Adjustable Rate Mortgage (ARM) – A mortgage instrument with an interest rate that is periodically adjusted to follow a pre-selected published index. The interest rate is adjusted at certain intervals during the loan period.

Adjustable Period – The length of time between interest rate changes on an ARM. For example: a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.

Agency – Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the principal. Agency involving real property should be in writing, such as listing, trust, powers of attorney, etc.

Amortization – Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments.

Annual Percentage Rate (APR) – The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.

Application Fee – A fee charged by lenders to cover some of the charges of the loan process.

Appraisal – An opinion of value based on factual analysis. Legally, this is an estimation of value by two disinterested persons of suitable qualifications.

Appraisal Fee – A fee charged by the lender to perform an appraisal.

APR (Annual Percentage Rate) – The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. The APR is disclosed as a requirement of federal truth in lending statuettes.

ARM (Adjustable Rate Mortgage) – A mortgage instrument with an interest rate that is periodically adjusted to follow a pre-selected published index. The interest rate is adjusted at certain intervals during the loan period.

Assessed Value – Value placed upon property for property, tax purposes by the tax collector.

Assessment – A levy against property in addition to general taxes. Usually for improvements such as: streets, sewers, etc.

Assumption of Mortgage – Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust. The lender usually must approve the new debtor in order to release the existing debtor (usually the seller) from liability.

Balloon Payment / Balloon Note – A note calling for periodic payments, which are insufficient, to fully amortize the face amount of the note prior to maturity, so that a principal sum (lump sum) known as a “balloon” is due at maturity. 

Beneficiary – (1) One for whose benefit a trust is created. (2) In states in which deeds of trust are commonly used instead of mortgages, the lender (mortgagee) is called the beneficiary.

Binder - Sometimes known as an offer to purchase or an earnest money receipt. A binder is the acknowledgement of a deposit along with the brief written agreement to enter into a contract for the sale of real estate.

Borrower – One who borrows funds, with the express or implied intention of repaying the loan in full, or giving the equivalent.

Breach of Contract – Failure to perform a contract, in whole or in part, without legal excuse.

Broker, Real Estate – One who is licensed by the state to carry on the business of dealing in real estate. A broker may receive a commission for his/her part in bringing together a buyer and seller, landlord and tenant, or parties to an exchange.

Buydown – A fixed rate loan where the interest rate and payment are reduced for a specific period time by paying the interest up front to subsidize the lower payment.

Buyer – The party who is purchasing real property in a real estate transaction. Also called homebuyer.

Cap – The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

Cash Reserves – The amount of the buyer’s liquid cash remaining after making the down payment and paying all closing costs.

CC&R’s – Covenants, conditions and restrictions. A document that controls the use, requirements and restrictions of a property.

Certificate of Commitment – T he lender’s approval of a VA loan, which is usually good for up to six weeks.

Certificate of Reasonable Value (CRV) – A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Chain of Title – The chronological order of conveyances of a parcel of land from the original owner to the present owner.

Chattel – Personal property.

Clear Title – Real property against which there are no liens, especially involuntary liens (mortgages).

Closing – In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed.

Closing Costs – Expenses incidental to a sale of real estate, such as: loan fees, title fees, appraisal fees, etc.

Closing Statement – The statement which lists the financial settlement between buyer and seller, and the costs each must pay.

Cloud on Title – An invalid encumbrance on real property which, if valid, would affect the rights of the owner. For example: A sells lot 1, tract 1, to B. The deed is mistakenly drawn to read lot 2, tract 1. A cloud is created on lot 2 by the recording of the erroneous deed. The cloud may be removed by quitclaim deed, or, if necessary, by court action.

Commitment Period – The period during which a loan approval is valid.

Community Homebuyers’ Program – A fixed rate loan with a low 3 to 5% down payment, no cash reserve requirement, and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a 4 hour training course on home ownership.

Condominium – A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surface (walls, floors and ceilings) serve as its boundaries.

Consideration – Anything which is, legally, of value and induces one to enter into a contract.

Contingency – A condition that must be satisfied before a contract is binding. For example: a sales agreement may be contingent upon the buyer obtaining financing or the buyer selling their house first.

Conventional Mortgage – A mortgage or deed of trust not obtained under a government insured program such as FHA or VA.

Conversion Clause – A provision in some ARMs that enables homebuyers to change an ARM to a fixed rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgages. This conversion feature may cost extra.

Convey / Conveyance – The process of transferring ownership of property from one person to another. Includes most instruments by which an interest in real estate is created, mortgaged or assigned.

Cooperative – A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

Courier Fee – Charges for delivery of documents.

Covenants, Conditions and Restrictions (CC&R’s) – A term used in some areas to describe the restrictive limitations which may be placed on property.

CRB – Certified Residential Broker. To be certified, a broker must be a member of the National Association of Realtors, have five years experience as a licensed broker and have completed the required Residential Division requirements.

CRV (Certificate of Reasonable Value) – A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Credit Report Fee – Assessed by the lender for a required credit report from a credit bureau.

Debt Ratios – The comparison of buyer’s housing costs to his or her gross or net effective income, and the comparison of a buyer’s total long-term debt to his or her gross or net effective income. The first ratio is housing ratio; the second ratio is total debt ratio.

Deed – Any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee tile to property upon sale.

Deed of Trust – An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full.

Deposit – Money given by the buyer with an offer to purchase. Shows good faith. Deposits are also called earnest money in a purchase contract.

Disclosure – To make known or public. When dealing with real property, all disclosures should be made in writing.

Discount Points – A negotiable fee paid to the lender to secure financing for the buyer. Discount points are up front interest charges to reduce the interest rate on the loan over the life, or a portion, of the loan’s term. One discount point equals on percent of the loan amount.

Disposable Income – Income, usually monthly income, left over after fixed obligations and living expenses for that period of income are paid.

Documentary Transfer Tax – A state tax on the sale of real property, based on the sale price.

Down Payment – Cash portion paid by a buyer from his/her own funds, as opposed to that portion of the purchase price which is being borrowed.

Dual Agency – Occurs when the same brokerage represents both the seller and the buyer under written agreements. Individual state laws vary and interpret dual agency rather differently.

Due on Sale Clause – A clause that requires a full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money – The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.

Encumbrance – A claim, lien, charge or liability attached to and binding real property. Any right to, or interest in, land which may exist, but will not prevent the transfer of the title.

Equity – The market value of real property, less the amount of existing liens. In other words, the difference between what is owed and what the property could be sold for.

Escrow – The deposit of documents and funds with instructions to a neutral third party to carry out the provisions of an agreement or contract.

Escrow Fee – Fee charged by the title company to service the transaction and to escrow money and documents, usually paid by the buyer.

Escrow Officer (EO) - An escrow officer (also known as a loan officer) is the person that walks you through the closing process.  They are usually employed by the title company that you are working with. They are a neutral third-party, responsible for overseeing the escrow process. They typically perform the title searches, prepare final paperwork, witness the document signings as well as ensure that the transaction is executed properly and legally.

Exclusive Right to Sell – A written agreement between owner and agent giving agent the right to sell a property and collect a fee for the set terms.

Execute – To complete, to finish, in real estate deeds, to sign, seal, and deliver.

Fair Credit Reporting Act – A federal law giving one the right to see his/her credit report so that errors may be corrected. A lender refusing the credit based on a credit report must inform the buyer which company issued the report. The buyer may see the report without charge if refused credit.

Fair Market Value – The price at which a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure.

Fannie Mae (FNMA) – Federal National Mortgage Association. A private corporation dealing in the discount purchase of first mortgages.

Federal Home Loan Banks – A system of 11 regional banks established by the Home Loan Bank Act of 1932 in order to keep a permanent supply of money available for home financing.

Federal Housing Administration (FHA) – A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

Fee Simple – An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Commonly, a synonym for ownership.

FHA (Federal Housing Administration) – A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

FHA Loan – A loan insured by the Federal Housing Administration (of the Department of Housing and Urban Development).

FHLMC (Freddie Mac) – Federal Home Loan Mortgage Corporation.  A federal agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System and the Federal Home Loan Bank System.

Finance Charge – The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

First Mortgage – A mortgage having priority over all other voluntary liens against certain property.

Fixed Rate Mortgage – A mortgage having a rate of interest which remains the same for the life of the mortgage.

Flood Insurance – Insurance indemnifying banks against loss by flood damage. Required by lenders (usually banks) in areas federally designated as potential flood areas. The insurance is private but federally subsidized.

FNMA (Fannie Mae) – Federal National Mortgage Association. A private corporation dealing in the discount purchase of first mortgages.

Freddie Mac (FHLMC) – Federal Home Loan Mortgage Corporation.  A federal agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System and the Federal Home Loan Bank System.

Fully Indexed Rate – The maximum interest rate on an ARM that can be reached at the first adjustment.

Gift Letter – A letter from a relative stating that an amount will be gifted to the buyer, and that the said amount is not to be repaid.

Ginnie Mae (GNMA) – Government National Mortgage Association. A federal association, working with F.H.A., which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

GNMA (Ginnie Mae) – Government National Mortgage Association. A federal association, working with F.H.A., which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

Good Faith – Something done with good intentions, without knowledge of fraudulent circumstances, or reason to inquire further.

Graduated Payment Mortgage – A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

Grant Deed – One of the many types of deeds used to transfer real property.

Grantee – One whom a grant is made, generally the buyer.

Grantor – One who grants property or property rights.

GRI (Graduate, Realtors Institute) – A professional designation granted to a member of the National Association of Realtors who has successfully completed courses covering Law, Finance and Principles of Real Estate.

Hazard Insurance – Real estate insurance protecting against loss. Types causes for loss include fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

HOA (Home Owners Association) – (1) An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. (2) An association formed by the builder of condominiums or planned developments, and required by statute in some states. The builder’s participation as well as the duties of the association are controlled by statute.

Home Inspection Report – A qualified inspector’s report on a property’s overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Home Owners Association (HOA) – (1) An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. (2) An association formed by the builder of condominiums or planned developments, and required by statute in some states. The builder’s participation as well as the duties of the association are controlled by statute.

Home Warranty Plan – Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.

Homeowners Insurance – Includes the coverage of Hazard Insurance, plus added coverage, such as personal liability, theft away from the home (items stolen from the insured’s car), and other such coverage.

Housing Starts – Number of houses on which construction has begun. The figures are used to determine the availability of housing, need for real estate loans, need for labor and materials, etc.

Impound Account – Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The borrower pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

Index – An index used to adjust the interest rate of an adjustable rate mortgage loan. For example: the change in U.S. Treasury securities (T-bills) with a 1 year maturity. The weekly average yield on said securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly. This change in interest rates is the “indeed” for the change in the specific adjustable rate mortgage.

Initial Interest Rate – The introductory interest rate on a loan; signals that there may be rate adjustments later on in the loan.

Instrument – Any writing having legal form and significance, such as a deed, mortgage, will, lease, etc.

Interest Rate – The percentage of an amount of money which is paid for its use for a specified time, usually expressed as an annual percentage.

Interest Rate Cap – The maximum interest rate increase of an adjustable rate loan. For example: a 5% loan with a 5% interest rate cap would have a maximum interest for the life of the loan which would not exceed 11%.

Joint Tenancy – An undivided interest in property taken by two or more joint tenants. The interests must be equal, occurring under the same conveyance, and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Jumbo Loans – Mortgage loans that exceed the loan amounts acceptable for sale in the secondary market. These jumbo loans must be packaged and sold differently to investors and therefore have separate underwriting guidelines.

Late Charge – A charge to the borrower for the failure to pay an installment payment on time.

Lease – An agreement by which an owner of real property gives the right of possession to another for a specified period of time and for a specified consideration (rent). Title does not pass.

Legal Description – A method of geographically identifying a parcel of land, which is acceptable in a court of law. A description of a parcel of land sufficient enough to identify the property such as a lot and tract number.

Lender – Individual or firm that extends money to a borrower with the expectation of being repaid, usually with interest. Lenders create debt in the form of loans, and in the event of Liquidation they are paid off before stockholders receive distributions. But the investor deals in both debt (bonds) and equity (stocks). It is useful to remember that investors in commercial paper, bonds, and other debt instruments are in fact lenders with the same rights and powers enjoyed by banks.

Loan Commitment – A written promise to make a loan for a specified amount on specific terms.

Loan Officer  - A loan officer (also known as an escrow officer) is the person that walks you through the closing process.  They are usually employed by the title company that you are working with. They are a neutral third-party, responsible for overseeing the escrow process. They typically perform the title searches, prepare final paperwork, witness the document signings as well as ensure that the transaction is executed properly and legally.

Loan Origination Fee – A one time setup fee charged by a lender. Normally 1% of the loan amount.

Loan Package – The file of all items necessary for the lender to decide to give or not give a loan. These items would include the information on the prospective borrower (loan application, credit report, financial statement, employment letters, etc.) and information on the property (appraisal, survey, etc.).

Loan-To-Value Ratio (LTV) – The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.

Lockbox – Contains the key to the door of the property and the box can only be opened by licensed real estate agents (often only with authorization from the listing brokerage), by using a secret combination or code provided by the brokerage or the issuer of the lockbox.

Lock-In – The fixing of an interest rate or points at a certain level, usually during the loan application process. It is usually done for a certain period of time, such as 60 days, and may require a fee or premium in the form of a higher interest rate.

Maintenance Reserve – Money reserved to cover anticipated maintenance costs.

Maker – One who executes (signs) as the maker (borrower) of a note.

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

Marketability – Salability. The probability of selling property at a specific time, price and terms.

Marketable Title – Title which can be readily marketed (sold) to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

Market Price – The price a property brings in a given market. Commonly used interchangeably with market value, although not truly the same.

Material Fact – A fact upon which an agreement is based, and without which, said agreement would not be made.

Maturity – (1) Termination period of a note. For example: A 30 year mortgage has a maturity of 30 years. (2) In sales law, the date a note becomes due.

MIP (Mortgage Insurance Premium) – The mortgage insurance required on FHA loans for the life of said loans. MIP can either be paid in cash at closing or financed in its entirety in the loan. The premium varies depending on the method of payment.

Mechanics Lien – A lien created by statue for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.

MLS (Multiple Listing Service) – An exclusive listing service, submitted to all members of an association, so that each may have an opportunity to sell the property.

Moisture Barrier – Insulating materials used to prevent the build-up of moisture (condensation) in walls and other parts of a building.

Mortgage – A legal document that provides security for repayment of a promissory note.

Mortgage Banker – A company, individual or institution that originates mortgages. Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages. After a mortgage is originated, a mortgage banker might retain the mortgage in portfolio, or they might sell the mortgage to an investor. Additionally, after a mortgage is originated, a mortgage banker might service the mortgage, or they might sell the servicing rights to another financial institution. A mortgage banker's primary business is to earn the fees associated with loan origination. Most mortgage bankers do not retain the mortgage in portfolio.

Mortgage Broker – An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower, and passes that paperwork along to a mortgage lender for underwriting and approval. The mortgage funds are then lent in the name of the mortgage lender. A mortgage broker collects an origination fee and/or a yield spread premium from the lender as compensation for its services. A mortgage broker is not to be confused with a mortgage banker, which closes and funds a mortgage with its own funds. Mortgage brokers frequently facilitate transactions for mortgage bankers.

Mortgagee – The party lending the money and receiving the mortgage. Some states treat the mortgagee as the “legal” owner, entitled to rents from the property. Other states treat the mortgagee as a secured creditor, the mortgagor being the owner. The latter is the more accepted view.

Mortgagee’s Title Policy – Required by lenders to ensure that the lender has a valid lien. It does not protect the buyer. Also required for 2nd mortgages.

Mortgage Insurance – Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price. The Federal Government writes this form of insurance through the FHA and VA.

Mortgage Insurance Premium (MIP) – The mortgage insurance required on FHA loans for the life of said loans. MIP can either be paid in cash at closing or financed in its entirety in the loan. The premium varies depending on the method of payment.

Mortgage Life Insurance – A type of term life insurance often bought by homebuyers. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the mortgage debt is automatically covered by insurance proceeds.

Mortgagor – The party who borrows the money and gives the mortgage.

Multiple Listing Service (MLS) – An exclusive listing service, submitted to all members of an association, so that each may have an opportunity to sell the property.

Negative Amortization – Occurs when monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid principal balance, which means that even after several payments the borrowers could owe more than they did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover the interest.

Note – A unilateral agreement containing an express and absolute promise of the signer to pay a named person, or order, or bearer, a definite sum of money at a specified date or on demand. Usually provides for interest and, concerning real property, is secured by a mortgage or trust deed.

Notice of Action – A recorded notice that real property may be subject to a lien, or even that the title is defective, due to pending litigation. Notice of a pending suit, also called “Lis Pendens.”

Notice of Cessation – A notice stating that work has stopped on a construction project. This is usually done to accelerate the period of filing a mechanic’s lien.

Notice of Completion – A notice recorded to show that a construction job is finished. The length of time in which mechanic’s liens may be filed depends upon when and if a notice of completion is recorded.

Notice of Default – A notice filed to show that the borrower under a mortgage or deed of trust is in default (behind on payments).

Offer – A presentation or proposal fro acceptance, in order to form a contract. To be legally binding, an offer must be definite as to price and terms.

Offer and Acceptance – Necessary elements of a contract in order to sell real estate.

Origination Fee – A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to 1 percent for FHA and VA loans.

Owner Occupied – Property physically occupied by the owner.

Ownership – Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.

Owner’s Title Policy – Insures the buyer against loss due to any defect of the title not excepted to or excluded from the policy.

Payment Cap – A maximum amount for a payment under a Adjustable Mortgage Loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.

Payoff – The payment in full of an existing loan or other lien.

Personal Property – Any property which is not designated by law as real property.

Piggyback Loan – A loan made jointly by two or more lenders on the same property under one mortgage or trust deed. One 90% loan, for example, may have one lender loaning 80% and another (subordinate) lender loaning the top 10% (high risk portion).

PITI (Principal, Interest, Taxes and Insurance) – Used to indicate what is included in a monthly payment on real property. Principal, interest, property taxes and hazard insurance are the four major portions of a usual monthly payment.

Planned Urban Development (PUD) – A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Use may be residential, commercial or industrial.

PMI (Private Mortgage Insurance) – Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a government agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

Point – An amount equal to one percent of the principal amount of the investment or note. Lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

Power of Attorney – An authority by which one person (principal) enables another (attorney-in-fact) to act for him. (1) General power – authorizes sale, mortgaging, etc., of all property of the principal. Invalid in some jurisdictions. (2) Special power specifies property, buyers, price and terms. How specific it must be varies in each state.

Preliminary Title Report – A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued.

Prepaid Items – Those expenses of property which are paid in advance and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

Prepayment Penalty – A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.

Principal – (1) The person who gives authority to an agent or attorney. (2) Amount of debt, not including interest. The face value of a note, mortgage, etc.

Private Mortgage Insurance (PMI) – Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a government agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

Promisee – One to whom a promise has been made, such as the lender under a promissory note.

Promisor – One who makes a promise. The borrower under a promissory note.

Promissory Note – A promise in writing, and executed by the maker, to pay a specified amount during a limited time, or on demand, or at sight, to a named person, or on order, or to bearer.

Proration – To divide (prorate) property taxes, insurance premiums, rental income, etc., between buyer and seller proportionately to time of use, or the date of closing.

Public Records – Usually at a county level, the records of all documents which are necessary to give notice. The records are available to the public. All transactions for real estate should be recorded.

PUD (Planned Urban Development) – A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Use may be residential, commercial or industrial.

Purchase Agreement (Contract) – An agreement (or contract) between a buyer and a seller of real property, setting forth the price and terms for the sale. Also called a sales contract, earnest money contract, or agreement for sale.

Quitclaim Deed – A deed operating as a release: intended to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Rate Gap – The difference between where the rate is now and where it could adjust to on an ARM. Also, used to compare the difference between a current conventional rate and that of an ARM.

Real Estate – (1) Land and anything permanently affixed to the land, such as buildings, fences, and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items which would be personal property if not attached. The term is generally synonymous with real property, although in some states a fine distinction may be mad. (2) May refer to rights in real property as well as the property itself.

Real Estate Settlement Procedures Act (RESPA) – A federal statute effective June 20, 1975 which requires disclosure of certain costs in the sale of residential (one to four family) improved property which is to be financed by a federally insured lender.

Reconveyance – An instrument used to transfer title from a trustee to the equitable owner of real estate, when title is held as collateral security for a debt. Most commonly used upon payment in full of a trust deed. Also called a deed of reconveyance or release.

Recording – Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors, or their interested parties. Recording is controlled by statue and usually requires the witnessing and notarizing of an instrument to be recorded.

Recording Fee – The amount paid to the recorder’s office in order to make a document a matter of public record.

Regulation Z – The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

RESPA (Real Estate Settlement Procedures Act) – A federal statute effective June 20, 1975 which requires disclosure of certain costs in the sale of residential (one to four family) improved property which is to be financed by a federally insured lender.

Retaining Wall – A wall used to contain or hold back dirt, water, or other materials of a similar nature.

Right of Survivorship – The right of a survivor of a deceased person to the property of said deceased. A distinguishing characteristic of a joint tenancy relationship.

Sales Contract – Another name for a sales agreement, purchase agreement, etc.

Second Mortgage – A mortgage which ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc. lien.

Seller – The party who is selling real property in a real estate transaction. Also called homeseller.

Septic System – A sewage system, whereby waste is drained through pipes and a tile field ( a system of clay tiles and gravel) into a septic tank. Found in areas where city or county sewers have not yet been installed.

Septic Tank – An underground tank into which a sanitary sewer drains from a building, or structure. The sewage is held until bacterial action changes the solids into liquids or gasses, which are then released into the ground.

Settler – Name given to the party creating the trust.

“Signed, Sealed and Delivered” – A phrase indicating that everything necessary to convey has been done by the grantor. Modernly, signed and delivered are still necessary, but the only seals commonly used are by governments, corporations and notaries.

Simple Interest – Interest computed on principal alone, as opposed to compound interest.

Special Assessment – Lien assessed against real property by a public authority to pay costs of public improvements (sidewalks, sewers, street lights, etc) which directly benefits the assessed property.

Specific Performance – An action to compel the performance of a contract, when monetary damages for breach would not be satisfactory.

Statement of Identity – Also called Statement of Information, a confidential form filled out by buyer and seller to help a title company determine if any liens are recorded against either party. Very helpful when people with common names are involved.

Survey – Survey of a property required by lender or title insurer; shows lot size, easements, any encroachments, locations of improvements, etc. Not required in all states.

Statute – A law which comes from a legislative body. A written law, rather than law established by court cases.

Subordinate – To make subject or junior to.

Succession – The passing or real property by will or inheritance, rather than by grant of a deed or any other form or purchase.

Survey – The measurement of the boundaries of a parcel of land, its area and sometimes its topography.

Take Out Loan – The “permanent” (long term) financing of real estate after completion of construction.

Tax Base – The assessed valuation of real property, which is multiplied by the tax rate to determine the amount of tax due.

Tax Lien – (1) A lien for nonpayment of property taxes. Attaches only to the property upon which the taxes are unpaid. (2) A federal income tax lien. May attach to all property of the one owing taxes.

Tax Service Fee – Required by the lender for collection and disbursement of tax escrow by a servicing company.

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

Tenancy in Common – An undivided ownership in real estate by two or more persons. The interests need not be equal, and, in the event of the death of one of the owners, no right of survivorship in the other owner exists.

Tenant – (1) A holder of property under a lease or other rental agreement. (2) Originally, one who had the right to possession, irrespective of the title interest.

Termite Inspection – Required by the buyer or lender to show property free and clear of active termites.

Terms – The considerations, other than price, in a sale, lease, mortgage, etc. For example: the way the money will be paid, time to take possession, conditions, etc.

“Time is of the Essence” – Clause used in contracts to bind one party to performance at or by a specified time in order to bind the other party to performance.

Title – The evidence one has of right to possession of land.

Title Company – Firm that verifies ownership of real property, often done in connection with a conveyance of real property from buyer to seller. The valid owner is determined through a thorough examination of property records in a title search. The company issues a title certificate, based on its examination. Title companies are considered neutral third parties in a transaction.

Title Insurance Policy – Insurance policy on the ownership of real property, against detects in title.

Topography – The contour of land surface, such as flat, rolling, mountainous, etc.

Transfer – The act by which the title to property is conveyed from one person to another.

Transfer Tax – State tax on the transfer of real property. Based on purchase price or money changing hands. Also called documentary transfer tax.

Trust – A fiduciary relationship under which one holds property (real or personal) for the benefit of another. The party creating the trust is called the settler. The party holding the property is called the trustee. The party for whose benefit the property is held is called the beneficiary.

Trustee – (1) One who is appointed, or required by law, to execute a trust. (2) One who holds title to real property under the terms of a deed of trust.

Trustor – The borrower under a deed of trust. One who deeds his property to a trustee as security for the repayment of a loan.

Underwriting Fee – Fee charged by lender to underwrite the loan.

Veteran’s Administration (VA) – An agency of the Federal Government which, among other things, insures and guarantees loans for veterans.

VA Funding Fee – Veteran’s Administration charge for originating a VA loan.

VA Loans – A loan, made by a private lender, that is partially guaranteed by the Veteran’s Administration.

Warehouse Fee – Charged by the lender to hold the loan locally before selling it in the secondary mortgage market to an investor.

Warrant – To legally assure that title conveyed is good and possession will be undisturbed.

Wrap-Around Mortgage – A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgage under the wrap-around collects a payment based on its face value then pays the first mortgagee. It is most effective when the first has a lower interest rat than the second, since the mortgagee under the wrap-around gains the difference between the interest rates, or the mortgagor under the wraparound may obtain a lower rate than if refinancing.

Zoning – Act of city authorities specifying type of use for which property may be used.