Glossary
1031 Tax Exchange
See Real Estate Exchange
1099
An IRS-designated form used by businesses to report payments to consultants or service providers who are paid on a contractual basis. A copy of 1099 is provided to the contractor for preparing income taxes and documenting gross income. Mortgage lenders will sometimes review a borrower’s 1099 if any to confirm tax return figures.
A-Credit
An informal term referring to borrowers and applicants with very good credit history; they usually have credit scores of 650+, with A-plus credit starting at 720. Conforming loan programs require A-credit of its applicants. In the mortgage industry, A-credit borrowers must satisfy all of the following requirements: (1) no foreclosure or bankruptcy within the past seven years; (2) no late payments on their mortgage history during the past year and no more than one late payment in the past two years; (3) no more than one late payment on any installment loan during the past year and no more than two during the past two years; (4) no more than two late payments on revolving accounts during the past year and no more than four during the past two years; (5) no open collection accounts; and (6) a credit score of at least 650.
A-Frame Roof
A type of gable roof with high, steep (chalet-like) roofs. It is ideal for areas with high snowfall, as it allows gravity to prevent dangerous build-up.
Abandonment
The surrender of a property’s ownership without a formal or legal successor. Abandonment can apply to either fee simple or leasehold properties. Landlords must follow local laws when trying to reclaim rental units abandoned by the tenant.
Absentee Owner
An owner of real estate property who does not manage or reside at the subject property.
Acceleration Clause
The clause in a mortgage, or deed of trust, that allows the lender to “accelerate” the payment schedule—demanding immediate payment of the loan principal. Standard residential mortgage loans do not allow unrestricted acceleration clauses; this clause is normally used by the lender to demand the entire balance due immediately if the borrower fails to meet loan obligations (i.e., default).
Acquisition Cost
Charges and expenses related to a real estate purchase, over and above the property’s price. These expenses will include title insurance, credit checks, property appraisals and legal fees. This is usually called the “closing” or “settlement” costs.
Ad valorem tax
A standard term for the real estate tax of a specific parcel of property. As the name suggests, this tax is based on the valuation of the property. The traditional method for calculating a parcel’s property tax assessment is to multiply the assessed value—after any adjustments or deductions for homestead owners, senior citizens, etc.—by the official tax “millage” rate and any equalizer rate.
Adjusted Gross Income (AGI)
With tax returns, this is the consumer’s taxable income after all deductions, carry-overs and adjustments have been included. Mortgage lenders do not use this amount for their gross qualifying income calculation. However, mortgage lenders do often include the AGI in its qualifying income calculation for a self-employed applicant.
Adjustable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Aluminum Siding
A type of exterior wall siding that has become popular with both new residential developments and remodeling of older homes. Compared to clapboards, shingles and other types of siding, aluminum offers the advantage of longer life and relatively lower maintenance. Aluminum siding is easy to install, and the old siding need not be completely removed. However, aluminum siding should be grounded with #8 wire or larger.
Amenities
Amortization
A repayment method in which the amount you borrow is repaid gradually through regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Annual Membership
An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a “participation fee.”
Annual Percentage Rate (APR)
The cost of credit on a yearly basis expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes upfront costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. It does not include title insurance, appraisal, and credit report.
Application
An initial statement of personal and financial information which is required to approve your loan.
Application Fee
Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).
Appraisal
A fee charged by an appraiser to render an opinion of market value as of a specific date. The appraiser is primarily concerned with the property’s market value—as compared to the property inspector, who is more concerned with the property’s structural and functional worthiness. The appraiser will research recent sales of comparable properties, as well current construction costs and rental comparisons, to calculate the probable market value of the subject property. The final loan amount is normally a percentage of this appraised market value or the purchase price, whichever is lower. Required by most lenders to obtain a loan.
Appraisal Review
A process conducted by many lenders, which formally re-examines the appraisal report. The appraisal review is normally conducted by an unrelated appraiser or an in-house specialist employed by the lender. There are normally two types of appraisal reviews: a “desk review” is an internal analysis of the appraisal report by a reviewer; a “field review” will supplement the desk review with a field inspection of the property’s exterior and neighborhood, as well as those of the comps used to arrive at a value.
Assumption of Mortgage
The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.
Assignment of Contract
When the rights to a contract are transferred from one person/corporation to another through a legal document of the same name.
B-Credit
An informal term referring to borrowers and applicants with several recent minor delinquencies or credit problems; they usually have credit scores between 580 to 650. Conforming programs tend to deny B-credit applicants. However, B-credit applicants usually have a good chance of improving to A-credit in a relatively short period of one to two years. In the mortgage industry, B-credit borrowers normally have one or more of the following traits: (1) no bankruptcies or foreclosures in the past five years and no repossessions or major judgments in the past four years; (2) three to six late payments on mortgage and installment debts during the past two years; (3) five to eight late payments on revolving debts in the past two years; (4) unpaid collections of $500 to $10,000. Note that a borrower with no recorded credit history is normally graded B.
Back-Up Contract
A real estate purchase agreement that becomes effective only if a primary contract with another party fails to close. The buyer in the backup contract understands that he or she may not be able to purchase the property, particularly if the primary buyer is able to complete a purchase.
Balance Sheet
A financial statement that calculates an entity’s assets, liabilities and equity for a defined period. The balance sheet normally displays the equity amount as equaling the total of asset and liability entries
Balloon Payment
A lump sum payment for the unpaid balance of the loan.
Bankruptcy
The formal court order that provides protection to debtors so as to allow them to reorganize their finances. U.S. bankruptcy laws provide many consumers with a method to reestablish their financial health, without being completely drained by creditors. There are primarily two types of personal bankruptcy options: Chapter 13 and Chapter 7. Chapter 13 essentially reorganizes the consumer’s debts, while Chapter 7 eliminates debts after liquidation of available assets. However, a bankruptcy will have a severe impact on the applicant’s financing efforts for a period of five to ten years.
Base Molding, Baseboard
Construction term referring to trim-work placed along the bottom of a wall, effectively covering the wall-floor corner. For more information about the different types of trim or molding.
Bay Window
A type of window that projects from the side wall of a house or structure. Typical bay windows actually consist of three windows: the central one is parallel to the wall, while the side windows angle from the side of the central window to the wall. Bay windows can provide more light and ventilation than standard configurations, as well as add space to a room.
Beam
A horizontal load-supporting length of wood, metal or other very strong material.
Bearing Wall
A wall that supports a floor or roof of a building.
Bevel Siding
A type of exterior board-type finish that is slightly ticker along the bottom than at the top.
Bid
The amount that a prospective buyer offers to pay for a property.
Biweekly Amortization
The biweekly mortgage calls for a mortgage payment every two weeks, instead of every month. The biweekly payments are exactly half of the monthly payments. This payment plan translates into 13 monthly payments per year (52 weeks = 26 biweekly payments = 13 monthly). This prepay will reduce the loan term, reduce total interest paid and build equity faster.
Blanket Loan, Blanket Mortgage
A type of mortgage that pledges more than one parcel of real estate as collateral. This is normally not allowed with residential loans; however, many business and commercial loans will allow and even demand this arrangement. This is also often used with development projects. For example, a developer will have one large construction or development loan secured by the entire project. As each parcel is completed and sold, that property is released from the blanket.
Brokerage Fee
Compensation paid to a real estate broker or mortgage broker
Building Code
Construction, improvement and maintenance requirements established by the local government to ensure minimum safety conditions.
Building Department
The municipality’s department responsible for controlling, monitoring and approving building permits. In unincorporated areas, the county’s building department and zoning board will have jurisdiction.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances. Most neighborhoods will require substantial set-backs—which would have the effect of creating or expanding the front yard or sidewalk—so as to maintain the area’s appeal.
Building Permit
Authorization for construction or improvement to property. Local zoning ordinances and regulations normally require property owners and developers to obtain a building permit from the local building department–before any major improvements can begin. These permits require review and approval of architectural plans and blueprints.
Business Loan
Financing for business capital or operation. Business loans differ from mortgage or real estate loans because business loans are often not secured by real estate property.
Buydown (or Optional Discount) Points
Payment to the lender, from either the seller, buyer or a third party, so as to reduce the interest rate of the loan. This is usually expressed and charged as points, or percentages of the loan amount. Buydown and discount points are basically partial prepayment of the loan’s interest charges
Bylaws
With homeowner associations, the bylaws provide detailed information about management of and restrictions upon both individual units and shared areas. The bylaws establish the board of directors for the condominium. They sometimes also give the association a right of first refusal, allowing the association to purchase the unit before it is offered to the public.
C-Credit
An informal term referring to borrowers and applicants with damaged and poor credit. C-grade consumers are usually delinquent on several accounts, and demonstrate an inability to efficiently manage debt; they usually have credit scores between 500 to 579. For most C-grade consumers, their only financing hope would be with non-conforming loan programs. In the mortgage industry, C-credit borrowers usually have one or more of the following traits: (1) a bankruptcy, foreclosure or repossession during the past two to three years; (2) at least 60-90 days behind on mortgage or large installment debts ; (3) at least nine late payments on revolving accounts in the past two years; and (4) more than one open collection account. However, with proper attention to debt payments, a C-credit borrower can usually return to A-grade within two to three years.
Calendar Year
The 12-month period beginning January 1 and ending December 31.
Call Provision
Similar to the acceleration clause, this clause in certain mortgage documents allows the lender to accelerate the debt payments. However, the call provision is conditioned on certain events–unlike the acceleration clause, which is activated only by default.
Canceled Check
A check used for payment that has been processed through the issuer’s bank and returned to the issuing payer. The canceled check will normally have processing ink-stamps on its back and can be used as proof of payment.
Cantilever
A beam that is fixed on one end but is left free floating on the other end. This is sometimes used for roofs and overhanging porches.
Cap (Interest)
The maximum adjustment that a lender may make to the interest rate of an Adjustable Rate Mortgage (ARM) loan. There are mainly two types of interest rate caps: periodic and lifetime. The periodic cap limits rate adjustments from one period to the next, while the lifetime cap limits the maximum interest rate to which the loan may rise throughout the entire life of the loan.
Cap (Payment)
The maximum adjustment that a lender may make the monthly payment of an Adjustable Rate Mortgage (ARM) loan. The payment cap limits periodic adjustments to the monthly loan payment, regardless of any interest rate adjustment. Note, however, that ARM loans with payment caps often produce negative amortization, wherein the principal increases instead of decreases.
Cap (Principal)
The maximum increase that a lender may make to the principal balance of a mortgage loan with negative amortization. The principal balance increases (instead of decreases) during periods of negative amortization where the monthly payment is not enough to pay at least the interest due on the loan—so the unpaid difference is added to the principal. The principal cap will set a maximum limit on any potential increase in the principal balance.
Capital Gain
The profit from an investment. It is any gain realized from the sale of capital assets. Real estate is such a capital asset investment, and the profits from the eventual resale or transfer of a real estate property are considered capital gains . With real estate, capital gains are based on the resale price and the adjusted tax basis amount; the adjusted tax basis is the original purchase price plus any capital improvements made, but less certain depreciation deductions taken by the owner.
Capitalization
A measurement of a property’s value that is based on the property’s projected or actual income.
Capitalization Rate
A calculation consisting of the net operating income divided by the property’s value. It is used to determine a rate of return.
Carpenter
Skilled contractor or crafter who builds or repairs with wood material.
Carpenter Ant
A wood-damaging insect that sometimes infest wooden structures, such as many homes. The carpenter ant infestation is normally evidenced by hollow, irregular chambers cut across the grain of the partially decayed wood.
Carrying Cost
The expenses associated with holding a property until it is sold or able to generate sufficient revenue. This is normally applied by real estate speculators to calculate the feasibility of a potential investment. For example, the expenses incurred by a land speculator from the time an investment parcel is purchased to the time it is sold comprise the carrying costs for that investment.
Casement Window
A type of window, in which the sashes are hinged on one vertical side and swings outward. Unlike double hung and horizontal sliding windows, the screens and storm windows must be placed on the inside with a casement window.
Cash Basis
An accounting method that records expense and income amounts only when the entity actually disburses or receives the cash. Compare with the Accrual Basis entry.
Cash Flow
The net amount of cash that an income property or business produces over a period of time. This is the positive amount after deducting operating expenses. With mortgage applications, the property’s rental income stream can often be used to aid the applicant with the income qualification.
Cash-on-Cash Return
A measurement of an investment’s rate of return based on the property’s cash flow divided by the original down payment.
Cash-Out Refinance Loan
A refinancing of an original mortgage loan that also includes a portion of the borrower’s established equity being taken out in cash. This differs from the rate & term refinance, which only borrows enough to repay current principal.
Cash to Close
Funds needed by the borrower to complete the closing, commonly to satisfy down payment, closing costs, prepaid expenses, and reserve requirements. Lenders often have seasoning requirements and restrictions, especially with regards to funds that the borrower will be obtaining from gifts or additional loans. The Good Faith Estimate provides an itemized estimate of closing credits, costs and the cash to close.
Casing
The trim or molding that joins the wall with the door or window frame. Because it essentially masks the door and window frame, casings are sometimes mistakenly considered the frame. For more information about the different types of trim or molding, see the Trim entry.
Cashier’s Check
A check for payment issued by a bank or recognized financial institution. The cashier’s check is considered more liquid than personal checks. Real estate transactions typically require immediate “cash” closings, so personal checks are normally not accepted.
Caulking
Any material, preferably waterproof that is used to seal joints, seams, and cracks.
Caveat Emptor
Latin for “let the buyer beware,” which essentially means that it is the buyer’s responsibility to examine the property being purchased.
Ceiling
The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.
Cement Plaster
A type of plaster containing portland cement.
Central Heating System
A heating system that generates heat for multiple rooms in one central area and distributes that heat to the different rooms. Central heating systems distribute heated heat in two way: gravity circulation and forced action. The alternative to central heating is space heating.
Certificate of Insurance Coverage
A formal notice provided by an insurance company or agent identifying the coverage terms of an insurance policy.
Certificate of Occupancy
Newly constructed or improved buildings normally require this certification from the local government, indicating that the building satisfies all local requirements for occupancy. This is commonly handled by seller or developer and is provided prior to or at the closing. The building inspector will have to inspect the completed property to ensure that it is habitable.
Chain of Title
The sequence of title ownership for a real estate property. The local property records office records all owners of property. When the title deed is investigated (as preparation for the closing), the title company will sometimes review the chain of title to ensure against potential title problems.
Charge Off
A credit report entry that indicates that a creditor has stopped trying to actively collect a past-due debt and has a labeled it as a bad debt. This debt is technically in collection account and is considered a seriously negative item on a person’s credit report.
Chimney
Vertical passage through which gas or smoke from a fire or furnace can pass. Most fireplaces use masonry chimneys, although metal (stove) fireplaces and chimneys are becoming more common.
Chimney Cap
A covering applied to the chimney walls that prevents moisture from entering between the brick and flue lining.
Circuit Breaker Panel
A type of service panel that uses circuit-breaker switches instead of fuses to prevent excessive currents. Circuit breakers are heat-sensitive switches that automatically trip when excessive current causes a temperature rise in the circuit.
Clear Title
A requirement for most real estate transactions, clear title, refers to a transferable title that is free of any clouds on the title (encumbrances, claims, liens, and restrictions). The process of removing clouds or title defects is called perfecting the title.
Closing
Also called a settlement, the consummation of a transaction–specifically, a mortgage or real estate transaction. With real estate transactions, it generally includes the delivery of the property’s deed, the signing of all required documents and the disbursement of funds necessary to complete the transaction.
Closing Agent
Also called a settlement agent, the person responsible for facilitating a closing. The closing agent is usually either the seller’s attorney or a representative of the title company. With escrow closings, the escrow agent is typically the closing agent.
Closing Condition
Requirements that must be satisfied before an approved loan can be closed. These conditions are usually itemized in the loan approval notice.
Closing Cost
The charges and fees—over and above the down payment—that must be paid in order to complete the transaction. This normally includes the origination fee, appraisal costs, attorney’s fees, discount points, title company charges, credit report costs and prepaid escrow payments.
Closing Statement
The final accounting of transaction funds received and paid. The attorneys representing the seller and buyer will prepare this statement, which the closing agent will incorporate into the final settlement statement.
Cloud on Title
An encumbrance or claim on a title that impairs the title to that property.
Co-Borrower
Any additional borrower on a loan, in addition to the primary borrower. All borrowers on a loan participate equally in all legal obligations and requirements, as enumerated on the promissory note and other mortgage documents.
Co-Signer
With debts and liabilities, a co-signer is an official co-borrower on the debt’s promissory note. However, the co- signer is usually a secondary borrower. With mortgage loans, co-signer normally applies specifically to co- borrowers who do not occupy the subject property and usually do not contribute toward the mortgage payments. The co-signer is still responsible for the loan account. However, co-signers can reduce the effect of loans they co-sign by documenting that the other borrowers are responsible for the loan (normally with canceled checks
Collateral
Any asset used and acceptable as security for a loan. With mortgage loans, the subject property is the collateral or security for the loan.
Collection
The process of forcing repayment of a delinquent obligation. For creditors and lenders of unsecured debt, the collection process is a legal stage after the borrower has lapsed into serious delinquency or default, and lasting until the creditor takes the obligation to court for legal judgment.
Commercial Loan
An imprecise term used for most non-residential property loans. However, most lenders differentiate between apartment (mortgage) loans, business loans, and commercial (mortgage) loans.
Commercial Property
Any property used for commercial purposes, such as hotels, offices, malls, and stores. For the residential mortgage market, it is any property that has five or more units or any property that has at least one unit being used for commercial (storefront, offices, etc.) purposes. However, most lenders differentiate between an apartment building and a true commercial property.
Commission
With the real estate transaction, the real estate agent or broker normally receives a commission of 5%-7% from the seller. In some cases, the buyer will pay commission to a buyer’s broker. Loan officers may also receive commissions, expressed as loan points, from the borrower.
Commitment
A binding promise from the lender that the applicant has been fully approved and that funds will be loaned according to the agreed terms and conditions. The applicant, however, will have no obligation to accept or close a mortgage loan—under penalty—unless the applicant has accepted and signed the loan commitment.
Commitment Fee
Payment to a lender so as to secure a pledge of funds. This is normally charged to maintain a loan approval for an extended period of time. Most loan approvals are valid for only 30-60 days. If the borrower requires a longer commitment period (such as with construction or rehab), the lender may sometimes charge a commitment fee as the lender must tie up and commit these funds for the applicant.
Common Area
For commercial properties, it is the space not directly occupied by the tenants. With condominium properties, the common areas consist of the spaces owned jointly by all the unit owners, through the condominium association. These common areas include hallways, driveways, clubhouse and community rooms.
Comp
Property used by appraisers as a comparison tool to determine the value of a subject property. When developing the appraisal report, the appraiser will gather and analyze comparable properties to determine the estimated market value of the subject property. Comparable properties must be similar in structure and nearby to the subject property, as well as having sold or listed for sale recently.
Comparative Market Approach
One of the most common approaches used to estimate the value of property. This appraisal method compares the subject property’s features with the price and features of comparable properties. By making adjustments to the prevalent sales prices of comparable properties–which adjustments are based on significant feature difference between the subject and the comparable–the appraiser can arrive for an estimated fair market value for the subject property.
Competitive Market Analysis
A method used by many real estate agents to arrive at an estimated market value for a property. The CMA approach is not as concise as the standard appraisal.
Condominium Association
The Homeowners Association of condominium projects is often called the condominium association
Condominium Conversion
A condominium project that was not originally designed or constructed as such. Most condominium conversions are apartment buildings that have been legally and physically transformed into a condominium project. Although a conversion has a physical component, it is primarily a legal process by which a property is subdivided into separate parcels.
Conforming Loan
Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.
Contract of Sale
The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.
Conforming Loan
Conventional home mortgages that follow the agency guidelines of Fannie Mae (FNMA), Freddie Mac (FHLMC) and Ginnie Mae (GNMA) and are bought by those agencies for resale in the secondary market.
Consideration
The legal term used for cash, services or goods are given in exchange for property or services.
Construction Loan
A type of mortgage loan, usually short-term, that is used to finance construction. The funds are released by the lender in stages as the construction finishes certain phases. Construction loans are normally refinanced, immediately after the construction is completed, into a standard long-term mortgage loan.
Consumer Credit Protection Act
A 1969 federal legislation that required businesses or individuals, who regularly extend credit to consumers, to provide their clients with specific disclosures about their rights and obligations.
Contractual Lien
A lien created by written agreement, such as mortgage loans and mechanics liens.
Conventional Loan
Any mortgage loan that is not underwritten (not insured or guaranteed) by the government. Non-conventional loans include FHA, VA and FmHA loans
Conveyance
The process of transferring a property’s title, usually through a deed of conveyance.
Corporation
An artificial person legally established by a charter. Corporations exist forever until they are dissolved. They are run by a board of directors elected by its shareholders (investors who have purchased stock in the company). Liability for the corporation’s debt is limited to the amount invested by each shareholder–unless the investor has pierced the corporate veil. However, shareholder’s gains are subject to double taxation, while the corporation’s losses cannot be claimed by the individual shareholder.
Credit History Credit Record
The recorded history of a person’s performance on and management of credit provided to that person. Lenders view a person’s credit record as a measure of that person’s willingness to fulfill obligations.
Credit Limit
The maximum amount that you can borrow under a home equity plan.
Credit Report
A compilation of information about a person’s credit history as compiled by a credit bureau. The three most prominent credit repositories are TRW, CBI, and the TransUnion; they gather credit information from different creditors and financial institutions. Local credit bureaus will tabulate credit information from credit repositories to develop a detailed credit report on individual consumers. The primary provider of credit reports for businesses is Dun & Bradstreet.
Credit Union
A legally chartered organization that offer to finance to its members at lower or competitive interest rates and terms. In the U.S., credit unions receive special tax benefits unavailable to regular banks. However, credit union membership is limited to persons with a clearly defined relationship–such as employees of the same company or industry, union members or members in the same club, church or organization.
Creditor
A person or corporation that lends something of value to another person or corporation. Installment loan lenders and credit card companies are the most common creditors in the consumer’s life.
Crown Molding
Construction term for the trim work fitted at the joint where the wall meets the ceiling.
Curb Appeal
The first-impression aesthetic image projected by a property.
D-Credit
An informal term referring to borrowers and applicants with extremely damaged and abysmal credit, usually with credit scores below 500. The only financing hope for D-credit borrowers would be expensive non-conforming loan programs. D-grade borrowers are often currently in foreclosure, bankruptcy or repossession—or have just completed such actions within the past year. Consumers can still be graded “D” when the foreclosure, bankruptcy or repossession is two to five years old if that consumer has not made strides in rebuilding credit. However, with proper attention to debt payments, a D-credit borrower can usually return to A-grade within five to seven years.
Daily Interest
The current interest charge for each day. The daily interest is used with prepaid expenses and per diem assessments. Interest rates are normally indicated as annual rates. The daily interest rate is usually calculated as the current principal balance times the annual rate, divided by 365 days.
Debt
The borrower’s obligation to repay a lender. It is sometimes referred to as liabilities.
Debt Service
The regular payment amount required by a loan debt. With most mortgage loans, the debt service refers to the monthly or annual P&I payment.
Debt Service Ratio
Also called the “debt coverage ratio,” the DSR is the measurement of a property’s ability to handle a loan debt. The DSR is the projected debt service payments divided by the after-tax net operating income. Commercial lenders often impose minimum DSR restrictions of 1.10 to 1.35. The most common DSR is 1.2, which means that lenders require the property to produce net operating income that is at least 120% higher than the projected debt service payments.
Debt-To-Income (DTI) Ratio
The primary method used by lenders to qualify prospective borrowers for mortgage financing. The DTI ratio is basically the total monthly debt payments divided by the gross monthly income. Two types of income ratios are normally considered by most lenders: the front-end (housing) ratio and the back-end (total debt) ratio. The housing ratio is the projected housing payment divided by the gross monthly income; the total debt ratio is the projected housing payment plus all other long-term debt payments, divided by the gross monthly income.
Deed
The written instrument used to record or transfer property ownership. The deed transfers the property from the grantor to the grantee.
Deed in Lieu of foreclosure
A real estate deed used to convey title to a property from the current owner to the owner’s lender or creditor. This deed is normally used when the current owner is in default or foreclosure proceedings. By voluntarily surrendering the property, both parties avoid the costs and delay of further legal proceedings. The lender receives title without going through the usual court and auction process; in exchange, the loan is terminated. Similar to the power of sale clause, this is a type of non-judicial foreclosure.
Deed of Conveyance
A legal instrument used to transfer a property’s title.
Deed of Trust
A type of mortgage deed in which a third party holds the title in trust as security, while the borrower continues to make payments to the lender. Most residential mortgage lenders will not allow the loan to close while the subject property is in a trust. The loan programs that will close with a trust normally use a deed of trust. The borrower conveys the legal title to the trustee, who retains the property until the debt to the lender is paid in full. If the borrower defaults, the trustee may sell the subject property to satisfy the debt, without the benefit of foreclosure proceedings.
Default
Failure to meet or perform a contract obligation. With mortgage loans, the lender may declare the loan in default any time after a payment becomes past due beyond the grace period. However, most lenders will not declare default until the borrower is at least one to three months behind. A default notice will activate the foreclosure proscriptions of the mortgage deed.
Deferred Interest Mortgage
A mortgage loan that involves deferred interest, because the interest actually charged and collected is insufficient to satisfy the interest due on the loan. This typically results in negative amortization. Some GPM and ARM loans with payment caps may have deferred interest characteristics.
Deferred Maintenance
Property repair, maintenance and improvement requirements that have been delayed. Such maintenance is ones that are considered mandatory but have not been performed. Deferred maintenance often occurs in properties that are underperforming or do not generate enough cash to meet all repair and maintenance needs.
Depreciation
The loss or decrease in property value because of obsolescence, wear, and tear, economic factors or age. Depreciation has functional, economic and tax elements. In appraisals, the three classes of depreciation used in the cost approach are physical deterioration, functional obsolescence, and economic obsolescence. Such depreciation can be further labeled curable or incurable. Under standard actual cash value coverage, insurance policies will deduct depreciation from original cost when calculating reimbursements. For tax deduction purposes, however, depreciation can only be taken on property used in business, trade or income generation. Personal residences cannot claim depreciation deductions. Depreciation deductions can be calculated with either the straight-line method or accelerated cost recovery system.
Derogatory Credit Entries
Sometimes referred to as “derogatories,” these are any negative items—such as late payments, collections, judgments or inquiries—on a credit report.
Disbursement
The release of funds. With a purchase mortgage, the closing agent disburses the loan proceeds at the conclusion of the closing. However, if a borrower is refinancing a primary residential property, the disbursement must be delayed three business days. This three-day delay is called the “Rescission Period,” and allows the borrower to reconsider and possibly cancel the refinance loan.
Discount Points (or Points)
The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).
Discount Rate
The measurement of the difference between the current cost of money and future cost of money. It is used in the discounted cash flow analysis to determine the present value of future projected cash flow.
Distressed Property
In the mortgage and real estate industry, properties whose mortgage loans or real estate taxes are currently in default or foreclosure are called distressed
Documentary Stamps
A tax levied by the state government to record a new deed or mortgage for a real estate sales transaction. Upon payment of the tax (which varies among states), the state issues a stamp for the subject documents.
Double-Hung Window
A type of sliding window that consists of two sashes on separate vertical tracks. The lower sash can be raised to allow cool air to come into the room, while the upper sash can be lowered to let warm air exit the room. This is the most popular type for homes.
Down Payment
The portion of the property price that will not be covered by the loan amount, other financing or subsidy. The applicant is responsible for paying the down payment. Most loan programs establish a minimum down payment required, calculated as a percentage of the purchase price, based on the loan program. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.
Drop Siding
Sometimes called German Lap siding, drop siding is a form of exterior wall covering that can be applied either vertically or horizontally. Drop siding is often thicker and more decorative than clapboard siding. Unlike clapboard siding, drop siding is attached directly to the studs, eliminating the need for wall sheathing or covering.
Dry Closing
A real estate and mortgage term in which a settlement transaction is completed without a full exchange of required funds. The legal documents are signed, and the property is transferred, but the entire closing is held conditional on the full collection of required funds. This is a risky arrangement and is regularly discouraged.
Dry Rot
A type of building damage caused by a fungus that attacks wood that has been exposed to moisture but has not been able to dry out.
Dry Well
A shallow unfilled well used to dispose of or shift rainwater.
Drywall
Commonly known as sheetrock or gypsum, these are flat, hard plaster panels used for walls and ceilings. They are made from a mixture of water and gypsum filler (plaster of Paris) that is poured between two sheets of special paper and baked to rock-like hardness. Wallboards normally come in thickness of 1/4 to 5/8 inches, with dimensions of 4′ x 8′–although lengths of 6′ to 14′ are available
Ductwork
A system of tubes and pipes in a building used to distribute cooled and heated air, as well as sometimes wiring.
Due Diligence
The act of researching, inspecting and investigating a specific property being considered for purchase or acquisition. The goal of due diligence is to discover all the facts and determine whether there are problems with or contingent liabilities in the subject property that may reduce or eliminate the buyer’s projected gain.
Due-On-Sale Clause
Duplex
In its most common usage, this is a house, townhouse, condominium or apartment unit that consists of two or more levels. However, the term duplex is sometimes used to describe a two-unit building.
Dutch Door
A type of door that is divided at the middle to effectively create two doors. Often the bottom part can be kept closed, while the top door is open to allow ventilation or interaction with people outside the room. Although an efficient design, Dutch doors are difficult to properly weather-strip and screen.
Due on Sale
A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.
Earnest Money
A portion of the down payment delivered to the seller or an escrow agent as evidence of good faith so as to legally bind the purchase. When a purchase contract is offered and accepted by the seller, the buyer must typically provide an earnest money deposit. This deposit will be credited to the buyer’s account, at the time of closing, as a portion of the down payment.
Easement
A right to use the land of another person for a specific purpose, such as for a right-of-way or utilities. For example, a utility company may obtain a right-of-way across a private property when deemed necessary by the local community
Economic Depreciation
The decrease in a property’s value caused by external forces. For example, a loss of the major employer in an area can affect the demand for new residential and retail developments in that area.
Economic Feasibility Study
An analysis of a proposed investment that focuses on the economic and financial factors that will affect the subject property and influence the investment’s future success
Effective Gross Income
This projected amount is the scheduled gross income and other miscellaneous revenues, less the projected vacancy rate.
Effective Interest Rate
The cost of credit on a yearly basis expressed as a percentage. Includes upfront costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.
Effective Monthly Income
For income qualifying purposes, this is the gross monthly income amount used to qualify the applicant. Effective monthly income must come from a stable and acceptable sources, such as regular employment, investments or court- ordered judgments. Undocumented income is normally not acceptable.
Egress
Access from property to an exit or public road.
Encroachment
Any structure or object that protrudes beyond a property’s legal boundary, into a neighboring property. The encroachment must be corrected or be insured by the title insurance before a mortgage loan can be closed for its purchase or financing.
Encumbrance
Any legal claim, charge, liability, intrusion, restriction or obstruction against property ownership. Encumbrances affect the marketability of the property and, thus, its value. For example, past due tax and mortgage liens are considered encumbrances because property ownership cannot be fully sold and transferred unless those items are completely paid or somehow addressed. Other types of encumbrances include zoning ordinances, easement rights, restrictive covenants, and claims.
Environmental Protection Agency
The EPA was established as an independent agency in 1970, charged with administering and enforcing environmental laws, including the Clean Air Act, National Environmental Policy Act, Clean Water Act, Resources Conservation & Recovery Act, Comprehensive Environmental Response, Compensation & Liability Act, Superfund Amendment & Reauthorization Act, Coastal Zone Management Act and the Lead-Based Paint Hazard & Reduction Act.
Equal Credit Opportunity Act (ECOA)
A federal law that prohibits creditors, lenders and brokers from discriminating against an applicant on the basis of race, color, religion, national or ethnic origin, sex, age, marital status, receipt of income from public assistance programs, or past complaints based on the Consumer Credit Protection Act.
Equity
The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.
Equity Build-Up
A property’s net worth that is produced by the appreciation of the property’s value and the simultaneous paying down of any mortgage debt.
Equity Loan
A type of mortgage loan that converts a property’s equity into cash. If this equity financing involves absorption or repayment of an existing mortgage lien—in addition to cashing equity—then it is often called a cash-out refinance loan.
Escheat
A legal doctrine by which property reverts to the state when there is no legal owner. This can occur whenever the property owner dies without an heir or legal claimant. If the owner dies without a will, a relative or another claimant can avoid the escheat by filing a claim for the property–and paying all the required taxes.
Escrow Account
Property or money held by a third party, usually a bank. Both the title company and the mortgage lender maintain different escrow accounts—sometimes called “impound” accounts. The title company’s escrow account collects all closing funds and disburses them to satisfy liens and appropriate parties. With many purchases, the title company will often hold an impound account containing tax payments from and by the seller—which will be applied as soon as the next real estate tax bill arrives.
Escrow Agent
A neutral individual who coordinates an escrow closing. The agent is usually someone from the title company, lender’s escrow department or one of the representing attorneys.
Escrow Clause
The clause in insurance policies indicating the lender (mortgagee) and its assignees as beneficiaries of the insurance policy. If the subject property is destroyed, the insurer will normally first pay off the existing mortgage balance before disbursing any surplus insurance claims to the homeowner. The exception would be if the insurance disbursements were earmarked directly for reconstruction. Otherwise, lenders may be left holding the bag for a large mortgage balance on a property now worth only the land.
Escrow Closing
A commonly used method of closing in which not all of the parties are present. The parties involved enter into an escrow agreement, and the escrow agent will typically obtain assurances of marketable title, collect all require funds and documents, deposit and disburse funds and record all pertinent deeds and documents. With escrow closings, the official date of title conveyance is when the title was delivered to the escrow.
Estate
In the real estate industry, the term estate refers to the interest an individual has in real property. The term estate encompasses the degree, nature and extent of ownership rights. Estates are generally divided into two groups: freehold estates of indefinite length and leasehold estates for a fixed term.
Estate at Sufferance
Commonly called Tenancy at Sufferance, this legal term applies to the unpermitted occupancy by a tenant of a property after the lease term has expired.
Estate at Will
A legal term describing the permitted occupancy of property–with or without a lease agreement–for an unspecified term. This arrangement can be terminated by either the owner or tenant at any time.
Estoppel Letter
A legal letter confirming the current facts of an agreement or transaction. At most closings, the borrower will sign an estoppel letter confirming the transaction and loan amounts. The estoppel is a legal concept that prohibits a party from denying facts that were once acknowledged by a person as true and accepted by others as factual.
Eviction
The process of terminating the occupancy of a tenant. Actual evictions are initiated by the landlord; while constructive evictions are initiated by the tenant.
Eviction Notice
A formal notice provided by a landlord to a tenant who is currently in default on either the lease terms or rental obligations.
Evidence of Title
Documented proof of valid ownership interest and right to convey title. The evidence is not a guarantee, but they offer proof acceptable in most transactions. The four most common types of evidence of title are abstract of title with attorney’s opinion, Torrens certificate, certificate of title and title insurance.
Excavation
Usually, the first step in building on land. This prepares the ground by removing earth and ensuring that it is sufficiently flat and firm.
Exclusive Listing
A type of listing agreement between sellers and real estate agents that gives the listing agent exclusivity among all other real estate agents. However, the seller can avoid paying any commissions if the seller finds the buyer without assistance from the seller. If the property is sold through any other real estate agent, the listing agent receives a commission from the seller.
Exclusive Right of Sale, Exclusive Right to Sell
A type of listing agreement between sellers and real estate agents that commits the buyer to pay commission to the listing agent when the property is sold, regardless if the property is sold through the listing or without any agents.
Facade
The exterior front of a building.
Face Value
The dollar amount indicated on a contract, security or financial instrument. The face value often differs from the cash value of an instrument. For example, a life insurance policy may have a face value of $100,000 but have a current cash value equal to a portion of the insured person’s deposit to date.
Fair Credit Reporting Act
A 1977 federal legislation that regulates credit reporting agencies and the access to and use of consumer credit data. Credit bureaus can only provide access by court order or, with the consumer’s permission, for credit, insurance, and employment. Also, credit bureaus must correct or remove errors brought to their attention and provide file data to the consumer. Lenders who reject an application because of adverse credit information, must inform the borrower about the source of that information and make credit information on file available.
Fair Housing Act of 1968
Actually contained in Title 8 of the Civil Rights Act of 1968, this federal legislation expanded the fair housing coverage reestablished with CRA 1964. It was subsequently amended in 1988 to ban discrimination on the basis of race, skin color, national origin, gender, familial status and physical or mental handicap.
Fair Market Value
Real estate term referring to the price or estimated value that most accurately reflect market supply and demand conditions
Farmers Home Administration (FmHA)
A government agency within the U.S. Department of Agriculture that administers assistance to buyers of homes and farms in rural areas.
Fascia
The outer beams of a rafter or the outer end joist attached to the ends of rafter beams. The outermost rafter beams that are the most exposed to the exterior is normally called fascia rafters.
Feasibility Study
An investigation to examine anticipated results of development or improvement project, with the goal of determining the potential and probability of success. Developers should always conduct at least a preliminary feasibility study before investing large sums into a potentially money-losing effort.
Federal Housing Administration (FHA)
An office of the Department of Housing and Urban Development. Through the FHA loan, the FHA encourages lending to low-income Americans by ensuring certain loans made by qualified lenders. The FHA does not fund loans; it merely acts as an alternative type of mortgage insurance to protect FHA lenders from losses on FHA loans.
Fee Simple
Landholders transferred property by granting an estate, then called a “fee,” to a vassal or other person for money or services.
Felt Paper
Sheet paper commonly used in construction for roofing and sheathing against moisture or dampness
FHA Loan
A loan insured by the Federal Housing Administration (FHA). FHA does not provide loan funds; it ensures qualified loans by accepted residential lenders—making FHA a form of mortgage insurance.
Final Walkthrough
A final inspection of the subject property prior to the closing that most residential property buyers are allowed to ensure that damage or un-allowed removal has occurred.
Finance Charge
The lender-related cost of procuring a loan. The finance charge includes the interest payments, as well as underwriting, tax service, discount and origination fees. The Truth-in-Lending Disclosure requires that the exact finance charge is calculated and disclosed to all consumers.
Finance Fee
This charge to a borrower is normally assessed by the lender for obtaining or providing mortgage financing to the applicant.
Financial Statement
A summary of the financial assets and liabilities of a person or company.
Finder’s Fee
Often called a referral fee, the finder’s fee is a compensation given to an individual or entity–not acting as a broker– who contributes to the arrangement or consummation of a transaction or relationship.
Fire Door
A door, usually composed of metal, that is resistant to flames and high temperature. It is also often placed in locations that can block the spread of flames.
Fire Stop
An obstructive door, wall or other element designed to hinder or prevent the spread of fire.
Fire Wall
Any wall of sufficient thickness and material that prevents or hinders the spread of fire
First Mortgage
The real estate mortgage loan that is currently holding the first (primary) lien on a property. First mortgage loan lenders demand primary lien on the property; home equity loans or second mortgages are used to place secondary liens on the property. Note that liens are normally recorded in chronological error; however, liens may also allow themselves to be subordinated to new mortgage liens.
First Payment Letter
A notice provided to the borrower, usually at the time of closing, that reviews the first loan payment. Borrowers can use the first payment letter as the first payment stub.
First Right of Refusal
See Right of First Refusal.
Fiscal Year
A 12-month financial reporting period that does not have to coincide with the calendar year.
Fixed Expenses
Operating expenses that normally require a constant amount and does not vary with occupancy levels. Service contracts and installment debt payments tend to be fixed expenses.
Fixed Rate
An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.
Fixture
Something attached to the property as a permanent apparatus or appliance. Through the process of attachment, the personal property becomes real property fixtures. When a lessee attaches fixtures to an apartment, for example, they become part of the real estate and cannot be removed without the landlord’s permission. The exception is with trade fixtures, which can be removed.
Flashing
Construction term referring to metal sheathing that provides support and weatherproofing to building joints. For example, flashing is normally placed between the bottoms of exterior masonry walls and the building’s sheathing. The flashing is normally bent so that it continues underneath the masonry wall. The flashing thus collects moisture from between the walls and directs it away from the building, to prevent damage. Flashing is also often used in the roof construction to prevent water from seeping into the house through the joints.
Flat
With regards to a multi-unit building, this normally refers to a multi-story building with one unit on each level. For example, a three-flat property is a three-story building with one unit on each flat.
Flood Certification
Confirmation of the subject property’s current flood zone designation. Mortgage lenders typically require this to close a loan, and this task is normally ordered by the underwriter.
Flood Insurance
The insurance coverage required for all borrowers whose subject property is currently located in a federally designated flood zone.
Flue
The opening in the chimney through which air, gasses and smoke can pass. The best-designed chimneys have straight flues, as bends collect dirt and soot.
Flue Lining
The surface covering for the interior of a chimney. The lining provides a smooth interior for efficient passage of gases. Flue linings are usually made of tiles or stainless steel. However, a lining is usually not necessary when the chimney is at least 8 inches thick.
Flush Door
A type of door that features a completely flat surface on its faces, unlike the panel door style. Flush doors are normally made of plywood or hardwood face panels bonded to either solid or hollow frames. Solid-core doors are ideal for exterior uses, while the lighter hollow doors are most often used for interior rooms.
Foot Candle
A measurement of light level, equivalent to the light intensity made by one candle at a distance of one foot.
Footing
Flat, thick strips of masonry–usually about two feet wide–that are used to define the perimeter of the house, prior to laying the foundation. They must be placed below the frost line so that ground freezing will not shift the foundation. The footing is basically a base for a wall, particularly the foundation wall.
Forbearance
Many lenders show some patience and tolerance of shaky borrowers by offering them forbearance options. Borrowers who have stumbled upon temporarily shaky financial periods can readjust their payment schedules to skip some payments. The skipped payments are placed at the end of the loan, which lengthens the full loan term.
Foreclosure
In lien theory states, foreclosure is the process by which the title to a property is taken from the mortgagor for the purpose of satisfying the mortgage debt. Unlike car loans, the mortgage loan keeps the property’s title in the buyer- borrower’s name. The foreclosure action is required for the lender to formally repossess ownership of the title to the subject property. The winner at a foreclosure sale receives a certificate of sale that can be exercised after the redemption period. Foreclosure actions can be either judicial or nonjudicial.
Forfeiture
The surrender of funds, property or other assets as a penalty for failure to satisfy the terms of a contract.
Foundation
The masonry base, usually made of concrete, upon which the structure is built. It provides a firm anchor for the structure, as well as protection from the ground’s moisture. Taller structures will require deeper foundations. The foundation for most homes and smaller structures use a gravel base with a vapor barrier.
Foundation Wall
An enclosure for basements and crawlspaces, which also support much of the building load for most residential homes. They are usually made of concrete blocks or poured concrete.
Framing
The skeleton of a room or structure. Most homes have traditionally consisted of wood frames, but metal frames are becoming more prevalent.
Freddie Mac (FHLMC)
The common name for the Federal Home Loan Mortgage Corporation, an institution established by the federal government to buy loans from banks and lenders and then reselling them into the secondary mortgage market.
French Door
A type of door that consists of a stile and rail frame enclosing a large glass panel. In turn, this glass panel is usually decoratively divided into smaller compartments with muntins. French doors are most often used as entrances to and from patios, terraces, and porches.
Full Disclosure
The requirement–primarily of the seller– to release all documents, facts and information relevant to a financial transaction. This is written into most purchase agreements.
Full Documentation
The standard method of processing and underwriting loan applications require full documentation of income, asset, employment and other requirements. NIV, No Docs, Lite Documentation and NAV programs, in contrast, are alternatives to full documentation.
Full Replacement Coverage
Unlike the standard actual cash value coverage of most insurance policies, full replacement coverage requires the insurance company to pay for replacing the property, regardless of cost and with no depreciation adjustments.
Fully Amortizing
A payment calculation plan wherein the periodic principal & interest payments will completely pay off the loan principal and all interest due within a specific period of time.
Functional Obsolescence
The loss of value that occurs when a tool or item loses its relative effectiveness. Functional obsolescence is not necessarily due to physical deterioration, but rather is often a consequence of age, design and inherent problematic qualities. Such depreciation may be curable or incurable.
Funding Fee
Finance fee charged by VA loans, which may be paid by the borrower or financed into the mortgage.
Furring
Metal or wooden strips fastened to wall or ceiling, for the purpose of leveling the surface.
Further Assurance
An element of a general warranty deed in which the grantor promises to correct defects in the title being conveyed that may arise in the future. However, the promise is usually not unlimited–most covenants will limit the grantor’s liability to reasonable acts.
Fuse Panel
A service panel using fuses. Electric current flows across the fuse through a thin metal strip. When any current above the rated amperage (of the specific fuse) tries to flow through the fuse, the metal strip melts and stops the flow. Most homes use plug fuses, which screw into place and resemble the screw portion of a light bulb; these fuses normally have windows that show the metal strip. Main service fuses and those in 240-volt circuits normally use cartridge fuses, which resemble shotgun shells with metal prongs at the end. Cartridge fuses are snapped into place.
Future Interest
A right or interest to a property that will become available at a future time. Future interest is usually applied with conventional life estates. When the life estate is terminated, there will be a remainder or reversionary interest.
Gable
The triangular section atop the side exterior walls, between the sloping roofs.
Gable Roof
The most common type of roofing used in most residential homes today. The basic gable roof consists of two sloping roofs attached to a central ridge board running through the center-top of the roof frame. Unlike a hipped roof, the gable roof has vertical gables at the ends of the roof skeletons.
Gain
An increase in the value of property or assets.
Galvanized
Iron or steel elements that have been coated with zinc
Gap Loan
Additional mortgage financing that fills a shortfall or spread with the current mortgage loan.
Garden Apartment
Real estate term for an apartment unit on the ground floor or basement level.
Gas Lease
Similar to oil leases, a landowner may give another party the right to drill for gas on that landowner’s property. If no gas is found, the landowner receives a flat rent. If the lessee discovers gas and begins extraction, the landowner receives royalty payments, often in addition to the flat rent. Sometimes, gas and oil lease rights are combined.
General Contractor
The contractor is primarily responsible for supervising a construction or improvement project. The property owner or developer works with the GC, who will then hire, manage and pay subcontractors (as well as the GC’s own employees) to complete the project.
General Lien
A lien against both personal and real property of a borrower. Compare to a specific lien.
Ghetto
An area of a city populated predominantly by a minority group, who are forced to occupy that area because of social, legal, economic or racial pressure from the majority.
Good Faith Estimate
A written estimate of closing costs which a lender must provide you within three days of submitting an application.
Grace Period
The time between the due date and the past-due date of a loan during which there is no late charge. If a payment is still not received after the grace period (usually 10-15 days), the lender will assess a late charge on the overdue amount. The borrower is technically in default after the grace period expires. Such late payments may be reported on your credit report.
Grandfather Clause
An exemption to a new ordinance or law for a specific property or person. For example, new laws may require specific zoning and building code restrictions for a neighborhood. Existing properties in that neighborhood will not have to make the changes required to meet new codes; however, those same properties may face additional restrictions if they try to make any later improvements.
Gross Income
The total income for a given period of time, before taxes and other deductions. When qualifying an applicant for a residential loan, the pre-tax and pre-deduction gross income amount is used to determine the Debt-to-Income ratio.
Gross Income Multiplier
A calculation rate used with the income approach to estimating value, particularly for commercial, industrial and larger residential apartment properties. It is used instead of the gross rent multiplier because such larger facilities often generate revenue from other non-rent incomes.
Gross Rent Multiplier (GRM)
The GRM is a factoring tool used by the property appraiser to assess the market value of property, under the income valuation approach. The multiplier is a rate based on the sales price divided by the gross monthly rent of comparable properties. This multiplier is then applied to the market rent of the subject property to estimate the value of that property. For example, if an appraiser is analyzing a four-flat and discovers that similar four-flats in the area have market values that are 10.5 times their market rents, the appraiser will use a GRM of 105. Applied to the subject property, the appraiser will multiply the subject property’s market rental income by 10.5 to estimate the property’s value via the income approach. Commercial, industrial and larger residential properties use the gross income multiplier system.
Gross Rental Income
The total rental revenue generated, prior to any taxes, operating expenses or deductions.
Gross Revenue
The total of all income being generated by an income-producing property.
Grout
A plaster-like material used to seal joints, especially with tiles that need to be water-resistant.
Gutter
Construction term referring to the artificial channel attached to bottom ends of sloping roofs. Gutters prevent uncontrolled waterfalls and potential damage to the building by directing rainwater to downspouts. The term gutter can also refer to the channel along the edge of streets that direct water to storm drains.
Handyman Special
Real estate industry euphemism for properties that need significant rehab or improvement. They are usually priced lower to factor in the needed work. The term is often a nice way of saying the property is currently a dump but can be repaired to a habitable condition with increased value.
Hard Assets
A classification of assets referring to non-liquid assets, primarily real and personal properties. See liquid assets for more information.
Hard Construction Cost
The cost of constructing a building shell with most of the covering material. This amount excludes much of the mechanical equipment and interior finishes.
Hazard Insurance
More commonly known as the homeowners insurance, the hazard insurance on the subject property covers physical damage due to accidents and acceptable hazards. Note that many hazard insurance policies require separate coverage for events such as flood, earthquake or hurricane.
Header
The wide horizontal framing planks or beams used to frame a window, door or wall. They are used to support the free ends of floor joists, studs or rafters, by transferring the roof and floor weight to the studs.
Hearth
The area around a fireplace, which basically extends the fireplace masonry floor. The hearth protects the floor area around the fireplace from sparks and ashes.
Heat Pump
A developing method of heating and cooling, which is proving highly efficient. During the winter, heat pumps can pump air or liquid through underground pipes; since the ground below the frost line retains a steady temperature, the air or water is heated (relative to outside air) by the ground. During the summer, the ground acts to cool the air and liquid running through the tubes.
Hectare
An area measurement equal to 107,637 square feet or 2.471 acres.
Heir
In the real estate industry, the heir is the individual who inherits interests or rights to property.
High-Rise
The general definition of a high-rise structure is any building that contains seven or more stories. Buildings with four to six stories are normally considered mid-rise structures.
Historic Structure
Any building or improvement that is officially recognized by a government agency or government-chartered body as having historic significance. Properties that are officially designated historic usually face special improvement restrictions but also often receive tax incentives.
Hold Harmless
The act of indemnifying a person or entity from liabilities that may be incurred from a specific issue.
Hold Harmless Letter
Also called an indemnification affidavit, the hold harmless letter is a legal document in which one party assumes from another party all liability for a subject issue. The person or entity issuing the hold harmless letter assumes all obligations for liabilities that may arise from the specific issue. The person or entity receiving the hold harmless guarantee is theoretically freed from all obligations for liabilities arising from the specific issue.
Hold-Back
Funds retained until certain events occur. For example, a lessee may negotiate a rent hold-back to ensure landlord’s completion of agreed fit-up. Once the improvements are completed, the tenant will release the funds to the landlord.
Home Equity Line of Credit
A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.
Home Equity Loan
A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax- deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.
Home Warranty
A type of property insurance coverage that covers repairs or replacements for the electric and mechanical systems of a home. Sellers and developers may take out such coverage to entice buyers.
Homeowners Association (HOA)
The collection of homeowners—and, when applicable, the project management team—of a condominium, townhouse or planned unit development (PUD) community. The HOA is responsible for managing the common areas and the community as a whole and normally consists of all individual unit owners.
Homestead Exemption
There are two definitions for this real estate term. First, many states offer differing homestead exemptions, which reserve and protect a portion of people’s homes from bankruptcies and major judgments. A second definition of homestead exemption is a reduction in property tax assessments that many taxing authority offers to homeowners.
Horizontal Sliding Window
A type of window whose sashes slides horizontally, as opposed to the vertical double-hung windows.
Hot Water Tank & Heater
A system that heats and maintains a reserve of hot water for a building or area.
Housing Expenses
The housing-related charges that the homeowner must anticipate and pay. Total housing expenses normally include the principal and interest payments on the mortgage loan, plus any homeowner’s insurance, mortgage insurance, and property tax charges.
Housing and Urban Development (HUD)
The federal cabinet-level department is responsible for housing and urban concerns. For mortgage purposes, HUD regulates the housing industry and operates the FHA.
HUD-I Settlement Statement
A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.
HVAC
Acronym for “heating, ventilation & air conditioning” used in the building industry.
Income
Money received from the investment of labor or capital. For standard mortgage purposes, the application must demonstrate sufficient income to qualify for the projected loan payments.
Income & Expense Statement
A summary of a company’s or business’ operating income and expenses for a given period. The employee can then use this W-2 to complete his or her tax returns, as well as maintain documentation of employment and income.
Income Approach to Property Value
The appraisal method is used to determine the value of property, based on the revenue generated by the property. The gross rent multiplier (GRM) is calculated, based on the gross rent and market value of comparable rental properties. The gross rent from the subject property is then multiplied by the GRM to determine the property’s market value, via the income approach.
Income Property
Real estate property capable of producing rental revenue. Residential income property is any one-to-four unit, purely residential properties that can be leased out for rental income. Commercial income property includes office complexes, commercial strip malls, and apartment buildings.
Income Qualification
The analysis of an applicant’s income to determine whether it is qualified, according to mortgage lender’s guidelines, for a particular loan program. The lender normally qualifies the applicant’s income by determining the debt-to- income (DTI) ratio and comparing that against the maximum ratios allowed for the particular loan program.
Income Ratio
The percentage limits used to qualify the applicant’s income, so as to determine whether the applicant can afford the loan.
Income Tax
A tax assessed by the government against individuals, based on that person’s taxable income.
Indemnification Letter, Affidavit
See Hold Harmless Letter.
Indemnify
To agree to hold a person or party free of liability. The person issuing the indemnification guarantee accepts all obligations for any liabilities that may arise from the agreed subject. For example, a refinance may discover a problem with the title that should have been addressed by the purchasing title company. The lender or title company for the refinance may require a “hold harmless” or indemnification letter from the original title insurer before the refinance can be closed.
Independent Contractor
A self-employed contractor, who provides services to a client on a contract or per project basis.
Index
A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one-year Government Treasury Security.
Infestation
Contamination of property by pests. Although mice, rats, and other wild animals are obnoxious and potentially unhealthy pests, the most dangerous pests–in the eyes of the real estate industry–are those that severely damage the home. The most dangerous pests are termites, carpenter ants and, to a lesser extent, powder post beetles. Many mortgage lenders refuse to close a loan unless such infestation problems are completely corrected.
Inflation
A persistent increase in price or a persistent decline in the purchasing power of money. Mortgage interest rates are normally tied to current trends or forecasts of inflation. As inflation or fear of potential inflation increases, interest rates also often rise. Inflation is measured and reported by the consumer price index (CPI) and producer price index (PPI).
Inner City
An imprecise term generally referring to the older portions of a city, outside of the central business district. The term is often used to indicate lower-income areas of the city.
Inquiry (Credit)
A recorded request for a credit report. When an institution or other party orders a credit report on an applicant, the consumer’s permanent history will record an inquiry, which identifies the party making the inquiry.
Inspection (Professional Property)
An investigation and analysis of a property by a qualified property inspector or engineer. Such inspections are optional but highly recommended for homebuyers.
Inspection Contingency
A common element of many residential sales contract that makes the agreement conditional upon the results of specific inspections, such as for termites, septic systems, structural stability and mechanical systems
Inspection Fee
The charge levied by the lender to send an inspector to the subject property. This fee is normally associated with construction and rehab loans. The lender inspection is not the appraisal, nor is it the applicant-ordered inspection. Instead, the lender’s inspection is commonly used to verify that the property is being completed according to the plans presented to and approved by the lender for the mortgage financing. Remember that construction loans are released in stages; the inspection fee usually covers the inspection that must be done as each stage is completed—so as to release the funds for the next step.
Inspection Period
The limited amount of time specified by the purchase agreement for buyer inspection of the property. This provision allows the buyer to requests amendments to the purchase agreement if serious defects are found by the inspection. If compensation for or repair of the defects is not provided by the seller, the buyer may terminate the agreement.
Insulation
Protective material used in buildings to keep external heat or cold from entering, while also preventing internal cold or heat from escaping the building. The four most common types of insulation are a blanket, loose-fill, sheet and reflective. All insulation are graded by their R-value.
Insurance
A legal agreement in which the insurer agrees to compensate the insured individual or entity for specifically covered losses incurred by the insured party. The insurance coverage is provided in exchange for specified premiums.
Insured Loan
A loan insured either by the FHA, VA or by a private mortgage insurance (PMI) company.
Interest
The cost of using someone else’s money. The interest is usually expressed as an annual interest rate, which is then applied to the loan principal balance.
Interest-Only Balloon, Loan
A balloon loan in which only the interest is paid during the term; the payment schedule does NOT make any arrangements for the reduction of the principal balance. However, the borrower is free to make additional payments for the purpose of reducing the principal. At the end of the balloon term, the principal balance must be paid.
Interest Rate
The cost of using someone else’s money as expressed as a percentage relative to the amount of the loan principal balance.
Internal Revenue Code
The federal laws that regulate income taxes.
Investment Property
In the residential mortgage industry, an investment property is any real estate that is NOT occupied by the borrower and is owned for the purpose of generating supplemental income. Note that the residential market distinguishes between three types of properties: primary (owner-occupied), secondary (vacation) or investment properties.
Investor
Within the mortgage origination industry, the investor is the funding source of the lender’s mortgage funds. If a mortgage broker sells to or originates for a specific bank, then that institution is the investor for the mortgage broker.
Irrevocable Trust
A type of living trust that cannot be changed once they are created. Compare with revocable trusts.
Jalousie Window
See Louver Window.
Jambs
Construction term referring to the sides of the frame in which windows are installed. The head jamb is the top part of the window frame, while side jambs are the side panels of the typical window frame.
Joint and Several
LiabilityLegal terms applying full obligation to repay a debt on each of the multiple borrowers of the debt. Each of the borrowers is fully liable for payment of the debt. Liability is NOT proportional to ownership interest.
Joint Tenancy with Right of Survivorship
An ownership of property arrangement by two or more parties. If a joint tenant dies, his or her interest does not necessarily pass on to an heir. Instead, the ownership of the property is shared by the remaining, surviving joint tenants. In states where this is an acceptable form of ownership, this avoids probate problems.
Joint Venture
An agreement between two or more parties to cooperate on a project. Unlike a partnership, the parties remain separate–although they may have varying levels of responsibilities for portions of the project. Joint ventures are usually intended for a limited duration and are dissolved once the project is complete.
Joist
Horizontal planks, usually 2×6 or 2×8 in size that create a load-bearing frame for the floor and ceilings. Joists are normally laid across the shortest house dimension. Joist spans that are more than 16 feet in length normally use girders for additional support.
Judicial foreclosure
Also called foreclosure by sale, this type of foreclosure uses the courts to take the title of the collateral property away from the mortgagor. The two most common types of judicial foreclosures are judicial sales and strict foreclosures.
Judicial Sale
An involuntary sale of a property ordered by the court, usually after a judgment arising from a foreclosure. Unlike a strict foreclosure, this process has the court order a sale of the property to the highest bidder. The proceeds are used to satisfy the lien holders, with any remnants going to the mortgagor.
Jumbo Loan
Mortgage loans over $203,150. Terms and underwriting requirements may vary from conforming loans.
Land Contract
A more common term for an installment purchase agreement.
Land Trust
A type of trust in which the only asset is the real estate and legal title to the property is held by the trustee. A deed in trust is used to transfer real estate into the trust, and a trustee’s deed is required to take the property out of trust. Land trusts are typically for a fixed term, usually 20 years, but can be extended. Land trusts provide privacy because only the trustee’s name is recorded. Because the beneficiary’s interest in the land trust is considered personal property, it also simplifies the transfer of ownership, avoids transfer taxes, limits personal liability and protects from encumbrances.
Landlord, Landlady
A term applied for the owner of a rental property. As with many American real estate terms, this term comes from Old English title for landowners.
Lead-Based Paint Hazard & Reduction Act
This federal legislation affecting pre-1978 residential properties requires owners to provide written disclosures to lessees and buyers of the existence of lead-based paint.
Lease, Lease Agreement
An agreement in which an individual or corporation may receive possession, or temporary ownership, of real property for a specific period of time. Strictly speaking, when a property owner offers a lease, he or she is agreeing to a voluntary alienation of the property for the specified period. A lease agreement transfers the right of possession to the tenant, but the landlord retains reversion rights.
Lease with Purchase Option
A lease agreement that provides the renter with a limited right to buy a property, usually available within a specified time frame with predefined conditions.
Leasing Agent
The individual responsible for the marketing of rental space.
Legal Description of Property
The precise survey description of the property used for recording exact property location and size. The legal title to a property will use this legal description, which will fully distinguish the property from any other plot of land in the nation, if not the world. Most descriptions employ a combination of at least two of the three types of surveying systems: metes and bounds, rectangular survey system and plat of survey methods.
Lender
The person or institution who provides money to a borrower for a limited period in exchange for full repayment of the original principal loan balance plus loan costs. Mortgage documents often refer to the lender as the mortgagee.
Lender’s Title Insurance Policy
Also called a mortgagee’s policy, a type of title insurance policy that protects lenders against both known and latent title defects that could affect its ability to adequately secure its mortgage loan. It only covers the loan amount. Unlike other title policies, the lender’s policy is assignable and has no exceptions for claims that could have been discovered with a physical inspection of the subject property.
Lessee
In a lease arrangement, the party that rents and will occupy the property.
Lessor
In a lease agreement, the landowner or party leasing out the property to another party.
Letter of Intent
A written expression of an individual’s or entity’s intention to enter into an agreement or perform an action. This letter is usually non-binding and dependent on other conditions.
Leverage
The capacity to borrow money against the property’s equity; the larger the loan in relation to the equity, the greater that the property is leveraged.
Levy
The process of assessing a tax upon a person, property or entity.
Liability
The borrower’s obligations to repay creditors or lenders.
Liability Insurance, Coverage
A form of insurance coverage for a property that reimburses the insured entity for claims arising from specified physical damages to the property or injuries incurred by persons on or because of the property and the owner’s negligence.
License
In the real estate industry, a license is a right to use a property for a defined period, usually for a specific purpose. Licenses are normally non-transferrable. Unlike a lease, the license does not transfer any ownership rights
Lien
A legal claim or attachment, filed on record, against a property. This lien is usually a security for the payment of an obligation. If the collateral property is foreclosed and sold, the proceeds would first go toward fully satisfying the first or priority lien debts, before attempting to repay any secondary liens. Liens can be specific or general, voluntary or involuntary, and contractual, statuary or equitable.
Lien Holder
Any person, government entity, lender, creditor or institution who has a recorded lien on a property.
Limited Liability
A type of liability that limits the investor’s obligation to the amount invested by the investor.
Limited Liability Company (LLC)
A variation of a corporate business structure that provides the investor with the legal protection and organization of a corporation, while offering some of the tax benefits of a partnership or subchapter-S corporation. LLC owners are called members; they have limited liability and avoid the double taxation of corporations. LLCs are ideal for small, closely held companies.
Limited Partners
Passive investors in a limited partnership. The liability obligation of limited partners is limited to the amount they have invested.
Limited Partnership
A type of partnership that caps the partner’s liability, but also limits the partner’s control. A limited partnership must have at least one general partner to manage the project. The partnership liability of limited partners is only limited to his or her investment.
Limited Warranty Deed
A type of deed of conveyance that provides the grantee with a lesser degree of grantor assurances than the General Warranty Deed.
Line of Credit
A financing option that provides a credit line instead of a lump-sum loan, from which the borrower may quickly and randomly borrow.
Liquid Asset
Cash or any other assets that may be easily and quickly converted to cash. Stocks, bonds, certificates of deposits and most securities are considered liquid assets because they can be quickly sold for cash.
Liquidated Damages
Funds or money identified as compensation amount to be paid if one of the parties to a contract breaches elements of the contract.
Liquidity
The ease and speed by which assets held in other forms can be converted into cash.
Lis Pendens
A legal term basically meaning that a suit may be pending. When real estate is involved, the plaintiff may record a lis pendens to publicly warn all potential purchasers that the subject property is subject to a possible judgment.
List Price
The current asking price advertised in a property listing
Living Trust
Sometimes called an Inter Vivos Trust, a type of trust created by the owner of the subject property during the lifetime of that owner. The two basic types of living trusts are the Irrevocable Trust and the Revocable Trust. The chief advantages of the living trust are that they provide for automatic transfer of property upon the death of the owner while avoiding the cost and delay of probate.
Loan
The granting of the use of money, in return for the money’s return along with interest.
Loan Broker
A financing professional who arranges loans between clients and lenders. For more information, see Mortgage Broker entry.
Loan Commitment
A written commitment from the lender that the application has been fully approved and that the loan transaction may be closed. The commitment may include closing conditions and will have a set duration.
Loan Officer
The lender’s representative who is responsible for beginning and facilitating the loan application process.
Loan to Value Ratio (LTV)
A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage.
Lock or Lock In
A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.
Loft
A building unit, usually an apartment, townhouse or condominium, in which interior walls are minimized to provide a roomier, more open space. In most lofts, interior walls do not reach all the way to the ceiling.
Long-Term Capital Gain
An income tax designation referring to gains received from the sale of capital assets that have been held by the property owner for an IRS- or industry-specified period of time.
Long-Term Debt, Liabilities
Liabilities that will take at least 10 months to repay. When qualifying an applicant’s income, the lender will consider the total long-term debt payments as a ratio against the applicant’s gross income. Installment loans normally have set monthly payments that are used for the income qualification ratios. Except for very low balances, most revolving accounts are qualified based on the minimum required monthly payment at the time of application.
Louver Window
A type of window that consists of overlapping horizontal glass louvers (slats) that are opened and closed together with a lever or crank. It can provide excellent weather protection and ventilation. Unfortunately, louver windows may not always be able to provide a perfect seal.
Low-Rise
Any building containing up to three stories (not including the basement).
Maintenance
The process of or actions required to repair or prevent normal wear and tear incurred by a property.
Maintenance Fee
Among property owner’s associations, this fee is a charge to cover the cost of maintaining or operating the property.
Manufactured Home
A property primarily produced in a factory or similar manufacturing facility and subsequently assembled at the home site. Most consumers identify manufactured homes as a mobile home or trailer homes, but the manufactured home industry is now more diverse. There are now basically four types of manufactured homes: mobile, modular, panelized and pre-cut.
Margin (ARM)
Used with an adjustable-rate mortgage (ARM) loans when calculating periodic interest rate adjustments. When the ARM rate is adjusted, the margin is the additional constant rate added to the index rate to calculate the new ARM rate. The margin is established and fixed at the beginning of the loan, in the promissory note.
Margin Loan
Funds borrowed against a person’s current deposits or investment balance. Financial institutions often allow their individual investors to borrow against the value of their individual portfolios, up to a percentage of their portfolio value–usually 50%. A drop in the stock market may lower the portfolio value, which would increase the ratio of margin loan. It if exceeds the limit, “margin calls” are made, and private investors must immediately pay down their loan to bring it within limits.
Market Analysis
A review and study of the impact of economic (supply & demand) force on an investment property.
Market Rent
The rental rate for a subject property’s rental units, based on the rents of units in comparable properties in the same area
Market Research
The investigation and study conducted to determine the market conditions in an area or the impact of a certain product in a market.
Market Value, Fair Market Value
The highest price that is the most probable point at which the willing, unrelated, competent and able buyer and seller will freely agree. The appraisal attempts to calculate the estimated fair market value of the subject property through recent market sales comparisons, cost-to-rebuild and, when applicable, income approaches
Marketable Title
A title that contains no major defects that may prohibit the sale or transfer of the title.
Mattress Money
A casual term used for funds or assets that are undocumented, as in money saved in a person’s mattress or hidden coffee can. Most conforming loan programs will not accept undocumented funds when underwriting the applicant for a mortgage loan. However, some nonconforming loans do accept undocumented funds through No Documentation and No Asset Verification programs.
Maturity
The date at which a loan’s final payment is due. With a 30-year fixed-rate loan, the loan’s maturity is the end of the term (360th month); with a five-year balloon, the loan matures at the end of the fifth year.
Mechanic’s Lien
Also, know as “mechanic’s and material men’s (M&M) lien,” this is a claim for payment of services or materials furnished
Millage
A property tax rate used to calculate a parcel’s tax assessment. One mill is equal to 1/1000 of a dollar, or 1/10 of one cent.
Minimum Payment
The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be “interest only,” (simple interest). In other plans, the minimum payment may include principal and interest (amortized).
Mineral Rights
Property rights involving ownership and disposition of minerals and other subsurface natural resources.
Mixed-use Property
A multiple-unit property which contains both residential and commercial units. Many older city buildings on major thoroughfares have commercial storefronts on the first floor and residential apartments on the upper floors.
Mobile Home
Often called a trailer home, mobile homes are the most complete and least expensive type of manufactured homes. They are normally semi-permanently anchored and connected to utilities.
Mobile Home Park
A type of land subdivision that allots a property for mobile homes.
Model Unit
An initial unit in a property development that is intended to provide a representative view of the planned units when completed. A model unit is a marketing tool used by developers to sell a non-completed unit to potential buyers by offering an example of the final appearance of the finished product.
Month-to-Month Tenancy
A type of lease arrangement in which the tenant’s interest in the leasehold property is renewed on a monthly basis for a one-month term. Either the landlord or tenant may terminate the lease arrangement at the conclusion of each month.
Monthly Payment
The amount due each period on debt, whether installment or revolving. For mortgage purposes, this is the sum amount of the projected principal, interest, taxes, and insurance (PITI) paid each month on a mortgage loan
Mortgage
A conditional conveyance of property as security for a debt; to offer a property as security for a loan. With a mortgage loan, the borrower will still own the property; the mortgage merely gives the lender the right to foreclose and obtain ownership if the borrower defaults on the loan.
Mortgage Banker
A bank that concentrates primarily in originating mortgage loans that will probably be sold in the secondary market. A mortgage banker may originate loans directly with borrowers or through brokers.
Mortgage Broker
An intermediary, between the borrower and a lender, responsible for arranging and packaging the loan application. The broker is usually the person or agency who originates mortgage loans with the funds of other correspondent lenders. Because mortgage brokers can and do work with an almost unlimited number of lending institutions, they offer more loan program options to most borrowers.
Mortgage Commitment
See Loan Commitment.
Mortgage Contingency
The clause in the real estate purchase contract that sets a deadline for buyer procurement of a mortgage loan commitment. The contingency date protects both the buyer and the seller. If the buyer is unable to obtain a mortgage loan commitment by this date, the seller can cancel the loan or provide an extension. If the buyer surpasses this contingency date without an extension and later fails to obtain a mortgage loan, then the seller can sometimes retain the earnest money deposit.
Mortgage Deed, Note
A written description of the security for a promise to repay a debt. Separate and distinct from the promissory note, the mortgage deed or note is the instrument that actually offers the subject property as collateral for the loan.
Mortgage Insurance (MIP or PMI)
Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home’s value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.
Mortgage Loan
A type of financing secured by a real estate mortgage deed. With mortgage loans, the borrower normally still owns the subject property. The mortgage deed offers the property as security and provides the lender with the right to foreclose the property if the loan defaults.
Mortgage REIT
One of two types of real estate investment trusts. The mortgage REIT invests in mortgage loans by lending mortgage loans for target properties.
Mortgage Release
A disclaimer granted by the lender releasing the borrower from any further liability on the mortgage. Once the mortgage loan balance is fully repaid or satisfied, the lender issues a mortgage release to remove any liens from the property.
Mortgagee
The lender of money in a mortgage transaction. In the mortgage loan context, the lender accepts the collateral property being offered by the mortgagor/borrower/mortgagor as security for the loan.
Mortgagee Clause
The formal term for the escrow clause normally included in the insurance certificate. The mortgagee clause identifies the lender.
Mortgagor
The person or entity mortgaging property for consideration. In current terms, the mortgagor is the person borrowing and receiving money from the lender in the mortgage transaction—and using personal property as security or collateral for a loan.
Multi-Family Mortgage
Mortgage industry term for mortgage financing on any residential real estate property with five or more apartment units.
Multi-Unit Property
Strictly speaking, it is any property with two or more units. However, this terms is normally only used for residential properties with five or more apartment units.
Multiple Listing Service (MLS)
An MLS is a forum for sharing properties “listed” for sale among affiliated real estate brokers. Realtors and agents often form local and regional boards, which are normally responsible for maintaining an MLS that allows all affiliates to access information about current and recent listed properties. An MLS listing provides greater exposure for sellers and the broker’s listing.
Negative Amortization
In which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually, occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.
Negative Cash Flow
With rental property, this situation occurs when rental income is not enough to cover operating and mortgage expenses. If an applicant has negative rental cash flow from any property owned, that rent loss must be listed as a long-term loss and included in the applicant’s debt-to-income (DTI) ratio.
Net Income
A portion of gross income remaining after taxes and deductions. For consumers, it is essentially their take-home pay. For income properties, it is gross income less operating expenses.
Net Operating Income
The income amount remaining, after all, operating expenses have been paid.
No Asset Verification (NAV) Loan
A non-conforming loan program that requires no documentation of the qualifying asset’s source. However, the existence of the assets or funds in question must still be verified. For example, an applicant with mattress money or undocumented funds may use this program. The applicant merely needs to show that the funds for the down payment and closing exist; however, there is no need to document the source of the funds.
No Closing Cost Program
A loan program in which the borrower is not charged any closing costs. Most of these programs still charge closing costs, but the borrower does not have to pay them out of pocket. Instead, the closing costs are financed through the loan in one way or another.
No Documentation (No Doc) Loan
The No Doc loan is usually a combination of the No Asset Verification (NAV) and No Income Verification (NIV) loan programs. As with both programs, the source of the assets and the exact income amounts are not verified or documented. Instead, the borrower merely documents and verifies the existence of the assets and duration of the employment
No Down Payment Program
A purchase loan program in which the buyer avoids paying any down payment. This is sometimes called a 100% LTV loan.
No Income Verification (NIV) Loan
A non-conforming loan program that requires no documentation of the borrower’s income, thus allowing a borrower to bypass the income-qualifying ratios. However, the duration and current status of the borrower’s employment or self-employment must be documented.
Non-Conforming Lender
Lender is offering nonconforming loan programs, which are not sold to the secondary market through Fannie Mae or Freddie Mac.
Non-Conforming Loan
Conventional mortgages that are not eligible for sale to either the FNMA, GNMA or FHLMC. Nonconforming loans (which are generally more expensive) are an alternative to the highly selective and restrictive conforming loans acceptable to Freddie Mac and Fannie Mae. Unlike portfolio loan, however, nonconforming loans are still sold on the secondary market—just not to Fannie Mae and Freddie Mac.
Non-Conforming Usage
Property usage that does not meet current zoning regulations but are allowed to continue. Non-conforming usage is normally allowed through grandfather clauses. However, there are still restrictions on such non-conforming usage.
Non-Judicial Foreclosure
A type of foreclosure that does not involve the courts. Unlike judicial foreclosures, this process usually gives the lender the title to the subject property (deed in lieu of foreclosure) or the power to sell the property (power of sale clause).
Non-Performing Loan
Loans that have become seriously delinquent or is in default or foreclosure are labeled non-performing loans.
Non-Recourse Loan
Sometimes called a dry mortgage, the non-recourse loan does not hold the borrower personally liable for the loan obligation. Rather, the loan holds the property and the ownership entity created by the borrower–, i.e., corporation, partnership, limited liability company, etc.–directly responsible. In the case of a default, if the property and entity cannot adequately satisfy the sums due, the lender cannot pursue the borrowers personally.
Normal Wear and Tear
Physical depreciation to property that can be reasonably expected to occur through ordinary use or occupation.
Notary Public
A person legally empowered to witness and certify the validity of documents and to take affidavits and depositions. Mortgage deeds, promissory notes, and other closing documents often need to be notarized. The closing agent is normally a notary public.
Note
An instrument that indicates a promise to pay a sum of money at a specified time.
Note Rate
The official interest rate of a loan or promissory note. Buy down and GPM loans will often lower the interest rate and payments in the initial years, before gradually increasing to the official note rate.
Notice of Default
A formal announcement delivered to a party informing or reminding that individual or entity that their loan obligation is currently in default.
Notice to Quit
A formal announcement by the tenant, delivered to the property owner or manager, that the tenant intends to vacate the rental premises.
Obsolescence
In the residential mortgage world, this applies to properties or elements of a property that have lost their utilitarian value.
Occupancy
The use of a property as a full-time residence by the borrower—as opposed to second home, rental or investment property.
Offer to Purchase
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. An offer to purchase, or binder, secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.
Open House
A marketing method used in the residential real estate industry that invites prospective buyers to visit the property at the same time. Open houses make efficient use of the seller’s time, as well as create a more competitive atmosphere between potential buyers.
Open Listing
Also called a simple listing or general listing, non-exclusive agreement between the seller and real estate agent that requires the seller to pay commission only if the listing agent is able to bring the buyer to the seller. If the seller finds a buyer through another agent or with no help from the listing agent, the seller will NOT have to pay any commissions to the original listing agent.
Open Mortgage
A mortgage loan obligation whose term has matured but which has not been completely settled as required. The term has expired with amount overdue and subject to foreclosure.
Operating Expense Ratio
A calculation indicating how much of the gross income must be earmarked for operating expenses. This ratio is the total operating expense for a period divided by the total effective gross income for that same period.
Operating Expenses
The costs required to maintain the operations of an investment.
Operating Statement
A financial statement that displays the income and expenses for an investment property for a specified period.
Option Price
The cost that an optionee must pay to obtain an option. Note that this is not the price required when exercising the option.
Option to Purchase
The right to purchase or lease a property at a certain price for a certain period of time.
Origination
The initial loan application, processing and underwriting stages of the primary mortgage market.
Origination Fee
The charge for services performed by the company handling the initial loan application and processing. See also the Finance Fee entry.
Originator
The person or company responsible for originating a loan.
Outstanding Loan Balance
The dollar amount currently remaining due (normally overdue) on a loan obligation.
Over-Improvement
Any improvements that are excessive in cost or size in relation to the value of the land and its surroundings.
Overall Capitalization Rate
A measure of an investment property’s income-producing strength. This calculation is the net operating income divided by the sales price or total cost of the investment.
Overall Rate of Return
Similar to the overall capitalization rate, the overall rate of return is the net operating income divided by the purchase price of the property.
Owner-Occupied
Residential properties that the borrower occupies as a primary residence. Loans for owner-occupied properties normally enjoy better terms and pricing than do properties for second homes and investment properties.
Owner’s Title Insurance Policy
A type of title insurance policy that protects the property owner against both known and latent title defects. It only covers the amount paid for the property and often has exceptions for claims that could have been discovered with a physical inspection of the subject property.
P&I
The common name for the monthly or periodic principal and interest payment.
PITI
Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.
Package Mortgage
A mortgage pledge that includes both real and personal property.
Panel (Door)
The decorative pieces between the stiles and rails of a door. Panels are integral parts of the popular panel door style.
Panel Door
A traditional type of door found in most residences. Panel doors consist of stiles, rails, and panels.
Panelized Housing
A type of manufactured homes, in which wall units are produced at a factory and assembled at the final site. These walls normally come complete with electrical wiring and plumbing requirements and are fitted together like puzzle pieces.
Parcel
A piece of property. In most cases, a parcel refers to a specific area that is recorded with one property identification number.
Partial Release
The removal of a mortgage lien from a specific portion of the total collateral amount. In large housing developments, for example, the lender of the development loan has a lien on the entire project. However, as each new home or unit is purchased, the lender releases its lien on that specific unit. The lender keeps its liens on all of the other units or parcels.
Partial Taking
A condemnation action–undertaken through the government’s or utility’s power of eminent domain–that takes only a portion of the entire property from the current owner.
Participation Certificates (PC)
Securities that are collateralized by multi-million dollar blocks of geographically diverse single-family loans and offered by Freddie Mac (FHLMC).
Participation Loan
A loan funded by more than one lender. This is sometimes called syndicated loans and is common with large commercial projects, wherein a bank does not want to hold full exposure.
Particleboard
A board sheet consisting of wood scraps that have been grounded, glued and molded into a panel. Inexpensive and heavy, it is popular for interior use. However, it does not resist water very well, so it is not suitable for exterior use.
Partition Wall
A non-load-bearing wall that separates rooms.
Partnership
A form of business, property or company ownership, in which two or more individuals share ownership and control of the business’ activities. The partnership provides some protection for the individual against business losses; however, it does not provide the same level of protection as does a corporation.
Party Walls
Townhouses are normally built right to each other. Often, individual townhouse units share one separating wall. Such walls are considered party walls.
Pass-Through
Expenses incurred by a property owner or manager that are charged to the tenant, per the lease agreement. In Triple Net leases, for example, the tenant is assessed for the tenant’s share of the property’s taxes, utilities, insurance, maintenance and operating expenses.
Passive Income
Revenue or income from investments in which the individual investor does not actively or materially participate.
Pay Stubs
Attachments to an employee’s paycheck that summarize the gross earnings, deductions and net earnings for the pay period. Most pay stubs also summarize the year-to-date earnings and deductions.
Payback Method
Any calculation measurement that produces a multiplier used in real estate investment analysis.
Payment Cap
A limit on the amount that an ARM loan’s monthly payment may increase or decrease during an interest rate adjustment. Although the ARM’s interest rate may increase, the actual increase to the monthly payment will be limited to the maximum set by the payment cap.
Payoff Statement
The lender invoice indicating the amount required to pay off the balance of a loan or debt obligation. Mortgage loans are usually paid off in the course of a refinance or when the property securing the loan is sold.
Per Diem
Latin phrase meaning “for each day.” With mortgage loans, per diem is normally used with payoff statements to indicate the daily interest rate charge.
Personal Loan
A type of financing that normally has no collateral. Often called signature or unsecured loans, personal loans provide the borrower with funds with no collateral requirement. Credit cards can be considered types of personal financing because they do not require collateral. Personal loans typically have higher rates and require better credit, because of the higher risks involved.
Pest Inspection
An inspection of a property that may be infested or property that is in an area with risks of infestation. Some loan programs automatically require a pest inspection.
Piggyback Loan
There are two definitions for piggybacks. Many use it to refer to construction-permanent loans, while most lenders use it to refer to financing that closes two simultaneous loans on the same property.
Plank and Beam Roof
A style of roof framing that provides a wider expanse of space beneath the roof. The ridge beam is supported at either end by posts. Instead of rafters, sloping transverse beams connect to the side of the ridge beam on one end and a load-bearing post–usually along the external wall–on the other end of the transverse beam. Roof planks are then attached parallel to the ridge beam and perpendicular to the transverse beam.
Planned Unit Development (PUD)
A comprehensive land development plan used primarily in the planning and construction of residential areas that provides for shared properties or obligations. Townhouses or subdivisions in unincorporated areas may be developed as PUDs and have homeowners associations to maintain those responsibilities within the project confines.
Plat
The actual drawing of one or more parcels of land, with a focus on the division, subdivision or part of the subdivided property.
Plat Book
A public record, usually maintained by the local county government, that contains the maps of property parcels, streets, and subdivisions. Sometimes called the map book, the plat book contains plat maps and is central to the Plat of Survey system.
Plywood
A popular building material consisting of panels glued together in a criss-cross pattern. Some may have a lumber core. Plywood is normally graded A through D, depending on quality. CDX plywood is a C-grade and D-grade board with an external glue.
Portfolio Income
Taxable ordinary income that arises from interest, capital gains, royalties, stock dividends and annuity income. Compare this with active and passive income
Portfolio Loan
Mortgage loans that are not directed to the secondary mortgage market or are intentionally kept by the lending institution are called portfolio loans. Lenders usually tailor their portfolio loans with more lenient guidelines (in certain aspects) than conforming loans sold to Fannie Mae (FNMA) and Freddie Mac (FHLMC).
Positive Easement
A type of easement that allows a landowner to use another person’s property. For example, the owner of a landlocked property can get an easement to traverse a neighbor’s property to get in or out. Compare this to negative easement.
Possession
A legal term referring to the right of a property owner to occupy a property. In a lease arrangement, the property owner’s right becomes a constructive possession by right of the title.
Post and Beam Frame
A variation of the balloon frame and platform frame, which offers wider open spans within the building. Just as with platform framing, the walls studs only extend from floor to floor, instead of going all the way to the top of the building. The larger posts are used to provide concentrated load bearing in certain areas to allow wider rooms. Beams are attached to the posts to either support the floor above or the roof.
Power of Attorney
An agency relationship by which a principal authorizes an agent or representative to act as the principal’s attorney or duly authorized representative. The three common types of power of attorney relationships are the unlimited, general and specific power of attorney relationships.
Power of Sale Clause
A provision in the mortgage deed that allows the lender to sell the property upon the borrower’s default on his or her obligation, without a foreclosure suit. This is common with deeds of trust or in title theory states. The lender simply delivers and records a notice of default, and then sells the property at auction. If the selling price is insufficient, the lender may further sue for a deficiency judgment. Similar to the deed in lieu of foreclosure, this is a form of non-judicial foreclosure.
Preliminary Credit Report
The inexpensive preliminary credit reports that most lenders use to prequalify a borrower. However, a full credit report is normally required for final approval and mortgage loan closing.
Pre-qualification
The initial review and analysis of an applicant’s loan qualification, usually conducted by the loan officer. The pre- qualification normally does not provide any commitment to provide financing. Compare to Preliminary Approval and Conditional Approval entries.
Preliminary Title Report, Commitment
A title search conducted by and title insurance commitment offered by a title company, prior to the closing.
Prepaid Expense
The portion of the closing charges that are part of the regular monthly payment, but must be paid in advance. For example, prepaid interest may be required to reset the monthly payment schedule. Also, the borrower may need to escrow tax, hazard insurance, private mortgage insurance (PMI) and other assessments at the time of closing.
Prepaid Interest
The daily interest that is prepaid by the borrower so that the loan payment date may be adjusted to the beginning of the month. With most residential loans, it is the number of days between the closing date and the beginning of the following month. For example, if a loan closes on March 11, there would be 21 days of prepaid interest to reset the loan payment schedule to the beginning of the April, following month. The borrower must pay this prepaid interest at the closing; however, in this case, the first monthly payment will not be due until May 1 (not April 1), because mortgage payments are paid in arrears.
Prepayment Penalty
The penalty charged by some nonconforming lenders to borrowers who pay off their loan balance earlier than scheduled. Prepayment penalties are prevalent with residential ARM loans that offer low teaser rates, as well as practically all commercial mortgage loans. Even with prepayment penalties, most lenders will allow a limited amount of prepayment each year; moreover, the prepayment penalty is usually only active for the first three to five years of the loan.
Presale
The sale of a property prior to its planned completion. Many residential developments are often pre-sold to consumers before construction begins. Developers normally require such buyers to have forward loan commitments to ensure that the full sales transaction will be closed immediately upon completion of improvements.
Price
The amount for which a property is actually sold.
Physical Depreciation, Physical Deterioration
The property’s decrease in value and usefulness caused by age, normal wear, and tear, negligence or natural influences. Such deterioration may be curable or incurable.
Physical Life
The period of time that a structure or property remains sound and capable of fulfilling its intended use.
Quadraplex
A residential property containing four apartment units within one structure.
Qualifying Income
The applicant’s and property income used to calculate the borrower’s ability to repay a loan. Lenders apply limits and restrictions on what type of income can be used, and how they can be calculated.
Qualifying Ratios
Comparisons of a borrower’s debts and gross monthly income.
Qualifying Rate
The interest rate used to calculate the borrower’s monthly payment qualification. With ARM loans, which usually have low teaser rates, the interest rate used for income-qualification is usually 2.00 percentage points higher than the low start rate.
Quitclaim Deed
A type of deed used to convey property from a grantor to a grantee. Quitclaim deeds provide little or no guarantees to the grantee; they are normally used to cure minor or technical defects in the title.
Radon
An invisible gas with no odor produced naturally by the decay of uranium. It enters homes through minuscule cracks. Unfortunately, improved insulation technology has caused radon to be trapped in homes. The U.S. Surgeon General announced that radon is the second-leading cause of lung cancer, after smoking. Fortunately, radon now can be quickly detected and professionally prevented.
Rafter
With most buildings, the rafter is the skeleton base of the roof. These planks are normally cut with notched ends to fit the tops of the wall plate of the highest floor. The other ends are then angled to lean against a central board called a ridge board. To provide more support, the paired rafters are connected with collar beams or created with a truss assembly.
Ranch
Sometimes called a “one-story house,” this contemporary style of houses limits the structure to one level, with an optional basement. The elimination of stairs and a second level makes maintenance easier–as well as making basic living easier for senior citizens. The ranch style normally has a larger footprint than multi-story residences, so as to offer sufficient living space. This increases the required foundation, so actual construction costs will often be the same as for a two-story home.
Range
A real estate surveying term used with the rectangular survey system, ranges refer to the columns of land between range lines. Ranges are typically numbered east or west of principal meridians. Ranges are normally used in conjunction with baselines, range lines, principal meridians, township lines, townships, and sections.
Rate & Term Refinance
A refinance that repays the principal balance of an existing loan, plus (optional) the closing costs, but does not provide extra cash to the borrower. The new loan normally will have a different interest rate or term than the original.
Rate Lock
A loan registration with a lender that instructs the lender to set aside a certain amount of money for the borrower, at a specified interest rate. When the rate is locked, both the lender and the borrower are committed to closing and disbursing the loan with that interest rate—within the lock period.
Rate of Return
A percentage measurement of revenue generated by an investment for an investor. This rate divides the revenue received by the amount of the initial investment and is usually provided for a specific period.
Rate Sheet
The listing of interest rates for different loan programs, published by each lender.
Raw Land
Land that is not improved or developed.
Real Assets
Real estate or real property owned by individual or corporation.
Real Estate
The term real estate includes land and its minerals and resources, as well as any artificial improvements affixed permanently to the property.
Real Estate Agent
Any person or property who acts as a representative and marketing agent for a property owner, for the purpose of selling a real estate property.
Real Estate Attorney
A lawyer or attorney who specializes in real estate. Although not required, attorneys are highly recommended for purchase transactions. They will review the purchase contract, monitor the processing and guide the buyer through the closing.
Real Estate Broker
A real estate agent who has been certified by the state or local regulating agency to operate a brokerage office. Only brokers can receive a commission from brokered real estate sales; real estate salespeople working for the broker are designated agents and receive their compensation from the broker.
Real Estate Exchange
A tax-free or tax-deferred exchange of similar properties permitted under Section 1031 of the Internal Revenue Code. As there is no sale, no capital gains are assessed unless one of the parties receives boot–or cash consideration– in addition to the property received in the exchange. The capital gains taxes are essentially deferred until the new owner sells the property for cash or like consideration. The most common types are multiple exchanges or Starker exchanges.
Real Estate Investment Trust
A REIT is a trust that invests in real estate or real estate mortgage loans. It enjoys several tax advantages over investments in a standard real estate corporation. However, REITs are required to regularly disburse 95% of their profits to their investors.
Real Estate Owned (REO) Properties
Lenders who have obtained properties through foreclosure or default action often label these as REO properties.
Real Estate Settlement Procedures Act (RESPA)
The federal law applicable for residential property closings that require lenders to disclose all known or estimated settlement costs for new loans, as well as provide a borrower with specified disclosures regarding the loan terms, features and costs. RESPA is not applicable with all-cash, installment or assumption purchases. In addition, RESPA prohibits kickbacks between lenders and service providers, limits the reserve buffer for escrow accounts, prohibit lenders from charging a fee to prepare a settlement statement and requiring lenders to provide the settlement statement at least one day prior to closing.
Real Estate Tax
Often called property tax, real estate taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation
Real Property
A legal concept referring to the property rights involved with ownership of real estate. Real estate includes the land and all improvements (natural or artificial) permanently attached; while property refers to the bundle of rights involved with ownership.
Realtor
This title is restricted to specific real estate brokers or agents who are members of the National Association of Realtors, or one of its affiliated boards.
Recording
Filing a legal instrument in the public records of the county. The title company is normally responsible for recording the new title and mortgage deeds from each purchase or refinance closing.
Recording Fee
Charges levied by the local government or recording office, for the purpose of recording a deed, mortgage note or other legal documents.
Records Office, Recorder of Deeds
The governmental department or office responsible for maintaining or updating real estate and other records. This recorder is usually a county-level office. The records office is most important for the real estate and mortgage industry, as they make all real estate and mortgage transactions official.
Recourse Loan
Unlike the non-recourse loan, this type of obligation does make the borrower personally liable for the debt, especially in cases of default.
Recycling (Property)
Real estate term referring to the process of redeveloping an old structure or improvement to a different usage that effectively extends its useful life.
Redemption Period
With tax sales and foreclosures, homeowners often have the option to redeem their home by paying off the tax balance or foreclosure amount. To exercise this option and keep their home, borrowers must pay off any required balance during the redemption period.
Refinance
Loan obtained to repay an existing loan or to place an additional mortgage lien on property currently owned by the borrower.
Rehab, Rehabilitation
Improvements performed to existing structures. All or a substantial portion of the current building’s basic structure will remain. Rehabs can range from simple redecoration of internal structures to major redesign.
Rehabilitation Tax Credit
A federal tax credit available to developers who rehab commercial, non-residential buildings that were constructed prior to 1939.
Rejection Letter, Denial Letter
The formal disclosure to the applicant of the lender’s denial of the loan application and the reasons for rejection.
Release Clause
The formal element in the mortgage that releases the mortgage lien after all payments to satisfy the debt obligation have been made.
Release of Lien
Legal document issued by a lien holder upon satisfaction of the debt to remove its lien against a property.
Relocation Clause
A provision in a lease agreement that gives the property owner or manager the right to relocate the tenant to another, comparable site.
Renegotiate
The process or attempt to legally revise the terms of a contract or agreement. Unless the agreement specifically leaves open the renegotiation of certain elements, the other party will commonly have the right to approve or decline a request to renegotiate.
Renewal Option
A provision in a lease agreement, allowing the tenant to renew the lease agreement, within certain terms.
Renovation
In the real estate development and construction arena, renovation involves replacing current elements of the building with new materials or elements that serve the same purpose. Compare with the Repair, Alteration or Reconstruction entries.
Rent
The consideration received from a lessee (tenant), as set forth in the lease agreement, for the lease rights to property.
Rent Control
A form of government-imposed price control on rental rates. Such regulations normally limit the amount of rent that a tenant may be charged or restrict any increases in rental rates that a property owner may impose.
Rent Loss Insurance
The insurance coverage commonly required for many revenue properties to cover the potential loss of rental income expected for periods of vacancy that may be incurred because of an accident.
Rent Roll
A financial statement listing the tenants in a subject property and identifying their unit number, lease terms and rent.
Rent Schedule
A display of the rental rates being charged for the different units or unit types in a rental property
Repair
Corrective work to a property that returns it to its former functional condition, without extending its useful life.
Replacement Cost Approach
Also called the cost approach, this is a method used by appraisers to estimate the value of property, based on the cost to produce a similar property. This approach begins with the current cost of the land and the improvements but then depreciates that estimate according to the age and condition of the subject property.
Resale Proceeds
The net profit that a person receives from the sale of property, after paying off all liens and closing costs.
Rescission
The act of withdrawing an agreement. Federal regulations provide homeowners who are refinancing their residence to have three full business days during which they can rescind any refinance or equity mortgage loan.
Rescission, Three-day Right of
After a residential loan is approved and closed, the borrower has three business days during which time the loan may be rescinded. If the borrower does change his or her mind and rejects the loan, the borrower may still be liable for certain origination costs. The rescission period is applicable for mortgage refinances on owner-occupied residential properties. However, there is NO rescission period required for purchase transactions or refinances on investment properties.
Reserve Requirement
Funds that borrowers must have prior to closing to demonstrate that they have the ability to make monthly payments. Mortgage lenders often require loan applicants to demonstrate that they have sufficient funds for the down payment, closing costs, prepaid expenses, escrow deposits and reserve requirements. The reserve requirement is usually two months of PITI payments for homebuyers. It does not have to be paid to the lender; the borrower just has to show that he or she has the funds.
Resident Manager
A property manager of a multi-unit residential property, who occupies one of the units in the complex.
Residential Loan
For conforming purposes, mortgage loans for a 1-4 unit, purely residential properties.
Residential Property
Property that is used for residential purposes. In the mortgage lending industry, residential property are limited to one-to-four unit properties, of which all units are used for residential purposes.
RESPA
See Real Estate Settlement Procedures Act.
Revocable Trust
A type of living trust in which the original owner can be both the trustor and beneficiary and can retain the control and benefits of the trust property.
Revolving Debt, Loan
Liabilities, such as major credit cards that do not require immediate full payment of billings or have pre-established debt and payment balances
Rider
An addition to a contract, deed, note or covenant that amends or clarifies the original terms indicated on the document.
Right of First Refusal
Elements of lease, cooperative and condominium agreements that offer the holder the right to purchase or possess the subject property. With leases, the right of first refusal would allow the tenant to get the first chance to buy the property or lease additional space if the landlord seeks to sell or lease the property. With condominiums and cooperatives, the association or co-op may have the right to buy the property before the seller officially puts it on the market.
Right of Redemption
The right of a distressed borrower to recover property that has been transferred from their ownership, usually during a foreclosure process. To exercise this right, the borrower will have to pay off the debt obligation. Most property owners will have both an equitable right of redemption before the tax sale or foreclosure auction and a statutory right after the sale.
Right of Survivorship
Legal real estate term referring to the right of surviving co-owners to receive the ownership interest in the subject property of the co-owner who dies–instead of to the deceased’s heirs.
Rollover Mortgage
A mortgage loan program that structures periodic adjustments to its interest rate.
Rollover Option
A provision sometimes included in purchase options that allow the potential buyer to renew the option for a specified period, after paying specified amount.
Roof
The external top cover of a structure. There are many types of roofs now used in construction. The most common residential styles are the flat, gable, gambrel, hipped and mansard roofs.
Rural
A label applied to locations outside of metropolitan (urban and suburban) areas. Such areas usually have few developments and are often primarily agricultural, wilderness or non-developed public land.
Security Interest
An interest that a lender takes in the borrower’s property to assure repayment of debt.
Servicing a Loan
The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.
Sale Leaseback
A real estate investment arrangement in which the current owner simultaneously sells a property but then leases it back from the buyer. This guarantees the new owner with a rental stream, making it a more attractive investment for the buyer; for the seller, leasing the property offers liquidity and several operating tax advantages.
Sales Contract
An agreement by which property rights is transferred from one party to another.
Sandwich Lease
In a subletting situation, the original lease between the lessor (landlord) and the initial lessee (tenant) is sometimes called a sandwich lease. Legally, that lease is held by the initial tenant. Thus, that tenant’s lease rights are sandwiched between the lease rights of the subtenant and the ownership rights of the landlord.
Satisfaction of Mortgage
The verification instrument issued by the lender to indicate that the mortgage debt has been fully paid. In contrast, a deed of trust uses a release deed. This legal document must be recorded to officially remove the lien from the title.
Save Harmless
Similar to a hold harmless provision, to save harmless is a legal term referring to the process of indemnifying another person. In this way, the party issuing the save harmless guarantee assumes all obligations for liabilities that may arise from a specific issue.
Savings and Loan Association (S&L)
A banking institution that solicits deposits from member customers and then lends to both its members and the wider community.
SBA Loan
A loan guaranteed by the Small Business Administration. These are business loans that are designed to assist small businesses with their capital, mortgage, expansion or start-up needs.
Screen Door
A type of door found in many residential properties that acts to keep out insects while providing additional ventilation to the house. Screen doors are normally placed on the outside of the regular exterior doors. Unless the homeowner has a combination door, screen doors are normally replaced by storm doors during inclement seasons.
Seasoning Requirement-Funds
Conforming guidelines demand that any funds used to satisfy down payment, closing cost and reserve requirements must come from the borrower’s own resources. On a practical level, funds must be “seasoned” in the applicant’s possession for at least two to three months. This typically entails two to three months of bank statements or other documentation demonstrating that funds have been in the applicant’s possession.
Seasoning Requirement-Mortgage
With conforming loans, rate-and-term (No cash-out) refinances have instated seasoning guidelines on the second and other junior mortgages. If the refinance will be paying off the second mortgage with a rate-and-term refinance, that second mortgage must be at least 12 months old. Otherwise, the borrower must use a cash-out loan. What is the difference? Rate-and-term refinances allow LTVs in excess of 90%, while cash-out refinances are normally limited to 75% LTV (80% for certain homes).
Second Home, Secondary Residence|
A residence, such as a summer cabin, ski chalet or weekend house, that is suitable for year-round occupancy but is only occupied by the borrower for a portion of the year.
Secondary Financing
In the mortgage market, secondary financing applies to any junior mortgage loans.
Secondary Market
The market in which agencies (such as Fannie Mae or Freddie Mac) or large institutional investors purchase or sell existing loans.
Second Mortgage
The more common term for junior mortgage loans, which are recorded behind the first mortgage lien.
Section 1031 Exchange
See Real Estate Exchange.
Secured Credit Card
A type of credit card that requires the borrower to maintain a security deposit account with the creditor. The account is the collateral for the credit provided. These credit cards are primarily for consumers with no credit or damaged credit, who are unable to obtain standard (unsecured) credit cards.
Secured Debt
Any liability or obligation that is secured by some type of collateral. Compare this with unsecured debts.
Securities
A common term for shares or stocks in business. This term usually refers to the ownership of those stocks or shares, which in turn represent ownership interests in the company or collateral issuing those securities.
Securities and Exchange Commission (SEC)
The government agency is responsible for regulating the securities market. Because of the mortgage market’s interconnection with the financial and securities markets, the SEC also oversees much of the secondary mortgage market.
Security
The collateral deposited or pledged to secure the payment of debt. With mortgage loans, the security would be the property being mortgaged.
Security Deposit
A typical consideration item for most rental and lease agreements. With most lease agreements, the tenant is required to submit a security deposit with the landlord to cover any damage beyond normal wear and tear that may occur to the property.
Security Instrument
A legal document used to identify the collateral or security for a debt. A mortgage deed is the most obvious security instrument in the real estate market.
Security Interest
Any interest in a collateral property. For example, mortgage lenders maintain a security interest in the subject property while the loan remains unpaid.
Seed Money
Funds required initiating any investment.
Self-Amortizing Mortgage
Any mortgage loan whose regular P&I payments will eventually pay off its original principal balance by the end of the term. Most non-balloon residential loans are self-amortizing: at the end of the term–when all scheduled payments have been made–the loan is completely paid off.
Self-Employment
Any form of employment, where the person works for one’s self or for a company owned by that same person. Also, a 25% or more ownership of any business is often considered by most lenders to be self-employment.
Seller-Held Loan
A mortgage loan, usually subordinate to a primary loan, that the borrower-buyer owes to the property seller.
Seller’s Market
A current economic condition in which demand is typically higher than supply. Marketing time tends to be brief, and sellers are finding an abundance of potential buyers.
Septic Tank
A common method for sewage disposal in locations without sewer access. The tank allows sewage to settle, which converts part of the content into gas and sludge, while the remainder leeches into the ground.
Service Entrance
An electrical term referring to the point in the house or building at which electrical power is brought in from the electric company.
Service Fee
In the mortgage industry, lender origination fees are sometimes called service fees.
Service Panel
The main distribution point for all electrical power brought into a house or a large zone in a commercial property. Homes typically have one of two types of service panels: a fuse panel or a circuit-breaker panel. Individual fuses and circuit breakers are rated according to the amperes they can carry, which should match the capacity of the wires in the circuit. When electric flow exceeds that amp level, the fuse will melt, or the circuit breaker will trip.
Servicer
Any lender or related institution responsible for servicing a mortgage loan, which normally entails collection of monthly payments.
Servicing
The management of an existing loan agreement. This usually includes collecting mortgage payments, securing escrow funds and disbursing all necessary funds. Note that although conforming loans may be sold to Fannie Mae or Freddie Mac, the servicing of those loans remains with the originating lender. However, that originating lender may and often do sell those servicing rights to other lenders. Such transfers are common and legal, and the applicant will receive several disclosures of this fact and its probability.
Servicing Rights
The right to collect payments on a loan. Servicing a loan is a separate position than being the lender. The company with the servicing rights collects the payment and takes a servicing fee from the payment–but the rest of the collected funds are forwarded to the current lender or investor.
Setbacks
Zoning requirements that require property construction and improvements to maintain open space from its outer boundaries. Cities regularly have setback regulations that provide for pedestrian throughway, easements, and aesthetics.
Settlement
See Closing.
Settlement Agent
See Closing Agent entry.
Settlement Cost
The expenses normally faced by either the buyer or seller in the process of closing a purchase or refinance. Settlement costs normally include the prepaid expenses and one-time closing costs.
Settlement Fee
Cost to cover the closing services provided by the closing agent and title company. The settlement fee is separate from the closing costs, as the settlement fee is only assessed by the party responsible for the closing
Settlement Procedures
The steps taken to finalize the funding of a loan agreement and completion of the property transfer. The settlement or closing normally requires review and acknowledgment of dozens of disclosures and legal documents—all of which are notarized and legally recorded by the closing agent.
Settlement Statement
Often called an HUD-1 Settlement Statement, this form is used for all residential transactions to provide a uniform method for recording the specific settlement entries. It was developed by the Department of Housing and Urban Development (HUD).
Severance
The act of converting real estate property into personal property.
Shared Appreciation Mortgage (SAM)
A mortgage repayment plan in which the lender offers a reduced interest rate in exchange for a share of any property appreciation.
Shared Equity Mortgage
A mortgage repayment plan in which the lender holds a claim or lien on a portion of the equity that the property will accrue through appreciation. This shared equity lien is separate from the standard mortgage lien.
Sheathing
The exterior base of the house, upon which the outer walls or sidings are attached. This is usually made of wood, although additional materials are now often used to increase effectiveness.
Shed Roof
Similar to a flat roof, but with a steeper incline.
Sheet Insulation
A type of insulation in the form of a rigid board or mold. It is most commonly used as wall sheathing for cavity fill, rigid roof insulation, and slab perimeter insulation. For more information about types of insulation, see the Insulation entry.
Sheetrock
A trademark name for a brand of drywall boards.
Sheriff Sale
The court-ordered auction of property to satisfy judgments against the property. When a property is foreclosed because of tax delinquency or legal judgment, for example, the court will order an auction of the property to pay off the judgment amount.
Shim
A thin, tapered strip of wood used for leveling or tightening stairs or other building elements.
Shingle
A form of exterior roof and wall covering used in many residences. Shingles are normally thin, oblong strips of covering material–usually wood, slate or asphalt–in irregular widths. The shingles are arranged in overlapping rows to provide weather protection and decorative flourish to homes.
Shoe Trim
Construction term referring to thin decorative strips of trim placed against the bottom of the base molding. Short-Term Capital Gain. For income tax purposes, any capital gains that were sold before satisfying the time requirement for long-term capital gain classification.
Short-Term Loan
In the residential mortgage industry, it is any loan that matures in 20 years or less. Thus, 10-year fixed-rate loans and most balloon loans are considered short-term.
Signature Loan
An informal term for an unsecured loan. The only collateral or guarantee for such loans is the borrower’s signature.
Sill
Window construction term referring to the bottom of the window frame, into which the window is actually installed. With the head jamb and side jambs, the sill forms the window frame.
Simple Interest
Non-amortized calculation of the interest charges on a loan. Simple interest is solely computed against the principle balance.
Site Plan
This variation of the standard plat displays the building lines of a subject property. It should also display the parcel’s boundaries, as well as any encroachments and easement to or from the subject property.
Skylight
A type of window that is normally attached to a roof and allows light and heat into the room. Skylights can provide five times as much heat as a standard window of the same size. Unfortunately, skylights can bring in too much heat in warmer climates while letting too much heat escape in colder climates–unless proper insulation or ventilation is attached.
Slab
The flat, horizontal section of a foundation, on which a structure is built. The slab, usually at least 4″ thick, is placed directly on the earth or on a gravel base. In southern U.S., exposed slab foundations that are basically concrete decks are used with many ranch, mobile, modular and single-story homes. The slab itself becomes the subfloor.
Sleeper
A strip of wood placed over a concrete floor to which finished wood is attached.
Sliding Door
A type of door in which the panels slide on tracks, much like sliding windows. Sliding glass doors are common features of many homes as a doorway between the patio and family room areas.
Sloped Joist Roof
A type of roof framing, in which the ridge board is supported by a central load-bearing wall. Instead of rafters, sloped joists are connected to the ridge board on one end and the load-bearing–usually external–wall on the other end of the joist. This style allows for a more open expanse beneath the roof.
Social Obsolescence
A decrease in a property’s current value that is caused by social changes and conditions that may be affecting the property and its area. For example, a well-maintained property may still lose value if its neighborhood experiences severe deterioration and neglect.
Soffit
The visible underside of structural elements such as staircases, cornices, beams, overhangs and eaves. Many homeowners and builders use aluminum and vinyl soffits to protect the roof overhangs from moisture and decay.
Solar Collector
The primary device used by an active solar heating system to harness the sun’s rays. Water or air is forced through the collector’s series of pipes. The heated air or water is then stored in a heavily insulated tank until needed.
Sole Proprietorship
A form of business ownership in which there is only one owner. For tax and legal purposes, the sole proprietor form of ownership also transfers all legal liabilities and tax benefits to the owner.
Source of funds
A funding analysis that investigates the true origin of the funds that the buyer or borrower is using. For example, conforming residential lenders require full documentation of the source of funds, including two months of bank statements and explanations for any large deposits. Underwriters perform this review to ensure that the borrower’s funds are legitimate and do not come from unallowed sources–such as hidden loans, which increase the borrower’s debt load.
Space Heating Systems
A localized form of heating that provides heat for a specific area or room, as compared to a central heating system.
Spanish
A traditional style of housing that is sometimes called Mexican or Southwestern Hacienda style. The basic style usually features red tile roof, consisting of semi-spherical overlapping tiles. The wall is traditional adobe but is now often stucco or painted concrete block. This style also often contains oval top windows and doors, as well as wrought-iron decorations.
Special Assessment
An additional real estate tax assessed toward a portion of the entire taxable community by a local tax authority for a special project.
Special Warranty Deed
Sometimes called a limited warranty deed, this deed does not provide the grantee with the same guarantees as a general warranty deed. The special warranty deed usually only provides a covenant of seisin and a covenant against encumbrances limited to encumbrances occurring after the grantor originally acquired the title. This type of deed is commonly used by agents of the owner, such as executors.
Specific Performance
A legal term referring to an action required by agreement or any action that initiates the performance of a contract.
Specific Power of Attorney
A type of power of attorney relationship in which the attorney or agent is charged with and authorized to act on behalf of the principal for a specific transaction, contract or event.
Speculation
Investment tactic that seeks to resell properties for a quick profit. Speculators tend to prefer holding properties for short-term periods and target areas that show potential for rapid value appreciation.
Split-Level
The contemporary style of residential housing that offers a versatile use of space and design. The typical split level looks much like a two-story but actually has three or four separate levels. The key element of the split level is that it contains at least one level that is a half-flight difference from the adjoining levels. For example, the bottom level may be a below-grade basement; a half-flight above the basement (but the side not above it) is the extra level, which may be the garage or a family room; directly above the basement and a half-flight up and beside that split-level space is additional living space; a fourth floor, in the split level area, may be used for bedrooms.
Square Footage Price
A method for comparative pricing that bases the property’s total cost on its size. This is the standard method used for commercial properties.
Squatters Rights
A legal right, with varying conditions, in many jurisdictions that allow individuals to obtain a legal easement to property. If a squatter is permitted to occupy for the proscribed statutory period a real estate property to which he or she has no legal claim, that squatter can file for and receive an easement for that parcel of property. Squatters often must be forcibly evicted with a court order and supervision to protect the current owner’s full ownership.
Stated Income Loan
This program is essentially a variation of the No Income Verification loan. With the stated income loan, the applicant merely states an income, and the lender will accept (or ignore) it as the qualification income. Such programs placed the greatest underwriting weight on the applicant’s credit and lowered LTV. Also, see the No Income Verification and No Documentation Loan entries.
Statutory Right of Redemption
Many states have laws that give a borrower a limited period after both tax sale and judicial foreclosure to pay off the debt and reclaim the mortgaged property. This period is often called the statutory redemption period. Prior to the foreclosure sale of the home, the property owner can exercise his or her equitable right of redemption.
Steam Heating System
A type of gravity heating system that distributes heat to radiators with steam, instead of hot water. It is noisy, but efficient system for smaller buildings that are not continuously occupied.
Stipulations
The terms, provisions, conditions, assumptions and clauses of an agreement.
Stop Clause
A provision in some lease agreements that place a limit on the amount of operating expenses that a property owner or manager must absorb. Any amounts above that level become the tenant’s obligation.
Stop Molding
A type of trim-work placed between the door casing and the door or between the window casing and the window sash.
Storm Door
A type of door used in many homes to protect the regular exterior door during winter and rainy seasons, as well as to reduce heat loss through the prime door during the winter. Storm doors are usually made of aluminum or light metal frame and placed outside of the exterior door.
Strict Foreclosure
A type of judicial foreclosure, in which the court does not sell the property. Instead, the court gives title to the lender and ends the debt. However, this process also eliminates all redemption rights, deficiency judgments and any surplus compensation to the borrower.
Structure
Informal term for any constructed improvements to land. It can be anything from a small shed or cabin to an apartment building or skyscraper.
Stucco
A type of textured wall covering that has proven to be a durable exterior siding for homes and buildings. It is usually applied in three coats, with the finish paint included in the final covering. Stucco is a concrete and lime mixture that creates a light pebbled look to the wall. It is sometimes difficult to apply and can crack if applied incorrectly.
Stud
Vertical wall framing members, traditionally made of 2×4 lengths of wood.
Subchapter-S Corporation
Often called an S-corp, this form of business entity is a combination of the general corporation and a partnership. Stockholders enjoy the limited liability of a limited partnership but avoid the double taxation of a corporation. However, S-corps are limited to 75 or fewer shareholders.
Subcontractor
The provider of specialized construction or improvement services. The subs usually answer to a general contractor, who supervises and directs the entire project. Typical subcontractors include plumbers, drywallers, masons, and painters.
Subdivision
The act of legally separating a parcel of property from the other parcels or larger division in a defined community. A developer, for example, may purchase a farm that was legally considered one big parcel and subdivide it into smaller parcels. Subdividing requires local approval and several legal filings. The name “subdivision” is also often applied to the finished product of the subdividing process.
Subflooring
An underlayment or base for the finish flooring material. This usually consists of plywood panels attached to the floor joists. The subflooring also acts to stabilize the joists.
Sublease
The secondary lease in which a tenant leases out the property to another tenant. The original lease between the tenant (lessee) and the landlord remains. However, the original tenant’s lease rights are now transferred to the sublessee. Most landlords wisely place limitations on subletting of their rental property.
Subordinate Financing, Loan
Any mortgage loan that is inferior in liens to the first mortgage. Subordinate loans are second or junior mortgages.
Subordination
To make one claim (or lien) inferior to that of another claim (or lien). Remember that liens are recorded and normally honored in chronological order. However, if a borrower refinances only the primary mortgage but not the junior mortgage on a property, the junior mortgage must be subordinated to the new refinance loan. The second mortgage lien lender must sign a subordination agreement prior to the closing, allowing the new first mortgage loan to accept primary lien.
Subordination Clause
The provision in a mortgage deed that regulates the possible subordination of the mortgage to another mortgage lien. The subordination clause of first mortgage loans prohibits its subordination to other private obligation liens. Second mortgage loans normally allow subordination, with the case-by-case approval of the lender’s underwriter.
Sub-Prime Loan
Non-conforming loans that cannot be sold to the A-paper secondary mortgage market are considered sub-prime loans. Such loans are normally used for borrowers, properties or situations that cannot qualify for conforming programs.
Suburbs
Municipalities and developed areas surrounding a city. Isolated non-developed and unincorporated areas are normally considered rural.
Supply and Demand
Economic principle describing the basically three-part relationship between the supply, demand, and price of certain goods. A high-supply and low-demand market will create lower prices (deflation). A low-supply and high-demand market will create higher prices (inflation). A subsidiary concept of the law of supply and demand is that the market tends to adjust itself toward equilibrium.
Survey
The examination of land by a registered surveyor, so as to determine the property’s exact geographic location and size. A new survey is required with each (purchase or refinance) loan application—although a less expensive location note endorsement from the title company is acceptable during refinances.
Survey Sketch
A survey that illustrates the location and dimensions of a parcel of land.
Survivorship, Right of
An element of property title ownership that affects how assets are handled when a co-owner is deceased. When there is a right of survivorship on a property ownership, if one co-owner dies, the ownership share of that deceased co-owner is given to the surviving co-owner(s). This option applies to the ownership form normally referred to as “joint ownership with right of survivorship.”
Sweat Equity
An ownership interest in a property earned by the performance of manual labor on that property.
Syndicate
A legal association created to make real estate investments. The syndicate can be a partnership, joint venture or similar association. However, syndicates are normally created for a specific investment property or project.
Syndication
A group of individuals or companies who join together to pursue a limited investment purpose. It is also the act of obtaining mortgage financing for one project from a group of institutions. Many commercial lenders will syndicate with other institutions when financing a large commercial project, so as to avoid absorbing the entire risk exposure for the loan. In the real estate industry, syndications are often limited partnerships formed to operate a real estate investment.
Tar and Gravel Roof
Often called a built-up roof, this type of covering is used primarily on flat and low-pitched roofs. It normally consists of alternating layers of roofing felt and hot tar, with a final sprinkling of fine gravel, which prevents the sun from melting the tar.
Tax Certificate
Taxing authorities will often sell unpaid real estate taxes in the form of tax certificates. If the tax certificate is not paid within the proscribed redemption period, the buyer-owner of the tax certificate will have the right to foreclose on the property.
Tax Deductibility, Deductible
The type of expenses that can be used to reduce a person’s or entity’s taxable income. For example, homeowners can deduct the interest they pay on their home mortgage loan against their taxable income.
Tax Deed
A type of deed that may be used to convey title to property sold for delinquent taxes.
Tax Deferred Income
The act of delaying the payment of taxes on certain income until a later date. For example, certain retirement accounts allow the individual to delay income tax payments on some of the amounts deposited into such accounts. This has the effect of lowering the person’s current taxable income.
Tax Foreclosure
The sale–usually through a public auction–of properties that have not paid delinquent property taxes. Most local taxing authorities assure themselves of property tax revenue by selling delinquent property taxes to investors. These investors or the taxing authority can then exercise their rights to foreclose on the property. However, property owners may be able to rescue their homes by exercising their equitable or statutory rights of redemption.
Tax Rate (Real Estate)
The rate applies to a property’s assessed value to determine its tax bill.
Tax Return
The form used to report income tax payment calculation. Most lenders will require copies of tax returns to document income for qualification purposes. The employee can then use this W-2 to complete his or her tax returns, as well as maintain documentation of employment and income.
Tenancy at Sufferance
A legal term referring to the type of leasehold estate created when a lease has terminated or expired, but the lessee continues to occupy the leased premises. This is not considered trespassing because the original entry was legal. If the lessor decides to accept a rent payment, this becomes a periodic estate.
Tenancy at Will
A legal term referring to a license to use or occupy a property, subject to the will of the property owner. This type of leasehold estate can be terminated by either party, with adequate notice. It is automatically terminated upon sale of property or the death or insanity of either lessor or lessee.
Tenancy by Entirety
Similar to Joint Tenancy with Rights of Survivorship, this form of ownership is only available to married couples and considers the husband and wife as one legal entity. If one dies, the surviving spouse receives full ownership of the property; the interests of the deceased does not go to any other heir unless both owners die. This form also provides an added legal protection: the property can only be sold to satisfy a judgment if both spouses signed the obligation. This form does not allow for a right of partition; any dissolution must be by mutual agreement or court order.
Tenancy in Common
A form of co-ownership of property, providing each owner with an undivided interest in the entire property. Each co- owner has a distinct title to the property and is free to sell, transfer or bequeath his or her interest in the property to another person. This form normally allows any tenant to dissolve this arrangement through a right of partition but does not provide for a right of survivorship. Compare this to the Joint Tenancy, Community Property or Tenancy by Entirety entries.
Tenancy in Partnership
A form of ownership in which the property was purchased and is owned by a partnership. The type of partnership (general partnership, limited partnership, joint ventures and syndications) determine the extent of control and liabilities of each partner.
Tenancy in Severalty
A legal term referring to a form of ownership in which the property is owned by one person or entity.
Tenant
An individual or tenant who occupies the property of another, for consideration of rent.
Term
The time limit within which a loan must be repaid. The life of the loan.
Term Loan
Another name for interest-only loans, whose regular payments are meant to only pay the interest charges on the loans. At the end of the term, the loan’s principal balance must be paid off.
Termite
A wood devouring pest that is the bane of many homeowners along the Atlantic, Gulf Coast, Mississippi River and southern California. Because termites damage a building’s infrastructure, an unchecked infestation can totally destroy a building. Some lenders refuse to close unless the infestation is corrected.
Timeshare
A real estate term referring to an arrangement by which an individual or party can own or lease a property for specified intervals of time. The two types of timeshares are timeshare use and timeshare estate.
Title
The written evidence that proves the right of ownership of a specific piece of property.
Title Company
An agency that specializes in searching and analyzing title records. The title company also will usually be able to issue title insurance on their findings and facilitate the closing.
Title Defect
Recorded elements on or about a title that prevents the current owner from providing a marketable and clear title to the subject property.
Title Insurance Commitment
The promise by the title insurance company to issue title insurance when the premium is paid.
Title Insurance Policy
An assurance agreement issued by a title company to indemnify the owner against losses arising from title defects. The title company issues such a policy after conducting and reviewing a title search. The most common types of policies issued by title companies are the lender’s, owner’s, leasehold and certificate of sale policies.
Title Search
An examination of public records to determine the past and current information about the ownership of property, usually with the goal of determining who has the rights to the property.
Title Theory
A system used by some states, which practice that a mortgage gives ownership to the mortgagee (lender). If the mortgagor defaults on the loan, the mortgagee quickly takes full possession. However, the defeasance clause reverts the title back to the mortgagor as soon as the loan is paid. Most states follow the lien theory and intermediary theory systems.
Topographical Survey
A special type of survey that provides a more three-dimensional description of a parcel than the standard plat of survey. Topographical surveys normally include descriptions and graphic representations of the contour and shape of the land, as well as the location, size and depth of trees, ledges, rocks and existing utilities.
Topography
The three-dimensional features of a land’s surface, such as ravines, cliffs, and slopes.
Townhouse
Originally, this term referred to a house in the city. It now typically refers to structures in a row-house arrangements, in which individual homeowners share party walls with at least one neighboring structure. Such townhouses are normally part of a homeowners association. However, unlike a condominium, most townhouse owners actually own the land beneath the townhouse.
Traffic Flow Study
An analysis of the amount of vehicles or persons in transit through a particular area. Retail developers, for example, often have a traffic flow study conducted when they are considering a retail mall project for an already developed area. Interior designers may also conduct a traffic flow study to determine the flow of employees or products through the workspace.
Traffic Report
A real estate term referring to a summary of the number of rental inquiries from prospective tenants in a given period. The traffic report should note the number of prospects becoming new actual tenants.
Trailer Home
Real estate term referring to a type of residential property that is usually pre-fabricated in a factory or manufacturing facility. See also the Manufactured Home and Mobile Home entries.
Transaction Cost
The total expense incurred by a real estate investor for both the purchase and sale of property.
Transfer Stamp, Transfer Tax
The tax levied by the state, county or municipal government on the transfer of property ownership. This is essentially the sales tax levied on real estate purchase transactions.
Transverse Beam
An integral part of most plank-and-beam roofs, the transverse beam, replaces the rafters of conventional roofing frames. One end of the sloped transverse beam is attached to the ridge beam. The other end is attached to a load- bearing post, usually located along the external wall. Because the beam is wider and stronger than standard rafters, space consuming joists are not necessary.
Trim
Construction term referring to the pieces used to finish walls. Often called molding, trim are primarily decorative elements commonly placed around openings, corners and where two different materials meet. The most common types of trim are an apron, base molding, casing, chair rail, corner molding, crown molding, shoe and stop molding.
Triplex
A residential property that contains three apartment units within one structure.
Truss Roof
A method of roof framing that has become more popular because of the prefabrication it allows. The truss frame consists of two rafters and a horizontal beam (called a lower chord) that are assembled to create a triangle. The beam is usually the same material size as the rafter. Within the triangle, additional angled bracing material–forming a W-attaches the rafter to the lower chord to provide more support. Uniform truss roof frames can be assembled in a factory and delivered to the construction site for quick installation and more efficient roof assembly. The truss roof eliminates the ridge board.
Trust
A legal instrument by which title to any asset or property is held by a trustee. A trust requires three parties: beneficiary, trustee, and trustor. The most common forms of trusts are land trusts, living trusts, real estate investment trusts (REIT) and testamentary trusts.
Trust Agreement
A legal instrument used to create trusts.
Trustee
The person or legal entity charged with holding a property in trust for the benefit of another person or entity.
Trustor
The person or party who transfers the subject property into a trust.
Truth-in-Lending Act Disclosure
Part of the Consumer Credit Protection Act, this federal law requires a standard-format disclosure of credit terms, so that a borrower may more easily compare the products and services of different financial institutions. The Truth-in- Lending form is very important as it provides an estimate of the mortgage loan’s projected annual percentage rate (APR).
Tudor
A traditional style of housing whose design traces back to the before the Tudor dynasty of England. The most apparent feature of most Tudor housing is the exposed timber on external stucco walls. A typical Tudor-style housing includes bay windows, truncated roofs, large chimneys, diamond-pane windows and roofs of various heights.
Underlayment
The top layer of plywood often used above the subflooring and to which the finished floor, tiles or carpeting is attached.
Underwriter
The person or company responsible for analyzing and approving a mortgage loan application. The underwriter decides whether a loan application is worth the risk.
Underwriting
The stage of the lending process during which the elements of a loan application are analyzed so as to determine approval or rejection of file.
Underwriting Fee
A closing cost charged by mortgage lenders to underwrite a loan for approval. It is normally not charged unless the loan is approved.
Undivided Interest
The legal term referring to a type of property ownership in which two or more parties share ownership in the entire property–and not for a specific portion. The co-owners may own different percentages of the entire property.
Uniform Partnership Act
A model act adopted by many states, which governs the types, structure, rights, requirements and limitations of ppartnerships. Properties held in the partnership’s name are considered tenancy in partnership.
Uniform Residential Loan Application (URLA) 1003
The standard four-page application form required for all residential mortgage loan applications sometimes referred to as the 1003 form.
Unincorporated Area
Any parcels of land that is not part of municipal legal boundaries. These areas are governed by the county’s zoning board, which are usually more lenient than municipal zoning boards.
Unit
A real estate term for apartments or each single-family portion of property or structure.
Unit Deed
A legal instrument used to convey the title to a condominium unit, as well as its common elements.
Unleveraged Property
Any property that does not have a debt obligation or mortgage lien attached to it.
Unlimited Power of Attorney
A type of power of attorney relationship in which the attorney-agent is charged with and authorized to conduct all of the principal’s legal, financial and related affairs. Unlike the general and specific variations, the unlimited power of attorney allows the agent to act for the principal in all matters.
Unsecured Loan
A loan made without any pledge of collateral or security. For example, personal (signature) loans, student loans and credit card debts are essentially unsecured liabilities, as there is nothing for the creditor to repossess in the case of default.
Upfront Mortgage Insurance Premium (UFMIP)
A one-time mortgage insurance premium charged on FHA loans. This fee is usually equal to 1.75% of the loan amount and is added to the loan balance. If the borrower should eventually refinance the FHA loan with a conventional loan, this premium is refunded to the borrower on a prorated basis. In addition to this one-time upfront fee, FHA loans also assess a monthly mortgage insurance premium.
Urban
The urban label normally applies to both major cities and their suburbs. However, strictly speaking, the real estate and mortgage industry prefer to use the urban label on areas within the boundaries of major cities.
Usable Area
A property measurement used in commercial real estate, especially with rental properties. The usable area measurement subtracts unusable areas (such as bathrooms, staircases, utilities, mechanical equipment, walls, columns, easements, and encumbrances ) from the total square footage.
Use Clause
A provision in a lease agreement specifying the allowed usage for the leased premises.
Useful Life
An appraisal term is referring to a projection of the number of years that a property will still be able to perform its intended purpose.
Utilities
The basic services and products essential to the operation of a production property. This term is normally applied to electric, gas, sewer, telephone and water services.
Utility Easement
An easement to or through a property that is established to provide utilities for the specific property or the larger community.
VA Funding Fee
A one-time charge assessed at closing to the borrower on VA loans. This fee is usually between 1.25% to 2.25% of the loan amount, depending on the down payment amount; this fee is usually rolled into the loan amount.
VA Loan
More appropriately termed “VA Insured Loan.” A loan for which the Veteran’s Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility
Vacancy Factor
The percentage level of unoccupied units in a rental property. The vacancy factor is the inverse of the occupancy rate. It is usually expressed as a projected vacancy factor or a current vacancy rate
Vacant Land
See Raw Land.
Value
The monetary worth of property, asset, product or service. The value is normally interpreted as the amount at which the market would pay for the product at a given time.
Variable Expenses
As opposed to fixed expenses, real estate variable expenses are those operating costs that tend to fluctuate according to the occupancy level.
Variable Lease
A type of lease arrangement that provides for future rent adjustments. There are two types of variable leases:graduated and index.
Variable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Variance
An exception to zoning codes and ordinances. This does not change the zoning laws. If a property owner wishes to make improvements or changes to his or her property that do not follow local zoning requirements, that property owner must first obtain a zoning variance from the zoning authority. For example, if a developer wishes to convert a current warehouse zoned manufacturing into a residential condominium project, that developer must first obtain a variance.
Vendee’s Lien
A lien placed against a property by a former buyer. If purchase transaction fails to consummate because the seller does not deliver the title, the buyer (vendee) may file a lien against the property to prohibit its sale or recover damages.
Vendor’s Lien
A lien placed against a property by a seller, particularly if the full purchase price has not been received.
Verification of Deposit (VOD)
Form used by the lender to verify the contents and records of a loan applicant’s accounts with a depository institution. This is required for all loan application files.
Verification of Employment (VOE)
Form used by the lender to verify the status, income, and stability of applicant’s employment, this is required for all loan application files.
Verification of Loan (VOL)
Form used by the lender to verify the contents and records of a loan applicant’s current loan account. This is required only if the borrower has an outstanding loan that is not listed on the credit report.
Verification of Mortgage (VOM)
The form used by the lender to verify the mortgage account of an applicant. The VOM is necessary only if the mortgage account is not reflected in the credit report.
Verification of Rent (VOR)
The form used by the lender to verify the rent-payment record of first-time home buyers.
Veterans Administration (VA) Loan
A loan made by private lenders, but guaranteed by the Veterans Administration (VA). VA loans were established to assist veterans of the armed forces in purchasing affordable housing. VA-approved lenders provide the funds, with VA guarantees; the VA only provides funds directly when no lenders are available in the area.
Victorian
The traditional style of housing featuring complex shapes and a mixture of elaborate details. It is not uncommon to see a Victorian with a brick first floor, clapboard the second floor and shingle the third floor. Towers and porches are very common. Porches often extend along one, two or all four sides of the home, with smaller porches on the upper floors. The most common version of the basic Victorian style is Queen Anne. The Victorian influence can be seen in much contemporary housing, especially in the extensive porches of some country homes.
Vinyl Siding
A type of exterior wall covering that offers the same advantages of aluminum siding, such as longer life and relatively lower maintenance needs. Vinyl siding, which is a PVC (poly-vinyl-chloride) product, does not dent as easily as aluminum siding, but may be discolored by ultraviolet rays.
Voltage
A measure of the force that moves electricity along a conductor. Most home wiring is limited to 110- to 120-volt capacity. However, many stoves, dryers, and heat-related appliances will often require 230/240 volts. Volts times amperes equal watts.
W-2
The official IRS-designated form that employers must use to report the employee’s income for the year. Employers must provide the employee with a copy of the W-2 form submitted to the IRS. The employee can then use this W-2 to complete his or her tax returns, as well as maintain documentation of employment and income.
Waferboard
Wood panels composed of wooden flakes that have been glued together under high pressure. It tends to swell when exposed to moisture, but can still be used for roof decking and wall sheathing in select circumstances.
Wages, wage-earner
In the mortgage underwriting arena, the term wages apply to income compensation that is based on an hourly calculation. Wage-earners, as opposed to salary-earners, are paid for each hour worked and received additional compensation for overtime.
Walkthrough
See Final Walkthrough.
Wall Plate
A horizontal beam attached to the top of frame studs.
Warehouse
Property used for storage of inventory and personal property.
Warranty
A promise offered by one party to another in a legal agreement.
Warranty Deed
A method of legally conveying property, in which the buyer receives assurances and guarantees from the seller regarding the validity of the title being transferred.
Warranty Forever, Covenant of
An element of a general warranty deed that guarantees that the grantor will compensate the grantee for any losses or expenses to defend the title being conveyed against any party claiming superior claim to the property.
Water Heater
The fixture that provides heated water to the hot-water system of a house or building. Water heaters are usually heated by gas, oil or electricity. Gas and oil heaters tend to be cheaper, but need ventilation. Water heaters are usually separate from the boiler system that heats some buildings, although some buildings do use the boiler as a source for hot water. The water heater typically consists of a tank that receives cold water, heats it and stores it until it needs to be delivered through the hot-water system.
Water Softener
A mechanical system used to soften the hard water–water with more than five grains of salt (carbonates and sulfates) per gallon–found in much of the U.S. Hard water tend to clog pipes, leave scum and complicate washing. Water softeners pass the water through a bed of resin and a silica sand filter to absorb the salts. Typical systems have a second tank of brine that regenerates the brine, which regularly loses its efficiency.
Watts
A measurement of electrical power equal to the amperage of a current times its voltage. Wattage provides a measurement of the amount of power required by a device or set of devices.
Wholesale Lender
A lender who funds mortgage loans originated through brokers or correspondents and then sells those loans to investors in the secondary market.
Will
The legal instrument to control the disposition of a deceased individual’s property and assets. A person who dies with a will has died testate; to die without one is intestate. The deceased who made the will is the testator or testatrix. The will’s disposition of property is called a devise, and the receiver is the devisee. The assets transferred is a bequest. The will is filed with the probate court, and the administrator of the will is the executor or personal representative. In addition to the standard will, there are also holographic wills and nuncupative wills.
Window
Wall openings designed primarily to provide a view of the outside, as well as provide ventilation and light. Typical windows normally consist of energy efficient glass, jambs, sashes, sills, and rails. The most common styles of window designs are an awning, bay, casement, double-hung, fixed, hopper, horizontal sliding, jalousie, skylight and triple-track windows.
Work Letter
Real estate term referring to the provision in the lease agreement that stipulates the work that the landlord, property manager or owner must perform for the tenant.
Working Capital
Finance term is referring to the current assets available to business after subtracting all current liabilities.
Wraparound Mortgage
A junior mortgage that acknowledges and includes an existing mortgage loan in its principal amount due and its payment conditions. Payment is made to the lender of the wraparound mortgage; then that lender makes payments on the previously existing mortgage loan(s).
Writ of Execution
After a judgment has been issued against a property owner, the court may issue a writ of execution instructing the local authority to seize and sell the property at a judicial sale.
Write-Off
Expenses or deductions that can be used to lower a person’s or entity’s taxable income.
Yield
The net return on investment.
Zoning
The division of a city or county into areas (zones), specifying the uses of the land and building codes regulating each area. Zoning classifications vary by locale.
