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Abstract or Abstract of Title

A summary of the history of a given piece of land- including who owned it in the past. The title company reviews the abstract of title to determine if there are any defects that have to be cleared before it can be sold with a clear and insurable title.

Acceleration Clause

The clause allows the lender to demand payment in full of any unpaid balance of a loan. This occurs if the borrower has breached the contract in some way or hasn’t made the regular mortgage payments.


The time at which an offer to purchase is accepted. The fact that it was accepted must be relayed to the person that made an offer in order for all parties to be bound to the contract.

Additional Principle Payment

A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Ad Valorem Tax

Charged by local government, this tax is based on the value of the property, as determined by the local government authorities.

Adjustable Rate Mortgage (ARM)

A mortgage whose interest rate over the life of the loan is not necessarily the same as the original interest rate at the loan inception. Rate changes may go up or down and are usually tied to an economic indicator and a time period. The person getting the mortgage should check to see if these fluctuations have a cap, and make sure they are comfortable with whatever that cap is. Some ARMS are convertible to a fixed interest rate after a period of time.

Adjusted Basis

The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

Adjustment Date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period

The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).


A person appointed by a probate court to administer the estate of a person who died intestate.

Affordability Analysis

A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.


A person authorized to act on another’s behalf. In real estate, this agent may be a listing agent representing the seller, a selling agent representing the buyer, or a dual agent which means the agent or company may represent both the seller and the buyer. There is a fourth option, a transaction agent (or broker) that represents neither party but helps the transaction to be completed. A real estate agent must be licensed under the laws of their state. An agent must place their license under the direction of a real estate broker. To become a broker, one must take the same courses that a salesperson does, but also complete addition training and meet experience requirements which differ from state to state.

Agreement of Sale

The purchase agreement is a contract in which a seller agrees to sell and the buyer agrees to buy a given property. An agreement of sale contract contains very specific terms and conditions that are spelled out in writing and signed by both parties.


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 of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.


The repayment of a loan over time. With each payment, there is a the reduction of both principal (the original amount borrowed), plus the interest.

Amortization Schedule

This table shows each payment amount for the mortgage, how much of each payment is applied to the principal, how much is applied to the interest, and how much remains to be paid. The table shows each payment until there is a zero balance and the loan is paid in full.

Amortization Term

The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.


To repay a mortgage with regular payments that cover both principal and interest.

Annual Mortgagor Statement

A report sent to the mortgagor each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

Annual Percentage Rate (APR) – Required by the Federal Truth-in-Lending-Act, this details the amount of money financed. The APR is the true cost of borrowing money, which includes the total finance charges added to the principal amount.


An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.


A form used to apply for a mortgage loan and to record pertinent informa...


A professional determination of value. Mortgage companies usually require an appraisal of the property by a licensed, disinterested party before agreeing to loan money on the property. Methods of determining value may be based on many things, such as comparable sales in the area, the cost approach, the income approach, or the highest and best use of the property.

Appraised Value

The worth of the property as determined by a professional appraiser.


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


The opposite of depreciation. When the value of a property rises, based on economics and market conditions of the area, it appreciates.


Not to be confused with property tax, which relies on the value of the land, assessments are costs that are charged for public improvements that benefit the land. In the case of a home sale, any pending assessments must be addressed in the purchase agreement at the time of closing.

Assessment Rolls

The public record of taxable property.


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


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).


The transfer of a mortgage from one person to another.

As Is Condition

Disclaiming any warranties or representations regarding the condition of a property.

Asking/Listing Price

The price a seller is asking in order to sell their property. The price that a buyer offers to purchase the property and the final contract price may be less than, equal to, or even more than the asking/listing price.

Assessed Value

The value used by the governing authority (i.e. either the local government or the condominium association) by which to levy a tax or fee on the property owner.


The person responsible if the rights and responsibilities for a property are transferred to a new person.

Assumable Mortgage

The buyer takes over and assumes the existing mortgage on the property on the same terms as the original person that took out the mortgage. This would mean the new buyer does not have to obtain a new loan. In years past, the new buyer could take over the loan without having to qualify, but mortgage requirements are now more stringent.


The transfer of the seller’s existing mortgage to the buyer. See assumable mortgage.

Assumption Clause

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

Assumption Fee

The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Assumption of mortgage

The act of taking over and accepting legal responsibility for the terms of an existing mortgage. They are said to have assumed the loan. The lender has to agree to an assumption of mortgage. If approved, the original loan holder is released from any liability should there be any foreclosure.


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

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Balance Sheet

A financial statement that shows assets, liabilities, and net worth as of a specific date.

Back-Up Contract

A contract or offer that is in a secondary position to an already existing contract. This contract shall be elevated to the first position if some condition in the first contract is not met. If the first position contract is consummated, then the second contract is no longer in effect.


A mortgage where there are payments over a period of time but the final payment is a lump sum which is quite large, compared to the previous payments.

Balloon Mortgage

A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Balloon Payment

The final lump sum payment that is made at the maturity date of a balloon mortgage.


A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.


A condition whereby the courts determine that a person’s indebtedness greatly exceeds their assets and payment of these debts is determined by the courts.

Before-Tax Income

Income before taxes are deducted.


The person designated to receive the income from a trust, estate, or a deed of trust.


To transfer personal property through a will.


An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

Bill of Sale

A document that serves as written proof for the transfer of title. Real estate is transferred by a deed. Personal property is transferred by a Bill of Sale. Mortgage companies will not make loans on personal property, and a Bill of Sale may be included with a real estate contract to outline what personal property is being transferred to the new owner.


A preliminary agreement, often accompanied by an earnest money deposit, that shows good faith on behalf of the buyer.

Biweekly Payment Mortgage

A mortgage 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 mortgage, and they are usually drafted from the borrower’s bank account. The result for the borrower is a substantial savings in interest.

Blanket Insurance Policy

A single policy that covers more than one piece of property (or more than one person).

Blanket Mortgage

The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Bona Fide

In good faith, without fraud.


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


A violation of any legal obligation.

Bridge Loan,(AKA aSwing Loan)

A short term loan used to transition in between the paying off of an old loan, and the inception of permanent financing. This is often used to build or purchase a new home, when the previous home is still owned, but is up for sale. Once the previous home is sold, and the owner receives the proceeds from that sale, permanent financing is usually obtained.

Bridging Finance

A short term loan, usually taken out by buyers who are waiting for their own home to sell, or when a normal mortgage is not enough to cover the asking price or down payment.

Broker (i.e. real estate broker)

A person duly licensed under the laws of their state to act as an agent for another, and negotiate the purchase, sale and lease of real property. A broker has full authority to run a real estate company, whereas a real estate agent must have their license held under the auspices of a broker.


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.

Budget Category

A category of income or expense data that you can use in a budget. You can also define your own budget categories and add them to some or all of the budgets you create. “Rent” is an example of an expense category. “Salary” is a typical income category.

Building Code

Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Building Line (AKA Setback)

Legal restrictions, usually set by deeds, leases, building codes or zoning ordinances, that limit where construction can extend beyond the ends or sides of a lot. Building lines and setbacks prevent property owners from creating crowded conditions. They establish boundaries and put limitations on the what the owner can do with a property. Because of this, setbacks can affect the value of the land.

Buy down Account

An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buy down plan is in effect.

Buy down Mortgage

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


A person who purchases real estate

Buyer’s Agent / Buyer’s Broker

A real estate agent, broker, or salesperson, who represents a buyer’s best interests. The commission paid to this buyer’s agent may come from either the seller or the buyer.

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Call Option

A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.


A maximum allowable. For example, many adjustable rate mortgages have a maximum amount that the interest rate may increase over a certain time period.


(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.

Capital Improvement

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

Cash-Out Refinance

A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Caveat Emptor

Latin for “let the buyer beware.” This puts the burden onto the buyer to make certain that they are fully satisfied with the item before purchasing it.

Certificate of Deposit

A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

Certificate of Deposit Index

An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. See “adjustable rate mortgage”

Certificate of Eligibility

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Title

A statement verifying who has the rights and responsibilities of ownership in a property. This may be ascertained by a public record search but does not guarantee that any other parties may not stake a claim to the property. Title insurance protects against claims that may arise against the title.

Certificate of Occupancy

A document which must be obtained from the local government which states that the new construction has been inspected and is built in accordance with regulations. The property is therefore ready to be occupied.

Chain of Title

The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Frequency

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).


The term chattels refers to personal property. There are two kinds: real chattels are buildings and fixtures; personal chattels are items such as clothing, furniture.

Clear Title

Ownership that is free of liens, defects and encumbrances, beyond those which the owner agrees to accept.


The transaction where title passes from seller to buyer and the seller is paid. A settlement statement shows all costs incurred and gained by both parties.

Closing Cost Item

A fee or amount that a home buyer must pay at closing for a single 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 statement.

Closing Costs

The expenses incurred in obtaining the property and transferring title to the new owner. This may include, but is not limited toattorney’s fees,points, title charges, credit report fee, document preparation fee, mortgage insurance premium, inspections, survey, appraisals, prepayments for property taxes, deed recording fee, and home-owners insurance.

Closing Day

The day on which the legal formalities of a real estate sale are concluded. Generally, the certificate of title, deed and abstract, are prepared for closing by the title company. The cost is then charged to the buyer (unless negotiated to be paid by the seller in the contract) and all contracts are signed. All funds are disbursed and the property legally changes hands.

Closing Statement

Also known as “HUD-1 Statement”


Also known as “comparative market analysis”

Cloud (On Title)

The term cloud on a title means that there is already an outstanding claim or encumbrance which adversely affects the marketability of title.


Community Land Trust Mortgage Option (CLT) is an alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.


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 that states the amount of coverage that must be maintained — as a percentage of the total value of the property — for the insured to collect the full amount of a loss.


An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.


The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.


A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.


Traditional real estate agents charge a commission for listing a property on the MLS (Multiple Listing Service) and for brokering the sale. The commission is usually 6% to 7% of the sales price. This amount is then split between the buyer’s and seller’s agent.

Code of Ethics

Set forth by the National Association of Realtors, these are written professional standards that all members are expected to uphold.

Commitment Letter (AKAloan commitment)

A written offer by a lender to make a loan by a particular date under certain conditions. A buyer has more clout with a seller if he submits a letter of loan commitment from his lender to the seller at the same time that he submits his offer to purchase to the seller than a buyer who has not even applied for the loan yet.

Common Areas

The space that is shared among all property owners. In a condominium that may be the building corridors, elevators, parking areas, recreational facilities, etc. and in a planned unit development an example of this might be swimming pools or tennis courts.

Community Property

In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

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 of the debt may be forgiven incrementally for each year the buyer remains in the home.


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.

Comparative Market Analysis

Comparative Market Analysis (CMA) is an estimate of a home’s current market value based on the sale prices of other, comparable homes in a given radius. An accurate CMA can be extremely helpful in setting a realistic market value.

Compound Interest

Interest paid on the original principal balance and on the accrued and unpaid interest.


When a government entity takes legal possession of private property (under the power of eminent domain), against the will of the owner, it is known as condemnation. The term is also used when a government agency determines that a particular building is unfit and therefore unsafe for use.


Real estate ownership where several owners hold title to different individual units, or parts, of the building and have a shared interest in the common areas.

Conforming Loan

A mortgage loan that meets underwriting guidelines for Fannie Mae and Freddie Mac

Construction Loan

A short term loan made to a builder for the purpose of constructing the building. After completion, permanent financing is normally secured.


A condition that must be met before a contract is legally binding, or before a sale is to be completed. The contingency provides an out or an escape from performing if the condition is not met.


An oral or written agreement to do or not to do a certain thing.

Contract for Deed

A contract for a deed means that a buyer is allowed to take possession of a property even though the seller maintains the legal title to the property until the balance is paid off. In such cases, the buyer makes regular monthly payments as agreed upon by the terms of the contract.

Contract of Purchase

The purchase agreement is a contract in which a seller agrees to sell and the buyer agrees to buy a given property. An agreement of sale contract contains very specific terms and conditions that are spelled out in writing and signed by both parties.


A contractor is someone who either builds or alters buildings, or portions thereof. In the construction industry, there are normally contractors for each phase of construction such as: pouring the foundation, heating, cooling, plumbing, electrical, roofing and road building.

Conventional loan or conventional mortgage

A real estate loan, which is not insured by the government agency FHA nor guaranteed by the Veterans Administration. Typically, subject to the terms of their particular institution, the conditions may be more flexible, as the lender is not required to follow federal guidelines. The lender looks to the credit of the borrower and the security of the property to insure payment of the debt.

Convertibility Clause

A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Convertible ARM

An adjustable-rate mortgage (ARM) that can be changed, or converted into a fixed rate mortgage during a specified period and under certain conditions of the loan.

Cooperative Housing

Cooperative Housing (co-op) is a group of housing units or apartments where the residents are stockholders in the corporation that owns the property. In a cooperative, the association or corporation owns the title to the property. A resident owns stock in the corporation and can occupy the dwelling for as long they continue to own the stock.

Cooperative Corporation

A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

Cooperative Mortgages

Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

Cooperative Project

A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

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.

Cost of Funds Index

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).


The passing or transfer of title from one party to another.

Co-opcooperative(AKA cooperative ownership)

Where several residents hold shares to a cooperative trust or corporation that owns the multi-unit building. Owning the shares of ownership grants the resident the privilege of occupying a specific unit of the property.


If the receiver of an offer makes any changes to the original offer, it is considered a rejection of the initial offer and becomes a counteroffer.
Covenant (also Covenants, Conditions and Restrictions, or Restrictive Covenants)

A clause in a written document, such as a mortgage or a deed, that the owner will abide by certain rules and conditions. These are not uncommon in subdivision and are usually intended to maintain the value and integrity of the property,


An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit History

A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Life Insurance

A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.


A person to whom money is owed.
Credit Rating

Astandard of measure of a person’s credit worthiness.
Credit Report

The official credit history of any individual as complied by a credit bureau. This is used by lenders in determining the size loan a person may, or may not, qualify for.

Credit Report Fee

The amount that the person applying for a loan must pay to their lender in order to have the lender obtain their credit history directly from a credit reporting bureau.

Credit Reporting Agency

Credit Reporting Agency (or Credit Reporting Bureau) is an organization that prepares reports that are used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources. The three main credit bureaus are Equifax, Experian and TransUnion.

Credit Repository

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.

Certificate of Reasonable Value

Certificate of Reasonable Value (CRV) is a document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Centralized Showing Service

Centralized Showing Service (CSS) is a 24/7/365 service that answers agent calls and sets up home showings. (The showings themselves are restricted to daytime hours). When an agent calls, CSS records the name of the agent and verifies their identity as only registered agents can access a home through the CSS. Once verified, CSS shares important information such as key-box combinations, gate access and alarm codes or special instructions. CSS is only for use by agents and not the general public. The CSS phone number should never be used on any flyers, yard signs or advertising materials intended for buyers.

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Days On Market

The total number of days the listing has been active on the market before an offer has been accepted.


An amount owed to another. See installment loan and revolving liability.


The document that sellers and buyers sign when transferring title to real estate. It legally transfers the property from the seller to the buyer, and is then recorded by the closing agency in county records.

Deed of Trust

Some states use a deed of trust to convey property being held as security for a loan. This document is then conveyed to a trustee and can be used to sell, mortgage or subdivide the property.

Failure to make payments when due which can result in foreclosure of the mortgaged property. This includes not only monthly mortgage payments but also taxes or any other promise in the original deed.


Outstanding past-due mortgage or loan payments.


A deposit is a set amount, usually ten percent of the purchase price, given as proof of an intention to buy.


A decline in the value of a home due to changes in the property because of wear and tear or other factors such as age.

Discount Broker

A fully licensed real estate broker who offers their services for a lower commission than traditional real estate agents. Many discount brokers charge a single flat fee rather than a percentage of the sale price.

Document Preparation

A charge by an attorney for preparing legal documents for a real estate transaction.


The rights of a widow in the property of her husband at his death.


The legal transfer of a deed to property by the seller and recorded in the county records.

Deposit (also known as Earnest Money)

A good faith deposit of a sum of money offered by the prospective purchaser at the time of the offer to purchase. These funds are typically deposited into an escrow account and held until the real estate closing takes place. At the closing, the buyer is most often given credit for the earnest money that has already been paid, but it some cases it may be returned to the buyer at closing. These funds may also be returned to the buyer in some cases if the contract on real property doesn’t go through to a final sale.


The decline in real estate value due to physical deterioration or lack of updating an older property.

Discount Points

Investors typically offer an interest rate with no discount points, but can lower that rate if the buyer is willing to pay an upfront fee that will give the investor the same yield. Each discount point is equal to 1% of the loan amount borrowed.

Distress Sale

A distress sale occurs when the sellers must sell the property very quickly and are willing to decrease the price as an incentive to potential purchasers.

Down Payment

The difference, in dollar amount, between the purchase price and the loan amount.

Dual Agent

An agent who represents both the seller and the buyer in a real estate transaction.

Due Diligence

The act of best effort of ensuring that all statements about the real property are true.

Due on Sale Clause

Language in the mortgage closing agreements that inform the borrower that if they allow their loan to be assumed or transferred in any way, the lender has the right to demand the balance in full.

Due-On-Transfer Provision

This terminology is usually used for second mortgages. See due-on-sale provision.

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Earnest Money (also called Deposit)

Funds given by the buyer and held in an escrow account until the real estate closing. In some cases, these funds are refundable if the loan fails to close, but if the loan does close, the purchaser is given credit at closing for the earnest money.


A legal document on certain property giving persons other than the owner the right of way, access and limited use or enjoyment of the land involved. (Example, power companies sometimes need a right of way for power lines.) Closing documents and/or land surveys will describe and show such easements. These easements must be acceptable to the mortgage company before the buyer can consummate a binding closing.

Easement Rights

A right-of-way granted to a person (or company) authorizing them to enter the property to gain access to their own land or to perform a necessary function, such as when a city employee enters the property to read a meter.

Effective Age

An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective Gross Income

Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Eminent Domain

The right of local or state government to purchase private property for public use. Owners receive compensation based on fair market value and sometimes additional funds for the inconvenience of moving. This is legal under the Fifth Amendment of the United States Constitution. Reasons for eminent domain can include schools, roads, parks, hospitals, public safety and other public buildings.

Employer-Assisted Housing

A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.


When one property owner encroaches on the right of another by building onto a neighboring piece of property. For example, installing a fence or a building a structure that is either completely or partially over the boundary line.


A legal right or interest in a property that affects the clear title, and thereby diminishes the land’s value. Encumbrances can take several forms, such as easement rights, claims, mortgages, unpaid taxes, liens, zoning ordinances, charges or other legal actions.


A person who signs ownership interest over to another party. Contrast with co-maker.

Equal Credit Opportunity Act

A 1974 federal law under Title VII of the Consumer Credit Protection Act which requires lenders not to discriminate against consumers based on race, color, religion, national origin, sex or marital status, or receipt of income from public assistance (food stamps, social security). Borrowers are notified at application in writing of agencies that they may contact if they feel they have been discriminatedagainst in any way.


The homeowner’s part of the property value over and above the outstanding balance owed to the mortgage company.

Equity Loan

A real estate loan based on the borrower’s equity (ownership) in the property. The amount that the bank might loan could be determined by the fair market value of the property minus any current mortgages secured by the property, subject to the owner’s other debt commitments and credit history.


A neutral third party holds other people’s funds in a secure account for future use. An earnest money deposit is held in a real estate broker’s escrow account. It is the broker’s account, but he is holding the buyer’s funds in the account for safekeeping until closing. In the case of a mortgage, the total monthly mortgage payment may include funds to pay for future taxes and insurance paid in addition to the principal and interest. This escrow is held by the lender until taxes and insurance are due, at which time the mortgage company pays the taxes and insurance on the borrower’s behalf. After the taxes and insurance are paid, the lender may re-adjust the total monthly payment to insure sufficient funds for future escrowed items.

Escrow Account

The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.

Escrow Analysis

The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow Collections

Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.

Escrow Disbursements

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow Payment

The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as “impounds” or “reserves” in some states.


The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction-Eviction is the process of removing an occupant, either tenant or owner, by law enforcement for failure to perform as promised on a note or lease contract.

Examination of Title

The report on the title of a property from the public records or an abstract of the title.

Exclusive Agency Listing– A written agreement between a property owner and a real estate broker giving the broker the exclusive right to sell the property for a specified period and at a specified fee. Agents whose licenses are held by a broker may sign on their broker’s behalf.


Any item that is specifically excluded from the sale, for instance, a garden shed or children’s’ swing set or above ground pool.


A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.


A written agreement between all parties on a contract allowing an additional specified period of time during which all parties are expected to perform their contractual obligations.

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Fair Credit Reporting Act

A federal law that protects consumers by regulating the consumer credit agencies’ disclosure of individuals’ credit history. This also established guidelines and procedures for correcting errors on your credit report.

Fair Market Value

A median price based on the highest price a willing buyer would be willing to pay and the lowest price a willing seller would be willing to accept in a competitive market.

Fannie Mae

(FNMA) Federal National Mortgage Association. A government agency that is a major mortgage investor.

Fannie Mae-Approved Lender

Fannie Mae-approved lenders can offer the widest range of mortgage products available to meet your needs and can help you find the lowest cost mortgage

Fannie Mae Loan Limit

See “loan limit”.

Fannie Mae Mortgage

Fannie Mae works to reduce down payment requirements and cut closing costs when developing mortgage products so more dreams of homeownership can come true. Fannie Mae provides technology tools for Fannie Mae-approved lenders to use when providing mortgages to home buyers. These tools can help borrowers get their mortgages quicker and cheaper.

Fannie Mae Properties

Fannie Mae owns, manages, and has available for sale, single-family detached homes, two- to four-unit properties, condominiums, and townhouses in a variety of neighborhoods. The number, type, and sales price may vary substantially. The homes vary in age and may require repairs. Fannie Mae homes are sold through local real estate brokers whose contact information is provided in the “Fannie Mae Properties for Sale” search results on homepath.com.

FNMA’s Buyer’s ProgramSM

The Fannie Mae’s Community Home Buyer’s ProgramSM is an income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Fannie 97®

A financing option for a fixed-rate mortgage that offers home buyers a 3 percent down payment loan with a term between 15 and 30 years. The mortgage features a loan-to-value (LTV) percentage of 97 percent, and is designed to expand homeownership opportunities for people with modest incomes. Borrowers must take a pre-purchase home-buyer education session to qualify for a Fannie 97 mortgage.

Fee Simple

The greatest possible interest a person can have in real estate.

Fee Simple Estate

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

Fannie Mae’s Community Home Buying Program

A flexible home purchase program to assist low-to-moderate income families in the purchase of a home by decreasing the amount of down payment and allowing higher debt and housing ratios in some cases. Potential buyers are required to attend a pre-purchase home buying class.

Farm Home 100% loan

Also known as, Rural Development Loan.


An agency of the U.S. Department of Housing and Urban Development (HUD) that was established in 1934 under the National Housing Act to encourage improvement in housing standards, to provide an insurance for mortgages, and to exert a stabilizing influence on the mortgage market as a whole. FHA was the government's response to a lack of quality housing available at the time, excessive foreclosures and a building industry that had collapsed during the Depression.FHA’s main activity is the insuring of residential mortgage loans made by banks and private lenders. The FHA sets standards for construction and underwriting but does not lend money or construct housing.
FHA 203b

The most popular FHA government loan. It typically requires a three percent down payment.

FHA 203k

A renovation and repair loan through the Federal Housing Authority, typically made for single family properties.

FHA Coinsured Mortgage

A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor’s default.

FHA Mortgage

A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
FHA Futures

Down payment assistance for a loan where the buyer can borrow up to 6% of the loan amount to be used towards closing costs and down payment.


A relationship which implies a position of trust or confidence. Among the obligations a fiduciary owes to his principal are duties of loyalty, obedience, full disclosure, the duty to use skill, care and diligence, and the duty to account for all finances.

Finder’s Fee

A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

Firm Commitment

A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage

The first mortgage is the primary loan against a property, and takes precedence over any other mortgage, equity line or other lien.

First Right of Refusal

A legal right by an individual giving that person the first opportunity to purchase or lease real property.

Fixed Installment

The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

Fixed Rate Mortgage

A mortgage with an interest rate and monthly payment that remain the same and cannot change over the life of the loan.


Personal property that becomes real property when attached in a permanent manner to real estate.

Flat Interest Rate

A flat rate interest is also sometimes called “simple” interest. It is an interest rate that is a fixed percentage of the original loan amount that lasts for the entire period of the loan.

Flood Insurance - A special and separate insurance policy that covers property in the flood area against damage by flooding. Although flood insurance may be bought through your local insurance agent, it is issued through the federal government. When purchasing real estate, a survey is typically required where there is any risk of flooding to the property. Flood insurance may be required by the lender in order for the buyer to obtain a loan.

Forbearance-The act of refraining from taking legal action despite the fact that payment of a promissory note in a mortgage or deed of trust is in arrears. It is usually granted only when a borrower makes a satisfactory arrangement by which the arrears will be paid at a future date.


A legal term that indicating that the lender is enforcing their right to the repayment of a debt by taking control of the property.


The loss of money, property, rights, or privileges due to a breach of legal obligation.

For Sale By Owner

A For Sale by Owner (FSBO) occurs when a homeowner decides to avoid paying hefty commissions to a real estate agent and sells their home themselves. Many FSBO’s however, still want to list on the MLS, which only a real estate agent can access and input that information.

Foreclosure - The legal process that begins when a borrower fails to make payments to a lender on a mortgaged property. Should the borrower not be able to correct the default, the property will be sold at public auction to satisfy the debt.


The term freehold means that the land owner has complete and absolute ownership and use of the land indefinitely. This is in contrast to a leasehold property which allows use for only a specified time of 99, 60, 30 years or some other specified period of time- after which someone else can take legal possession of it.

Fully Amortized ARM

An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Federal National Mortgage Association ( FNMA – also known asFannie Mae) A federal agency established in 1938 to purchase mortgage loans from lenders as an investor. FNMA originally bought FHA loans, but now is a conventional, FHA and VA investor. FNMA is now a private company operating with private capital.

Federal Home Loan Mortgage Corporation ( FHLMC - also known as Freddie Mac)A publicly held corporation that buys mortgages and thereby creates a flow of funds to mortgage lenders. FHLMC was chartered by Congress in 1970.

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General Warranty Deed

A deed that conveys not only the seller’s interest and title to the property to the buyer, but also warrants that if the title turns out to be defective (such as tax liens, claims and judgments), the buyer may hold the seller liable.

Government National Mortgage Association (GMNA)

Government National Mortgage Association (GMNA) is a government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae

Government Mortgage

A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with conventional mortgage.


The individual to whom interest in real property is conveyed.


The individual conveying the interest in real property to another person.

Ground Rent

The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.

Group Home

A single-family residential structure designed or adapted for occupancy by unrelated developmentally disabled persons. The structure provides long-term housing and support services that are residential in nature.

Growing-Equity Mortgage

Growing-Equity Mortgage (GEM) is a fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

Guarantee Mortgage

A mortgage that is guaranteed by a third party, often a government agency.

Guaranteed Loan

Also known as a government mortgage.

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Hazard Insurance

An insurance policy selected by the borrower to cover the property against loss due to hazards such as fire, hail, etc. The borrower pays an annual premium for this coverage. In many cases, the lender requires that the borrower pay 1/12 of this annual amount every month, included with the borrower’s monthly payment of principal and interest. These funds are held in reserve on behalf of the borrower in an escrow account.

Home Equity Line of Credit

A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in a property.

Home Inspection

An inspection made by a third party (not the buyer or seller) for a statement of condition on the property, i.e. structural and mechanical conditions. Many contracts to purchase are contingent on the buyer having a home inspection performed within a certain time period prior to closing.

Homeowners’ Association

An association with annual dues collected from residents to insure enforcement of any covenants or restrictions that apply to the properties covered. For example, the Homeowner’s Association could legally cause a homeowner to take care of their yard as required by a legal covenant signed as a part of closing. Homeowner’s Association fees also cover maintaining common areas, and in some cases may be either voluntary or mandatory.

Homeowners Insurance

The same as hazard insurance. It covers the property mortgaged against loss due to fire, hail, theft, etc. The borrower selects the insurance, and pays the annual premiums, often through an escrow account.

Homeowners Warranty

An insurance policy covering specific future repairs, should they become necessary, for a specific time period. These are often provided by the seller or builder as a condition of sale.

HUD - The U.S. Department of Housing and Urban Development.

This is the agency responsible for enforcing the federal Fair Housing Act Among HUD’s many programs are urban renewal, public housing, rehabilitation loans, FHA subsidy programs, and water and sewer grants. The Office of Interstate Land Sales Registration, the Federal Housing Administration (FHA) and the National Mortgage Association (GMNA) are all under HUD.

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Inclusions are removable items that the seller has agreed to be included in the sale. Such items might include: curtains, lights, blinds, ceiling fans, dishwashers, clothes or other items.

Income Property

Real estate developed or improved to produce income.


A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage.

In-File Credit Report

An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.


An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

Initial Interest Rate

The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as “start rate” or “teaser.”


A detailed examination of the property in question for various reasons such as determining if the presence of termites or to see if certain repairs have been completed.


The regular periodic payment that a borrower agrees to make to a lender.

Installment Loan

Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

Insurable Title

A property title that a title insurance company agrees to insure against defects and disputes.


A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insurance Binder

A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Insured Mortgage

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.


What a lender charges to borrow money. The part of the borrower’s monthly payment that goes to the lender after the principal has been applied against the loan balance.

Interest Accrual Rate

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.

Interest Only Loan

A loan on which interest is paid periodically.

Interest Rate

The rate of interest in effect for the monthly payment due.

Interest Rate Buydown Plan

An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage. During the specified period, the mortgagor’s effective interest rate is “bought down” below the actual interest rate.

Interest Rate Ceiling

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.


A list of all the items included in the sale of a property; usually furniture, furnishings and other removable items.


The purchase of an asset such as real estate for the purpose of producing a profit upon the resale of the asset.

Investment Property

A property that is not occupied by the owner as their primary residence but is insteadused to produce income, depreciation for tax benefits or future gains by appreciation.


An IRA (Individual Retirement Account) is a retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

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Joint Tenancy

A legal way for parties to co-own real property with equal rights to the real estate. Should any of the joint tenancy owners die, no interest in the property can be transferred by will as the remaining joint tenant(s) acquires all ownership.


A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.

Judgment Lien

A lien on the property of a debtor resulting from the decree of a court.

Judicial Foreclosure

A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

Jumbo or Non-conforming loan - A loan that exceeds Fannie Mae’s legal legislated mortgage amount which as of June 2006 was $417,000.

Junior Mortgage - A second, third or equity mortgage that is subordinate to an existing lien already on the property.

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A keybox is a type of padlock that contains a cavity inside where a key to the home can be placed. Only a someone with the appropriate mechanical, electronic key or combination can gain access to the keybox in order to remove the key and gain entry into the home. A keybox is an essential item for sellers as it allows authorized agents to show the home to potential buyers in the seller’s absence. Most agents when listing your house will set you up with Centralized Showing which gives agents access to your house.

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The owner or lessor of a leased property.

Land Tax

Taxes levied by a government authority and based on the assessed value of the property.

Late Charge

As established in the original agreement, the penalty that is due when the borrower fails to pay by a certain number of days after the payment due date. There is usually a 15 day grace period on traditional mortgages before late charges are incurred. Rent payments often have a 3 – 5 day grace period.

Lead Based Paint

Prior to 1978 paint that was used in construction often had concentrations of lead. These materials have since been taken off the market as they can be harmful. When selling or leasing a property that was built prior to 1978, the owner should take care to provide the buyer or tenant with a lead based paint disclosure.


A contract between a landlord and a tenant that transfers the right to exclusive possession and use of the landlord’s real property to the tenant for a specified period of time for a stated consideration.

Lease Purchase

A contract between a tenant and an owner by which part of the monthly rent payments may go toward down payment on the property. When pre-determined sufficient funds are received by the seller, the buyer may seek a first mortgage through a typical lender or in some cases with the seller.

Legal Description

The written description of a piece of land giving all pertinent information such as land lot, subdivision name, Block, parcel, acreage, etc. that comprises a legal and sufficient description of a particular property. For a real estate contract to be binding it must include an accurate legal description.


The person to whom property is rented or leased; called a tenant in most residential leases.


The person who rents or leases property to another. In residential leasing, he or she is often referred to as a landlord. One who leases property to a tenant.


A monetary claim against a property that must be paid off when a property is sold in order for the new ownership to be legally recorded in county records.

Lifetime Cap

The maximum that an interest rate can increase or decrease over the life of a loan.

Listing Agent

A real estate agent that represents the seller of the property. (see Agent)

Listing Broker

The broker that represents the seller and has the property listed for sale. It is often another broker, representing a buyer, that secures an offer to purchase the property. In such cases, the brokers cooperate (co-op) and the commission is split between the two companies.

Listing Contract (also called Listing Agreement)

A real estate broker (or agent, acting on behalf of the broker) and a seller sign this agreement in order to give the broker the rights to advertise the property and represent the seller. The seller's real estate is then listed for sale, most often in a multiple listing service. In most cases the payment of a commission to the brokerage is contingent upon the agent procuring a satisfactory buyer for the property within the time frame of the Listing Contract. The commission is then paid to the broker from the seller’s proceeds at closing. Flat fee listing contracts have become popular, whereby a seller may pay a specified amount upfront for the services received. All details are typically determined by the listing contract.

Listing/ Listing Agreement

A written agreement between a property owner and a broker authorizing the broker to advertise the property and find a buyer or a tenant for a specific property. ( See Listing Contract)

Loan Application

A form used to apply for a mortgage loan that a borrower must complete in order to secure the loan. It has questions about the borrower’s income, assets and debts, plus some required disclosures.

Loan Commitment

Alender’s written approval granting a specific loan amount, conditions, and a set time limit for closing the loan.

Loan Origination

The process of applying for a mortgage loan.

Loan Originator

The person who assists borrowers in obtaining their new loan.

Loan to Value

The ratio of the amount of the loan divided by the value or sales price of the home.

Lock In

An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a particular cost.

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Maturity Date

The date on which the last payment on a mortgage or any other financial instrument becomes due and payable.

Mechanics Lien

A financial claim created to enforce payment for work performed and materials provided on either building, repairing or improving a structure.

Metes & Bounds

Land measurement of real property described by using directions, angles, and distances. To properly describe the subject property, it begins and ends at the same point and is usually done by a licensed surveyor.

MLS(Also known as "Multiple Listing Service." )

MLS is composed of hundreds of database computer systems located throughout the USA for real estate agents to showcase their available real estate listings that are for sale and for lease. MLS listings in most cities are now available for viewing by the public on MLS.com.


Fungi that may be present both indoors and out. Prior to a real estate closing, a termite inspection is usually performed to inspect for termites, mold and mildew on the property or in a crawl space.


A legal document signed by borrower(s) and promising a property to the lender in return for payment of a debt. Some states use First Trust Deeds instead of mortgages.

Mortgage Banker

A lender that originates mortgage loans through mortgage brokers for sale to investors such as Fannie Mae, Freddie Mac, or Ginnie Mae.

Mortgage Broker

A company that buys mortgages from mortgage bankers to sell to investors such as Fannie Mae and Freddie Mac.

Mortgage Insurance

Insurance paid by the borrower to insure the lender against default in case of non-payment of the mortgage loan. The mortgage insurance company may buy the property or just cover part of the losses to the lender. Many government loans and some conventional loans require mortgage insurance with loans to value over 80%.

Mortgage Insurance Premium (MIP)

The monthly insurance paid by the borrower to offset any potential loss in case of foreclosure.

Mortgage Interest Rate

The percentage rate lenders charge for mortgage loans; shown on the note signed at closing.


The lender originating and closing the mortgage loan in their name prior to selling to a broker for investor purchase.


The borrower signing the note in a mortgage loan process.

Multiple Listing Service(also known as the acronym "MLS" ) Multiple Listing Service is composed of hundreds of database computer systems located throughout the USA for real estate agents to showcase their available real estate listings that are for sale and for lease. Multiple Listing Service listings in most cities are now available for viewing by the public on MLS.com.

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National Association of Realtors (Also called NAR)

The National Association of REALTORS® is America's largest trade association, representing over 1.1 million members, including NAR's institutes, societies, and councils, involved in all aspects of the residential and commercial real estate industries.

Negative Amortization

When adjustable rate mortgage payments are not sufficient to pay the monthly principal and interest, the deficient amount is added to the original mortgage which causes the outstanding principal balance to increase. Therefore, the amortization is negative instead of positive.


An FHA insured government loan that helps low income home buyers with down payment assistance.

No Doc Loan(also called Low Doc Loans - Little or no documentation loans._

Generally used for the self-employed and small business owners. Also used for non-profits, specialized companies and individuals.

Non-Conforming Loans

Loan amounts that exceeds FNMA’s $417,000 (as of July 2006) maximum lending.


A statement borrowers sign at loan closing that gives the terms of repayment. This also includes the borrower’s promise to repay.

Notice of Default

A formal written notice to a borrower that a default has occurred (i.e. payment has not been received) and that legal action may be taken.

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When a buyer makes a written promise to purchase real estate, it is an offer. It does not become a contract until all terms are accepted by both seller and buyer.

Open End Loan

A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage.

Open Listing

A listing under which the principal (owner) reserves the right to list his property with other brokers, yet grants the real estate agent the right to advertise and sell the property.


The right to purchase or lease property within a pre-determined time at a specific price. There is no obligation to purchase, but the seller is obligated to sell if the option holder exercises the right to purchase. For the option to be valid, it must include consideration (i.e. earnest money).

Option Period

The option period allows the buyer to pay a nominal fee in exchange for the right to terminate the contract.

Option to Buy

A legal agreement that gives the the buyer the right to purchase property at a set price, within a certain period of time. The option fee, typically one percent of the price, is forfeited if the buyer does not go through with the sale.

Original Principal Balance

The total amount of principal owed on a mortgage before any payments are made.

Origination Fee

The fee charged by most lenders to originate a loan, typically one percent of the loan amount.

Owner Financing

The seller provides financing so that the buyer does not have to go through a bank or traditional sources to obtain funding to purchase the property. The seller does not receive all proceeds at once, as in a traditional closing where the buyer obtains bank financing, but the seller does receive interest in addition to the principal.

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The monthly amount due that a borrower must pay on a mortgage loan.

Payment Cap

The most that a monthly mortgage payment can be increased on an adjustable rate loan mortgage.

Personal Liability

Person is legally liable for individual action, responsibility or activity.

PITI- Principal, interest, taxes and insurance combined.

When less then 20% is paid as a down payment on a property, most lenders will require that each monthly payment include at least 1/12 of the annual taxes and 1/12 of the annual insurance in addition to the required principal and interest.

Planned Unit Development(PUD)

A housing design to produce a high density of dwellings and maximum utilization of open spaces.


A map that is drawn to scale of a specific piece of land that shows the shape, acreage, etc. The plat illustrates the geographic boundaries of the property.


Discount points are paid upfront to mortgage brokers to give a sufficient yield when the borrower would like a lower interest rate. One point is one percent of the loan amount.


The buyer occupying the property that is purchased or a tenant occupying the property that is leased. In a real estate sale, possession is rarely granted prior to closing when the seller receives their funds.


Items paid in advance of closing, such as real estate taxes and
homeowner’s insurance premium.

Prepayment Penalty

A fee charged when a borrower pays a mortgage in full prior to the agreed upon date. The note and deed would advise of any such penalty.

Prequalification Having a mortgage lender advise that debt ratios and credit report plus other factors show a borrower qualifies for a particular loan amount before signing a contract.


The outstanding loan balance not including interest.

Private Mortgage Insurance

Insurance paid to a private firm to insure the top 20% to 25% of a loan against default. It is rarely required when the owners’ equity exceeds 20% of the fair market value of the property.

Property Tax

Taxes payable to the county where the property is located. Taxes are usually paid on an annual basis and based on the county’s determined value of the property. Many counties will offer a homestead exemption, which is a reduction in taxes, if the real estate is your primary residence. Check with your local county tax assessor’s office for details.

Purchase and Sale Agreement

The contract between the buyer and seller stating terms, conditions, sales price and other pertinent information about the property being purchased.

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To meet the guidelines based on debt, income, and credit worthiness.

Qualifying Ratios

Comparing a borrower’s income to their proposed monthly housing expense. Also comparing their income to monthly housing expense added to all of the borrower’s other debt obligations.

Quit Claim Deed

A document by which one property owner releases his or her claims, rights and interest in a particular property.

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A natural gas found in the environment. If present inside a home, it can be harmful in sufficient concentrations. Radon gas testing is available.

Rate Lock

When the lender issues a written commitment to a borrower as to a specific interest rate for a specific period of time.

Real Estate Agent

A person licensed to advertise and negotiate the sale and lease of real estate on behalf of the property owner. See Agent.

Real Estate Commission

Each state has a Real Estate Commission or similarly named department or agency that oversees the licensure of real estate agents and real estate brokers in that state. Qualifications and requirements for licensure differ from state to state. This Commission (or department or agency) may also oversee similar licensure, such as real estate appraisers. This Commission sets all policies, procedures, and rules for practicing real estate within the state.

Real Estate Investment Trust – (REIT)

A business trust or corporation that pools the money of High Yield Investors for the benefit of investing in real estate. The REIT Company offers common shares to the public. In this way, a REIT stock is similar to any other stock that represents ownership in an operating business. However, a REIT has two unique features: its primary business is managing groups of income-producing properties and it must distribute most of its profits as dividends. Corporations and trusts that qualify for REIT status with the IRS generally do not pay corporate income taxes. Instead, they pay out all of their taxable income in the form of dividends.

Real Estate Owned – (REO)

Real estate that is owned by a bank or financial group. Usually a result of their borrowers defaulting on the loan and the subsequent foreclosure of the property from that buyer.

Real Estate Settlement Procedures Act –(RESPA)

Real Estate Settlement Procedures Act is a federal law, enacted in 1974, which details the procedures to be followed in a real estate closing. It is intended to protect the borrower and seller by making everyone more knowledgeable about possible costs and charges.

Realtor (also known as Realtor® or REALTOR® )

A real estate broker or a real estate agent who holds active membership in a local board of Realtors that is affiliated with the National Association of Realtors® (or NAR). The NAR has a Code of Ethics that all members are to adhere to. All Realtors are real estate brokers and real estate salespeople, but not all real estate brokers and real estate salespeople are Realtors (members of the National Association of Realtors.)


Obtaining a different loan for the benefit of perhaps a lower interest rate, converting an ARM to a fixed rate, or to take out some of the equity in the property. The borrower re-applies for a mortgage and goes through another closing transaction on the property they have previously mortgaged. The new loan pays off and replaces the original loan.

Rent with option to buy(or leasepurchase option)

An alternative financing option that allows home buyers to lease a home with an option to purchase at the end of the lease. Each month's rent payment may consist of the customary rent payment, plus an extra amount that is applied towards the down payment on the purchase.


Money that mortgage companies set aside in separate non-interest bearing accounts to pay taxes, homeowners’ association dues and insurance premiums.


Covenants or other types of conditions in the deed or other real estate documents that restrict the use, restructure and care of real estate involved in the transaction.

Return On Investment (ROI)

Is how much profit or cost savings is realized as a result of participating in the investment.

Right of first refusal

The right to the first opportunity to lease or purchase real property. For example, apartment tenants might retain the right of first refusal when their units are being converted to condominiums.

Rule of 72

The rule says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72.

Rural Development Loan

100% government loan with no monthly mortgage insurance premium required. It is only available in rural areas on a case by case basis.

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San Antonio Board of Realtors (Also known as SABOR)

SABOR, the San Antonio Board of Realtors, provides member products, professional real estate programs and services.

Second Home

Real estate owned that is not a primary residence. This may be a vacation home, seasonal property, or other real estate. The IRS allows certain benefits for a second home under specific conditions.

Second Mortgage

Aloan taken out behind the first mortgage, perhaps at the purchase or even at a later date when

the owner needs funds and the equity is sufficient.

Secondary Mortgage Market

Buying and selling existing mortgages, usually in blocks of several loans.

Sellers Disclosure Notice, SDN

A Seller Disclosure is a document provided by a home seller to a home buyer that outlines known issues with a property and other historical details. A seller disclosure often includes details about defective appliances or systems, known repair issues or history of leaks or environmental contamination.

Seller financing,orseller take-back

When the seller receives only a portion of the sales price at closing, and the balance he finances to the buyer in the form of a promissory note secured by the real estate purchased. See Owner Financing

Selling Agent

A real estate agent who represents the seller in a transaction. See Agent.


The actual real estate closing where the property is transferred and the seller and the buyer sign all

required documents for title transfer and mortgage.

Settlement Statement

The form showing all fees, charges and monetary transfers involving the buyer, seller, and all parties involved in the transaction.

Special assessment

A tax or levy against real property for improvements. The fee is not necessarily imposed on all residents of a community, but to the owners of specific properties. Also, condominium owners may have a special assessment imposed for specific improvements.

Special Stipulations ( also called special stips)

These are specific instructions written into a contract that are unique to this buyer and this seller and are in addition to the standard contract form.

“Subject to"

The recognition by a buyer of conditions (such as a prior loan), which are not the buyer's legal responsibility.

Subject to mortgage

A buyer, usually an investor, takes title to real property "subject to the current mortgage" but is not personally liable to the original mortgagee for payment of the mortgage note. The buyer does not obtain a new loan, but rather takes over payments on the existing mortgage. This form of purchase is most often used in a distress sale or in an attempt to save the owner from foreclosure proceedings.

Subordination clause

A clause in which the holder of a mortgage permits a subsequent mortgage to take priority. Subordination is the act of yielding priority. For example, this clause provides that if a prior mortgage is paid off or renewed, the junior mortgage will continue in its subordinate or secondary position and will not automatically become primary mortgage.

Subsidized Second Mortgage

A creative financing option known as the Community Second® mortgage for low- and moderate-income households.
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 non-profit corporation. Payment on the second mortgage is often deferred and carries a very low interest rate or no interest rate. Part of the debt may be forgiven incrementally for each year the buyer remains in the home.


The measurement of a parcel of real estate by a licensed surveyor. It shows the specific details about the measurement, shape, size and location of the property.

Sweat Equity

The equity earned as a result of the owners’ labor in upgrading and improving the property.

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Tax Deed

A deed that is used to convey title when the real estate is purchased from the county, having been auctioned off to pay for back taxes that went unpaid by the original property owner.

Tax Lien

A lien against a property for unpaid taxes.

Ten Thirty One Exchange (1031 Exchange)

A means of deferring capital gains taxes on real estate exchanges for like kind properties. This is allowed under the U.S. Internal Revenue Code, Section 1031.

Tenancy by the Entirety

A special type of real estate ownership that is reserved for married couples. The law considers the marital unit to be the owner and both spouses have an equal, undivided interest in the whole. Both spouses have the right to enjoy the property, and when one spouse dies, the surviving spouse gets title to the property in the entirety. It is similar to joint tenancy with the right of survivorship, but it is a term that is only used in certain states.

Tenancy in Common

A type of ownership in which two or more people have an undivided interest in property, without the right of survivorship. Upon death of one of the owners, his or her interest passes, not to the co-owner(s) but to whomever they have chosen as their heir.


The length of time it will take to pay the mortgage in full.

Texas Association of Realtors, TAR

Get information about Texas real estate, find properties, search for Texas REALTORS®, and get homebuyer and home seller advice from the Texas Association of Realtors

Texas Real Estate Commission (Also known as TREC)

Texas Real Estate Commission (TREC) is a state regulatory agency responsible for the education and licensing of real estate brokers, inspectors and salespersons in Texas.

Time is of the Essence

The statement in a contract which emphasizes that punctual performance by all parties is essential.

Time Limit of an Offer

An offer should include a specified time period during which the other party must decide to accept, reject, or counter the offer.

Title Company

The company that, for a fee, checks and insures the title against liens, ownership claims, and title problems.

Title Insurance

An insurance policy that may be purchased to protect the new owner from any liens or clouds against the title. In order to issue title insurance, the issuer will perform a title search in the county records. Since title is searched at the time of closing, title insurance is usually less expensive at the time of closing, rather than if a buyer called the title company at a later time, as an additional title search would have to be performed prior to issuing the insurance.

Title Search

A review done by the title company’s representative of all records available to determine if the title is indeed clear of all liens and claims.

Transaction Broker

A transaction broker (also referred to as a facilitator, coordinator or contract broker) is not a representative or agent for either the buyer or the seller. The job of a transaction broker is to help both the buyer and the seller with the necessary paperwork and formalities involved in transferring ownership of real property.

Transfer Tax

A tax that is collected at closing for the transfer of ownership of real property.

Truth in Lending Act

Federal law that makes lenders disclose, in writing, all terms, charges and APR to borrowers upon loan application and again at the closing of the mortgage loan.

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Trained individuals that make the final decision of whether each loan is approved, approved with conditions, or denied.


The final approval or rejection by a lender upon reviewing all pertinent details of a loan applicant’s credit worthiness.

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VA Funding Fee

A funding fee is added to most VA loan amounts, depending on the amount of down payment that the veteran makes. In most cases the fee is 2% of the loan amount.

VA Mortgage

Typically, a 100% loan made to veterans. They must qualify by providing proof of eligibility. When selling a house originally purchased through VA eligibility, the veteran should get a “Release of Liability” so that he can obtain a VA loan in the future.

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A binding promise that certain statements are true.

Warranty Deed

A deed warranting that the grantor has clear title and promises he has the right to convey the property to the buyer.

Wrap-Around Mortgage

A mortgage to the new buyer which includes the seller’s existing first mortgage payment, plus an additional amount that will be proceeds to the seller.

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The profit from an investment, normally stated as a percentage of the amount invested.

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Zero Lot Lines-

When a building is positioned so that it rests either directly on the lot’s boundary line, or so close to the boundary line that there is minimal yard or space between the structure and adjacent structure.


Local requirements for the use of real estate in a particular area.