Real Estate Glossary

Last Updated on Tuesday, 01 February 2011 21:26 Written by Administrator Sunday, 09 January 2011 15:53

These are the basic definitions that will help you when you buy and/or sell real estate.  They are not meant to be legally or financially all-encompassing, so please be sure to consult a real estate attorney or loan officer to determine how a term may apply to your particular situation.

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1031 exchange 
The sale of one investment property and the purchase of another while deferring capital gains tax, as authorized by section 1031 of IRS Code.
Acceleration clause 
A mortgage clause that describes circumstances under which a lender may demand payment in full of the loan balance before it is due.
Adjustable-rate mortgage (ARM) 
A mortgage in which the interest rate changes periodically.
Adjustment date 
The date the interest rate changes on an adjustable-rate mortgage.
Amortization 
The paying off of debt in regular installments over a period of time.
Annual percentage rate (APR) 
The total cost of a loan, including interest, private mortgage insurance, an origination fee, points and other loan fees, expressed as a percentage.
Appraisal 
Analysis and written justification by an impartial third party of the value of a property based on an analysis of comparable sales of similar homes nearby by an impartial third party.
Appraised value 
An opinion of a property's fair market value based on an appraiser's knowledge, experience, and analysis of the property and comparable sales of similar homes nearby.
Appraiser 
An individual qualified by education, training, and experience to estimate the value of real property.
Assessed value 
The value placed on property by a public tax assessor for purposes of taxation.
Assessor 
A public official who establishes the value of a property for taxation purposes.
Assumable mortgage 
A mortgage whose interest rate may, with the permission of the lender, be assumed by a new buyer when a home is sold.
Back-end ratio 
The percentage of a borrower's gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt; aka Bottom Ratio.
Balloon mortgage 
A loan that requires the remaining principal balance be paid on a certain date.
Balloon payment 
The final payment due at the termination of a balloon mortgage.
Bill of sale 
Written documentation of a sale, usually involving personal property.
Bridge loan 
Mortgage financing that uses the equity in a home being sold for the downpayment on a home being purchased by the same individual.
Buy-down 
Financing assistance in which the seller or builder makes a payment to the lender to reduce the buyer’s payments for a fixed number of months or years.
Buyer’s agent 
A real estate agent who has a written agreement to represent a buyer in a purchase transaction.
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) 
Document issued by the Veteran’s Administration to certify that the property has appraised at or above the purchase price.
Chain of title 
An analysis of the history of transfer of title on a property.
Clear title 
A title that is free of liens or legal entanglements.
Closing 
A meeting where the property transfer and loan documents are signed and money changes hands.  See also “settlement.”
Closing costs 
One-time costs associated with the transfer of property and paid at settlement.
Closing statement 
See HUD-1 Settlement Statement.
Cloud on title 
Any conditions revealed by a title search that adversely affect the title to real estate.
Collateral 
The real property that is the basis for a home loan.
Common areas 
Portions of the building, land and amenities owned by purchasers of a planned unit development (PUD), condominium project, or cooperative that are used by all of the unit owners.
Comparable sales 
Recent sales of similar properties in nearby areas used to help determine the market value of a property; also referred to as "comps."
Comparative Market Analysis (CMA) 
A document created by a real estate agent by comparing recent sales of similar properties in a given area that forms the basis for the fair market value of a home.
Condo fee
A monthly fee paid to the condominium association for management and maintenance of the building, insurance, use and upkeep of amenities and often certain utilities.
Condominium 
A form of ownership in which a buyer owns his individual unit and a portion of the common areas.
Condominium association 
A non-profit organization established for the purpose of managing the affairs of the condominium.
Condominium conversion 
Change of in the type of ownership of an existing building from rental to condominium.
Construction loan 
A short-term, interim loan for financing the cost of construction or substantial renovation.
Contingency 
A condition that must be met before a contract is legally binding.
Contract 
A written agreement in which two parties agree to do or not do certain things.
Conventional mortgage 
A mortgage that is neither guaranteed nor insured by a government agency.
Convertible ARM 
An adjustable-rate mortgage that allows the borrower to change the adjustable interest rate to a fixed-rate within a specific time.
Conveyance 
An item that is sold with the real property.
Cooperative (Co-op) 
Type of ownership in which the residents of multi-unit housing own shares of stock in a corporation that owns the property, giving each resident the right to occupy a specific apartment therein.
Co-op association 
A non-profit organization established for the purpose of managing the affairs of the cooperative.
Co-op fee 
A monthly fee paid to the cooperative association for management and maintenance of the building, insurance, use and upkeep of amenities, utilities, property taxes and, in some cases, a share of an underlying mortgage on the property.
Corporate-owned 
Owned by a bank or relocation company
Cost of Funds Index (COFI) 
One of the indexes used to determine interest rate changes for adjustable-rate mortgages.
Counter-offer 
A seller’s written response to an offer by a buyer; a buyer’s written response to a prior counter-offer from a seller.           
Credit history 
A record of an individual's repayment of debt.
Credit report 
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
DC Tax Credit 
A DC government program that allows certain buyers to obtain a credit of up to $5,000 against their federal income taxes in the year in which they buy a home in DC; income limits apply.
Deed 
The legal document conveying title to a property.
Deed-in-lieu 
Transferring property to the lender when a property owner is faced with an inevitable foreclosure and loss of property.
Deed of trust
Like a mortgage, a deed of trust pledges specific real estate as collateral for a loan.
Default 
Failure to meet legal obligations according to a sales contract, mortgage or deed of trust.
Delinquency 
Failure to make mortgage payments when they are due.
Discount point 
One percent of the loan amount paid to lower the interest rate on a mortgage loan.
Down payment 
The part of the purchase price of a property that the buyer pays in cash.
Due-on-sale clause
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
Earnest money deposit 
A deposit made by the potential home buyer at the time an offer is presented to a seller to show that he or she is serious about buying the house.
Easement 
A right-of-way giving persons other than the owner access to or over a property.
Eminent domain 
The right of a government to take private property for public use upon payment of its fair market value.
Encroachment 
An improvement that intrudes illegally on another's property.
Encumbrance 
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA) 
A federal law that requires lenders and other creditors to make credit available without regard to race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equal Housing Opportunity Act (EHO) 
A federal law that requires real estate agents and other industry professionals to provide the same information level of service to each client, without regard to race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.  Other categories of people may be included based on state law.
Equity 
The difference between the fair market value or sales price of a property and the amount still owed.
Escrow account
Account established by a lender in which monthly property taxes, insurance and mortgage insurance payments are kept until due and paid by the lender.  An account established by a real estate firm or title company to hold a buyer’s deposit until settlement.
Escrow analysis 
An annual review performed by the lender to ensure sufficient funds are available in the escrow account to pay the coming property taxes, hazard insurance and mortgage insurance.
Escrow disbursements 
The payment of property taxes, hazard insurance and mortgage insurance by a lender when due.
Eviction 
The lawful expulsion of an occupant from real property.
Exclusive listing 
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
Fair Credit Reporting Act (FCRA)
A consumer protection law that regulates the disclosure of consumer credit reports by reporting agencies and establishes procedures for correcting mistakes on one's credit record.
Fair housing 
The outcome of the Equal Housing Opportunity Act, making housing opportunities available for all without discrimination.
Fair market value 
The price that a ready, willing and able buyer will pay for a property when not under duress.
Fannie Mae (FNMA) 
The Federal National Mortgage Association, a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.
Federal Housing Administration (FHA) 
An agency of the U.S. Department of Housing and Urban Development (HUD) that insures residential mortgage loans made by private lenders.
Fee simple
The private ownership of real estate in which the owner has the right to control, use and transfer the property at will.
FHA mortgage
A mortgage insured by the Federal Housing Administration (FHA).
Final walk-through 
Inspection that takes place prior to settlement so that a buyer can determine whether the property is in the same condition as when he last saw it, or that any agreed-upon repairs have been completed.
First mortgage 
The mortgage that is in first position among any loans recorded against a property.
Fixed-rate mortgage 
A mortgage in which the interest rate does not change during the term of the loan.
Fixture 
Personal property that is attached in a permanent manner to real estate.
Flip 
To purchase a property, then renovate and resell it for profit within a short period of time.
Flood insurance 
Insurance that compensates for physical property damage resulting from flooding.
Foreclosure 
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property.
Front-end ratio 
The calculation of a buyer’s total monthly housing expenses (principal, interest, taxes and insurance payments) divided by his monthly gross income; aka Top Ratio.
FSBO 
Property that is For Sale by Owner; pronounced “fizzbo”.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.
Hazard insurance 
Insurance that covers physical damage to a property from fire, wind, vandalism, or other hazards.
Home Affordable Foreclosure Alternatives Program (HAFA) 
A government program that offers homeowners, their mortgage servicers and investors an incentive for completing a short sale or deed-in-lieu of foreclosure.
Home Affordable Modification Program (HAMP) 
A government program that allows homeowners in financial distress to seek modifications of their loans through the lender.
Home equity line of credit (HELOC) 
An amount of credit 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.
Home warranty 
A type of insurance that covers repairs to certain items, such as heating or air conditioning, electrical and plumbing items and appliances should they break down within the coverage period.
Homeowners' 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.
Homestead exemption
Reduction in property taxes available to owners who occupy a home as their principal residence. 
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).
HUD-1 settlement statement 
A Housing and Urban Development (HUD) document that provides an itemized listing of the funds that were paid at closing.
Index 
A figure that, when added to the margin of an adjustable mortgage, determines the future interest rate and monthly payment.
Interest-only mortgage 
A mortgage where the principal is not repaid as part of the monthly payment.
Joint tenancy 
A form of ownership or taking title to property where each party owns the whole property; in the event of the death of one party, the survivor owns the property in its entirety.
Judicial foreclosure 
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
Jumbo loan 
A loan that exceeds Fannie Mae's and Freddie Mac's high-balance loan limits, currently at $729,750 in the DC Metro area.
Lease 
A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Leasehold  
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 option
A financing option that allows home buyers to lease a home with an option to buy it for a specified price at a later date; buyer may elect or decline to exercise option.
Lease purchase
A lease combined with a purchase agreement that obligates the lessee (tenant) to purchase the property under specified conditions.
Legal description 
A property description recognized by law that is sufficient to locate and identify the property without oral testimony.
Lender 
The institution making a mortgage loan or an individual representing the firm.
Lien 
A legal claim against a property that must be paid off when the property is sold, such as a mortgage or deed of trust.
Lifetime cap 
The amount by which an adjustable-rate mortgage (ARM) may increase over the life of the loan.
Liquid asset 
A cash asset or an asset that is easily converted into cash.
Listing Agreement 
A contract between a seller and a real estate brokerage firm setting forth the terms, timelines and duties of an agent when offering the seller’s home for sale.
Loan 
A sum of borrowed money (principal) that is generally repaid with interest.
Loan commitment 
A lender's written agreement to make a loan to a borrower for a property that contains the terms and conditions of the agreement.
Loan modification 
A change to the interest rate or terms of an existing mortgage authorized by the lender.
Loan officer 
The person who collects and reviews documentation from a buyer and required by an underwriter to initiate the process of making a home loan.
Loan origination fee
One percent of the loan amount charged by a lender to handle a home loan.
Loan-to-value ratio (LTV) 
The percentage relationship between the amount of the loan and the appraised value or sales price of a property.
Lock-in period 
The time period during which the lender has guaranteed an interest rate to a borrower.
London Interbank Offered Rate (LIBOR) 
One of the indexes used to determine interest rate changes for adjustable-rate mortgages.
Margin 
A percentage added to the index on an adjustable rate mortgage to arrive at the interest rate paid at the next adjustment period.
Mortgage 
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage banker 
A lender who originates and funds its own loans.
Mortgage broker 
A lender who originates loans then places them with another lending institution for a fee.  
Mortgagee 
The lender in a mortgage agreement.
Mortgage Insurance Premium (MIP) 
The term for private mortgage insurance on an FHA loan.
Mortgagor 
The borrower in a mortgage agreement.
Multiple listing service 
The database of homes currently and formerly on the market.  In the DC Metro area, the Metropolitan Regional Information System (MRIS).
Multiple list number
A two letter and 7-digit number identifying a particular property; e.g. DC1234567, AX2345678, MC3456789, etc.
Multi-unit building 
Property that provides separate housing units for more than one family.
Negative amortization
When the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases; aka NegAm.
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.
Notice of default 
A formal written notice to a borrower that a default has occurred and that legal action may be taken. 
Offer
A written document presented from buyer to seller outlining the terms and conditions of a contract to buy a home.
Owner financing 
A property purchase transaction in which the property seller provides all or part of the financing.
Payment change date 
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM).
Periodic interest rate cap 
For an adjustable-rate mortgage, 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 
Principal, interest, taxes and insurance that make up a monthly mortgage payment.
Planned Unit Development (PUD)
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.
Point 
See Discount Point.
Power of attorney 
A legal document that authorizes another person to act on one's behalf.
Pre-approval
The process in which a borrower completes a loan application and provides debt, income, and savings documentation to a lender prior to selecting a home and the lender provides a letter indicating the amount of the loan the borrower qualifies for.
Pre-paids 
Portions of property taxes, hazard insurance and mortgage insurance that fund the lender’s initial escrow account.
Prepayment 
Any amount paid to reduce the principal balance of a loan before the due date. 
Prepayment penalty 
A fee that may be charged to a borrower who pays off a loan before it is due.
Pre-qualification
An informal, but not binding assessment of how much money a person could potentially borrow from a lender.
Prime rate 
The interest rate that banks charge to their preferred customers. 
Principal 
The amount borrowed or remaining unpaid.
Principal balance
The outstanding balance of principal on a mortgage which does not include interest or other charges.
Private Mortgage Insurance (PMI)
Insurance issued by a private firm that insures the lender against some of the losses incurred as a result of default on a home loan.
Promissory note 
A written promise to repay a specified amount over a specified period of time.
Property tax 
Annual taxes owed to the city or county based on the assessed value of a home.
Purchase agreement 
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold. See Sales Contract. 
Purchase money transaction 
The acquisition of property through the payment of money or its equivalent.
Qualifying ratios 
Calculations used in determining whether a borrower can qualify for a mortgage; achieved by dividing the total housing expense by the buyer's gross monthly income (Front-end Ratio) and by dividing the total of housing expense plus other debts by the buyer’s gross monthly income (Back-end Ratio).  
Quitclaim deed 
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
Ratification 
When a sales contract is signed and agreed to by all parties; a ratified contract.
Real estate agent 
A person licensed to negotiate and transact the sale of real estate.
Real estate broker 
A real estate licensee who has received advanced education and has passed a qualifying examination in the state in which he or she does business.
Real Estate Settlement Procedures Act (RESPA) 
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Real property 
Land and appurtenances, including anything of a permanent nature such as structures, trees and minerals, and the interest, benefits, and inherent rights thereof.
REALTOR® 
An agent or broker who is an active member of the National Association of REALTORS®.
Recorder of Deeds
The public official who keeps records of transactions that affect real property in the area.
Recognition Agreement
A written agreement between a cooperative and a lender, authorizing that lender to make loans to those purchasing cooperative apartments.
Recordation
The act of giving legal status to a document by making it an official public record.
Refinance transaction 
The process of paying off one loan with the proceeds from a new loan using the same property as security.
RELO
Relocation; a company that assists people who are transferring from one area to another with the sale and purchase of real property.
Rent-back 
When a buyer purchases a property and allows the seller to continue to remain there for an agreed-upon period for a fee.
REO 
Real Estate Owned; the division of a bank that handles foreclosed properties.
Repayment plan 
An arrangement made to repay delinquent installments or advances.
Reserve fund 
Monies set aside for replacement of common property in a condominium, PUD, or cooperative.
Reserves 
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home.
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 the property before offering it for sale to others.
Right of survivorship 
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
Sales contract 
A written agreement in which all parties acknowledge and accept the price and terms therein.
Second mortgage 
A mortgage that has a lien position subordinate to the first mortgage.
Secondary market 
The buying and selling of existing mortgages, usually as part of a "pool" of mortgages.
Secured loan 
A loan that is backed by collateral.
Security 
The property that will be pledged as collateral for a loan.
Servicer 
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts.
Settlement statement 
See HUD1 Settlement Statement
Short sale 
The sale of a property where value of the property is less than the amount owed on the mortgage and the lender agrees to accept less than is owed, thus selling “short.”
Staging 
Preparing a home for sale by repairing, decluttering and enhancing the look of the property and presenting in such a manner that a buyer can envision living there.
Subsidy 
An amount paid by a seller to assist a buyer with payment of closing costs.
Survey 
A drawing identifying the 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 unpaid labor.
Tax abatement 
A DC government program that excludes certain buyers from the mandate to pay property taxes for five years; maximum income limits and sales price apply.
Tenancy in common 
A tenancy in which two or more parties share ownership of property but have no right to each other's interest; upon the death of one owner, his shares pass to his estate rather than to the remaining parties.
Tenancy by the entireties
A stronger form of Joint Tenancy available to married couples only.
Tenant’s Opportunity to Purchase Act (TOPA) 
DC Act that outlines procedures that must be followed by a seller when offering a tenanted property for sale.
Termite report 
A document issued by a pest inspector certifying that there are no active termites on the premises or that any infestation found has been eradicated.
Title 
A legal document evidencing a person's right to or ownership of a property.
Title examination
An examination of the public record to determine that the seller is the legal owner and there are no encumbrances (such as claims or liens) affecting the property.
Title company 
A company that specializes in examining and insuring titles to real estate.
Title insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
Title search 
A search of all public records to determine if any title defects or liens exist.
Transfer tax 
State or local tax paid when title passes from one owner to another.
Tri-merged credit report 
A credit report containing data pulled from the three major credit bureaus.
Treasury Index 
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans.
Truth-in-Lending Act
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage loan.
Trustee 
A fiduciary representing the mortgage holder in a foreclosure action.
Underlying mortgage 
A mortgage obtained by a cooperative where payments are assessed to the shareholders on a monthly basis until repaid.
Underwriting 
The process whereby a lender reviews a buyer’s loan package for consistency with requirements of the bank or investor that will be making the loan.
VA mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Veterans Administration (VA) 
An agency of the federal government that guarantees residential mortgages made to eligible members and veterans of the U.S. military services.