Real Estate Glossary

1031 exchange

A real estate investing tool that allows investors to swap out an investment property for another and defer capital gains or losses or capital gains tax that you otherwise would have to pay at the time of sale.

Annual Percentage Rate (APR)

The cost of a loan or other financing as an annual rate. y

Appraisal

A professional analysis used to estimate the value of the property. This includes examples of sales of similar properties.

Appraiser

A professional who conducts an analysis of the property, including examples of sales of similar properties in order to develop an estimate of the value of the property. The analysis is called an “appraisal.”

Appreciation

An increase in the market value of a home due to changing market conditions and/or home improvements.

Asbestos

A toxic material that was once used in housing insulation and fireproofing. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.

Assessed Value

Typically the value placed on property for the purpose of taxation by a local assessor

Balloon Mortgage

A mortgage with monthly payments often based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a specific period of time (usually 5 or 7 years). The mortgage may contain an option to “reset” the interest rate to the current market rate and to extend the due date if certain conditions are met.

Bankruptcy

Legally declared unable to pay your debts. This can severely impact your credit and your ability to borrow money.

Bridge Loan

A short-term loan secured by the borrower’s current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold. Also known as a “swing loan.”

Broker

An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker.

Building Code

Local regulations that set forth the standards and requirements for the construction, maintenance and occupancy of buildings. The codes are designed to provide for the safety, health and welfare of the public.

Cash-out Refinance

A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate liens. Typically these refinances give no more than 80% loan-to-value ratio

Capital Gains Tax

The levy on the profit from an investment that is incurred when the investment is sold. This tax can sometimes be deferred through a section 1031 exchange.

Chain of Title

The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Clear Title

Ownership that is free of liens, defects, or other legal encumbrances.

Closing

The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as “escrow,” a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions. Also known as “settlement”

Closing Agent

The person or entity that coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions.) Typically, the closing is conducted by title companies, escrow companies or attorneys.

Closing Costs

The upfront fees charged in connection with a real estate transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney’s fee, and prepaid items, such as escrow deposits for taxes and insurance.

Closing Date

The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.

Common Areas

Those portions of a building, land, or improvements and amenities owned by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Comparables

An abbreviation for “comparable properties,” which are used as a comparison in determining the current value of a property that is being appraised or evaluated during a CMA or “Comparable Market Analysis”

Concession

Something given up or agreed to in negotiating the sale of a house. For example, the sellers may agree to help pay for closing costs.

Condominium

A unit in a multi unit building. The owner of a condominium unit owns the unit itself and has the right, along with other owners, to use the common areas but does not own the common elements such as the exterior walls, floors and ceilings or the structural systems outside of the unit; these are owned by the condominium association. There are usually condominium association fees for building maintenance, property upkeep, taxes and insurance on the common areas and reserves for improvements.

Contingency

A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection (blank); the sales contract is not binding unless and until the purchaser has the home inspected.

Conventional Mortgage

A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the Glossary Rural Housing Service (RHS). Contrast with “Government Mortgage.”

Co-op

A project in which a corporation holds title to a residential property and sells shares to individual buyers, who then receive a proprietary lease as their title.

Counter-offer

An offer made in response to a previous offer. For example, after the buyer presents their first offer, the seller may make a counter-offer with a slightly higher sale price.

Debt-to-Income Ratio

The percentage of gross monthly income (before taxes) that goes toward paying for your monthly debt. Debt/Income = Debt-to-Income Ratio

Deed

The legal document transferring ownership or title to a property

Depreciation

A decline in the value of a house due to changing market conditions or lack of upkeep on a home.

Down Payment

A portion of the price of a home, usually between 3-20%, not borrowed and paid up-front in cash. Some loans are offered with zero downpayment.

Earnest Money Deposit

The deposit to show that you’re committed to buying the home. The deposit usually will not be refunded to you after the seller accepts your offer, unless one of the sales contract contingencies is not fulfilled.

Easement

A right to the use of, or access to, land owned by another.

Encroachment

The intrusion onto another’s property without right or permission. Example

Encumbrance

Any claim on a property, such as a lien, mortgage or easement.

Equity

The value in your home above the total amount of the liens against your home. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 of equity.

Escrow

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow Account

An account that a mortgage servicer establishes on behalf of a borrower to pay taxes, insurance Glossary premiums, or other charges when they are due. Sometimes referred to as an “impound” or “reserve” account.

Eviction

The legal act of removing someone from real property.

Executor

A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.

Fair Market Value

The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.

First Mortgage

A mortgage that is the primary lien against a property.

Foreclosure

A legal action that ends all ownership rights in a home when the homebuyer fails to make the mortgage payments or is otherwise in default under the terms of the mortgage.

Home Equity Line of Credit (HELOC)

A type of revolving loan, that enables a home owner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in the property.

Home Inspection

A professional inspection of a home to determine the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and pest infestation.

Homeowner’s Warranty (HOW)

Insurance offered by a seller that covers certain home repairs and fixtures for a specified period of time.

Homeowners’ Association (HOA)

An organization of homeowners residing within a particular area whose principal purpose is to ensure the provision and maintenance of community facilities and services for the common benefit of the residents.

HUD-1 Settlement Statement

A final listing of the closing costs of the mortgage transaction. It provides the sales price and down payment, as well as the total settlement costs required from the buyer and seller.

Junior Mortgage

Commonly known as a second mortgage, is a loan that is subordinate to the primary loan or first mortgage loan. They are typically used for home equity loans, HELOCs, or to cover down payments, often carrying higher interest rates due to this lower repayment priority.

Lien

A claim or charge on property for payment of a debt. With a mortgage, the lender has the right to take the title to your property if you don’t make the mortgage payments.

Loan-To-Value (LTV) Ratio

The relationship between the loan amount and the value of the property (the lower of appraised value or sales price), expressed as a percentage of the property’s value. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

Manufactured Housing

Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). Manufactured homes may be single or multi-section and are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law, and may be financed with a mortgage. Homes that are not permanently affixed to a foundation generally are classified as personal property, and are financed with a retail installment sales agreement.

Market Value

The current value of your home based on what a purchaser would pay. An appraisal is sometimes used to determine market value.

Mortgage

A loan using your home as collateral. In some states the term mortgage is also used to describe the document you sign (to grant the lender a lien on your home). It also may be used to indicate the amount of money you borrow, with interest, to purchase your house. The amount of your mortgage often is the purchase price of the home minus your down payment.

Mortgage Broker

An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans. A mortgage broker also may close the loan.

Mortgage Rate

The interest rate you pay to borrow the money to buy your house.

Multi-family Home

a single building that's divided to accommodate more than one family living separately. They can range from a duplex, which has two dwellings within a single building, to homes or small apartment buildings with up to four individual units.

Multiple Listing Service (MLS)

A clearinghouse through which member real estate brokerage firms regularly and systematically exchange information on listings of real estate properties and share commissions with members who locate purchasers. The MLS for an area is usually operated by the local, private real estate association as a joint venture among its members designed to foster real estate brokerage services.

Note

A written promise to pay a specified amount under the agreed upon conditions.

Offer

A formal bid from the home buyer to the home seller to purchase a home.

Open House

When the seller’s real estate agent opens the seller’s house to the public. You don’t need a real estate agent to attend an open house.

Owner Financing

A transaction in which the property seller provides all or part of the financing for the buyer’s purchase of the property.

Owner-Occupied Property

A property that serves as the borrower’s primary residence.

Power of Attorney

A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-Approval

A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant’s credit history and may involve the review and verification of income and assets to close.

Principal

The amount of money borrowed or the amount of the loan that has not yet been repaid to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan minus the amount you’ve repaid.

Private Mortgage Insurance (PMI)

Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower. See Mortgage Insurance

Radon

A toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses.

Recording

The filing of a lien or other legal documents in the appropriate public record.

Refinance

Getting a new mortgage with all or some portion of the proceeds used to pay off the prior mortgage.

Rescission

The cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers have a right to cancel certain mortgage refinance and home equity transactions within three business days after closing, or for up to three years in certain instances.

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 or lease the property before he or she offers it for sale or lease to others.

Second Mortgage

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

Settlement Statement

A document that lists all closing costs on a consumer mortgage transaction.

Short Sale - A seller will decide to submit a financial package, seeking a lender's approval to sell the property for less than the amount they owe on it in an attempt to avoid foreclosure. Therefore, the seller enters into this process voluntarily, which is not the case for foreclosures.

Single-Family Properties

One- to four-unit properties including detached homes, townhouses, condominiums, and cooperatives, and manufactured homes attached to a permanent foundation and classified as real property under applicable state law.

Survey

A precise measurement of a property by a licensed surveyor, showing legal boundaries of a property and the dimensions and location of improvements.

Title

The right to, and the ownership of, property. A title or deed is sometimes used as proof of ownership of land.

Title Insurance

Insurance that protects lenders and homeowners against legal problems with the title.

Title Search

A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.

Transfer Tax

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

Underwriting

The process used to determine loan or insurance approval. It involves evaluating the property and qualifications of the person or entity assuming the loan or policy.

Unsecured Loan

A loan that is not backed by collateral.

VA Guaranteed Loan

A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA).

Walk-Through

A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing, for example, within the 24 hours before closing.