Glossary

Adjustable Rate Mortgage
A mortgage instrument with an interest rate that is periodically adjusted to follow a preselected published index. The interest rate is adjusted at certain intervals during the loan period.

Agency
Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the principal. Agency involving real property should be in writing, such as listing, trust, and powers of attorney.

Amortization
Payment of a debt in regular, periodic installments of principal and interest, as opposed to interest-only payments.

Appraisal
An opinion of value based on factual analysis. In the context of most real estate transactions performed by an appraiser licensed by the Department of Real Estate on behalf of the buyer’s lender.

APR (Annual Percentage Rate)
The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. The APR is disclosed as a requirement of federal truth in lending statutes.

Assessed Value
Value placed upon property for property, tax purposes by the tax collector.

Assessment
A levy against property in addition to general taxes. Usually for improvements such as streets and sewers.

Balloon Payment
A lump sum principal payment due at the end of some mortgages or long-term loans.

Beneficiary
(1) One for whose benefit a trust is created. (2) In states where deeds of trust are commonly used instead of mortgages, the lender (mortgagee) is called the beneficiary.

Borrower
One who borrows funds with the express or implied intention of repaying the loan in full or giving the equivalent.

Breach of Contract
Failure to perform a contract, in whole or part, without legal excuse.

Bridge Loan
A short-term loan secured by the equity in an as-yet unsold house, with the funds to be used for a down payment and/or closing costs on a new home. There is no payment of principal until the house is sold or at the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the home is sold.

Broker
A person who, for another, and compensation or in anticipation of compensation, appraises, auctions, sells, exchanges, buys, rents or offers, attempts, or agrees to appraise, auction, or negotiate any sale, exchange, purchase, or rental of business enterprises or any real property or any interest in or concerning the same or who advertises the same.

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

Certificate of Title
A statement that shows ownership of property, stating that the Seller has clear legal title.

Chain of Title
The chronological order of conveyances of a parcel of land from the original owner to the present owner.

Clear Title
Real property against which there are no liens, especially involuntary liens (mortgages).

Closing
In real estate sales, the final procedure in which documents are executed and/or recorded and the sale (or loan) is completed.

Closing Costs
Expenses incidental to a sale of real estates, such as loan fees, title fees, and appraisal fees.

Closing Statement
The statement lists the financial settlement between Buyer and Seller and the costs each must pay.

Cloud on Title
An invalid encumbrance on real property, which, if valid, would affect the owner’s rights. For example

Commission
An agent’s or broker’s fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.

Commitment
An agreement, frequently in writing, between a lender and a borrower to loan money at a future date, subject to certain conditions.

Comparables
Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.

Condominium
A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit is generally a separately owned space whose interior surfaces (walls, floors, and ceilings) serve as its boundaries.

Consideration
Anything that is legally of value and induces one to enter into a contract.

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

Conventional Mortgage
A mortgage or deed of trust not obtained under a government-insured program such as FHA or VA.

Conversion Clause
A provision in some ARMs that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages. This conversion feature may cost extra.

Conveyance
Transfer land title. Includes most instruments by which an interest in real estate is created, mortgaged, or assigned.

Co-operative
A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

Covenants, Conditions, and Restrictions (CC&R’s)
A term used in some areas to describe the restrictive limitations which may be placed on the property.

Credit Report
The report to a prospective lender on the credit standing of a prospective borrower.

Deed
Any one of many conveying or financing instruments, but generally a conveyancing instrument, given to pass the title to property upon sale.

Default
Failure to fulfill terms as agreed in the mortgage note.

Deposit
Money given by the Buyer with an offer to purchase. Shows good faith. Also called earnest money.

Documentary Transfer Tax
A City/County tax on selling real property, based on the sale price.

Down Payment
Cash portion paid by a Buyer from his/her funds, as opposed to that portion of the borrowed purchase price.

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

Earnest Money
The portion of the down payment delivered to the Seller or Escrow agent by the purchaser with a written offer as evidence of good faith.

Easement
A right to limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone’s property.

Encumbrance
A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner but which will not prevent the transfer of fee title.

Equity
The market value of real property, less the amount of existing liens.

Escrow
A procedure in which a third party acts as a stakeholder for both the Buyer and the Seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

Execute
To complete, to finish, in real estate deeds, to sign, seal, and deliver.

Fair Credit Reporting Act
A federal law giving one the right to see his/her credit report so that errors may be corrected. A lender refusing credit based on a credit report must inform the Buyer which company issued the credit report. The Buyer may see the report without charge if refused credit.

Federal Home Loan Banks
A system of 11 regional banks established by the Home Loan Bank act of 1932 to keep a permanent supply of money available for home financing.

Fee Simple
Estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Commonly, a synonym for ownership.

F.H.A. (Federal Housing Administration)
A federal agency that insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

FHA Loan
A loan insured by the Insuring Office of the Department of Housing and Urban Development, the Federal Housing Administration.

FHLMC (Freddie Mac)
Federal Home Loan Mortgage Corporation. A federal agency purchasing first mortgages, both conventional and federal insured, from members of the Federal Reserve and the Federal Home Loan Bank System.

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

First Mortgage
A mortgage having priority over all other voluntary liens against certain property.

Fixed Rate Mortgage
A mortgage having a rate of interest which remains the same for the life of the mortgage.

Fixture
Property, such as a hot water heater or plumbing fixture, that has become permanently attached to a piece of real estate and goes with the property when it is sold.

Flood Certification
An independent agency report is required by the lender to determine whether a property is located in a flood hazard zone. Such conditions would then require a federally mandated flood insurance policy.

Flood Insurance
Insurance indemnifying banks against loss by flood damage. Required by lenders (usually banks) in areas designated (federally) as potential flood areas. The insurance is private but federally subsidized.

FNMA (Fannie Mae)
Federal National Mortgage Association. A private corporation dealing in the purchase of first mortgages at discounts.

Foreclosure
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower’s debt.

GNMA (Ginnie Mae)
Government National Mortgage Association. A federal association, working with F.H. A., which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

Good Faith
Done with good intentions, without knowledge of fraudulent circumstances, or reason to inquire further.

Gross Income
Normal income, including overtime, prior to any payroll deductions that is regular and dependable. This income may come form more than one source.

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

Homeowner’s Association
(1) An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. (2) An association formed by the builder of condominiums or planned developments and required by a statue in some states. The builder’s participation, as well as the duties of the association are controlled by statute.

Homeowner’s Insurance
Includes the coverage of Hazard Insurance plus added coverage such as personal liability, theft away from the home (items stolen from the insured’s car), and other such coverage.

Home Warranty Plan
A warranty that protects against failure of mechanical systems within the property. Usually this includes plumbing, electrical, heating systems, and installed appliances.

HUD-1 Form
See Real Estate Settlement Statement

Income Property
Real estate that is owned for investment purposes and not used as the owner’s residence.

Interest
A charge paid for the use of money.

Interest Rate
The amount a lender charges a borrower and is a percentage of the principal.

Joint Tenancy
An undivided interest in property taken by two or more joint tenants. The interests must be equal, occurring under the same conveyance, and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Land Contract
When the Buyer agrees to make payments directly to the Seller at pre-negotiated terms. The Seller agrees to deed the property to the Buyer upon completion of the agreement. The Buyer becomes the owner of equity in this type of sale. (Also see Owner Financing)

Late Charge
A borrower’s charge for failing to pay an installment payment on time.

Lease
An agreement by which an owner of real property gives the right of possession to another for a specified period and a specified consideration (rent). Title does not pass.

Legal Description
A method of geographically identifying a parcel of land, which is acceptable in a court of law. A description parcel of land sufficient to identify the property such as a lot and tract number.

Lien
An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances, but all encumbrances are not liens.

Lis Pendens
A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in said property after the date of the notice may be bound by the outcome of the litigation.

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

Loan Origination Fee
One-time setup fee charged by a lender.

Loan Package
The file of all items necessary for the lender to decide whether to give a loan. Items would include the information on the prospective borrower (for example, loan application, credit report, financial statement, employment letters) and information on the property (for example, appraisal, survey)

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

Market Price
The price a property brings in a given market. Commonly used interchangeably with market value, although not indeed the same.

Market Value
The price at which a property will sell, assuming a knowledgeable Buyer and Seller, operating without undue pressure, after the property has been fully exposed to the market.

Mortgagee
The party lending the money and receiving the mortgage. Some states treat the mortgagee as the “legal” owner, entitled to rents from the property. Other states treat the mortgagee as a secured creditor, the mortgagor being the owner. The latter is the more modern and accepted view.

Mortgage Insurance
Insurance written by an independent mortgage insurance company protects the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price. The Federal government writes this form of insurance through the FHA and VA.

Mortgage Note
A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.

Mortgagor
The party who borrows the money and gives the mortgage.

Multiple Listing
An exclusive listing, submitted to all members of an association so that each may have an opportunity to sell the property.

Note
A unilateral agreement containing an express and absolute promise of the signer to pay to a named person, order, or bearer, a definite sum of money at a specified date or on demand. Usually provides for interest and, concerning real property, is secured by a mortgage or trust deed.

Offer
A presentation or proposal for acceptance in order to form a contract. To be legally binding, an offer must be definite as to price and terms.

Offer and Acceptance
Necessary elements of a contract to sell real estate.

Offer to Purchase
A written proposal to buy a piece of real estate that becomes binding when accepted by the Seller. Also called a sales contract.

Origination Fee
A fee made by a lender for making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

Owner Occupied
Property physically occupied by the owner. Owner Financing

Ownership
Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, and liens.

Payoff
The payment in full of an existing loan or other lien.

Personal Property
Any property which is not designated by law as real property.

PITI (Principal, Interest, Taxes, and Insurance)
Used to indicate what is included in a monthly payment on real property.

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

Plat
A map of a piece of land showing boundary lines, streets, actual measurements, and easements.

Point
An amount equal to 1% of the loan principal. Lenders charge loan points to increase their yield on a mortgage. Points are considered prepaid interest.

Power of Attorney
An authority by which one person (principal) enables another (attorney-in-fact) to act for him.

Pre-approval
A commitment by a lender to extend credit provided that specific conditions are met.

Preliminary Title Report
A report showing the condition of the title before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued.

Pre-Qualification
A preliminary assessment of a Buyer’s ability to secure a loan, based on a specific set of lending guidelines and Buyer representations made. This is not a guarantee or commitment by a lender to extend credit.

Prepaid Items
Those expenses of property which are paid in advance and will usually be prorated upon sale, such as taxes, insurance, and rent.

Prepayment Penalty
A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.

Private Mortgage Insurance
Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a government agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

Promissory Note
Promise in writing, and executed by the maker, to pay a specified amount during a limited time, or on demand, or at sight, to a named person, or on order, or to bearer.

Proration
To divide (prorate) property taxes, insurance premiums, and rental income, between Buyer and Seller proportionately to the time of use, or the date of closing.

Public Records
Usually at a county level, the records of all documents which are necessary to give notice. The records are available to the public. All transactions for real estate should be recorded.

Purchase Agreement
Agreement between a Buyer and Seller of real property, setting forth the price and terms of sale.

Quitclaim Deed
A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Real Estate
(1) Land and anything permanently affixed to the land, such as buildings, fences, and those things attached to the buildings, such as light fixtures, plumbing, and heating fixtures, or other such items which would be personal property if not attached. The term is generally synonymous with real property, although in some states a fine distinction may be made. (2) May refer to rights in real property as well as the property itself.

Real Estate Settlement Statement
Final settlement statement, often referred to as the HUD-1 form, used to itemize Buyer, Seller, broker, and lender charges and credits at closing.

Recording
Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors, or their interested parties. Recording is controlled by statute and usually requires the witnessing and notarizing of an instrument to the recorded.

Recording Fee
Amount paid to recorder’s office to make a document a matter of public record.

RESPA
Real Estate Settlement Procedures Act. Federal statute effective June 20, 1975, requiring disclosure of certain costs in selling residential (one to four family) improved property to be financed by a federally insured lender.

Refinancing
Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.

Right of Survivorship
The right of a survivor of a deceased person to the property of said deceased. A distinguishing characteristic of a joint tenancy relationship.

Sales Associate
A person who, for another, and compensation or in anticipation of compensation, appraises, auctions, sells, exchanges, buys, rents or offers, attempts, or agrees to appraise, auction, or negotiate any sale, exchange, purchase, or rental of business enterprises or any real property or any interest in or concerning the same or who advertises the same, but who performs such act under the direction, control, or management of a broker or owner/developer.

Sales Contract
Another name for a sales agreement, and purchase agreement.

Survey
The measurement of the boundaries of a parcel of land, its area, and sometimes its topography.

Tenancy in Common
An undivided ownership in real estate by two or more persons. The interests need not be equal, and, in the event of the death of one of the owners, no right of survivorship in the other owners exists. This term (and the abbreviation TIC) is now used commonly in San Francisco for a single unit within a multi-unit building owned in Tenancy in Common for which the owner of the share interest has an exclusive right to occupy.

Tenant
(1) A holder of property under a lease or other rental agreement. (2) Originally, one who had the right to possession, irrespective of the title interest.

Title
The evidence one has the of right to possession of the land.

Title Insurance Policy
A policy that protects the purchaser, mortgage, or other party against losses concerning title to the property and matters such as easements, encroachments, and liens.

Title Search
A public record check to disclose the past and current facts regarding ownership of a particular piece of property.

Truth-In-Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender.

Veterans Administration (VA)
An agency of the Federal government that, among other things, ensures and guarantees loans for veterans.

VA Loan
A loan that is partially guaranteed by the Veterans Administration and made by a private lender.

Verification of Employment (VOE)
Document signed by the borrower’s employer verifying position and salary.