- The Washington Times - Wednesday, October 11, 2006

Hazard insurance(fire insurance, homeowner’s insurance): Insurance on a property against fire and other risks. A homeowner’s policy may have additional coverage for theft or liability.

Homeowners’ association: An association of homeowners in a particular subdivision, planned unit development (PUD) or condominium organized to manage the common area of the development and to enforce the association’s rules and regulations.

Homestead: Status provided to a homeowner’s principal residence in some states that protects the home against judgments up to specified amounts.

Homestead exemption: Available in some states, this provision causes the assessed value of a principal residence to be reduced by the amount of the exemption in order to reduce property tax.

Home warranty plan: A policy available to the buyer or seller as assurance against unanticipated home repair costs, often including repair and/or replacement of appliances, heating systems, etc.

Housing and Urban Development (HUD): A U.S. government agency established to oversee federal housing and community-development programs.

Housing Code: A local government ordinance that sets minimum standards of safety and sanitation for residential buildings.

HUD 1: A closing document required by HUD that outlines the settlement cost of a loan. The closing agent prepares this document and sends it to the buyer upon closing.

Impound account: That portion of a borrower’s monthly payments held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due. Also known as reserves or escrow.

Improvements: Additions to raw land such as buildings, gardens, streets, etc., that add value to the land.

Income property: Real estate that generates rental income, such as apartment buildings, office buildings and shopping centers.

Index: The measure of interest-rate changes a lender uses to decide how much the interest rate on an ARM will change over time. A borrower should ask the lender how the index for any ARM being considered has changed in recent years and where it is reported. (See also “margin.”)

Ingress and egress: The right to go in and out over a piece of property but not the right to park on it. (See also “easement.”)

Inspection clause: A written stipulation in an offer to buy that makes the sales contract contingent upon the findings of a professional home inspector.

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

Interest rate: The compensation paid to a lender for the privilege of using the lender’s money for a specified time.

Joint and several liability: A creditor can demand full repayment from all who have borrowed. Each borrower is liable for the full debt, not just the prorated share.

Joint tenancy: Ownership of a property by two or more people, each of whom has an undivided interest. The interests must equal and begin 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 lien: The claim on the property of a debtor resulting from a judgment.

Jumbo loan: A loan larger than the limit established by Fannie Mae or Freddie Mac.

Junior mortgage: A mortgage subordinate to another mortgage. In the case of a foreclosure, a senior mortgage will be paid prior to a junior mortgage.

Kicker: A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan.

Land contract: A real estate installment selling arrangement whereby the buyer may use and occupy land, but no deed is given by the seller until the sales price has been fully paid.

Leasehold estate: Tenant’s right of possession for a specific period of time under a lease agreement.

Lease with option to buy: A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease.

Lender: A general term for individuals or organizations that provide funding for borrowers to purchase real estate, including banks, savings and loans, credit unions, mortgage bankers and institutional lenders.

Lessee (tenant): A person to whom property is rented under a lease.

Lessor (landlord): A person who rents property to another under a lease.

Lien: A claim against the property for the payment of a debt, judgment, mortgage or taxes.

Life estate: An estate in real property for the life of a living person. The estate then reverts back to the grantor or on to a third party.

Lis pendens: Latin for “lawsuit pending.” Recorded notice that litigation is pending on a property. Most lenders require the clearance of any lis pendens before settlement.

Loan application: A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.

Loan origination fee or points: Charge by a lender or broker connected with originating a loan. This is different from discount points, which are used to “buy down” the rate of interest.

Loan package: Information given to the lender regarding the borrower and the property necessary to make an underwriting decision.

Loan-to-value ratio (LTV): The ratio of the mortgage loan amount to the property’s appraised value. Small down payments result in loans with a “high LTV.” This could raise the interest rate.

Loan servicing: The act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors.

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

Marketable title: Title that is free of liens, clouds and other legal defects that may be sold without encumbrance.

Market value: The highest price a buyer would pay and the lowest price a seller would accept on a property. Market value is not an objective measure of value; it is subject to market forces.

Mechanic’s lien: An unpaid contractor or subcontractor can file this claim against property to recover an amount due for work performed and materials furnished in construction, repair or improvements to land.

Mortgage: A written instrument that creates a lien upon real estate as security for the payment of a specified debt.

Mortgage broker: An independent broker who arranges loan transactions between lenders and borrowers by facilitating the application and approval process and by securing favorable terms. Mortgage brokers are paid a fee by the borrower or the lender when a loan closes.

Mortgagee: The lender.

Mortgagor: The borrower.

Mortgage insurance: See PMI (private mortgage insurance).

Mortgage note: A written agreement to repay a loan. The agreement is secured by a mortgage on the property, serves as proof of debt and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the borrower personally responsible for repayment.

Negative amortization: This occurs when the monthly payments do not cover the entire principal and interest. The unpaid amounts are added to the principal loan amount, thereby increasing the borrower’s debt.

Net effective income: The borrower’s gross income, minus federal income tax.

Nonconforming loan: Loans that do not comply with Fannie Mae or Freddie Mac guidelines.

Notary public: One authorized to certify acknowledgement of documents such as deeds, contracts and mortgages.

Note: A written promise to pay and acknowledgement of debt.

Offer: An expression of willingness to purchase a property at a specified price.

Offeree: One who receives an offer. When a buyer makes an offer to a seller, the seller is an offeree.

Offeror: One who makes an offer. When a buyer makes an offer to a seller, the buyer is an offeror.

Open-end mortgage: A mortgage permitting the borrower to borrow additional money under the same mortgage, within certain conditions.

Open house: A home left open for inspection by prospective buyers.

Oral contract: A verbal agreement. Verbal agreements for the sale or use of real estate normally are unenforceable.

Origination fee: See “loan origination fee.”

Origination points: Lender fees that may include underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc.

Overimprovement: Additions or improvements in which the cost is greater than the value added.

Owner of record: The individual named on a deed that has been recorded at the county recorder’s office.

Owner-occupied: The tenant also owns the property, an important distinction in tax matters.

Package mortgage: Mortgage covering both real and personal property.

Paper: A mortgage, deed of trust or land contract provided instead of cash.

Partial release: A provision in a mortgage that excludes some portion of the collateral property from obligation.

Participation mortgage: A mortgage that allows the lender to share in part of the income or resale proceeds.

Permit: A document issued by a government regulatory authority that allows the bearer to take some specific action. An occupancy permit, for example, allows the owner of a building to occupy or rent the building.

PITI: Common real estate acronym for the components of a homeowner’s monthly payment, which includes principal, interest, taxes and insurance.

Planned unit development (PUD): A zoning classification that allows flexibility in the design of a subdivision. PUDs include individually owned units as well as some common space that is owned jointly.

Plat: A plan or map of a specific land area.

Plat book: A public record containing maps of land, showing the division of the land into streets, blocks and lots and indicating the measurements of the individual parcels.

PMI (private mortgage insurance): In the event that the borrower does not have a 20 percent down payment, lenders will allow a smaller down payment — as low as 2 or 3 percent in some cases. With a smaller down payment, however, borrowers usually are required to carry PMI to protect the lender in case of default. Private mortgage insurance payments normally are made annually or monthly, but the cost of PMI may be reduced by making an initial payment at settlement.

Points: Lenders charge points to increase the yield of the mortgage and cover loan closing costs. These points usually are collected at settlement and may be paid by the borrower or the home seller or split between them. One point equals 1 percent of the loan amount. On a $250,000 loan, one point costs $2,500. Points may be classified as origination points or discount points.

Portfolio loan: A loan that is held as an investment by a bank or savings and loan and not sold on the secondary market to investors.

Power of attorney: A written document authorizing a person to act on the behalf of another person. That person does not have to be an attorney. (See “attorney-in-fact.”)

Prepaid interest: Interest charged to borrowers at closing to pay for the cost of borrowing for the balance of a month. For example, if a loan closes on the 20th of the month and the first payment is due on the first of the following month, the lender will charge 11 days of prepaid interest.

Prepayment: Full or partial payment of the principal before the due date. This occurs if the borrower makes extra payments, sells the property or refinances the existing loan.

Prepayment penalty: Fees paid by the borrower if the loan is paid off before its due date. A prepayment penalty may limit the borrower’s ability to refinance a loan or even sell the property.

Primary mortgage market: Companies that originate and service mortgage loans (banks, savings and loans, credit unions, mortgage bankers, institutional lenders) make up the primary mortgage market. (See also “secondary mortgage market.”)

Prime rate: The lowest commercial interest rate charged by a bank on short-term loans to the most credit-worthy customers.

Principal: The outstanding balance on a loan.

Private mortgage insurance: see “PMI.”

Property tax: A government levy based on the market value (as assessed by the county assessor’s office) of the property.

Prorate: To divide proportionately. Taxes, insurance, rent, or other charges can be prorated.

Public sale: An auction of property made available to the general public.

Purchase agreement: See “agreement of sale.”

Quitclaim deed: A deed operating as a release, intended to pass any title, interest or claim the grantor may have in the property. A quitclaim deed often is given to clear title when the seller’s interest in a property is questionable. By accepting such a deed, the buyer assumes all risks. Such a deed makes no warranties as to the title but simply transfers to the buyer whatever interest the seller has.

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

Real estate broker: An individual who owns a real estate company or is in a management position and is licensed to represent a buyer or a seller in a real estate transaction. A broker employs real estate agents to buy and sell properties.

Realtor: A real estate professional who is a member of the National Association of Realtors.

Recording: The act of entering into a book of public records instruments affecting title to the real property. A lender requires that a deed of trust or a mortgage be recorded to evidence the debt against the property.

Recision: The cancellation of a contract. When refinancing a mortgage on a principal residence, the law gives the homeowner three days to cancel the contract.

Recourse: The right of the holder of a note secured by a mortgage or deed of trust to claim money from a borrower who is in default in addition to the property pledged as a collateral.

Recurring fees: Costs associated with owning the property that recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI) and association fees. A prorated amount of these fees may have to be paid at closing.

Redlining: The illegal practice of refusing to provide loans or insurance in a certain neighborhood or to a certain class of people.

Refinancing: The repayment of a debt from the proceeds of a new loan using the same property as security. In other words, the creation of a new mortgage that pays off the preceding mortgage, usually to secure a better interest rate or mortgage terms.

Regulation Z: A federal regulation requiring creditors to provide full disclosure of the terms of a loan, including the terms of the loan and the annual percentage rate (APR). Your lender should provide you with a form providing details of the proposed mortgage before you agree to anything.

REIT (real estate investment trust): A trust that uses investors’ money to purchase and manage real estate. Investors realize some of the tax advantages in owning real estate.

RESPA (Real Estate Settlement Procedures Act): A federal statute requiring disclosure of certain costs in the sale of residential property that is to be financed by a federally insured lender.

Restrictive covenants: Private restrictions limiting the use of real estate. Restrictive covenants are created by deed and may “run with the land,” binding all subsequent purchasers of the land, or may be binding only between the original seller and buyer.

Reverse mortgage: A mortgage often used by the elderly to provide income as long as they live in exchange for increasing equity in the home. Each payment made to the homeowner causes the loan principal to increase.

Right of survivorship: The right of a surviving joint tenant to acquire the interest of a deceased joint owner.

Rollover loan: A loan that is amortized over a long period of time, such as 30 years, but with an interest rate that is fixed for a short period, such as five years. The loan may often be extended or rolled over at the end of the shorter term.

Sales agreement or sales contract: See “agreement of sale.” Secondary financing: A loan that is junior to another mortgage or trust deed.

Secondary mortgage market: The market in which banks, savings and loans and mortgage bankers can sell mortgages to investors such as Fannie Mae or Freddie Mac. Doing so frees up more money to be lent to new borrowers.

Second home: Also known as a vacation home. This home is different from an investment property because it is not rented regularly and is used only occasionally by the owners.

Second mortgage: A loan that is junior to another mortgage or trust deed. Second mortgages generally carry a higher rate than a first mortgage because they represent a higher risk for an investor.

Section 8 housing: Privately owned rental units participating in the low-income rental-assistance program. Landlords receive subsidies on behalf of qualified low-income tenants, allowing the tenants to pay a limited portion of their income toward the rent.

Section 1031: The section of the Internal Revenue Service (IRS) that deals with tax-free exchanges of certain property. To qualify for a 1031 exchange, the properties must be exchanged, similar and used for business or as an investment.

Security: Real or personal property pledged by a borrower, serving as collateral to protect a lender’s interest.

Servicing (of loans): The act of billing, collecting payments, filing reports, managing escrow accounts and handling defaults on a mortgage.

Set-back ordinance: Regulates the distance from the lot line to the point where improvements may be constructed.

Settlement statement or closing statement: See “HUD1.”

Shared appreciation mortgage: A residential loan with a fixed interest rate that is lower than the market rate, with the lender entitled to a specified share of appreciation of the property over an agreed-upon time interval.

Sheriff’s deed: A deed given at a sheriff’s sale following the foreclosure of a mortgage.

Single-family housing: A type of residential structure designed to include one dwelling. Sometimes known as detached housing, to differentiate it from town houses and condominiums.

Special assessment: A special tax imposed on property, individual lots or all property in the neighborhood to pay for improvements such as street lights, sidewalks and parks.

Special warranty deed: The grantor does not warrant against title defects arising from conditions that existed before he owned the property. The seller warrants that he has done nothing to impair title.

Spec house: A home constructed “on speculation” by a builder in anticipation of finding a buyer. This contrasts with standard builder practice, in which homes are built only after they are purchased.

Standard uniform loan application (Form 1003): A standardized loan application used widely in the mortgage industry.

Statutory lien: An involuntary lien that may include tax liens, judgment liens and mechanic’s liens.

Subdivision: A tract of land divided into lots suitable for home building.

Subordination: A loan in a lower priority; for example, a second mortgage is subordinate to a first.

Survey: A map made by a licensed surveyor who measures land and charts its boundaries, improvements and relationships to property surrounding it.

Sweat equity: Value added to a property because of improvements made personally by the owner.

Tax lien: Lien for nonpayment of taxes.

Tax sale: Public sale of a property at an auction by a government authority as a result of nonpayment of taxes.

Teaser rate: A low initial interest rate on a mortgage designed to attract borrowers.

Tenancy at sufferance: Tenancy established when a person who had been a lawful tenant wrongfully remains in possession of property after expiration of a lease.

Tenancy at will: A license to use or occupy land and buildings at the will of the owner. The tenant may decide to leave the property at any time, but the landlord may evict at will.

Tenancy by the entirety: A form of ownership by husband and wife whereby each owns the entire property. In event of the death of one, the survivor owns the property without probate.

Tenancy for years: Created by a lease for a fixed term, such as six months or three years.

Tenancy in common: Ownership of a property by two or more people, each of whom has an undivided interest. The interests must equal and begin 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.

Tenancy in severalty: Ownership of property by one person.

Time share: A form of property ownership in which a property is held by a number of people, each with the right of possession for a specified time. Time sharing is used most often for vacation properties.

Title: Evidence that the owner of the property is in lawful possession. “Proof of ownership,” in a sense, indicating the accumulation of all rights in property belonging to the owner and others.

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

Title report: A document indicating the current state of title. The report includes information on the current ownership, outstanding deeds of trust or mortgages, liens, easements, covenants, restrictions and any defects.

Title search: An examination of the public records to determine the ownership and encumbrances affecting the property.

Town home: Residence that typically has two or more floors and is attached to similar units. Also known as a “row house” or “brownstone” in different parts of the country. A duplex is, in a sense, two town houses.

Transfer tax: Tax paid to the city, county, state or other government entity upon sale of a property.

Trust account: A separate bank account maintained by a broker or escrow company to handle all money collected for clients. A broker may not commingle these funds with his own funds.

Trust deed: See “deed of trust.”

Trustee: A party who is given legal responsibility to hold property for the benefit of another party. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

Truth in lending: See “Regulation Z”.

Two-step mortgage: A mortgage in which the borrower receives a fixed rate for a specified number of years (most often five or seven) and then receives a new interest rate based on the terms in the note.

Underwriting: The decision whether to make a loan to a potential home buyer based on credit, income, employment history and assets.

Undivided interest: The right to use and possess a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.

Unencumbered property: Real estate with free and clear title.

Unimproved property: Land that has not been developed or built on.

Unrecorded deed: A document that transfers title from the grantor to the grantee without being recorded in public records.

Usury: Charging a rate of interest greater than is reasonable or permitted by law.

VA loan: Home loan guaranteed by the Department of Veterans Affairs enabling a veteran to buy a home with no money down.

Variable-rate mortgage: See “ARM.”

Verification of deposit (VOD): A document signed by the borrower’s bank or other financial institution verifying the account balance and history.

Verification of employment: A document signed by the borrower’s employer verifying his starting date, job title, salary and probability of continued employment.

Waiver: The voluntary renunciation, abandonment or surrender of some claim, right or privilege.

Warehousing: Mortgage bankers and other financial institutions make loans that then are sold on the secondary market. After the loan is made but before it is sold the loan is said to be in the lender’s “warehouse.”

Warranty deed: A deed conveying the title to a property with a guarantee of clear, marketable title.

Wrap-around mortgage: A loan arrangement in which an existing loan is retained and a new loan is added to the property.

Zero lot line: A form of housing with individual units on separate lots, yet attached to one another. Town homes are the most common example.

Zoning: Areas may be zoned to specify use of a property for residential, commercial or agricultural purposes. Zoning ordinances typically are established and enforced by a city or county.

Chris Sicks compiled this glossary and list of abbreviations by researching the Internet and real estate publications, including Barron’s Dictionary of Real Estate Terms.

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