Glossary of Real Estate Terms

• Acre: A land measurement which equals 43,560 square feet. There are 640 acres in one square mile.
• Adjustable-rate mortgage (ARM): The principal and interest payments are a fixed amount for a pre-set number of years, then are adjusted up or down annually. It differs from a fixed-rate mortgage in which the payment amount remains the same for the life of the loan.
• Adverse possession: A method by which an unauthorized person occupies land belong to another. If the true owner does not dispute the occupation within a certain matter of time, the trespasser can take legal ownership of the property.
• Air rights: Property ownership includes the right to use the air space above the land. Air rights may be sold or otherwise transferred independently of selling the land.
• Annual percentage rate (APR): The basic interest rate on a loan is expressed as a percentage. The APR includes other fees, such as points, as well as the basic interest rate that is paid to obtain the mortgage and thus is reflection of the true cost of borrowing.
• Appraised value: An evaluation of value by a professional, based on an analysis of various factors concerning the property.
• Appreciation: The increase in the value of property. It may fluctuate, due to a variety of factors, which can change over time.
• Appurtenant: The attachment of something, such as a furnace or water tank, to property. The attachment becomes a legal part of the property.
• Assessed value: The basis of value for the purpose of property taxes, as determined by a governmental assessor. It may be more or less than appraised value.
• Assignment: A method of transferring ownership from one person to another of some aspect of property, such as a title or an option.
• Assumable mortgage: The buyer takes over the seller's existing loan. The lender must agree to the transfer.
• Balloon mortgage: The borrower makes fixed payments for pre-set length of time, then makes one or more large payments to pay off the loan.
• Base line and meridian: A land survey method which uses a grid of lines to establish the location of property. Base line and meridian resemble latitude and longitude, in that they based on an imaginary grid of lines running east and west and north and south.
• Bridge loan: A short-term loan to help buy new property before the old property is sold.
• Buydown: Payment of a fee up-front by a borrower to obtain a lower interest rate on a mortgage.
• Cash-out refinance: When refinancing a mortgage, a borrower may take additional cash against the equity in the property in addition to the refinanced amount. The new mortgage will consist of the refinanced amount plus the cash.
• Certificate of Eligibility: A statement from the Veterans Administration that the borrower is eligible for a VA home loan.
• Certificate of Reasonable Value (CRV): A statement from the Veterans Administration regarding property value, based on a approved appraisal.
• Chain of title: A listing of the ownership of property from the first owner to the current owner.
• Clear title: A title with no clouds, that is, free from claims that would impair ownership.
• Closing costs: A statement of fees charged by the lender and any other fees, such as title insurance, surveys, attorneys, that are payable by the property buyer before ownership is transferred.
• Cloud on title: Any type of claim on property that interferes with a transfer of ownership. A lien is an example of a cloud. Clouds are discovered by means of a title search and must be resolved before title can be transferred to a new owner.
• Color of title: An invalid title based an documents that appear valid, but are in fact invalid.
• Commission: A fee paid by a purchaser or a seller to an agent who negotiates a sale.
• Common areas: Areas of property that are available for all owners or tenants to use equally.
• Community property: Equal ownership in property by each spouse, based on the contributions of each during their marriage.
• Comparables: Used when determining the market value of a specific property. The details of the property are compared to details of similar properties which have been sold recently. Often referred to as "comps" or "run the comps."
• Conditions: Provisions inserted in real estate documents by buyers that refer to something else happening before the deal can be closed. Examples are the buyer being able to obtain a mortgage or making the deal contingent upon the buyer selling their existing property. Conditions are part of the CC&Rs.
• Contract: A legally binding document spelling out an agreement between individuals or companies.
• Covenant: Rules on how property may be used, many of which regulate the appearance and maintenance of homes, such as whether or not fences may be built, rooms added, and landscaping requirements. Covenants are part of the CC&Rs.
• Convertible ARM: An adjustable-rate-mortgage that can be changed to a fixed-rate mortgage, usually for a higher interest rate.
• Deed: A legal document which, when signed, transfers ownership of real property.
• Deed-in-lieu: A method by which a borrower who is unable to make payments on a mortgage transfers ownership of property to the lender, as a way to avoid foreclosure.
• Discount points: A way to reduce the interest rate over the life of a mortgage, by allowing a buyer to make a large prepayment of interest when the loan is taken out.
• Due-on-sale provision: A clause in a mortgage which means a borrower must pay the loan in full immediately if ownership in the property is transferred to another person.
• Earnest money deposit: A cash deposit made by a buyer to show serious intent to complete the purchase of property. If the deal fails, the seller usually keeps the deposit. If the deal is completed, the down payment amount is reduced by the amount of the deposit.
• Easement: The right, such as a right of way, of one person or agency to use property of another.
• Egress: The right of a property owner to leave his property, often supported by an easement through the property of another.
• Eminent domain: The right of governments to seize private property for public use. Governments must initiate condemnation proceedings and pay the property owner reasonable compensation.
• Encroachment: A situation where one property owner lets a building or something cross the line between his property and that of a neighbor. It may or may not be intentional.
• Encumbrance: A claim, such a lien or unpaid property taxes, against real estate, which prevents a transfer in ownership until the claim is paid.
• Escrow: The means by which a company or individual holds money and documents until the buyer and seller have satisfactorily met all the terms of the transaction.
• Fair market value: The amount a buyer is willing to pay to a willing seller when both are fully informed of market values and how the property can be best used.
• Fannie Mae: The common name for the Federal National Mortgage Association, a private company sponsored by the federal government. Fannie Mae was established to buy, combine, and resell mortgages to investors in the secondary mortgage market. Fannie Mae buys mostly from commercial banks. The purpose is to make it easier for people to buy homes. Fannie Mae was bailed out by the federal government in 2008.
• Federal Housing Administration (FHA): A governmental agency that regulates housing and provides financing to certain home buyers.
• Fee simple: Full ownership of real estate.
• First Mortgage: a loan that is first in line for payment. It has priority over any other liens or claims against the property.
• Fixed-rate mortgage: A loan in which the interest rate is set at the time the loan is taken out, and which does not change over the life of the loan.
• Foreclosure: A legal process allowing a lender to sell real estate belonging to a borrower when the borrower has not paid the loan as agreed.
• Freddie Mac: The common name for the Federal Home Loan Mortgage Corporation, a private company sponsored by the federal government. Freddie Mac was established to buy, combine, and resell mortgages to investors in the secondary mortgage market. Freddie Mac buys mostly from smaller banks. The purpose is to make it easier for people to buy homes. Freddie Mac was bailed out by the federal government in 2008.
• Ginnie Mae: The common name for the Government National Mortgage Association, a government corporation that is a part of the Department of Housing and Urban Development. It's purpose is to increase the availability of affordable housing. It issues bonds backed by home mortgages which either the Federal Housing Administration or Veterans Administration have guaranteed, which means the bonds are guaranteed by the federal government. It differs from Fannie Mae and Freddie Mac in several aspects, the most important being that the latter two are not legally owned or backed by the government.
• Graduated rental lease: Lease payments that start at a low rate, but increase in amount over time.
• Grandfather clause: Allowing something to continue that was previously allowable under previous law, but is not allowable under current law.
• Gross area: A measurement of floor area from exterior walls.
• Hazard insurance: An insurance policy against damage from things like fire and vandalism. It is in addition to liability and homeowners insurance.
• Home Equity Conversion Mortgage (HECM): A form of reverse mortgage insured by the Federal Housing Administration.
• Ingress: The right to enter someone's property, often supported by an easement.
• Joint tenancy: When two or more people own property that will pass to the others when one dies, usually without probate.
• Jumbo loan: A mortgage amount which exceeds governmental loan limits and therefore cannot be guaranteed.
• Leasehold estate: The right of a tenant to temporarily use or occupy the property of another. The length of time and obligations of each person are described in the lease.
• Lease option: An agreement between a landlord and tenant that gives the tenant the opportunity to purchase the property at the end of the lease period. The landlord may not sell the property to another buyer until the agreement is revoked.
• Lien: The right of one person, agency, lender, or business to possess the property of another until a debt is paid. A lien is an encumbrance on real estate, and results from such debts as unpaid property taxes, amounts owed to contractors, and mortgages.
• Life cap: The maximum interest rate that can be charged over the life time of an adjustable-rate-mortgage.
• Liquid asset: Cash and items such as stocks and bonds that can be quickly converted to cash with little to no loss in value.
• Lock-in: A guarantee from a lender that the interest rate on an approved loan won't exceed a certain rate for a specified period of time.
• Mechanic's lien: A claim placed against property by contractors, builders, and suppliers of materials to ensure payment for any construction or repairs completed.
• Metes and bounds: A method of describing the boundaries of land, using physical landmarks, such as monuments, markers, adjoining property, and distances.
• Mortgage insurance: Insurance that lenders insist borrowers have. If the borrower is unable to repay the mortgage, it will be paid by the insurance company. The government provides the insurance if the loan is from the VA or FHA. Otherwise the borrower buys the insurance from a private company.
• No-cost loan: An agreement whereby the lender pays the borrower's closing costs in exchange for charging a higher interest rate. It differs from a no-cash loan, whereby the closing costs are added to the mortgage itself.
• Origination fee: An amount charged by a lender to cover the costs of preparing documents, credit reports, and professionals such as property inspectors and appraisers.
• Prepayment penalty: The amount a lender may charge a borrower if the loan is paid off early.
• Pre-qualification: An evaluation to determine a potential borrower's ability to repay a mortgage and an estimate of how much can be safely borrowed. It does not mean that the person will be able to actually take out a mortgage for the estimated amount.
• Qualifying ratios: Formulas used by lenders to determine how much mortgage a borrower qualifies for. They compare housing expenses and existing debt to gross income. The ratio of expense to income must fall within certain percentages for the loan to be approved.
• Quitclaim deed: A document which releases an owner's interest in property.
• Rate lock: See Lock-in
• Real estate agent: A person licensed to represent buyers and sellers in real estate transactions. They usually work for real estate brokers and are paid by commission on completed transactions.
• Real estate broker: A real estate agent who has undergone additional education and passed an additional licensing exam. They may work alone or hire real estate agents to work for them. They are paid commissions on completed transactions.
• Realtor®: The trademark used by real estate brokers associated with the National Association of Realtors.
• Restrictions: Legal limitations on the way the property may be used. Restrictions may be private, usually spelled out by the property developer, or public, such as zoning requirements. Restrictions are part of the CC&Rs.
• Right of first refusal: An opportunity given to an individual or company to be the first to enter into a transaction. The individual or company is not obligated to take the opportunity. If it is refused, the property owner is then free to contact other potential buyers.
• Right of way: A kind of easement that allows individuals to pass through land owned by another, without harassment. It does not transfer ownership. It can also be a portion of property used for public transportation or such things as power lines.
• Riparian rights: A method of dividing the rights to bodies of water that adjoin or flow over more than one person's land. All property owners have the right to make reasonable use of the water.
• Sale-leaseback: A transaction whereby a person or company sells an asset, then leases it from the purchaser for a specified amount of time and money.
• Second mortgage: A loan that is second in line for payment.
• Secondary market: A place where investors, such as stock exchanges and investment banks, purchase assets from other investors. One example is agencies such as Fannie Mae, Freddie Mac, or Ginnie Mae purchasing mortgages from the original lender.
• Subdivision: A piece of land divided into small lots for the purpose of selling each lot individually. The owner often marks out building sites, common areas, streets, and easements before selling the lots.
• Subordinate financing: Debt, such as a second mortgage, that is other than first in line for repayment.
• Sweat equity: The value of improvements made by homeowners to their property.
• Tenancy by entireties: A form of property ownership whereby spouses are legally regarded as one person. Neither can sell the property without the consent of the other.
• Tenancy in common: Occurs when two or more individuals own an undivided interest in property.
• Tenancy in severality: Occurs when one person alone owns property. It is also known as sole tenancy.
• Title: Documents recognizing legal ownership of property. Owners can possess various forms of title, each of which has advantages and disadvantages if the property is sold or the owner becomes divorced or dies.
• Undivided interest: When two or more individuals own percentages of one piece of property, but each person's part is not separated from the others. Each owner has the right to use all parts of the property equally.
• Vested: A financial right to ownership or benefit now or in the future. A vested interest may be sold or transferred by the owner.
• Warranty deed: A document in which the seller includes covenants that protect the buyer from claims against the property.
• Wrap-around mortgage: A secondary mortgage that is independent of the first mortgage.

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