Real Estate Investor Shop

Adjustable Rate Mortgage (ARM): A mortgage where the interest rate is not fixed for the life of the loan. These mortgages adjust periodically based on an index that changes with market conditions. The rate of interest is the sum of the index plus a margin (the margin remains fixed for the life of the loan).

Agent: Person authorized to act on behalf of another in dealings with third parties.

Amortization: Gradual payment of a debt through regular installments that cover both interest and principal.

Annual Percentage Rate (APR): A measure of the total cost of credit (interest as well as other recurring charges) expressed as a yearly percentage rate.

Appraisal and Credit Report Fees: Fees generally collected by the lender and paid to outside companies performing the services.

Appraised Value: An expert option of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.

Appraisal Report: An official document provided by an expert who has evaluated the property at a given time based on facts regarding the location, improvements, neighborhood and comparable sales.

Appreciation: Increase in value or worth of property.

"As Is": A clause that means the present property is being transferred with no guarantee or warranty provided by the seller.

Balloon Loan: Mortgage in which the remaining principal balance becomes fully due and payable at a predetermined time.

Balloon Payment: The final payment of a mortgage which is larger than the regular payment; it usually extinguishes the debt.

Bill of Sale: Written agreement transferring personal property from one person to another.

Binder: Preliminary agreement of sale usually accompanied by earnest money (term also used with property insurance).

Blanket Mortgage: A mortgage covering more than one property.

Bridge Financing: An interim loan, generally made between a short-term loan and a long-term loan when the borrower needs additional time before obtaining permanent financing.

Broker: A person (real estate agent) that represents another for a fee in real estate transactions.

Buyer's Broker:  An  agent who takes the buyer as a client, and is obligated to represent their interest above all others, and owes specific fiduciary duties to the buyer.

Building Code: Government regulations specifying minimum construction standards.

Building Line or Setback: Distances from the ends and/or sides of the lot beyond which construction may not extend.

Capital: Accumulated wealth.

Capital Gain: Taxable profit on the sale of an appreciated asset.

Caps: A pre-set percentage or dollar amount used on adjustable rate mortgages (ARM) to limit the interest rate and/or the payment.

Caveat Emptor: "Let buyer beware".

Certificate of Occupancy: Document issued by a local governmental agency that states a property meets the local building standards for occupancy.

Certificate of Title: A certification issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property offered for sale. A certificate of title offers no protection against any hidden defects in the title that an examination of the public records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. This type of protection is not as great as that offered in a title insurance policy.

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

Chattel: Personal property.

Client: Person who employs the agent.

Closing: Conclusion of a real estate sale where the title of the property is transferred to the new owners and funds are transferred to the appropriate parties.

Closing Agent: A neutral third party (escrow company, title company or attorney) that facilities the closing of a real estate transaction.
 
Closing Costs: Expenses incurred by the buyer/borrower and the seller in a real estate or mortgage transaction.

Closing Statement: Statement prepared for the buyer and seller itemizing all of the costs of a real estate transaction.

Closing Day: The day on which the formalities of a real estate sale are concluded. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Commercial Property: Property zoned for business or industrial purposes that is intended for use by all types of retail and wholesale stores, office buildings, hotels, and apartment complexes containing 5 or more units.

Commission: Fee paid to a broker or other entity for services rendered. Commissions are generally paid as a percentage of the sales price in a real estate transaction or the loan amount in a mortgage transaction.

Comparables: Properties that are similar in value to a particular property and are used as comparisons to determine the fair market value of that particular property.

Condominium: A structure of two or more units, the interior space of which are individually owned.

Consideration: Anything of value given to induce another to enter into a contract (usually an earnest money deposit on a sales contract).

Construction Loan: Short-term financing for real estate under construction. Generally followed by long term financing.

Contingency: Condition that must be satisfied before the buyer can complete the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller.

Contract of Purchase: An agreement between parties for the sale of real estate. Also known as Purchase Agreement, Sales Agreement, Land Contract, or Earnest Money Contract.

Contract of Sale: A purchase transaction in which the buyer receives possession of the property, but the seller retains title.

Contract Sales Price: The full purchase price as stated in the contract.

Conventional Loan: A mortgage loan that is guaranteed or insured by the government. FHA and VA loans are conventional loans.

Conventional Mortgage: A loan insured by the FHA or guaranteed by the VA.

Cost Basis: Accounting figure that includes original cost of property plus certain expenses to purchase, money spent on permanent improvements and other costs, minus any depreciation claimed on tax returns over the years.

Counteroffer: A new offer made as a result of another offer, which cancels the original offer.

Covenant: An agreement written into deeds and other instruments promising performance or nonperformance of certain acts or stipulating certain uses or non uses of the property.
 
Deed: Formal written document transferring title to real estate; a new deed is used for each transfer. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. Also known as deed of trust, general warranty deed, quitclaim deed, and special warranty deed.
 
Deed of Trust: An instrument given by the borrower to a third party (trustee) vesting title to the property in the trustee as security for the borrower's repayment of the mortgage loan.

Deed of Trust Rider: The document required by the lender to be recorded along with the security instrument for an ARM.

Deed Restriction: Restrictions placed on use of real property by writing in a deed to control use and occupancy of the property by future owners.

Default: Failure to make mortgage payments or violations of other provisions of the mortgage note.

Defective Title: Title to real property that lacks some of the elements necessary to transfer good title.

Deficiency Judgment: Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the loan(s) and accrued interest.

Deposit: Money given to the seller by the potential buyer upon the signing of the Agreement of Sale to show buyer’s serious intent to purchase property. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money deposit will be forfeited to the seller unless the purchase contract expressly provides conditions for its return to the buyer. Also called Earnest Money Deposit.

Depreciation: Decrease in value to real property improvements due to wear and tear, adverse changes in the neighborhood, or any other reason.

Direct Reduction Mortgage: An amortized mortgage in which principal and interest are computed on the remaining balance.

Discount: A loan funded below par (100%) by a lender or investor who does this in order to increase the overall yield on the note.

Disbursements: Payments made during the course of an escrow or at closing.

Down Payment: Cash to be paid by the buyer at closing to complete a real estate transaction. Down payment is the difference between the sales price and the mortgage amount.

Earnest Money: Money given to the seller by the potential buyer upon the signing of the Agreement of Sale to show buyer’s serious intent to purchase property. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money deposit will be forfeited to the seller unless the purchase contract expressly provides conditions for its return to the buyer.

Easement: A right-of-way created by grant, reservation, agreement, prescription or necessary implication which one has in land owned by another.

Eminent Domain: A government right to acquire private property for public use by condemnation and the payment of just compensation.

Encroachment: Unauthorized intrusion of a building or improvement such as a wall, fence, etc. onto another's land.

Encumbrance: A legal right or interest in land that affects a good or clear title and may diminish the land's value. An encumbrance does not legally prevent the transfer of real property. It is up to the buyer to determine whether to purchase with the encumbrance.

Equity: Market value of the property less the homeowner's unpaid mortgage balance and any outstanding liens or other debts against the property.

Escrow: The deposit of instruments and/or funds into the care of a neutral third party with instructions to carry out the provisions of an agreement or contract once all instruments and/or funds have been deposited.

Escrow Payment: That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, mortgage insurance, hazard insurance, and other items as they become due.

Estimated Closing Costs Statement: The statement that lists the financial settlement between buyer and seller and the costs each must pay. A separate statement for buyer and seller is usually prepared.

Exclusive Agency: Listing agreement in which only the listing office may sell the property and earn the commission.

Fannie Mae (Federal National Mortgage Association/FNMA): FNMA is one of the major secondary market investors that purchase loans from mortgage companies and other depository institutions. The company is a private corporation and its stock is traded on the New York Stock Exchange.

Federal Home Loan Mortgage Corporation (Freddie Mac/FHLMC): FHLMC is one of the major secondary market investors that purchase loans from mortgage companies and other depository institutions. The company is a private corporation and its stock is traded on the New York Stock Exchange.

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

Federal Reserve Bank: The regulatory agency for certain commercial banks and bank holding companies. Sets monetary policy for the country and provides liquidity for supervised financial institutions.

Federal Tax Lien: A lien attached to property for nonpayment of a federal tax.

Fee Simple: Highest possible degree of ownership of land allowing owners to have unrestricted powers to dispose of property.

First Mortgage: Mortgage holding priority over the claims of subsequent lenders against the same property.

Flipping: Buying property and reselling quickly, hopefully for a great profit.

Foreclosure: A proceeding in or out of court to extinguish all rights, title and interest of the owner(s) of a property in order to sell the property and satisfy a lien against it.

Full Disclosure: Revealing all known facts which may affect the decision of a buyer or tenant.
General Lien: A lien such as a tax lien or judgment lien, which attaches to all property of the debtor rather than the lien against only a specific property.

General Warranty Deed: A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Grandfather Clause: The clause in a law permitting the continuation of a use, business, etc., which was once permissible but because of a change in the law, is now no longer permissible.

Grantee: The buyer, who receives a deed.

Grantor: The seller, who gives a deed.

Hazard Insurance: Insurance on a property against damages caused by fire, wind storms, and similar risks.

Heirs and Assigns: One who might inherit or succeed to an interest in a property under the rules of law applicable when a property owner dies.

Homeowners Association: An association of people who own homes in a given area for the purpose of improving or maintaining the quality of that area.

Homeowner's Policy: Policy that explains the insurance for a homeowner.

Homeowner's or Maintenance Fees: Payments made by property owner(s) of a condominium or a unit in a PUD to the homeowners' association for expenses incurred in upkeep of the common areas.

Homestead: Tract of land occupied as a family home.

Housing and Urban Development (HUD): The federal government agency that oversees FHA.

HUD 1 or HUD Statement: A closing document required by HUD and given to a buyer that outlines the settlement cost of a loan.

Improvement: Valuable additions to property which raise the value of the property.

Incidental Recording, Delivery, Wire, etc., Fees: Other costs that are incurred when a real estate loan is closed.

Installment Sale: A tax term used to describe a sale which is usually accomplished by use of a land contract.

Insured Mortgage: A mortgage insured against loss to the mortgagee (lender) in the event of default and failure of the mortgaged property to satisfy the balance owing plus cost of foreclosure.

Interest Payment Notification: A federal tax form that lenders use at year end to notify borrowers of the interest that was paid on their mortgage over the last year.

Interest Rate: The percentage of an amount of money which is paid for its use for a specified time.

Investment Property: A property that is not occupied by the owner and in most cases produces income or is held for gains from appreciation.

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

Judgment: The decision of a court of law.

Land: The solid part of the surface of the earth, as distinguished from water; any ground, soil or earth whatsoever regarded as the subject of ownership and everything annexed to it, whether by nature, e.g., trees and everything in or on it, such as minerals and running water, or annexed to it by man; e.g., buildings, fences, etc.

Land Contract: Installment plan for buying a house. It is used as an alternative to obtaining a loan from a traditional a mortgage banker or savings and loan.

Late Charge: A penalty for failure to pay an installment on time.
   
Lease with Option to Purchase: A lease under which the lessee has the right to purchase the property, usually at a pre-determined time and price.

Legal Description: An expanded and unique description of a property that is used on legal documents such as deeds and deeds of trust. Recorded documents generally require a legal description.

Lessee: One who possesses the right to use or occupy a property under lease agreement.

Lessor: One who holds title to and conveys the right to use and occupy a property under lease agreement.

Letter of Intent: A formal method of stating that a prospective developer, buyer or lessee is interested in property.

Lien: An encumbrance against property for the payment of debt (may be a mechanic's lien, mortgage, unpaid taxes or judgment).

Listing: A record of property for sale by a broker who has been authorized by the owner to sell.

Listing Agreement: Agreement between a property owner and a real estate broker, authorizing the broker to find a buyer for the property.

Loan Discount: Fees that borrowers pay (sometimes seller will pay for borrower) that adjust to the yield requirement of the investor.

Loan Lock: Guarantee from a lender that a borrower will receive the interest rate in effect at the time of loan application.

Loan Officer: A person that helps borrowers through the loan selection, processing, and closing of a mortgage loan.

Loan Origination Fees: The cost to obtain a loan that is paid to the originating lender or broker.

Loan Package: The information regarding a borrower and a property that is the basis for a lender's credit decision to extend or deny credit.

Loan Ratio: The amount of a loan to the value or selling price of real property.

Loan Servicing: The function of collecting loan payments, managing the property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investor/beneficiary.

Loan-to-Value Ratio: The ratio of the mortgage loan amount to the property's appraised value or selling price, whichever is less.

Margin: The number of percentage points the lender adds to the index rate to calculate the adjustable rate mortgage (ARM) interest rate at each adjustment.

Market Value: The most likely price a given property will bring if widely exposed on the market, assuming fully informed buyer and seller.

Marketing: The management process through which efforts to conceive, develop and deliver goods and services are integrated to satisfy the needs and wants of selected customers as a means of achieving company objectives.

Market Price: The price paid for a property.

Market Value: The highest estimated price that a buyer would be warranted in paying, and a seller justified in accepting for a property, assuming both parties were fully informed.

Mechanics Lien: A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land.

Mortgage: A lien or claim against real property given as security for a loan. It is a two party agreement as opposed to the three-party agreement of a deed of trust.

Mortgage Broker: A professional that helps consumers through the loan selection, processing and closing of a mortgage loan. Most mortgage brokers have access to a wide range of mortgage products through many mortgage lenders.

Mortgage Commitment: A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgagee: The lender of money or the receiver of the mortgage document.

Mortgage Insurance: Insurance required for a loan-to-value ratio above 80.01%.

Mortgage Banker: Financial intermediaries that originate mortgage loans through loan

Mortgagor: The borrower of money or the giver of the mortgage document.

Multi-Family: Residential property with 4 units or less—apartments, townhouses, condominiums, duplexes, triplexes, and quads (any building with 4 or less units is not deemed commercial).

Multiple Listing Service: A means of making possible the orderly dissemination and correlations of listing information to its members so that Realtors may better serve the buying and selling public.

Negative Amortization: An increase in principal balance that occurs when the monthly payments do not cover all of the interest costs. The interest costs that are not covered by the payment is added to the unpaid principal balance.

Non-Conforming Loan: Loans that are above the loan limits set by FNMA and FHLMC. Also known as jumbo loans.

Non-Conforming Use: A property that does not conform to the zoning of an area.

Note: A written promise to repay a certain sum of money on specified terms.

Offer: A promise by one party to do a specified deed as the other party in turn performs a specific deed.

Open End Mortgage: A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions.

Origination Fee: A fee or charge for work involved in the evaluation, preparation and submission of a proposed mortgage loan.

Owner of Record: The individual(s) named on a deed that has been recorded at the local municipality.

Owners Policy: Title insurance for the owner of property, rather than a lien holder.

Ownership: The right to possess and use property to the exclusion of others.

Package Mortgage: Mortgage covering both real and personal property.

Paper: A mortgage, deed of trust, or land contract which is given instead of cash.

Permanent Mortgage: A mortgage on completed construction on the same property under one mortgage or trust deed.

PITI: Abbreviation for principal, interest, taxes and insurance, often combined in a single monthly mortgage payment.

Plat: A map or chart of a lot, subdivision or community, showing boundary lines, buildings and easements.

PMI: Abbreviation for private mortgage insurance, which is insurance issued by a company that insures the lender against loss in the event that the borrower defaults on the mortgage.

Points: Origination fees charged by the originating lender or broker and/or discount fees charge by lenders to increase the overall yield. A point is equal to one percent of the principal amount of your mortgage.

Portfolio Loan: Loans held as an investment by a bank, savings and loan or credit union.

Power of Attorney: A written instrument authorizing a person to act as the agent of the person granting it, and a general power authorizing the agent to act generally in behalf of the principle.

Prepaid Interest:  Dollar amount charged to borrowers at loan closing to pay for the cost of borrowing for a partial month. For example, if a loan closes on the 15th of the month and the first payment is due 45 days later, the lender will charge 15 days of prepaid interest.
 
Prepayment: Full payment of the principal before the due date; occurs when a property is sold or the borrower refinances the existing loan.

Prepayment Penalty: Charge levied by the lender for paying off a mortgage loan before its maturity date.

Primary Mortgage Market: The process of obtaining a real estate loan, including the consumer's completion of a loan application form, validation of the credit and property information, loan underwriting by the lender and closing of the mortgage loan.

Primary Residence: Considered the permanent location of residency.

Principal: The outstanding balance of a loan.

Private Mortgage Insurance (PMI): Insurance covering the portion of a mortgage loan above 80%, thereby reducing the lender’s risk to principal loss in the event of a borrower’s default.

Processing, Underwriting and Document Fees: Charges for the lender's services associated with making the loan.

Property Tax: A tax levied by the local municipality or county on real and personal property.

Planned Unit Development (PUD): A housing development where there is a homeowners association and common areas owned by the homeowners.

Quit Claim Deed: A deed operating as a release; intended to pass any title, interest or claim which the grantor may have in the property.

Real Estate: Land and anything permanently affixed to the land and those things attached to the building.

Real Estate Broker: A middle-man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Real Estate Tax: An enforced charge imposed on property to be used to support the governing body that in turn utilizes the funds in the best interest of the general public.

Recording: The act of writing or entering an instrument in a book or public record (also called legal notice), usually in the office of the county clerk and recorder. Such recording constitutes notice to all persons of the rights or claims contained in the instrument.

Recourse: The right of the holder of a note secured by a mortgage or deed of trust to look personally to the borrower or endorser for payment.

Refinancing: The repayment of a debt from the proceeds of a new loan using the same property as security.

REIT (Real Estate Investment Trusts): A method for a group of people to invest in real estate, usually because of certain tax advantages.

Release: An instrument releasing property from the lien of the mortgage, judgment, etc.

Residential: Property zoned for single-family homes, townhouses, multi-family apartments (4 units or less), condominiums, and co-ops.

RESPA (Real Estate Settlement Procedures Act): A federal regulation that requires lenders and mortgage brokers to disclose to borrowers, in advance, the fees required to obtain a mortgage loan.

Reverse Mortgage:  A special program for the elderly that provides income until death.

Secondary Financing: A loan secured by a mortgage or trust deed, which lien is junior to another mortgage or trust deed.

Secondary Mortgage Market: The buying and selling of mortgage notes between sophisticated investors such as pension funds, commercial banks, savings and loans and wall street firms.

Secondary Market Investor: An entity such as FNMA or FHLMC that buys mortgage loans for investment or sells them again to another secondary market investor. Secondary market investors do not service loans and do not collect payments from borrowers.

Security: Real or personal property pledged by a borrower as additional protection for the lender's interest.

Seller's Broker:  Agent who takes the seller as a client, is legally obligated to a set of fiduciary duties and is required to put the seller's interests above all others.

Settlement Statement: Prepared by broker, escrow, or lender giving a complete breakdown of the costs associated with a real estate transaction.

Sheriff's Deed: A deed given at the sheriff's sale in foreclosure of a mortgage.

Single Family Detached Home: A residential home that is not attached physically to another home.

Special Assessments: A special tax imposed on property in the immediate area for road construction, sidewalks, sewers, streetlights, and other improvements that benefit the immediate neighborhood or area.

Special Warranty Deed: A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.

Survey: Map or plat made by a licensed surveyor who measures land and charts its boundaries, improvements, and relationship to the property surrounding it.

Sweat Equity: Equity created by the labor of the purchaser or borrower that increases the value of the property.

Tax: An enforced charge imposed on persons, property, or income to be used to support the governing body that in turn utilizes the funds in the best interest of the general public.

Tax Lien: Lien for nonpayment of taxes.

Tax Sale: Public sale of property at an auction by a governmental authority, due to non- payment of property taxes.

Tenant: Any person in possession of real property with the permission of the owner.

Title: Often used interchangeably with the word ownership. It indicates the accumulation of all rights in property by the owner and others.

Title Insurance: An insurance policy that protects the insured (purchaser and lender) against loss arising from defects in title.

Title Search: A review of the public records generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the records, which would adversely affect the marketability or value of title.

Trustee: A party who is given legal responsibility to hold property in the best interest and benefit for another party; a responsibility enforceable in a court of law.

Truth in Lending Statement: A federal government regulation that provides details of the cost of obtaining a mortgage loan that lenders must provide shortly after the loan application has been completed.

Warranty Deed: Most valuable type of deed in which the grantor makes formal assurance of title.

Yield: The interest earned by an investor on his investment (or bank on the money it has lent). Also called Return.

Zoning Ordinances: The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.