Glossary of Real Estate Terms, Phrases and Abbreviations

A

Abstract (of title)

A summary of public records relating to the title to a particular parcel of land.

Adjustable Rate Mortgage (ARM)

Mortgage loan in which the interest rate is not fixed, but rather may change at specified intervals over the life of the loan.

Agency Disclosure

Under Ohio law, real estate agents and brokers are required to provide you with a form that discloses who they will represent in the transaction. The "Agency Disclosure Statement" will be presented to you before you are shown property or discuss your financial ability to purchase or lease the property. Although you will be asked to sign the form acknowledging that it was given to you, it is not a contract and does not obligate you to work with the agent--it simply serves as a consumer disclosure form to protect your interests.

Alternative Financing

Mortgage instruments for both new and existing homes allow the buyer to qualify at a lower-than-market rate. Among these insturments are adjustable rate mortgages (ARM), graduated payment mortgages and buydown mortgages.

Amortize

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

Amortization

The breakdown of a mortgage loan (including principal and interest) into equal payments over a specified period of time. An amortization schedule shows the amount of each payment applied to principal and interest and the remaining balance after each payment is made.

Annual Percentage Rate (APR)

The cost of a mortgage stated as a yearly rate, it includes such items as interest, mortgage insurance and points.

Appraisal

A Real Estate Appraisal is an estimate of a property's value on the open market; an estimate of a property's type and condition, its utility for a given purpose or its highest and best use.

Appurtenances

Rights which pass with the title to the land itself. These rights may affect other lands; e.g., an appropriate access easement over adjoining land.

Assessed valuation

The valuation placed upon land for purposes of taxation. This valuation does not necessarily correspond to the market valuation.

Assessment

A special tax imposed on owners of land by governing bodies for the purpose of paying for improvements (sewer lines, sidewalks, street paving, etc.) which benefit the land of owners.

Assumable Loan

A loan in which the lender is willing to "transfer" from the previous owner of the home to the new owner, sometimes at the same interest rate, sometimes at a new rate. An assumable loan can make your home more attractive to buyers when you want to sell.

Assumption of mortgage

An obligation undertaken by the purchaser of land to be personally liable for payment of an existing note secured by a mortgage. As between the lender and the original borrower, the original borrower remains liable on the mortgage note.

Attorney in fact

A person who holds a power of attorney from another to execute specified documents on behalf of the grantor of the power.

B

Balloon Mortgage

A balloon mortgage has monthly payments made for a specified period of time, with the balance of the loan paid in full at the end of the balloon term. Like an ARM, interest rates on balloon mortgage are typically lower than on a fixed rate.

Beneficiary (of a trust)

A person designated to receive some benefit from the trust estate.

Building (restriction) line or setback

A line fixed at a certain distance from the front and/or sides of a lot or at certain distance from a road or street, which line marks the boundary of the area within which no parts of any building may project. This line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buydown mortgage

A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrowers monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

C

Chain of title

The successive ownerships or transfers in the history of title to a particular parcel of land. Each deed or other instrument effecting a transfer of the title is called a link and all of the links constitute the chain.

Closing

(1) Process by which all the parties to a real estate transaction conclude the details of a sale or mortgage. The process includes the signing and transfer of documents and distribution of funds. (2) Condition in description of real property by courses and distances at the boundary lines where the lines meet to include all the tract of land.

Closing costs

Miscellaneous expenses involved in closing a real estate transaction over and above the price of the land.

Cloud on title

An outstanding claim or encumbrance which adversely affects the marketability of title.

Comparitive Market Analysis (CMA)

An informal assessment of a property's market value, usually done to establish a reasonable listing price when a property is placed for sale. The price is established by comparing the property to similar properties that have sold in the area within the past year.

Condemnation

(1) The lawful taking of private land for public use by a government under its right of eminent domain. (2) A declaration by a governmental agency that a building is unfit for use.

Condominium

A system of real estate ownership wherein there is separate ownership of units in a multi-unit project with each separate unit ownership being coupled with an undivided share in the entire project less all of the units.

Condominium declaration

The document which establishes a condominium and describes the most important property rights of the unit owners. Special statutes in each state prescribe the contents of this document, known in some states as a master deed.

Construction Loan

A loan which is made to finance the actual construction or improvement on land. It is often the practice to make disbursements in increments as the construction progresses.

Contingency

A condition put on an offer to buy a home; such as the prospective buyer making an offer contingent on his or her sale of a present home.

Contract of sale

Agreement by one person to buy and another person to sell a specified parcel of land at a specified price.

Conventional loan

A mortgage loan neither insured by FHA nor guaranteed by VA.

Conveyance

(1) A document which transfers an interest in real property from one person to another; e.g., a deed. (2) The act of executing and delivering a deed or mortgage.

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; e.g., covenant that the land will be used only for residential purposes.

Convertible ARM

An ARM that can be converted to a fixed-rate mortgage with conditions.

Creative Financing

Usually refers to the sale of existing property. The seller provides part of the financing, or the lender "wraps" a new mortgage around an old one.

D

Deed

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

Deed of trust

A conveyance of a land title by a maker of note (the debtor) to a third party, a trustee, as collateral security for the payment of the note with the condition that the trustee shall re convey the title to the debtor upon payment of the note, and with power in the trustee to sell the land and pay the note in the even of a default on the part of the debtor.

Deed Restrictions

Restrictions placed within a deed that control the use of the property. Restrictions travel with the deed, and cannot generally be removed by new owners.

Deficiency judgment

A judgment against a person liable for the debt secured by a mortgage in an amount by which the funds derived from a foreclosure or trustee's sale are less than the amount due on the debt.

Discount points

The amount of money the borrower or seller must pay the lender to get a mortgage at stated interest rate. This amount is equal to the difference between the principal balance on the note and the lesser amount which a purchaser of the note would pay the original lender for it under market conditions. A point equals one percent of the loan.

Dower

An estate for life to which a married woman by statute is entitled on the death of her husband. In most states it is a life estate of one third of the value of all land which the husband owned during their marriage. Dower has been abolished by statute in some states. The reason for requiring a wife's joining in the deed of any land by her husband is the release of her dower right.

Down Payment

A specified percentage of a home's value paid at closing. Usually a down payment is 5%, 10%, 20% or 25% of the house price. Private mortgage insurance is required for amounts less than 20%.

E

Earnest Money

Funds submitted with an offer to show "good faith" to follow through with the purchase. Earnest money is placed by the broker in an escrow/trust account until closing, when it becomes part of the down payment or closing costs.

Easement

A privilege or right of use or enjoyment which one person may have in the lands of another; for example, a right of way to install, operate, and maintain utility lines.

Eminent domain

The right of a government to appropriate private property for a public use by making reasonable payment to the owner of such property.

Encroachment

The intrusion of any improvement partly or entirely on the land of another.

Encumbrance

Any right or interest in land held by persons other than the fee owner which right or interest lessens the value of the fee title. Examples are judgment liens, easements, mortgages, restrictions.

Equity

(1) The interest or value which an owner has in real estate over and above the debts against it. (2) A type of court of record.

Escrow

An escrow account is somewhat like a savings account, a portion of the monthly mortgage payment is set aside for payment of such expenses as property taxes or insurance.

Estate

The degree, quantity, nature, and extent of interest which a person has in land.

F

Fannie Mae / Freddie Mac

Referring to the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). These competing institutions are the nation's largest secondary investors in residential mortgages.

Fee simple

An estate in which the owner is entitled to the entire property, with unconditional power of disposition during the owner's life, and which descends to the heirs upon the owner's death if the owner dies without a will.

FHA

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.

Fixture

Personal property that by state law becomes real property upon being attached to real estate.

Foreclosure

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

G

General warranty deed

A deed containing a covenant whereby the seller agrees to protect the buyer against being dispossessed because of any adverse claim against the land.

Governments Loans

A government loan is one that is insured by the federal government through agencies such as Federal Housing Administration (FHA) or Veterans Administration (VA).

GNMA (Ginnie Mae)

Government National Mortgage Association , a government corporation which provides a secondary market for housing mortgages and special assistance to mortgagee financing housing under special FHA mortgage insurance programs.

Graduated payment mortgage

A mortgage securing loan in which the initial monthly payments on the loan are insufficient to satisfy interest payments at the stated interest rate, and unpaid amounts of interest are added to the principal balance.

Grantee

In a deed , the person to whom the land is transferred.

Grantor

In a deed, the person who transfers the land.

H

Homeowners Insurance

Insurance that protects the homeowner from "casualty" (losses or damage to the home or personal property) and from "liability" (damagest to other people or property). Required by the lender and usually included in the monthly mortgage payment.

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 remedies of creditors.

HUD

The Department of Housing and Urban Development. It is responsible for the implementation and administration of U.S government housing and urban development programs.

I

Index

A known value used to determine the interest rate for an ARM. A margin is added to the index to determine the interest rate that will be charged on the ARM.

Insurable title

A land title which a title insurance company is willing to insure.

Interstate

Without having made a valid will or one who dies without having made a will.

J

Joint tenants

Persons who are co-owners of interests in the same land. At common law and in some states today, upon the death of a joint tenant, interest automatically passes to the surviving joint tenant(s). This survivorship feature, when it exists, is the principal distinction between a joint tenancy and a tenancy in common.

Judgment

The formal expression and evidence of the decision of a court in a specific lawsuit. Where the judgment decrees that one party (the judgment debtor) pay another party (the judgment creditor) a certain sum of money, the recording of that judgment creates a lien upon all land of the judgment debtor in that jurisdiction.

Junior mortgage

A mortgage, the lien of which is subordinate to that of another mortgage.

Jumbo Loan

A loan that exceeds the limits established by Fannie Mae and Freddie Mac.

K

L

Leasehold

The right to possession and use of land for a fixed period of time. The lease is the agreement which creates the right. The person who has the leasehold is the tenant or lessee. The person who grants the leasehold is the lessor or landlord.

Legal description

A property description which by law is sufficient to locate and identify the parcel of real property.

Lien

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

Life estate

An individual's right to the use and occupancy of real property for life.

Loan Origination Fee

A fee charged by the lender for evaluating, preparing and submitting a proposed mortgage loan. Ask your lender about their costs.

Loan to Value (LTV)

The relationship between the principal balance on the mortgage and appraised value of the property. The lesser of purchase price and appraisal determines this value.

M

Margin

A premium (typically between 2% and 3%) that is added to an ARM's index to establish the loans actual interest rate.

Market Rate

An estimate of the average rate being charged by lenders for conventional, fixed-rate loans.

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 transfers 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 who provides the money for the mortgage and to whom the mortgage is given.

Mortgage Insurance Premium (MIP)

A charge paid by the borrower (usually as part of the closing costs) to obtain financing, especially when making a down payment of less than 20% of the purchase price, for example on an FHA-insured loan.

Mortgagor

The person who borrows the money from the mortgagee, and who signs the mortgage as security.

N

Negative amortization

Occurs where monthly installment payments are insufficient to pay the interest accruing on the principal balance, so the unpaid interest must be added to the principal due.

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.

O

Open-end mortgage

A mortgage or deed of trust written so as to secure and permit advancing of funds in addition to the amount originally loaned.

Owner's policy

A title insurance policy insuring the owner against loss due to any defect of title not excepted to or excluded from the policy.

P

PITI

An acronym for the principle interest, taxes and insurance (home and mortgage), the four components that comprise a monthly mortgage payment.

Plat (of survey)

A map of land made by a surveyor showing boundary lines, building, and other improvements on the land.

Point

An amount equal to 1% of the principal amount being borrowed. The lender may charge the borrower several "points" in order to provide the loan.

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 in the instrument.

Prepayment Penalties

Fees charged to a borrower who pays off his or her loan balance before it is due.

Private Mortgage Insurance

On conventional financing, including adjustable rate financing, lenders require that the borrower purchase private mortgage insurance against default on loans with down payments of less than 20 percent. Usually 1/4 to 1/2 of a percent of the loan amount, the private mortgage premium is added onto the monthly payment.

Property Taxes

Taxes (based on the assessed value of the home) paid by the homeowner for community services such as schools, public works and other costs of local government. Paid as a part of the monthly mortgage payment.

Public records

Records which by law impart constructive notice of matter relating to land.

Q

Qualifying

A buyer must qualify for a loan. Usually the monthly payment cannot be more than 28 percent of the buyer's gross monthly income, and all of the buyer's monthly debt cannot total more than 33 to 36 percent of his or her monthly income. Sometimes a lender will allow a few percent leeway if the buyer has a good, clean credit history.

Quitclaim

A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land.

R

Radon

Radon is a colorless, odorless, tasteless radioactive gas that's formed during the natural breakdown of uranium in soil, rock, and water. It exits the ground and can seep into your home through cracks and holes in the foundation. It can also enter your home in well water.

Redemption

The right of the owner in some states to reclaim title to property if the owner pays the debt to the mortgagee within a stipulated time after foreclosure.

Restrictive Covenants

Restrictive covenants are deed restrictions that apply to a group of homes or lots in a specific development or 'subdivision.' They are normally drafted and put in place by the original developer, and are different for every area of homes.

Reverse Mortgage

A special type of home equity loan for persons 62 and older. Reverse mortgages allow owners to convert some of the equity in their homes to cash. The loan does not usually have to be repaid during the homeowner's lifetime. Loan advances are not taxable and do not affect the homeowner's Social Security or Medicare benefits.

S

Settlement

See Closing.

Special warranty deed

A deed containing a covenant whereby the seller agrees to protect the buyer against being dispossessed because of any adverse claims to the land by the seller, or anyone claiming through the seller.

Subdivision

A tract of land surveyed and divided into lots of purposes of sale.

T

Title

The sum of all the facts on which ownership is founded or by which ownership is proved.

Title Insurance

Protects lenders and homeowners against loss of their interest in property due to legal defects in the title.

Title Search

A title search is a close examination of all public records that involve title to a specific property. The search is conducted to verify that there are no liens or other claims against the property (other than those scheduled to be erased at closing if done for a purchase).

Truth-In-Lending

Federal law requires lenders to fully disclose, in writing, all cost and terms associated with a mortgage, including the Annual Percentage Rate (APR) and other charges.

U

Underwriting

Process of reviewing a loan application to verify all information and evaluate the borrower's credit history to determine if the borrower qualifies for the loan for which they applied.

V

VA loan

A loan for purchase of land in which the Veteran's Administration guarantees the lender payment of a home mortgage by a qualified veteran.

Variable rate mortgage

A long-term loan having an interest rate which fluctuates with a reference index and generally reflects the current market rate of interest.

W

Warranty deed

A deed in which the grantor warrants or guarantees that good title is being conveyed.