Glossary of Real Estate Terms

Acceptance: The date when both parties, seller and buyer, have agreed to and completed signing and/or initialing the contract.

Administrator: A person appointed by the court to manage and distribute the estate of someone who died without a will. If a woman is appointed, she might be referred to as the administratrix.

Adjustable Rate Mortgage: A mortgage that permits the lender to adjust the mortgage’s interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change.

Amortized Loan: A loan that is paid in equal installments during its term.

Appraisal: An estimate of real estate value, usually issued to standards of FHA, VA and FHMA. Recent comparable sales in the neighborhood is the most important factor in determining value.

Appreciation: An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Assumable Mortgage: Purchaser takes ownership of real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.

Beneficiary: An individual or entity (such as a charity) that is designated to receive assets from an estate, trust, retirement account, or life insurance policy.

Bill of Sale: Document used to transfer title (ownership) of PERSONAL property.

Cloud on Title: Any condition that causes doubt about the true ownership of real property.

Consideration: Anything of value to induce another to enter into a contract, i.e., money, services, a promise.

Decedent: The person who has died.

Deed: A written instrument, which when properly executed and delivered, conveys title to real property.

Discount Points: A loan fee charged by a lender of FHA, VA or conventional loans to increase the yield on the investment. One point = 1% of the loan amount.

Easement: The right to use the land of another.

Encumbrance: Anything that burdens (limits) the title to property, such as a lien, easement, or restriction of any kind.

Equity: The value of real estate over and above the liens against it. It is obtained by subtracting the total liens from the value.

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

Executor/Executrix: The person named in a will to manage the decedent’s estate. The executor is often a family member or trusted friend. If a woman is appointed, she might be referred to as the executrix.

Estate: All assets and debts left by an individual at death.

Estate Tax: A tax on the right to transfer property at the decedent’s death.

Fannie Mae: Nickname for Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional home loans.

Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA Insured Mortgage: A mortgage under which the Federal Housing Administration insures loans, according to its regulations.

Fixed Rate Mortgage: A loan that fixes the interest rate at a prescribed rate for the duration of the loan.

Foreclosure: Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default.

Freddie Mac: Nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.

Graduated Payment Mortgage: Any loan where the borrower pays a portion of the interest due each month during the first few years of the loan. The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its life. Also called a Negative Amortization loan.

Heir: A person who inherits property from an estate when there is no will. This is determined by the intestate succession laws of the state where the decedent lived or owned property.

Inheritance Tax: A tax on the privilege of receiving property from an estate. The tax amount is based on the heir’s relationship to the decedent and the value of the inheritance.

Intestate: Dying without a will. State law then determines the distribution of the decedent’s estate.

Lease Purchase Agreement: Buyer makes a deposit for future purchases of a property with the right to lease property in the interim.

Lease with Option: A contract, which gives one the right to lease property at a certain sum with the option to purchase at a future date.

Letters Testamentary: Legal document issued by a court that gives an executor the power to take control of the deceased’s estate.

Letters of Administration: Legal document issued by a court that gives an administrator the power to take control of the deceased’s estate when no valid will is in place.

Loan to Value Ratio (LTV): The ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value (selling price). Example – on a $100,000 home, with a mortgage loan principal of $80,000 the loan to value ratio is 80%.

Mortgage: A legal document that pledges a property to the lender as security for repayment of a debt.

Mortgage Insurance Premium (MIP): A requirement for FHA loans, the amount paid by a mortgagor for mortgage insurance. This insurance protects the investor from possible loss in the event of a borrower’s default on a loan.

Note: A written promise to pay a certain amount of money.

Origination Fee: A fee paid to a lender for services provided when granting a loan, usually a percentage of the face amount of the loan.

Private Mortgage Insurance (PMI): Often required with conventional loans if the down payment is less than 20%. It is the amount paid by a mortgagor for mortgage insurance. This insurance protects the investor from possible loss in the event of a borrower’s default on a loan.

Probate: The court-supervised process of authenticating a last will and testament if the deceased made one. It includes locating and determining the value of the decedent’s assets, paying final bills and taxes, and distributing the remainder of the estate to the rightful beneficiaries.

Probate Property: Assets that are owned solely by the decedent and that do not pass to a new owner by operation of law or by contract (like a life insurance policy). These assets are subject to probate court oversight.

Second Mortgage / Second Deed of Trust / Junior Mortgage / Junior Lien: An additional loan imposed on a property with a first mortgage. Generally, a higher interest rate and shorter term than a “first” mortgage.

Settlement Statement (HUD-1): A financial statement rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended.

Severalty Ownership: Ownership by one person only. Sole ownership.

Testator: An individual who has written and executed a last will and testament that is in effect at the time of his/her death.

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

Will: A legal document that directs how an individual’s assets are to be distributed after death.