Glossary – Real Estate Terms

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Real Estate Investment Glossary

A

• Acceleration – The mortgagee’s right to demand immediate loan repayment upon the borrower’s default or due-on-sale clause activation.
• Adjustable-Rate Mortgage (ARM) – A loan with monthly payments that vary based on an interest rate index. Adjustments occur semi-annually or annually.
• Adjusted Basis – Property cost plus value from improvements minus depreciation.
• Adjustment Date – When the interest rate changes on an adjustable-rate mortgage.
• Adjustment Interval – The time between interest rate or payment changes on an ARM, typically 1, 3, or 5 years.
• Adjustment Period – The duration between adjustment dates for an ARM.
• Affordability Analysis – A review of a buyer’s financial ability to afford a home, considering income, liabilities, and available funds.
• Amortization – The process of repaying a mortgage in monthly installments, initially focusing on interest, then principal reduction.
• Amortization Term – The time required to repay the mortgage, usually expressed in months (e.g., 360 months for a 30-year mortgage).
• Annual Percentage Rate (APR) – The yearly cost of a mortgage, including interest and fees, as a percentage of the loan amount.
• Appraisal/Appraised Value – A real estate appraiser’s market value opinion of a home.
• Arbitration – A dispute resolution method outside court, where an arbitrator makes decisions based on presented evidence and arguments.
• Assessment – A local tax on property for community purposes (e.g., sewers, streetlights).
• Assignment – Transferring contractual interest or obligation from one party to another, such as a mortgage obligation.
• Assumable Mortgage – A mortgage that can be transferred from the seller to the buyer, often requiring a credit review and possibly a fee.
• Assumption – An agreement where the buyer takes over the seller’s existing mortgage payments, potentially saving on closing costs and interest.
• Assumption Fee – A fee paid to the lender when a mortgage assumption occurs, usually by the property purchaser.

B

• Balloon Mortgage – A loan with a term shorter than its amortization period, requiring a large final payment for the remaining principal.
• Balloon Payment – The final lump sum payment due at a balloon mortgage’s maturity.
• Biweekly Payment Mortgage – A payment plan where half the monthly mortgage amount is paid every two weeks, reducing interest over the loan’s life.
• Blanket Mortgage – A mortgage that covers more than one piece of real estate as collateral.
• Borrower (Mortgager) – The individual who receives a loan secured by a mortgage and commits to repaying it.
• Bridge Loan – A short-term loan using the borrower’s current home as collateral to finance a new home purchase before selling the current home.
• Broker – A professional who facilitates funding or contract negotiations without lending money directly, often earning a fee or commission.
• Buy-down – An arrangement where the mortgage interest rate is reduced for the initial years of the loan, usually funded by the lender or homebuilder.

C

• Canceled – Listings not on the market because the listing contract was terminated in writing.
• Caps – Adjustable-rate mortgage limits on interest rate or payment changes per period or over the loan’s life.
• Cash Flow – The net amount of cash generated by an income-producing property over a specific period.
• Certificate of Eligibility – A document that qualifies veterans for VA-guaranteed loans, obtained with form DD-214 and VA form 1880.
• Certificate of Reasonable Value (CRV) – A Veterans Affairs appraisal showing a property’s market value.
• Certificate of Veteran Status – A document for veterans/reservists who served 90 days of active duty, enabling lower down payments on certain FHA loans.
• Change Frequency – The interval at which payment or interest rate adjustments occur on an adjustable-rate mortgage.
• Closed – Listings considered sold.
• Closing – The finalization of a home sale where the buyer and seller complete payment and transfer title.
• Closing Costs – Additional expenses for buyers and sellers during a home sale, including escrow fees, title insurance, and real estate commissions.
• COFI – An adjustable-rate mortgage tied to the 11th District Cost of Funds Index.
• Coming Soon – Indicates a valid contract exists, and the property is listed in the MLS but not active yet, often due to repairs or marketing strategies.
• Construction Loan – A short-term loan for financing the construction of buildings, with funds released periodically.
• Consumer Reporting Agency (or Bureau) – Organizations that compile credit reports used by lenders to assess borrowers’ creditworthiness.
• Contingency – A contract condition that must be met for the contract to become binding.
• Contract Sale or Deed – An agreement to transfer real estate title after certain conditions are met, functioning as an installment sale.
• Conventional Mortgage – A mortgage not insured or guaranteed by government agencies.
• Conversion Clause – An adjustable-rate mortgage feature allowing conversion to a fixed-rate mortgage at a specified time.
• Counteroffer – A new offer made in response to a previous offer.
• Credit Report – A document detailing a borrower’s credit history and current credit status.
• Credit Risk Score – A statistical summary of a consumer’s credit report information, such as the FICO score, used in mortgage underwriting.

D

• Default – The failure to fulfill the obligations of a contract, notably not making mortgage payments.
• Deferred Interest – Occurs when mortgage payments are insufficient to cover the note rate, leading to unpaid interest being added to the loan balance.
• Delinquency – The failure to make timely payments, potentially resulting in foreclosure.
• Department of Veterans Affairs (VA) – A federal agency offering long-term, low- or no-down payment mortgages to eligible veterans.
• Debt-To-Income (DTI) Ratio – A measure comparing monthly debt payments to monthly gross income, used by lenders to assess borrowing capacity.
• Debt Service Coverage Ratio (DSCR) – The DSCR is calculated by comparing the property’s annual rental income with its annual debt service (including principal and interest). The DSCR loan is a financial product that allows real estate investors to secure financing based on the rental income of their property, without relying on personal income.
• Deed – A legal document that transfers property ownership.
• Downpayment – The initial cash payment by the buyer towards the home purchase price.
• Double Net Lease (NN) – In this arrangement, you collect base rent while the tenant covers property taxes and insurance, lowering out-of-pocket expenses and financial risks.
• Due-on-Sale Clause – A mortgage provision allowing lenders to demand full repayment if the property is sold.

E

• Earnest Money – A deposit showing the buyer’s commitment to the purchase, typically refundable if certain contract conditions aren’t met.
• Entitlement – The VA home loan benefit, also known as eligibility for a VA-guaranteed home loan.
• Equal Credit Opportunity Act (ECOA) – A law ensuring equal access to credit without discrimination.
• Equity – The value difference between the home’s market value and the outstanding mortgage balance.
• Escrow – A neutral third party holds documents and funds until the closing of a real estate transaction.
• Escrow Disbursements – The use of escrow funds to cover taxes, insurance, and other property-related expenses.
• Escrow Payment – A portion of the monthly mortgage payment set aside to pay for taxes, insurance, and other recurring expenses.
• Expired – Listings not on the market due to the expiration of the listing contract.
• Exclusive Right to Sell Listing – A contract granting an agent exclusive rights to market a property for a specified period.
• Exclusive Agency Listing – A contract allowing a broker to market a property while still permitting the owner to sell independently without owing a commission.

F

• Farmers Home Administration (FmHA) – Provides financing to farmers and other qualified borrowers who cannot secure loans elsewhere.
• Federal Housing Administration (FHA) – A HUD division insuring residential mortgage loans and setting underwriting standards.
• Federal National Mortgage Association (Fannie Mae) – Buys and sells conventional and government-insured or -guaranteed mortgages to increase affordability and availability.
• FHA Loan – An FHA-insured loan available to all qualified home purchasers, with limits sufficient for moderately priced homes nationwide.
• FHA Mortgage Insurance – A mandatory fee for FHA loan insurance, including an upfront and an annual fee based on the loan amount.
• Financial Independence, Retire Early (FIRE) – A movement focused on extreme savings and investment to enable early retirement, well before traditional retirement age.
• Firm Commitment – FHA’s promise to insure a mortgage for a specific property and borrower, or a lender’s promise to make a loan.
• First Mortgage – The primary lien against a property.
• Fixed Installment – The monthly mortgage payment, covering both principal and interest.
• Fixed-Rate Mortgage (FRM) – A mortgage with an unchanging interest rate and monthly payments.
• For Sale By Owner (FSBO) – Selling a home without a realtor to avoid commission fees.
• Foreclosure – The legal process where a lender or seller forces property sale due to the borrower’s mortgage terms non-compliance.
• Federal Home Loan Mortgage Corporation (Freddie Mac) – Purchases conventional mortgages from insured depositories and HUD-approved bankers, alongside Fannie Mae as a key secondary mortgage-market agency.
• Fully Amortized ARM – An adjustable-rate mortgage with payments that fully amortize the balance over the term.

G

• Graduated-Payment Mortgage (GPM) – A mortgage with payments that increase for a set period then level off, incorporating negative amortization.
• Growing-Equity Mortgage (GEM) – A fixed-rate mortgage with scheduled payment increases, reducing the mortgage balance faster.
• Guaranty – A promise to fulfill another’s debt or obligation if they fail to meet their contractual obligations.
• Guarantee Mortgage – A mortgage guaranteed by a third party.

H

• Hard Money – Refers to metallic money’s physical properties, leading to the term “cold, hard cash.”
• Hazard Insurance – Protects against specified losses like fire or windstorm.
• Homeowner’s Warranty – Covers certain home repairs for a specified period after purchase.
• Housing Expenses-to-Income Ratio – The percentage of gross monthly income that goes towards housing expenses.
• HUD-1 Statement – Itemizes closing costs and funds payable at closing, with each item numbered for standardization.

I

• Impound Account – Set up by lenders for collecting property taxes and insurance payments, often required for down payments below 10%.
• Index – A published interest rate used to adjust adjustable-rate mortgages in relation to other investments.
• Indexed Rate – The sum of the index plus a margin, determining the interest rate on an adjustable-rate mortgage.
• Initial Interest Rate – The original rate of the mortgage at closing, subject to change in ARMs.
• Installment – Regular payment made by a borrower to a lender.
• Insured Mortgage – Protected by the FHA or private mortgage insurance.
• Interest – The fee for borrowing money.
• Interest Accrual Rate – The rate at which interest accumulates on the mortgage, also used for calculating monthly payments.
• Interest Rate Buydown Plan – Allows a seller to help reduce a buyer’s monthly mortgage payments early in the loan term.
• Interest Rate Ceiling – The maximum interest rate for an adjustable-rate mortgage, as specified in the mortgage note.
• Interest Rate Floor – The minimum interest rate for an adjustable-rate mortgage, as specified in the mortgage note.
• Interim Financing – A construction loan made until a permanent loan replaces it upon project completion.
• Investor – A source of funds for a lender.

L

• Lease-Purchase Mortgage Loan – Allows low- and moderate-income buyers to lease a home with an option to buy, including PITI and savings for a downpayment.
• Liabilities – Financial obligations of a person, including long-term and short-term debt.
• Lien – A claim on property for the satisfaction of a debt or obligation.
• Lifetime Payment Cap – Limits how much payments can change over the life of an adjustable-rate mortgage.
• Lifetime Rate Cap – Caps the interest rate changes over the life of an adjustable-rate mortgage.
• Listing – A property placed on the market by a listing agent.
• Loan – Borrowed money to be repaid with interest.
• Loan-to-Value (LTV) Ratio – The ratio of a home’s loan amount to its value.
• Lock – A lender’s guarantee of a mortgage rate for a specific period.

M

• Margin – The amount added to the index in an adjustable-rate mortgage to set the interest rate.
• Market Value – The highest price a buyer would pay and the lowest a seller would accept.
• Maturity – The date a loan’s principal balance is due.
• Mediation – A dispute resolution process assisted by a neutral third party.
• MIP (Mortgage Insurance Premium) – FHA insurance protecting the lender against borrower default.
• Monthly Fixed Installment – The portion of a monthly payment applied to principal and interest.
• Mortgage – A legal document pledging property as security for a debt.
• Mortgage Banker – Originates mortgages for sale into the secondary market.
• Mortgage Broker – Arranges mortgage financing between a borrower and a lender.
• Mortgagee – The lender in a mortgage agreement.
• Mortgage Insurance – Insurance for mortgages with less than 20 percent down payment.
• Mortgage Life Insurance – Pays off the mortgage if the borrower dies.
• Mortgage Interest Deduction – Allows borrowers to deduct mortgage interest on income taxes.
• Mortgager – The borrower or homeowner.
• Multiple Listings Service (MLS) – Combines all area home listings in one database, excluding FSBO properties.

N

• Negative Amortization – When monthly payments don’t cover all interest, adding unpaid interest to the loan balance, increasing the amount owed.
• Net Effective Income – Gross income minus federal income tax.
• Net Listing – A listing agreement where the broker’s commission is any amount above a set net price.
• Non-assumption Clause – Prohibits mortgage assumption without lender approval.
• Note – Legal document obligating repayment of a mortgage loan at a specified interest rate and period.

O

• One-year Adjustable – A mortgage with an annual interest rate adjustment, based on an index plus a margin.
• Open Listing – Property marketed by multiple agents simultaneously.
• Origination Fee – Fee charged by lenders to create a mortgage.
• Other People’s Money (OPM) – A slang term in finance that refers to financial leverage, where borrowed capital is used to amplify potential returns and risks of an investment. OPM can be utilized by both individuals and corporations, acting as a double-edged sword by potentially magnifying profits or losses.
• Owner Financing – Seller provides all or part of the financing for a property purchase.

P

• Passive Income – Revenue that requires negligible effort to earn, often derived from rental properties, limited partnerships, and other ventures that don’t necessitate active involvement in ongoing income generation.
• Payment Change Date – When a new monthly payment amount starts for an adjustable or graduated-payment mortgage.
• Pending – No contingencies in the contract or all contingencies have been satisfied, indicating a property deal is almost finalized.
• Periodic Payment Cap – Limits payment changes during any adjustment period.
• Periodic Rate Cap – Limits interest rate changes during any adjustment period.
• Permanent Loan – A long-term mortgage, often referred to as an “end loan.”
• PITI – Principal, interest, taxes, and insurance – the main parts of a monthly mortgage payment.
• Pledged-account Mortgage (PAM) – Uses a savings account to gradually reduce mortgage payments.
• Points – Fees charged by lenders to increase return on a mortgage; 1 point equals 1% of the mortgage amount.
• Power of Attorney – Legal document allowing one person to act on another’s behalf.
• Pre-approval – Process to determine eligibility for a loan amount before applying.
• Prepaid Expenses – Costs for creating or adjusting an escrow account, including taxes and insurance.
• Prepayment – Allows borrowers to pay mortgage payments ahead of schedule.
• Prepayment Penalty – Fee for early repayment of debt, permitted in many states.
• Primary Mortgage Market – Direct lenders like banks and mortgage companies that may sell mortgages to the secondary market.
• Principal – The amount borrowed or still owed on a loan.
• Private Mortgage Insurance (PMI) – Insurance protecting lenders against loss from a default on a low downpayment mortgage.

Q

• Qualifying Ratios – Calculations determining mortgage eligibility based on income and debt ratios.

R

• Rate Lock – Lender’s guarantee of a specified interest rate and costs for a set time.
• Real Estate Settlement Procedures Act (RESPA) – Law requiring lenders to disclose closing costs in advance.
• REALTOR® – A real estate professional adhering to a strict code of ethics, part of national and local realtor associations.
• Recission – The right to cancel a contract within three days in certain mortgage scenarios.
• Recording Fees – Charges for making a home sale part of the public record.
• Refinance – Obtaining a new mortgage to replace existing ones on a property.
• Renegotiable Rate Mortgage – A loan with periodically adjustable interest rates.
• Reverse Annuity Mortgage (RAM) – A mortgage where the lender pays the borrower, secured by home equity.
• Revolving Liability – A credit line allowing borrowing up to a pre-approved limit for purchases.

S

• Satisfaction of Mortgage – A document confirming a mortgage is paid in full.
• Second Mortgage – A mortgage taken out after the first mortgage, subordinate to it.
• Secondary Mortgage Market – Where primary lenders sell mortgages to free up funds for new loans.
• Security – Property pledged as collateral for a loan.
• Seller Carry-back – Seller provides financing, often with an assumable mortgage.
• Seller Financing – Seller provides part or all of the financing for a buyer.
• Servicer – Manages loan payments and escrow accounts for borrowers.
• Servicing – Maintenance operations by a lender to keep a loan in good standing.
• Shared-Appreciation Mortgage (SAM) – A loan offering below-market rates in exchange for a share of future property appreciation.
• Simple Interest – Interest calculated only on the principal balance.
• Single Net Lease (N) – As the landlord, you receive base rent and transfer the responsibility of paying property taxes to the tenant, reducing your direct financial burden.
• Standard Payment Calculation – Method to determine monthly payments to repay a mortgage balance at the current rate.
• Step-Rate Mortgage – A mortgage with scheduled interest rate increases, leading to higher payments over time.
• Survey – Land measurement by a surveyor showing location, dimensions, and buildings.
• Sweat Equity – Equity gained by a buyer’s work on the property being purchased.

T

• Third-Party Origination – A process where a lender uses another party for various mortgage-related services before delivering to the secondary market.
• Title – The legal concept that denotes ownership of property.
• Title Insurance – Insurance protecting against losses from ownership disputes.
• Title Search – Examination of public records to verify property ownership.
• Total Expense Ratio – Obligations as a percent of gross income, including housing expenses and other debts.
• Triple Net Lease (NNN) – This lease type makes the tenant responsible for property taxes, insurance, and maintenance costs, ensuring steady rental income for the landlord with minimal expenses.
• Truth In Lending Act – Federal law requiring disclosure of the annual percentage rate to homebuyers.
• Two-Step Mortgage – A mortgage with an initial below-market interest rate that adjusts to market conditions after a set period.

U

• Underwriting – The process of evaluating a loan application against lender standards.
• Usury – Charging interest in excess of the legal rate.

V

• VA Loan – A low- or no-downpayment loan guaranteed by the Department of Veterans Affairs for those qualified by military service.
• VA Mortgage Funding Fee – A premium paid on a VA-backed loan, dependent on downpayment size.
• Verification of Deposit (VOD) – Document verifying the status and balance of a borrower’s financial accounts.

W

• Warehouse Fee – A fee charged to offset the cost of borrowing funds to originate loans intended for sale in the secondary market.
• Withdrawn – Indicates a temporary situation with no showings or offers by request, with a valid contract and listing in the MLS but not currently active.
• Wraparound Mortgage – Combines an existing loan with a new loan, offering an interest rate between the old and current market rates.