Glossary, D-L

Over the next several weeks, we will be producing a comprehensive term glossary to serve as a reference for everything you need to know about borrowing, mortgages, and the home-buying process. This post is Part 2 of 3, and it includes all terms from D to L. 

D 

Debt Ratio 

This is a loan qualifying ratio used by lenders to determine if a borrower qualifies for a loan. The debt (-to-income) ratio is calculated by taking the borrower’s monthly debts, including house payments, credit cards and personal loans, and dividing it by the monthly income. 

Deed 

A written document by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the buyer at closing. 

Deed-in-lieu 

A deed given by a mortgagor (homeowner) to the mortgagee (lender) to satisfy a debt and avoid foreclosure. Also called a “voluntary conveyance.” This avoids the foreclosure process, however it may still be considered a negative mark on your credit and affect your credit scores. 

Deed of Trust 

A security instrument (document describing the rights and duties of the lender and borrower) used in real estate transactions in many states. The parties to a deed of trust are: trustee (third party), trustor (borrower), beneficiary (lender). 

Deed Restriction 

A clause in a deed that limits the use of land. Example: A deed might require that a road cannot be built on the land. 

Default 

Failure to meet legal obligations in a contract, such as the failure to make the monthly mortgage payment. 

Defective Title 

Any recorded instrument that would prevent a grantor/seller from giving a clear title. 

Example: The seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for the kitchen remodel. The seller may obtain clear title by paying the contractor and removing the lien. 

Deferred Interest 

Unpaid interest added to the loan balance. This is common in a negative amortized or option arm loan program. The minimum payment is less than the interest charges. The interest that is not paid is added to the balance. 

Deficiency Judgment 

Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages, accrued interest, legal fees, etc. 

Delinquency 

Failure to make payments on time. A Notice of Default and foreclosure process usually takes place after you are delinquent for more than a few months. 

Depreciation 

When related to the appraisal of property, depreciation is the decrease in value from any cause. When related to taxation, “book depreciation” is a steady decrease (calculated using mathematical formulas or schedules) in the owner’s tax basis. 

Department of Veterans Affairs (VA) 

An independent governmental agency which guarantees long-term, low- or no-money-down mortgages to eligible veterans. 

Discount Points 

Fees paid to a lender to reduce the interest rate. 

Documentary Tax Stamps 

Stamps affixed to a deed showing the amount of transfer tax. 

Dower 

The rights of a widow or child to part of a deceased husband’s or father’s property. 

Downpayment 

The amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs. 

Example: John buys a house for $100,000 and obtains a loan for $80,000. His downpayment is $20,000. 

Dragnet Clause 

A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet. 

Due on Sale Clause 

A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property. 

E 

Earnest Money 

A deposit made by a buyer of real estate towards the down payment to evidence good faith. This money is typically held by the real estate brokers or the escrow company. 

Easement 

The right to use the land of another for a specific purpose. Easements may be temporary or permanent. Example: The utility company may need an easement to run electric lines. 

Eminent Domain 

The right of the government or a public utility to acquire property for necessary public use by condemnation, with proper compensation to the owner. 

Encroachment 

A building, part of a building, or an obstruction (e.g., a fence or wall) that physically intrudes upon or overlaps the property of another. 

Encumbrance 

Any interest or right in real property possessed by a stranger to the title, which affects the owner’s property value, but does not prevent the owner from transferring title. Encumbrances may affect title, or condition or use of the property. 

Entitlement 

VA home loan benefits are known as entitlement and/or eligibility. 

Equal Credit Opportunity Act (ECOA) 

A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. 

Equity 

The market value of real property, less the amount of any liens. Equity is often expressed as a percentage of the property value. 

Equity Sharing 

Joint ownership of a property between the owner/occupant and the owner/investor, that results in tax advantages for both parties. Upon sale of the property the joint owners split profits based on the percentage they own. 

Escheat 

The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs. 

Escrow 

1. Delivery of a deed by a grantor to a third party for delivery to the grantee upon the occurrence of a conditional event. 

2. Calif. Civil Code Sec.1057: “A grant may be deposited by the grantor with a third person, to be delivered on the performance of a condition, and, on delivery by the depositary, it will take effect. While in the possession of the third person, and subject to condition, it is called an escrow.” 

Escrow Account 

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

Estate 

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 

The lawful expulsion of an occupant from real property. The legal process of eviction is different in each state. 

Examination of Title 

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

Exclusive Listing 

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission. 

Executor  

A person named in a will to carry out its provisions for the disposition of the estate. 

F 

Fair Credit Reporting Act 

A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record. 

Fair Market Value 

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept. 

Fannie Mae-Backed Security rates 

Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly. 

Farmer’s Home Administration (FmHA) 

An agency, within the U.S. Department of Agriculture, that administers assistance programs for purchasers of homes and farms in small towns and rural areas. 

Fed 

Federal Reserve Bank 

Federal Discount Rate 

The rate that the New York Fed charges for loans to member banks. 

Federal Funds Rate 

The Rate banks charge each other for overnight loans. 

Federal Home Loan Bank Board (FHLBB) 

Provides financing to farmers. 

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac) 

Freddie Mac maintains a nationwide secondary market primarily for conventional loans originated by banks, thrift institutions and other HUD-approved lenders. Freddie Mac finances most of its operations through the sale of mortgage Participation Certificates. 

Federal Housing Administration (FHA) 

An agency within the U.S. Department of Housing and Urban Development (HUD). FHA offers mortgage insurance programs to protect the lender in the event of default. Because lenders are insured against loss, they can make affordable financing available to borrowers who would not otherwise qualify. 

Federal National Mortgage Association (FNMA, Fannie Mae) 

Provides a secondary market for FHA, VA and conventional loans. Fannie Mae issues mortgage-backed securities and guarantees timely payment their principal and interest to investors. 

Federal Reserve System 

The central federal banking system that regulates and provides services to member commercial banks. Also has the responsibility for conducting federal monetary policy. 

Fee Simple (Fee Absolute or Fee Simple Absolute) 

Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owner’s life and upon his death the property descends to the owner’s designated heirs. 

Fico 

Fair Isaac Corporation. This credit score is reported on your Experian (formerly TRW) credit report. A FICO score is a snapshot of a person’s credit risk at a particular point in time. 

Fidelity Bond 

An assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds. 

Example: A landlord employs a clerk who collects rents. To safeguard these funds during the collection process, the landlord purchases a fidelity bond the clerk. 

Fiduciary 

A person in a position of trust or responsibility with specific duties to act in the best interest of a client. A real estate broker is a fiduciary for his/her clients. 

Finance Charge 

Interest charged by a lender. 

Firm Commitment 

A lender’s agreement to make a loan to a specific borrower on a specific property. This is usually given as a written loan approval from a lender. 

First Mortgage 

A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages. See also second mortgage. 

Fixture 

Personal property attached to the land in such a way as to be considered part of the real property. 

Flood Insurance 

An insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone. 

Foreclosure (Repossession) 

A legal process in which the right, title and interest of a mortgagor or trustor in real property are terminated by selling the property and applying the proceeds to satisfy liens of creditors. 

Framed Page 

In HTML, refers to dividing the browser display area into separate sections, each of which is really a different Web page. 

Free and clear 

A property that has no liens. 

Freddie Mac, Federal Home Loan Mortgage Corporation (FHLMC) 

A quasi-governmental agency that purchases conventional mortgage loans from insured depository institutions (savings and loans) and HUD-approved mortgage bankers. 

Forfeiture 

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

Front-end Ratio 

Monthly mortgage payments (PITI, principal, interest, taxes and insurance) divided by your gross monthly income. This comes out to a percentage, and a lender uses this percentage to get an idea of how much of your income will be going towards paying your loan. Most programs require a maximum ratio of 28-33%. A low ratio is better. 

FSBO 

For sale by owner. A property for sale that is not listed with a real estate broker. 

Fully indexed rate 

A fully indexed rate is the value of an index plus a margin. See adjustable loans. 

G 

General Warranty Deed 

A deed in which the grantor (seller) agrees to the protect the grantee (buyer) against any other claim to title of the property. See also warranty deed. 

Good Faith Estimate (GFE) 

The form that lists the settlement charges the borrower must pay at closing. The lender is obligated to provide the borrower this form within three business days of receiving the loan application. 

Government National Mortgage Association (GNMA, Ginnie Mae) 

A government corporation which guarantees mortgage-backed securities issued by approved lenders. GNMA mortgage-backed securities are considered by many to be as safe as Treasury securities. 

Grantee 

That party in the deed who is the buyer or recipient. 

Graduated Payment Mortgage (GPM) 

A trust deed or mortgage requiring increasingly higher payments during the life of the loan. Negative amortization may occur under some circumstances. 

Grandfather Clause 

The clause in a law permitting the continuation of a use, business, etc., which was permissible but because of a change in the law is now no longer permissible. 

Grantor 

That party who is the seller or the giver. 

H 

Hazard Insurance (Fire Insurance, Homeowners insurance) 

A type of real estate insurance providing protection against loss due to fire and other risks. 

Home Equity Conversion Mortgage (HECM) 

A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. This is commonly known as a reverse mortgage. 

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 

A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal. 

Home KeeperSM 

Fannie Mae’s adjustable-rate conventional reverse mortgage, which allows older homeowners to borrow against the value of their homes and receive the proceeds according to the payment option they select. The amount available is based on the number of borrowers and their ages and the adjusted property value. Anyone 62 years or older who either owns his or her own home free and clear or has very low mortgage debt is eligible. 

Home Page 

The main page of a web site. This is usually the first page that comes up on the computer screen. Typically, the home page serves as an index or table of contents to other documents available at the site. It is also referred to as the Index page. 

Home Warranty Plan 

Insurance that covers appliances, heating systems, etc. Typically purchased at the time of closing. 

Homeowners Association 

An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations. 

Homestead 

Status provided to a homeowner’s principal residence that protects the home against certain types of judgments. 

Homestead Exemption 

A statutory exemption shielding real homestead property against the rights of certain creditors. Regarding taxation: an exemption reducing the assessed value of a principal residence for the purposes of calculating property tax. E.g., John’s principal residence is assessed at $100,000 and the homestead exemption is $7,000. His property taxes will be based on $93,000. 

Housing and Urban Development 

A U.S. government agency established to implement certain federal housing and community development programs. 

Housing Code 

A local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings. 

HTML 

Short for Hyper Text Markup Language, the authoring language used to create documents on the World Wide Web 

HUD 1 

A closing document required by HUD that outlines the settlement cost of a loan. The closing agent prepares this document and sends it to the buyer upon closing. 

Hypothecate 

To pledge a property as security without having to give up possession of it. 

I 

Impound Account 

That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves. 

Improvements 

Additions to raw land such as buildings, streets, etc. that add value to the land. 

Income (Capitalization) Approach 

An appraisal method used for the valuation of income-producing property in which net income is capitalized. 

Income Property 

Real estate that generates rental income. Examples: apartment buildings, office buildings and shopping centers. 

Index 

A statistic that indicates some current economic of financial condition. Indexes are used to make adjustments in variable rate loans. 

Inflation 

In economics, inflation is an increase in the general level of prices of a given kind. General inflation is a fall in the market value or purchasing power of money within an economy, and is referred to as a rise in the general level of prices. 

Ingress and Egress 

The right to pass through a piece of property. See Easements. 

Installment Sale 

1. Re. Taxation: When selling real property and receiving one or more payments in subsequent years, the taxpayer may report the sale as an installment sale. This allows the taxpayer to defer the recognition of gain over many years and save taxes. 

2. Installment sale land contract. See Conditional Sales Contract. 

Interest Only 

An interest-only loan program is a loan program that has an interest-only payment option. The loan can be a fixed rate or variable rate program. The interest only monthly payment is the amount of the interest rate times the original loan amount divided by twelve. No principal is paid, and the loan balance does not decrease. You may pay the interest only payment amount or pay the fully amortized payment amount. The interest only payment option is only available in the initial years of the loan term. Conforming loan programs have the interest only term for ten to fifteen years. Jumbo programs vary from three years up to ten years. 

ISP 

Internet Service Provider, a company that provides access to the Internet. For a monthly fee, the service provider gives you a software package, username, password and access phone number. You can then log on to the Internet and browse the World Wide Web, and send and receive e-mail. 

J 

Joint and Several Liability 

A creditor can demand full repayment from any and all of those who have borrowed. Each borrower is liable for the full debt, not just the prorated share. 

Joint Tenancy 

Ownership of a property by two or more people, each of whom has an undivided interest with the right of survivorship. 

Example: John and Mary own a house in joint tenancy. Each owns half of the entire (undivided) property. If John dies, Mary will own the entire property and vice versa. 

Judgment 

The decision of a court of law stating that one individual is indebted to another and fixing the amount of indebtedness. Judgments, when recorded, become a lien on real property owned by the defendant. 

Judgment Lien 

The claim on the property of a debtor resulting from a judgment. 

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 Loan 

Loan size that is larger than the conforming loan limit established by the Fannie Mae or Freddie Mac. 

Junior Mortgage 

A mortgage subordinate to another mortgage. In the case of a foreclosure a senior mortgage will be paid prior to a junior mortgage. 

K 

Kicker 

A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan. 

L 

Land Contract 

See Conditional Sales Contract 

Late Charge 

The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date. 

Lease 

A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent. 

Leasehold Estate 

Tenant’s right of possession for a specific period of time under a lease agreement. 

Lease with Option to Purchase 

A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease 

Legal Description 

Legally acceptable identification of real estate by one of the following: 

  • the government rectangular survey 
  • metes and bounds 
  • recorded plat (lot and block number) 

Lessee 

A person to whom property is rented under a lease. (Tenant) 

Lessor 

A person who rents property to another under a lease. (Landlord) 

Libor 

London Interbank Offered Rates. Average London Eurodollar rates. The Libor Index rate is used in many variable loan programs. 

Life Estate 

An estate in real property for the life of a living person. The estate then reverts back to the grantor or to a third party. 

Lien 

A claim against the property for the payment of a debt, judgment, mortgage or taxes. 

Example : Unpaid contractors may file a mechanic’s lien. 

Line of Credit 

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit. 

Lis Pendens 

Latin for “lawsuit pending.” Recorded notice that litigation is pending on a property. Most lenders will require the clearance of the Lis Pendens prior to closing. 

Listing 

Real Estate properties for sale are usually considered listed when a real estate agent is contracted to sell the property, using a listing agreement, and the property is posted in the multiple listing service, MLS, for that local region. It can also be in an Internet listing service online, which can be done directly by the homeowner. 

Liquid Asset 

A cash asset or an asset that is easily converted into cash. 

Loan Application 

A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property. 

Loan Origination Fee or Points 

Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest. 

Loan Servicing 

The act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors. 

Loan to Value Ratio (LTV) 

The loan amount divided by the value of the property. 

Lock-in 

A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing. 

Lock-in period 

The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in. 

Glossary, A-C

Over the next several weeks, we will be producing a comprehensive term glossary to serve as a reference for everything you need to know about borrowing, mortgages, and the home-buying process. This post is Part 1 of 3, and it includes all terms from A to C. 

A 

Abstract (of Title) 

A historical summary of all the recorded transactions that affect the title to the property. An attorney or a title company will review an abstract of title to determine if there are any problems affecting the title to the property. All such problems must be cleared before the buyer can be issued a clear and insurable title. 

Abutting 

Bordering upon or next to; the joining or touching of adjoining land; sharing a common boundary. 

Acceleration Clause 

A loan provision giving the lender the power to declare all sums owing lender immediately due and payable upon the violation of a specific loan provision, such as the sale of the property, or the failure to make loan payments on time. Example : John sells his property to Mary who takes over John’s mortgage payments. They do not notify the lender of this transaction. The lender finds out that the title to the property has transferred and calls the loan, since the loan documents state that the loan is due on the sale of the property. John is now liable to pay his lender in full. 

Acceptance 

An offeree’s consent to enter into a contract and be bound by the terms of the offer. In a real estate transaction an offer is made from the buyer to the seller. If the seller accepts the offer within the prescribed time limit, it becomes a binding contract. In this case Acceptance is documented by the Seller signing and delivering the signed document. 

Accretion 

The addition to land through natural forces like wind or water. 

Example: Soil carried by a river then deposited on land. 

Acknowledgment 

Formal declaration before a public official (typically a Notary Public) that one has signed a document. Required before recording real estate legal documents, such as a deeds of trust. 

Acre 

A measure of land equal to 43,560 square feet. 

Additional Principal Payment 

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

Adjustable Rate Mortgage (ARM) 

Also known as a variable rate mortgage. The interest rate on these mortgages changes periodically. 

Adjusted Basis 

The adjusted basis figure is the value used to determine capital gains when you sell real property. The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken. 

Adjustment Period 

The length of time for which the interest rate is fixed on an adjustable. If the adjustment period is six months, then the interest rate will remain fixed for six months, after which time it will adjust. 

Affordability Analysis 

A detailed analysis to determine whether you can 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. 

Agreement of Sale 

A written signed agreement between the seller and the purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement. Also known as contract of purchase, purchase agreement, offer and acceptance, earnest money contract or sales agreement. 

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

Amortization 

A gradual paying off of a debt by periodic installments which pay principal and interest. 

Annual Percentage Rate (APR) 

The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution: the APR is sometimes computed differently by different lenders and can be misleading. 

Application 

A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. 

Appraisal 

An opinion or estimate of the value of a property at a given date. 

Appreciation 

An increase in the value of a property due to changes in market conditions or for other reasons, such as additions and renovations. Opposite of depreciation. 

Arm’s length transaction 

A transaction among parties each of who acts in his or her own best interest. 

Example: A transaction between a father and his son would NOT be an Arm’s length transaction. 

Assessed Value 

The valuation placed on property by a public tax assessor for purposes of taxation. 

Assessment 

The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a street or traffic light or sewer assessment. 

Assessment Rolls 

The public record of taxable property. 

Assessor 

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

Assignment 

The transfer of a mortgage from one person to another. 

Asset 

Anything with a dollar value that you own. Banks consider your assets when determining how much you can borrow. 

Assumable Mortgage 

A mortgage loan which allows a new home buyer to take over the obligation of making loan payments with no change in the terms of the loan. Assumable loans do not have a due-on-sale clause. The lender has to be notified and agree to the assumption. The lender may require the buyer to qualify for the loan and may charge an assumption fee. The seller should obtain a written release from the lender stating clearly that he/she is no longer liable to make mortgage payments. See also “Subject To.” 

Attorney In Fact 

One who is authorized to act for another under a power of attorney which may be general or limited in scope. 

Example: John wants to sell his house but has to be out of the country for four months. John gives authorization to Mary to sign the grant deed to sell the property to a buyer. Mary becomes John’s Attorney In Fact. 

B 

Back-end ratio, or debt ratio 

The amount you pay in monthly debt (car payments, credit cards, student loans, etc.) divided by your gross monthly income. 

Balloon (Payment) Mortgage 

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract. 
Example : A balloon mortgage for $25,000 has interest only payments for 5 years at 12 percent ($250 per month), with the full principal of $25,000 due and payable after five years 
 

Bankruptcy 

The financial inability to pay one’s debts when due. The debtor surrenders his assets to the bankruptcy court. An individual typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes a payment plan to pay off debts). A bankruptcy stays on an individual’s credit report for seven years. 

Beneficiary 

The person who receives or is to receive the benefits resulting from certain acts. 

Example: The lender is named as the beneficiary on a mortgage loan. 

Example: John has a life insurance policy for $100,000 with Jane as his beneficiary. Should John die, Jane will receive the benefits in the amount of $100,000. 

Betterment 

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

Bill of Sale 

A written document that transfers title to personal property. 

Binder 

1. A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder. 

2. Preliminary agreement, normally secured with earnest money, between a buyer and a seller as an offer to purchase real estate. 

Biweekly Mortgage 

A mortgage which requires half the normal monthly payment every two weeks. Over the course of the year, twenty-six half payments are made which is equivalent to thirteen full mortgage payments. As a result of this extra payment the loan amortizes much faster than a loan with normal monthly payments 

Blanket Insurance Policy 

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

Blanket Mortgage 

A mortgage covering more than one piece of property. 

Example: A developer subdivides a tract of land into lots and obtains a blanket mortgage on the whole tract. 

Bond 

1. A debt instrument in the capital markets. The U.S. government, corporations and municipalities use bonds to raise money. Bonds can also be backed by mortgages. The best-known bond is the 30-yr. treasury bond issued by the U.S. government. 

2. A sum of money given to a court to guarantee against a loss. For example, if there is a lien on a property, the owner may remove the lien by posting a bond. 

Borrower (mortgagor, trustor) 

One who applies for a loan secured by real estate and is responsible for repaying the loan (mortgage). 

Breach 

To break or violate an agreement. 

Bridge Loan 

An interim loan typically used when the buyer is unable to sell his/her house but needs money to close the transaction on the house he/she is buying. The bridge loan is made on the buyer’s current residence to finance the buyer’s new residence. The loan is paid off when the buyer’s current residence is sold. 

Broker 

See Real Estate Broker or Mortgage Broker. 

Browser 

Short for Web browser, a software application used to locate and display Web pages. The two most popular browsers are Microsoft Internet Explorer and Netscape Navigator. 

Building Code 

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

Building Line or Setback 

Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances. 

Buydown 

Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply for the full duration of the loan or for just the first few years. A buydown may be used to qualify a borrower who would otherwise not qualify since a buydown results in lower payments. 

Example: A very popular buydown is the 2-1 buydown. If the interest rate on the note is 9 percent, the buydown results in the rate being 7 percent (9 percent minus 2 percent) for the first year, 8 percent (9 percent minus 1 percent) for the second year, and 9 percent thereafter. 

Buyer’s Broker 

An agent hired by a buyer to locate a property for purchase. The broker represents the buyer and negotiates with the seller’s broker for the best possible deal for the buyer. 

Buyer’s Market 

Market conditions that favor the buyer. I.e., a market in which there are more sellers than buyers. As a result, a buyer has an excess supply of homes from which to choose and can negotiate a lower price. A buyer’s market may be caused by an economic slump or overbuilding. 

Buying Your Home: Settlement Costs and Information (HUD guide) 

A booklet that provides an overview of the lending process and is required to be given to consumers after the loan application is completed. 

Bylaws 

A set of regulations by which an organization conducts its business. 

Example : A condominium association prepares bylaws that state the minimum number of owners to conduct a meeting to decide policies. 

C 

Call Option 

A clause in the mortgage that gives the lender the right to “call” the mortgage due and payable at the end of a given length of time, for whatever reason. 

Capital Expenditure 

The cost of an improvement made either to extend the life of a property or to increase its value. 

Capital Gains 

When you sell a capital asset at a profit, such as real estate, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain. 

Capital Improvement 

Any item, structure or addition that is a permanent improvement to the property. 

Caps (interest) 

Limits on the amount that the interest rate on an ARM can change per year and/or during the life of the loan. Payment caps limit the amount that monthly payments for an ARM may change. 

Cash Flow 

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.). 

Caveat Emptor 

A legal term meaning “let the buyer beware.” The buyer must examine the property and buy at his/her own risk. 
Example: A property may be offered in an “as is” condition with no expressed or implied guarantee of quality or condition. 
 

CC&R;’s – Covenants, conditions, and restrictions. 

The basic rules establishing the rights and obligations of owners of real property within a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized for the purpose of operating and maintaining property commonly owned by the individual owners. The association is normally made up of property owners. 

Certificate of Deposit 

A certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at a fixed rate of interest. 

Certificate of Eligibility 

The document issued by the Department of Veterans Affairs to those who qualify for a VA loan which may be used to buy a house with zero down. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880. 

Certificate of Occupancy 

Document issued by a local governmental agency that states a property meets the local building standards for occupancy and is in compliance with public health and building codes. This document is normally required by a lender prior to closing the loan. 

Certificate of Reasonable Value (CRV) 

An appraisal performed by a VA approved appraiser which establishes the property’s current market value. This value establishes the ceiling on the maximum VA mortgage loan principal. 

Certificate of Title 

An opinion rendered by an attorney as to the status of title to a property, according to the public records. This certificate does not the same level of protection as title insurance. 

Certificate of Veteran Status 

The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). This document enables veterans to obtain lower down payments on certain FHA-insured loans. 

Chain of Title 

The chronological order of conveyance of a parcel of land from the original owner to the present owner. 

Example: An abstractor can research title to property going back to the date that the property was granted to the United States. 

Chattel 

Personal property. 

Clear Title 

A marketable title, free of clouds and disputed interests. Most lenders require a clear title prior to closing. 

Closing 

The final meeting between the buyer, seller and lender (or their agents) at which the property and funds legally change hands. 

Closing Costs 

Expenses incurred by the buyer and seller in a real estate or mortgage transaction. There are two types of costs: recurring and non-recurring. 

Non-recurring costs are one-time transactional costs which include 

  • Discount and origination points 
  • Lender fees: underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc 
  • Title insurance fees 
  • Escrow, attorney or closing agent fees 
  • Recording fees 
  • Inspection and appraisal fees 
  • Real estate brokerage commissions 
  • Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing including 
  • Pre-paid interest – interest charges from the date of closing to the end of the month 
  • Property taxes if due 
  • Hazard insurance, fire insurance or homeowners insurance has to be paid for one year 
  • Mortgage insurance (PMI) may be required if the loan amount is more than 80 percent of the value of the property. In the past a whole year of PMI had to be paid up-front, however in recent years many PMI companies only require on to two months up-front. Mortgage insurance premiums are normally paid every month with the loan payment 
  • Impound account may need money to be set up for future payments 

Closing Statement – HUD1 

A detailed written summary of the financial settlement of a real estate transaction, showing all charges and credits made, all cash received and paid. 

Cloud on Title 

An outstanding claim or encumbrance that, if valid, would affect or impair the owner’s title. Compare with clear title. 

COFI 

A monthly cost-of-funds index (COFI) reflecting the average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts. The 11th district covers Arizona, California and Nevada. The index is published on the last day of the month and reflects the cost of funds for the prior month. This rate is used by lenders to determine the index rate for some of their variable rate loan products. 

Collateral 

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. 

Collection 

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

Co-Maker 

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. 

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. 

Commitment 

A written document provided by a lender to agreeing to make a loan on specific terms to a borrower or builder. 

Common Area Assessments 

Levies against 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. 

Common Law 

An unwritten body of law based on general custom in England and used to an extent in the United States. 

Community Home Improvement Mortgage Loan® 

An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value. 

Community Land Trust Mortgage Loan 

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. 

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. 

Comparables 

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 original principal balance and on the accrued and unpaid interest. 

Comps, Comparables 

Comparable properties; properties in close proximity which have sold recently and are about the same size with similar amenities, used to determine the value of a property by comparison. 

Condemnation 

The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain. 

Conditional Commitment 

A written document provided by a lender agreeing to make a loan provided certain conditions are met prior to closing. 

Conditional Sales Contract (Land Contract) 

A real estate sales contract in which she seller (vendor) agrees to convey title to the buyer (vendee) after certain conditions have been met and transfer is not required within one year.(installment selling arrangement whereby the buyer may use and occupy land, but no deed is given by seller until the sales price has been paid. 

Condominium 

A real estate project in which each unit owner has title to a unit in a 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 

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. 

Construction loan 

A short term loan to pay for the construction of buildings or homes. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan. 

Consumer Reporting Agency (or bureau) 

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. Experian, TransUnion and Equifax are the 3 main repositories. 

Consideration 

Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration. 

Contingency 

The requirement that a particular event occur before a contract is binding. For example: The sale of a home can be contingent upon the buyer obtaining financing. 

Contract 

An agreement between competent parties to do or not do certain things for consideration. 

To have a valid contract for the sale of real estate there must be: 

  • an offer 
  • an acceptance 
  • competent parties 
  • consideration 
  • legal purpose 
  • written documentation 
  • description of the property 
  • signatures by principals or their attorney-in-fact 
     

Contract of Sale 

See Agreement of Sale 

Conventional Loan 

Any mortgage loan other than a VA or an FHA loan. A convention loan may be conforming or non-conforming. 

Convertibility Clause 

A clause in some ARMs which allows the buyer (borrower) to change to a fixed-rate mortgage at a specified time. 

Condemnation 

  1. Taking private property for a public use with compensation to the owner under eminent domain. Used by governments to acquire land for streets, schools, freeways, etc. and by utilities to acquire necessary property. 
  2. Declaring a structure unfit for use because of violations in housing codes or other reasons. 

Conveyance 

The transfer of title of real property from one party to another. 

Covenant 

A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure. 

Cooperative (Co-op) 

See Stock Cooperative. 

Convertible Adjustable Rate Mortgage (ARM) 

Some variable loans come with options to convert to a fixed loan based on a pre-determined formula, during a given time period. For example the 1 Year T-Bill ARM may be converted to a fixed rate during the first five years on the adjustment date. One could convert during the thirteenth, twenty-fifth, thirty-seventh, forty-ninth or sixty-first month of the loan. 

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. 

Credit Report 

A report detailing a borrower’s credit and payment history including: revolving and installment accounts; public records such as tax liens and judgments. 

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. Experian, TransUnion and Equifax. 

Credit Score 

A credit score is a snapshot of a person’s credit risk at a particular point in time. It is used by lenders to help determine if a borrower qualifies for a loan. There are three main credit reporting companies that issue these credit scores. Experian calls it the FICO score, TransUnion calls it Empirica, and Equifax calls it the Beacon. 

Creditor 

A person or entity (a bank or other lender) who funded the loan and to whom a debt is owed. 

Cul-de-sac 

A dead-end street with a turn-around space at the end. These are attractive to some homeowners because the ending street cuts down on “thru” traffic, speeding, etc.