Real Estate Terms

Guide to Real Estate Terms

1031 Exchange (1031 tax deferred exchange)

Under Section 1031 of the IRS Code, some or all of the realized gain from the exchange of one property for a like kind property may be deferred. It is not a tax-free event; however, in order to accumulate wealth, the payment is deferred.

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. Loans against a 401K plan are an acceptable source of down payment for many types of mortgage loans.

203 B FHA

The FHA 203(b) loan insurance program is the most popular FHA loan program. The FHA 203(b) “may be used to purchase or refinance a new or existing one-to-four family home in both urban and rural areas including manufactured homes on permanent foundations”. FHA does lend the money but rather insures loss to the FHA approved Lender. For more understanding of FHA loans see MMI or UFMIP or Federal Housing Administration.

203-K FHA

The 203-K is an “open end” FHA loan which means additional monies will be available to the borrower after closing. The 203k loan helps the borrower open up one loan to pay for the purchase price of the home, plus the cost of repairs.

5-1 ARM.

An Adjustable Rate Mortgage where the initial interest rate is fixed for the first five years. After 60 payments, the loan becomes a one-year ARM with interest rate adjustments annually. Other examples of this loan type are: 3-1 ARM, 7-1 ARM and 10-1 ARM.

Abstract of Title

A condensed version of the history of a title to a particular parcel of real estate as recorded in the county clerk’s records; consists of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property.

Accelerated Depreciation

A method of calculating for tax purposes the depreciation of an investment property at a faster rate than would be achieved using the straight-line method. Any depreciation taken in excess of what would be claimed using the straight-line rate is subject to recapture as ordinary income to the extent of the gain resulting from the sale.

Acceleration Clause

A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance (principal plus interest) for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

Actual Notice

Express information or fact; that which is known; actual knowledge.

Accrued Depreciation

Depreciation of real estate is a loss in value to a property due to any cause. Accrued depreciation is depreciation that has already occurred. In the cost approach to value, an appraiser would deduct the estimated accrued depreciation from the replacement cost.

Adjustable-Rate Mortgage (ARM)

A mortgage in which the interest changes periodically, according to a term set forth in the note. Interest rate changes will be based upon changes in the appropriate index. All ARMs are tied to indexes.

Adjustment Date

The date the interest rate changes on an adjustable-rate mortgage per the terms of the note.

Ad Valorem Tax

A tax levied according to value; generally used to refer to real estate tax.

Adverse Possession Redo

The actual, visible, hostile, notorious, exclusive, and continuous possession of another’s land under a claim to title. Possession for a statutory period may be a means of acquiring title.


One who represents or has the power to act for another person (called the principal). The authorization may be express, implied, or apparent. An example of an Agent is when a seller lists their property for sale with a Real Estate Brokerage firm. The Brokerage firm (company) is the Agent representing the seller and as such has fiduciary responsibility to the seller. Real Estate sales people are often referred to as “Agents”. Real Estate sales people are agents representing the company they are affiliated with and the Company is Agent for the Seller.

Agreement of Sale

A written agreement by which the purchaser agrees to buy certain real estate and the seller agrees to sell, on the terms and conditions set forth in the agreement. Also referred to as Offer To Purchase or Contract of Sale.

Alienation Clause

Clause in a mortgage instrument that prevents the borrower from transferring title without lender’s approval. Violation of this clause could result in the lender demanding balance of loan be paid in full.

Americans with Disabilities Act (ADA)

A federal law, effective in 1992, designed to eliminate discrimination against individuals with disabilities.


A payment method that allows payments to be allocated first to interest due then to the principal balance. Based upon the monthly payments required the loan will be liquidated (amortized) in the specified time.

Amortization Schedule

A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Annual Percentage Rate (APR)

This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.


The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.


A written opinion of value performed by an induvial licensed as a real estate appraiser. For residential evaluations the emphasis is based upon 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.


An individual licensed to do appraisal work. Even though some Lenders have inhouse appraisers most appraisers are randomly assigned properties to appraise.


The increase in a properties value. The increase could be due to changes in market conditions, inflation, or other causes such as improvements to the property.


Belonging to; incident to; annexed to.

ARM Margin

This is the agreed upon number which will be added to the index which will result in the new interest rate for an adjustable rate mortgage. This is the one feature of an ARM that the borrower can and should shop Lenders for. The higher the margin, the higher your interest rate will be with an ARM. If the index rate is 3 percent and the margin is 2.5 percent, then your fully indexed interest rate would be 5.5 percent. Whereas if your margin is 1.75 percent, the fully indexed rate would be 4.75%. In some shops, loan officers may receive a bonus for selling a higher margin to the borrower. So beware.

Assessed Value

The valuation placed on property by a public tax assessor for purposes of taxation.


The placing of a value on property for the purpose of taxation.


A public official who establishes the value of a property for taxation purposes.


Items of value owned by an individual or Company. Assets minus liabilities equal Net Worth. Often, real estate represents the largest asset owned by individuals.


The transfer in writing of rights or interest in a bond, mortgage, lease, or other instrument to another. Real Estate Mortgage Notes are quite often assigned (transferred, sold) to another Lender after closing.

Assumable Mortgage

A mortgage that can be assumed by the buyer, from the seller, when a home is sold. Usually, the borrower must “qualify” in order to assume the loan. VA and FHA are examples of assumable mortgages. Conventional loans are not assumable.


The term applied when a buyer assumes the seller’s mortgage.


One acting under a legal “Power of Attorney”. Specific Power of Attorney can be used in a Real Estate closing allowing one purchaser to execute (sign) documents on behalf of another. You should seek Legal advice when contemplating the use of these instruments.

Attorney’s Opinion of Title

An instrument written and signed by the attorney who examines the title, stating their opinion as to whether a seller may convey good title. See also Title Insurance.

Balloon Mortgage

A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, monthly payments are based upon a 30 year amortization but requires the entire principal balance to be paid after 10 years.

Balloon Payment

Lump sum payment due at the termination of a balloon mortgage.


By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of 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.

Bargain and Sale Deed

A deed is the instrument used to convey real property during one’s life. Deeds that do not carry future warranties are referred to as Bargain and Sale Deeds. See also General Warranty Deeds, Special Warranty Deeds and Quit Claim Deeds.

Bill of Sale

A document that transfers title to personal property as compared to a Deed which conveys title to Real Estate (Real Property).

Bilateral Contract

A contract in which two or more parties make mutual promises (agreements) to do or not to certain things. A Real Estate contract is a Bilateral Agreement between the buyer and seller. Opposite of a unilateral agreement.

Biweekly Mortgage

A mortgage in which you make additional principal payments beyond what is required. A popular version of making additional principal payments is a Biweekly mortgage which simply means you will make additional principal payments on your mortgage every two weeks. Generally speaking, you can pay off a 30-year mortgage in approximately 21 years by making 13 payments every year – in other words every six (6) months you pay half your mortgage payment as additional principal. You can engage the services or a company to manage your additional principal payments or you can do it yourself. Should you do it yourself you should send a separate check (for additional principal Payment) and clearly indicate the extra money is to be applied to principal reduction and not placed into your escrow account.

Blanket Mortgage

A mortgage (or Deed of Trust) that covers more than one parcel of real estate. It may or may not provide for each parcel’s partial release from the mortgage lien on repayment of a definite portion of the debt.


The illegal practice of inducing homeowners to sell their properties by making representations regarding the entry, or prospective entry, of minority persons into the neighborhood.

Bond Market

Usually refers to the daily buying and selling of thirty year treasury bonds. Mortgage rate are directly influenced by the Bond markets. Volatility in the bond markets can create rapid changes in mortgage interest rates.

Branch Office

A secondary place of business apart from the main office of a real estate company. A branch office generally must be run by a licensed real estate broker, broker salesperson, or associate broker working on behalf of the broker operating the principal office

Breach of Contract

The failure of one of the parties to a contract to perform according to the terms and/or conditions set forth in the contract. Said failure could result in liquidated damages or a lawsuit for specific performance. For additional understanding speak with a lawyer.

Bridge Loan

A temporary or gap loan used when a seller has not closed on their home but needs an advance of the equity from their home to close on the home they are purchasing.


A Real Estate Broker is the person licensed with the State to own a real estate brokerage business and is responsible for the conduct of sales associates working for the firm. Sales associated may also be associate brokers.

Mortgage Brokers are licensed companies (individuals) that are paid a fee to coordinate mortgage loan applications on behalf of Lenders. Mortgage Brokers do not close loans but rather take applications on behalf of Lenders which they have a relationship with.


Toxic industrial sites in need of renewal. Federal legislation has diminished the innocent landowner’s liability exposure and provided the landowner the opportunity to expense cleanup costs rather than capitalize them.

Budget Loan

A loan which the monthly mortgage payments include principal and interest payment and 112 of such expenses as taxes, insurance assessments, private mortgage insurance premiums, and similar charges. The additional payments are placed into an escrow for future payments.

Building Code

A local ordinance specifying minimum standards of construction of buildings for the protection of public safety and health.

Building Restrictions

The limitations or restriction on size or type of improvements to real property. These rules are generally established by zoning acts. They could also be established by deed or lease restrictions. Building restrictions are considered encumbrances and violations could hinder the marketing of the property.


A temporary payment subsidy. A typical buydown would be a 3-2-1 which means the borrower’s monthly payment will be subsided 3% for the first year, 2% for the second year and 1% for the third year. Buydowns are popular in times of higher mortgage rates. After the expiration of the “buydown period” borrower’s payment is calculated at the note rate. To facilitate the payment subsidy a lump sum is escrowed and the portion of payment subsidy is withdrawn monthly. Buydown funds can be paid for by the seller, buyer or lender. When mortgage rates are higher than normal, a buydown program can make it easier for to qualify. Can be utilized for Adjustable Rate or Fixed loans but more popular for Fixed rate loans.


The instrument (number) used to control interest rate changes with Adjustable Rate Mortgages (ARM). Interest rate caps are generally expressed as Annual Cap or Life Cap. Annual caps are most often expressed as the maximum change that occur within a period of time – example maximum 1% change per year, Life Caps set the max interest rate over the life of the loan. ARMS are very sophisticated loans and the borrower should fully understand related concepts such as: Is there a carry over provision on annual caps, what is the index, what is the Margin – the higher the Margin the more likely your interest rate will increase.

Capital Gain

Profit earned from the sale of an asset. The gain can either be short term capital gain or long term which could affect the taxes due on the gain.


The process of converting into present value (or obtaining the present worth of) a series of anticipated future periodic installments of net income. In real estate appraisal, it usually takes the form of discounting. The formula is Annual Income/Cap Rate = Value. The higher the Cap Rate the lower the indicated value. This is one of the methods used in appraising income producing real estate. The other methods include The Cost Approach and Comparable Sale approach.

Casualty Insurance

A type of insurance policy that protects a property owner or other person from loss or injury sustained as a result of theft, vandalism, or similar occurrences.

Cash Flow

The net income from an investment after deducting operating and fixed expenses from the gross income. If expenses exceed income, a negative cash flow is the result.

Cash-Out Refinance

A loan that allows the borrower to obtain cash after paying off mortgage balance and closing cost. Funds are given to the borrower as cash which they may use to pay off consumer debt (credit cards) and spend as they wish.

Caveat Emptor

A Latin phrase meaning, “let the buyer beware.” Historically, used in the real estate industry because the Seller was represented by the real estate agents whereas the buyer was unrepresented. Today many (if not most) buyers are also represented by a real estate company as agent for the buyer thus the phrase doesn’t have the same impact within the industry.

Certificate of Deposit

A time deposit held in a bank which pays a fixed interest over the time period.

Certificate of Eligibility

A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.

Certificate of Reasonable Value (CRV)

Certificate of Reasonable value is the appraised value when a VA guaranteed loan is used by Veteran borrower.

Certificate of Sale

The document generally given to a purchaser at a property tax foreclosure sale. It does not convey title. It is evidence of equitable interest by the buyer pending Statutory Redemption period by the owner. The instrument certifies the holder may receive title to the property after the redemption period has expired. Should the owner wish to exercise their right of redemption, generally they will be required to reimburse the “Certificate Holder” of out of pocket expenses plus interest.

Certificate of Title

The statement of opinion on the status of the title to a parcel of real property, based on an examination of specified public records. Similar to a Opinion of Title.

Chain of Title

An analysis of the transfers of title to a piece of property over the years in the land records. The report is prepared by a Tile Abstractor and is often referred to as Abstract of Title. The analysis could be for a fixed period of time (60-100 years or longer) or for the period of the time the seller has been owner of record.

Chattel Property

Personal property as compared to real property. Certain items that may be personal in nature can become fixtures and thus considered real property. Example, built in dishwasher.

Clear Title

A title that is free of liens of record, encumbrances or other legal questions as to ownership of the property.


This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents are recorded in the land records office. In other States, the “closing” is a meeting where all of the documents are signed and money changes hands.

Closing Cost

Closing cost are those fees paid by buyer and seller at time of closing.

Buyer’s closing cost include items such as : Transfer and recordation cost, Title fees, Title insurance fees, Inspector cost, Home Owners Insurance premium, Monies collected for Lender Escrow account, Termite Inspection, Prorated Property taxes due seller etc.

Sellers Closing Cost include: Real Estate Commissions, Transfer and recordation fees.

Closing Disclosure Statement (replaced the HUD1)

The first page of the Closing Disclosure is almost identical to Page 1 of Loan Estimate which was provided to the borrower at time of mortgage application. It describes the Loan terms, Loan amount, Interest rate, Monthly P&I and Any prepayment penalty or balloon payment. This page also provides the projected payments over the life of the loan. This page also discloses to the borrower what amounts will be deposited into their impound or escrow account and provides the total estimated closing costs and cash to close.

The second page is similar to Page 2 of the HUD-1 Settlement Statement. It provides a breakdown of all the closing cost details and lists all loan costs and other costs paid by borrower, seller, and other parties.

Closing Statement

See HUD1 or Closing Disclosure 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.


An individual who is both obligated on the loan and is also a co-owner of the property. This is juxtaposed to a Loan Guarantor who signs the Note securing personal obligation to repay the debt but is not an owner thus does not sign the Mortgage or Deed of Trust.

Coinsurance Clause

A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage that is generally equal to at least 80% of the property’s actual replacement cost. This is exclusive of land value.


Something of value given or pledged to a lender as a security for a debt or obligation. In real estate the borrower hypothecates (pledges while maintaining possession) the house by signing either a Mortgage or Deed of Trust. When the loan is paid off the lender will supply a Certificate of Satisfaction which is recorded in the land records rendering the property free and clear.

Commercial Property

A classification of real estate that includes income-producing property, such as office buildings, restaurants, shopping centers, hotels, and stores. Such classification is controlled by local zoning ordinances.


The payment made to a real estate broker for services rendered, such as in the sale or purchase of real property; this is usually a percentage of the selling price of the property. Other persons may also earn commissions in a RE transactions such as: Loan officers and Closing Agents.


The illegal act of a real estate broker who mixes money held in trust for parties to a RE transaction with personal or corporate money. Real Estate brokers are required by law to maintain a separate trust account for other parties’ funds held temporarily by the broker.

Common Area Assessments

Also referred to as 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

Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses 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

A body of law based on custom, usage, and court decisions.

Community Property

In some states, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances.

Comparable Sales

Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Dollar amount adjustments are made to comparable properties to reflect similarity with subject property – the effort is to reflect probable sales price of comparable adjusted to reflect the features of subject property. Also referred to as “comps.”

Competent Parties

Persons who are recognized by law as being able to contract with others; usually those of legal age and sound mind.


A judicial or administrative proceeding or process to exercise the power of eminent domain.


A type of ownership in real property where all of the owners own an undivided interest in the property such as common areas. Generally, the individual has fee simple title to the interior of their unit. It does not refer to a type of construction but rather denotes a form 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 and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.

Conforming Mortgages

Securitized mortgages sold on the secondary market that meet certain requirements established by Fannie Mae and Freddie Mac. These loan types will have same maximum loan amounts and underwriting guidelines. See Non-Conforming or Jumbo Mortgages.


Something of value that induces one to enter into a contract. Consideration may be “valuable” (money or commodity) or “good” (love and affection”). Also, an act of forbearance, or the promise thereof, given by one party in exchange for something from the other. Forbearance is a promise not to do something. Generally, In a real estate contract the consideration is the purchase price.

Constructive Eviction

Acts by the landlord that so materially disturb or impair the tenant’s enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent. Example, landlord’s failure to have operational heating system in a home or apartment.

Constructive Notice

Notice given to the world by recorded documents. All persons are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property also is considered constructive notice that the person in possession has an interest in the property.

Construction Loan

A short-term, interim loan for financing the cost of construction. The lender makes payments, based upon a draw schedule, to the builder at periodic intervals as the work progresses.


A provision or condition in the purchase of real estate requiring a certain act to be done or an event to happen or the contract could become void or voidable. A typical RE contract will be contingent upon the buyer’s ability to secure loan approval within a specified time after ratification.


An agreement entered into by two or more legally competent by the terms of which one or more of the parties, for a consideration, undertakes to do or to refrain from doing some legal act or acts. A contract may be either unilateral (where only one party is bound to act) or bilateral (where all parties to the instrument are legally bound to act as prescribed). Purchase agreements in Real Estate must be in writing.

Contract for Deed

A contract for the sale of real estate under which the sale price is paid in periodic installments by the purchaser, who is in possession and holds equitable title. Although actual title is retained by the seller until final payment generally the contract is recorded in the Land Records. Also known as a Land Installment Contract. States may have very specific legal requirements for this type of purchase instrument.

Conventional Mortgage

A home loan that is not guaranteed or insured by a government agency such as VA, FHA, and USDA. These loans are available thru a variety of institutions such as Lenders, Mortgage Bankers, or local Banks and are often referred to as a Fannie Mae or Freddie Mac loan.


A written instrument that evidences transfer of some interest to real property from one party to another. A deed is utilized to convey interest in real property doing one’s life.


Legal title in real property is held by a trust or corporation that is owned by, and operated for, the benefit of persons owning shares in the Corporation or Trust. These persons are the beneficial owners of the trust or the shareholders of the corporation, each having a proprietary lease to a specific unit or house within the development. Typically found in multistory building in Urban areas.


An entity or organization created by operation of law whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until dissolved according to legal procedures.

Cost Approach

The process of estimating the value of a properties improvement(s) by calculating the estimate of the reproduction or replacement cost of the building less depreciation to the estimated land value. One of three methods used to appraise (estimate) value of real estate. The other two approaches being the Income Approach and Sales Comparable Approach.


The business of providing people with expert advice on a subject, based on the counselor’s extensive, expert knowledge of the subject. A borrower for a FHA insured reverse mortgage is required to obtain counseling prior to making formal application.

Convertible ARM

An Adjustable Rate Mortgage which may convert to a Fixed Rate mortgage.

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.


A new offer made as a reply to an offer received, having the effect of rejecting the original offer.

Covenants, Conditions, and Restrictions (CC&Rs)

Condominium documents that serve as the operational procedures describing the rights and prohibitions of the co-owners in a condominium association. Restrictive covenants may also be in Deeds for properties that are not Condominiums.


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

Also referred to as a 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 creditworthiness.


A person to whom money is owed.

Credit Score

Your credit score is important in the mortgage approval process. Your credit score will be evaluated in conjunction with your down payment. A larger down payment lowers the Lender risk that may allow for loan approval with a lower credit score. Below are acceptable ranges for different mortgage loans:

  • Conventional Loan – 620+ credit score
  • FHA Loan – 580+ credit score (500-579 score is possible but unlikely)
  • FHA 203K Loan – 620+ credit score
  • VA Loan – 620+ credit score (some lenders require 580)
  • USDA Loan – 620+ credit score

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.


A dead-end street that widens sufficiently at the end to permit an automobile to make a U-turn.


An interest in real estate (usually a fractional interest or life estate), given by some states to the surviving husband in real estate owned by his deceased wife. Most states have abolished curtesy and dower interest. Dower is same concept for surviving wives.


An amount of money or obligation owed to another.


The legal document conveying title to a property doing one’s lifetime. A will could convey title to real property upon one’s death.

Deed-in-Lieu of Foreclosure

Process whereby a borrower, in default of a mortgage, conveys title to the lender in an attempt to avoid foreclosure by the lender.

Deed of Reconveyance

The instrument used to reconvey title to a trustor under a deed of trust once the debt has been satisfied. Instrument is recorded in the land records as evidence that debt has been satisfied. Serves same function as a Satisfaction of Mortgage.

Deed of Trust

Some states use Deed of Trust in lieu of Mortgage Instruments. Under the terms of a Deed of Trust, the borrower conveys title to a trustee, who holds it as security for the benefit of the Lender.

Deed Restrictions

The clauses in a deed limiting the future users of the property. Deed restrictions may impose a variety of limitations and conditions, such as limiting the density of buildings, dictating the types of structures that can be erected, and preventing future use of the property.


Failure to fulfill obligations as set forth in an agreement. Generally, for mortgage obligation, if a borrower fails to make a payment within 30 days of the due date, the loan is considered to be in default.

Defeasance Clause

A clause used in leases or mortgages that cancels a specified right on the occurrence of a certain condition, such as cancellation of a mortgage on repayment of the mortgage loan.

Deficiency Judgment

A personal judgment levied against the mortgagor when a foreclosure sale does not produce sufficient funds to satisfy the mortgage debt in full.


Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month and considered delinquent after a 15day grace period. Failure to pay within 30 days could result in the loan being in default.


A sum of money given in advance of a larger amount being expected in the future. Generally, in real estate contracts this money is referred to as an “Earnest Money Deposit” or “Good Faith Money” and if real estate agents are involved the money will be placed in the Brokers Escrow account.


A decline in the value of property; the opposite of appreciation. Depreciation can be an accounting term and is used as an expense to reduce taxable income on investment property. Depreciation can be used in the Appraisal process to reduce value.


The hereditary succession of an heir to the property of a relative who dies intestate (without a will). The laws of descent and distribution are State specific.


A transfer of real estate by will or last testament. The donor is the devisor and the recipient is the devisee. See Bequest for conveyance of personal property via a Will.

Discount Points

A loan fee charged by a lender to make the yield on a lower-than-market-value loan competitive with higher-interest loans. Each discount point equals one percent of the loan amount and is estimated to equal approximately 1/8 percent of interest on a 30 year loan. It is not unusual for a lender to charge a loan origination fee which is just industry jargon for a loan discount fee. Example, a 6.875% loan with one discount point is equal to a 7% loan without the point.

Down Payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage. A VA loan does not require a down payment thus a veteran can borrow 100% of the purchase price. A FHA insured loan requires a 3.5% down payment and a Conventional loan requires a minimum of 3% down payment.

Due-on-Sale Provision

A provision in a mortgage that allows the lender to demand repayment in full if the borrower conveys title to the property without paying off the loan balance. This provision does not apply to loans that are assumable.


Unlawful constraint that forces action or inaction against a person’s will.

Earnest Money Deposit

AKA as Good Faith Deposit. A deposit, to be credited toward purchase price at closing, made by the contract purchaser unusually held in escrow by real estate Broker. The contract should specify under what conditions the deposit can be forfeited or returned to the purchaser. When in doubt seek legal advice.


A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land. An easement appurtenant passes with the land when conveyed. Not to be confused with a license to use property.

Easement by Necessity

An easement allowed by law as necessary for the full enjoyment of a parcel of real estate. To prevent property owners for having ingress to their property.

Easement by Prescription

An easement acquired by continuous, open, uninterrupted, exclusive, and adverse of the property for the period of time prescribed by State law.

Easement in Gross

An easement that is not created for the benefit of adjacent property owner. Generally, a commercial easement such a utility easement.

Economic Life

The estimated period of time for an improvement to land to be economically feasible. The term is used within the Appraisal industry especially when estimating the Remaining Economic Life of an improvement. Lenders will not lend money over a 30 year period on a property with a 15 year economic life.

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.


An improvement that intrudes illegally on another’s property such as a fence or wall.


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.

Equitable Title

The interest held under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name. A contract buyer for real estate may have an equitable interest in the property.


An interest or value that an owner has in a property over and above any indebtedness. Equity is the difference between the fair market value of the property minus the amount of debt owed. A more accurate definition would be Market Value minus (debt owed and cost to sell).

Errors and Omissions Insurance

Insurance coverage for real estate agents against claims for innocent and negligent misrepresentations.


The reversion of property to the state in the event that its owner dies without leaving a will and has no heirs to whom the property may pass by lawful descent.


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

An account with you Lender to pay future obligations such as property taxes and hazard insurance. The account will be initially funded at time of closing.

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 by the Lender to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.


The ownership interest of in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Estate in Land

The degree, quantity, nature, and extent of interest that a person has in real property.

Estate for Years

An interest for a certain, exact period of time in property leased for a specified consideration.

Estate in Severalty

An estate owned by one person.

Et Al

Latin, meaning “and others”.


The lawful expulsion of an occupant from real property.

Evidence of Title

A proof of ownership of property, which is commonly a certificate of title, a title insurance policy, an abstract of title with lawyer’s opinion, or a Torrens registration certificate.

Examination of Title

The report on the title of a property from the public records or an abstract of the title.

Exclusive-Agency Listing

A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property on the owner’s stated terms for a commission. The owner, however, reserves the right to sell without paying anyone a commission by selling to a prospect who has not been introduced or claimed by the broker

Exclusive Right to Sell Listing

A written contract that gives a licensed real estate company the exclusive right to sell a property for a specified time.

Executed Contract

A contract in which all parties have fulfilled their promises and thus performed the contract. A real estate contract is considered “executed” with the conveyance of title by a Deed.

Executory Contract

A contract under which something remains to be done by one of more of the parties. A real contract pending closing is a executory contract.


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.

Fair Credit Reporting Act

A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

Fair Housing Act of 1968

The term for Title VIII of the Civil Rights Act of 1968 as amended, which prohibits discrimination based on race, color, sex, religion, national origin, handicaps, and familial status in the sale and rental of residential property.

Fair Housing Administration (FHA)

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

Fair Market Value

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA)

The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds. Today FNMA is largely owned by the government.

Federal Home Loan Mortgage Corporation (FHLMC)

A federally chartered corporation created to provide a secondary mortgage market for conventional loans also known as FHLMC.

Federal Housing Administration (FHA)

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

Fee Simple

The greatest possible interest a person can have in real estate.

Fee Simple Estate

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration.

FHA Appraisal

An FHA appraisal of a property as part of the loan underwriting for a FHA insured loan. The report establishes value and confirms the property meets FHA minimum property standards.

FHA Mortgage

A loan that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
FHA loans can be either Fixed or an Adjustable Rate Mortgage. Terms for these loans can be between 15 and 30 years.

The FHA 203(b) loan insurance program is the most popular FHA loan program. A 203-B loan requires a minimum down payment of 3.5% of the purchase price. A seller may pay up to 6% of the sales price toward buyers’ closing cost. FHA mortgage insurance is required. The FHA 203(b) “may be used to purchase or refinance a new or existing one-to-four family home in both urban and rural areas including manufactured homes on permanent foundations”. FHA does not lend the money but rather insures loss to the FHA approved Lender.
The 203-K is an “open end” FHA loan, which means additional monies will be available to the borrower after closing. The 203k loan helps the borrower open up one loan to pay for the purchase price of the home, plus the cost of repairs.

FHA loans require mortgage insurance where the down payment is less than 20%. Of course, a borrower with a 20% down payment will apply for a convention loan not FHA. The insurance on an FHA loan has to parts – an upfront fee (UFMIP) and a monthly fee (MMI). The UFMIP is 1.75% of the loan amount which is payable to FHA at time of closing – to offset cash required by the borrower the Lender will pay the premium to FHA – adding the premium amount to the loan. Additionally, the borrower will be required to pay an annual insurance premium to HUD (FHA) based upon .0045 to .0095 of the loan amount – the annual premium divided by 12 equals required monthly insurance payment. The annual premium is based upon the LTV, loan amount and loan term – thus the range of approximately ½ percent to 1% annually.

FHA Mortgage Insurance

FHA loans require mortgage insurance where the down payment is less than 20%. Of course, a borrower with a 20% down payment will apply for a convention loan not FHA. The insurance on a FHA loan has to parts – an upfront fee (UFMIP) and a monthly fee (MMI). The UFMIP is 1.75% of the loan amount which is payable to FHA at time of closing – to offset cash required by the borrower the Lender will pay the premium to FHA – adding the premium amount to the loan. Additionally, the borrower will be required to a annual insurance premium to HUD (FHA) based upon .0045 to .0095 of the loan amount – the annual premium divided by 12 equals required monthly insurance payment. The annual premium is based upon the LTV, loan amount and loan term – thus the range of approximately ½ percent to 1% annually.

Fiduciary Relationship

A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, principal and agent. In a real estate transaction, the listing Broker has a fiduciary relationship with the seller.

Firm Commitment

A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage

The mortgage that first priority lien in the land records for a given property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed-Rate Mortgage

A home loan in which the interest rate is fixed for the duration of the loan term. This is contrasted with an Adjustable Rate Mortgage, which allows the interest rate to change during the loan term.


An article that was once personal property but has been so affixed to real estate that it has become real property. See Chattel property.

Flood Certification

A fee, typically less than $15, charged to obtain the government-required document used to determine whether the subject property is located in a flood plain. Federal Emergency Management Agency (FEMA) flood maps are examined using the address or geographic coordinates of the property. If the property is located in a flood plain, then the Lender will require a Flood Insurance policy which is payable annually and will be escrowed by the Lender for payment.

Flood Insurance

Insurance that compensates for physical property damage resulting from flooding. It is a Lender requirement for properties located in federally designated flood areas. Property owners may also want to consider Wind and Hail insurance in addition to Flood policy.


The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.


A private contractual agreement to run a business using a designated trade name and operating procedures. The real estate industry has several well known franchises such as Coldwell Banker, C21 et.


A misstatement of a material fact made with intent to deceive or made with reckless disregard of the truth and relied upon by another person.

Freehold Estate

An estate in land in which ownership is for an indeterminate length of time, in contrast to a leasehold estate which has a fixed duration.

Functional Obsolescence

A lessening of value due to features of the property. Examples would be: A bathroom off the kitchen. Often, this type devaluation of a property is due to change in buyer demand for acceptable minimum features within a property. Compare to economic obsolescence which a lessening of value due to things external to the property. Compare also to Physical Obsolescence which is a result of physical wearing away (depreciation) of the improvements.

Funding Fee

A fee required by the Department of Veterans Affairs for guaranteeing a VA loan. The funding fee can be added to loan amount (financed) or paid cash. This fee is payable to the Veterans Administration.

General Warranty Deed

A deed wherein the grantor (seller) warrants the title against defects to the grantee(buyer) even before the seller owned the property. This type of deed is not generally used to convey real estate – A Special Warranty Deed is most often used.

Gift Letter

A monetary gift, typically from a parent, that is used as down payment or closing cost. The gift letter must clearly show the funds are a gift and NOT a loan. The gift letter should include:

  • The donor’s name, current address and home phone number
  • The donor’s relationship to the client (e.g. card is signed, “Love, Mom & Dad”)
  • The exact dollar amount enclosed
  • The date of the fund transfer (in legible format MM-DD-YYYY)
  • A clear statement from the donor expressing that no repayment is expected
  • The donor’s clear signature
  • The address of the property to be purchased

Some Lenders will also verify the donor’s capacity to give. In words, they will verify the donor’s bank statements.

Government Loan (mortgage)

A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government National Mortgage Association (Ginnie Mae)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to mortgage lenders thru the secondary markets. The difference is that Ginnie Mae only purchases government loans (FHA and VA)

Graduated Lease

Lease that provides for rent increases at set future dates.

Graduated Payment Mortgage

A mortgage loan for which the initial payments are low but increase over the life of the loan. These types of mortgage plans are most popular when interest rates are high. During the early 80’s , FHA had several Graduated Mortgage Plans – known as FHA 245 loans.

The Grant

The act of conveying or transferring title to real property. “Do hereby Grant and Convey ” is typical language fond in a deed.


Person to whom an interest in real property is conveyed – the purchaser.


The person conveying an interest in real property – the seller.

Gross Lease

A lease or property under which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance, and operating expenses. Tenant could pay for other expenses such as utility charges, cable, water use etc. Most residential leases are gross leases.

Gross Rent Multiplier (GRM)

A figure used as a multiplier of the gross monthly rental income of a property to produce an estimate of the property’s value. Where rental data is available, the GRM can be used as the Income Approach to Value in a residential appraisal report.

Ground Lease

A lease of land only, on which the tenant will make improvements. This arrangement is somewhat popular with commercial sites for fast food franchises or similar operations. Such leases are usually long-term net leases and not to be confused with States that have Ground Rents.

Ground Rents

Popular is a limited number of States such as Maryland. The owner does not have fee simple ownership but a Leasehold interest in the real property. The property is subject to an annual payment of ground rent at a predetermined amount. The ground rent is renewable forever. Generally, the ground rent can be redeemed (purchased) resulting in the owner acquiring fee simple interest. You should check your State for Ground Rent Statues.

Guaranteed Sale Plan

An agreement between the broker and the seller that if the seller’s real property is not sold before a certain date, the broker will purchase it for a specified price.

Hazard Insurance (Homeowner’s Insurance)

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents. Lenders will require basic Fire Insurance for the amount of the loan. Most or many homeowners opt for additional coverage via a Homeowners Insurance Policy. The value of the land is not insurable under these types of insurance.


Every kind of inheritable property, including person, real corporeal, and incorporeal.

Highest and Best Use

The best use of land which results in the highest possible return to the land. Simply put, the best use of the land and the improvements thereon. For example, a single family home on a lot that is zoned commercial in not normally the highest and best use.

Holdover Tenancy

A tenant remains is possession of demised (rented) property after the lease has expired.

Holographic Will

A will that is written, dated, and signed in the handwriting of the maker.

Homeowner’s Warranty Program

An insurance program offered to homeowners warranting certain property against failure for a specified period of time. Typically, these policies are purchased as protection for appliances, plumbing and HVAC systems. Additional coverage can be purchased to cover other items such as underground waste and water lines. Some sellers offer A Homeowner Warranty Program as additional incentive to purchase their property. Some real estate companies offer these programs and may receive a commission on the products.

Homestead Provision

The land and the improvements thereon designated by the owner as his or her homestead and, therefore, protected by state law, either in whole or in part, from forced sale by certain creditors of the owner.

Home Equity Conversion Mortgage (HECM)

Usually referred to as a reverse annuity mortgage. There are some Conventional Reverse mortgages, by far the most popular reverse is insured by FHA and referred to as a HECM loan – Home Equity Conversion Loan. These loans are available to persons 62 and older and as the name implies the premise of the program is to allow senior citizens to borrower from the equity in their home. There are no income qualifications and there are no monthly payments. You can borrower a percentage of the equity in your home based upon your age – the older the higher percentage of equity you can borrow. There are three options: (a) receive the proceeds as cash (b) receive the proceeds as a monthly check sent to you (c) place the proceeds into a equity line which you can withdraw from in the future. The loan is a non-recourse loan which means you have no personal liability to repay the loan other than the lien on your home. The borrower is responsible to maintain property insurance and pay the property taxes. The loan is repayable when the borrower no longer lives in the property. Each borrower must receive HECM counseling before proceeding with the loan application.

Home Equity Line of Credit

A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home. Loan amount based on borrower’s equity in the property and other factors such as credit, income etc.

Home Inspection

An inspection by a professional (usually State licensed) that evaluates the areas of the property as instructed by the borrower. The inspection could be general home inspection which would include structural, mechanical, plumbing, roof etc. The inspection could include testing such as radon, mold or lead paint. Generally, the ratified contract will set forth the details of the home inspection to be done and the contract is contingent (subject) to satisfactory results.

Homeowners’ Association

A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.


The Department of Housing and Development, regulates FHA and GNMA.

HUD Median Income

Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 Settlement Statement

A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the “closing statement” or “settlement sheet.” Today the HUD1 is used primarily for Reverse Mortgage Closings and Cash Transactions. See “Closing Disclosure Statement”.


The pledge of property as security of a loan in which the borrower maintains possession of the property while it is pledged as security. A Mortgage or Deed of Trust are examples of property being hypothecated as collateral for repayment of a debt.

Implied Contract

A contract under which the agreement of the parties is demonstrated by their acts and conduct. A contract for purchase of real estate must in writing.


Any structure erected on land, the improvement may or may not enhance the value of the property.

Income Approach

The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.

Incorporeal Right

A nonpossessory right in real estate.

Independent Contractor

One who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result, and not as to how he or she performs the act. Unlike an employee, an independent contractor pays all of his or her expenses, pays his or her income and Social Security taxes, and receives no employee benefits. Many (most) real estate salespeople are independent contractors.

Index Lease

Lease that allows the rent to be increased or decreased periodically based on changes in the selected index such as the Consumer Price Index.

Industrial Property

All land and buildings used or suited for use in the production, storage, or distribution of tangible goods.

Installment Sale

A contract (normally recorded in the land records) where the purchase price is paid over in a series of installment payments. Legal Title remains in the seller’s name and purchaser has equitable. If the sale meets certain requirements, a taxpayer can spread recognition of the reportable gain over more than one year, which may result in tax savings. See also Contract for Deed.

Insurable Title

A title to land that a title company will insure.

Insured Conventional

A conventional loan, with less than 20% down payment or a loan to value ratio (LTV) exceeding 80%. This loan type requires private mortgage insurance, which protects the Lender from potential loss.


A charge made by a lender for the use of money.

Interest Rate Cap

The instrument (number) used to control interest rate changes with Adjustable Rate Mortgages (ARM). Interest rate caps are generally expressed as an Annual Cap or Life Cap. Annual caps are most often expressed as the maximum change that occur within a period of time – example maximum 1% change per year, Life Caps set the max interest rate over the life of the loan. ARMS are very sophisticated loans and the borrower should fully understand concepts such as: Is there a carryover provision on annual caps? What is the index? What is the Margin? –the higher the Margin the more likely your interest rate will increase.

Interim Financing

A short-term loan usually made during the construction phase of a building project, often referred to as a construction loan.


The condition of a property owner who dies without leaving a will. Title to such property passes to his or her heirs as provided in the state law of descent. If no heirs exist then the property reverts to the State.


Having no force or effect.


To render null and void.


Money directed toward the purchase, improvement, and development of an asset in expectation of income or profits. Financial investment can be evaluated based upon the following characteristics: safety, yield, marketability, collateral, duration, required personal attention, potential appreciation and tax considerations.

Joint Tenancy

A form of ownership to property which means each party owns an undivided interest in the whole property with right of survivorship. In the event of the death of one party, the surviving co-owner owns the property in its entirety.

Joint Venture

Two or more partners in a business venture. A joint venture is similar to a partnership for a specific venture. A joint venture is typically for a specific project and not a continuing business relationship.


A court decision that may place a lien against the debtor’s real property as collateral for the judgment’s creditor.

Judicial Foreclosure

A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.

Jumbo Loan

A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits. Jumbo loans are also referred to as nonconforming loan whereas loans that do not exceed loan limits are referred to as conforming loans.


The earth’s surface extending downward to the center of the earth and upward infinitely into space.

Late Charge

The penalty a borrower must pay when a payment is made a stated number of days. In a Deed of Trust first trust deed or mortgage there is usually fifteen(15) day grace period before a late fee is charged. In residential lease there is normally a five (5) day grace period.


An agreement between the property owner (lessor) and a tenant (lessee) that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time. Certain real estate leases may be verbal whereas leases beyond a certain number of years are to be recorded in the Land Records.


A tenant under a lease.


The owner (landlord) under a lease.

Leasehold Interest

An interest in real estate which is less than Freehold. The right of possession under a lease creates a Leasehold interest because the interest is for a fix period of time – not indefinite as in a Freehold Interest. In States that recognize Ground Rents, the ownership interest is known as a Leasehold Interest.

Lease Option

A provision is a Lease which allows Tenant the option to buy the property within parameters as set forth in the lease agreement. Some municipalities have enacted legislation which grants the tenant the right of first refusal when the demised (rented) property is being sold thus creating a purchase option to the tenant.

Legal Description

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony. The legal description may be one of several methods such as (a) Metes and Bounds description, (b) rectangular survey system or (c) lot block and section. A postal address is not considered a legal description of property.


An institution that makes and funds loans such as auto loans or mortgage loans. Mortgage Bankers are Lenders whereas Mortgage Brokers are not lenders


The use of borrowed money to finance the bulk of an investment. One of the more attractive features of investing in real estate as an investment.


A privilege or right granted to a person. A real estate broker or sales agent is licensed by the State. The revocable permission use of land which is a personal right that cannot be sold. Not to be confused with an Easement.


A person’s financial obligations. Liabilities can include long-term and short-term debt. In qualifying for a mortgage loan, a borrowers’ monthly liabilities(obligations) are analyzed to determine qualifying monthly payment ratios. Certain monthly obligations such as utility bills, life insurance and phone bills are normally excluded in mortgage underwriting.

Liability Insurance

Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner’s insurance policy.


A legal claim against a property that must be paid off when ownership conveyed (transferred). A Mortgage or Deed of Trust deed is considered a lien.

Life Cap

The maximum interest rate on an Adjustable-rate mortgage (ARM) over the life of the loan.

Life Estate

An interest in real property that is limited in duration to the lifetime of the possession of the estate or the life of another. The estate may be granted with or without powers such as the ability to sale or mortgage the interest.

Life Tenant

A person in possession of a life estate.

Line of Credit

A loan secured against real property which allows the borrower to withdraw future amount of money. Usually, is a 2nd mortgage on the property and can have “fixed” or “adjustable” interest rates.

Liquid Asset

A cash asset or an asset that is easily converted into cash.

Liquidated Damages

A liquidated damages clause specifies a predetermined amount of money that must be paid as damages for failure to perform under a contract. Typically, a real estate contract will specify the amount of good faith money (deposit on the contract) may be liquidate by the sellers for buyers failure to perform under the terms of the agreement.


The ability to easily sell an asset and convert it into cash. The lack of liquidity is considered a negative when considering real estate as an investment.

Lis Pendens

A notice within the land records of a pending action that may adversely affect the title to the property.

Listing Agreement

A contract between the owner of real property and a real estate broker creating an agency relationship the owner (principal) and broker (agent). The contract will specify the exclusive nature of the relationship, duration of the representation and fee to be paid to the Broker. See also Exclusive Right to Sell, Exclusive Agency and Open Listing.


A sum of borrowed money (principle) that is generally repaid with interest.

Loan Modification

A process wherein the Lender agrees to modify (change) the payment terms of an existing loan. Due to the high volume of loan defaults after 2010, many Lenders agree to modify mortgage terms in an effort to prevent foreclosures.

Loan Officer

A person representing a Lender or Broker in making loans. Can also be referred to other terms, loan representative, loan “rep,” account executive or loan originator. A loan officer may be salaried or commissioned. Generally, a loan officer’s role is to market loans, take loan applications and coordinate the process with Lender and Borrower.

Loan Origination

A lender charge for processing a mortgage loan. Another term for a discount fee.

Loan Servicing

The process of maintaining loans such as collecting monthly payments, making escrow disbursements, payoff statements and giving notice of late payments and or defaults. A loan servicing company is paid a fee to provide these services based upon the type of loan – VA, FHA, FNMA or FLMCC. The loan servicing company may or may not be the owner of the loan.

Loan-to-Value (LTV)

The percentage relationship between the amount of the loan and value of the property. A 90% LTV means the borrower had a 10% down payment and borrowed 90% of the purchase price. Different loan types allow for a higher LTV. VA loan – 100% LTV (no down payment required). FHA – 96.5% or 3.5% down payment. Some conventional loans allow up to 97% LTV or as little as a 3% down payment.


An agreement in which the Lender guarantees an interest rate and cost for a period of time. Lock in periods are generally 30-60 days and will differ between Lenders. The opposite of a lock-in is a “Float” where the interest rate will not be locked in until some future event such as loan approval or within days of closing.

Lot and Block Description

The method of identifying a particular parcel of real estate as set forth in a recorded subdivision which is recorded upon the County Land Records Office.

Management Agreement

A contract between the owner of income property and a firm or individual to manage the property setting forth the duties and responsibilities of each party .


A number which is added to the index in an Adjustable Rate Mortgage (ARM) to determine the new interest rate on the loan until the next adjustable period. A lower margin is most advantageous to the borrower over the life of the loan. The margin is fixed during the term of the loan whereas the Index and thus the interest rate is subject to change.

Market Price

The actual selling price of a property. Price may or may not to equal to value or cost.

Market Value

The most probable sales price for a property given a willing buyer and a willing seller each informed and not under undo pressure. In other words, the most probable selling price for a property once exposed to the market. The market value of a property is generally forecasted by a real estate agent when listing the property – referred to as a CMA or competitive market analysis. In a transaction subject to the buyer obtaining a mortgage loan, the Lender will order an appraisal of the property to assure the property provides sufficient collateral. Market value is somewhat subjective and it not static.

Marketable Title

Generally considered a Title to real property which is free of defects and insurable at regular title insurance rates.

Market Data Approach

The Market Data or Sales Comparison approach to evaluating real property values. One of three approaches in the Appraisal of Real Property. This approach analyzes other similar properties (comps) that have sold to arrive at a probable value for the subject property. In residential it is considered the most reliable approach and as such the most emphasis is placed upon this approach. Also known as the Sales Comparison or “Comp” approach.


The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Mechanic’s Lien

A statutory lien created in favor of contractors, laborers, and materialmen or material suppliers who have performed work or furnished materials in improving real property.

Metes-and-Bounds Description

A legal description of a parcel of land that begins at a well-marked point and follows the boundaries, using direction and distances around the tract, back to the point of beginning. A subdivision would require a Metes and Bounds description as part of the recordation of the subdivision whereas individual properties would have a Lot and block description.

Merged Credit Report

A credit report which reports the raw data pulled from two or more of the major credit repositories. A Tri Merged credit report is generally required as part of the mortgage application process.


The mill rate is the amount of tax payable per dollar of the assessed value of a property. The mill rate is based on “mills.” It is a figure that represents the amount per $1,000 of the assessed value of the property, which is used to calculate the amount of property tax.


A false representation or omission. If the misrepresentation is material in nature and is relied upon when making a decision then an charge of Fraud may be present.

Money Judgment

A court judgment ordering payment of money rather than specific performance of a certain action.

Month-to-Month Tenancy

A periodic tenancy – the tenant rents from one month to the next month. Typically, either party may terminate the tenancy by giving a 30 day notice.


Fixed natural or artificial objects to establish the boundaries in a metes-and-bounds description.


A legal document that creates a lien against real property as collateral for repayment of a debt. The mortgage is recorded is the land records thus creating an encumbrance on the title until such time as the debt is satisfied. At closing, borrower also signs a Promissory Note which makes them personally responsible for repayment of the debt (except reverse mortgages).

Mortgage Application

The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more. Also known as the 1003.

Mortgage Approval

There are two components to a Lender issuing a “Mortgage Approval Letter”. The first component is the property, which would act as security for repayment of the loan. The 2nd component is the borrower. To insure the property is sufficient security, the Lender will order an appraisal of the property. The Lender will review several aspects of the borrower to establish their ability to make the required monthly payments. The Lender will review: (a) Borrowers’ credit history (b) Borrowers’ credit score (c) Employment history (d) Employment stability (e) Past and current earnings (f) Qualifying ratios. Each of these items will need to be verified to the satisfaction of the Lender.

Mortgage Banker

A mortgage banker originates and funds their own loans, which are then sold either to an investor (another Lender) or on the secondary market such as Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers.

Mortgage Broker

A mortgage company that originates loan applications, then places those loans with a lending institution with whom they have pre-established relationships. They are paid a fee (commission) by the Lender at time of closing which is fully disclosed to the borrower.

Mortgage Deduction

Annual mortgage interest paid and property taxes are deductible from Federal and State income taxes. By deducting mortgage interest and taxes from your gross income, your taxable income is reduced. For example:

$400000 Mortgage at 4%.
Monthly PI = $1908
Monthly Property Taxes: $333
Property Insurance =$100.
Total Monthly PITI = $2341
Gross taxable income of $100000
Mortgage Interest $17000
Property Taxes $4000
Federal Tax Bracket 22%
State Income Tax Bracket 5%
Taxes Due before Deduction: Federal – $22000 (.22*100000).
State Taxes Due – $5000
Tax Due After Deduction:
Federal $17380(($100000 minus $21000)*.22)
State Taxes Due $3950
Tax Saving Federal $4620
State Income Tax Savings $1050
Total Tax Savings: $5670
Short Cut Calculation: Federal $21000 (deduction) * .27 (Tax Bracket Federal & State) = $5670 Tax Savings
Net effective payment after tax savings:
Total PITI (Principal & Interest. Property Taxes and Insurance) = $2341 minus $472.50 (Monthly Tax Savings) = $1869 (Net Effective Payment).

The above example demonstrates that a mortgage payment of $2341 is comparable to paying rent of approximately $1900 per month. Mortgage insurance (MI or PMI) is not deductible.

This is a general overview and you should check with your tax professional for further understanding.


The lender in a mortgage agreement.

Mortgage Insurance (MI)

Insurance that covers the lender against loss due to loan default. The higher the LTV (loan to value ratio) the greater the risk to the lender. Thus, loans with a LTV greater than 80% (20% down payment) require insurance to the Lender to offset the additional risk. For conventional loans, the insurance is often referred to as PMI (Private Mortgage Insurance) even though PMI is actually the name of an insurance company for conventional loans. For conventional loans, the insurance premium can be paid one of several ways: (1) One time premium paid at closing (2) monthly premiums paid with the mortgage payment (3) Lender funded – usually based upon a higher interest rate on the mortgage. Annual PMI payments range from about .005 (1/2 of 1 percent) to .01 (1%) annually.

Mortgage Insurance Premium (MIP)

FHA loans require mortgage insurance where the down payment is than 20%. Of course, a borrower with a 20% down payment will apply for a convention loan not FHA. The insurance on a FHA loan has to parts – an upfront fee (UFMIP) and a monthly fee (MMI). The UFMIP is 1.75% of the loan amount which is payable to FHA at time of closing – to offset cash required by the borrower the Lender will pay the premium to FHA – adding the premium amount to the loan. Additionally, the borrower will be required to a annual insurance premium to HUD (FHA) based upon .0045 to .0095 of the loan amount – the annual premium divided by 12 equals required monthly insurance payment. The annual premium is based upon the LTV, loan amount and loan term – thus the range of approximately ½ percent to 1% annually.

Mortgage Life Insurance

A type of term life insurance available to borrowers. The term of the policy will be based upon the term of the mortgage. The face amount of the policy will be the declining amount of the mortgage balance. The premise or rationale for purchasing the insurance is simply that the mortgage will be paid off upon the death of the borrower – typically a younger couple where the ability the pay the mortgage payments is based upon both borrower’s income.

Mortgage Term

The duration of the loan to amortize (payoff) the original principal amount plus interest. Typically, younger home buyers opt for a 30-year loan term whereas old borrowers may choose a 15-year loan term. The longer the term the more interest a borrower will pay over the life of the loan. A $100,000 loan at 4% for 30 years will require a monthly payment of $477. The first payment will be allocated as 75% interest and 25% as principal reduction. Over the 30-year period, you will make total payments of $171,720 of which $71800 will be interest (42% of payments). A $100,000 loan at 4% for 15 years will require a monthly payment of $740. The first payment will be allocated as 43% interest and 57% as principal reduction. Over the 15-year period, you will make total payments of $133,144 of which $33144 will be interest (25% of payments). As you can see from the two examples, you can save thousands of dollars in interest by shortening the mortgage term. Of course, your monthly payments will be higher.


The borrower in a mortgage agreement.

Multi Dwelling Units

Properties that provide separate housing units for more than one family. Generally, one to four units can be financed in residential mortgage provided the borrower will occupy one of the units.

Multiple Listing

A listing of a property for sale which is shared with is shared with other real estate forms which are members of the multiple listing service. There was a time when buyers were dependent upon a real estate agent searching the multiple list for properties on their behalf. This is no longer true. Today, a buyer can effectively search available properties via hundreds of websites. When a borrower visits a website such as they have access to all properties that are currently multiple listed.

Municipal Ordinances

The laws, regulations, and codes enacted by the governing body of a municipality. This would include zoning, building codes and other regulations which can impact the use, value or marketability of real estate.

Mutual Rescission

The mutual act of the parties to a contract terminating the agreement without recourse to either party.

Negative Amortization

Negative amortization occurs when the required monthly PI (principal and interest) in insufficient to cover the interest payment due. Example, $100,000 loan at 6% with a monthly payment capped at $450 would have negative amortization of $50 per month – (interest due would be $500 per month). This is unusual and can only occur with a FHA 245 loan or an ARM (adjustable rate) where there is an artificial payment cap that does not reflect the current interest rate on the loan.


Failure to take proper care when performing an act – Carelessness. Most real estate companies and sales people (agents) carry E&O (errors and Omission) insurance to protect themselves from lawsuits.

Net Lease

A lease arrangement wherein the tenant agrees to pay base rent but plus the reoccurring cost to the property such as property taxes, insurance, utilities, repairs etc. A triple net lease means the tenant pays all expenses associated with the property. The opposite of a Gross Lease where the landlord pay most if not all the property expenses.

Net Operating Income

The gross income of income producing properties (residential rental properties and commercial properties) minus vacancy allowance, collection losses, and operating expenses not including debt service (mortgage debt).

No Cash-Out Refinance

A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is caculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a “rate and term refinance.”

No-Cost Loan

Many lenders offer loans that you can obtain at “no cost.” You should inquire whether this means there are no “lender” costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a “no-point” loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.

Nonconforming Use

A continued legal use of property after the zoning has changed for the property.


To certify or attest to a document or more generally the signatures by a notary public. Real Estate documents, that are to be recorded in the land records, such as a Mortgage, Deed of Trust or Deed must be notarized.

Notary Public

A public official authorized to certify and attest to documents, take affidavits, take acknowledgments, administer oaths, and perform other such acts.


A promissory note wherein the borrower takes personal responsibility to repay the loan upon the terms as set forth in the document. In most (if not all)) purchase money mortgages, the property is pledged as collateral and additionally the borrower signs the “note”. Failure of the borrower to sign the “note” would result in a non-recourse loan – no personal responsibility for repayment. A non-recourse loan is extremely unusual in real estate loans except a Reverse Mortgage.

Note Rate

The interest rate stated on a mortgage note.

Notice of Default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Offer and Acceptance

The process of the buyer making a written offer to purchase and the seller accepting the offer. The offer and acceptance constitute a “meeting of the minds” which is a legal requirement for a valid contract. Generally, the offer will consist of (1) price (2) terms (3) time and (4) chattel property.

One Hundred Percent Commission Plan

A compensation plan wherein the Broker pays the sales person 100 % of the commission generated in a real estate transaction. Today, it is not unusual for the salesperson to take most of the commissions – 80-100%. In return for the higher commission split, the salesperson is generally responsible for fees such as board dues, multiple listing fees, E&O insurance, advertising and marketing, website. Additionally, the salesperson could pay a monthly rental fee plus a transaction fee to the Broker. Quite often, the transaction fee is passed on to either the buyer or seller.

Original Principal Balance

The total amount of principal owed on a mortgage before any payments are made.

Open-End Mortgage

A mortgage loan where additional money is available after closing. Construction loans or FHA 203-K loans are examples of “open end mortgages”. In a 203K loan, purchase money funds are available at closing (to purchase the house) and additional funds are available to make upgrades to the property.

Origination Fee

Origination fees are discount points charged to the borrower. A discount point is equal to 1% of the loan amount and be charged in increments – 1/2 point etc. On Government loans there is a cap of 1 origination point that may be charged to the borrower. See also discount points.

Open Listing

A non-exclusive listing contract wherein the seller agrees to pay a brokerage fee for producing a buyer ready, willing and able to buy the property. The seller reserves the right to enter into additional “open listings” with other Brokers and to sell the property without the services of a real estate company – paying no commission. See Exclusive Right to Sale or Exclusive Agency.


The right to purchase property within a definite time at a specified price and terms. The optionee is not required to purchase, however, the seller is obligated to sell if the option holder exercises the option. See also Lease Option.


The party that receives and holds an option.


The party that grants or gives an option.

Owner Financing

A purchase transaction where the seller takes back a loan as part of the purchase price. The loan is secured by recorded instrument securing the property and a note signed by the purchaser/borrower.


The exclusive right to hold, possess or control, and dispose of a tangible or intangible thing. Ownerships may be held by a person, corporation, or governmental entity. Ownership interest, in real estate, is typically evidence by a deed recorded in the land records.

Package Mortgage

A Mortgage or DOT which encumbers both real property and chattel (personal) property. In the purchase of a single family it is not unusual for the purchase consideration to include items that could be considered personal property such as a washer and dryer. Because these items are part of the “consideration” the Lender could include them in the Mortgage.

Parol Evidence

The testimony, allowed in a court proceeding, which clarifies the written words of a contract.

Partial Payment

A payment which is less than the required amount. Mortgage Lenders typically do not accept partial payments.

Participation Financing

A mortgage whereas lender receives something of value in addition to the interest on the loan. This arrangement could be made on income producing property. A variation of this theme is a Equity Participation loan where the lender agrees to lower interest rate in return for a percentage of the appreciation (equity) in the property.


The separation of cotenants’ interests in real property. This reframing of ownership interest can be done voluntarily or can be achieved by way of Court action. Shared ownership in A Joint Tenancy could be replaced by Tenants in Common – where unequal ownership is allowed and each owners’ heirs inherit their interest. Since Tenants by the Entirety is only allowed by “husband and wife” they are considered to be Tenants in Common after a final divorce.


An association of two or more individuals (or legal entities) to run a business as co-owners. A Partnership can take several forms such as a “Limited Liability” or “General Partnership”. A limited partnership limits a partner’s liability to the extent of their investment and the day to day operations are managed by a General Partner.

Payment Cap

An artificial payment cap may be a provision of an Adjustable Rate Mortgage. The “Cap” would limit the amount of payment increase due an interest rate increase.

Payment Change Date

The date when a new monthly payment is established an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.


Amount of principal plus accrued interest necessary to retire a debt.

Percentage Lease

A lease used in a retail environment. The landlord receives a base rent amount plus a percentage of the gross sales.

Periodic Estate

A lease renewable a fixed intervals – weekly, monthly or annually.

Periodic Payment Cap

Annual monthly payment limitations under certain adjustable rate mortgages at the adjustment period. Generally, this provision is to curb the monthly payment during times of rising interest rates.

Periodic Rate Cap

A limit on the upper or downward movement of the interest rate in an adjustable rate mortgage. The interest rate has a floor and ceiling regardless of the index at the adjustment period,.

Personal Property

Any property that is not real property. Known also as Chattel property. May be attached to real property and become a “fixture”.

Physical Deterioration

A wearing away of the physical components of an improvement. The deterioration is further divided into curable and incurable components. In the cost approach to value, the replacement cost is reduced by the depreciation which physical deterioration is a contributing factor.


Which stands for Principal and Interest plus Taxes plus Insurance. These are the four components of a monthly mortgage payment on loans with an “escrow” account. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage.    Interest is the fee charged for borrowing money. Taxes refer to 1/12 of the annual property taxes. Insurance equates to 1/12 of the annual property insurance. These funds are placed in an escrow and disbursed to pay annual property taxes and insurance.

Example: $400,000 mortgage at 4% with a 30-year term. Property taxes are $4000. Property Insurance is $1200.

The monthly PITI is:
$1908 – principal and interest payment
$333 – property taxes
$100 – property insurance
$2341 – total payment or PITI

PITI Reserves

An amount of cash that the Lender will require the borrower to have after paying closing cost and down payment. Different mortgage types have different cash reserve requirements usually 2-6 months.


A map of a town, section, or subdivision indicating the location and boundaries of individual property.

Plat Book

A book containing recorded subdivisions of land.

Planned Unit Development (PUD)

A type of ownership where individual unit owners also own a percentage of the common areas. The unit owners typically own the common areas as tenants in common with other unit owners.


A point is 1 percent of the amount of the mortgage. See also Discount Points or Loan Origination Fee.

Point of Beginning

The starting point in a metes-and-bounds description. All metes-and-bounds descriptions must follow the boundaries of the parcel back to the point of beginning.

Power of Attorney

A legal document that authorizes another person to act on one’s behalf as attorney-in-fact. This power can be General or Specific. In a real estate transaction, a very specific power of attorney can be created (by lawyers) to allow one to sign on behalf of another. The Lender will need to approve the document prior to signing.


The process of a borrower obtaining mortgage approval prior to entering into a purchase contract. A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved for a certain loan amount. There are degrees of a “pre-approval”. A pre-approval letter may or may not indicate whether the Lender has analyzed the borrowers’ credit. Generally, the potential borrower has provided information regarding, income, debt savings etc. to the Lender, however, the Lender has not verified the information. Thus, the “pre-approval” is conditioned upon the Lender verifying the information as provided, by the borrower, as part of the normal loan approval process. Pre-qualification means a loan officer has done some calculations that would indicate a borrower would qualify for a loan amount based upon information provided. Quite often, the “pre-approval” letter is nothing more than a pre-qualification which is based upon unverified information.


Money paid to reduce (or payoff) the principal balance of a loan before the maturity date. See also Bi-weekly mortgage.

Prepayment Penalty

A fee that may be charged to a borrower who pays off a loan before it is due. Not typically part of a residential mortgage. More typical in a commercial mortgage.


See Pre-approval.

Prime Rate

The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.


In a loan. The original dollar amount of a loan or the outstanding balance at any given time. The amount of monthly payment which reduces the debt.

In a real estate transaction. Either the buyer or seller that appoints a real estate firm to represent them creating an “agency” relationship.

Principal Balance

The outstanding balance of principal on a debt. The principal balance does not include interest or any other charges. See payoff.


The priority of liens generally is determined by the chronological order in which the lien documents are recorded. Even though a document may state a “first mortgage lien”, it may become a lessor lien as a result of the date it was recorded in the land records. Tax liens (like special assessments), however, have priority, even over previously recorded liens.

Private Mortgage Insurance (MI)

Insurance that covers the lender against loss due to loan default. The higher the LTV (loan to value ratio) the greater the risk to the lender. Thus, loans with a LTV greater than 80% (20% down payment) require insurance to the Lender to offset the additional risk. For conventional loans, the insurance is often referred to as PMI (Private Mortgage Insurance) even though PMI is actually the name of an insurance company for conventional loans. For conventional loans, the insurance premium can be paid one of several ways: (1) One time premium paid at closing (2) monthly premiums paid with the mortgage payment (3) Lender funded – usually based upon a higher interest rate on the mortgage. Annual PMI payments range from about .005 (1/2 of 1 percent) to .01 (1%) annually.


The formal judicial proceeding to prove or confirm the validity of a will or proof of heirship and to settle the affairs of the deceased.

Procuring Cause

The company and/or agent that brings about the desired result. Generally, the Agent that set forth a series of events that resulted in the sale of the property.

Promissory Note

A written promise to repay a specified amount over a specified period of time. See note.

Property Disclosure Acts

A property disclosure form required by individual States. A seller may elect to not to disclose by selecting the appropriate section in the form. However, under no circumstance is the Seller relived of their responsibility of disclosing “latent defects”. Agents are not required to discover property defects but are required to disclose them if they are aware of them.

Property Management

A contract between the owner of income property and a firm or individual to manage the property setting forth the duties and responsibilities of each party.

Property Tax

Taxes levied by the government against either real or personal property. The right to tax real property rests exclusively within the States and not with the federal government.


The proportional division or allocation of expenses of property expenses between two or more parties. Real Estate contracts, generally allow for certain costs to be prorated as of the date of closing. Closing statement prorations generally include taxes, rents, insurance, interest charges, and assessments.

Public Auction

An auction as part of the foreclosure process to satisfy a loan in default. These auctions are normally conducted on the court house steps. They are not absolute auctions because the Lender can refuse any amount that is less than amount in default. Should the property not sell at auction then the Lender will acquire title and dispose of the property (REO sales).

Public Utility Easement

A right granted by a property owner to a public utility company to erect and maintain poles, wires, and conduits on, across, or under her or his land for telephone, electric power, gas, water, or sewer installation. See easement in gross.

Pur Autre Vie

Latin, meaning “for the life of another.” A life estate pur autre vie is a life estate measured by the life of a person other than the grantee (life tenant). See Life Estate.

Planned Unit Development (PUD)

A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.

Purchase Agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase Money Transaction

The acquisition of property through the payment of money or its equivalent.

Purchase-Money Mortgage

A note secured by a mortgage or deed of trust given by a borrower (mortgagor) with proceeds going toward the purchase of property.

Qualifying Ratios

Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The front ratio is a calculation of the borrower’s monthly PITI payment (principle, taxes, insurance, mortgage insurance) as a percentage of monthly income. The back ratio is calculated based upon the PITI plus revolving monthly debt. The back ratio typically includes monthly credit obligations that have longer than 10 months remaining for debts such as car payments and credit cards. Payments such as utility bills, life insurance and health insurance are counted as debts for qualifying purposes.

Different loan types have different qualifying ratios. Conventional loan ratios are 28 and 36. FHA loans have 29 and 41 ratios whereas VA loans have a back ratio of 41 and no front ratio. These ratios are considered guidelines which they is flexibility depending upon the individual circumstances.

Quitclaim Deed

A deed that transfers whatever interest or title a grantor may have at the time the conveyance is made without any warranties. The “owner” conveys whatever they may (or may not) have without any guarantees.

Rate Lock

An agreement in which the Lender guarantees an interest rate and cost for a period of time. Lock in periods are generally 30-60 days and will differ between Lenders. The opposite of a lock-in is a “Float” where the interest rate will not be locked in until some future event such as loan approval or within days of closing. Also known as a “Lock in”.


Qualifying ratios are used in the mortgage approval process in an attempt to assure borrowers can afford the monthly mortgage payment. The ratios are guidelines which are based upon a percentage of gross monthly income that should be allocated to mortgage payment and other re-occurring monthly debts. The ratios vary slightly between mortgage types – historically conventional loans have had ratios of 28 and 36. Fannie Mae has recently indicated that, in some cases, back ratios may be in the 45-50% range. Underwriting guidelines will vary depending upon the mortgage type. Conventional ratios will vary depending upon the amount of down payment. FHA underwriting guidelines are different than conventional, or VA. Qualifying ratios are one part of the underwriting approval process. These will be evaluated in conjunction with other aspects of the borrower profile such as past payment history, past mortgage payments, income stability, down payment, amount of cash reserves after closing, and overall credit score. The mortgage approval process is more an art than a science thus Lenders may differ in their approach to underwriting of mortgage applications. Example of conventional ratios:

$100,500 combined household income or $8375 monthly
Re-occurring monthly debts $800
Front Ratio: $8375 * .28 = $2345 = Allowable monthly PITI
Back Ratio: $8375 *.36 = $3015 = Allowable PITI plus other debts
Proposed $400000 mortgage at 4% for 30 years = $1908 Principal and Interest monthly
Taxes are $4000 annually and Insurance is $1200 annually
Proposed PITI = $2341 is within allowable payment as per the “front ratio”
Proposed total Monthly obligation: $3141, which is slightly higher than allowed for in the “back ratio” of $3015. The borrower exceeds the guidelines by $126 monthly. In this scenario, the “front ratio” is fine but the “back ratio” would be 37.5% or 1.5% above the guidelines.

Possible solutions:

  1. Based upon the proposed loan to value (LTV), the higher “back ratio” may not present a problem. If the LTV is 80% or less (20% or more down payment) and other factors such as strong credit score then the underwriter may accept approve the loan with the higher back ratio.
  2. The underwriter may accept offsetting factors such as very good credit scores, large savings accounts or other lifestyle factors which may allow for the higher than normal ratio.
  3. Lower mortgage amount by $26000
  4. Lower monthly debts by $126. This may be accomplished by paying down the principal balance so that the debt will be paid off in 10-12 months.

Ready, Willing, and Able Buyer

One who is ready to make a decision to purchase real estate under no undue influence and has the means (financial) to consummate the transaction.

Real Estate

Land; a portion of the earth’s surface extending downward to the center of the earth and upward infinitely into space, including all things permanently attached thereto, whether by nature or by man.

Real Estate Agent

A person licensed to negotiate real estate transactions on behalf of a licensed real estate Broker. A real estate salesperson (Agent) must be licensed with a real Estate Broker. An Agent cannot work independent of a Broker.

Real Estate Broker

A natural person (not a corporation or other business entity) licensed to represent either buyers or sellers in a real estate transaction. A Broker may conduct business as an individual or become Broker of record for a business entity – Mary Smith as Broker of record (trading as) ABC Reality. A Broker may have other people licensed under their Broker’s license as real estate salespeople (Agents). In a transaction the Broker represents either the buyer or seller and the sales person represents the Broker. In this arrangement, salespeople are referred to as “Agents”. Under State Laws, the Broker is responsible for adherence to State Laws, Rules and Regulations for each real estate transactions. A Broker is also legally charged with proper supervision of sales agents and is responsible for the Agents actions.

Real Estate Investment Trust (REIT)

Ownership of real estate by a group of individual investors who purchase certificates of ownership in a trust. The trust invests in real property and distributes the profits back to the investors.

Real Estate Leverage

Leverage is the 2nd greater advantage in purchasing real estate after income tax deductions. Even though the concept is most appropriate to investing in real estate it can also be applied home ownership. What is leverage? Simply, leverage is utilizing borrowed money to maximize your return on an investment. Below two examples will illustrate the concept.

Example One. Cash Transaction. A $400000 property is purchased with cash. The property increases at an annual rate of 3%. The annual rate of return on cash investment is $12000 (.03*400000).

Example Two. A leveraged purchase. A $400000 property is purchased with a $360000 mortgage (90% LTV). The purchaser has invested $40000 cash. The property increases in value at an annual rate of 3% or $12000. The rate of return on cash investment is 30% (12000/40000). The rate of return, on cash, is 10 times the rate compared to the cash transaction. In this example, the purchaser is gaining wealth by using borrowed funds.

Of course, in the above example, assume real estate is appreciating.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires lenders to give borrowers advance notice of closing costs. The federal law ensuring that the buyer and seller in a real estate transaction have knowledge of all the settlement costs when the purchase of a one to four-family residential dwelling is financed by a federally related mortgage loan. Prohibits kickbacks.

In June 2015, The Consumer Financial Protection Bureau (CFPB) issued a new rule that combines mortgage disclosures previously established by the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into a single rule effective October 3, 2015.

Real Estate Wholesaler

A purchaser of real estate with the intent to assign (transfer) their equitable interest (contract) to another buyer for a fee. Typically, involved in buying distressed properties that require repairs and thus qualifying buyers are limited.

Real Property

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.


A registered trademark term reserved for the sole use of active members of local REALTORS® boards affiliated with the National Association of REALTORS®. Realtors may be licensed real Agents or Brokers.


In the year of sale, all depreciation or cost recovery taken on depreciable property in excess of the amount allowed by the straight-line method is subject to recapture provisions as established by the IRS, which has the effect of taxing the excess at ordinary income rates. In the event an investor writes off (depreciates) improvements on an accelerated basis then they may owe additional taxes at time of selling the property.


The court-appointed custodian of property involved in litigation, pending final disposition of the matter before the court.


The public official who keeps records of real estate documents detailing transactions within their geographic area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”


The act of recording documents affecting or conveying interests in real estate in the recorder’s office established in each county. Until recorded, a deed or mortgage generally is not effective against subsequent purchases or mortgage liens.

Recovery Fund

A fund, established in some states, to cover claims of aggrieved parties who have suffered monetary damage through the actions of a real estate licensee. All licenses within the State pay into the fund. To protect the public, some states mandate errors and omissions insurance as a requirement for licensure.

Refinance Cash Out

A loan that allows the borrower to obtain cash after paying off mortgage balance and closing cost. Funds are given to the borrower as cash, which they may use to pay off consumer debt (credit cards) and spend as they wish. Also known as a debt consolidation loan.

Refinance Mortgage

The process of paying off one loan with the proceeds from a new loan using the same property as collateral. They are two types of Refinances. In a Rate and Term refinance, the borrower borrows money sufficient to payoff the existing loan plus certain closing cost at a lower interest rate. In a Cash Out Refinance a borrower borrows additional funds as cash which may or may not be used to payoff consumer debt such as credit cards.

Refinance Streamline

Amount of new loan will payoff existing loan balance plus closing cost. With a streamline refinance: (a) borrower may not need to qualify (b) no property appraisal is required (c) no cash is allowed to borrower. Existing VA and FHA loans may be eligible for a streamline refinance.

Rectangular Survey System

A system established in 1785 by the federal government that provides for surveying and describing land by reference to principal meridians and base lines.

The Redemption Period

A statutory period of time to allow a property owners to redeem their interest. The redemption period may apply to actions such as mortgage foreclosure or real property tax sales. Redemption periods (if any) are per individual State laws.


The illegal practice of denying loans or restricting their number for certain areas of a community.

Regulation Z

A regulation of the Federal Reserve Board designed to ensure that borrowers and customers in need of consumer credit are given meaningful information with respect to the cost of credit.


To relinquish an interest in or claim to a parcel of property such as a Release of Mortgage wherein the Lender relinquishes their lien on a property.


The remnant of an estate that has been conveyed to take effect and be enjoyed after the termination of a prior estate, such as when an owner conveys a life estate to one party and the remainder to another.

Renegotiable Rate Mortgage

A mortgage loan that allows for a fix rate for a given period of time and thereafter must be renegotiated thereafter for similar periods of time. A variation of an Adjustable Rate Mortgage (ARM).

Remaining Balance

The amount of principal that has not yet been repaid. See principal balance.

Remaining Term

The original amortization term minus the number of payments that have been applied.


Periodic payments made by a tenant to a landlord for possession and use of property.

Rent Loss Insurance

Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

Repayment Plan

An arrangement made to repay delinquent installments or advances.

Replacement Reserve Fund

A fund set aside for replacement of common property in a condominium, PUD, or cooperative project — particularly that which has a short life expectancy, such as carpeting, furniture, etc.

Replacement Cost

The cost of construction at current prices of a building having utility equivalent to the building being appraised but built with modern materials and according to current standards, designs, and layout.

Reproduction Cost

The cost of construction at current prices of an exact duplicate or replica using the same materials, construction standards, design, layout, and quality of workmanship of the subject building.


The cancellation of a real estate contract between the buyer and seller. The act of rescinding a contract will “unwind” the transaction specified in the contract. A real estate contract may be rescinded at varying points during a transaction. The termination of a contract by mutual agreement of the parties.


A limitation on the use of real property, generally originated by the owner or sub divider in a deed.

Reverse Annuity Mortgage

Also known as a Home Equity Conversion Mortgage. There are some Conventional Reverse mortgages, however, by far the most popular reverse mortgage is insured by FHA and referred to as a HECM loan – Home Equity Conversion Loan. These loans are available to persons 62 and older and as the name implies the premise of the program is to allow senior citizens to borrower from the equity in their home. There are no income qualifications and there are no monthly payments. You can borrower a percentage of the equity in your home based upon your age – the older the higher percentage of equity you can borrow. There are three options: (a) receive the proceeds as cash (b) receive the proceeds as a monthly check sent to you (c) place the proceeds into a equity line which you can withdraw from in the future. The loan is a non-recourse loan which means you have no personal liability to repay the loan other than the lien on your home. The borrower is responsible to maintain property insurance and pay the property taxes. The loan is repayable when the borrower no longer lives in the property. Each borrower must receive HECM counseling before proceeding with the loan application.

Revolving Debt

A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.


The remnant of an estate that the grantor holds after he or she has granted a life estate to another.

Reversionary Right

An owner’s right to regain possession of leased property on termination of the lease agreement or the reversion of an interest to the owner after termination of a life estate.


The process involved in changing the existing zoning of a property or area.

Right of First Refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others. Some municipalities have enacted legal requirements that tenants have the right of first refusal to purchase leased premises.

Right of Ingress or Egress

The right to enter or leave designated premises. The concept is to prevent “land locked” properties.

Right of Survivorship

In Joint Tenancy, the right of survivors to acquire the interest of a deceased joint tenant. As contrasted with Tenants in Common wherein upon death the deceased party heir(s) inherit the property.

Riparian Rights

Riparian rights are those rights and obligations that are incidental to ownership of land adjacent to or abutting watercourses such as navigable streams and rivers, whereas littoral rights are a landowner’s claim to use of the body of water bordering on lakes.

Rural Development

A federal agency of the U.S. Department of Agriculture that channels credit to farmers and rural residents and communities; formerly known as the Farm Service Agency and Farmer’s Home Administration (FmHA).

Sale Leaseback

A technique in which a seller conveys title to property to a buyer for consideration, and the buyer simultaneously leases the property back to the seller.

Sales Contract

An agreement between to purchase real estate between buyer and seller setting forth the terms and conditions to convey title to the property.


A salesperson, in the real estate industry, to act on behalf of a licensed real estate Broker in the sale or purchase of real estate.

Satisfaction Agreement

A document acknowledging the payment of a debt such as a Mortgage. Once recorded the lien on the subject property is released.

Second Mortgage

A “Junior” mortgage that has a lien position subordinate to the first mortgage or prior recorded liens.

Secondary Mortgage Market

A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market. Mortgages are originated in the primary mortgage market. The buying and selling of existing mortgages, usually as part of a “pool” of mortgages.

Secured Loan

A loan that is backed by collateral. A lien on real property is recorded to secure a mortgage loan.


The property that will be pledged as collateral for a loan.


An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.


The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.


The amount of space required by local zoning regulations between a lot line and building line.

Settlement Statement

A statement, at closing of a real estate transaction, that set forth the transaction details for buyer and seller. The Consumer Financial Protection Bureau (CFPB) took over administration from HUD and replaced the HUD-1 with the Closing Disclosure in October of 2015. It is similar to the HUD-1 in that it details the loan terms and costs, including the interest rates, closing costs, taxes, monthly payments, and more.


The ownership of real property by one person only; also called sole ownership.

Short Sale

A sale of secured property that produces less money than is owed to the lender, but in order to expedite the sale and avoid foreclosure expense, the lender releases its interest so the property can be sold.


The personal preference of people for one area of land over another, not necessarily based on objective facts and knowledge.

Sovereignty of the Soil

The beginning of the record of ownership of land by conveyance from the sovereign or the state. Historically, this is known also as a patent.

Special Assessment

A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement, such as a street or sewer.

Special Warranty Deed

A deed in which the grantor warrants or guarantees the title only against defects arising during the period of his or her tenure and ownership of the property and not against defects existing before that time, generally using the language “by, through, or under the grantor but not otherwise.” See also General Warranty deed or Quit Claim Deed for more understanding.

Specific Lien

A lien affecting or attaching only to a certain, specific parcel of land or piece of property.

Specific Performance Suit

A legal action brough to compel a party to carry out the terms of a contract. The underlining basis that due to unique nature of real estate damages would not adequately compensate the buyer or seller from breach from the other party.

Squatter’s Rights

Those rights acquired through adverse possession. By “squatting” on land for a certain statutory period under prescribed conditions, one may acquire title by limitations. If an easement only is acquired, instead of the title to the land itself, one has title by prescription, or easement by prescription.

Statute of Frauds

The part of a state law that requires certain instruments, such as deeds, real estate sales contracts, and certain leases to be in writing to be legally enforceable.

Statute of Limitations

That law pertaining to the period of time within which certain actions must be brought to court.

Statutory Lien

A lien imposed on property by statute, for example, a tax lien; in contrast to a voluntary lien, which an owner places on his or her own real estate, for example, a mortgage lien.


The illegal practice of channeling home seekers to particular areas or avoiding specific areas, either to maintain or to change the character of an area, or to create a speculative situation.

Stigmatized Property

A property regarded by some as undesirable because of events that have occurred on the property, like murder or suicide, or present paranormal activities. Sometimes, proximity to undesirable property causes a property to become stigmatized, too.

Straight-line Method

A method of calculating depreciation for tax purposes computed by dividing the adjusted basis of a property less its estimated salvage value by the estimated number of years of remaining useful life. See Accelerated Depreciation for more understanding.


An agent appoints a subagent to help the agent in a specified transaction and to act on the principal’s behalf. Before the advent of Buyer Agency, companies participating in the sale of a multiple listed property were considered subagents to the listing company. A transaction wherein the buyer in not legally represented by an agent.


A tract of land divided by the owner, known as the developer, into blocks, building lots, and streets according to recorded subdivision plat that must comply with local ordinances and regulations.


The leasing of premises by a lessee(tenant) to a third party for part of the lessee’s remaining term.


A relegation to a lesser position usually in respect to a right or security.

Subordination Agreement

An agreement that changes the order of priority of liens between two creditors.

Subordinate Financing

An agreement that changes the order of priority of liens between two creditors. When refinancing, an existing 2nd mortgage may need to be subordinated to allow refinance of a new 1st mortgage.


The substitution of one person (or company) for another, with the substituted person succeeding to the legal rights and claims of the original claimant. Subrogation is often used by insurers to acquire the right the sue from the injured party to recover any claims they have paid.


An appraisal principle stating that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property.

Suit for Possession

A court action initiated by a landlord to take possession of leased premises by way of court ordered eviction. Tenant has breached one of the terms of the lease or has held possession of the property after the expiration of the lease (Holdover tenant).

Suit for Specific Performance

A legal action brought by either a buyer or a seller to enforce performance of the terms of a contract.

Suit to Quiet Title

A legal action intended to establish or settle the title to a particular property. Action to clear cloud on title.


A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.


A combination of two or more persons or firms to accomplish a joint venture.

Sweat Equity

Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.


The process by which a government or municipal quasi-public body raises monies to fund its operation.

Tax lien

A charge against property created by the operation of law. Tax liens and assessments take priority over all other liens.

Tax rate

The rate at which real property is taxed in a tax district or county.

Tax sale

A court-ordered sale of real property to pay delinquent taxes.

Tenancy at Sufferance

The tenancy of a lessee who lawfully comes into possession of a landlord’s real estate but who continues to occupy the premises improperly after her or his lease rights have expired.

Tenancy at Will

An estate that gives the lessee the right to possession until the estate is terminated by either party; the term of this estate is indefinite.

Tenancy by the Entirety

The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. On the death of one spouse, the survivor becomes the owner of the property – a Joint Tenancy between married persons. Upon divorce, parties become Tenants in Common.

Tenancy in Common

A form of ownership by 2 or more persons that may have unequal shares and does not have right of inheritance. Unlike a joint tenancy, there is no right of survivorship between tenants. Upon death of one owner, the deceased party heirs inherit the interest.


One who holds or possesses lands or tenements (improvements) by any kind of right of title.


Everything that may be occupied under a lease by a tenant.

Termination of Lease

The cancellation of a lease by the action of either party. A lease may be terminated by expiration of the term, surrender and acceptance, constructive eviction by lessor, or option, when provided in the lease for breach of covenants.

Termination of Listing

The cancellation of a broker-principal(owner) employment contract. A listing may be terminated by death or insanity of either party, expiration of listing period, mutual agreement, sufficient written notice, or the completion of performance under the agreement.


Having made and left a valid will.


A will maker

Time is of the Essence

A phrase in a contract that requires the performance of a certain actions within a stated period of time as set forth in the agreement.

Third Party Origination

A process by which a lender uses another party to originate, process, underwrite, close, fund, or package the loan on behalf of the lender.


Evidence of a person’s right or ownership of a property.

Title Company

A company that specializes in examining and insuring titles to real estate.

Title Insurance

Insurance designed to indemnify the holder for loss sustained by reason of defects in a title, up to and including the policy limits. Lenders will normally require a “Lender’s Policy” and the buyer has the option to purchase a “owners policy”. Policy rates are set by the State insurance commissioner.

Title Search

A review and report of the land records as part of the process to establish the seller is the legal owner of the property and to identify any liens or other potential claims.

Torrens System

A method of evidencing title of real property by registration with the proper public authority, generally called the registrar.

Trade Fixtures

Fixtures installed by a tenant and by the terms of the lease are removable by the tenant at expiration of the lease. Generally, a provision is a commercial property lease.

Transfer of Ownership

A deed is utilized to transfer owner in real estate. A Land Contract may used to transfer equitable interest and possession to real estate. Any transfer of interest may violate the “Non Alienation” clause in a mortgage instrument.

Transfer Tax

State or local tax payable when title passes from one owner to another.

Treasury Index

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.


A fiduciary arrangement by which property is conveyed to a person or institution and the interest is administered by a person called the trustee, and held on behalf of another person, called a beneficiary.

Trust Deed

An instrument used to create a lien by which the trustor conveys his or her title to a trustee, who holds it as security for the benefit of the note holder (the lender). Also referred to as a Deed of Trust.


A fiduciary who holds or controls property for the benefit of another. Example are a Living Trust or Deed of Trust.

Trustee’s deed

A deed executed by a trustee conveying land held in a trust.


A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

In June 2015, The Consumer Financial Protection Bureau (CFPB) issued a new rule that combines mortgage disclosures previously established by the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into a single rule effective October 3, 2015.

Two Step Mortgage

An adjustable-rate mortgage (ARM) that has a fixed interest rate for a period of time and thereafter the interest rate is adjusted per the terms of the mortgage agreement. A 7-1 ARM would have a fixed rate for first seven years would be adjusted annually thereafter – becomes a one year adjustable rate loan.

Two to Four Family Property

A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed. Many Federal and State Laws made reference to this type of property. These properties qualify for residential mortgage financing provided the borrower lives in one unit.

Uniform Residential Appraisal Report (URAR)

Standard Fannie Mae Form 1004 used by appraisers.

Uniform Residential Loan Application Report (URLA)

Standard Fannie Mae Form 1003 used by loan originators for mortgage applications.

Unilateral Contract

A unilateral contract is a one-sided agreement-that is, only one party makes a promise to perform. An open listing is a unilateral contract because only one party (the seller) is obligated to act if and when an agent produces a buyer. Real Estate purchase agreements are bi-lateral contracts.

Unity of Ownership

The four unities traditionally needed to create a Joint Tenancy – unity of title, time, interest, and possession. If these unities are not present then the ownership will be considered to be Tenants in Common.

Urban Renewal

The acquisition of run-down city areas for purposes of redevelopment.

USDA Mortgage

USDA loans are zero-down-payment mortgages for rural and suburban homebuyers. USDA loans are issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture. USDA home loans are issued through private lenders and are guaranteed by the United States Department of Agriculture (USDA). The USDA loan’s purpose is to provide affordable homeownership opportunities to low-to-moderate income households to stimulate economic growth in rural and suburban communities throughout the United States.

Because USDA loans are meant to assist low-to-moderate income homebuyers, the USDA sets income limits based on the property’s location and household size. USDA eligibility for a 1-4-member household requires annual household income to not exceed $86,850 in most areas of the country, but up to $212,550 for certain high-cost areas, and annual household income for a 5-8-member household to not exceed $114,650 for most areas, but up to $280,550 in expensive locales.

USDA counts the total annual income of every adult member in a household towards the USDA income limit, regardless if they are a part of the loan.

USDA loans are only available to home buyers wishing to purchase in what the USDA considers a rural areas, although some suburban areas may be eligible as well. The USDA defines a qualified “rural” area as any area with a population under 35,000, is rural in character, and has a serious lack of mortgage credit for low- and moderate-income families. Additionally, USDA loans are only available to home buyers wishing to purchase a single-family home that will be their primary residence. Homes with acreage may be eligible, if the site size is typical for the area and not used principally for income-producing purposes. Income-producing property and vacation homes do not qualify. Boundary lines for USDA property eligibility can change every year.

The USDA offers two different loan options to help rural families achieve the dream of home ownership: the USDA Guaranteed Loan and the USDA Direct Loan. The primary difference in the two programs is who funds the loan. With the guaranteed loan, a USDA-approved lender issues the loan. However, with the direct loan, the USDA issues the loan and provides payment assistance in the form of a subsidy. While the purpose of both loan programs is to boost home ownership in rural areas, the two programs have significant differences and are meant for two very different financial situations.

For example, with the USDA direct loan, the home buyer must:

  • Not have access to safe or sanitary housing
  • Have an income classification as low or very low
  • Be unable to obtain financing anywhere else

Useful Life

In real estate investment, the number of years a property will be useful to the investors. The term is also used for estimating the remaining life of components such as HVAC equipment.


The practice of charging more than the rate of interest allowed by law.

VA Mortgage

A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Normally, VA is the not the Lender but rather guarantees potential loss to the Lender. A Veteran may borrower 100% of the purchase price (zero down payment). A seller may pay all or any part of the VA buyers’ closing cost. A Lender may pay the closing cost (Lender credit). VA restricts certain closing costs that the veteran may not pay.

There is a requirement for a VA Funding Fee at time of closing. The funding fee can be added to loan amount (financed) or paid cash. This fee is payable to the Veterans Administration. For regular military borrowers with no down payment, the funding fee is 2.15%. The fee increases to 3.3% for borrowers with previous VA loans. For those with a down payment of 5% to 9%, the funding fee is 1.5%. Any loans with a down payment of 10% or higher will include a funding fee of 1.25%. Disable Veterans can be exempt from the funding fee.

The VA loan guarantee is based upon a Veteran or a Veteran and their spouse obtaining a VA loan. If a Veteran is buying with a co-borrower that is not a spouse or an eligible veteran then the VA loan guarantee will be based upon 50% of the purchase price. This scenario would require a down payment of approximately 25% of the purchase price.

Valid Contract

A contract that complies with all the essential elements on a contract and is binding and enforceable on all parties to it.

Valid Lease

An enforceable lease that has the following essential parts: lessor and lessee with contractual capacity, offer and acceptance, legality of object, description of the premises, consideration, signatures, and delivery. Leases for more than one year also must be in writing.


The present worth of future benefits arising from the ownership of real property. To have value, a property must have utility, scarcity, effective demand, and transferability.

Variable Rate Mortgage

A mortgage loan that contains an interest rate provision related to a selected index. Under this provision, the interest rate may be adjusted periodically either up or down. Also known as a Adjustable Rate Mortgage (ARM).


An exception to the zoning ordinances. Permission is granted by zoning authorities to build a structure or conduct a use that is expressly prohibited by zoning ordinance.


Secured in the possession of or assigned to a person. In real estate title is said to be vested in the owners’ name.

“Vesting” in a retirement plan means ownership. This means that each employee will vest, or own, a certain percentage of their account in the plan each year. An employee who is 100% vested in his or her account balance owns 100% of it and the employer cannot forfeit, or take it back, for any reason

Veterans Administration (VA)

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans. A veteran may borrower up to 100% of the purchase price (or appraised value whichever is less) in a VA mortgage.

Writ of Attachment

The method by which a debtor’s property is placed in the custody of the law and held as security, pending the outcome of a creditor’s suit.