Knowledge > Real Estate Glossary (A-L)

A B C D E F G H I J L   M-Z

Acceptance - A buyer's or seller's agreement to enter into a contract and be bound by the terms of the offer.

Additional Principal Payment - A payment made by a borrower of more than the scheduled principal amount due, in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Adjustable Rate Mortgage (ARM) - stands for Adjustable Rate Mortgage, also referred to as a Variable Rate Mortgage. They both mean the same thing. An ARM is a mortgage with an interest rate that adjusts periodically to reflect changes in market conditions. Your mortgage payments are adjusted up or down (usually on an annual basis) as the interest rate changes. To protect you in a rising interest market, rate increases are limited (usually 2 percentage points annually; 6 percentage points over the life of the loan).

Amenity - A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction, although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views, etc. Man-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

Amortization - The gradual repayment of a home loan by periodic installments.

Amortization Schedule - A timetable for payment of a home loan. An amortization schedule shows the amount of each payment applied to interest and principal and the remaining balance after each payment is made.

Amortization Term (period) - The amount of time it takes to pay off the loan. The amortization term is expressed as a number of months. For example, for a 30 year fixed rate loan, the amortization term is 360 months.

Amortize - To repay a loan with regular payments that cover both principal and interest.

Annual Percentage Rate (APR) - stands for Annual Percentage Rate. This refers to the interest rate that reflects the actual cost of a mortgage as a yearly rate. Because APR includes points and other costs associated with the mortgage, it's usually higher than the advertised simple interest rate. The APR more accurately reflects what you'll be paying and allows you to compare different mortgages based on actual costs.

Application (or 1003) - A form to be completed by a home loan applicant with the lender's assistance to provide pertinent information about a prospective borrower's employment, income, assets, debts and other financial information, about the purpose of the home loan, and about the property securing the home loan. Lenders also sometimes call it a 1003-the form number of Fannie Mae's standard application form.

Application Fee - A fee usually paid at the time an application is given to a lender for helping to complete and review an application. Some lenders collect fees for a property appraisal and a credit report, instead of an application fee, at the time of application.

Appraisal - An estimate of the value of a home, made by a professional appraiser. The maximum amount of the mortgage is usually based on the appraisal.

Appraised Value - The dollar figure for a property's estimated fair market value, based on an appraiser's knowledge, experience, and analysis of the property and comparable properties near by.

Appraiser - A person qualified by education, training, and experience to estimate the value of real property.

Appreciation - An increase in the value of a property due to changes in market conditions or other causes. Inflation, increased demand, home improvement, and sweat equity are all causes of appreciation. The opposite of depreciation.

Assessed Value - The value used to determine property taxes, based on a public tax assessor's opinion. Contrast with appraised value.

Assessment - The amount of tax due to local government. May also refer to the amount due to local government or to common owners of a property (e.g., a homeowner's association) for a special payment to cover expenses for improvements or maintenance, such as new sewers or roads.

Assessment Rolls - A public record of the assessed value of property in the taxing jurisdiction.

Assessor - A public official who establishes the value of a property for taxation purposes.

Asset - Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assumable Loan - A home loan that allows a new purchaser of the home to take over ("assume") the loan obligations of the seller when a home is sold.

Assumption Clause - A provision in an assumable loan that allows a buyer to assume responsibility for the home loan from the seller. The loan does not need to be paid in full by the original borrower (seller) upon sale or transfer of the property.

Assumption Fee - The fee paid to a lender (usually by the buyer) for the lender's agreement to start collecting payment from the buyer instead of the original borrower (seller).

B

Balance Sheet - A financial statement that shows an individual's assets, liabilities, and net worth as of a specific date.

Balloon Loan - A loan that has level monthly payments that will amortize it over a stated term (e.g., 30 years) but that requires a lump sum payment of the entire principal balance at the end of a shorter term (e.g., 10 years).

Balloon Payment - The final lump sum payment that is made at the end of the shorter term for a balloon loan and pays the loan in full.

Bankrupt - A person, firm, or corporation that is financially unable to pay debts when due. The debtor seeks relief through a court proceeding to work out a payment schedule or erase debts. In some cases, the debtor must surrender control of all assets to a court-appointed trustee.

Bankruptcy - A proceeding in a federal court in which a debtor who is financially unable to pay debts when due seeks relief to work out a payment schedule or erase debts.

Bill Of Sale - A written document that transfers title to personal property from seller to buyer.

Biweekly Payment Loan - A loan that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30 year fixed rate loan, and they are usually drafted from the borrower's bank account. The result for the borrower is faster amortization leading to substantial interest savings from faster principal
reduction.

Bond - An interest-bearing certificate of debt with a maturity date. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Breach - A violation of terms of any legal obligation.

Break Even Point - Point at which total income equals total expenses.

Bridge Loan - A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower's present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as a "swing loan."

Broker - A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction or negotiating the terms of a home loan. See mortgage broker.

Budget - A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Building Code - Local regulations that specify minimum structural requirements for design of, construction of, and materials used in a home or office building. Building codes are based on safety and health standards.

Buydown Account - An account in which funds are held so that they can be applied as part of the monthly loan payment as each payment comes due during the period that an interest rate buydown plan is in effect. For example, if a seller agrees to help reduce a buyer's monthly payment during the first year of a loan, the seller may put money in a buydown account which is then paid to the lender each month to reduce the buyer's monthly payment. This is more commonly done through a buydown paid directly to the lender at closing.

Buydown - A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.

C

Call Option - A provision in a loan that gives the lender the right to accelerate the debt, and require for full payment of the loan immediately, at the end of a specified period or for specified reason.

Cap - A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.

Capital - (1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

Capital Expenditure - The cost of an improvement made to extend the useful life of a property or to add to its value, such as adding a room. The cost of repairing a property is not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.

Capital Improvement - Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. See Capital Expenditure.

Cash Available For Closing - Borrower funds available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from certain sources, borrower's cash available for closing does not include cash reserves or money from other sources.

Cash Flow Basis - This calculation shows when your monthly payment savings exceed your estimated closing costs and discount points. It does not consider the tax impact or differences in principal balance reduction between your current loan and the refinance suggestions. You can use the Amortization Schedule Calculator to compare principal reduction.

Cash For Transaction - Enter the amount your want to use toward closing costs (discount points and fees) and/or to reduce your loan balance. In situations where your loan balance is above the conforming amount, reducing the principal may allow you to get a lower rate. Enter zero if you want a no-point loan and/or to finance the closing fees.

Cash-Out Refinance - A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement, or any other purpose. The borrower effectively borrows against the home equity.

Ceiling - The maximum interest rate that can accrue on a variable rate loan or adjustable rate mortgage (ARM).
See lifetime rate cap.

Certificate Of Eligibility - A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) loan.

Certificate Of Reasonable Value (CRV) - A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan, based on an approved appraisal.

Certificate Of Title - A statement provided by an abstract company, title company, or attorney stating who holds title to real estate based on the public record.

Chain Of Title - The history of all of the documents affecting title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Clear Title - A title that is marketable and is free of liens or disputed legal questions as to ownership of the property.

Closing - The conclusion or consummation of a transaction. In real estate, closing includes the delivery of a deed, the signing of notes and security instruments, and the disbursement of funds necessary to the sale or loan transaction.
Also referred to as settlement.

Closing Cost Item - A fee or amount that a home buyer must pay at closing for a particular service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 settlement statement.

Closing Costs - Various expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include items such as broker's commissions, discount points, origination fees, attorney's fees, taxes, title insurance premiums, escrow agent fees, and charges for obtaining appraisals, inspections and surveys. Closing costs will vary according to the area of the country. Lenders or real estate professionals often provide estimates of closing costs to prospective home buyers even before the HUD-1 settlement statement is delivered.

Closing Statement - An accounting of funds given to both buyer and seller before real estate is sold. See HUD-1 settlement statement.

Cloud On Title - An outstanding claim or lien, revealed by a title search, that adversely affects the owner's title to real estate. Usually, clouds on title cannot be removed except by a quit claim deed, release, or court action.

Coinsurance - A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

Coinsurance Clause - A provision in a hazard insurance policy stating the minimum amount of coverage that must be maintained - as a percentage of the total value of the property - in order for the insured to collect the full amount of a loss.

Combined Loan To Value (CLTV) - The ratio of the total amount borrowed on all mortgages against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage and a $10,000 2nd mortgage on a home with an appraised value of $100,000, the CLTV is 90% ($80,000+$10,000 = $90,000 / $100,000 = 90%).

Commission - The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan (such as 3%, 5%, or 6%).

Commitment Letter - A formal notification from a lender stating that the borrower's loan has been conditionally approved and specifying the terms under which lender agrees make the loan. Also known as a "loan commitment."

Common Area Assessments - Payments required of individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

Common Areas - Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Community Property - In some Western and Southwestern states, the law specifies that property acquired during a marriage is presumed to be owned jointly by the husband and wife unless acquired as separate property of one spouse or the other.

Community Seconds? - An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all). Part or all of the second mortgage debt may be forgiven depending on how long the buyer remains in the home.

Comparables (comps) - An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Compound Interest - Interest paid on the principal balance and on the accrued and unpaid interest.

Condemnation - (1) Declaration that a building is unfit for use or is dangerous and must be destroyed; (2) taking of private property for a public use (such as a park, street or school) through an exercise of the right of eminent domain.

Condominium - A real estate project in which each unit owner has title to a unit in a multi-unit building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Condominium Conversion - Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium Hotel (condotel) - A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

Conforming Loan - A home loan with a maximum loan amount of $252,700 that is eligible for purchase by FNMA and FHLMC.

Construction loan - A short-term, interim loan for financing the cost of home construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer Reporting Agency (or bureau) - An organization that prepares reports that lenders use to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from creditors such as mortgage lenders, credit card companies, department stores, etc.

Contingency - A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contract - An oral or written agreement to do or not do something.

Conventional Loan - A home loan that is not insured or guaranteed by the federal government. Contrast with government loan. Can be for conforming or non-conforming loan amounts.

Convertibility Clause - A provision in some adjustable rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed rate loan at specified times during the life of the loan.

Convertible ARM - An adjustable rate mortgage (ARM) that can be converted to a fixed rate loan under specified conditions.

Cooperative (co-op) - A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Corporate Relocation - Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Co-Signer - A person who signs a promissory note along with the borrower. A co-maker's signature helps to assure that the loan will be repaid. The borrower and the co-maker are jointly responsible
for the repayment of the loan.

Cost Of Funds Index (COFI) - An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See adjustable-rate mortgage (ARM).

Covenant - A promise in a mortgage or deed that requires or prevents certain uses of the property that, if violated, may result in loss or foreclosure of the property.

Credit - An agreement in which a borrower receives money or something of value in exchange for a promise to repay the lender on specified terms at a later time.

Credit History - An evaluation of an individual's capacity and history of debt repayment. A credit history helps a lender to determine whether a potential borrower is likely to repay a loan in a timely manner.

Credit Life Insurance - A type of insurance that pays off a loan if one of the borrowers dies while the policy is in force.

Credit Limit - The maximum amount that can be borrowed under the home equity line of credit.

Creditor - A person to whom money is owed.

Credit Rating - An expression of creditworthiness based upon present financial condition and past credit history.

Credit Report - A detailed account of the credit, employment and residence history of an individual used by a prospective lender to help determine creditworthiness. Credit reports also list any judgments, tax liens, bankruptcies or similar matters of public record entered against the individual.

Credit Repository (credit bureau) - An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Credit Scoring - Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available, and other factors. According to Fannie Mae--one of the major investors in home loans, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan.

Cumulative Interest - Total interest accrued.

Current PITI - This is an abbreviation for a monthly payment that includes principal, interest, taxes and insurance. In mortgage lending it is common for the monthly mortgage payment to include not only the principal and interest payment on the loan, but an escrow amount for real estate taxes and hazard insurance as well.

Curtailment - A payment that reduces the principal balance of a loan.