Real Estate Glossary
Here are some of the common real estate terms you might need to know.
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to
corresponding fluctuations in an index. All ARMs are tied to indexes.
The loan payment consists of a portion which will be applied to pay the
accruing interest on a loan, with the remainder being applied to the
principal. Over time, the interest portion decreases as the loan balance
decreases, and the amount applied to principal increases so that the loan is
paid off (amortized) in the specified time.
annual percentage rate (APR)
This is not the note rate on your loan. It is a value created according to a
government formula intended to reflect the true annual cost of borrowing,
expressed as a percentage. It works sort of like this, but not exactly, so
only use this as a guideline: deduct the closing costs from your loan
amount, then using your actual loan payment, calculate what the interest
rate would be on this amount instead of your actual loan amount. You will
come up with a number close to the APR. Because you are using the same
payment on a smaller amount, the APR is always higher than the actual not
rate on your loan.
A written justification of the price paid for a property, primarily based on
an analysis of comparable sales of similar homes nearby.
An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property. Since an appraisal is
based primarily on comparable sales, and the most recent sale is the one on
the property in question, the appraisal usually comes out at the purchase
An individual qualified by education, training, and experience to estimate
the value of real property and personal property. Although some appraisers
work directly for mortgage lenders, most are independent.
The valuation placed on property by a public tax assessor for purposes of
The placing of a value on property for the purpose of taxation.
A public official who establishes the value of a property for taxation
When ownership of your mortgage is transferred from one company or
individual to another, it is called an assignment.
A mortgage that can be assumed by the buyer when a home is sold. Usually,
the borrower must "qualify" in order to assume the loan.
Broker has several meanings in different situations. Most Realtors are
"agents" who work under a "broker." Some agents are brokers as well, either
working form themselves or under another broker. In the mortgage industry,
broker usually refers to a company or individual that does not lend the
money for the loans themselves, but broker loans to larger lenders or
investors. (See the Home Loan Library that discusses the different types of
lenders). As a normal definition, a broker is anyone who acts as an agent,
bringing two parties together for any type of transaction and earns a fee
for doing so.
A title that is free of liens or legal questions as to ownership of the
This has different meanings in different states. In some states a real
estate transaction is not consider "closed" until the documents record at
the local recorders office. In others, the "closing" is a meeting where all
of the documents are signed and money changes hands.
Closing costs are separated into what are called "non-recurring closing
costs" and "pre-paid items." Non-recurring closing costs are any items which
are paid just once as a result of buying the property or obtaining a loan.
"Pre-paids" are items which recur over time, such as property taxes and
homeowners insurance. A lender makes an attempt to estimate the amount of
non-recurring closing costs and prepaid items on the Good Faith Estimate
which they must issue to the borrower within three days of receiving a home
An additional individual who is both obligated on the loan and is on title
to the property.
In a home loan, the property is the collateral. The borrower risks losing
the property if the loan is not repaid according to the terms of the
mortgage or deed of trust.
Most salespeople earn commissions for the work that they do and there are
many sales professionals involved in each transaction, including Realtors,
loan officers, title representatives, attorneys, escrow representative, and
representatives for pest companies, home warranty companies, home inspection
companies, insurance agents, and more. The commissions are paid out of the
charges paid by the seller or buyer in the purchase transaction. Realtors
generally earn the largest commissions, followed by lenders, then the
A type of ownership in real property where all of the owners own the
property, common areas and buildings together, with the exception of the
interior of the unit to which they have title. Often mistakenly referred to
as a type of construction or development, it actually refers to the type of
An agreement in which a borrower receives something of value in exchange for
a promise to repay the lender at a later date.
A record of an individual's repayment of debt. Credit histories are reviewed
my mortgage lenders as one of the underwriting criteria in determining
A person to whom money is owed.
A report of an individual's credit history prepared by a credit bureau and
used by a lender in determining a loan applicant's creditworthiness.
The legal document conveying title to a property.
The part of the purchase price of a property that the buyer pays in cash and
does not finance with a mortgage.
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 and other liens.
An item of value, money, or documents deposited with a third party to be
delivered upon the fulfillment of a condition. For example, the earnest
money deposit is put into escrow until delivered to the seller when the
transaction is closed.
A person named in a will to administer an estate. The court will appoint an
administrator if no executor is named. "Executrix" is the feminine form
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.
A mortgage in which the interest rate does not change during the entire term
of the loan.
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.
government loan (mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA) or
guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing
Service (RHS). Mortgages that are not government loans are classified as
home equity line of credit
A mortgage loan, usually in second position, that allows the borrower to
obtain cash drawn against the equity of his home, up to a predetermined
A thorough inspection by a professional that evaluates the structural and
mechanical condition of a property. A satisfactory home inspection is often
included as a contingency by the purchaser.
An insurance policy that combines personal liability insurance and hazard
insurance coverage for a dwelling and its contents.
The penalty a borrower must pay when a payment is made a stated number of
days. On a first trust deed or mortgage, this is usually fifteen days.
A written agreement between the property owner and a tenant that stipulates
the payment and conditions under which the tenant may possess the real
estate for a specified period of time.
A term which can refer to the institution making the loan or to the
individual representing the firm. For example, loan officers are often
referred to as "lenders."
Insurance coverage that offers protection against claims alleging that a
property owner's negligence or inappropriate action resulted in bodily
injury or property damage to another party. It is usually part of a
homeowner’s insurance policy.
A legal claim against a property that must be paid off when the property is
sold. A mortgage or first trust deed is considered a lien.
line of credit
An agreement by a commercial bank or other financial institution to extend
credit up to a certain amount for a certain time to a specified borrower.
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with interest.
Also referred to by a variety of other terms, such as lender, loan
representative, loan "rep," account executive, and others. The loan officer
serves several functions and has various responsibilities: they solicit
loans, they are the representative of the lending institution, and they
represent the borrower to the lending institution.
An agreement in which the lender guarantees a specified interest rate for a
certain amount of time at a certain cost.
A legal document that pledges a property to the lender as security for
payment of a debt. Instead of mortgages, some states use First Trust Deeds.[
For a more complete discussion of mortgage banker, see "Types of Lenders." A
mortgage banker is generally assumed to originate and fund their own loans,
which are then sold on the secondary market, usually to Fannie Mae, Freddie
Mac, or Ginnie Mae. However, firms rather loosely apply this term to
themselves, whether they are true mortgage bankers or simply mortgage
brokers or correspondents.
A mortgage company that originates loans, then places those loans with a
variety of other lending institutions with whom they usually have
The lender in a mortgage agreement.
mortgage life and disability insurance
A type of term life insurance often bought by borrowers. The amount of
coverage decreases as the principal balance declines. Some policies also
cover the borrower in the event of disability. In the event that the
borrower dies while the policy is in force, the debt is automatically
satisfied by insurance proceeds. In the case of disability insurance, the
insurance will make the mortgage payment for a specified amount of time
during the disability. Be careful to read the terms of coverage, however,
because often the coverage does not start immediately upon the disability,
but after a specified period, sometime forty-five days.
The borrower in a mortgage agreement.
Many lenders offer loans that you can obtain at "no cost." You should
inquire whether this means there are no "lender" costs associated with the
loan, or if it also covers the other costs you would normally have in a
purchase or refinance transactions, such as title insurance, escrow fees,
settlement fees, appraisal, recording fees, notary fees, and others. These
are fees and costs which may be associated with buying a home or obtaining a
loan, but not charged directly by the lender. Keep in mind that, like a
"no-point" loan, the interest rate will be higher than if you obtain a loan
that has costs associated with it.
notice of default
A formal written notice to a borrower that a default has occurred and that
legal action may be taken.
A property purchase transaction in which the property seller provides all or
part of the financing.
A point is 1 percent of the amount of the mortgage.
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.
A loosely used term which is generally taken to mean that a borrower has
completed a loan application and provided debt, income, and savings
documentation which an underwriter has reviewed and approved. A pre-approval
is usually done at a certain loan amount and making assumptions about what
the interest rate will actually be at the time the loan is actually made, as
well as estimates for the amount that will be paid for property taxes,
insurance and others. A pre-approval applies only to the borrower. Once a
property is chosen, it must also meet the underwriting guidelines of the
lender. Contrast with pre-qualification
This usually refers to the loan officer’s written opinion of the ability of
a borrower to qualify for a home loan, after the loan officer has made
inquiries about debt, income, and savings. The information provided to the
loan officer may have been presented verbally or in the form of
documentation, and the loan officer may or may not have reviewed a credit
report on the borrower.
The amount borrowed or remaining unpaid. The part of the monthly payment
that reduces the remaining balance of a mortgage.
The outstanding balance of principal on a mortgage. The principal balance
does not include interest or any other charges. See remaining balance.
A written promise to repay a specified amount over a specified period of
A meeting in an announced public location to sell property to repay a
mortgage that is in default.
A written contract signed by the buyer and seller stating the terms and
conditions under which a property will be sold.
real estate agent
A person licensed to negotiate and transact the sale of real estate.
A real estate agent, broker or an associate who holds active membership in a
local real estate board that is affiliated with the National Association of
The public official who keeps records of transactions that affect real
property in the area. Sometimes known as a "Registrar of Deeds" or "County
The process of paying off one loan with the proceeds from a new loan using
the same property as security.
rent loss insurance
Insurance that protects a landlord against loss of rent or rental value due
to fire or other casualty that renders the leased premises unavailable for
use and as a result of which the tenant is excused from paying rent.
A mortgage that has a lien position subordinate to the first mortgage.
The buying and selling of existing mortgages, usually as part of a "pool" of
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
A housing development that is created by dividing a tract of land into
individual lots for sale or lease.
A drawing or map showing the precise legal boundaries of a property, the
location of improvements, easements, rights of way, encroachments, and other
Contribution to the construction or rehabilitation of a property in the form
of labor or services rather than cash.
A legal document evidencing a person's right to or ownership of a property.
Insurance that protects the lender (lender's policy) or the buyer (owner's
policy) against loss arising from disputes over ownership of a property.
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.
transfer of ownership
Any means by which the ownership of a property changes hands. Lenders
consider all of the following situations to be a transfer of ownership: the
purchase of a property "subject to" the mortgage, the assumption of the
mortgage debt by the property purchaser, and any exchange of possession of
the property under a land sales contract or any other land trust device.
State or local tax payable when title passes from one owner to another.
An adjustable-rate mortgage (ARM) that has one interest rate for the first
five or seven years of its mortgage term and a different interest rate for
the remainder of the amortization term.
two- to four-family property
A property that consists of a structure that provides living space (dwelling
units) for two to four families, although ownership of the structure is
evidenced by a single deed.
A fiduciary who holds or controls property for the benefit of another.