Glossary of Real Estate Terms

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Adjustment Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.

Amortization: Repayment of a loan in equal installments of principal and interest, rather than interest only payments.

Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.

Assignee: Individual to whom a title, claim, property, interest or right has been transfered.

Assumption of Mortgage: A buyer's agreement to assume the liability under an existing note secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.

Balloon Payment: A lump sum principal payment due at the end of some mortgages or other long-term loans.

Binder: Sometimes known as an offer to purchase or an earnest money request. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

Cap: The limit on how much interest rates or monthly payments can change, either at each adjustment or over the life of the mortgage.

CC&Rs: Covenants, Conditions & Restrictions. A document that controls the use, requirements and restrictions of a property.

Certificate of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed loan.

Closing Statement: The financial disclosure statement that accounts for all the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Cloud on Title: Any encumbrance or claim that might invalidate a title to a property. Also called title defect.

Condominium: A form of real estate where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.

Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Conversion Clause: A provision in some ARM's that enables you 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.

Co-operative: A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

Deed of Trust: The document used in some states (such as California) instead of a mortgage. Title is conveyed to a trustee rather than to a borrower.

Due-On-Sale Clause: An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership. 

Documentary Transfer Tax: Charged by the county recorder at the time of recordation of all sales transfers. The variable costs are as follows: sales price: under $250K, $5.00 per $1,000; from $250K to $1M, $6.80 per $1,000; over $1M, $7.50 per $1,000.

Earnest Money: The portion of the down payment delivered to the seller or Escrow agent by the purchaser with a written offer as evidence of good faith.

Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties' instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

FHA Loan: A loan insured by the Insuring Office of the Department of Housing and Urban Development, the Federal Housing Administration.

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

Fee Simple: An estate in which the owner has unrestricted power to dispose of the property as he/she wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z (truth in lending law).

Graduated Payment Mortgage: A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

Home Inspection Report: A qualified inspector's report on a property's overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Home Warranty Plan: A warranty that protects against failure of mechanical systems within the property. Usually this includes plumbing, electrical, heating systems and installed appliances.

Index: A benchmark on which changes to an ARM's interest rate are based. Common indices include: industry cost of funds, 6-month Libor, and various term treasury notes.

Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon death of any owner, the survivors take the decedent's interest in the property.

Lessor: The person who rents land or property to a lessee. Also called a landlord.

Lessee: A person who rents land from its owner. Also called a tenant.

Lien: A legal hold or claim on property as security for a debt or charge.

Living Trust: A trust created for the trustor and administered by another party while the trustor is still alive. A living trust can be either revocable or irrevocable. A living trust avoids probate and therefore gets assets distributed significantly more quickly than a will does. It also offers a higher level of confidentiality, as probate proceedings are a matter of public record. Additionally, trusts are usually harder to contest than wills. On the downside, a living trust takes longer to put together than a will and requires more ongoing maintenance. Assests that are moved to a living trust, such as real estate have to be retitled. 

Loan Commitment: A written promise to make a loan for a specified amount on specific terms.
Loan-to-Value (LTV) Ration: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate of each adjustment.

Mortgage Life Insurance: A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.

Mortgagee: The creditor or lender in a mortgage agreement. 

Mortgagor: The borrower in a mortgage agreement.

Negative Amortization: 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 you could owe more than your did at the beginning of the loan. Negative amortization can occur when and ARM has a payment cap that results in monthly payments that are not high enough to cover the interest.

Origination Fee: A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan.

PITI: Principal, Interest, Taxes and Insurance.
Planned Unit Development (PUD): A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Users may be residential, commercial or industrial.

Point: An amount equal to 1 percent of the loan principal. Lenders charge loan points to increase their yield on a mortgage. Points are considered prepaid interest.

Prepayment Penalty: A fee charged to a borrower who pays a loan before it is due.
Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage. Generally required for loans exceeding 80% LTV.

Probate: The process by which an executor (if there is a will) or court-appointed administrator (if there is not a will) managed and distributes a decedent's property.

Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.

Quitclaim Deed: A deed that transfers whatever interest or title a grantor may have, without warranty.

Realtor: A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors.

Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

Tenancy In Common: A type of ownership of property by two or more persons with no right of survivorship.

Title: A legal document establishing evidence of ownership.

Title Insurance Policy: A policy that protects the purchaser, mortgagee or other party against losses concerning title to the property and matters such as easements, encroachments and liens.

Trustee: An individual or organization which holds or manages and invests assests for the benefit of another.

Trustor: Individual who sets up a trust. Also called a grantor.

VA Loan: A loan that is partially guaranteed by the Veterans Administration and made by a private lender.