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Real Estate Terms
Weather you're a first-time home buyer, or buying your second-plus home, we can all use some help understanding real estate terms.
Please use to the list provided below as a reference from time-to-time as we assist you with your home buying needs.
Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that changes over time in line with movements in a financial
index. ARMs can also be referred to as AMLs (adjustable mortgage loans) or VRMs
(variable rate mortgages).
The length of time between interest rate changes on an ARM. For example, a loan with
an adjustment period of one year is called a one-year ARM, meaning that the interest rate can change
once a year.
Repayment of a loan in installments of principal and interest, rather than interest-only payments.
An estimate of the property's value.
The value placed on a property for purposes of taxation.
Assumption of Mortgage
A buyer's agreement to assume the liability under an existing note that is secured by a
mortgage or deed of trust. The lender must approve the buyer in order to release the original
borrower (typically the seller) from liability.
A lump sum principal payment due at the end of some mortgages or other long-term loans.
A permanent buydown is pre-paid interest that brings the note rate on the loan down to a lower,
permanent rate. A temporary buydown is pre-paid interest that lowers the note rate temporarily
on the loan, allowing the buyer to more readily qualify and increase payments as income grows.
The limit on how much an interest rate or monthly payment can change, either at each adjustment
or over the life of a mortgage.
The amount of the buyer's liquid cash remaining after making the down payment and paying all
CC&Rs or Covenants, Conditions and Restrictions
A recorded document that controls the use, requirements and restrictions of a property.
An amount paid by the seller to the listing and selling agent for handling the real estate transaction.
The period of time during which a loan approval is valid.
A form of real estate ownership in which the owner receives exclusive title to a particular unit and
shares ownership in certain common areas with other unit owners. The unit itself is generally a
separately owned space whose interior surface (walls, floors and ceiling) serve as its boundaries.
A condition that must be satisfied before a contract is binding. For example, a sales agreement or
offer may be contingent upon the buyer obtaining financing.
A provision in some ARMs that enables home buyers to change an ARM to a fixed rate mortgage,
usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest
rate for fixed rate mortgages. This conversion feature may involve an extra charge.
A form of multiple ownership in which a corporation or business trust entity holds title to a property
and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.
CRB or Certified Residential Broker
To be certified, a broker must be a member of the National Association of Realtors®, have five
years of experience as a licensed broker and have completed required Residential Division courses.
The comparison of a buyer's housing costs to his or her gross or net effective income and the
comparison of a buyer's total long-term debt to his or her gross or net effective income. The first
ratio is the housing ratio and the second is the total debt ratio.
A document which, when properly executed and delivered, conveys title of real property.
To make known or public. By law, a seller of real property must disclose facts which affect the
value or desirability of the property.
A negotiable fee paid to the lender to secure financing to the buyer. Discount points are interest
charges paid up-front to reduce the interest rate on the loan over the life or a portion of the term.
A clause that requires a full payment of a mortgage or deed of trust when the secured property
The portion of the down payment delivered to the seller or escrow agent by the purchaser with a
written offer as evidence of good faith.
A right to use all or part of the land owned by another for a specific purpose. For example, an
easement may entitle the holder to install and maintain sewer or utility lines.
Anything that affects or limits the ownership of real property, such as mortgages, liens,
easements or restrictions of any kind.
A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying
out both parties' instructions and assuming responsibility for handling all of the paperwork and
distribution of funds. An escrow fee, typically paid by the buyer, is charged by the title company
to service the transaction and to escrow money and documents.
The difference between what is owed and the amount for which the property could be sold.
A loan insured by the Federal Housing Administration (of the Department of Housing and Urban Development).
Federal Home Loan Mortgage Corporation (FHLMC)
Often referred to as "Freddie Mac," they purchase loans from savings and loan lenders within the
Federal Home Loan Bank Board.
Federal National Mortgage Association (FNMA)
Popularly known as "Fannie Mae," they purchase and sell residential mortgages insured by FHA or
guaranteed by the VA, as well as conventional home mortgages.
An estate in which the owner has unrestricted power to dispose of the property as he or she wishes,
including leaving by will or inheritance.
Fixed Rate Mortgage
A conventional loan with the same interest rate for the life of the loan.
Personal property that is attached to real property and is legally treated as real property while it is
attached – such as light fixtures, window treatments and medicine cabinets.
Fully Indexed Rate
The maximum interest rate on an ARM that can be reached at the first adjustment.
A letter from a relative stating that an amount will be gifted to the buyer and that said amount is
not to be repaid.
Government National Mortgage Association (GNMA)
Known as "Ginnie Mae," a governmental part of the secondary market that deals primarily with
recycling VA and FHA mortgages, particularly those that are highly leveraged.
Graduated Payment Mortgage
A residential mortgage with monthly payments that start at a low level and increase at a
Home Warranty Plan
Protection against failure of mechanical systems within the property and usually includes plumbing,
electrical, heating and cooling systems and installed appliances.
A measure of interest rate changes used to determine changes in an ARM's interest rate over the
term of the loan.
Initial Interest Rate
The introductory interest rate on a loan, which signals that there may be rate adjustments later
in the loan.
An equal, undivided ownership of property by two or more persons. Upon the death of any
owner, the survivors take the decedent's interest in the property.
Mortgage loans that exceed the loan amounts acceptable for sale in the secondary market.
Jumbos are packaged and sold differently to investors and have separate underwriting guidelines.
A legal hold or claim on a property as security for a debt or charge.
The ratio between the price at what a property is listed and the amount for which it is
A written promise to make a loan for a specified amount on specified terms.
The relationship between the amount of the mortgage and the appraised value of the property,
typically expressed as a percentage of the appraised value.
The fixing of an interest rate or points at a certain level, usually during the loan application
process. It is typically fixed for a specified amount of time, such as 20 to 30 days or some
other period of time determined by the lender.
The number of percentage points the lender adds to the index rate to calculate the ARM
interest rate at each adjustment.
Mortgage (Deed of Trust)
A legal document that provides security for repayment of a promissory note.
Mortgage Insurance Premium (MIP)
The mortgage insurance required on FHA loans for the life of said loan. The MIP is either
paid in cash at the time of closing or financed over the course of the loan.
Multiple Listing Service
The pooling in a central bureau of all properties for sale. The listings are held individually
by members of a group of real estate brokers, with the agreement that any member of the
group may sell the properties and the commission will be divided between the broker that
sold the property and the broker who filed the listing.
Occurs when monthly payments fail to cover the cost of the interest on a loan. The interest
that is not covered is added to the unpaid principal balance, meaning that even after making
several payments the borrower could owe more than at the beginning of the loan. Negative
amortization may occur when an ARM has a payment cap that results in monthly payments
that are not high enough to cover the interest.
A fee or charge for work involved in evaluating, preparing and submitting a proposed
mortgage loan. The fee is limited to 1% for FHA and VA loans.
The term for a mortgage payment that includes principal (P), interest (I), taxes (T) and
Planned Unit Development (PUD)
A zoning designation for property developed at the same or slightly greater overall
density than conventional development, often with improvements clustered between
open or common areas. Use may be residential, commercial or industrial.
An amount equal to 1% of the principal amount of the investment or note.
Prepayment Penalty or Clause
A fee charged to a borrower who pays a loan in full before the stated due date.
Private Mortgage Insurance (PMI)
Insurance written by private companies to protect the lender against loss if the borrower
defaults on the mortgage. PMI is often required on mortgage loans in which less than
20% has been put forth for the down payment. Depending on the conditions of the
mortgage, the borrower may request cancellation of PMI when equity in the property
A written document in which the purchaser agrees to buy a certain real estate and the
seller agrees to sell under stated terms and conditions. Also called a sales contract,
earnest money contract, or agreement for sale.
The difference between the current rate and the rate to which it could adjust on an ARM.
A real estate broker or sales associate active in a local real estate board affiliated with the
National Association of Realtors.
Charged by the County Clerk to record documents in the public records.
The set of rules governing consumer lending issued by the Federal Reserve Board of
Governors in accordance with the Consumer Protection Act.
Tenancy in Common
A type of joint ownership of property by two or more persons with no right of survivorship.
The rights of ownership recognized and protected by law. It is a combination of all
elements that constitute the highest legal right to own, possess, use, control, enjoy,
transfer and dispose of real estate.
Title Insurance Policy
This policy protects the purchaser, mortgage or other party against defects and losses
associated with the title.
Architectural term describing a two or more story unit with no units above or below,
but with one or more shared walls. Ownership may be in the form of condominium,
planned unit development or stock cooperative.
A loan made by a private lender that is partially guaranteed by the Veterans Administration.
Wood Destroying Pest and Organisms Inspection
An inspection identifying existing or potential pest, dry rot, fungus and other
structure-threatening infestation or conditions. Sometimes referred to as “termite inspection.”
Laws passed by local governments regulating the size, type, structure, nature and use
of land or buildings.