Real Estate Glossary

Common Terms Used in Real Estate Transactions

Affidavit-A statement in writing sworn or affirmed to before an official (usually a notary public) who has the authority to administer an oath or affirmation.

Amortize-To reduce debt by means of regular periodic payments which include amounts applicable to both principal and interest.

Amortized Loan-A loan that is completely paid off, interest and principal, by a series of regular payments that are equal or nearly equal. Also called a Level Payments Loan.

Appreciation-An increase in the value of an asset.

Assumption of Mortgage-The taking of the title to property by a grantee, wherein he or she assumes liability for payment of an existing note secured by a mortgage or deed of trust against the property, becoming a co-guarantor for the payment of a mortgage or deed of trust note.

Balloon Payment-A large lump sum payment of unamortized premium and accrued interest at the end of the term of a loan in which the consecutive monthly installment payments are insufficient to amortize the entire principal and interest over its term.

Capital Gains-The taxable profit derived from the sale of a capital asset.  It is figured on the difference between the sales price and the basis of the property after accounting for making appropriate adjustments for closing costs, improvements, depreciation, etc.

Closing-The conclusion of a real estate transaction between a buyer and seller.

Closing Costs-Miscellaneous expenses associated with the closing of a real estate transaction over and above the price of the land.

Condominium-A system of real estate ownership wherein there is separate ownership of units in a multi-unit project and combined joint ownership of the common ares of the structure and land.

Construction Loan-A short term loan for the development or construction on land.  Usually paid in increments as the construction progresses.

Contingency-A condition which must be met before a contract can become legally binding.  Or one action is dependent on another one to occur.

Contract for Deed-Financing of a piece of property where the ownership of the property remains in the seller’s name as security until the buyer pays for the entire contract.

Counter Offer-A new offer made in rejection of an offer from a buyer/seller with different terms from the original offer.

Covenant-An agreement between the parties in a deed whereby one party promises either (1)the performance or non-performance of certain acts with respect to the land or (2) that a given state of things with respect to the land are so.

Deed-A written instrument duly executed and delivered by which the title to land is transferred from one person to another.

Deed Restriction-A clause in the deed that limits the use of the property.

Depreciation-A decline in the value of property.

Discount Point-The charge a borrower pays the lender for originating a loan. Each point is worth 1% of the mortgage amount.

Draw-Disbursement of part of the mortgage.  This usually applies to construction loans.

Earnest Money-A down payment made by a buyer to display good faith to the seller of a property.  Usually accompanies an offer to purchase.

Easement-A privilege or right of use or enjoyment which one person may have on the property of another.

Encroachment-The intrusion of any improvement partly or entirely into another’s adjoining property.

Equity-The interest or value which an owner has in real estate over and above the debts against it.

Escrow-A deed, contract, or something of value deposited with a disinterested third party, to be delivered upon the performance of certain conditions by the parties involved.

Fair Market Value-The highest price a person would be willing to pay for a property and the lowest price a seller would be willing to accept for the property.

Fannie Mae-Federal National Mortgage Association, a federally sponsored private corporation which provides a secondary market for housing mortgages.

Fee Appraisal-The estimating of the real estate value for a fee.

FHA Loan-Federal Housing Administration, an agency of the federal government which insures private loans for financing of new and existing housing and for home repairs under government approved programs.

First Lien-The loan which has the first loan on the property and would be the first to receive proceeds from the sale of the property.

First Right of Refusal-The right specified in an agreement to have the first opportunity to purchase or lease a given property before it is offered to others, or alternately, the prior right to purchase a property based on the same terms made by another buyer that were acceptable by the seller.

Fixture-An item which becomes attached to the real property and  becomes a permanent part of the real property unless excluded in the purchase agreement or contract.

Foreclosure-Legal process by which a mortgagor of real property is deprived of interest in the property due to failure to comply with terms and conditions of the mortgage.

Freddie Mac-Federal Home Loan Mortgage Corporation, an affiliate of the Federal Home Loan Bank, which creates a secondary market in conventional residential loans and in FHA and VA loans by purchasing mortgages from member of the Federal Reserve System and the Federal Home Loan Bank System.

General Warranty Deed-A deed warranting the title against all claims when given by the grantor.  Offers the greatest guarantee of protection of any type of deed, and which is used in most real estate deed transfers of title.

Grantee-The person whom land is transferred to in a deed.

Grantor-The person who transfers the land in a deed.

Homestead Exemption-A person’s dwelling and that part of the land which is about and contiguous to the dwelling.  Many states by statute give special privileges to such lands, such as exemptions from the remedies of creditors.

Homeowners Association-The not for profit organization of a community that oversees the common elements of a PUD or condominium project.

HUD-The Department of Housing and Urban Development.  It is responsible for the implementation and administration of US government housing and urban development projects.

Judgment-A decision rendered by the court.  If monetary, the recording of the judgment creates a lien upon the property of the debtor.

Lien-A claim or charge on property of another for payment of some debt, obligation, or duty.

Loan Commitment-A commitment from a lender to make a loan under certain terms and conditions.  These include interest rate, term, lender fees, APR, etc.

Loan to Value Ratio-The amount of the loan against the value of the property.

Metes and Bounds-A description of a parcel of land by describing the boundary lines in length and direction.

Mortgage-An instrument whereby an owner conditionally transfer title of property to another as security for payment of a debt.  The owner retains possession and use of the land and, upon the payment of the debt, the mortgage becomes void.

Mortgagee-The lender of money or the receiver fo the mortgage document.

Mortgage Insurance Premium-A contract that guarantees the lender against loss caused by the mortgagor’s default on a government or conventional loan.

Mortgagor-The borrower of money or the giver of the mortgage document.

Multiple Listing Service-An organization of real estate brokers who share listing agreements with one another to procure a buyer for a property.

Negative Amortization-Occurs when monthly installments are insufficient to pay the interest accruing on the principal balance, so the unpaid interest must be added to the principal balance.

Note-A written promise to pay a certain amount of money, at a certain time, or in a certain number of installments.  It usually provides for payment of interest and its payment is at times secured by a mortgage.

Origination Fee-A fee paid to a lender for processing a loan application.

Personal Property-Property owned which is not real property.  This could be cash, appliances, vehicles, etc.

PITI-The principal, interest, taxes and insurance which are generally the four components of a mortgage.

Point-See Discount Points

Pre-approval-A commitment by a lender to loan a specific amount of money with specific criteria.  This normally gives an buyer the advantage when competing for a home.

Pre-payment Penalty-The fee paid to the mortgagee for paying the mortgage before it becomes due.

Power of Attorney-An instrument in writing by which one person, the principal, authorizes another, the attorney in fact, to act in the specific actions described by the instrument.

Purchase Agreement-An agreement between the buyer and seller for the purchase of real property.

Quitclaim Deed-A deed which transfers whatever interest the maker of the deed may have in the parcel of land.

Radon-A colorless, odorless gas formed by the breakdown of uranium in subsoils.  It can enter a house through cracks in the foundation or in water and is considered to be a health hazard.

REALTOR®-Registered collective membership marks that identify real estate professionals who are members of the National Association of REALTORS® and who subscribe to a strict Code of Ethics.

Regulation Z-A federal law that requires disclosure by a credit institution or lender of the terms, conditions, and full cost of a loan or mortgage, including the annual percentage rate and any other charges, to the borrower when they apply for a loan.

Rent with Option-A contract which gives one the right to lease property at a certain sum with the option to purchase it at a future date.

Second Mortgage/Second Trust-An additional loan imposed on a property with a first mortgage.  Generally a higher interest rate and shorter term than a “first” mortgage.

Special Assessment-A legal charge against real estate by a public authority to pay the costs of public improvements such as street lights, sidewalks, street improvements, etc.

Subdivision-A parcel of land that has been divided into smaller parts.

Survey-The process by which a parcel of land is measured and its area ascertained.

Tenancy in Common-Ownership by two or more persons who hold an undivided interest, without the right of survivorship.  Interests need not be equal.

Term of Mortgage-The period during which a mortgage must be paid.

Title-Often used interchangeably with the word ownership.  It indicates the accumulation of all rights in a property.

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

Tract-A specific parcel of land.

Underwriting-The process of analyzing a borrower’s capability to honor repayment of a loan (evaluating his or her credit, assets, employment) along with the value of the property being purchased, to help minimize the risk involved for the party lending the purchase money.

Variable Rate Mortgage-A mortgage with interest rates that may fluctuate based on market conditions.

Variance-A special suspension of zoning laws to allow the use of property in a manner not in accord with existing laws.

VA Loan-A loan guaranteed by the Veteran’s Administration.

Zoning-The regulation by local government of the use and development of private land.