Real Estate Glossary

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

Learn the terms you need to know to negotiate your home purchase

Above Par - When a mortgage is sold for more than its face value because it has an above market interest rate. For example, a $100,000 mortgage may be sold for 101.00, or $101,000.

A Credit Mortgages - Mortgages which generally meet the credit underwriting guidelines of Fannie Mae, Freddie Mac, FHA, VA or major jumbo purchasers. Those who have credit ratings or other qualification deficiencies would be rated as B, C or D credit.

Acquisition Cost - The sales price of a property plus FHA allowable closing costs. FHA allows certain closing costs to be financed by adding them to the sales price before calculating the required down payment.

Adjustable Rate Mortgage - A mortgage in which the interest rate changes at certain intervals during the term of the mortgage.

Adjusted Sales Price - IRS term for the sales price of a home minus the costs of the sale. Used to calculate capital gains.

Adjustment Period - The length of time which dictates interest rate adjustments on an adjustable rate mortgage. A six month ARM would have an adjustment every six months.

Adjustment Period Cap - The amount that the interest rate is allowed to increase or decrease at the time of adjustment of an adjustable rate mortgage. A one year adjustable would have an annual cap, since the adjustment period is every year.

Alternative Documentation - Use of bank statements, W-2's, and pay stubs to document an applicant's income and assets instead of verification forms mailed by the lender.

Amortization Schedule - A table which shows the principal changes of a mortgage balance on a monthly or annual basis.

Annual Percentage Rate (APR) - Calculation which standardizes rates, points and other costs of a financing instrument such as a mortgage loan. This figure is disclosed as part of the truth-in-lending statement which is required by the Federal Truth-in-Lending Act. The statement is required on all consumer loans but is required to be disclosed within three working days of application for residential owner-occupied mortgage loans pursuant to the Real Estate Settlement Procedures Act (RESPA).

Application Fee - Fee charged by a lender at the time of loan application. This fee may include the cost of an appraisal, credit report, lock in fee or other closing costs which are incurred during the process or the fee may be in addition to other charges.

Appraisal - An estimate of value in this case for real property. For residential properties the appraiser would utilize the Uniform Residential Appraisal Report, or URAR. Professional real estate appraisal programs assist the home appraisal process.

Appreciation - The increase in value of property over time.

Assumption - The act of taking over the previous borrower's obligation of a mortgage note. Assumptions may be advantageous if the terms of the mortgage are advantageous and they are not charged by the lender when the mortgage is assumed.

Top

Back-to Back Settlement - Transactions involving selling one home and purchasing another on the same day, usually within hours of one another. The seller typically moves from one settlement table to the next in order to accomplish the purchase transaction.

Balloon - A mortgage which does not fully amortize over the term of the mortgage. The principal remaining in the end of the term is called a balloon payment.

Base Mortgage Payment - The mortgage amount before financed mortgage insurance or VA funding fee is added.

Bi-Weekly Mortgage - A mortgage which requires one-half of one monthly payment every two weeks. The resulting extra monthly payment each year lowers the mortgage term to approximately 22 years from 30 years.

Bridge Loan - Short term mortgage, usually interest only, utilized to help a purchaser settle on a home before his/her present home is sold.

Buydown - To lower the interest rate on a mortgage. A permanent buydown would lower the rate for the entire term of the mortgage. A temporary buydown would lower the rate for a certain portion of the mortgage term, usually the first few years.

Top

Capital Gains Income - Income derived through the sale of assets such as real estate.

Capped Rate - A rate commitment by a lender which locks in a maximum rate but allows the borrower to relock if market rates decrease. Also referred to as cap and float.

Cash Out Refinance - A refinance in which the borrower takes cash, or equity out of the property.

Certificate of Eligibility (COE) - Certificate issued by VA which gives the amount of entitlement available to a veteran.

Certificate of Insurance - Document which adds the mortgage holder on a particular unit to the master insurance policy for a condominium development.

Certificate of Reasonable Value(CRV) - Appraisal of a property for a VA mortgage. Appraisal of a subdivision would be a Master Certificate of Reasonable Value, or MCRV.

Certificate of Veteran Status - FHA form filled out by the Department of Veteran Affairs in order to establish a borrower's eligibility for an FHA Vet Mortgage.

Closing Costs - The costs which incurred in order to purchase real estate. These may include points, taxes, settlement agent fees and more.

Co-borrower - Two or more borrowers obtaining the same mortgage. If a co-borrower is not living in the house he/she would be know as non-owner occupant co-borrower.

Combined Loan To Value - The principal balance of all mortgages on the property (including second and third trusts) divided by the value of the property.

Commercial Mortgage - A loan which secures commercial real estate.

Commercial Real Estate - Office buildings, shopping centers, apartment buildings and other property which is utilized for the production of income rather than as residences. If residential real estate has more than four units it is considered commercial real estate.

Commitment - An agreement for future action. A rate commitment would be an agreement to lend at a certain rate. A loan commitment would be an agreement to lend and represent another term for loan approval.

Comparables - Properties utilized in an appraisal to determine the value of the property being appraised.

Compensating Factor - A positive characteristic of a mortgage application which may offset a negative factor.

Compressed Buydown - A temporary buydown, which has rate changes every six months as opposed to annually.

Conditional Right to Refinance - A provision of a balloon mortgage which, at the time of the scheduled balloon payment, allows the borrower to convert to a fixed rate for a fixed period which will fully amortize the mortgage.

Conditional Commitment - Term for an FHA appraisal. An FHA appraisal for a subdivsion would be called a Master Conditional Commitment, or MCC.

Condominium- A project in which each unit owner has title to a unit and has an undivided interest to the common areas.

Condominium Association Fee - A fee paid by the homeowner to the association which governs a condominium complex for his/her part of the maintenance and management of the project.

Conforming Mortgage - A mortgage which can be purchased by Fannie Mae or Freddie Mac.

Construction Mortgage - A loan secured by real estate which is for the purpose of funding the construction of improvements, or buildings, upon the property.

Construction to Permanent Mortgage - A loan secured by real estate which is for the purpose of replacing a construction mortgage soon after the improvements are completed.

Consumer Price Index - An index of the Federal Governments measure of price increases at the retail level.

Contingencies - Conditions without which a transaction would be voided.

Contribution - A cash or other concesssion by the seller of a property in order to induce a purchaser to buy that property.

Conventional Mortgage - A mortgage not guaranteed by VA or insured by FHA, FMHA, or State Bond Agencies.

Conversion Feature - A feature of a mortgage which allows the conversion to another interest rate, mortgage term, or type of mortgage instrument.

Cooperative (COOP) - A form of ownership in which the right to occupy the unit is obtained by the purchase of shares in a corporation which owns the building.

Cost of Funds Index - An index which is made up of the cost to depository institutions of acquiring funds.

Coverage - The portion of the mortgage which is insured against default.

Credit Package - The portion of a loan application and documentation which is comprised of the information regarding the applicant's credit, income and asset history. The additional aspect of a loan application concerns the property being financed.

Credit Report - A report run by an independent credit agency which verifies certain information concerning an applicant's credit history.

Top

Deed of Trust - A legal document which enables the lender, or mortgagee, to hold legal claim or title to a property while the note is outstanding. The Deed of Trust transfers title to a trustee designated by the lender.

Default - The non-payment of a mortgage or other loan in accordance with the terms as specified in the note.

Delegated Underwriting - The delegation of underwriting authority from an investor or agency to the lender.

Department of Housing and Urban Development - A cabinet level Federal Agency which houses the Federal Housing Administration (FHA), Government National Mortgage Association (GNMA) and oversight to Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac)

Department of Veteran's Affairs - Cabinet level Federal Agency whose chief purpose is to aid veterans through a variety of programs.

Depreciation - The decrease in worth of an asset over a fixed period of time.

Discount Point - A charge by a lender levied to buydown the interest rate.

Distributive Shares - Increments of FHA insurance from a pool of mortgages insured during the same time period. If over the lifetime of the pool the mortgages perform such that there are shares remaining, they are distributed to the borrowers within that pool. This distribution is currently halted while the FHA insurance fund has been declared financially not sound.

Down Payment - Money given by the purchaser of a property to the seller to acquire the mortgage and hence the property. The difference between the sales price and mortgage amount is the down payment.

Draws - Money taken out of an escrow account in order to finance the rehabilitation of a house. Also refers to increments of money released by a lender as a house is built in the case of construction mortgage.

Top

Easement - A right to utilize another property other than one's own. Fore example, a utilitycompany may be granted an easement for utility lines.

Encroachment - The existence of a protrusion or infringement of a structure on a property.

Equity - The net value of an asset. In the case of real estate, it would be the difference between the present value of the property and the mortgage amount on that property.

Escrow - Money held by a third party on behalf of the first party to be utilized for requirements of a second party. A servicer is a third party which holds an escrow on behalf of a borrower to pay taxes and insurance payments to the applicable entities when they become due.

Extended Locks - Mortgage rate commitments which are for longer than the typical 60 day lock in term.

Top

Farmers Home Administration (FMHA) - Federal agency which guarantees mortgages in rural areas.

Federal Bond Subsidy Act - Federal legislation empowering state and local governments to issue tax free bonds to fund mortgages for lower and middle income borrowers.

Federal Home Loan Mortgage Corporation (Freddie Mac) - A quasi-governmental agency which is a publicly traded corporation. It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. The purpose of the entity is to help facilitate the access of mortgage money by creating a secondary market for conventional mortgages. Conventional mortgages purchased by Freddie Mac are called conforming mortgages.

Federal National Mortgage Association (Fannie Mae) - A quasi-governmental agency which is a publicly traded corporation. It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. Conventional mortgages purchased by Fannie Mae are called conforming mortgages.

Federal Housing Administration(FHA) - Government agency located within the Department of Housing and Urban Development.

Fee Simple - Unrestricted ownership of real property.

FHA Direct Endorsement - FHA program in which lenders approve FHA mortgages directly as opposed to submitting the applications to the agency for approval.

Final Inspection - Home inspection made by a lender, VA, FHA or the appraiser after a new home or repairs have been completed.

First Mortgage - The primary or original loan secured upon real estate.

Fixed Rate Mortgage - A mortgage in which the interest rate ( and usually the payment) does not change over the term of the mortgage.

Fixed Payment Mortgage - A mortgage in which the payment does not change over the term of the mortgage.

Float - A loan application in which the lender has not committed to lend at a particular interest rate (the rate is not locked in).

Floor - The lowest interest rate of an adjustable rate mortgage.

Free & Clear - A property with no mortgage liability placed upon it.

FSBO - An acronym which stands for for sale by owner, which is as opposed to a home which is listed for sale through a real estate company.

Full Documentation - Mortgage verification process which relies upon verification forms sent by the lender rather than alternative documentation (such as pay stubs) provided by the applicant.

Fully Amortized - A mortgage which has a zero balance at the end of the mortgage term.

Fully Amortized - A mortgage which has a zero balance at the end of the mortgage term.

Fully Indexed Accrual Rate - The index plus the margin for an adjustable rate mortgage.

Top

Grace Period - A length of time (usually 15 days) after a mortgage payments is due in which the lender will not charge a late penalty or report the payment as late.

Graduated Payment Mortgage-(GPM)- A mortgage which has regularly scheduled payment increases during some portion of the mortgage term.

Green Card - Immigration status which permits the holder to work in the United States, obtain a social security number and become an apprentice to attain citizenship.

Gross Monthly Income - A person's income before deductions for taxes, medical insurance, etc. After deductions, the income is referred to as take home pay or net income.

Ground Rent - The land upon which a home is located is under a long term lease (leasehold ownership as opposed to fee simple)

Growing Equity Mortgage (GEM) - A type of graduated payment mortgage which has a shorter mortgage term due to future payment increases.

Government Mortgages - Mortgages insured or guaranteed by the government (FHA, VA FMHA, or State Bond Agencies).

Government National Mortgage Association-(GNMA or Ginnie Mae). Government agency located within the Department of Housing and Urban Development. Created in 1968, its purpose is to facilitate the access of mortgages through creation of a secondary market for governement mortgages(FHA and VA)

Grossing Up Income - Income which is not taxed provides more value when qualifying for a mortgage application.

Guaranty - Amount of money VA will reimburse a lender upon default of a VA mortgage. Also referred to as the amount of entitlement or eligibility.

Top

Homeowners Association Fees(HOA Fees) - A fee typically paid monthly by a homeowner to a homeowners association in order for the association to take care of areas owned in common by all homeowners within a planned unit development.

Homeowner's Insurance - Insurance carried by the homeowner to protect the dwelling against fire and other hazards.

Top

Index - An indicator which is typically measured by an average of a variable over a certain period of time.

In File Credit Report - Report directly from the credit repositories without any investigative data such as interviews with employers.

Intangible Tax - The tax of something which is not tangible. The taxation of a real estate transaction would be considered an example of an intangible tax and sometimes is referred to.

Interest Only Mortgages - Mortgage programs which require no repayment of principal. Typical of bridge loans, which will balloon at the end of their term.

Interest Rate Cap - A limit on interest rate increases and/or decreases during each interest rate or over the term of the mortgage.

Investor Purchase - The purchase of a home for the purpose of generating income by renting the property to tenants.

IRS 4506/Request for Copy of Tax Form - IRS Form required by lenders on self employed loan applications. This form allows the lender to pull tax returns on the borrower directly form the IRS, usually accomplished as a quality control check on a certain number of cases after closing.

Top

Jumbo Mortgage - A mortgage which is larger than the legislated purchase limits of Fannie Mae and Freddie Mac.

Top

K-1 - Federal tax form which reports the income of an individual from a Partnership of Subchapter S Corporation.

Top

Land-to-Value - The value of the land divided by the total value of the property which includes both the land and the home.

Limited Documentation - Another term for a no income verification mortgage.

Lender Appraisal Processing Program (LAPP) - VA program which allows lenders to directly issue appraisals or CRV's.

Lender Paid Mortgage Insurance - Mortgage insurance program which allows the lender to collect a higher interest rate from borrower and forward the excess interest to the mortgage insurance company to pay for the mortgage insurance.

Lender Subsidized Buydown - A buydown which has a higher note rate than market.

Leverage - Ability to control a large asset with a smaller asset.

LIBOR Index - London Interbank Oferred Rates which is the average rate of interest that major London banks are willing to pay each other for U S dollar deposits for various terms.

Lien - A claim against a property. A mortgage is one form of a lien.

Life Cap - The amount the interest rate is allowed to increase during the term of the mortgage.

Loan-to-Value (LTV) - The principal amount of a mortgage on a property dividend by the value of that property.

Lock-in Fee - A fee charged by some lenders at the time of lock-in.

Lock-in - The process by which a lender commits to lend at a particular rate as long as the mortgage transaction closes within a specified time period. The document which specifies the terms of the lock-in is called a rate commitment or lock in agreement.

Lot Mortgage or Lot Loan - A loan secured by real estate which contains no improvements or buildings.

Low/Mod Programs - Acronym for mortgage programs aimed to serve the low-to moderate income populace.

Top

Margin - The amount added to the index on an adjustable rate mortgage to determine the interest rate at each adjustment.

Master Conditional Commitment(MCC) - An FHA appraisal accomplished for a subdivision.

Mortgage - A loan secured against a real estate as opposed to personal property. States which are not trust States utilize a mortgage as the legal instrument to secure the lien against the real estate which means that the owner holds title rather than a trustee.

Mortgagee - The lender of money which is secured by real estate.

Mortgagor - The borrower of money which is secured by real estate.

Mortgagee Clause - Verbiage in the homeowners and title insurance policies which identifies the mortgage holder and it's sucessors and/or assigns.

Mortgage Insurance - Insurance which protects the lender against default. Insurance can be issued by private sources (private mortgage insurance) or the Federal Housing Administration.

Mortgage Insurance Premium(MIP) - Mortgage insurance charged by FHA to insure a mortgage.

Top

Negatively Amortized Mortgage - A mortgage whose balance may increase with all or certain payments.

Net Proceeds - Amount of cash which accrues to the seller after expenses are deducted from a home sale.

Non-Conforming Mortgage - A mortgage which cannot be sold to Fannie Mae or Freddie Mac.

No-Income Verification Mortgage - A mortgage which does not verify the income stated by the applicant.

No Point Mortgage - A mortgage which carries a higher interest rate in exchange for no discount points or origination fee.

Note - A legal instrument which specifies the terms of any debt. When someone borrows money secured against real estate, a note will be signed.

Top

Open Equity Line - A second trust mortgage which is an open line of credit. That is, the balance can be increased by future draws up to a set amount.

Operating Income Statement - Form which determines the probable cash flow on a property which is to be used for rental purposes.

Origination Fee - A charge by a lender for the costs of originating a mortgage.

Owner Occupied Purchase - The purchase of a property for the purpose of the primary residence of the owner.

Top

Partial Entitlement - The entitlement remaining after the veteran has used part of his/her entitlement after obtaining a VA mortgage.

Payment Cap - The limitation on increases or decreases in the payment amount of an adjustable rate mortgage or fixed rate hybrid.

Personal Property - All other property besides real estate (for example, furnishings).

PITI - Total mortgage payment assuming an escrow fund is set up by the lender for real estate taxes and insurance.

Planned Unit Development - A project in which there is land and/or facilities owned in common by owners within the development.

Plans and Specs - The plans and specifications upon which the construction of the home is based.

POC - A charge which is paid outside of closing. This would include closing costs such as the appraisal and credit report which an applicant pays up front to the lender.

Point - A charge by the lender. One point is equal to 1% of the mortgage amount.

Post Closing Reserves - Liquid assets required by a lender after closing on the mortgage.

Prepaids - Closing costs which are actually paid at closing for charges which will occur in the future.

Pre-qualification - The process of determining one's qualification's for a mortgage and home purchase before the actual home is identified.

Principal Reduction - The reduction in loan balance which occurs with each payment of a positively amortized mortgage.

Processing - The procedure in which a lender takes a loan application and brings it to the point to underwriting for loan approval.

Profit and Loss Statement (P&L) - A financial statement provided by the applicant which reports the income and expenses for a business during a certain time period.

Purchase Money Mortgage - A mortgage obtained to finance the purchase of real estate.

Top

Qualification - The process which determines whether an applicant can be approved for a mortgage.

Top

Rate Reduction Refinance - The refinance of an existing mortgage balance solely to lower the interest rate.

Ratio Method - Method of qualifying which divides the monthly mortgage payment by the gross monthly income of the borrower and then divided the monthly mortgage payment and monthly debt payments by the gross monthly income.

Real Estate Settlement Procedures Act - Federal law which regulates the settlement practice and the real estate industry.

Real Estate Taxes - Local government taxes levied on the ownership of real estate.

Real Property - The ownership of real estate.

Recapture Tax - A federal tax required on the gain of sale of certain properties financed under the Federal Bond Subsidy Act which are sold within 10 years of purchase.

Recordation Fees - Fees charged by a local government to record the documents of a real estate transaction.

Reduced Closing Cost Mortgage - A mortgage which carries a higher interest rate in exchange for no points and or a credit towards other closing costs from the lender.

Refinance Mortgage - Money borrowed by the present owner of real estate to replace and existing loan secured by the same real estate or to place a mortgage on free and clear property.

Rehabilitate - The process of reconstructing or improving property which is in the stage of disrepair.

Rental Equivalency - A mortgage payment after the tax deductions are taken into consideration.

Rental Negative - The monthly cash flow loss on an investment property.

Residential Mortgage - A loan which is secured by residential real estate.

Residential Real Estate - Housing built and owned for the purpose of a person making the property his/her home or a property to be rented to tenants.

Residual Method - Method of qualifying which subtracts all expenses from a borrower's income to determine whether there remains a positive residual.

Reverse Annuity Mortgage - A mortgage which uses present equity in the property to fund monthly payments from the lender to the borrower-in lieu of the borrower receiving the proceeds of the loan in a lump sum.

Revolving Credit - Open lines of credit which are subject to variable payments in accordance with the balance.

Right of Recission - period of three full days after closing in which the consumer is allowed to negate an owner occupied refinance transaction.

Right to Financial Privacy Act - Places restrictions upon governmental authorities having access to copies of the financial records of any mortgage applicant.

Rolled-in - To include the closing costs of a refinance transaction in the balance of the mortgage.

Top

Sales Concession - Something a seller pays of value to a purchaser in order to entice the purchaser to buy the home.

Scheduled Negative Amortization - A mortgage which has planned increases in the balance of the mortgage during some portion of the mortgage term.

Second Home Purchase - A property purchased for occupancy by the owner but is not the primary residence.

Second Mortgage - A loan which is secured by real estate which is already secured by another loan referred to as the first mortgage.

Second Trust - Another tem for a second mortgage.

Secondary Market - A market which exists for the purchase and sale of mortgages and servicing rights as commodities.

Self Employment - A person who owns at least 25% of the entity for which generated income for that person. This is a system that can be setup by your accountant.

Servicing - The process by which a lender collects monthly mortgage payments and forwards and forwards applicable portions of the payments to the investor, local government and insurance agencies.

Settlement Agent - A person or entity which coordinates or conducts a closing or settlement.

Settlement - Another term for closing.

Shared Appreciation Mortgage - A mortgage which offers the lender the ability to realize future gains based upon future appreciation of the property,in exchange for a below market interest rate.

Sole Proprietorship - A form of self-employment in which the individual which is self-employed has formed no separate legal entity such as a corporation.

Staff Appraiser - An appraiser who works as an employee for a mortgage company as opposed to the company hiring an independent firm to appraise properties.

Streamline - A rate reduction refinance which requires less documentation than a full package mortgage applications.

Subsidize - A term for aid. Federally subsidize mortgages typically have an interest rate lower than market because of government assistance.

Survey - The measurement of the boundaries of a parcel of land, including any improvements, easements or encroachments within the boundaries of the property.

Top

Take Home Pay - One's paycheck after taxes and other deductions have been subtracted.

Take Back - When the seller uses the equity in the property to provide a mortgage for the purposes of financing the purchase for the buyer.

Tax Deduction - An expense which the government allows you to subtract from your income before the tax liability is computed.

Tax Service Contract - A service performed by a tax service company which identifies the payment due date of local taxes for the servicer.

Teaser Rate - A starting rate which is below the fully indexed accrual rate (FIAR) on an adjustable rate mortgage.

Temporary Buydown - A lower interest rate on a mortgage for a fixed period at the beginning of the mortgage term.

Term - The period or life over which a mortgage exists.

Title - Ownership record of the property.

Transfer Taxes - Taxes levied by a state or local government upon the transfer of real property.

Transmittal Form - Form which summarizes the date contained within a loan application.

Treasury Constant Maturities Indices - A series of indices issued by the Federal Government which measure the yield of treasury securities for the term measured by the index.

Truth-In-Lending Act - Federal law which requires a truth-in-lending statement to be disclosed for consumer loans. This statement would include disclosure of the annual percentage rate, or APR, as well as other facets of the mortgage program.

Top

Uniform Residential Loan Application Form - Form which is accepted by all major mortgage sources for application of residential mortgages.

Uniform Residential Appraisal Report - The appraisal form which is utilized by appraisers of residential properties to be financed with FHA, VA and conventional mortgages.

Uniform Settlement Statement - Settlement summary form required by RESPA to be used by closing agents.

Underwrite - The process by which a lender analyzes risk.

Top

Variable Income - Income form which will vary from year to year.

Verification of Deposit - Form which verifies an applicant's liquid assets held with a particular financial institution.

Verification of Employment - Form which verifies an applicant's job history, including employment date, salary, year to date income, income for the past year, and probability of continued employment.

Verification of Mortgage - Form which verifies an applicant's mortgage history with a financial institution, including the date of the mortgage, present balance, present payment, and history of late payments.

Top

W-2 - IRS form which reports income paid and taxes withheld by an employer will withhold from a particular employee during a calendar year.

W-4 - IRS form which determines the amount of Federal taxes the employer will withhold from a person's paycheck each pay period.

Worked Up - Process by which a fully verified loan application is prepared by the processor for underwriting.