Glossary of Terms



My REAL ESTATE DICTIONARY  is a compilation of terms commonly used in the real estate and title insurance industry. The definitions are based on English Common Law, and while generic, may not be exactly applicable in all states. Please check with a local real estate attorney prior to making any decisions.



ABSTRACT
The notes made by a title examiner based on his examination of the land records. These notes are a concise summary of the transactions affecting the property. The title agency produces a BINDER from the information in the abstract.

ACRE
43,560 square feet of land.

ADJUSTABLE RATE MORTGAGE (ARM)
A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index.

AGENCY
A relationship in which the agent is given the authority to act on behalf of another person (Principal)

AGREEMENT
A meeting of minds. A change to the correct or alteration to the original document/agreement without changing its principal essence.

AMORTIZATION
Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed.

ANNUAL PERCENTAGE RATE (APR)
The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.

APPLICATION FEE
That part of the closing costs pre-paid to the lender at time of application to cover initial expenses.

APPRAISAL
An estimate of the value of property, made by a qualified professional called an "appraiser". Most states require licenses. Various lenders have their own lists of approved appraisers.

ASSESSED VALUE
The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.

ASSESSMENT
A local tax levied against a property for a specific purpose, such as a sewer or streetlights.



BALLOON MORTGAGE
A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term.

BREACH OF CONTRACT
Failure to perform provisions of a contract.

BRIDGE LOAN
A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.

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

BUILDING RESTRICTION LINE
A required set-back a certain distance from the road within which no building may take place. This restriction may appear in the original plat of subdivision, restrictive covenants or by building codes and zoning ordinances.

BUYDOWN
Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years or the whole term.

BY-LAWS
Rules and regulations governing an association or corporation.



CAPITAL GAINS
Profit earned from a sale or real estate

CC&R's
Covenants, conditions and restrictions.
The basic rules establishing the rights and obligations of owners of real property within a subdivision or other tract of land in relation to other owners within the same subdivision or tract; and in relation to an association of owners organized for the purpose of operating and maintaining property commonly owned by the individual owners.

CERTIFICATE OF ELIGIBILITY
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA Form 1880 (Request for Certificate of Eligibility).

CLOSING
The meeting between the buyer, seller and lender, or their agents; where the property and funds legally change hands (Also called settlement). Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit.

CLOSING COSTS
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs".

CLOSING STATEMENT
A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account.

COMMISSION
An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.

COMPARABLES
Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.

CONDOMINIUM
A system of individual FEE SIMPLE ownership of portions (units) in a multi-unit structure, combined with joint ownership of common areas. Each individual may sell or encumber his own unit. Compare, COOPERATIVE.

CONTINGENCY
A condition that must be met for a contract or a commitment to remain binding.

CONSTRUCTION LOAN
A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses. These are generally done by lenders with offices local to the site of the construction. This enables the lender or their agent to monitor the progress of the construction.

CONTRACT
A legally enforceable agreement between two parties.

CONTRACT FOR DEED
Also known as a Land Contract of Land Installment Contract. A method of financing where title remains in the Seller's name until the Buyer has paid the full purchase price. A Contract for Deed will normally trigger the DUE ON SALE CLAUSE in a DEED OF TRUST or MORTGAGE but Veteran Administration regulations specifically allow Contracts for Deed without invoking the DUE ON SALE CLAUSE.

CONVENTIONAL MORTGAGE
Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded by a government authorized bond sale or grant.

COVENANT
A written agreement or restriction on the use of land or promising certain acts. Homeowner Associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner's association.

CREDIT REPORT
A report documenting the credit history and current status of a borrower's credit standing.



DEED
The written document conveying real property. The Deed must be executed (signed), ACKNOWLEDGED, and DELIVERED to the Grantee. Once recorded at the Courthouse, the original piece of paper is not needed to convey title in the future.

DEFAULT
Failure to fulfill the terms as agreed to in the mortgage of note.

DOWN PAYMENT
Money paid to make up the difference between the purchase price and the mortgage amount.

DUAL AGENCY
Representation of opposing parties (buyer and seller) at the same time in the same transaction. This situation most often refers to cases where the Realtor is the agent for both parties.



EARNEST MONEY
A good faith deposit.

EASEMENT
The right to use the land of another for a specific limited purpose. Examples include utility lines, driveways, and INGRESS AND EGRESS. Easements can be temporary or permanent.

ENCROACHMENT
The physical intrusion of a structure or improvement on the land of another. Examples include a fence or driveway over the property line.

ENCUMBRANCE
Any lien, liability or charge against a property.

EQUITY
The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

ESCROW
A disinterested third party holds funds or documents on behalf of others and subject to their instructions.

EXECUTOR
A person named in a will to carry out its terms and administer the estate. The feminine form is Executrix. Compare, ADMINISTRATOR.



FIDUCIARY RELATIONSHIP
A relationship of trust and confidence between principal and agent; lawyer and client; doctor and patient, etc.

FIXED-RATES MORTGAGE
A mortgage with an interest rate and monthly payments that remain constant over the life of the loan.

FIXTURE
An item of personal property attached to real property so that it can not be removed without damage to the real property. A FIXTURE becomes part of the real property.

FLOOD CERTIFICATION
An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy.

FORECLOSURE
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.



GRADUATED PAYMENT MORTGAGE
A fixed rate loan with monthly payments that start low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan.

GROSS INCOME
Normal income, including overtime, prior to any payroll deductions, that is regular and dependable. This income may come from more than one source.



HAZARD INSURANCE
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

HOMEOWNER'S INSURANCE
An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability.

HUD-1 FORM
See Real Estate Settlement Statement.



INGRESS AND EGRESS
Applied to EASEMENTS, meaning the right to go in and out over a piece of property but not the right to park on it.

INTERIM FINANCING
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.



JOINT TENANTS
Two or more persons own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property without reference to the decedent's will. Creditors may sue to have the property divided to settle claims against one of the owners. Compare, TENANTS IN COMMON, TENANTS BY THE ENTIRETY.



LIEN
A claim or charge against property. Property is said to be encumbered by a lien and the lien must be removed to clear title.

LOAN APPLICATION
The loan application is the source of information on which the lender bases a decision to make the loan; defines the term of the loan, gives the name(s) of the borrower(s), place of employment, salary, bank accounts and credit references, and describes the real estate that is to be mortgaged. It also stipulates the amount of the loan being applied for and the repayment terms.

LOAN-TO-VALUE RATIO
The relationship between the amount of the mortgage and property value, usually shown as a percentage.



MARKET VALUE
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

MECHANIC'S LIENS
The right of an unpaid contractor, laborer or supplier to file a lien against property to recover the value of his work.

METES AND BOUNDS
A means of describing land by directions and distances rather than reference to a lot number. Generally used when land has not been subdivided into lots.

MORTGAGE
A contract in which a borrower's property is pledged as security for a loan which is to be repaid on an installment basis.

MORTGAGE NOTE
A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.



OFFER TO PURCHASE
A proposal; after acceptance it becomes a contract.

ORIGINATION FEE
A fee charged for the work involved in the evaluation, preparation and submission of a proposed mortgage loan.

OWNER FINANCING
A purchase in which the seller provides all or part of the financing.



PITI
Principal, Interest, Taxes, and Insurance. Also called monthly housing expense.

PLAT
A map showing the division of piece of land with lots, streets and, if applicable, common area.

POINT
A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point.

POWER OF ATTORNEY
A written document authorizing another to act on his behalf as an ATTORNEY IN FACT. One does not need to be a licensed attorney to act as an attorney in fact but power of attorney forms are powerful legal documents that should be used only under advice of a licensed attorney at law.

PREPAYMENT PENALTY
A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.

PRE-APPROVAL
A commitment by a lender to extend credit provided that specific conditions are met.

PRE-QUALIFICATION
A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.

PRINCIPAL
The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

PRIVATE MORTGAGE INSURANCE (PMI)
Insurance written by a private company to protect the lender against loss caused by mortgage default.



QUALIFYING RATIOS
Guidelines applied by lenders to determine how large a loan to grant a home buyer.



REAL ESTATE SETTLEMENT STATEMENT
Final settlement statement often referred to as the HUD-1 Form, used to itemize buyer, seller, broker, and lender charges and credits at closing.

REALTOR
A member of the National Association of Realtors.

RECORDING FEES
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

REFINANCING
Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.

RIPARIAN RIGHTS
The rights of an owner of land adjacent to water.



SECONDARY MORTGAGE MARKET
The buying and selling of existing mortgages through agencies (i.e. Fannie Mae, Freddie Mac).

SUBDIVISION
Dividing land into lots and streets. The owner signs a PLAT and Deed of Resubdivision which is recorded among the land records. The state and county have strict requirements for subdivision of land.

SURVEY
A map prepared by an engineer or surveyor charting a particular piece of real estate.



TENANTS BY THE ENTIRETY
A husband and wife own the property with the common law right of survivorship so, if one dies, the other automatically inherits.

TENANTS IN COMMON
Two or more persons own the property with no right of survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner.

TITLE
Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.

TITLE INSURANCE
Insurance that provides an INDEMNITY against loss or damage as a result of defect in title ownership to a particular piece of property. Title insurance covers mistakes made during a TITLE SEARCH as well as matters which could not be found or discovered in the public records. Records such as missing heirs, mistakes, fraud and forgery. Compare, CERTIFICATE OF TITLE.

TITLE SEARCH
A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.

TRANSFER TAX
In some areas city, county or state taxes imposed when property passes from one person to another.

TRUTH-IN-LENDING
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.



UNDERWRITING
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.



VA LOAN
A long-term, low-or-no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.



WARRANTY DEED
A deed conveying the title to a property with a warranty of clean, clear marketable title.



ZONING
Regulation of private land use and development by local government.