Real Estate Terms

Here are some mortgage terms and definitions to help you understand the process better:

Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate.
Amortize
To reduce a debt by regular payments of both principal and interest, as opposed to interest only payment.
Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges.
Appraised Value
An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.
Arrears
Payment made after its due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.
Assumption of Mortgage
Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust. The lender usually must approve the new debtor in order to release the existing debtor from liability.
Balloon Note
A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a “Balloon” is due at maturity.
Balloon Payment
The final payment of a mortgage which is usually used to pay off the debt and is much larger than a regular payment. Typically associated with 5/25 and 7/23 mortgage programs.
Blanket Mortgage
A mortgage covering more than one property. Also known as a general mortgage.
Bridge Financing
A form of interim loan, generally made between a short term loan and a long term loan, when the borrower needs to have more time before taking on long term financing.
Buydown
A payment to the lender to reduce the interest rate on a mortgage.
Cap
The maximum increase that an Adjustable Rate Mortgage (ARM). can change, either at each adjustment or during the life of the mortgage.
Closing Cost
Expenses incurred in the closing of a real estate or mortgage transaction. Usually includes things like loan fees, title fees, appraisal fees, processing fees, etc.
Closing Statement
The statement which lists the financial settlement between buyer and seller, and also the costs each must pay. A separate statement for buyer and seller is usually prepared.
Cloud on Title
An invalid encumbrance on real property which, if valid, would affect the rights of the owner.
Co-Maker
A surety under a loan. The co-maker is equally responsible for repayment as the borrower.
Commitment
A written promise to make or insure a loan for a specified amount and on specified items.
Comparables
Properties used as comparisons to determine the value of a specified property.
Condominium
A structure of two or more units, the interior space of which are individually owned; the balance of the property is owned in common by the owner of the individual units.
Construction Loan
Short term financing of real estate construction. Generally followed by the long term financing called a “take out” loan, issued upon completion of improvements.
Contingency
The dependence upon a stated event which must occur before a contract is binding.
Contract of Sale
Depending on area of country it may be a Land Contract or a Purchase Agreement.
Conventional Mortgage
A mortgage or deed of trust not obtained under a government insured program (such as FHA or VA).
Cost-Plus Contract
A building contract setting the builder’s profit at a set percentage of actual cost of labor and materials.
Declaration of Restrictions
A set of restrictions filed by a subdivider to cover an entire tract or subdivision.
Defective Title
Title to a negotiable instrument obtained by fraud. Title to real property which lacks some of the elements necessary to transfer good title.
Depreciation
Decrease in value to real property improvements caused by deterioration or obsolescence.
Disbursements
Payments made during the course of an escrow or at closing.
Easement
A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another.
Eminent Domain
A Government right to acquire private property for public use by condemnation, and the payment of just compensation.
Encroachment
Generally construction onto the property of another, as of a wall, fence, building, etc.
Encumbrance
A claim, lien, charge, or liability attached to and binding real property.
Equity
The difference between the market value of the real property and any liens on the property..
Escrow
Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event.
Federal Home Loan Bank Board
The board which charters and regulates federal savings and loan associations, as well as controlling the system of Federal Home Loan Banks.
Federal Tax Lien
A lien attached to property for nonpayment of a federal tax.
Fee Simple
An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited.
Federal Housing Administration
A federal Agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.
Foreclosure
A proceeding in or out of court, to extinguish all rights, title, and interest, of the owners of property in order to sell the property to satisfy a lien against it.
Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation. A federal Agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System, and the Federal Home Loan Bank System.
Ginnie Mac (GNMA)
Government National Mortgage Association. A federal association working with FHA which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.
Grandfather Clause
The clause in a law permitting the continuation of a use, business, etc., which, when established, was permissible but, because of a change in the law, is now not permissible.
Home Owner Association
An association of people who own homes in a given area formed for the purpose of improving or maintaining the quality of the area.
Impound Account
An account where a portion of a mortgagor’s monthly payment is held in trust by the lender to pay for taxes mortgage insurance, hazard insurance, lease payments, and other items as they become due.
Index
An index used to adjust the interest rate of an adjustable mortgage loan.
Interest Rate
The percentage of an amount of money which is paid for its use for a specified time. Usually expressed as an annual percentage.
Joint Tenancy
An undivided interest in property, taken by two or more joint tenants. The interests must equal, accruing under the same conveyance, and beginning at the same time. Upon death of a joint tenant the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.
Lease with Option to Purchase
A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.
Lien
An encumbrance against property for money, either voluntary or involuntary.
Loan Ratio
The ratio, expressed as a percentage, of the amount of a loan to the value or selling price of real property.
Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Mortgage Broker
One who, for a fee, brings together a borrower and lender, and handles the necessary applications for the borrower to obtain a loan against real property by giving a mortgage or deed of trust as security. Also known as a loan broker.
Mortgage
To hypothecate as security, real property for the payment of a debt. The borrower (mortgagor) retains possession and use of the property.
Mortgagee
The party lending the money and receiving the mortgage.
Mortgagor
The party who borrows the money and gives the mortgage.
Mortgage Insurance
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price. Usually required for loans with a loan ratio of above 80.01%.
Negative Amortization
A condition created when a loan payment is less than interest alone. Even though payments are made on time, the amount owing increases.
Nonconforming Use
A property which does not conform to the zoning of the area.
Note
A written promise to repay a certain sum of money on specified terms.
Origination Fee
A fee or charge made by a lender for making a real estate loan. Usually a percentage of the amount loaned.
Perk Test (Percolation)
The test to determine the capability of the soil to absorb liquid, both for construction and septic systems.
PMI Private Mortgage Insurance
Insurance similar to FHA or VA insurance, insuring part of the first mortgage or deed of trust, enabling a lender to make a conventional loan of a higher percentage of the property value.
Points
A point is equal to one percent of the loan.
Property Tax
Generally, tax levied on both real and personal property with the amount of the tax dependent on the value of the property.
Prorate
To divide in proportionate shares, such as taxes, insurance, rent, or other items which the buyer and seller share as of the time of closing, or other agreed upon time.
Real Estate
Land and anything permanently affixed to the land, and those things attached to the building.
Refinancing
The repayment of a debt from the proceeds of a new loan using the same property as security.
RESPA (Real Estate Settlement Procedures Act)
A federal statute requiring disclosure of certain costs in the sale of residential improved property which is to be financed by a federally insured lender.
Secondary Financing
A loan secured by a mortgage or trust deed, which lien is junior to another mortgage or trust deed.
Secondary Mortgage
The buying and selling of first mortgages of trust deeds by banks, insurance companies, government agencies, and other mortgagees.
Settlement Statement
A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale.
Tax Lien
Lien for nonpayment of taxes.
Tax Sale
Public sale of property at auction by governmental authority, after a period of nonpayment of property taxes.
Title
Often used interchangeably with the work ownership. It indicates the accumulation of all rights in property, the owner and others.
Title Insurance
An insurance policy which protects the insured (purchaser and lender) against loss arising from defects in title