Ron Denhaan, Realtor. Real Estate Glossary

Real Estate Glossary

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Acknowledgment: A formal declaration made before an authorized official (usually a notary public), by the person who has executed (signed) a document, that such execution is his/her own act and deed. In most instances documents must be acknowledged (notarized before it can be accepted for recording).

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages).

Adjustable Period: The length of time between interest rate changes on an ARM. For example, a loan with adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.

Affidavit: A sworn statement in writing, made before an authorized official.

A.L.T.A.: Abbreviation for the American Land Title Association.

Amortization: Repayment of a loan in equal installments of principle and interest, rather than interest-only payments.

Annual Percentage Rate (APR): The total finance charges (interest, loan fees, points) expressed as a percentage of the loan amount.

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 under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.

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 acknowledgment of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

CC&R's - Covenants, Conditions and Restrictions: A document that controls the use, requirement and restrictions of a property.

Certificate of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Conventional Loan: A mortgage loan which is not insured or guaranteed by a governmental agency.

Closing Statement: The financial disclosure statement that accounts for all of the funds received and accepted at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

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 boundaries.

Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

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 arrangements.

CRB - Certified Residential Broker: To be certified, a broker must be a member of the National Association of Realtors, have five years experience as a licensed broker and have completed five required Residential Division courses.

Deed: Written instrument by which the ownership of land is transferred from one person to another.

Deed of Trust: Written instrument by which title to land is transferred to a trustee as security for a debt or other obligation. Also called Trust Deed. Used in place of mortgages in many states.

Deposit Receipt: Used when accepting "Earnest Money" to bind an offer for property by a prospective purchaser, also includes terms of a contract.

Due-On-Sale Clause: An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the purchaser with written offer as evidence of good faith.

Easement: A right or power of the government to take property for a public purpose upon payment of just compensation.

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.

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 (HUD).

Federal National Mortgage Association (FNMA): 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 and guaranteed by the 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.

Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

Graduated Payment Mortgage: A residential mortgage with monthly payments that starts at a low level and increases at the predetermined rate.

Grant: A transfer of real property.

Grantee: The person to whom a grant is made.

Grantor: The person who makes a grant.

GRI: Graduate Realtors Institute. A professional designation granted to a member of the National Association of Realtors who has successfully completed three courses covering Law, Finance and Principles of Real Estate.

Home Inspection Report: A qualified inspector's report on a property's overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Home Warranty Plan: Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.

Impound Account: Funds retained by a lender to cover such items as taxes and hazard insurance premiums.

Index: A measure of interest rate, changes used to determine changes in an ARM's interest rate of the term of the loan.

Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the descendant's interest in the property.

Lien: A legal hold or claim on property as security for a debt or charge.

Loan Commitment: A written promise to make a loan for a specified amount of specified terms.

Loan-To-Value Ratio: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Mortgage Banker: A company or individual engaged in the business or 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 Life Insurance: A type of term life insurance often bought by mortgagee. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.

Negative Amortization: Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn't covered is added to the unpaid balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren't high enough to cover the interest.

Origination Fee: A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to 2 percent for FHA and VA loans.

Personal Property: Movable property; all property which is not real property. Property consisting of chattels as contracted to real estate; e.g. furniture, car, clothing.

PITI: Principal, interest, taxes and insurance.

Planned Unit Development (PUD): A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial.

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 (PRE): A fee charged to a mortgagor who pays a loan before it is due. Not allowed for FHA or VA loans.

Premium: The amount payable for an insurance policy.

Principal:
1. A sum of money owed as a debt on which interest is payable.
2. The person who empowers another to act as his representative or realtor.
3. The person having prime responsibility for an obligation as distinguished from one who acts as a surety or endorser.

Private Mortgage Insurance (PM[): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.

Real Estate: Also called "real property".
1. Land and anything permanently affixed to the land; such as buildings, fences and those things attached to the buildings; such as light fixtures, plumbing and heating fixtures, or other such items that would be personal property if not attached.
2. May refer to the rights in real property as well as property itself.

Real Property: Land and buildings as opposed to personal 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.

Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

Sale Agreement: A contract entered into between a buyer and seller, setting forth the terms, provisions and conditions.

Subordination: The act or process by which a person's rights are ranked below the rights of others.

Tenancy in Common: A type of joint ownership of property by two or more persons with no right of survivorship.

Tide: Evidence of a person's right or the extent of his interest in property.

Title Convenants: Covenants ordinarily inserted in conveyances and in transfers of title to real estate for the purpose of giving protection to the purchaser against possible insufficiency of the title received. A group of such covenants known as "common law covenants" includes: covenants against encumbrances; covenants for further assurance; covenants of good right and authority to convey; covenants of quiet enjoyment; covenants of seisin; covenants of warranty.

Title Insurance Policy: A policy that protects the purchaser, mortgages or other party against losses.

Underwriter: An insurance company that issues insurance policies to the public or to another insurer.

Variable Interest Rate: Also called "flexible interest rate." An interest rate that fluctuates as the prevailing rate moves up or down. In mortgages, there are usually maximums as to the frequency and amount of fluctuation.

VA Loan: A loan that is partially guaranteed by the Veterans Administration and 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 benefit programs is the home loan guarantee program. This is designed for lenders to offer long term low down payment financing to eligible veterans by guaranteeing the lender against loss on these higher risk loans.

Waiver: The voluntary and intentional relinquishment of a known right, claim or privilege.