of time established by state law.
AFTER TAX CASH FLOW

Effective gross income minus operating expenses and debt service plus or minus any tax savings or tax liability. (Also known as net spendable income.)
AGENCY

A legal relationship of trust and confidentiality whereby one party, the principal, entrusts another party, the broker or agent, to act on his or her behalf and to represent him or her in doing business with other parties (known as a fiduciary relationship).
ALLIGATOR

A property that has a substantial and continuing negative cash flow (i.e., it “eats” cash).
ALL INCLUSIVE TRUST DEED

The borrower obtains a new mortgage which is structured to include the old mortgage. The borrower makes payments on the new mortgage directly to the lender, who makes payments on the old first mortgage. (Also known as a wraparound mortgage.)
AMORTIZATION

The reduction of debt over a fixed term on an installment basis.
AMORTIZATION SCHEDULE

A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
AMORTIZED LOAN

A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.
ANNUAL PERCENTAGE RATE (APR)

This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan.
ANNUITY

A payment of equal installments paid periodically for a given number of periods.
APPRAISAL

An estimation of the value of real property as of the present or past date (not future). Any of three methods are used where applicable: cost approach, income approach, or market data approach.
APPRAISED VALUE

An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
APPRAISER

A licensed and/or certified individual who, for a fee, evaluates a property and gives an opinion of its value.
APPRECIATION

Growth in value.
APPURTENANCE

Anything attached to the land which becomes a part of the property. A fence would be an example.
ARREARS

The payment of money after the fact. Interest or taxes paid in arrears would represent money paid for a period of time gone by.
ASKING PRICE

The price for which a property is being offered for sale on the market.
ASSESSED VALUE

The value placed on a property by the taxing body of a county. This value is then used as a basis for computing taxes.
ASSESSMENT OF REAL ESTATE

The value of a property, established by an assessor for ad valorem taxation. (Taxed according to value.)
ASSET

Any possession of value.
ASSIGN

To transfer one’s rights in a bond, mortgage, lease, or other legal instrument to another person.
ASSUMABLE MORTGAGE

A mortgage loan that allows a purchaser to undertake the obligation of the loan with no change in loan terms.
ASSUMPTION

The term applied when a buyer assumes the seller’s mortgage.
ATTORNEY (OR ATTORNEY AT LAW)

A person licensed to practice law.

BALANCE SHEET

A financial statement showing assets, liabilities, and net worth.
BALLOON PAYMENT

A large final payment due on a note, usually after partial amortization of the debt through installment payments.
BALOON 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

The financial inability to pay one’s debts when due. The debtor seeks relief through court action that may work out or erase debts.
BILL OF SALE

A document used to transfer title to personal property (also known as chattel).
BIRDDOG (OR NETWORKER)

A person who is on the lookout for properties that are for sale.
BLANKET MORTGAGE

One mortgage that covers several different parcels of real property.
BLENDED INTEREST RATE

The weighted value of two or more interest rates.
BOILERPLATE

The preprinted routine terms and conditions of a contract.
BOND MARKET

Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.
BOUNDS

Boundaries that are natural (lakes, trees, rocks, etc.) or artificial (roads, railroads, etc.).
BRIDGE LOAN

Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
BROKER

A state licensed agent who, for a fee, acts for property owners in real estate transactions within the scope of state law, and is also capable of managing other agents.
BUYDOWN

Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
BUYER’S BROKER OR AGENT

A broker or agent who represents the buyer in a transaction.

CAP

Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
CAP RATE

Capitalization Rate – rate of return used to derive the capital value of an income stream, divide annual income by net operating income.
CAPITAL

Money used for investing purposes.
CAPITAL GAIN

Profit realized above the adjusted cost basis on the sale of property.
CASH-OUT REFINANCE

When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a “cash out refinance.”
CASH FLOW

Effective gross income minus operating expenses and debt service. (Also known as cash throwoff.)
CAVEAT EMPTOR

Let the buyer beware. This statement does not apply where the buyer and seller are using a broker or agent.
CERTIFICATE OF ELIGIBILITY

A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.
CERTIFICATE OF REASONABLE VALUE (CRV)

Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
CHAIN OF TITLE

A recorded history of all events that affect the title to a specific parcel of real estate.
CHATTEL

Personal property.
CHATTEL MORTGAGE

A mortgage on personal property.
CLEAR TITLE

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

Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
CLOSING DATE

A predetermined date, agreed to by the buyer and the seller, that the transaction of buying/selling property will take place.
COLLATERAL

The real or personal property pledged to secure a debt.
COLLECTION

When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
COMMISSION

A percentage of the purchase price paid to the real estate broker or agent for services rendered.
COMMON LAW

Law that is not codified; developed from common usage and custom.
COMPETENT PARTY

A person legally able to contract; being of legal age and sound mind.
CONCESSIONS

During negotiations, these are the items that each party is willing to give up in order to get the items each party really wants.
CONDEMNATION

The process by which property of a private owner is taken, with or without consent, for public use. Fair compensation must be paid.
CONDOMINIUM

A system of ownership of individual units in a multiunit structure, combined with joint ownership of commonly used property.
CONDOMINIUM CONVERSION

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

A thing of value (usually money) given as an inducement to enter a contract.
CONSUMER PRICE INDEX (CPI)

A measure of the average change in price, over time, of basic goods and services compiled and reported by the Bureau of Labor Statistics of the Department of Labor.
CONTINGENCY

A provision within a contract that makes performance under the contract conditioned upon the occurrence or nonoccurrence of a stated event.
CONTRACT

A legal agreement entered into by two or more parties that creates an agreement to do or not to do something.
CONTRACT FOR DEED

A contract for the sale of real property wherein the seller is obligated to provide a merchantable title (a title free of liens and capable of being transferred) after the buyer has paid for the property, usually in installments.
CONTRACT FOR PURCHASE AND SALE

An agreement between buyer and seller of real property to transfer title to that property at a future time for a specific sum of money. (Also called a sales contract.)
CONVENTIONAL MORTGAGE

Refers to home loans other than government loans (VA and FHA).
CONVERTABLE ARM

An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.
CONVEYANCE

An instrument (deed) legally sufficient to transfer title to real property.
COOPERATIVE

A form of ownership in which a corporation usually owns the building and land. The individual residents own the stock of the corporation and have a proprietary lease in a given unit or apartment.
COST BASIS

The original purchase price plus the cost of any improvements to the property, less depreciation.
COST RECOVERY

Also known as depreciation. A provision of the tax law that allows the owner of real and personal property to recover the cost of that property over a period of time specified by law.
COUNTEROFFER

Rejection of an offer to buy or sell, with a simultaneous substitute offer.
CREDIT BUREAU

A local company that purchases data from a credit repository and makes it available to individuals and businesses.
CREDIT LIMIT

Generally found when dealing with credit cards, this is the maximum amount the card holder may charge to that account.
CREDITOR

The lender. The one to whom the debt is owed.
CREDIT RATING

An evaluation of a person’s debt repayment history.
CREDIT REPORT

A document that summarizes an individual’s credit history.
CREDIT REPOSITORY

An agency that compiles data provided by creditors on the credit histories of individuals and distributes reports to potential creditors upon request.
CREDIT SCORE

The result from computer programs that use your credit history and other information to predict the likelihood that you will pay your future bills. The scores are used by almost all granters of credit.
CURE DATE

The last day given for bringing mortgage payments current at the beginning of the foreclosure process.

DEAD ASSET

An asset that an investor does not want. In the investor’s eyes, it has limited value.
DEBT CONSOLIDATION

A process where all monthly debt payments are combined into one single debt and payment (that is, auto loan, furniture loan, etc.).
DEBT SERVICE

The sum of the annual principal and interest payments made on a loan.
DEBT TO INCOME RATIO

The ratio between the monthly payments on all debt to the gross monthly income.
DEED

An instrument conveying title to real property. It usually must be signed by the grantor (seller), and recorded.
DEED-IN-LIEU

Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
DEED IN TRUST

The deed to a property held in a land trust.
DEED OF TRUST

An instrument by which a borrower transfers title to a third party (trustee) as security for a debt. The beneficiary of the trust is the lender.
DEFAULT

Failure to discharge a duty or obligation.
DEFICIENCY JUDGMENT

A judgment rendered in court for the difference in the amount realized at a foreclosure sale and the amount owed by the mortgagor, if the foreclosure fails to completely liquidate or satisfy the debt plus all expenses of the foreclosure.
DEPRECIATION

A noncash expense that you can deduct for income tax purposes.
DEVISE

Disposition of land or real property by will.
DISCOUNT

The difference between the agreed upon payoff amount of a mortgage and the actual amount owed.
DISCOUNT FEE

The percentage of the original balance of the loan that is charged to the borrower, usually in exchange for a lower interest rate.
DISCOUNTING A NOTE

Offering a promissory note for less than its face value to enhance its marketability.
DISTRESSED PROPERTY

A bargain property that is priced substantially below its present value or projected value when renovated.
DOWER

The legal rights of a widow in her husband’s estate. These rights have been abolished in many states.
DOWN PAYMENT

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
DUAL AGENCY

A transaction wherein an agent represents both buyer and seller.
DUE ON SALE CLAUSE

A provision in a mortgage that states the loan is due upon the sale of the property.
DUPLEX

A two unit home where the units share a common wall and are situated side by side.

EARNEST MONEY

A deposit of money given by a party to bind the contract, usually credited toward the sales price.
EASEMENT

An interest held by one party in the real property of another, giving that person the legal right to trespass on the other’s property.
EFFECTIVE GROSS INCOME (EGI)

Estimated annual gross income and other income less a vacancy allowance.
EFFECTIVE INTEREST RATE

The interest rate the borrower actually pays as opposed to the nominal interest rate. The effective interest rate is made higher than the nominal rate by addition of points or discounting a loan.
EMINENT DOMAIN

The power of the government, and some public utilities, to take private property for public use in return for fair compensation. This power is exercised through the legal process called “condemnation.”
ENCROACHMENT

When the improvements on one property, usually a structure or fence, cross the property lines onto another property.
ENCUMBRANCE

A limitation on the title to real property. A mortgage or an easement are examples of encumbrances.
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

The fair market value of an asset less all lien amounts (debts) outstanding against it.
EQUITY OF REDEMPTION

The right of a mortgagor (borrower) to buy back a property after a foreclosure sale. While equity of redemption does not exist in some states, in others it extends up to two years.
ESCAPE CLAUSE

A clause added to the contract that allows a party the option of exiting the contract, with no further contractual obligations.
ESCHEAT

The process whereby property reverts to the county or state when an owner dies and has no heirs and no will.
ESCROW

Money or documents held in trust by a neutral third party.
ESCROW ACCOUNT

Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
ESTATE

Ownership interest in real property.
ESTATE BY THE ENTIRETIES

Ownership by husband and wife with the right of survivorship.
ESTIMATED ANNUAL GROSS INCOME

An estimate of the total amount of income one will receive in a period of one year.
ESTOPPEL LETTER

A letter certifying the exact balance of a mortgage or other loan at a given time.
ET AL.

And others.
ET UX.

And wife.
EVICTION

The lawful expulsion of an occupant from real property.
EXAMINATION OF TITLE

The report on the title of a property from the public records or an abstract of the title.
EXCHANGE

The trading of a business property you own for another property that is of like kind. No taxes are due in such an exchange|under a given set of circumstances.
EXCLUSIVE AGENCY

A relationship between an agent and his or her principal wherein the agent is entitled to a commission on a sale only if it is made by the agent or any other agent.
EXCLUSIVE RIGHT TO SELL

A relationship between an agent and his or her principal wherein the agent gets a commission regardless of who sells the property.
EXCULPATORY CLAUSE

A clause in a contract relieving one of the parties of personal responsibility or liability. In a lease, the landlord is relieved of any responsibility for injury to tenants leasing his or her property. In a mortgage, the mortgagor (borrower) is relieved of any personal liability or deficiency judgment if a deficit occurs at a foreclosure sale.
EXECUTOR

The administrator of an estate; one who is specified in the will.
EXPENSES

The costs of maintenance, repairs, insurance, taxes, and other rental costs.
EXTENSION CLAUSE

A clause in a contract that lists the terms under which an agreement can be extended.

FACE VALUE

In reference to a note, the face value is the full amount for which the note has been written.
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 estimated price (in terms of money) which a property would bring in a sale between a willing and informed buyer and seller.
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. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNM)
FARM

Cultivate a given geographic area by looking for property and flexible sellers.
FEDERAL HOUSING ADMINISTRATION (FHA)

An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
FEE SIMPLE

The highest estate in real property; the ownership of real property without reservation or restriction.
FICO

Fair Isaac Corporation developed a computerized scoring system that predicts the possible occurrence of your default based on many factors. Most of the factors are common knowledge, but Fair Isaac Corporation considers their scoring system to be proprietary (their property) and therefore has not made their formula and its elements available to the public.
FIDUCIARY

A broker or agent in the position of confidence to his principal. Also, a relationship of trust and confidence imposed by law.
FINANCIAL ANALYSIS

An investor’s determination of the value of a property based on income and expenses.
FINANCIAL LEVERAGE

The use of other peoples’ money (OPM) for investment purposes.
FINANCING

The way in which an investor obtains the capital to purchase a property.
FIRST DEED OF TRUST

A deed of trust recorded first. Equivalent to a first mortgage.
FIXED-RATE MORTGAGE

A mortgage in which the interest rate does not change during the entire term of the loan.
FIXTURE

Personal property attached permanently to real estate and thus becoming part of it. A built-in oven is an example.
FLEXIBLE SELLER

A seller who is willing to sell property in a nontraditional manner. This person may be flexible in terms, price, or both.
FLIPPING

The rapid turnover of property. An investor buys a property and immediately sells it for a profit.
FLOOD INSURANCE

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
FORCED SALE

The sale of a property used as security for a loan in order to repay creditor(s) in the event of a default on the loan.
FORECLOSURE

The process whereby property pledged as security on a note is sold under court order because of default on the note (e.g., failure to pay the mortgage).
FRONT FOOT

The width of a lot at the front, usually given as the first measurement. (A lot 225′ times 175′ would have 225 front feet.)
FUNCTIONAL OBSOLESCENCE

Design features that diminish a property’s utility and consequently, its value.

GENERAL PARTNERSHIP

A form of business where two or more persons enter into an agreement to conduct business. Profits and losses are shared in a predetermined fashion and all partners are jointly and individually liable for debts of the general partnership. Title is taken in the name of the partnership.
GOVERNMENT LOAN (MORTGAGE)

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.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GINNIE MAE)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)
GRANDFATHER CLAUSE

Properties that do not conform to current ordinances, codes, or regulations, but are allowed to continue to be occupied because the properties predate the institution of the ordinances, codes, and regulations.
GRANTEE

A person obtaining title to real property by deed. The purchaser to whom the grant is made.
GRANTOR

One who conveys title to property by deed.
GROSS INCOME

The total income from a property before the deduction of expenses.
GROSS INCOME MULTIPLIER

That number which, when multiplied times the gross income, would give an indication of property value. It is strictly a guide and frequently abused.
GROSS MONTHLY INCOME

The amount earned per month before any deductions are taken out.

HOME EQUITY CONVERSTION MORTGAGE (HECM)

Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.
HOME EQUITY LINE OF CREDIT

A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.
HOME INSPECTION

A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
HOMEOWNER’S ASSOCIATION

A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
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 often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
HOMESTEAD EXEMPTION

Protection extended by law preventing the forced sale of an owneroccupied dwelling by certain creditors.
HOMESTEAD TAX EXEMPTION

The credit against taxes given, in some states, to a person who owns and occupies a dwelling and to certain other individuals including disabled veterans, those over age 65, widowed, or handicapped.
HUD MEDIAN INCOME

Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

IMPROVEMENTS

Buildings or other structures built on undeveloped land or that enhance an existing structure
INDEMNIFICATION

The act of compensating another in the event of a loss.
INDENTURE

A contract.
INSTALLMENT CONTRACT

A way to sell a property in which the total sale price, or a specified portion of the sale price, is paid before a deed is transferred. (Also known as agreement for deed, contract for deed, or land contract.)
INSTALLMENT LOAN

A loan that must be repaid in two or more payments. A loan of six months or greater is preferable when establishing credit.
INSTALLMENT NOTE

A note which specifies how mortgage payments will be made, when they will be due, and for what amount.
INSTALLMENT SALES

The sale of real estate or other property where the price is paid over a period of time as opposed to a lump sum payment at the closing.
INSTANT EQUITY

The difference between the property’s value and what you paid for it at the time of purchase.
INTEREST RATE

An amount that a borrower must repay in addition to the full amount of the loan. This is the premium the lender receives for the use of the money, plus compensation for the risk the lender takes in lending money.
INTERMEDIATE THEORY

Classification of mortgage interests that do not fit squarely in either Lien or Title Theory.
INTESTATE

A person who has died without leaving a valid will.
INVESTMENT PROFILE

The combined attributes of an investment property that you have identified as being right for you (e.g., singlefamily homes, threebedrooms, within the northwest quadrant of the city).
INVOLUNTARY LIEN

A lien, like real property tax liens, which are recorded against a property without consent of the owner.

JOINTLY AND SEVERALLY

A legal term indicating that a contract has been entered into by two parties and the two parties are not only liable together but individually as well.
JOINT TENANCY

A joint estate whereby upon the death of one joint tenant, his or her interest will go to the surviving joint tenant(s).
JOINT VENTURE

An agreement between two or more parties who invest in a single business or property.
JUDGMENT

The verdict of a court on a matter presented to it. A money judgment dictates that a party must make payment to another to settle a claim.
JUDICIAL FORECLOSURE

A foreclosure ordered by a court of jurisdiction.
JUMBO LOAN

A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits, currently at $227,150. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
JUNIOR LIEN

A mortgage or other encumbrance with a secondary interest. A lien junior to another mortgage or lien.
JUNIOR MORTGAGE

A mortgage with a secondary interest. A mortgage that is junior to another mortgage or lien.

There are no terms available at this time.

LAND CONTRACT

A contract for the sale of real property wherein the seller is obligated to provide a transferable title after the buyer has paid for the property, usually in installments. (Also called an agreement for deed.)
LAND TRUST

A form of ownership whereby property is conveyed to a person or an institution, called a trustee, to be held and administered on behalf of another person, called the beneficiary. Title is taken in the name of the land trust.
LEASE

A contractual agreement between the landlord (lessor) and the tenant (lessee) that allows the tenant the use and occupancy of the property for a specified period of time.
LEASEHOLD

The estate or interest held by the lessee in the property of another.
LEASE OPTION

An agreement between two parties in which the party who owns the property sells to the second party the right to purchase the property at a future date. The second party lives in or subleases the property until the lease option expires.
LEGAL DESCRIPTION

The means to identify the exact boundaries of a property. A surveyor will use the recorded plats method, metes and bounds method, or the government survey method to describe real property.
LENDER

A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”
LESSEE

One who contracts to hold occupancy rights in the real property of another (also known as tenant).
LESSOR

One who rents property under a lease (also known as landlord).
LETTER OF CREDIT

A letter, usually from a financial institution, guaranteeing (collateralizing) a debt incurred by a third party.
LETTER OF INTENT

A letter stating a buyer’s intent to make an offer to acquire a certain property. It is not a binding contract.
LEVERAGE

The use of borrowed money to finance investments.
LIABILITIES

A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
LIEN

The right of a creditor to take and/or sell a property in the event of a default to satisfy the obligation of a debt.
LIEN THEORY

States that allow the lender to collect the debt owed by selling the property in the event of a default.
LIMITED LIABILITY COMPANY

A limited liability company (LLC) is a hybrid state-registered entity that has the limited liability characteristics of a corporation, yet allows for pass-through taxation like a partnership
LIMITED PARTNERSHIP

A partnership composed of a limited partner(s) and a general partner(s). The limited partner(s) contributes capital but is not liable for any debts of the partnership, nor can he or she manage or control the partnership. Title is taken in the name of the partnership.
LINE OF CREDIT

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.
LIQUID ASSET

A cash asset or an asset that is easily converted into cash.
LIQUIDATED DAMAGES

Damages, usually monetary, spelled out in a contract which would be available, in the event of a default, to the party not in default.
LIS PENDENS (NOTICE OF)

A notice given to the public warning them that legal action is being taken that will affect title or possession of a specific property.
LISTING AGREEMENT

A contract between a seller and a real estate broker allowing the broker to find a buyer for the property. The contract will specify, among other things, the arrangement for the payment of the broker’s fee if the property sells. The contract is a “best efforts” pledge.
LISTING BROKER

A broker who has contracted with the seller to offer the property for sale at a specified price in exchange for a commission or some other consideration.
LOAN

A sum of borrowed money (principal) that is generally repaid with interest.
LOAN-TO-VALUE (LTV)

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

Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.
LOAN ORIGINATION

How a lender refers to the process of obtaining new loans.
LOAN SERVICING

After you obtain a loan, the company you make the payments to is “servicing” your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.
LOCK-IN

An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

MARGIN

The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.
MARKETABLE TITLE

A title free and clear of liens and encumbrances that might be objectionable. (Also known as merchantable title.)
MATURITY

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

A lien right existing in favor of mechanics, suppliers, or other persons who have supplied materials or performed work in connection with the construction or repair of a building or other improvement.
METES

Measures such as inches, feet, yards, or miles.
METES AND BOUNDS

A measure of land which describes the boundaries using metes and bounds. For example, “Then going north 233′ to the rightofway of Oak Street.”
MORATORIUM ON INTEREST

A time within the term of a loan during which it is permitted to delay payment of interest, or even not pay the interest at all.
MORTGAGE

A document that pledges real estate to secure repayment of a debt.
MORTGAGE CONSTANT

The sum of 12 monthly payments on a mortgage as a percent of the principal loan amount.
MORTGAGEE

A lender of money under the terms of a mortgage.
MORTGAGOR

The borrower, usually the owner, who pledges his or her property to assure performance in repaying the loan.
MULTIPLE LISTING SERVICE (MLS)

A regional or local fee-based service whereby members of the Board of Realtors? exchange their listings.
MULTIPLE OFFERS

Usually conveyed through a letter of intent putting forth three or four different scenarios, any one of which would be an acceptable way to purchase a seller’s property.

NEGATIVE AMORTIZATION

When a loan payment does not cover the entire monthly cost of borrowing, the excess is “added on” to the principal.
NEGATIVE CASH FLOW

When rental and other income is insufficient to cover all the costs of ownership.
NET INCOME APPROACH

A method used to value income properties based on the net income they produce.
NET OFFER

An offer in which the purchaser agrees to pay 100 percent of closing costs, thereby netting an amount to the seller that is the same as the seller’s equity.
NET OPERATING INCOME (NOI)

The balance of cash remaining after deducting the operating expenses of a property from the gross income generated by the property. (Expenses excluded are mortgage principal, interest payments, and depreciation deductions.)
NET SPENDABLE INCOME

Amount remaining after expenses and debt service and any taxes due have been deducted from gross income. It is also known as aftertax cash flow.
NETWORKER

A person who is on the lookout for properties that are for sale. (Also known as a “birddog.”)
NET WORTH

Assets less liabilities.
NODOC LOAN

A loan where the borrower is not required to present any documentation to secure a loan.
NOMINAL INTEREST RATE

The interest rate, usually below market, stated on the note.
NOTARIZE

To have a document signed by a notary public.
NOTE

The legal evidence of debt.

ONETIME MORTGAGE INSURANCE PREMIUM (OTMIP)

A refund of a portion of the insurance premiums that have been paid over the years with a 1984 or later mortgage where the mortgage insurance premiums were paid up front.
OPEN LISTING

A brokerage contract that entitles a broker to a commission only if his activities are the procuring cause of a sale.
OPTION

An instrument giving the right to a party to lease or purchase the property over a specified time period for a specified consideration. It is binding for the optionor (seller) but not the optionee (buyer).
OPTIONEE

The person who has the legal right to purchase or not to purchase (through a contract) a specific property in the future.
OPTIONOR

The seller of a property who extends an option to a potential buyer. If the optionee exercises the option, the optionor is legally bound to sell. However, if the option is not exercised, then the optionor is released from any obligation.
OVERDRAFT PROTECTION

A pre-approved line of credit with your bank that may be used by the bank to cover any checks that exceed the balance of your checking account.
OWNER FINANCING

A property purchase transaction in which the property seller provides all or part of the financing.
OWNERS OF RECORD

All owners that are listed on a deed that is recorded in the county courthouse.

PACKAGE MORTGAGE

A mortgage which, in addition to encumbering real property, also includes personal property such as a refrigerator, dishwasher, or oven unit.
PARTIAL PAYMENT

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.
PARTNERSHIP

Two or more people associated for the purposes of carrying on business activities.
PASS THROUGH

Income and losses from an enterprise that pass through the business structure to the individual partners or members and is included on their personal income tax returns.
PAY DOWN

To reduce the amount of principle on a loan.
PAYOFF LETTER

A letter stipulating the exact unpaid balance including interest through the date of closing, as of a given date (also called an estoppel letter).
PERSONAL PROPERTY

All property other than real estate such as cars, boats, furniture, etc.
PITI

Abbreviation for principal, interest, taxes and insurance.
PLANNED UNIT DEVELOPMENT (PUD)

A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.
POINTS (OR DISCOUNT)

The percentage of the original balance of the loan that is charged to the borrower by the lender for making the loan. One point equals 1 percent of the amount of the original balance.
POSITIVE CASH FLOW

Effective gross income minus operating expenses and debt service. (also known as cash throw off or spendable cash.)
POWER OF ATTORNEY

A written authorization to an agent to perform specified acts on behalf of his or her principal.
PRE-APPROVAL

A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification
PRELIMINARY TITLE SEARCH

The initial review of all previously recorded documents regarding a specific property.
PREMIUM

An additional sum of money paid as an incentive for someone to do something.
PREPAYMENT

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
PREPAYMENT PENALTY

A fee that may be charged to a borrower who pays off a loan before it is due.
PREQUALIFICATION

This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
PRIME RATE

The interest rate that banks charge to their best corporate customers.
PRINCIPAL

The amount borrowed.
PRINCIPAL AMORTIZATION

The reduction of the amount of a loan through periodic installment payments.
PRIVATE MORTGAGE INSURANCE

A policy insuring a lender against a default on a mortgage loan issued by anyone other than the federal government.
PRO FORMA

The form you expect income and expenses to take.
PROFORMA STATEMENT

A financial statement based on anticipated, not actual, income and expenses.
PROMISSORY NOTE

Written evidence of a debt including the amount, interest rate, and term.
PROMULGATED RATE

A formally and publicly stated rate.
PROPERTY EXCHANGE

The exchange of real estate for other real estate between two or more parties.
PRO RATA

Distribution of proceeds or expenses made in proportion to the fractional interest held by each distributee.
PRORATION CREDITS

An amount credited at a real estate closing for any expenses that will be billed in the future (for example, sellers give a credit for their share of tax bills that will be billed in the future).
PUBLIC AUCTION

A meeting in an announced public location to sell property to repay a mortgage that is in default.
PUNITIVE DAMAGES

Damages awarded by the court as punishment for committing a wrong. Punitive damages are over and above actual damages incurred.
PURCHASE AGREEMENT

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

A mortgage given to the seller as part or all of the consideration for the purchase of property. In effect, it is money loaned by the seller to the purchaser.

QUIT CLAIM DEED

A deed transferring whatever interest in the property, if any, the grantor may have. They are usually used to clear title.

REAL ESTATE AGENT

A licensed salesperson associated with a broker, who acts on behalf of the broker.
REAL ESTATE OWNED (REO)

A property that a financial institution owns as a result of a foreclosure action.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)

A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
REAL ESTATE TAX LIEN

A lien that is the result of a real estate tax or special assessment payment default and is always in a position before all other liens.
REAL PROPERTY

Land or building, and other improvements permanently attached to the land.
REALTOR?

A real estate broker or agent who is a member of the National Association of Realtors? (NAR), as well as state and local real estate boards. (All brokers are real estate agents, but not all real estate agents are brokers.)
RECORD

The act of entering, in the public record, any instrument affecting title to real property.
REDEMPTION

Paying off the entire mortgage prior to the issuance of a judicial deed to extinguish a mortgage and mortgage foreclosure action.
REINSTATEMENT

Returning a loan to a current status by paying off the delinquency, plus penalties and expenses, and extinguishing any pending foreclosure action.
RELEASE CLAUSE

A statement in a blanket mortgage that allows a specifically described parcel to be released from under the blanket lien after a sum of money is repaid.
RENT CONTROL

The regulation or restrictions set by government agencies on the amount of rent that landlords may charge.
RENT ROLL

A listing of tenants and the rent that they pay.
REPOSITIONING

A technique used to increase the value of an asset through improvement of the asset.
RESTRICTIVE COVENANT

A clause in a deed in which there is an agreement between buyer and seller stating certain restraints as to the use of the property.
RIGHT OF FIRST REFUSSAL

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.
RIGHTOFWAY

An easement on land whereby an owner grants or gives to another the right of passage over his or her land.
RIPARIAN RIGHTS

The rights of a landowner to the body of water adjacent to his or her land. In some cases these rights include the land under the water.

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.
SALES CONTRACT

An agreement between buyer and seller of real property to transfer title to that property at a future time for a specific sum of money. (Also called a contract for purchase or sale.)
SANDWICH LEASE OPTION

Using a lease option, then subleasing the property.
SATISFACTION OF MORTGAGE

An instrument filed in the public records that acknowledges payment of an indebtedness secured by a mortgage.
S CORPORATION

A corporation that has elected to be taxed as a partnership.
SEASONING

As used in the mortgage industry, the requirement of ownership for a specified period of time.
SECONDARY MARKET

The buying and selling of existing mortgages, usually as part of a “pool” of mortgages.
SECOND MORTGAGE

A mortgage that has a lien position subordinate to the first mortgage.
SECURED LOAN

A loan that is backed by collateral.
SECURITY DEPOSIT

An amount of money paid by a tenant before moving into the premises to cover any possible damage incurred while living there, or to protect the landlord in the event that the tenant leaves without being current on rent payments. If the tenant is current and the unit only has a normal amount of wear and tear, then the deposit is generally refunded (also known as an indemnification deposit).
SELLER CARRY-BACK

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
SERVICING THE DEBT

The act of paying the periodic principal and interest payments on an outstanding obligation.
SPECIFIC PERFORMANCE

A court order requiring a person to act or do a specific thing that he or she had agreed to do.
SPENDABLE CASH FLOW

Effective gross income minus operating expenses and loan principal and interest payments. (Also known as positive cash flow.)
STATUTORY RIGHT OF REDEMPTION

The right given by statute to a mortgagor to redeem the property after the foreclosure sale.
STIPULATION

An agreed upon point or condition in a contract.
SUBDIVISION

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

The leasing of a leased property by the lessee to another person.
SUBORDINATE

To lower the rank of a mortgage. For example, to put what is now a first mortgage in the second mortgage position.
SUBORDINATED INTEREST

Secondary interest that is paid off after other investors have been paid.
SUBSTITUTION OF COLLATERAL

A clause in a mortgage that permits the mortgagor (borrower) to substitute property of equal or greater value for the property originally pledged as collateral.

TAX DEDUCTIBLE

Not subject to taxation. An expense that is deductible from income in determining one’s taxable income.
TAX DEED

Usually a special warranty deed prepared by the county treasurer and given to the tax purchaser who has complied with statutory requirements.
TAX LIABILITY

The amount of money one owes to the government for taxation purposes.
TAX LIEN

A lien imposed against real property for the nonpayment of taxes, both real estate and income taxes.
TAX LIEN CERTIFICATES

Certificates sold by government bodies, usually through a tax sale proceeding, that gives the buyer the right to interest and fees paid if the taxes are redeemed, or the right to obtain a tax deed if the sold taxes are not redeemed.
TAX SHELTER

A provision in the Internal Revenue Tax Code that treats certain income preferentially.
TENANT

A person having the temporary use and occupancy of real property owned by another.
TENANTS IN COMMON

The ownership of an interest in property by two or more persons. Their ownership interest may be equal or unequal and there is no right of survivorship as with joint tenancy. Upon the death of one of the owners, the ownership share of the deceased owner is inherited by the party designated in the deceased owner’s will or as prescribed by statute in the absence of a will.
TENDER

An offer to pay or perform.
TERMS

The exact way a property will be purchased.
TESTATE

One who dies leaving a will.
TIMESHARE

A form of property ownership under which a property is held by a number of people, each with the right of possession for a specified time interval.
TITLE

Evidence of ownership rights and obligations of the owner.
TITLE INSURANCE

Insurance issued by a title company guaranteeing the title to be good and marketable. Title insurance policies can be issued to protect the mortgagee, the full interest of the buyer, or both.
TITLE INSURANCE COMPANY

A business that researches and reports on the status of the title on a specific property and whether or not the property has any liens against it. The title company will also insure the status of the title based on the coverage specified in the policy.
TITLE THEORY

States that allow the lender to become the legal may be used. owner at the time of making the loan. The borrower only has possession.
TOWNSHIP

A unit of measure used in the government survey method of land description equal to 36 sections (36 square miles).
TRADE LINE

A reporting credit card, installment loan, or mortgage.
TRANSFER TAX

State or local tax payable when title passes from one owner to another.
TRIPLE NET

A situation in which the tenant pays real estate taxes, insurance, and all maintenance costs for the property.
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.
TWO-STEP MORTGAGE

An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.
TWO-TO-FOUR FAMILY PROPERTY

A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

UNILATERAL CONTRACT

A contract in which one party is bound by another to do something. If the second party chooses to exercise the contract, the first party must perform any contractual obligations that party may have. However, if the second party chooses not to exercise the contract, the first party is released from any contractual obligations.
UNSECURED LINE OF CREDIT

An extension of credit to a borrower that does not require collateral.
USURY

State usury laws dictate the highest annual interest rate that can legally be charged.

VACANCY RATE

The percentage of all units that are not rented by particular property or area (apartment building versus singlefamily homes).
VALUE, ASSESSED

See “assessed value.”
VALUE, BOOK

The value of a property carried on a company’s books. It is usually the cost less depreciation or cost recovery plus capital additions.
VALUE, MARKET

The highest price estimated in terms of money which a property will bring if exposed for sale in the open market. The price according to supply and demand.
VA MORTGAGE

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

A buyer.
VENDOR

A seller of goods or services.
VESTED

Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.
VETERANS ADMINISTRATION (VA)

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

WARRANT

To guarantee something to be as represented.
WARRANTY DEED

A deed that conveys title that the seller warrants to be free and clear of liens and encumbrances (e.g., claims against the property).
WRAPAROUND MORTGAGE

A mortgage held by the seller (mortgagee). The buyer (mortgagor) pays the seller (mortgagee) the debt service on the wraparound mortgage and the seller (mortgagee) continues to pay the debt service on the underlying or original mortgage.

There are no terms available at this time.

There are no terms available at this time.

ZONING

A legal mechanism for local government to regulate the use of privately owned real property to prevent conflicting land uses and to promote orderly development.