Real Estate Glossary
Listed below are brief descriptions of some common terms used in real estate transactions.
These are general terms and definitions and are not intended to apply to all possible uses of
a term. Please let us know if you have any questions regarding these items.
Accelerated Clause: Loan verbiage that provides the lender with the right to demand
payment of the entire outstanding balance on your home loan, if you miss a monthly
payment, sell the home, or otherwise fail to perform as promised under terms of your
Adjustable Period: The length of time between interest rate changes on an ARM. For
example, a loan with an adjustable period of one year is called a one-year ARM, which
means that the interest rate can change once per year.
Adjustable Rate Mortgage (ARM): A mortgage that permits the lender to adjust the
interest rate periodically on the basis of changes in a specified index. See Fixed-rate
Adjustment Period: How often the rate of an adjustable rate mortgage adjusts (see
Adjustable Rate Mortgage).
Affidavit: A sworn statement in writing, made before an authorized official.
ALTA: Abbreviation for the American Land Title Association.
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).
Appraisal: A written analysis of the estimated value of a property prepared by a
Appreciation/depreciation: Refers to either the increase (appreciation) or the decrease
(depreciation) in a home’s value.
Assessed value: The value of a property according to your local tax assessor; determines
how much you will pay in property taxes.
Assessments: Specific and special taxes (in addition to normal taxes) imposed on real
property to pay for public improvements within a specific geographic area.
Assumption of Mortgage: A buyer’s agreement to assume the liability on an existing
note that is secured by a mortgage or deed of trust. The lender must approve the buyer in
order to assume the loan.
Attorney-in-Fact: An agent authorized to act for another under a power of attorney.
Balloon Loan: Requires level payments just as a 15-year or 30-year fixed rate loan. But
well before the date it becomes due, the full remaining balance of the loan comes due.
Though they can be economical at the outset, beware of balloon loans – you may not be
able to refinance the loan.
Balloon Payment: A lump sum principal payment due at the end of some mortgages or
other long-term loans.
Beneficiary: As used in a trust deed, the lender is designated as the Beneficiary, i.e.
obtains the benefit of the security.
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.
Biweekly payment mortgage: A mortgage requiring payments every two weeks instead
of the standard monthly payment. The result is a substantial savings in interest.
Bridge loan: If you close on a home before completing the sale of your existing home
(not an ideal circumstance by anyone’s estimation), you may need to obtain a bridge
Broker: A person who, for a commission or fee, brings parties together and assists in
negotiating contracts between them.
Buydown: A Veteran’s Administration loan plan available only in some new housing
developments. A builder agrees to pay part of the mortgage for the first few yeas. Sellers
also may create buydowns by paying lenders a predetermined amount of money so
lenders will reduce their interest rates.
Buyer’s agent: A person licensed to negotiate and transact the sale of real estate on
behalf of the buyer. The buyer’s broker or agent owes allegiance only to the buyer and
does not have an agent relationship with the seller.
Cap: The limit of how much the interest rate or monthly payment can change either at
each adjustment or over the life of the mortgage.
Cash reserves: Lenders typically require buyers to have enough cash left over after
purchasing a home to make two mortgage payments, to cover a financial emergency.
CC & R’s: Covenants, Conditions and 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.
Certificate of Title: A statement provided by an abstract company title or attorney
stating that the title to real estate is legally held by the current owner.
Closing: A meeting at which a sale of a property is finalized by the buyer signing the
mortgage documents and paying closing costs.
Closing Costs: Generally total from 2 percent to 5 percent of the home’s purchase price;
separate from the down payment. Covers a number of costs including loan document
processing fees, appraisal report fees, credit report fees, etc.
Closing Statement: The financial disclosure statement that accounts for all of the funds
received and expected at the closing of the escrow, including deposits or taxes, hazard
insurance and mortgage insurance.
Collateral: An asset (such as a car or home) that guarantees the repayment of a loan.
Commission: The fee charged by a broker or agent for providing services related to a
real estate transaction such as procuring the property, bringing the parties together and
negotiating a purchase contract or loan.
Community Property: One way to hold title to your home.
Condominium: A form of real estate ownership. 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
Contingencies: Conditions, contained in the Purchase Agreement, which outline the
obligations the seller and buyer must fulfill before sale of the property is completed. Can
concern the results of your effort to obtain financing, an inspector’s opinion of the
condition of the property, etc. For instance, a sales agreement may be contingent upon
the buyer obtaining financing.
Conventional Loan: A mortgage loan, which is not insured or guaranteed by a
Conversion Clause: A provision in some ARMs 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.
Cooperative: 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 agreements.
Cosigner: If your credit is less than stellar, it may be necessary for you to have a
cosigner – that is a friend or relative willing to assume the risk (and actual indebtedness
for) your mortgage.
Credit Report: The main basis for a lender to determine your "credit worthiness." A
historical list of your credit use and bill payment performance.
Debt-to-income Ratio: When you apply for a mortgage, the lender looks at the amount
of debt you will have relative to your income. Acceptable limits generally range from 33
to 40 percent.
Deed: Written instrument by which the ownership of land is transferred from one person
Deed of Trust: Written instrument by which title to land is transferred to a trustee as
security for a debt or other obligation.
Default: You are officially in default when you fail to make two or more monthly
mortgage payments on time. This does not automatically indicate that you will lose your
home, however. Many lenders will help you work to find a solution, as foreclosure is
expensive for the lender.
Delinquency: Comes before default. Your loan is in delinquency when you fail to
provide one month’s mortgage payment on time.
Deposit Receipt: Used when accepting "Earnest Money" to bind an offer for property
by a prospective purchaser; also includes terms of a contract.
Down Payment: Percentage of the purchase price you will provide in cash up front.
Due on Sale Clause: An acceleration clause that requires full payment of a mortgage or
deed of trust when secured property changes ownership.
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.
Easement: A right created by grant, reservation, agreement, prescription, or necessary
implication, which one has in the land of another.
Equity: A homeowner’s financial interest in a property. Also can mean the difference
between the market value of your home and how much you owe on the property.
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.
Exclusive listing: A written contract that gives a licensed real estate agent the exclusive
right to sell a property for a specified time, but reserving the owner’s right to sell the
property himself without the payment of a commission.
Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of
consumer reports by consumer/credit reporting agencies and establishes procedures for
correcting mistakes on one’s credit record.
Federal National Mortgage Association: 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 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 wishes, including leaving by will or inheritance. It is the greatest interest a
person can have in real estate.
FHA Loan (Federal Housing Administration): A federal agency, created by the
National Housing Act of 1934, for the purpose of expanding and strengthening home
ownership by making private mortgage financing possible on a long-term, low down
payment basis. The vehicle is a mortgage insurance program, with premiums paid by the
homeowner, to protect lenders against loss on these higher risk loans. Since 1965, FHA
has been part of the newly created department of Housing and Urban Development
Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain
Fixed-rate Mortgage: A mortgage whose interest rate is locked in for the life of the
loan, which commonly ranges from 15 to 30 years in duration. See Adjustable Rate
Foreclosure: The legal process of the mortgage lender taking possession of and selling
the property. When you default on a loan and the lender determines you are incapable of
making payment, you may lose your house to foreclosure.
Formula: The way in which interest rates are calculated on Adjustable Rate Mortgages.
Add the margin to the index to get the interest rate.
Graduated Payment Mortgage: A residential mortgage with monthly payments that
start at a low level and increase at a predetermined rate.
Grant: A transfer of real property.
Grantee: The person to whom a grant is made.
Grantor: The person who makes a grant.
Home Inspection: A thorough inspection that evaluates the structural and mechanical
condition of a property.
Home Inspection Report: A qualified inspector’s report on a property’s overall
condition. The report usually covers an evaluation of both the structural and mechanical
Home Warranty Policy: Insurance that covers repairs to the home, generally for one
year. Covers smaller aspects of the home including electrical, plumbing, pest control,
Homeowner’s Insurance: Absolutely required to obtain a mortgage, it covers the cost
to rebuild your home.
Index: The measure of interest rate changes used to determine adjustments in an ARM’s
interest rate over the term of the loan.
Interest Rate: The percentage fee lenders charge you to use their money. The higher the
rate of interest, the higher the risk. For fixed rate mortgages, the interest rate has a
corresponding relationship with the points. A high number of points will lower the rate
and vice versa. With an adjustable rate mortgage, understand the formula (the index plus
the margin) that determines how the interest rate is calculated, after the teaser rate
Joint Tenancy: An equal undivided ownership of property by two or more persons.
Upon death of any owner, the survivor receives the decedent’s interest in the property.
Late Charge: What the mortgage company will add on to your payment if it is received
late. Can be as high as 5 percent of the total payment.
Lien: A legal hold or claim on property as security for a debt or charge.
Life Cap: Determines the total amount that your adjustable mortgage interest rate and
monthly payment can fluctuate during the duration of the loan. Different from the
Periodic Cap, which limits the extent to which your interest rate can fluctuate during a
predetermined adjustment period.
Loan Commitment: A written promise to make a loan for a specified amount on
Loan to Value Ratio: The relationship between the amount of the appraised value of the
property, expressed as a percentage of the appraised value.
Lock-in: A written agreement in which the lender guarantees a specified interest rate if a
mortgage goes to closing within set period of time.
Margin: The number of percentage points the lender adds to the index rate to calculate
the ARM interest rate at each adjustment.
Mortgage: A legal document that pledges a property to the lender as security for
payment of a debt.
Mortgage Banker: A company or individual engaged in the business of originating
mortgage loans with its own funds, selling those loans to long term investors, and
servicing the loans for the investor until they are paid in full.
Mortgage Broker: A person who buys mortgages wholesale from lenders and then sells
them to buyers. Can "shop your loan around" to find the best rate. Good for people with
less-than-stellar credit histories.
Mortgage Insurance: A contract that insures the lender against loss caused by a
mortgagor’s default on a government mortgage or conventional mortgage.
Multiple Listing Service (MLS): A cooperative listing of nearly all the homes on the
market for real estate agents.
Negative Amortization: Occurs when monthly payments fail to cover the interest cost.
The interest not covered is added to the unpaid principal balance so that even after
several payments, you could owe more than you did at the beginning of the loan.
Net worth: The value of all of a person’s assets, including cash, minus all liabilities.
Origination Fee: A fee or charge for establishing a loan. See Points.
Partnership: Way in which unmarried individuals can take title to a property. Can
include domestic partners or business partners. It’s recommended that a real estate
lawyer first draw up a written partnership agreement before the purchase.
Periodic Cap: Limits the amount that the interest rate of an Adjustable Rate Mortgage
can change in one adjustment period.
PITI: Principal, interest, taxes and insurance. The basics of your monthly mortgage
Planned Unit Development (PUD): A zoning designation for property developed at the
same or slightly greater overall density than conventional developments, sometimes with
improvements clustered between open, common areas.
Point: An amount equal to one percent of the principal amount of the investment or
note. The lender assesses loan discount points at closing to increase the yield on the
mortgage to a position competitive with other types of investments.
Pre-Payment Penalty: A fee charged to a mortgagor who pays a loan before it is due.
Not allowed for FHA or VA loans.
Prime rate: The interest that banks charge to their preferred customers.
Principal: The amount borrowed or remaining unpaid.
Private Mortgage Insurance (PMI): Insurance written by private companies protecting
the lender against loss if the borrower defaults on the mortgage.
Probate sale: Sale of a home after a homeowner dies and the property is to be divided
among inheritors or sold to pay debts. The executor of the estate organizes the sale, and
a probate court judge oversees the process. The highest bidder receives the house.
Property Tax: Averages between 1 and 2 percent of a home’s value but may vary by
Prorations: Items that must be prorated between you and the seller at the close of
escrow. Can include Homeowner’s dues, property taxes and other expenses. Generally,
you will be responsible for paying a percentage of these taxes and fees beginning on the
day you take title.
Real Estate Agent: Real estate salespeople who are supervised by a real estate broker.
Licensed by the state; typically receive income from commissions.
Real Property: Land and buildings as opposed to property or chattels.
Realtor®: A real estate broker or associate active in a local real estate board affiliated
with the National Association of Realtors®.
Recordation: Filing for record in the office of the county recorder.
Refinance: Taking out a new mortgage loan to receive more favorable terms. Generally
recommended for fixed-rate mortgages if rates drop below 1 percent of what you’re
currently paying. However, refinancing can be expensive and time-consuming, so you’ll
want to consider this action carefully, and to ask yourself how long you plan to own the
Survey: A drawing or map showing the precise legal boundaries of a property, the
location of improvements, easements, rights of way, encroachment and other physical
Tax Deductible: Payments that you may deduct against your federal and state taxable
income; includes the interest portion of your mortgage payments, loan points and
Teaser Rate: Introductory, lower rate on an adjustable rate mortgage. The loan’s
formula is a better way to determine its affordability, however.
Tenancy-in-common: A method of taking title to a property generally used among
unmarried co-borrowers. See the Escrow section of this guide for more information.
Title: Evidence of a person’s right or the extent of his or her interest in the property.
Title Insurance Policy: A policy that protects the purchaser, mortgagee or other party
against loss arising from disputes over title to the property.
Truth in Lending: A federal law that requires lenders to fully disclose, in writing, the
terms and conditions of a mortgage, including the annual percentage rate and other
Underwriting: The process of evaluating a loan application to determine the risk
involved for the lender.
VA Loan: A loan that is partially guaranteed by the Veterans Administration
but is made by a private lender.
Veterans Administration (VA): An independent agency of the federal government
created by the Service Men’s Readjustment Act of 1944 to administer a variety of
benefit programs designated to facilitate the adjustment of returning veterans to civilian
life. Among the program’s benefits is the home loan guaranty program designated to
encourage mortgage lenders to offer long term low down payment financing to eligible
veterans by guaranteeing the lender against loss on these higher-risk loans.