Our glossary is designed to help you learn more about words that may not be used in common language or which might have a different meaning.

A ~ B ~ C ~ D ~ E ~ F ~ G ~ H ~ I ~ J ~ K ~ L ~ M ~ N ~ O ~ P ~ Q ~ R ~ S ~ T ~ U ~ V ~ W ~ X ~ Y ~ Z

A
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.

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.

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.

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.

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.

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

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."

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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 10 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.

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

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.

Broker
See Real Estate Broker or Mortgage Broker.

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.

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.

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

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.

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 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 Title
Evidence of free and clear ownership of Chattel property as deemed by the Department of Housing.

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.

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

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.

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.

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.

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

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

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:

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

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.

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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.

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

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.

Down payment
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 down payment is $20,000.

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.

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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.

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.

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.

Executor (Executrix feminine for Executor)
A person named in a will to carry out its provisions for the disposition of the estate.

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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.

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.

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.

Finance Charge
Interest charged by 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.

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.

Free and clear
A property that has no liens.

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.

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G

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.

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

Grantor
That party who is the seller or the giver.

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H
Hazard Insurance (Fire Insurance, Homeowners insurance)
A type of real estate insurance providing protection against loss due to fire and other risks.

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.

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.

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I

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.

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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.

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

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L

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.

Legal Description
Legally acceptable identification of Real Estate or Chattle.

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

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

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

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 period
The time period during which the lender has guaranteed an interest rate to a borrower

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M
Margin
A fixed number added to the index to compute the rate on an adjustable rate mortgage.

Marketable Title
Title that is free of liens, clouds and other legal defects and hence is readily acceptable by a buyer.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Merged Credit Report
A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of your credit.

Modification
The act of changing any of the terms of the mortgage.

Mortgage
A written instrument that creates a lien upon real estate as security for the payment of a specified debt.

Mortgagee
The lender.

Mortgagor
The borrower.

Mortgage Note
A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

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N
Notary Public
One authorized to take acknowledgments of certain types of documents, such as deeds, contracts, and mortgages.

Note
The Note is a promissory note, which is signed with loan documents and states the loan amount, interest rate and loan terms.

Notice of default
A letter sent to the defaulting party as a reminder of the default.

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O
Offer
An expression of willingness to purchase a property at a specified price.

Offeree
One who receives the offer. When the buyer makes an offer to the seller the seller is an offeree.

Offeror
One who makes the offer. When the buyer makes an offer to the seller the buyer is an offeror.

Open House
A method of showing a home for sale to prospective buyers where the home is left open for inspection by those who may be interested in making a purchase.

Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.

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P
Package Mortgage
Mortgage covering both real and personal property.

Paper
A mortgage, deed of trust or land contract provided in lieu of cash

Planned Unit Development (PUD)
A zoning classification that allows flexibility in the design of a subdivision. PUD's include individually owned units as well as some common space that is jointly owned.

Points
Fees paid to lenders. 1 point = 1 percent of the loan amount. On a $100,000 loan 1 point is $1000. Points may be further classified into origination points or discount points.

Prepaid Interest
Prepaid interest is the interest charged to borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the following month, the lender will charge 12 days of prepaid interest.

Prepayment
Full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property, or refinances the existing loan.

Prepayment Penalty
Fees paid by the borrower if they pay the loan before its due date.

Pre-Qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

Primary Mortgage Market
Companies that originate and service mortgage loans (banks, savings & loans, credit union, mortgage bankers, institutional lenders) make up the primary mortgage market.

Principal
The outstanding balance on a loan.

Probate
Court process to establish the validity of the will of a deceased person.

Property Tax
A government levy based on the market value (as assessed by the county assessor's office) of the property.

Purchase Agreement
A real property agreement between a buyer and seller specifying the price and terms of the sale.

Purchase Money Mortgage
A mortgage used to finance the purchase of a property.

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Q
Qualification Rate
Rate of interest used to calculate whether or not a borrower qualifies for a mortgage.

Qualification Requirements
Guidelines used by lenders to decide whether to loan money to an applicant.

Qualified Acceptance, Conditional Acceptance
Acceptance for a loan (or other contract) provided that certain conditions are met.

Qualified Buyer
A person who has been pre-approved for a mortgage loan.

Qualifying Ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

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R
Recession
A recession is usually defined as a fall of a country's real Gross National Product in two or more successive quarters of a year. A recession may also involve falling prices, which can lead to a depression. In a free market economy, recessions come and go at fairly regular intervals, often five to ten years, in what is known as the business cycle.

Recision
The cancellation of a contract. When refinancing a mortgage on a principal residence the law gives the homeowner three days to cancel the contract.

Recourse
The right of the holder of a note secured by a mortgage or deed of trust to claim money from the borrower in default in addition to the property pledged as collateral.

Refinance
Obtaining a new mortgage loan on a property already owned, often to replace existing loans

Right of survivorship
The right of a surviving joint tenant to acquire the interest of a deceased joint owner.

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S
Sales Agreement or Sales Contract
See Agreement of Sale.

Security
Property that serves as collateral for a debt.

Simple Interest
Interest which is computed only on the principal balance.

Single Family Home (SFR)
A type of residential structure designed to include one dwelling. E.g., town home, detached unit.
Example : Town houses, detached units.

Soft Market
A market where houses aren't selling much or quickly, so the sales price is likely to be significantly lower than the asking (listing) price. It's a good time for buyers to buy, but not the best time for prospective sellers to sell.

Subordinate Financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

Subordination
A loan in a lower priority, for example a second mortgage is subordinate to a first.

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T
Tax Lien
Lien for nonpayment of taxes.

Tenancy in Common
Ownership of a property by 2 or more persons, each of whom has an undivided interest, without the right of survivorship. Upon the death of one of the owners, the ownership share of the deceased is inherited by the beneficiary designated on the owner's will.

Tenancy in Severalty
Ownership of property by one person.

Time is of the Essence
Legal phrase in a contract requiring all references to specific dates and times noted in the contract be interpreted exactly.

Title
Evidence that the owner of the property is in lawful possession. Evidence of ownership.

Title Search
An examination of the public records to determine the ownership and encumbrances affecting the property.

Total Expense Ratio
Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.

Trustee
A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

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U

Underwriting
The decision whether to make a loan to a potential home buyer based on credit, income, employment history, assets, etc.

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V
Verification of Deposit (VOD)
A document signed by the borrower's bank or other financial institution verifying the account balance and history.

Verification of Employment
A document signed by the borrower's employer verifying his/her starting date, job title, salary and probability of continued employment.

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W

Waiver
The voluntary renunciation, abandonment, or surrender of some claim, right, or privilege.

Walk-Through Inspection
A final walk-through immediately prior to closing to verify that no changes have taken place and no new damage has occurred.

Wear and Tear
Normal use and the resulting reduction in value of a property.

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Z

Zoning
Areas may be zoned to specify use of a property i.e. residential, commercial, agricultural. These zoning ordinances are normally enforced by the city or the county.

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