Real Estate Glossary

This is a fairly complete real estate glossary, with most of the real estate terms you'll hear or red when buying, selling and financing any property. If you don't recognize most of the terms here, you may want to bookmark this page for easy access, or copy it to a file and print it out.

Glossary Of Real Estate Terms

A Through L

203(b): FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.

203(k): this FHA mortgage insurance program enables home buyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.

3/2: commonly used to designate homes with 3 bedrooms and 2 bathrooms. You may also hear "2/2," "2/1" and similar slang.

1031 exchange: a method to avoid paying taxes when you sell a property. The tax code allows an owner to sell a property and buy another similar property within a certain amount of time, and consider it an "exchange," which isn't subject to taxes. It is a more complicated than this suggests, and is usually done with the help of a 1031 specialist.

A

Abstract: a title search document that shows all publicly recorded transactions to determine whether any title defects exist. This is usually the minimum that the seller provides the buyer, if he isn't providing title insurance.

Accelerated cost recovery: tax calculation that lets you claim greater depreciation in the early years of ownership.

Accelerated depreciation: an allowed way to figure depreciation for tax purposes. It provides faster property depreciation in the early years of ownership, thereby reducing your profits (and so your taxes), at least on paper.

Acceleration clause: a clause that allows the lender to demand immediate repayment of the loan balance if the borrower defaults, or (typically) if he sells the home. Sometimes called a "due on sale" clause.

Acceptance: a seller's approval of a buyer's offer (in writing).

Addendum: an addition (or a change) to a contract. An addendum is often used just because the form being used doesn't have room to add something the parties want to agree to. All parties to the original agreement must sign the addendum for it to be valid.

Adjustment period: the time between interest rate adjustments in an ARM (adjustable-rate mortgage). Typical is once per year.

Agency closing: when a lender uses an agent, like a title company, to complete a loan.

Agency disclosure: disclosure by an agent (usually required by the state) stating who the agent is working for. Buyers often don't realize that the real estate agent is working for the interests of the seller, and even has an obligation to pass on relevant comments the buyers make, like "we can go $5,000 higher if they don't accept our offer."

Agreement of sale: the document signed by the buyer and seller that specifies the price and terms of the transaction.

Alienation clause: a clause in a loan agreement that requires the borrower to pay the balance of the loan if the property is sold or transferred (a "due-on-sale" clause).

Amenity: a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, Woods, water) or man-made (like a swimming pool or garden).

Amortization: repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years). A longer amortization means lower payments, but you will also pay more interest overall.

Annual Percentage Rate (APR): the cost of a loan, expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan, assuming the loan is held for its full term. In other words, this is the real rate you'll pay when you include those extra financing costs on top of your stated interest rate. In the case of adjustable rate mortgages, it also assumes that the interest rate doesn't change.

Application: the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process. Some lenders have an application fee,but many do not.

Appraisal: a document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. Fair market value means what the property should normally sell for.

Appraisal fee: the fee charged by a professional real estate appraiser estimate the market value of appraise), a property. When getting a loan, this is usually charged to the buyer by the lender.

Appraiser: a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appreciation: increase in the value of property.

ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap. Before agreeing to an ARM, be sure that you can still afford the loan if the rate increases to it's maximum rate. See also; Option ARM.

ARM index: a publicly published number which is used as the basis for adjusting interest rates on adjustable rate loans. Indexes commonly used include the prime rate, the LIBOR and treasury bills.

Assessed value: the tax assessor's determination of the value of a home (used to calculate the tax base). Assessments are not updated regularly enough or scientifically enough to rely on them as a way of putting a value on a property (they are not appraisals).

Assets: things of value, including cash, real estate, precious metals, securities, and investments.

Assessor: a government official who is responsible for determining the value of a property for the purpose of taxation.

Assignment: the legal transfer of rights or position in a contract to another. If you are owed money on a loan, for example, you can assign the loan (usually at a discounted price) to another, and let them collect the payments. If an offer to purchase includes the right language, you can assign your position to another investor (for a fee usually) and let that investor close the deal and own the property.

Assignor: the person who assigns.

Assumable mortgage: a mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

Assumption clause: a clause that lets a buyer take responsibility for the mortgage loan from a seller.

Assumption fee: the fee a lender charges to process records for the assumption of an existing loan.

B

Back-end ratio: a calculation lenders use to compare a borrower's total debt to their gross monthly income.

Balance sheet: a statement showing the assets, liabilities and net worth of an individual or company.

Balloon mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower. Be careful with these. If interest rates are twice as high when the balloon comes due, you may be forced to default and lose the property.

Balloon payment: the final lump sum payment which is due at the end of a balloon loan term.

Base loan amount: the loan amount that payments are based on. If you finance fees, points and closing costs, these are added to the base loan amount and payments will be based on this larger loan balance.

Basis point: one hundredth of one percentage point. For example, a home loan at 7.25 percent is 12 basis points higher than one at 7.13 percent.

Bankruptcy: a federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Before-tax income: all income before taxes are deducted.

Bill of sale: a document that transfers ownership of personal property.

Binder: a report from the title company detailing the condition of a property's title, and used to provide guidelines for issuing a title insurance policy. Also used to describe a preliminary agreement between a buyer and seller.

Biweekly mortgage: a mortgage loan with payments every two weeks. These were fashionable for a while as a way to pay down the loan balance more quickly.

Blanket mortgage: a mortgage that covers more than one property (your home and vacation home, for example). These are not common.

Boarding house: a house in which the rooms are rented out individually. Sometimes a good investment, especially in a college town.

Book value: the cost of a property, plus any additions, minus depreciation.

Borrower: a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Break-even point: the point where the rental income matches the debt payments and expenses.

Bridge loan: a short-term loan used by borrowers who need more time to find permanent financing.

Broker: a person or company which acts as a go-between between a buyer and seller. A real estate broker, for example, handles property transactions and negotiations between a buyer and seller, and a mortgage broker between the lender and the borrower.

Building code: based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Budget: a detailed record of all income earned and spent during a specific period of time.

Bungalow: a one-story cottage, house or cabin (usually small).

C

Call option: a loan clause that allows a lender to demand repayment of the entire balance at any time.

Cap: a limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Capital gain: the profit when you sell something for more than you paid and invested into it. For tax purposes, there are long-term capital gains (the gain on property you held for a year or more) and short term capital gains (held for less than a year). The latter are taxed more heavily.

Capitalization: a formula used to calculate the value of income property. The expected rate of return is used as the "cap rate." The net income of a property, before debt service and taxes, is divided by the cap rate to arrive at an estimate of value. For example, if the desired cap rate is 8%, or .08, and the net income of a property (for the last year) is $42,000, the indicated value would be $525,000 (42,000 divided by .08).

Carry back: to let the buyer pay in installments, while usually taking back a mortgage for protection. Basically, to be the bank.

Carryback financing: see Seller financing.

Cash flow: the income from a rental property after deducting operating expenses and loan payments from gross income. In other words, the cash you are ahead each month. Also used generally to describe the cash going in and out each month, in which case the above describes "positive cash flow."

Cash on cash return: the rate of return on the cash invested, not accounting for appreciation or loan pay-down. In other words, if you invested $20,000 of your own cash, and the property generates $10,000 of net income the first year, you have a cash-on-cash return of 50%.

Cash-out refinance: refinancing in which the new loan is greater than the amount due on the old loan, meaning you get some cash in your hands.

Cash reserves: a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Cashier's check: a check drawn on a bank rather than on a depositor's account. This is what you bring to the table when you close (nobody wants your personal check).

Certificate of deposit index (CODI): an index that is based on the interest rates of six-month CDs, used to adjust interest rates for some adjustable rate mortgages.

Certificate of eligibility: a document which verifies the eligibility of a veteran for a loan program. It is issued by the Veterans Administration.

Certificate of occupancy (CO): official document verifying that a building has met all building codes and is suitable for habitation.

Certificate of Reasonable Value (CRV): the appraisal issued by the Veterans Administration showing the current market value of a property.

Certificate of title: a document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims. See also: Title insurance.

Chain of title: an official record detailing the ownership history of a piece of property.

Chattel mortgage: a mortgage on things other than real estate. Usually used to describe a mobile or manufactured home mortgage, when not on land.

Clear title: a property title with no liens, defects or other legal encumbrances.

Closing: also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing fee: the charge for a title company or other closing agent to process the closing.

Closing costs: customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application. Closing costs can include; the closing fee, title insurance, recording fees, document preparation fees, transfer taxes, property tax prorations, loan fees, and more. There are common conventions in many areas as to who pays which closing costs, but this is ultimately up to the seller and buyer to negotiate.

Closing statement: the document detailing the final financial details of a property sale, and the costs paid by each party.

Co-signer: someone who co-signs a promissory note and takes responsibility for the debt. This does not mean you promise the primary signer will pay - it means you will pay if they don't, and your credit report will be hurt if they are late on payments.

COFI Index (Cost of Funds Index): a popular index that is used to determine interest rates on adjustable rate mortgages, based on what it costs certain banks to get their funds.

Collateral: assets used to offered to secure a loan (for example, the home that the borrower is buying). It is subject to seizure if the borrower defaults.

Commercial Mortgage: a loan used to buy commercial properties or commercial buildings.

Commission: an amount, usually a percentage of the property sales price, that is collected by a real estate professional as a fee for negotiating the transaction. The commission is generally paid by the seller, even in cases where the only real estate agent is the buyer's agent.

Commitment: a lender's promise to make a loan with specific terms for a specified period.

Commitment fee: a fee borrowers pay to guarantee specific loan terms at some future date.

Comparables: recently sold (ideally six months or less) nearby properties used as comparisons to determine the value of a certain property.

Comparative Market Analysis (CMA): an estimate of the value or likely selling price of a property, based on what similar properties nearby have recently sold for.

Compound interest: interest paid on the principal balance of a loan plus accrued interest.

Comps: see Comparables.

Conditional commitment: a lender's promise to make a loan if the borrower meets given conditions.

Conditional sale: a property sale in which the title remains with the seller until the conditions of the contract have been fulfilled. See also; Land contract.

Condo conversion: the process of converting an apartment building into condominiums. The condo units are then sold. It is a way to make a lot of money in areas where condos are popular and rent is low.

Condominium: a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas. A monthly fee, sometimes called an HOA or home owners association fee covers the common expenses, like landscaping, insurance for the exterior structure, and maintenance of pools or other commonly owned features.

Conforming loan: a mortgage loan that meets the qualifications necessary to be purchased by Fannie Mae or Freddie Mac.

Construction loan: a short term loan, usually disbursed in "draws" according to completion of defined steps in the construction process.

Construction-to-permanent loan: a construction loan which is converted to a traditional mortgage once construction is done.

Contingency: a clause in a contract which must be met for the contract to be valid. A common one is a financing contingency, which can state something to the effect that the deal is "subject to buyer obtaining a suitable loan commitment within ten days." Other common contingencies include inspection contingencies, legal-review contingencies, and spousal-approval contingencies. See "Weasel clause."

Contractor: a person or company you pay to do a project, such as build an addition on your house, or remodeling a kitchen. A general contractor manages the hiring of sub-contractors, which are the persons or companies that do the various tasks, from painting to carpeting to cabinets, etc.

Contributory value: the value a particular component adds to the value of a property. A garage might have a contributory value of $20,000, for example.

Conventional loan: a private sector loan, one that is not guaranteed or insured by the U.S. government. Most conventional loans are sold into the secondary market, meaning they must meet the standards that are common there. In other words, the bank doesn't make the rules, but just handles the paperwork. The exception is "in house" loans or loans that the bank actually holds themselves.

Convertible adjustable-rate mortgage: a loan that starts as an adjustable rate loan, but allows the borrower to convert it to a fixed-rate mortgage during a specified period of time.

Conveyance: a document, like a deed or lease, which transfers some ownership interest from one person or company to another.

Conveyance tax: a tax on the transfer of real estate. Also called a title transfer tax.

Cooperative (Co-op): residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan. Unlike condos, co-ops can rarely be financed, even if the original mortgage loan to the corporation is paid off. A bank couldn't take your unit if you didn't pay, since you really only own shares in a corporation. Hence, they don't loan on co-ops very often. You have to pay cash.

Cost effective: creating an increase in profit. Remodeling a kitchen for $40,000 is not cost-effective if it only increases the value of a home by $15,000.

Counter offer: an offer in response to an offer. Technically, a counter offer is a rejection of the original offer, and the submitting of a new offer, usually from the seller to the buyer, though there can be numerous counter offers.

Courier fee: a closing fee for delivery of documents between escrow companies, lenders, and others during a transaction.

Covenant: a legal stipulation that goes with the title to a property. These are usually determined and recorded by the original developer of a property, and are passed along with the transference of the property. They can include anything from forbidding farm animals being kept on the property to what style of home is allowed.

Credit history: history of an individual's debt payment; lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit life insurance: a policy that pays off a mortgage if the borrower dies. Always a bad deal - it's cheaper to buy life insurance for the same amount.

Credit rating: the creditworthiness of a person based on credit history and financial status.

Credit report: a record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history. There are three major credit bureaus in the country ( TransUnion, Experian and Equifax), so be sure to look at all three if you have any problems.

Credit repository: a company that collects financial and credit information about individuals who have applied for credit.

Credit bureau score: a number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan. The standard at the moment is the FICO (Fair Isaac Credit Organization ) score. See; FICO score.

Credit Risk Score : see above

D

Debt service: the total amount of money devoted to paying the loan(s) on a property, usually quoted as a monthly figure.

Debt-to-income ratio: a comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income. With a conventional loan, this qualifying ratio typically allows only 28% toward housing and 36% towards housing and other debt

Deed: the document that transfers ownership of a property.

Deed-in-lieu: to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

Deed of trust: a document giving a lender the right to foreclose on a property if the borrower defaults on the loan.

Default: the inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms. A failure to pay your property taxes, for example, is a default in most loan contracts.

Deficiency judgment: a court order for a borrower to pay the remaining balance owed when a foreclosed property sells for too little to cover the whole debt.

Delinquency: failure of a borrower to make timely mortgage payments under a loan agreement.

Deposit : money the buyer includes with a purchase offer. Also referred to as an "earnest money deposit, " or just "earnest money". It is usually escrowed and applied towards the purchase price. It is lost if the buyer pulls out of the deal without a contractual basis.

Depreciation: normally, when something goes down in value. In real estate, it is a pretend loss that you get to declare (on your tax return) due to aging. It can save you a lot at tax time, meaning more after-tax profit. To maximize it, buy property with its value primarily in the buildings, because you can't depreciate the value of land for tax purposes.

Developer: one who changes property into something of greater value. See also; Subdivision.

Disclosure: a statement to potential buyers that lists relevant information about a piece of property, such as the presence of foundation damage or radon gas.

Discount: a reduction from face value, as when you buy a mortgage note that has a balance of $93,000 for only $83,000.

Discount point: 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan. If you are given a choice of loans with various "points" or none at all, it can be difficult to determine which is best. If you will be paying off the loan in few years, for example, it is cheaper to pay the higher interest than the points, because you won't be paying for long.

Documentation preparation fee: a fee to prepare necessary documents for closing, such as deeds, mortgages, etc. Usually charged to the buyer at closing by lenders, brokers and/or settlement agents.

Down payment: the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.

Draw: money released to builders, contractors or suppliers from the proceeds of a construction loan.

Due on sale clause: loan agreement provision that states the loan must be paid-in-full upon sale of the collateral, usually part of the "acceleration clause.".

E

Earnest money: money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal (unless the rejection of the deal is based on a contingency in the offer - for example, if the buyer's offer was contingent on getting a loan, and he couldn't, so he cannot proceed). Also called a deposit.

Easement: a right (attached to the title) to use a portion of a property for certain purposes, such as for an access road to other property, or for power lines.

EEM: Energy Efficient Mortgage; an FHA program that helps home buyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase.

Encumbrance: a right or interest in property that interferes with its use or the transfer of title.

End loan: a "permanent" loan that replaces construction financing.

Equal Credit Opportunity Act (ECOA): the federal law prohibiting a lender from refusing credit based on an applicant's sex, marital status, race, religion, national origin or age.

Equifax: a credit-reporting bureau (one of the big three).

Equity: an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property. This isn't an entirely accurate picture of what you have, though, as there are costs to selling property. In other words, if you have $12,000 in equity, but it would cost you $8,000 to sell the property, you really only have $4,000 of potential "cash equity."

Errors and omissions insurance: insurance against mistakes made by the builder or architect.

Escrow: to place money or documents with a neutral third party who ensures that all the conditions of a sale are met before a deal is closed and the funds are disbursed.

Escrow account (for mortgage): a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc. Escrow accounts are often required if the lender loans more than 80% of the value of the property.

Escrow agent: the person or company that ensures conditions of a transaction are met before transfer of funds or property is recorded.

Escrow disbursements: escrow funds used to pay real estate taxes, insurance, and other expenses as they become due.

Eviction: the legal removal of a tenant from a rental unit. The laws are different in each locale, and the process may require an attorney with eviction experience.

Examination of title: the inspection (usually by a title company) of public records and documents to determine the chain of ownership of a property.

Executed contract: a contract in which all parties have fulfilled their promises.

Existing home sales: an indicator released monthly by the National Association of Realtors, showing the number and prices of single family houses, condos and co-ops sold over a one-month period. Used to gauge demand for homes, it does not include newly built home sales.

Experian: a credit reporting bureau (one of the big three).

F

Fair Credit Reporting Act: a law that regulates credit reporting procedures and prevents old or inaccurate information from staying on consumer credit reports. It gives individuals the right to inspect their credit files, and petition for removal of inaccurate information.

Fair Housing Act: a law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair market value: the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation. This, the likely sales price, is what matters to an investor (or a lender), not "potential value" or "future value" or "what it's worth to me."

Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential home buyers. Fannie Mae and "Freddie Mac" (FHLM) buy most of the mortgage loans that banks write, and so the rules are set by them. Only if the bank is carrying it's own loans can they go outside these rules.

Farmer's Home Administration (FMHA): a Department of Agriculture agency that provides credit to farmers and rural residents. Has programs that base loan payments on income.

FHA: Federal Housing Administration; established in 1934 to advance home ownership opportunities for all Americans; assists home buyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages. FHA doesn't loan money, but guarantees the loans bank make, IF the borrower and home qualify by their rules. They have many programs, some allowing for loans up to 97% of the value of the property.

FICO score: (Fair Isaac Credit Organization ) Used to by lenders to determine your credit worthiness. The score ranges between 350 and 850, and is different for each of the three major credit reporting organizations. Higher is better, and can get you a lower interest rate. At the moment (early 2006), for example, a score over 800 will qualify you for a mortgage loan of up to 95% of the value of a home, even if you don't have a job.

First mortgage: a properties primary mortgage, the most senior voluntary lien. It takes priority over all other voluntary liens.

First position: having the primary or first-place claim against collateral, as in a first mortgage. If the borrower defaults, the loan (and all foreclosure costs) of the first position loan will be satisfied first. If there is still money left over from the collateral, then any second position claims can be satisfied, and so on.See also; Subordinate.

Fix-and-flip: a fixer-upper that can be quickly repaired and sold.

Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change. These are safer than the variable rate mortgages (also called ARMs, or adjustable rate mortgages), which can eventually have payments that are much higher than you started with. On the other hand, ARMs start at a lower rate, and you may save money if you know you'll be paying off the loan in a few years.

Fixed time: the specific weeks of the year a timeshare owner has access to his unit.

Fixer-upper: a property that needs repairs, usually bought with the idea of getting it cheap, fixing it, and selling it for a profit.

Flattery: a negotiating technique, usually used something like this; "You're obviously have great taste. I'm sure you want to get to work on your next home, so maybe we can find a way to make this work today."

Flip: to buy and then quickly sell a property for a profit.Often the property isn't even bought, but the contract itself is sold for a profit. In other words, you find a home that is selling below market, and you make an offer that allows you to let someone else "take your place." This is sometimes done by putting "or assigns" after your name on the offer. Then you can sell your "position" for a few thousand dollars to another investor who will actually close the deal and own the property.

Flood certification: a determination of whether a property is located within a flood zone.

Flood insurance: insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new home buyers. "Fannie Mae" (FNMA) and "Freddie Mac" buy most of the mortgage loans that banks write, and so the rules are set by them. Only if the bank is carrying it's own loans can they go outside these rules.

Front-end ratio: a calculation of a borrower's monthly housing expense (principal, interest, taxes, and insurance) in relation to gross monthly income.

FSBO: acronym for "for sale by owner." Owners typically try to sell property on their own to save money by not paying a commission. Due to their costs, inexperience, buyers looking at "FSBOs" to get a cheap home and other reasons, they usually fail to save anything.

G

General contractor: see Contractor.

Gift money: money a buyer receives as a gift to help with the down payment (typically from a relative). Lenders usually require a gift letter from the giver, saying the money doesn't have to be repaid.

Gifting program: a program (usually run by a foundation) that gives you a portion of the down payment, so you can buy a home with less from your own pocket. FHA and other lenders have so far approved of or allowed this, even though these foundations are usually funded by the builders selling the homes.

Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Good faith estimate: an estimate of all closing fees including prepaid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Grace period: the time after the due date in which a borrower may make a payment without penalty.

Graduated lease: a lease that's adjusted regularly according to the appraised value of the property being leased. As the value goes up, so do the lease payments.

Graduated payment mortgage: a loan that has increasing monthly payments over the term. Payments start lower and gradually rise, usually until year three or five, when they become fixed.

H

Hard money: loans, generally for a year or less, that have very high interest rates and fees. Hard money lenders take more risks than banks, and can usually close the loan quickly. They are used especially by investors doing fix-and-flips, who don't mind paying high interest for a short time to make a large profit.

Hazard insurance: coverage for damage from events such as fire and wind. It is usually required by lenders, and also known as homeowner's insurance or fire insurance.

HELP: Home buyer Education Learning Program; an educational program from the FHA that counsels people about the home buying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the home buyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.

High-rise: a building taller than six stories.

Home: a house or other dwelling that you want to be living in.

Home equity line: a line of credit based on the homeowner's equity. The homeowner can draw on the line as needed.

Home equity loan: a loan based the equity in an owner's home. Unlike a home equity line, these are for a set amount up front.

Home inspection: an examination of the structure and mechanical systems to determine a home's safety; makes the potential home buyer aware of any repairs that may be needed. Be aware, though, that home inspectors can miss problems, and don't offer any guarantee or money back when they do.

Home warranty: offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.

Homeowner's insurance: an insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. If you are buying older homes, mobile homes, or homes that are not built to acceptable standards, be sure that you can get insurance.

Homeowners association (HOA): the organization governing a subdivision or condominium. They collect monthly fees from owners, which pay for common area maintenance, and sometimes insurance for the exterior structure and other things. The association also enforces covenants, conditions, and restrictions originally set by the developer.

Homeowners association dues: monthly payments, often called HOA fees, paid to the homeowners association.

Homestead: the land used by an owner as his or her primary residence.

Housing counseling agency: provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.

Housing expense ratio: the percentage of a person's gross monthly income spent on housing costs.

Housing starts: a statistic showing the number of residential building construction projects that have been started during a particular month.

Housing unit: a house, condominium, co-op, apartment, mobile home, or single room occupied as separate living quarters. Basically anything that a person can call home, although technically, it is only considered separate living quarters if the occupants don't live and eat with any other person in the structure.

HUD: the U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws. That's the plan, anyhow (they also destroyed more housing than they created for decades, under various grand schemes). HUD foreclosures are often a good investment opportunity, but somewhat of a specialty, so talk to a real estate agent that knows the ins and outs before looking at these.

HUD1 Statement: also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing.

HVAC: Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

I

Impounds: money from the monthly mortgage payment that's placed in an account, to pay for insurance and property taxes. See also; Escrow.

Income property: investment property used to generate income, such as apartment buildings, duplexes, rental houses, etc.

Index: see ARM index.

Inexpensive real estate: a $200,000 home if you are moving from California to Arizona, or a $70,000 house if you are moving from Arizona to Missouri.

Inflation: the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value. In other words, when the government prints too much money, prices go up.

Interest: a fee charged for the use of money.

Interest-only loan: a loan that allows the borrower to make monthly payments of just the interest on the balance due. These are very popular at the moment. Of course, if you pay only interest, years from now you will still owe the same amount as when you borrowed the money.

Interest rate: the amount of interest charged on a monthly loan payment; usually expressed as a annual percentage.

Insurance: protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

J

Joint venture; a legal agreement in which participants jointly invest and share in profits (or losses). A joint venture agreement usually specifies what each person must contribute, how project decisions will be made, and the length of time the agreement will be in effect, among other things.

Judgment: a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

L

LLC: acronym for limited liability company. This is a popular way to hold property. Many investors place each property into a separate LLC, to reduce liability risks.

Land Contract: a type of seller financing in which the buyer makes payments to the seller. Similar to a mortgage loan, except that the deed is delivered after the final payment is made. Also called "contract for deed" in some areas.

Landlord: the owner or manager of a rental property.

Lease option: a legal agreement to lease a home with an option to buy it. The purchase price is specified in the contract, as is the term during which the renter can buy the home. Sometimes there is a non-refundable deposit which applies towards the down payment, IF the option is exercised. Sometimes part of the rent is credited toward the down payment. The renter has the right, but no obligation to buy.

Lease-Purchase: a purchase at a set date in the future, with a lease in the meantime. This isn't a lease option, because the buyer is committed to buy, and the seller has legal remedies if the buyer defaults.

Leaseback: An arrangement in which the seller of a property leases it back from the buyer. This is done when the property is needed, but the seller can't have cash tied up in it, and wants the immediate tax deduction of lease payments (only the interest on a loan payments is a deductible expense).

Leasehold: the right to inhabit a property for a specified time, with the property reverting to the owner at the end of the lease.

Leasehold improvement: an improvement made on a leased property that increases the value of the property. This is actually common when the lease is long-term (so the leaseholder can get sufficient value from their expenditure.

Legal blemish: problems with a property, such as title disputes or zoning violations.

Legal description: a written description, including location, of a piece of real estate, in a way that is acceptable to a court.

Lessee: the one that holds the lease; the renter.

Lessor: the one who leases or rents a property.

Leveraged lease: an agreement where the lessor borrows money to finance the purchase of the property being leased. In other words, you first get someone to sign a long-term lease, and then take that to the bank to borrow the money to buy the property. The bank uses not only the property itself as collateral, but usually has the right to the collect the lease payments if you default.

Liabilities: a person or companies debts and financial obligations.

Liability insurance: coverage that protects an owner against negligence claims, and claims for personal injury or property damage.

LIBOR: the "London Interbank Offered Rate," used as an index used to determine interest rate changes for some adjustable rate loans, especially interest-only mortgage loan programs.

Lien: a legal claim against property that must be satisfied when the property is sold.

Life cap: a limit on the interest rate during the term of a loan. If the rate on an adjustable-rate mortgage starts at 5 percent, for example, and has a life cap of 6 percentage points, it can't go over 11 percent.

Lifetime rate cap: the maximum interest rate permitted on a loan over the term. Really just another way of expressing "life cap."

Like-kind property: properties of the same type. This is a necessary criteria for a tax-free exchange under the tax code. See; 1031 exchange.

Limited authority: a negotiating ploy allowing a buyer to gracefully hesitate, to see what incentives the seller might offer in response. A common form is "I can't make the decision without my wife's approval."

Limited partnership: see Partnership.

Liquid assets: assets which can be converted to cash quickly. These usually include money in savings and checking accounts, money-market accounts, CD's, and stocks.

Lis pendens: latin for "a suit pending." It can refer to any pending lawsuit, and so may affect the viability of the title if there is a lis pendens on a property.

Listing agreement: a contract between a seller and a real estate broker, detailing what the broker will do to sell a property, and how much the seller will pay for the service.

Listings: houses or properties for sale. See also; MLS.

Loan: money borrowed that is usually repaid with interest.

Loan application: document detailing a borrower's income, debt and other obligations, which usually also includes information on the property the loan will be used to buy.

Loan application fee: a charge by lenders to review a loan application. Not all lenders charge this fee.

Loan broker: see Mortgage broker.

Loan commitment: a written promise by a lender to make a loan for a specific amount with specific terms.

Loan officer: a representative who is can act on behalf of a lender within certain limits.

Loan fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan origination fee: see Origination fee.

Loan term: the time a loan will be paid over. While almost any term is possible, most loans today have terms of 15 or 30 years.

Loan-to-value (LTV) ratio: a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment. Most lenders use the purchase price or appraised value, whichever is lower.

Lock-in: since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Lock-in period: the time during which an interest rate is guaranteed. Borrowers have to pay more for a longer period.

Loss mitigation: a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

Low-doc loan: (or low-documentation loan); similar to a no-doc loan, except that some documentation is required.

Lowball: to make a low offer on a property, usually less than 90% of the asking price.

This real estate glossary continues with M through Z here: Glossary Of Real Estate Terms

Note: This real estate glossary comes as a printable PDF bonus with the ebook:
69 Ways To Make Money In Real Estate

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