Abstract (Of Title): A summary of the
public records relating to the title to a particular
piece of land. An attorney or title insurance company
reviews an abstract of title to determine whether there
are any title defects which must be cleared before a
buyer can purchase clear, marketable, and insurable
Acceleration Clause: Condition in a mortgage that
may require the balance of the loan to become due
immediately, if regular mortgage payments are not made
or for breach of other conditions of the mortgage.
Acceptance: The date when both parties, seller and
buyer, have agreed to and completed signing and/or
initialing the contract.
Adjustable rate mortgage loan (ARM): A type of
alternative mortgage instrument in which the interest
rate adjusts periodically according to a predetermined
index and margin. This adjustment results in the
mortgage payment either increasing or decreasing.
Adjustment Period – The length of time between
interest rate changes on ARM. For example, a loan with
an adjustment period of one-year ARM, which means that
the interest rate can change once a year.
Agreement of Sale: Known by various names, such as
contract of purchase, purchase agreement, or sales
agreement according to location or jurisdiction. A
contract in which a seller agrees to sell and a buyer
agrees to buy, under certain specific terms and
conditions spelled out in writing and signed by both
A declaration made by a person to a notary public, or
other public official authorized to take
acknowledgments, that the instrument was executed by him
and that it was his free and voluntary act.
A measure of land equal to 43,560 square feet.
Money that the buyer and sellers credit each other at
the time of closing. Often includes taxes and down
A relationship created when one person, the principal,
delegates to another, the agent, the right to act on his
or her behalf in business transactions and to exercise
some degree of discretion while so acting. An agency
gives rise to a fiduciary relationship and imposes on
the agent, as the fiduciary of the principal, certain
duties, obligations, and high standards of good faith
Amortization: A payment plan which enables the
borrower to reduce his debt gradually through monthly
payments of principal.
Annual percentage rate (APR): A rate which
represents the relationship of the total finance charge
(interest, loan fees, point) to the amount of the loan.
Application: A form used to apply for a mortgage
loan and to record pertinent information concerning a
prospective mortgagor and the proposed security.
Appraisal: An expert judgment or estimate of the
quality or value of real estate as of a given date.
Appraised value: An opinion of value reached by an
appraiser based upon knowledge, experience, and a study
of pertinent data.
Appraiser- A person qualified by education, training,
and experience to estimate the value of real and
Appreciation: An increase in value; the opposite of
Words in a contract intended to signify that no
guarantees, whatsoever, are given regarding the subject
and that it is being purchased exactly as it is found.
Asking (list) price:
The price placed on a property for sale.
Assessment: The process of placing a value on
property for the strict purpose of taxation. may also
refer to a levy against property for a special purpose,
such as a sewer assessment.
Assumption of Mortgage: An obligation undertaken by
the purchaser of property to be personally liable for
payment of an existing mortgage. In an assumption, the
purchaser is substituted for the original mortgagor in
the mortgage instrument and the original mortgagor is to
be released from further liability in the assumption,
the mortgagee's consent is usually required. The
original mortgagor should always obtain a written
release from further liability if he desires to be fully
released under the assumption. Failure to obtain such a
release renders the original mortgagor liable if the
person assuming the mortgage fails to make the monthly
payments. An "Assumption of Mortgage" is often confused
with "purchasing subject to a mortgage." When one
purchases subject to a mortgage, the purchaser agrees to
make the monthly mortgage payments on an existing
mortgage, but the original mortgagor remains personally
liable if the purchaser fails to make the monthly
payments. Since the original mortgagor remains liable in
the event of default, the mortgagee's consent is not
required to a sale subject to a mortgage. Both
"Assumption of Mortgage" and "Purchasing Subject to a
Mortgage" are used to finance the sale of property. They
may also be used when a mortgagor is in financial
difficulty and desires to sell the property to avoid
A transfer of property rights from one person to
another, called the assignee.
Municipal or county official who determines the value of
property for taxation.
Balloon mortgage: A mortgage with periodic
installments of principal and interest that do not fully
amortize the loan. The balance of the mortgage is due in
a lump sum at the end of the term.
Balloon payment- The unpaid principal amount of a
mortgagee or other long-term loan due at a certain date
in he future, usually the amount that must be paid in a
lump sum at the end of the term.
Binder, insurance: A written evidence of temporary
hazard or title coverage that only runs for a limited
time and must be replaced by a permanent policy.
Borrower: One who receives funds with the expressed
or implied intention of repaying the loan in full.
For a commission or fee, bringing together parties
interested in buying, selling, exchanging, or leasing
Broker: (See real estate broker)
An overall inspection of a home or building performed by
a qualified contractor or inspector. The inspection
usually covers all major systems including foundation,
plumbing, electrical, roof, heating and air
Building Line or Setback: Distances from the ends
and/or sides of the lot beyond which construction may
not extend. The building line may be established by a
filed plat of subdivision, by restrictive covenants in
deeds or leases, by building codes, or by zoning
Buydown – Permanent–prepaid interest bringing the
note rate on the loan down to a lower, permanent rate.
Temporary–prepaid interest lowering the note rate
temporarily on the loan, allowing the buyer to more
readily qualify and to increase payments as income
An agreement where a buyer agrees to pay a commission if
a broker locates a property that the buyer purchases.
Agent who represents the buyer in the real estate
A principal-agent relationship in which the broker is
the agent for the buyer, with fiduciary responsibilities
to the buyer. The broker represents the buyer under the
law of agency.
A licensee who has declared to represent only the buyer
in a transaction, regardless of whether compensation is
paid by the buyer or the listing broker through a
Caps: A limitation on the interest rate increase of
either the periodic or lifetime rate or both for an
adjustable rate mortgage.
Cash Reserves: The amount of the buyer’s liquid cash
remaining after making the down payment and paying all
CC&R’s – Covenants, conditions and restrictions. A
document that controls the use, requirements and
restrictions of the property.
Certificate Of Occupancy (CO): Written authorization
given by a local municipality that allows a
newly-completed or substantially-completed structure to
be inhabited. The issuing of a CO means that: the home
is SAFE, SOUND & SANITARY, and has matches the PLANS &
SPECIFICATIONS given to the Appraiser at the beginning
of the Loan Process.
Certificate of Commitment – The lender’s approval of
a VA loan, which is usually good for up to six months.
Certificate of Reasonable Value (CVR): A document
that establishes the maximum value and loan amount or a
VA guaranteed mortgage.
Certificate of Title: A certificate issued by a
title company or a written opinion rendered by an
attorney that the seller has good marketable and
insurable title to the property which he is offering for
sale. A certificate of title offers no protection
against any hidden defects in the title which an
examination of the records could not reveal. The issuer
of a certificate of title is liable only for damages due
to negligence. The protection offered a homeowner under
a certificate of title is not as great as that offered
in a title insurance policy.
Chattel: Personal property.
Closing or Close of Escrow: The day on which the
formalities of a real estate sale are concluded. The
certificate of title, abstract, and deed are generally
prepared for the closing by an attorney and this cost
charged to the buyer. The buyer signs the mortgage, and
closing costs are paid. The final closing merely
confirms the original agreement reached in the agreement
Closing Costs: The numerous expenses which buyers
and sellers normally incur to complete a transaction in
the transfer of ownership of real estate. These costs
are in addition to price of the property and are items
prepaid at the closing day. This is a typical list:
1. Documentary Stamps on Notes
2. Recording Deed and Mortgage
3. Escrow Fees
4. Attorney's Fee
5. Title Insurance
6. Appraisal and Inspection
7. Survey Charge
1. Cost of Abstract
2. Documentary Stamps on Deed
3. Escrow Fees
4. Real Estate Commission
5. Recording Mortgage
6. Survey Charge
7. Attorney's Fee
The agreement of sale negotiated previously between the
buyer and the seller may state in writing who will pay
each of the above costs.
Cloud (On Title): An outstanding claim or
encumbrance which adversely affects the marketability of
Houses and properties that are similar in style,
appearance, construction quality, and usefulness to a
particular property in a certain location.
Comparative Market Analysis (CMA):
Realistic estimate of a home's current market value
based on the most salient points of the local real
Commission: Money paid to a real estate agent or
broker by the seller as compensation for finding a buyer
and completing the sale. Usually it is a percentage of
the sale price--6 to 7 percent on houses, 10 percent on
Commitment Period: The period during which a loan
approval is valid.
Comparative Market Analysis: An opinion of the
market value of a home expressed by a real estate agent
and not an appraiser.
Condemnation: The taking of private property for
public use by a government unit, against the will of the
owner, but with payment of just compensation under the
government's power of eminent domain. Condemnation may
also be a determination by a governmental agency that a
particular building is unsafe or unfit for use.
Condominium: Individual ownership of a dwelling unit
and an individual interest in the common areas and
facilities which serve the multi-unit project.
Consideration: Anything of value to induce another
to enter into a contract, i.e., money, services, a
Contingency: A condition that must be satisfied
before a contract is binding. For instance, a sales
agreement may be contingent upon the buyer obtaining
Contract of Purchase: (See agreement of sale)
A legally enforceable agreement to do, or not to do, a
particular thing for a consideration.
contract of sale:
The agreement between the buyer and seller on the
purchase price, terms, and conditions necessary to both
parties to convey the title to the buyer.
Construction loan: A short-term, interim loan for
financing the cost of construction. The lender makes
payments to the builder at periodic intervals as the
Contractor: In the construction industry, a
contractor is one who contracts to erect buildings or
portions of them. There are also contractors for each
phase of construction: heating, electrical, plumbing,
air conditioning, road building, bridge and dam
erection, and others.
Conventional Mortgage: A mortgage loan not insured
by HUD or guaranteed by the Veterans' Administration. It
is subject to conditions established by the lending
institution and State statutes. The mortgage rates may
vary with different institutions and between States.
(States have various interest limits.)
Conversion Clause: A provision in some ARMs that
enables homebuyers 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.
Mortgage not FHA-insured or guaranteed by the VA, known
by this name because it is the most popular home
Offer made by the buyer or seller in response to the
Common term for everything prospective buyers can see
from the street that might make them want to take a
closer look at a house for sale.
Cooperative Housing: An apartment building or a
group of dwellings owned by a corporation, the
stockholders of which are the residents of the
dwellings. It is operated for their benefit by their
elected board of directors. In a cooperative, the
corporation or association owns title to the real
estate. A resident purchases stock in the corporation
which entitles him to occupy a unit in the building or
property owned by the cooperative. While the resident
does not own his unit, he has an absolute right to
occupy his unit for as long as he owns the stock.
Co-signer: A person who signs a legal instrument and
therefore becomes individually and jointly liable for
repayment or performance of an obligation.
Credit report: A report to a prospective lender on
the credit standing of a prospective borrower or tenant.
Used to help determine creditworthiness.
Deed: A formal written instrument by which title to
real property is transferred from one owner to another.
The deed should contain an accurate description of the
property being conveyed, should be signed and witnessed
according to the laws of the State where the property is
located, and should be delivered to the purchaser at
closing day. There are two parties to a deed: the
grantor and the grantee. (See also deed of trust,
general warranty deed, quitclaim deed, and special
Deed of Trust: Like a mortgage, a security
instrument whereby real property is given as security
for a debt. However, in a deed of trust there are three
parties to the instrument: the borrower, the trustee,
and the lender, (or beneficiary). In such a transaction,
the borrower transfers the legal title for the property
to the trustee who holds the property in trust as
security for the payment of the debt to the lender or
beneficiary. If the borrower pays the debt as agreed,
the deed of trust becomes void. If, however, he defaults
in the payment of the debt, the trustee may sell the
property at a public sale, under the terms of the deed
of trust. In most jurisdictions where the deed of trust
is in force, the borrower is subject to having his
property sold without benefit of legal proceedings. A
few States have begun in recent years to treat the deed
of trust like a mortgage.
Deposit:(See Earnest Money)
Default: Failure to make mortgage payments as agreed
to in a commitment based on the terms and at the
designated time set forth in the mortgage or deed of
trust. It is the mortgagor's responsibility to remember
the due date and send the payment prior to the due date,
not after. Generally, thirty days after the due date if
payment is not received, the mortgage is in default. In
the event of default, the mortgage may give the lender
the right to accelerate payments, take possession and
receive rents, and start foreclosure. Defaults may also
come about by the failure to observe other conditions in
the mortgage or deed of trust.
Depreciation: Decline in value of a house due to
wear and tear, adverse changes in the neighborhood, or
any other reason.
Discount Points: A loan fee charged by a lender of
FHA, VA, or conventional loans to increase the yield on
the investment. One point = 1% of the loan amount.
Documentary Stamps: A State tax, in the forms of
stamps, required on deeds and mortgages when real estate
title passes from one owner to another. The amount of
stamps required varies with each State.
Down payment: The amount of money to be paid by the
purchaser to the seller upon the signing of the
agreement of sale. The agreement of sale will refer to
the down payment amount and will acknowledge receipt of
the down payment. Down payment is the difference between
the sales price and maximum mortgage amount. The down
payment may not be refundable if the purchaser fails to
buy the property without good cause. If the purchaser
wants the down payment to be refundable, he should
insert a clause in the agreement of sale specifying the
conditions under which the deposit will be refunded, if
the agreement does not already contain such clause. If
the seller cannot deliver good title, the agreement of
sale usually requires the seller to return the down
payment and to pay interest and expenses incurred by the
Draw System: Scheduled payment of money to a builder
during the phases of home construction. Between each
draw, the appraiser must inspect the home to ensure that
construction is proceeding as planned.
Due-on-sale Clause: A type of acceleration clause,
calling for a debt under a mortgage or deed of trust to
be due in its entirety upon transfer of ownership of the
Dual agency: Representing both the buyer and the seller in
the same real estate transaction. By law, all states
require that dual agency be disclosed to all parties in
Earnest Money: The deposit money given to the seller
or his agent by the potential buyer upon the signing of
the agreement of sale to show that he is serious about
buying the house. If the sale goes through, the earnest
money is applied against the down payment. If the sale
does not go through, the earnest money will be forfeited
or lost unless the binder or offer to purchase expressly
provides that it is refundable.
Easement Rights: A right-of-way granted to a person
or company authorizing access to or over the owner's
land. An electric company obtaining a right-of-way
across private property is a common example.
Eminent domain: The right of a government to take
private property for public use upon payment of its fair
Encroachment: An obstruction, building, or part of a
building that intrudes beyond a legal boundary onto
neighboring private or public land, or a building
extending beyond the building line.
Encumbrance: A legal right or interest in land that
affects a good or clear title, and diminishes the land's
value. It can take numerous forms, such as zoning
ordinances, easement rights, claims, mortgages, liens,
charges, a pending legal action, unpaid taxes, or
restrictive covenants. An encumbrance does not legally
prevent transfer of the property to another. A title
search is all that is usually done to reveal the
existence of such encumbrances, and it is up to the
buyer to determine whether he wants to purchase with the
encumbrance, or what can be done to remove it.
Equity: The value of a homeowner's unencumbered
interest in real estate. Equity is computed by
subtracting from the property's fair market value the
total of the unpaid mortgage balance and any outstanding
liens or other debts against the property. A homeowner's
equity increases as he pays off his mortgage or as the
property appreciates in value. When the mortgage and all
other debts against the property are paid in full the
homeowner has 100% equity in his property.
Escrow: Funds paid by one party to another (the
escrow agent) to hold until the occurrence of a
specified event, after which the funds are released to a
designated individual. In FHA mortgage transactions an
escrow account usually refers to the funds a mortgagor
pays the lender at the time of the periodic mortgage
payments. The money is held in a trust fund, provided by
the lender for the buyer. Such funds should be adequate
to cover yearly anticipated expenditures for mortgage
insurance premiums, taxes, hazard insurance premiums,
and special assessments.
Escrow account: The trust account established under the
provisions of the license law for the purpose of holding
funds on behalf of the principal or some other person
until the consummation or termination of a transaction.
Escrow payment: That portion of a mortgagor's
monthly payment held by the lender to pay for taxes,
hazard insurance, mortgage insurance, lease payments,
and other items as they become due. Known as impounds or
reserves in some states.
Exclusive right to sell (Listing): A written
contract giving a licensed real estate agent the
exclusive right to sell a property for a specified time.
The owner agrees to pay a full commission to the broker
even though the owner may sell the property.
FHA Loan: A loan insured by the Federal Housing
Administration (of the Department of Housing and Urban
Fair Market Value: The price at which property is
transferred between a willing buyer and a willing
seller, each of whom has a reasonable knowledge of all
pertinent data and neither of whom is under any
compulsion to buy or sell.
Federal Home Loan Mortgage Corporation (FHLMC): A
private corporation authorized by Congress to provide
secondary mortgage market support for conventional
mortgages. Also know as Freddie Mac.
Federal Housing Administration (FHA): A division of
HUD. Its main activity is the insuring of residential
mortgage loans made by private lenders. FHA does not
Federal National Mortgage Association (FNMA): A
privately owned corporation created by Congress to
support the secondary mortgage market. Also known as
Fee Simple: An estate under which the owner is
entitled to unrestricted powers to dispose of the
property, and which can be left by will or inherited.
The greatest interest a person can have in real estate.
FHA-insured mortgage: A mortgage with low down payment requirements,
insured by the Federal Housing Administration and made
available through banks and other lenders.
Fiduciary: The relationship of trust, honesty and confidence between
agent and principal; the faithful relationship owed by
an agent to the principal. A person in a position
of trust and confidence for another.
Firm commitment: A lender's agreement to make a loan
to a specific borrower of a specific property.
First mortgage: A mortgage having priority over all
other voluntary liens against certain property.
Fixed rate mortgage: A mortgage with an interest rate that doesn't
vary for the term of the loan.
Foreclosure: A legal term applied to any of the
various methods of enforcing payment of the debt secured
by a mortgage, or deed of trust, by taking and selling
the mortgaged property, and depriving the mortgagor of
Fully Indexed Rate: The maximum interest rate on an
ARM that can be reached at the first adjustment.
General Warranty Deed: A deed which conveys not only
all the grantor's interests in and title to the property
to the grantee, but also warrants that if the title is
defective or has a "cloud" on it (such as mortgage
claims, tax liens, title claims, judgments, or
mechanic's liens against it) the grantee may hold the
Gift Letter: A letter from a relative stating that
an amount will be gifted to the buyer and that said
amount is not to be repaid.
Government National Mortgage Association (GNMA):
Called “Ginnie Mae,” a governmental part of the
secondary market that deals in primarily in recycling VA
and FHA mortgages, particularly those that are highly
Graduated Payment Mortgage: Residential mortgage
which has monthly mortgage payments that start at a low
level and increase at a predetermined rate.
Grantee: That party in the deed who is the buyer or
Grantor: That party in the deed who is the seller or
Hazard Insurance: Protects against damages caused to
property by fire, windstorms, and other common hazards.
Holdback: That portion of a loan commitment not
funded until some additional requirement such as rental
or completion is attained. In construction it is a
percentage of the contractor's draw held back to provide
additional protection for the interim lender, often in
an amount equal to the contractor's profit.
Home equity loan: A loan (sometimes called a line of credit)
under which a property owner uses his or her residence
as collateral and can then draw funds up to a
prearranged amount against the property.
Homeowners' insurance: A type of insurance policy designed to protect
homeowners from financial losses related the ownership
of real property. In addition to covering losses due to
vandalism, fire, hail, etc., most policies also provide
theft and liability coverage. Flood related damage
requires a separate flood insurance policy or rider.
Home Inspection Report – A qualified inspector’s
report on a property’s overall condition. The report
usually included an evaluation of both the structure and
Home warranty: A policy purchased by a buyer or seller as an
assurance against unexpected home repair costs.
Home Warranty Plan: Protection against failure of
mechanical systems within the property. Usually includes
plumbing, electrical, heating systems and installed
House closing: The final transfer of the ownership of a house
from the seller to the buyer, which occurs after both
have met all the terms of their contract and the deed
has been recorded. Also known as just "closing".
HUD: U.S. Department of Housing and Urban
Development. Office of Housing/Federal Housing
Administration within HUD insures home mortgage loans
made by lenders and sets minimum standards for such
Joint Tenancy: An equal undivided ownership of property
by two or more persons. Upon the death of any owner, the
survivors take the decedent's interest in the property.
Jumbo Loans: Mortgage loans that exceed the loan
amounts acceptable for sale in the secondary market;
these jumbos must be packaged and sold differently to
investors and therefore have separate underwriting
Land contract: A contract ordinarily used in connection
with the sale of property in cases where the seller does
not wish to convey title until all or a certain part of
the purchase price is paid by the buyer. This financing
vehicle is often used when property is sold on a small
Lease: A written document containing the conditions
under which the possession and use of real or personal
property are given by the owner to another for a stated
period and for a stated consideration.
An agreement between a tenant and landlord that a
portion of monthly rent may be credited toward eventual
purchase of the rental property.
Lease purchase: A contract in which an owner leases his house
(usually for one to five years) to a tenant for an
increased monthly rent, and which gives the tenant the
right to buy the house at the end of the lease period
for a price established in advance, with the incremental
rent increase being used to form a down payment. Buyers
should be wary of this type of contract since they may
lose their extra rent/down payment money should the
owner suffer financial setbacks before the purchase has
Legal description: A property description recognized
by law which is sufficient to locate and identify the
property without oral testimony.
Lender's agent: A person who represents the lender holding the
mortgage at closing.
Lessee (tenant): The person or persons holding
rights of possession and use of property under terms of
Lessor (landlord): The one leasing property to a
Licensed Mortgage Broker: The licensed person who,
for a commission or a fee, brings parties together and
assists in negotiating contracts between them. A firm or
individual bringing the borrower and lender together and
receiving a commission. A mortgage broker does not
Lien: A claim by one person on the property of
another as security for money owed. Such claims may
include obligations not met or satisfied, judgments,
unpaid taxes, materials, or labor.
Limited partnership: A partnership that consists of
one or more general partners who are fully liable and
one or more limited partners who are liable only for the
amount of their investment.
A contract in which the seller agrees to pay a
commission to the agent who finds a purchaser who can
meet the specified terms.
Listing agreement: A written employment agreement between a
property owner and a real estate broker authorizing the
broker to find a buyer or a tenant for certain real
property. Listing can take the form of open listings,
net listings, exclusive-agency listings, or
exclusive-right-to-sell listings. The most common form
is the exclusive-right-to-sell listing.
Listing broker: The broker in a multiple-listing situation from
whose office a listing agreement is initiated, as
opposed to the cooperating broker, from whose office
negotiations leading up to a sale are initiated. The
listing broker and the cooperating broker may be the
Loan: A sum of money loaned at interest to be
Loan Commitment: A written promise to make a loan
for a specified amount on specified terms.
Loan Processing: (1) A System by which a Buyer is
evaluated for loan approval. The system compares the
stated income, debt, savings and credit against
documentation provided by the buyer (or alternative
Federal documents). Calculations of Debt-To-Income,
Loan-To-Value, Net Worth, Cash Reserves and Compensating
Factors are used to develop and Underwriting Opinion.
(2) The system of structuring a Buyer's financial
situation and documentation in such a way that an
Underwriting Opinion can be reached.
Loan submission: A package of pertinent papers and
documents regarding specific property or properties. It
is delivered to a prospective lender for review and
consideration for the purpose of making a mortgage loan.
Loan-to-value ratio: The relationship between the
amount of the mortgage loan and the appraised value of
the security expressed as a percentage of the appraised
Lock-in: The fixing of an interest rate or points at
a certain level, usually during the loan application
process. It is usually done for a certain period of time
such as 60 days and may require a fee or premium in the
form of a higher interest rate.
Margin: The number of basis points a lender adds to
the index to determine the interest rate of an
adjustable rate mortgage.
A place where goods can be bought and sold and a price
Market analysis: A regional and neighborhood study of economic,
demographic and other factors made to determine supply
and demand, market trends, and other factors important
to buying/leasing and selling real property.
Market value: The price that a willing buyer and a willing
seller, both given full information, and neither under
pressure to act, would agree upon. Also known as Fair
Marketable Title: A title that is free and clear of
objectionable liens, clouds, or other title defects. A
title which enables an owner to sell his property freely
to others and which others will accept without
Metes and bounds: A description in a deed of the
land location in which the boundaries are defined by
directions and distances.
Mortgage: A lien or claim against real property
given by the buyer to the lender as security for money
borrowed. Under government-insured or loan-guarantee
provisions, the payments may include escrow amounts
covering taxes, hazard insurance, water charges, and
special assessments. Mortgages generally run from 10 to
30 years, during which the loan is to be paid off.
A person or firm that acts as an intermediary between
borrower and lender; one who, for compensation or gain,
negotiates, sells or arranges loans and sometimes
continues to service the loans; also called a loan
broker. Loans originated by the mortgage broker are
closed in the lender's name and are usually serviced by
the lender. This is in contrast to mortgage bankers, who
not only close loans in their own names but continue to
service them as well.
Mortgage Commitment: A written notice from the bank
or other lending institution saying it will advance
mortgage funds in a specified amount to enable a buyer
to purchase a house.
Mortgage loan: A loan which utilizes real estate as security
or collateral to provide for repayment should you
default on the terms of your loan. The mortgage or deed
of trust is your agreement to pledge your home or other
real estate as security.
Mortgage Deed: Companion legal document to
promissory note recorded by the county enumerating the
lender’s procedure to enforce loan terms.
Mortgage Insurance Premium: The payment made by a
borrower to the lender for transmittal to HUD to help
defray the cost of the FHA mortgage insurance program
and to provide a reserve fund to protect lenders against
loss in insured mortgage transactions. In FHA insured
mortgages this represents an annual rate of one-half of
one percent paid by the mortgagor on a monthly basis.
Mortgage Life Insurance: A type of term life
insurance often bought by mortgagors. The amount of
coverage decreases as the mortgage balance declines. In
the event that the borrower dies while the policy is in
force, the debt is automatically satisfied by insurance
Mortgage Note: A written agreement to repay a loan.
The agreement is secured by a mortgage, serves as proof
of an indebtedness, and states the manner in which it
shall be paid. The note states the actual amount of the
debt that the mortgage secures and renders the mortgagor
personally responsible for repayment.
Mortgage (Open-End): A mortgage with a provision
that permits borrowing additional money in the future
without refinancing the loan or paying additional
financing charges. Open-end provisions often limit such
borrowing to no more than would raise the balance to the
original loan figure.
Mortgagee: The lender in a mortgage agreement.
Mortgagor: The borrower in a mortgage agreement.
Multiple-Listing Service (MLS):
A marketing organization composed of member brokers who
agree to share their listing agreements with one another
in the hope of procuring ready, willing and able buyers
for their properties more quickly than they could on
Negative Amortization: Occurs when monthly payments
fail to cover the interest cost. The interest that isn't
covered is added to the unpaid principal balance, which
means that even after several payments the borrowers
could owe more than they did at the beginning of the
loan. Negative amortization can occur when an ARM has a
payment cap that results in monthly payments that aren't
high enough to cover the interest.
Note: Promissory note to lender detailing terms of
repayment of amount borrowed.
The person to whom an offer is made — usually the owner.
The party who makes an offer — usually the buyer.
Offer to Purchase: A preliminary
agreement, secured by the payment of earnest money,
between a buyer and seller as an offer to purchase real
estate. A binder secures the right to purchase real
estate upon agreed terms for a limited period of time.
If the buyer changes his mind or is unable to purchase,
the earnest money is forfeited unless the binder
expressly provides that it is to be refunded.
Open house: The common real estate practice of showing
listed homes to the public during established hours.
Origination: The process of originating mortgages.
Solicitation may be from individual borrowers, builders,
Origination fee: A fee or charge for the work
involved in the evaluation, preparation, and submission
of a proposed mortgage loan.
Originator: A person who solicits builder, brokers,
and others to obtain applications for mortgage loans.
origination is the process by which the mortgage lender
brings into being a mortgage secured by real property.
Over-improvement: An addition or improvement in which the cost is
greater than the increased value of the house.
Payment Cap: the maximum amount the payment can
adjust in any given time frame.
PITI (principal, interest, taxes, and insurance):
The principal and interest payment on most loans is
fixed for the term of the loan; the tax and insurance
portion may be adjusted to reflect changes in takes or
insurance costs. Note: In cases where the buyer puts
down less than 20% of the Sales Price, Mortgage
Insurance may be required as part of the Total Monthly
Plans and specifications: Architectural and
engineering drawings and specifications for construction
of a building or project, including a description of
materials to be used and the manner in which they are to
Plot: A map or chart of a lot, subdivision or
community drawn by a surveyor showing boundary lines,
buildings, improvements on the land, and easements.
Private Mortgage Insurance, which protects the lender in
case of default by the borrower. PMI is often used to
allow buyers to obtain financing with less than a 20
percent down payment.
Points: Sometimes called "discount points." A point
is one percent of the amount of the mortgage loan. For
example, if a loan is for $25,000, one point is $250.
Points are charged by a lender to raise the yield on his
loan at a time when money is tight, interest rates are
high, and there is a legal limit to the interest rate
that can be charged on a mortgage. Buyers are prohibited
from paying points on HUD or Veterans' Administration
guaranteed loans (sellers can pay, however). On a
conventional mortgage, points may be paid by either
buyer or seller or split between them.
Pre-approval: An actual decision on a home loan, involving
the obtaining of a credit approval and an agreement to
finance a home, with specifics on the total mortgage
amount available to the buyer.
Preclosing: A transaction preceding the formal
closing, often used to settle outstanding issues
(survey, pest inspection, hazard insurance, flood
insurance (if required), with the formal closing shortly
Prepayment: Payment of mortgage loan, or part of it,
before due date. Mortgage agreements often restrict the
right of prepayment either by limiting the amount that
can be prepaid in any one year or charging a penalty for
prepayment. The Federal Housing Administration does not
permit such restrictions in FHA insured mortgages.
Prepayment Penalty: A fee charged to a borrower who
pays a loan before it is due. Not allowed for FHA or VA
Pre-qualification: An informal determination by a lender or broker
of how large a mortgage a buyer can afford.
Principal: The basic element of the loan as
distinguished from interest and mortgage insurance
premium. In other words, principal is the amount upon
which interest is paid.
Principal balance: The outstanding balance of a
Private mortgage insurance (PMI): Insurance written
by a private company protecting the mortgage lender
against loss by a mortgage default.
Purchase Agreement: (See agreement of sale).
Purchase offer: A document that lists the price, terms and
conditions under which a buyer is willing to purchase a
Qualify: The process where the buyer meets the
requirements as set forth by the lender when obtaining a
Quitclaim Deed: A deed which transfers whatever
interest the maker of the deed may have in the
particular parcel of land. A quitclaim deed is often
given to clear the title when the grantor's interest in
a property is questionable. By accepting such a deed the
buyer assumes all the risks. Such a deed makes no
warranties as to the title, but simply transfers to the
buyer whatever interest the grantor has. (See deed.)
Rate cap: A protective device in some ARMs that sets a maximum amount
that interest rates may rise or decrease annually over
the life of the loan.
Real estate: The physical land at, above and below the
earth's surface with all appurtenances, including any
structures; any and every interest in land whether
corporeal or incorporeal, freehold or nonfreehold; for
all practical purposes, the term real estate is
synonymous with real property.
Real estate agent: A person licensed to negotiate and transact the
sale of real estate on behalf of the property owner.
Real estate brokerage: A Real Estate Brokerage is a business in which
real estate license-related activities are performed
under the authority of a real estate broker.
Real Estate Broker: A middle man or agent who buys
and sells real estate for a company, firm, or individual
on a commission basis. The broker does not have title to
the property, but generally represents the owner.
Realtor: A real estate broker or an associate
holding active membership in a local real estate board
affiliated with the National Association of Realtors.
Reconveyance: The transfer of land from one person
to the immediately preceding owner. It is used when the
performance of debt is satisfied under the terms of a
deed of trust.
Redemption period: That period of time in those
states where it is allowed in which a foreclosed
mortgagor has to buy back his property by paying
principal amount and interest and fees.
One agent's recommendation of a potential buyer or
seller to another cooperating agent.
Refinancing: The process of the same mortgagor
paying off one loan with the proceeds from another loan.
Regulation Z: The set of rules governing consumer
lending issued by the Federal Reserve Board of Governors
in accordance with the Consumer Protection Act.
Release of lien: An instrument discharging secured
property from a lien.
Rent with Option: A contract, which gives one the
right to lease property at a certain sum with the option
to purchase at a future date.
Restrictive Covenants: Private restrictions limiting
the use of real property. Restrictive covenants are
created by deed and may "run with the land," binding all
subsequent purchasers of the land, or may be "personal"
and binding only between the original seller and buyer.
The determination whether a covenant runs with the land
or is personal is governed by the language of the
covenant, the intent of the parties, and the law in the
State where the land is situated. Restrictive covenants
that run with the land are encumbrances and may affect
the value and marketability of title. Restrictive
covenants may limit the density of buildings per acre,
regulate size, style or price range of buildings to be
erected, or prevent particular businesses from operating
or minority groups from owning or occupying homes in a
given area. (This latter discriminatory covenant is
unconstitutional and has been declared unenforceable by
the U.S. Supreme Court.)
Return on investment: The net annual income divided by the original
cash investment equals a percentage return on
Right of survivorship: In joint tenancy, the right
of survivors to acquire the interest of a deceased joint
Right-of-way: A privilege operating as an easement
upon land, whereby a land owner, by grant or agreement,
gives another the right to pass over land. Also knows as
Sales contract: A real estate sales contract contains the
complete agreement between a buyer of a parcel of real
estate and the seller. Depending on the area, this
agreement may be known as an offer to purchase, a
contract of purchase and sale, a purchase agreement, an
earnest money agreement or a deposit receipt.
Sales professional: A licensed representative who assists buyers
and sellers with information, advice, and assessment of
current market conditions.
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,
usually on a long-term basis.
Sales Agreement: See agreement of sale.
Sales Contract: Another name for a sales agreement,
purchase agreement, etc. Not to be confused with a land
contract, which is a conditional sales contract.
Seller's agent: An agent who represents the seller of real
Satisfaction of mortgage: The record able instrument
given by the lender to evidence payment in full of the
mortgage debt. Sometimes knows as a release deed.
Secondary financing: Financing real estate with a
loan, or loans, subordinate to a first mortgage or first
Secondary mortgage market: The market where existing
mortgages are bought and sold. It contrasts with the
primary mortgage market, where mortgages are just
originated, and packaged for delivery to the secondary
Settlement disclosure statement:
A list giving a complete breakdown of costs involved in
a real estate transaction, prepared by the lender's
agent at closing.
Servicing: The duties of the mortgage lender as a
loan correspondent as specified in the servicing
agreement for which a fee is received. Consists of
operational procedures covering accounting, bookkeeping,
insurance, tax records, loan payment follow-up,
delinquency loan follow-up and loan analysis.
Severalty Ownership: Ownership by one person only.
Special Assessments: A special tax imposed on
property, individual lots or all property in the
immediate area, for road construction, sidewalks,
sewers, street lights, etc.
Special Lien: A lien that binds a specified piece of
property, unlike a general lien, which is levied against
all one's assets. It creates a right to retain something
of value belonging to another person as compensation for
labor, material, or money expended in that person's
behalf. In some localities it is called "particular"
lien or "specific" lien.
Special Warranty Deed: A deed in which the grantor
conveys title to the grantee and agrees to protect the
grantee against title defects or claims asserted by the
grantor and those persons whose right to assert a claim
against the title arose during the period the grantor
held title to the property. In a special warranty deed
the grantor guarantees to the grantee that he has done
nothing during the time he held title to the property
which has, or which might in the future, impair the
State Stamps: (See documentary stamps)
Survey: A map or plat made by a licensed surveyor
showing the results of measuring the land with its
elevations, improvements, boundaries, and its
relationship to surrounding tracts of land. A survey is
often required by the lender to assure him that a
building is actually sited on the land according to its
Takeout commitment: A promise to make a loan at a
future specified time. It is commonly used to designate
a higher cost, shorter term, backup commitment as a
support for construction financing until a suitable
permanent loan can be secured.
Tax: As applied to real estate, an enforced charge
imposed on persons, property or income, to be used to
support the State. The governing body in turn utilizes
the funds in the best interest of the general public.
Tax Lien: A claim against property for the amount of
its due and unpaid taxes.
Tenancy: A holding of real estate under any kind of
right of title.
Tenancy At Will: A holding of real estate that can
be terminated at the will of either the lessor or the
lessee, usually with notice.
Tenancy by entirety: The joint ownership of property
by a husband and wife where both are viewed as one
person under common law that provides for the right of
Tenancy in common: In law, the type of tenancy or
estate created when real or personal property is
granted, devised or bequeathed to two or more persons,
in the absence of expressed words creating a joint
tenancy. There is no right of survivorship.
Term: The period of time between the commencement
date an termination date of a note, mortgage, legal
document, or the contract.
Title: As generally used, the rights of ownership
and possession of particular property. In real estate
usage, title may refer to the instruments or documents
by which a right of ownership is established (title
documents), or it may refer to the ownership interest
one has in the real estate.
Title Insurance: Protects lenders or homeowners
against loss of their interest in property due to legal
defects in title. Title insurance may be issued to a
"mortgagee's title policy." Insurance benefits will be
paid only to the "named insured" in the title policy, so
it is important that an owner purchase an "owner's title
policy", if he desires the protection of title
Title Search or Examination: A check of the title
records, generally at the local courthouse, to make sure
the buyer is purchasing a house from the legal owner and
there are no liens, overdue special assessments, or
other claims or outstanding restrictive covenants filed
in the record, which would adversely affect the
marketability or value of title.
Trustee: A party who is given legal responsibility
to hold property in the best interest of or "for the
benefit of" another. The trustee is one placed in a
position of responsibility for another, a responsibility
enforceable in a court of law. (See deed of trust.)
Walk-through: A final inspection of a property just before
closing. This assures the buyer that the property has
been vacated, that no damage has occurred and that the
seller has not taken or substituted any property
contrary to the terms of the sales agreement. If damage
has occurred, the buyer might ask that funds be withheld
at the closing to pay for the repairs.
Warehousing: The holding of a mortgage on a short
term basis pending either a sale to an investor or other
long term financing.
A promise that certain stated facts are true. A
guarantee by the seller, covering the title as well as
the physical condition of the property. A warranty is
different from a representation in that a representation
is a statement made in the course of negotiations
leading up to the sale, but not incorporated into the
contract. A warranty, on the other hand, is a statement
in the contract asserting the truth of certain things
about the property.
Warranty deed: A deed in which the grantor or seller
warrants or guarantees that good title is being
conveyed, as opposed to a quitclaim deed that contains
no representation or warrant as to the quality of title
ZZZ – Sleeping is not recommended when
it comes to dealing with real estate. “You snooze-You
The regulation of structures and uses of property within
designated districts or zones. Zoning regulates and
affects such things as use of the land, lot sizes, types
of structure permitted, building heights, setbacks and
density (the ratio of land area to improvement area).
Zoning Ordinances: The acts of an authorized local
government establishing building codes, and setting
forth regulations for property land usage.