Glossary of Real Estate Terms 

adjustable-rate mortgage (ARM)

A mortgage that permits the lender to adjust the mortgage's interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change.

amortization

The gradual repayment of a mortgage loan by installments.

amortization schedule

A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

amortization term

The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

amortize

To repay a mortgage with regular payments that cover both principal and interest.

annual percentage rate

The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance and loan origination fee (points).

appraisal

A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection.

appraised value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience and analysis of the property.

appraiser

A person qualified by education, training and experience to estimate the value of real property and personal property.

appreciation

An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

assessed value

The valuation placed on property by a public tax assessor for purposes of taxation.

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.

assumable mortgage

A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

assumption

The transfer of the seller’s existing mortgage to the buyer. See assumable mortgage.

balloon mortgage

A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term. The principal and interest on the loan are amortized over a longer period than the actual term of the mortgage.

balloon payment

The final lump sum payment that is made at the maturity date of a balloon mortgage.

bona fide

In good faith, without fraud.

bond

An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

breach

A violation of any legal obligation.

bridge loan

A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

broker

A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

building code

Local regulations that control design, construction and materials used in construction. Building codes are based on safety and health standards.

buydown mortgage

A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

cash-out refinance

A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

certificate of title

A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

chain of title

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

change frequency

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

chattel

Another name for personal property.

clear title

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

closing

A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement." At this meeting, ownership of the property is transferred from the seller to the buyer.

closing costs

Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or REALTORS® often provide estimates of closing costs to prospective homebuyers.

closing statement

See HUD-1 statement.

cloud on title

Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

co-maker

A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

commission

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

commitment letter

A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

common area assessments

Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve or operate the common areas of the project.

common areas

Those portions of a building, land and amenities owned (or managed) 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"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

compound interest

Interest paid on the original principal balance and on the accrued and unpaid interest.

condemnation

The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.

condominium

A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project and sometimes the exclusive use of certain limited common areas.

condominium conversion

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

contingency

A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

contract

An oral or written agreement to do or not to do a certain thing.

conventional mortgage

A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.

covenant

A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

credit

An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

credit history

A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

debt

An amount owed to another. See installment loan and revolving liability.

deed

The legal document conveying title to a property.

deed-in-lieu

A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

deed of trust

The document used in some states instead of a mortgage; title is conveyed to a trustee.

default

Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

delinquency

Failure to make mortgage payments when mortgage payments are due.

deposit

A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. See earnest money deposit.

depreciation

A decline in the value of property; the opposite of appreciation.

discount points

See point.

earnest money deposit

A deposit made by the potential home buyer 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.

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.

endorser

A person who signs ownership interest over to another party. Contrast with co-maker.

equity

A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

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

The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.

escrow analysis

The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance and other bills when due.

exclusive listing

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

fair market value

The highest price that a buyer, willing but not compelled to buy, would pay and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae

A New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages.

Federal Housing Administration (FHA)

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

fee simple

The greatest possible interest a person can have in real estate.

fixture

Personal property that becomes real property when attached in a permanent manner to real estate.

flood insurance

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

foreclosure

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

grantee

The person to whom an interest in real property is conveyed.

grantor

The person conveying an interest in real property.

home inspection

A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

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.

homeowner's warranty (HOW)

A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.

HUD-1 statement

A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."

insurable title

A property title that a title insurance company agrees to insure against defects and disputes.

joint tenancy

A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

legal description

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

lien

A legal claim against a property that must be paid off when the property is sold.

loan origination

The process by which a mortgage lender brings into existence a mortgage secured by real property.

loan-to-value (LTV) percentage

The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.

lock-in

A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

lin period

The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.

monthly payment mortgage

A mortgage that requires payments to reduce the debt once a month.

mortgage

A legal document that pledges a property to the lender as security for payment of a debt.

mortgage banker

A company that originates mortgages exclusively for resale in the secondary mortgage market.

mortgage broker

An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

mortgagee

The lender in a mortgage agreement.

mortgage insurance

A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance.

mortgage insurance premium (MIP)

The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

origination fee

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

owner financing

A property purchase transaction in which the property seller provides all or part of the financing

piti

See principal, interest, taxes and insurance (PITI) below.

pre-qualification

The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

principal, interest, taxes and insurance (PITI)

The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

private mortgage insurance (PMI)

Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 0 percent.

pud (Planned Unit Development)

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.

purchase and sale agreement

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

qualifying ratios

Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

real estate agent

A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

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, minerals and the interest, benefits and inherent rights thereof.

REALTOR®

A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the NATIONAL ASSOCIATION of REALTORS®.

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.

right of ingress or egress

The right to enter or leave designated premises.

right of survivorship

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

second mortgage

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

secondary mortgage market

The buying and selling of existing mortgages.

secured loan

A loan that is backed by collateral.

tenancy by the entirety

A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.

tenancy in common

A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy

title

A legal document evidencing a person's right to or ownership of a 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 check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

underwriting

The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

unsecured loan

A loan that is not backed by collateral.