Glossary of Real Estate and Mortgage Terms

Abstract of Title: A written history of the title transactions or conditions bearing on the title to a designated parcel of land. It covers the period from the original source to the present and summarizes all subsequent instruments of public record by setting forth their material parts.

Adjustable Rate Mortgage: A loan that allows the lender to adjust the borrower's interest rate and payments at prescribed times and sometimes with prescribed limits. Lower interest rates are customary.

Agency: The relationship between a principal and an agent, usually a property owner and a real estate broker.

Agent: One who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent.

Amortized Loan: A loan which is paid off in equal installments during its term.

Annual Percentage Rate: The actual interest rate the borrower pays when all the costs of obtaining credit are included.

Appraisal: A report made by a qualified appraiser setting forth an opinion of estimate of value. The term also refers to the process by which the estimate is obtained.

Appraised Value: An estimation of property value made by a qualified expert.

Appreciation: An increase in the value of a property. Appreciation may be the result of an increased demand for property, any improvements or additions made, improvements to the neighborhood, etc.

Assumable Mortgage: Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.

Attorney's Opinion of Title: An abstract of title that an attorney has examined and has certified to be, in his or her opinion, an accurate statement of the facts concerning the property ownership.

Balloon Mortgage: A mortgage with periodic installments of principal and interest that, at the end of such a period, do not fully amortize the loan. The balance of the mortgage due is usually paid in a lump sum at a specified date, usually at the end of the term of such periodic installments.

Broker: One who acts as an intermediary on behalf of others for a fee or commission.

Brokerage: The bringing together of parties interested in making a real estate transaction.

Buydown: A sum of money paid to the lender at closing to reduce the borrower's out-of-pocket monthly payment. A buydown can be temporary or permanent.

Capital Gains Tax: The taxable profit derived from the sale of a capital asset. The capital gain is the difference of the sale price and the basis of the property after making appropriate adjustments for closing costs, fixing up expenses, capital improvements, allowable depreciation, etc.

Certificate of Title: A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

Chain of Title: The succession of conveyances from some accepted starting point, whereby the present holder of real estate property derives title.

Closing: The process that brings a loan into legal existence, including the signing of all loan documents, their delivery to the appropriate parties, and the disbursing of at least some of the loan funds.

Closing Costs: Costs, in addition to the price of the property itself, that are due at closing. These costs normally include, but are not limited to, origination fees, discount points, attorney's fees, costs for title insurance, surveys, recording documents, and prepayments of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help the borrower pay some of these costs.

Cloud on Title: Any documents, claim, unreleased lien or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.

Co-borrower: A party who signs the mortgage along with the borrower and shares the title to and the obligation to pay for the property with the borrower.

Commission: Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

Commitment: An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.

Comparables: Properties used in an appraisal report that are substantially equivalent to the subject property.

Competitive Market Analysis (CMA): A comparison of the prices of recently sold homes that are similar to a listing seller's home in terms of location, style and amenities.

Condominium: A form of ownership of real property. The purchaser receives title to a particular unit and a proportional interest in certain common areas. A condominium generally defines each unit as a separately owned space limited to the interior surfaces of the perimeter walls, floors and ceilings. Title to the common areas is in terms of percentages and refers to the entire project less the separately owned units.

Contingency: A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding.

Contract: A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Conventional Loan: A mortgage loan not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) or Farmers Home Administration (FmHA). No government agency approval is required of the lender, borrower or property. It is called "conventional" because it conforms to accepted standards, modified within legal bounds by mutual consent of the borrower and the lender.

Counteroffer: A new offer made as a reply to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.

Covenant: A written agreement between two or more parties in which a party or parties pledge to perform or not to perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases and contracts for deed.

Credit Report: A document completed by a credit-reporting agency providing information about the buyer's credit cards, previous mortgage history, bank loans and public records dealing with financial matters.

Deed: The formal written document that transfers the rights of ownership and possession (that is, the title) from the seller to the buyer.

Deed of Trust: A legal document which conveys title to real estate to a disinterested third party (trustee) who holds the title until the owner of the property has repaid the debt.

Discount Point: A unit of measurement used for various loan charges; one point equals one percent of the amount of the loan.

Down Payment: The difference between the sales price of real estate and the amount of the mortgage loan.

Dual Agency: Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.

Due-On-Sale Clause: A clause allowing the lender to demand payment of the entire loan balance upon sale or other transfer of title by the borrower to a third party.

Earnest Money: Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.

Easement: A right to use the land of another for a specified purpose, such as for a right-of-way or utilities; an incorporeal interest in land.

Equity: The owner's interest, or the amount of cash the owner has realized, paid in, or invested in real estate.

Escrow Payment: The portion of a borrower's monthly payment that is set aside by the lender in an escrow account to pay the taxes, hazard insurance, mortgage insurance, ground rents and other special items as they come due.

Exclusive Agency Listing: A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property, on the owner's stated terms, for a commission. The owner reserves the right to sell without paying anyone a commission if he or she sells to a prospect who has not been introduced or claimed by the broker.

Federal Home Loan Mortgage Corporation (Freddie Mac): A secondary market facility of the Federal Home Loan Bank System that is authorized to buy and sell conventional home loans and participating interests in blocks of conventional loans.

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

FHA Mortgage: A mortgage with federally sponsored mortgage guaranty insurance provided through the FHA.

Fixed-Rate Mortgage: The type of loan where the interest will not change for the entire term of the loan.

Good Faith Estimate: Provides a breakdown of the estimated closing charges.

Government National Mortgage Association (Ginnie Mae): A government corporation within the Department of Housing and Urban Development (HUD) that provides assistance for the purchase of certain FHA and VA mortgages and guarantees securities backed by pools of mortgage loans.

Hazard Insurance: A broad form of casualty insurance coverage for real estate that includes protection against loss from fire, certain natural causes, vandalism and malicious mischief.

Home Equity Loan: A loan under which a property owner uses his or her residence as collateral and can then draw up funds to a prearranged amount against the property.

Homeowner's Insurance Policy: A standardized packaged insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability and other common risks.

Land Survey: An instrument that specifies precise property boundaries. It is useful in determining if boundary violations (encroachments) exist.

Lease Purchase Agreement: Buyer makes a deposit for the future purchase of a property with the right to lease the property in the interim.

Listing Agreement: A contract between an owner (as principal) and a real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner's real estate on the owner's terms, for which service the owner agrees to pay a commission.

Loan Closing: A meeting between borrower and lender in which transfer of ownership is accomplished, funds and deed are exchanged, and all loan documents, including the promissory note and mortgage, are signed.

Loan-To-Value Ratio (LTV): The ratio, expressed as a percentage, of the amount of a loan (numerator) to the value or selling price of real property (denominator). Usually, the higher the percentage, the greater the interest charged. Maximum percentages for banks, savings and loans, or government-insured loans are set by statute.

Mortgage Banker: An entity or individual active in the field of mortgage banking. Mortgage bankers, as local representatives of regional or national institutional lenders, act as correspondents between lenders and borrowers.

Mortgagee: The institution, group or individual that lends mortgage on the security of pledged real estate; also known as the association or the lender.

Mortgage Insurance Premium (MIP): The consideration paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance (PMI) company. This insurance protects the investor from possible loss in the event of a borrower's default on a loan.

Mortgagor: The owner of real estate who pledges his property as security for the repayment of a debt; also known as the borrower.

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 their own. Most MLS accept only exclusive-right-to-sell listings from their member brokers, although any broker can sell a property in an MLS.

Note: A written promise by one party to pay a specified sum of money to a second party under conditions agreed upon mutually. Also called a "promissory note".

Origination Fee: The fee that the lender charges the borrower to cover the cost of issuing a loan commitment. It pays for processing the loan which includes collecting information about the borrower's creditworthiness and the property. The fee is usually computed as a percentage of the mortgage loan. It usually does not include fees for appraisals, credit reports, inspections and loan document preparation.

Planned Unit Development: A project that may consist of any combination of one to four family homes, condominiums and other styles of residential housing. The individual unit and often the real estate under it are owned by the individual owner. The common facilities are owned and maintained by a homeowner's association.

Points: An amount equal to one percent of the principal amount of a note. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.

Private Mortgage Insurance: Insurance written by a private company protecting the mortgage lender against loss occasioned by a mortgage default.

Qualifying Income Ratio: Income analysis used by lenders in deciding whether to offer the borrower a loan. One type of analysis compares only the amount of the proposed monthly mortgage payment to the monthly income. Another compares the amount of the total monthly payments (i.e. car, credit card and proposed mortgage payments) to the monthly income.

Real Property: Land and anything permanently affixed to the land, such as fences, buildings and those things attached to the buildings, such as light fixtures or plumbing. May refer to rights in real property as well as the property itself.

Realtor: Anyone who is licensed to both buy and sell real estate in an area and who is an active member in the local real estate board affiliated with the National Association of Realtors.

Sales Contract: A written agreement between competent parties stating all terms and conditions of a sale.

Secondary Market: An informal market where existing mortgages are bought and sold. It is the traditional after market for mortgage loans that brings together lenders that sell mortgages with lenders, investors and agencies that buy mortgages. Also called "secondary mortgage market," it should not be confused with a second mortgage.

Second Mortgage / Second Trust: Junior mortgage or junior lien; an additional loan imposed on property with a first mortgage. Generally at a higher interest rate and with shorter terms than a "first" mortgage.

Settlement / HUD-1: A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction.

Survey: A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions and the location and dimensions of any improvements.

Title: The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed, which specifies with whom the legal state is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift or through the foreclosure of a mortgage.

Title Insurance Binder: (1) A report issued by a title insurance company stating that the condition of title to certain property as of a certain date and also stating conditions which, if satisfied, will cause a policy of title insurance to be issued. Also called a "commitment". (2) A policy of title insurance (used primarily by investors) calling for a reduced rate for future policy if the property is sold within a specified period.

Title Insurance: An insurance policy which protects the insured (purchaser or lender) against loss arising from defects in title.

Underwriting: In mortgage lending, the process of approving or denying a loan based on an evaluation of the property and the applicant's creditworthiness and ability to repay the loan. The underwriter analyzes the risks involved and selects an appropriate loan term and interest rate.

Veterans Administration (VA): An independent agency of the federal government which helps veterans obtain long-term, low down payment mortgages. The agency normally does this by guaranteeing a portion of a lender's loans against loss. In return for this guarantee, lenders must follow prescribed procedures for loans established by the VA.

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