1031 Exchange
This refers to a portion of the IRS code also known as a Like Kind Exchange or Starker Exchange. This specifies that if a property is sold and the proceeds of the sale are invested in an asset of like kind, then no gain or loss is recognized. This is a very effective way to defer taxes that would otherwise be due on the sale of a property.
401(k)/403(b)
An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.
401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against 401(k) plans are an acceptable source of down payment for post types of loans.
Abstract of Judgement
The summary of court judgement that creates a lien against a property when filed with the county recorder.
Abstract of title
The historical summary of all the recorded instruments and proceedings that affect the title to a property.
Acceleration Clause
A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrow defaults on the loan or transfers to another individual without informing the lender. See also Due on Sale.
Acre
An area of land equaling 4.840 square yards or 43,560 square feet.
Ad Valorem Tax
"ad valorem" is Latin for "According to Value" - a tax based on the assessed value of real estate or personal property.
Addendum
An addition to a contract or agreement.
Adjustable-Rate Mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
Adjustment Date
The date the interest rate changes on an adjustable-rate mortgage.
Adverse Possession
A means of acquiring title to real estate where an occupant has been in actual, open, exclusive and continuous occupancy of property for the period required by state law.
amortization
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
amortization schedule
A table which shows how much of each payment will be applied toward principal an how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
application
The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.
appraisal
A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
appraised value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
appraiser
An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.
assessed value
The valuation placed on property by a public tax assessor for purposes of taxation.
assessment
The placing of a value on a property for the purpose of taxation.
assessor
A public official who establishes the value of a property for taxation purposes.
asset
Items of value owned by an individual. Assets that can be quickly converted into cash are considered liquid assets. These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.
assignment
When ownership of your mortgage is transferred from one company or individual to another.
assumable mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must qualify in order to assume the loan.
assumption
The term applied when a buyer assumes the seller's mortage.
balloon mortgage
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
balloon payment
The final lump sum payment that is due at the termination of a balloon mortgage.
bankruptcy
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are various types, but the most common for an individual seem to be a Chapter 7 No Asset bankruptcy, which relieves the borrower of most types of debts. A borrower cannot usually qualify for an A paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
Basis Point
A basis point is one one-hundredth of one percentage point. For example, the difference between an home loan at 4.25 percent and one a 4.38 percent is 13 basis points.
bill of sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require a bill of sale (in addition to other items) to help document the source of the funds.
bi-weekly mortgage
A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them they they will actually transfer your funds to your lender.
bond market
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.
bridge loan
Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend a a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
broker
Broker has several meanings in different situations. Most Realtors are agents who work under a broker. Some agents are brokers as well, either working for themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
buydown
Usually refers to a fixed rate mortgage where the interest rate is bought down for a temporary period, usually one to three years. After that time, and for the remainder of the term, the borrower's payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. These funds usually come from the seller (or some other source) as financial incentive to induce someone to buy their property. A lender funded buydown is when the lender pays the initial lump sum. they can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this i because the borrower my get to qualify at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
Buyer's Agent
A person with state/provincial license to represent a buyer or seller in a real-estate transaction in exchange for commission. Most agents work for a real-estate broker or realtor.
call option
Similar to the acceleration clause.
cap
Adjustable Rate Mortgages (ARM) have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. those limitations may apply to how much the loan may adjust over a six month period, and over the life of the loan, and are referred to as caps. Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
Capitalization Rate
Also known as Cap Rate. The assumed rate of return on an investment in real estate. The capitalization rate is commonly used in the valuation of commercial and investment property because it directly links the value to the income produced by the property.
Cash Flow
The amount of cash a rental property investor receives after deducting operating expenses and loan payments from gross income.
Cash Home Buyer
An individual or company who purchases houses quickly for cash (typically at a discount from the retail value).
Cash Out Refinance
The refinancing of a mortgage in which the money received from the new loan is greater than the amount due to the old loan. Generally the intention is to pull out money for personal use.
Caveat Emptor
A Latin term meaning "Let the Buyer Beware".
certificate of deposit (cd)
A time deposit held in a bank which pays a certain amount of interest to the depositor.
certificate of deposit index
One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.
Certificate of Eligibility
A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.
Certificate of Occupancy (CO)
A document stating that a home or other building has met all building codes and is suitable for habitation.
Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
Certified Commercial Investment Member (CCIM)
A certification for someone recognized as an expert in the disciplines of commercial and investment real estate.
Certified Residential Broker (CRB)
Certification granted by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors.
chain of title
An analysis of the transfers of title to a piece of property over the years.
clear title
A title that is free of liens or legal questions as to ownership of the property.
closing
This has different meanings in different states. In some states a real estate transaction is not considered closed until the documents recorded at the local recorders office. In others, the closing is a meeting where all of the documents are signed and money changes hands.
closing costs
Closing costs are separated into what are called non-recurring closing costs and pre-paid items. Non-recurring closing costs are any items which are paid just once as a result of buying the property of obtaining a loan. Pre-paids are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrow within three days of receiving a home loan application.
closing statement
See Settlement Statement.
cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
co-borrower
An additional individual who is both obligated on the loan and is on the title to the property.
collateral
In a home loan, the property is the collateral. The borrow risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
collection
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. the loan goes to collection. As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
commission
Most salespeople earn commissions for the work that they do and there are many sales professionals involve in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
common area assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
common areas
These portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowner's association (or a cooperative projects's cooperative corporation) that are used by all of the unit owners, who share in the common expense of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
common law
An unwritten body of law based on general custom in England and used to an extent in some states.
community property
In some states, especially the southwest, property acquired by a married couple during their marriage is considered to by owned jointly, except under special circumstances. This in an outgrowth of the Spanish and Mexican heritage of the area.
comparable sales
Recent sale of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as comps.
conditions, Covenants, and Restrictions (CCR's)
Promises written into deeds and other instruments agreeing to performance or nonperformance of certain acts, or requiring or prohibiting certain uses of the property.
condominium
A type of ownership in real property where all the owners own the property, common areas and buildings together, with the exception of the interior of the unit which they have title. Often mistakenly referred to as a type of construction or development. It actually refers to a type of ownership.
condominium conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
condominium hotel
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services an that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.
Conforming Loan
A loan which has underwriting criteria consistent with (i.e., conforming to) those strict guidelines of Fannie Mae, Freddie Mac, FHA, or VA. These are typically the lowest interest rate loans with very good terms. (See definitions of "Fannie Mae", "Freddie Mac", "FHA", "VA" and "underwriting")
construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
contract
An oral or written agreement to do or not to do a certain thing.
conventional mortgage
Refers to home loans other than government loans (VA and FHA).
Convertible ARM
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.
cooperative (co-op)
A type of multiple ownership in which the residents of a multi-unit housing complex share in the cooperative cooperation that owns the property, giving each resident the right to occupy a specific apartment or unit.
cost of funds index (COFI)
One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
Counteroffer
An offer made in return by one who rejects an unsatisfactory offer.
Creative Financing
Financing property or anything outside of a standard loan.
credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
credit history
A record of an individual's repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.
credit report
A record of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's credit worthiness.
credit repository
An organization that gathers, records, updates and stores financial and public records information about the payment records of individuals who are being considered for credit
creditor
A person to whom money is owed.
Dealer
One who holds real property primarily for sale to customers, merchandise is inventory and gain on sale is treated as ordinary income.
Debt
An amount owed to another.
Deed
The legal document conveying title to a property.
Deed of trust
Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.
Deed-in-lieu
Short for deed in lieu of foreclosure, this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
Default
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deed. If a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Delinquency
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a late fee for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
Deposit
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an earnest money deposit.
Depreciation
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
Discount points
In the mortgage industry, this term is usually used only in reference to government loans, meaning FHA and VA loans. Discount points refer to any points paid in addition to the one percent loan origination fee. A point is one percent of the loan amount.
Down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Due-on-Sale Clause
A clause in many mortgages that allows the lender to call the loan due immediately if the property is sold. In general, lenders are not very aggressive in enforcing this clause as long as they continue to be paid their monthly payment.
Due-on-Sale Provision
See Due-on-Sale Clause.
Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Easement
A right of way giving persons other than the owner access to or over a property.
Effective age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
Eminent domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
Encroachment
An improvement that intrudes illegally on another’s property.
Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
Escrow account
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above that would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
Escrow analysis
Once each year your lender will perform an escrow analysis to make sure they are collecting the correct amount of money for the anticipated expenditures.
Escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Estate
The ownership of interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
Et uxor
A Latin term meaning “and wife”. Commonly used in real estate deeds. Also "etux", "et ux".
Eviction
The lawful expulsion of an occupant from real property.
Examination of title
The report on the title of a property from the public records or an abstract of the title.
Exclusive listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
Executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. Executrix is the feminine form.
