Complete List (A-Z)

Below is a glossary of investment terms you are going to come across at sometime in your real estate ventures. It is by no means a complete list, but with your help it will be one day. If there is a term you are looking for that is not here reach out to us so that it can be added.

A


Abstract of Judgment
The summary of a court judgment that creates a lien against a property when filed with the county recorder

Abstract of Title
Historical summary of all of the recorded instruments and proceedings that affect title to a property.

Accelerated Cost Recovery System
A tax calculation that provides greater depreciation in the early years of ownership of real estate or personal property. Usually, depreciation is base upon 39 years for non residential commercial property and 27.5 years for residential property (even multifamily). When you accelerated this process you have a study of the property done to accelerated that depreciation and take a higher dollar amount over fewer years.

Acceleration Clause
A loan provision giving the lender the right to declare the entire amount immediately due and payable upon violation of another specific loan provision, commonly referred to as the Due on Sale Clause.

Acquisition Cost
The price and all fees required to obtain a property.

Adjustable Rate Mortgage (ARM)
An adjustable-rate mortgage, is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. Normally, the initial interest rate is fixed for a period of time, after which it resets periodically. The interest rate resets based on a benchmark or index plus an additional spread, called an ARM margin.

Adjusted Cost Basis
The cost of any improvements the seller makes to the property. Deducting the cost from the original sales price provides the profit or loss of a home when it is sold.

Adjusted Tax Basis
The original cost or other basis of the property, reduced by depreciation deductions and increased by capital expenditures.

Adjustment Period
The amount of time between interest rate adjustments in an adjustable-rate mortgage.

Alienation
The voluntary and absolute transfer of title and possession of real property from one person to another.

Alligator Property
When the cost of mortgage payments, property taxes, insurance and maintenance on a rental property is greater than the income it brings in. Leads to negative cash flow. Usually occurs when buyer overpays for a property or purchases near the max value.

Amortized Loan
Loan that is repaid in a series of installments each of which contains a portion that is applied to reduce the principal amount of the loan and a portion that is applied to pay interest with each successive payment allocates a larger portion to principal reduction and a smaller portion to interest payment until the outstanding balance is ultimately reduced to zero.

Annual Cap
Maximum amount the interest rate on an adjustable rate mortgage can be raised or lowered in the course of one twelve month period.

Appreciation
Appreciation refers to the increase in the value of a property over time. Appreciation is usually projected as a percentage of the property’s value over the course of a year. Appreciation can be cause by supply and demand, inflation, or valued that has been added to a property.

Arrears
Mortgage payment includes interest for prior month, or overdue payments in default.

As-Is
Without guarantees as to condition.

Assessed Value
The value established for property tax purposes. Multiply the assessed value by the millage rate to see the property taxes.

Assignee
The person to whom an agreement or contract is sold or transferred.

Assignment
The method by which a right or contract is transferred. One person finds and locks up the property but does not close on the property, instead that person assigns the contract to someone else and that person closes on the property.

Assignor
The person who assigns or transfers an agreement or contract to another.

Assumable Mortgage
An existing mortgage which allows the next purchaser of a property to be liable for the payments and other obligations of the note and mortgage. Depending on the type of loan, the assumption of the obligation by this next purchaser may or may not require a qualification and approval process and may or may not release the original mortgagor (borrower) from further liability. A written release from the mortgagee (lender) is required to relieve the original mortgagor of responsibility.

Attornment
A tenant’s formal agreement to be a tenant of a new landlord.

B


Balloon Loan
A loan that has level monthly payments that will amortize it over a stated term (e.g., 30 years) but that requires a lump sum payment of the entire principal balance at the end of a shorter term (e.g., 10 years).

Balloon Payment
An installment payment which is larger (most often much larger) than the other scheduled payments. It is usually the last payment. If a note is written for $50,000 at a fixed 9.0% rate of interest with payments based on an amortization schedule of 30 years and a balloon payment due in 5 years, the first 60 payments will each be $402.31 (the normal payment for a 30 year loan at 9.0% interest) and the last payment will be $47,940.15 which will be the outstanding balance remaining after the 60th payment.

Basis Point
One 100th of 1%.

Bird Dog
Someone who identifies a potential good real estate investment opportunity and passes that deal on to another investor for a fee.

Blanket Mortgage
A single mortgage which attaches to more than one property.

Broker Price Opinion (BPO)
Real estate broker provides an estimated value of a property

Building Permit
Permission granted by a local government or agency to build a specific structure at a specific site.

Buy Down
A payment of discounts points in exchange for a lower rate of interest. It has the effect of providing the lender with a greater yield today in exchange for a lower yield in the future. (See definition of “discount points” below.).

Bridge Loan
Mortgage financing between the termination of one loan and the beginning of another loan.

C


Capital Expenditure
A capital expenditure is an improvement that will have a life of one year or more and will increase the value of the property.

Capital Gain
Capital gain is the seller’s gain on an asset used in a trade or business or for investment, including real estate. This gain is taxed at varying rates depending on whether the asset was held for more or less than one year.

Capital Improvement
Capital improvement is an item that adds value to the property, adapts the property to new uses, or prolongs the life of property. Maintenance is not a capital improvement.

Capitalization Rate (Cap Rate)
The percentage of the investment the investor will receive back each year from the net income from the property. If you were to purchase the property all cash this would be your return on that investment.

Cash Flow
Cash flow is the income produced by an investment property after deducting operating expenses and debt. Simple put the cash that’s left over after all your expenses including debt servicing is paid.

Cash Reserve
In a mortgage commitment, some lenders require that the borrower have on deposit in their bank accounts at the time of the closing an amount equal to a predetermined number of months of the cost of principal, interest, taxes, and insurance, which is referred to as a cash reserve.

Certificate of Occupancy (C of O)
The Certificate of Occupancy is a certificate issued by a local governmental entity responsible for the use of land in the community where the property is located stating that the structures on the property or any improvements made to these structures comply with the codes, ordinances and regulations of that governmental entity and that they may be occupied.

Certificate of Title Opinion
Certificate of Title Opinion is a report based on a title examination, which states the examiner’s opinion of the quality of a title to real property.

Cession Deed
A cession deed is used to relinquish real property to a municipality for a road or other public work project.

Chain
A chain in land measurement is a distance of 66 feet.

Chain of Title
Chain of Title is a successive conveyance of title to a specific parcel of land.

Chattel
Chattel is personal property.

Commitment Letter
A letter issued by the lender to the applicant that states funds will be provided subject to written terms and conditions.

Common Area or Common Elements
The common area is the area in the property or in the building that is available for use by all owners and tenants.

Comparables (Comps) or Comparative Market Analysis
Comps are used in assessing or establishing the fair market value of a property, a property which has been sold recently that is similar in size, condition, location and amenities.

Condemnation
Condemnation is the exercise of the power of eminent domain or taking private property for public use.

Consideration
Consideration is anything of value, as recognized by law, offered as an inducement to contract.

Contingency
Contingency is a condition in a contract relieving a party of liability if a specified event occurs or fails to occur.

Contract for Deed
Contract for deed is a contract of sale and a financing instrument wherein the seller agrees to convey title when the buyer completes the purchase price installment payments. It is also called installment land contract and installment plan.

Conveyance
Conveyance is the transfer of title to real property.

Cost Approach
Cost approach is an appraisal method for estimating the value of properties that have few, if any, comparables and are not income-producing.

Counter-offer
A counter-offer is a new offer made by either the buyer or seller when rejecting a previous offer.

Covenant
A covenant is a promise made in writing.

D


Debt-to-Equity Ratio
The debt-to-equity ratio, also referred to as the loan-to-value ratio, is a rule used by banks requiring that a borrower invest a minimum amount of equity cash (usually 10% to 25% of the purchase price) as a condition to obtaining a mortgage. The rule is used in conjunction with the carrying-cost rule to determine how much money a bank will lend. A ratio of 1 means 100% leverage of a property, and higher than 1 means negative equity.

Debt Service
Debt Service is the cost of carrying a loan, usually through monthly payments, including the payment of interest and principal.

Debt-to-Income Ratio or Debt-Service Ratio
The debt-to-income ratio is the relationship of a borrower’s monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage. It is also known as bottom ratio.

Deed in Lieu of Foreclosure
A deed in lieu of foreclosure is another option to avoid foreclosure. A deed in lieu is a transaction where the homeowner voluntarily transfers title to the property to the lender in exchange for a release from the mortgage obligation.

Deed Restriction
A deed restriction is a limitation on land use appearing in a deed.

Default
An act performed by the buyer, seller, tenant or landlord that breaches the contract of sale or lease and permits a claim for damages.

Defeasance Clause
A defeasance clause is a statement in a mortgage or deed of trust giving the borrower the right to redeem the title and have the mortgage lien released at any time prior to defaulting by paying the debt in full.

Depreciation
Depreciation is the expensing of the original cost of an asset, plus any qualified improvements, over its scheduled life as defined by the IRS. Depreciation deductions are permitted only for assets held by the production of income or used in a trade or business. The current term for depreciating residential real estate is 27.5 years.

Descent
Descent is the distribution of property to qualified heirs of one who has died intestate.

Disclosure and Informed Consent
Disclosure and informed consent is a real estate agent explaining his position in the agency relationship and the verbal and written consent of the relationship by the client.

Disclosure Statement
The disclosure statement is an accounting of all financial aspects of a mortgage loan required of lenders to borrowers in residential mortgage loan as regulated by the Federal Reserve Board.

Discount Points
Discount points are a one-time payment by the borrower to the lender at closing to obtain a lower interest rate on the mortgage loan. One point equals 1% of the loan amount; therefore, two points on a $100,000 mortgage would cost $2,000. It is also referred to as points.

Due Diligence
Due diligence is the investigation and review of a property to determine any legal liability.

Duplex
Two units under one roof. Usually side by side, but can be one on top of the other.

E


Earnest Money
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Encroachment
An improvement that intrudes illegally on another’s property.

Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Equitable Title
The interest held by one who has agreed to purchase, but has not yet closed the transaction.

Equity
The value of the unencumbered interest in real estate as determined by subtracting the total of the unpaid mortgage balances plus the sum of any current liens against the property from the property’s fair market value.

Escheat
The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.

Estoppel
A doctrine of law that stops one from later denying facts which that person once acknowledged were true and others accepted on good faith.

Eviction
The lawful expulsion of an occupant from real property.

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

Exculpatory Clause
Provision in a mortgage allowing the borrower to surrender the property to the lender without personal liability.

Executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named.

Extension
A written agreement between all parties on a contract allowing an additional specified period of time during which all parties are expected to perform their contractual obligations.

F


Fair Credit Reporting Act
A federal law that allows individuals to examine and correct information used by credit reporting services.

Fannie Mae (FNMA)
Federal National Mortgage Association, a federally chartered corporation that purchases mortgages and packages them to sell as securities.

Federal Fair Housing Law
A federal law that forbids discrimination on the bais of race, color, sex, religion, or national origin in the selling or renting of property.

Federal Housing Administration (FHA)
An agency within HUD that administers many loan programs designed to make housing more available.

Fee Agreement
An agreement between a borrower and a broker which normally specifies the relationship between them and the amount of compensation to the broker.

Fee Simple
Absolute ownership of real property.

Fiduciary
An obligation to act in the best interest of another party. This type of obligation typically exists when one person places special trust and confidence in another person and that responsibility is accepted.

First Mortgage
That mortgage which is recorded at the earliest time. The time of recording is the sole criteria. Size of loan and type of mortgage are immaterial. When the first mortgage is paid off and released, the second mortgage (if any existed) becomes the first mortgage.

Fixed Expenses
Operating expenses that generally do not vary with occupancy and which prudent management will pay whether the property is occupied or vacant.

Fixed Payment Mortage
A loan secured by real property which features a periodic payment of interest and principal which is constant over the term of the loan.

Fixed Rate Mortgage
A mortgage with an interest rate that remains the same through the life of the loan.

Floodplain
A level land area subject to periodic flooding from a contiguous body of water.

Forbearance
A course of action a lender may pursue to delay foreclosure or legal action against a delinquent borrower

Foreclosure
The process by which the mortgagor’s (borrower’s) rights to a property are terminated. While the general process is similar from state to state, the actual procedures tend to vary greatly.

Freddie Mac (FHMLC)
Federal Home Loan Mortgage Corporation, a federally chartered corporation that purchases mortgages and packages them to sell as securities.

FSBO
For sale by owner.

Functional Utility
The ability of a property or building to be useful and to perform the function for which it is intended according to market tastes and standards; the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms.

G


Gift letter:
A letter to a lender stating that a gift of cash has been made to the buyer(s) and that the person gifting the cash to the buyer is not expecting the gift to be repaid. The exact wording of the gift letter should be requested of the lender.

Good faith estimate:
Under the Real Estate Settlement Procedures Act, within three days of an application submission, lenders are required to provide in writing to potential borrowers a good faith estimate of closing costs.

Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.

H


Hazard Insurance
An insurance policy selected by the borrower to cover the property against loss due to hazards such as fire, hail, etc. The borrower pays an annual premium for this coverage. In many cases, the lender requires that the borrower pay 1/12 of this annual amount every month, included with the borrower’s monthly payment of principal and interest. These funds are held in reserve on behalf of the borrower in an escrow account.

Home Inspection
An inspection made by a third party (not the buyer or seller) for a statement of condition on the property, i.e. structural and mechanical conditions. Many contracts to purchase are contingent on the buyer having a home inspection performed within a certain time period prior to closing.

Homeowners’ Association
An association with annual dues collected from residents to insure enforcement of any covenants or restrictions that apply to the properties covered. For example, the Homeowner’s Association could legally cause a homeowner to take care of their yard as required by a legal covenant signed as a part of closing. Homeowner’s Association fees also cover maintaining common areas, and in some cases may be either voluntary or mandatory.

Homeowners Warranty
An insurance policy covering specific future repairs, should they become necessary, for a specific time period. These are often provided by the seller or builder as a condition of sale.

HUD-1
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. The HUD1 statement is also known as the “closing statement” or “settlement sheet.”

I


Implied Warranty of Habitability
A legal doctrine that requires landlords to offer and maintain livable premises for their tenants. If a landlord fails to provide habitable housing, tenants in most states may legally withhold rent or take other measures, including hiring someone to fix the problem or moving out.

Improvements
Additions to raw land such as buildings, streets, sewers, etc. that increase the value of the property.

Indemnify
To protect another person against loss or damage.

Index
The published cost of money that serves as the minimum basis for determining the interest rate for an adjustable rate mortgage. Among the commonly used indices are the Prime Rate (Prime), the London Interbank Offering Rate (LIBOR), the Cost of Funds (COF) and the 1 year Treasury Bill (1 year T). The particular index is generally, though not always, selected based on how often an interest rate is supposed to adjust. Loans which allow monthly interest rate adjustments commonly use the Prime Rate. Loans that adjust semi-annually may use LIBOR. The 1 year Treasury and the Cost of Funds are often used for loans which adjust on an annual basis. There are other Treasury instruments which are used for 3 and 5 year adjustment periods. The interest rate of the loan is determined by adding a margin to the index. The size of the margin is typically a function of the index used and the credit worthiness of the borrower. Typical margins on a Prime Rate based loan would be 0.0 to 5.0 so that if the Prime Rate were 8.25% and the margin were 2.0 (typical for an “average” borrower), the interest rate would be 10.25% (8.25 + 2.0).

Initial Adjustment Interval
Is associated with an Adjustable Rate Mortgage (ARM), it is the time between changes in the interest rate and/or monthly payment, usually one, three, or five years. The adjustment periods are usually spelled out in your original loan documents.

Installment Sale
When a seller accepts a mortgage for all or part of the sale, tax on the gain is paid as the mortgage principal is collected.

Insurance Binder
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

Inter Vivos
During one’s life.

Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest Rate
The percentage of the loan amount charged for borrowing money; i.e., the cost of the money expressed as a percentage.

Interim Financing
A loan, including a construction loan, used when the property owner is unable or unwilliing to arrange permanent financing.

Internal Rate of Return (IRR)
The internal rate of return is a method of calculating rate of return. The term internal refers to the fact that the internal rate excludes external factors, such as inflation, the cost of capital, or various financial risks. It is also called the discounted cash flow rate of return. See this Wikipedia Page for a more thorough explanation.

Intestate
Having made no valid will.

J


Joint and Several Liability
A creditor can demand full repayment from any and all of those who have borrowed, each borrower is liable for the full debt, not just the prorated share.

Joint Tenancy
Ownership of realty by two or more persons, each of whom has an undivided interest.

Joint Venture
An agreement between two or more persons who invest in a single business or property.

Judgment
A decree of a court stating that one individual is indebted to another and fixing the amount of the indebtedness.

Judgment Creditor
One who has received a court decree or judgment for money due from a debtor.

Judgment Lien
The claim upon the property of a debtor resulting from recording a judgment.

Judicial Foreclosure
Having a defaulted debtor’s property sold where the court ratifies the price paid.

Jumbo Loan
A loan larger than the maximum allowed by conforming loans. The threshold amount has traditionally been adjusted more or less on an annual basis and has been in the low $200,000’s. Banks and mortgage brokers can quote the current threshold. They are typically available at interest rates slightly higher than those of conforming loans and typically require the same underwriting standards as conforming loans. (see definition of “conforming loan” above).

Junior Mortgage
A mortgage whose claim against the property will be satisfied only after prior mortgages have been repaid.

K


Kicker
A payment required by a mortgage in addition to normal principal and interest

L


Lien
A claim on a property of another as security for money owed. Examples of types of liens would include judgments, mechanic’s liens, mortgages and unpaid taxes.

Land Lease
Where one rents just the land.

Land Trust
A revocable, living trust primarily used to hold title to real estate for privacy and anonymity. Also known as an Illinois Land Trust or Nominee Trust. The land trustee is a nominal title holder, with the beneficiaries having the exclusive right to direct and control the actions of the trustee.

Landlocked
Condition of a lot that has no access to public thoroughfare except through an adjacent lot.

Lease
A contract in which, for a rent payment, the one entitled to the possession of the real property (lessor) transfers those rights to another (lessee) for a specified period of time.

Lease Option
A lease combined with an option agreement that gives the lessee (tenant) the right to purchase the property under specified conditions.

Lease Purchase
A lease combined with a purchase agreement that obligates the lessee (tenant) to purchase the property under specified conditions.

Leasehold
The interest or estate on which a lessee (tenant) of real estate has a lease.

Leasehold Estate
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Legal Description
Legally acceptable identification of real estate by government survey, metes and bounds, or recorded plat.

Lessee
A person to whom property is rented under a lease.

Lessor
One who rents property to another under a lease.

Letter of Intent (LOI)
Written expression of desire to enter into a contract without actually doing so.

Liabilities
A person’s debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.

Lien Theory State
Texas is a Lien Theory State, where legal title of mortgaged property resides with the mortgagor (borrower), with the mortgage as a lien against the property. Contrast with title theory state.

Life Estate
An interest in property that terminates upon the death of a specified person.

Lifetime Cap
The highest amount over the initial interest rate that an adjustable mortgage can be raised. Lifetime caps are typically in the range of 5.0% – 7.0%. If the initial interest rate is 5.25% and the lifetime cap is 6.0%, the highest interest rate a borrower could pay during the course of the loan would be 11.25% (5.25% + 6.0%).

Like-Kind Property
Property having the same nature.

Limited Partnership
One in which there is at least one partner who is passive and limits liability to the amount invested and at least one partner whose liability extends beyond monetary investment.

Line Of Credit
An agreement by a lender to extend credit up to a certain amount for a certain time without the need for the borrower to file another application.

Liquidated Damages
An amount agreed upon in a contract that one party will pay the other in the event of a breach of contract.

Liquidity
Ease of converting assets to cash.

Lis Pendens
Latin for “suit pending”, recorded notice of the filing of a lawsuit, the outcome of which may affect title to real property.

Loan Origination Fee
Most lenders charge borrowers an origination fee–or points–for processing a loan. A point is 1 percent of the total loan amount.

Loan Package
The organized group of documents that contains all of the information required to obtain an underwriting decision of loan approval or loan denial. Depending on the type of loan and the particular lender, a package may contain some or all of the following as well as other documents: loan application, statement of use of funds, statement of net worth, P & L statements, tax returns, pay stubs, statements from various types of banking and investment accounts, property appraisal, letters of explanation, credit report, verification of employment, verification of housing payments, purchase agreement, etc. (See definition of “underwriting” below.)

Loan-to-Value (LTV)
The ratio of the size of the loan to the value of the property. If the loan is $80,000 and the value of the property is $100,000 the LTV is 80% ($80,000 / $100,000).

Lot and Block
Method of identifying legal description of property, see Legal Description.

M


Management Agreement
A contract between the owner of property and someone who agrees to manage it.

Margin
A constant (fixed) amount over an index that determines a lender’s yield on an adjustable rate loan. The interest rate of an adjustable rate loan is determined by adding a margin to an index. The size of the margin is typically a function of the index used and the credit worthiness of the borrower. Typical margins on a Prime Rate based loan would be 0.0 to 5.0 so that if the Prime Rate were 8.25% and the margin were 2.0 (typical for an “average” borrower), the interest rate would be 10.25% (8.25 + 2.0). (See definition of “index” above.).

Marketable Title
A title free from defect.

Master Lease
A controlling lease. You control the property, maintain it, lease it out, but you do not own it and you do not have the ability to claim depreciation. This is a good strategy, a specialized one but a good one.

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

Maximum Financing
A loan amount within 5 percent of the highest loan-to-value ratio allowed for a property.

Mechanic’s Lien
A lien given by law upon a building or other improvement upon land as security for the payment of labor and materials furnished for improvement.

Merged Credit Report
A report that draws information from the Big Three credit-reporting companies: Equifax, Experian, and Trans Union Corp.

Minimum Payment
The minimum amount that must be paid monthly on an account. On the HELOC product, the minimum payment is interest only during the draw period. On the Fixed Rate Second products, the minimum payment is principal and interest.

Monthly Mortgage Insurance (MI) Payment
Portion of monthly payment that covers the cost of Private Mortgage Insurance.

Monthly Payment (P&I)
This is the monthly mortgage payment on a home loan, this includes principal and interest, but excludes any amounts that are applied to taxes and insurance.

Monthly Principal & Interest (P&I)
Payment Portion of monthly payment that covers the principal and interest due on the loan.

Monthly Taxes & Insurance (T&I) Payment
Portion of monthly payment that funds the escrow or impound account for taxes and insurance.

Mortgage
A lien against real property given by a borrower to a lender as security for money borrowed.

Mortgage (Open-End)
A mortgage that allows additional money to be borrowed (up to the original loan amount) without refinancing the loan or paying additional financing charges .

Mortgage Balance
See Principal Balance.

Mortgage Insurance Premium (MIP)
The payment made by a borrower of FHA insured mortgages to provide a reserve that protects lenders against losses from very high loan-to-value loans.

Mortgage Loan
A loan which is secured by a mortgage lien filed against real property.

Mortgage-Interest Deduction
The tax write-off that the Internal Revenue Service allows most owners to claim for annual interest payments made on real estate loans. mortgagee

Mortgagee
The entity to whom the mortgage is given; i.e., the lender.

Mortgagor
The entity who gives the mortgage; i.e., the borrower.

Multi-Dwelling Property
A property that contains individual units for several households but carries only one mortgage.

N


Negative Amortization
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called “deferred interest.” The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

Negotiation
The process of bargaining that precedes an agreement.

Net Cash Flow
Investment property that generates income after expenses such as principal, interest, taxes and insurance are subtracted

Net Operating Income (NOI)
From income producing property, the gross income minus the total of all expenses except for debt service. Cash flow is defined as NOI minus the total of all debt service payments.

No Cash-Out Refinance
The amount of the new mortgage covers the remaining balance of the first loan, closing costs, any liens and cash no more than 1 percent of the principal on the new loan.

No Income Verification Loan (NIV)
A type of loan generally limited to the self-employed that is underwritten based on the borrower’s written representation of their annual income as stated on the loan application. No tax returns, operating statements or other verification of the income is required. Debt ratios are computed based on the stated income. The primary intent of these programs is to allow owners of small businesses to use their actual cash flows rather than the net incomes normally reported in tax filings. Higher interest rates on these products compensate lenders for their higher risks. (See definition of “debt ratio” above.)

Non-Assumption Clause
A loan provision that prohibits the transfer of a mortgage to another borrower without lender approval.

Non-Conforming Loan
A loan not meeting the underwriting requirements of Fannie Mae and Freddie Mac. I.e., the vast majority of loans.

Non-Disclosure Non-Compete (NDNC)
Common term used in commercial and multi-unit property listings. Sellers can require you to sign a NDNC prior to showing the property financials or scheduling an on-site visit.

Non-Qualifying
Buyer is not required to qualify through traditional bank financing requirements

Non-Recurring Closing Costs
Costs that are one-time only fees for such items as an appraisal, loan points, credit report, title insurance and a home inspection

Note
A written promise to repay a certain sum of money on specified terms.

Note Broker
An individual who acts as an intermediary between a holder of an existing note and a prospective purchaser of the note.

Notice of Default
A lender’s initial action when a mortgage payment is late and attempts to reconcile the issue out of court have failed.

Notice to Quit
Form to start the eviction process in Pennsylvania. Most states have such a form, but may be know by a different name. The form is issued to the tenant when they fail to pay rent. This gives them a warning that if they do not pay in 10 days that you will be filing to evict with the local jurisdiction.

O


Option
The right to purchase or lease a property upon specified terms within a specified period of time

Ordinances
Municipal rules governing the use of land

Origination Fee
A fee paid to either a broker or a lender for originating a loan. It may be the only compensation for their work in arranging and/or processing the loan or it may be only a portion of the compensation. Not every loan has an origination fee.

Originator
An individual who works with a borrower to start a loan. Usually an employee of a financial institution, an employee of a broker or an independent contractor affiliated with several brokers, the originator determines the type of loan a borrower probably qualifies for, helps complete an accurate application, gathers documents necessary to get an approval and acts as an intermediary between the borrower and the underwriter.

Owner Financing (Seller Financing)
A method in which a buyer borrows from and makes payments to the seller instead of a bank. Sometimes you take over the seller’s payments. Can be done when a buyer cannot qualify for a bank loan for the full amount. Also referred to as Seller’s Financing.

P


Penalty
Money one will pay for breaking a law or violating part or all of the terms of a contract.

PITI
The shorthand way of stating the most usual elements of a residential mortgage payment which may consist not only of the Principal and Interest (PI) but the property taxes (T) and hazard insurance (I) as well. In the case where all four elements are part of the payment, the lender escrows the T and I and pays them on behalf of the borrower when they come due. Some loans are written such that the payment to the lender consists only of the P and I in which case the borrower pays the taxes and insurance directly.

Planned Unit Development (PUD)
A highly designed residential project that features relatively dense clusters of houses, which are usually surrounded by areas of commonly owned open space maintained by a nonprofit community association.

Points
Loan fees paid by the borrower. One point equals one percent of the loan amount.

Portfolio Loan
A non-conforming loan that is held by the original lender rather than being sold on the secondary market.

Prepayment Penalty
Fee charged for paying off a loan within a relatively short period of time after the loan has closed.

Principal Balance
Outstanding dollar amount owed on a loan exclusive of accrued interest

Principal, Interest, Taxes, Insurance (PITI)
Monthly payments required by an amortizing loan that includes escrow deposits for taxes and insurance in addition to the principal and interest

Private Mortgage Insurance (PMI)
Insurance premium paid by a borrower to protect lenders against losses from loans with loan-to-value ratios higher than 80%, default insurance for lenders

Pro Forma
Refers to the presentation of data, such as a balance of income statement, where certain amounts are hypothetical. For example, a pro forma balance sheet might show a debt issue that has been proposed but has not been consummated. Remember to analyze deals based on actuals, not Pro-forma numbers.

Probate
The process of establishing the validity of a will before a duly authorized court or person. Once validity is confirmed, the probate court then administers the sale of property as directed by the will or as authorized by the court to settle any financial obligations

Promissory Note
Promise to pay a specified sum to a specified person under specified terms

Purchase Money Mortgage
A mortgage which secures a note written on a loan used in the purchase of real estate

Purchase Subject to Mortgage
A purchase in which a buyer agrees to make the monthly mortgage payments on an existing mortgage and the original borrower remains liable if the purchaser fails to make the payments as agreed.

Purchase-Money Mortgage (PMM)
A mortgage obtained by a borrower as partial payment for a property.

Q


Qualifying Ratio
A ratio calculated by a lender to determine how much a potential buyer can borrow.

Quiet Title Action
A suit in court to remove a defect or cloud on the title, establishes legal ownership.

Quitclaim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

R


Rate Cap
The maximum interest rate charge allowed on the monthly payment of an adjustable rate mortgage during an adjustment period.

Rate-Improvement Mortgage
A loan with a clause that entitles a borrower to a one-time interest rate cut without going through refinancing.

Real Estate Owned (REO)
Property acquired by a lender through foreclosure and held in inventory.

Real Property
The rights to use real estate.

Recourse Loan
The ability of lender to make claims against borrower personally in addition to the collateral.

Redemption Period
Period during which a former owner can reclaim foreclosed property.

Refinance
Process of a borrower paying off one loan with the proceeds from another.

Regression
The principle that the value of a better-quality property is adversely affected by the proximity of a lesser-quality property.

Regulation Z
Federal regulation requiring creditors to provide full disclosure of the terms of a loan.

Residential Service Contract
Home warranty or insurance contract, generally for one year, covering plumbing, electrical, and mechanical systems of the home.

Residual
Value or income remaining after deducting an amount necessary to meet fixed obligations.

Reverse Mortgage
A type of mortgage designed for elderly homeowners with substantial equity by which a lender pays a periodic payment to the borrower; the loan balances increase with interest and payments causing negative amortization.

Right of First Refusal
Opportunity of a party to match the terms of a proposed contract before the contract is executed.

S


Sale Leaseback
Sale of property by seller and simultaneous leasing of the same property by seller.

Sandwich Lease
Lease held by a lessee (tenant) who becomes a lessor (landlord) by subletting to another lessee (subtenant), typically the sandwich leaseholder is neither the owner nor the user of the property.

Seasoning
Loan which has been in force for a period of time thus establishing the borrower’s payment history, loans are tyically deemed to be seasoned after either six months or one year.

Second Mortgage
Mortgage recorded after another mortgage has already been recorded and not yet released, subordinated lien.

Section 1031
Section of the Internal Revenue Code dealing with tax-free exchanges of like-kind property.

Section 8
Privately owned rental dwelling units participating in the low-income rental assistance program created by 1974 amendments to Section 8 of the 1937 Housing Act.

Security Deposit
Cash payment required by landlord to be held during the term of the lease to offset damages incurred due to actions of the tenant.

Seller Financing
Also known as Owner Financing.

Short Sale
A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes

Special Warranty Deed
Deed in which the grantor limits the title warranty given to the grantee, does not warrant against title defects arising from conditions that existed before grantor owned the property.

Subject To
Buyer takes title to mortgaged real property but is not personally liable for the payment of the amount due, buyer must make payments in order to keep the property.

Subordination
A clause or document that permits a mortgage recorded at a later date to take priority over an existing lien.

Survey
Process by which a parcel of land is measured and its area ascertained.

T


Tax Lien
A debt attached to the property for failing to pay taxes

Teaser Rate
Contract interest rate charged on an adjustable rate mortgage for the initial adjustment interval that is significantly lower than the fully indexed rate at the time

Terms
Conditions and arrangements specified within a contract

Title
Evidence of ownership, evidence of lawful possession

Title Defect
An unresolved claim against the ownership of property, prevents seller from providing buyer clear title to the property

Title Insurance
An insurance policy that protects the holder from loss sustained by defects in the title

Title Search
An examination of the public records to determine the ownership and encumbrances affecting real property

Title Theory State
The system in which the lender has legal title to the mortgaged property and the borrower has equitable title. Contrast with lien theory state.

Transactional Funding
Short term financing or a bridge loan you use to buy a property. Investor arranges for a short-term loan to fund the purchase and then resells the property to earn the profit margin, using the proceeds to repay the loan. Generally done within 45 days and issued in the name of a business entity. Generally less expensive than traditional hard money loans and costs of borrowing are assessed by paying points and processing fees.

Triple Net Lease
Lease in which the tenant is to pay all operating expenses of the property so that the landlord receives net rent, frequently used to mean tenant pays taxes, insurance, and maintenance in addition to normal operating expenses

Trust
An arrangement whereby property is transferred to a trusted third party trustee by a grantor/trustor, trustee holds the property for the benefit of the beneficiary

Trust Deed
Conveyance of real estate to a third party to be held for the benefit of another, commonly used in some states in place of mortgages that conditionally convey title to the lender, same as Deed of Trust

Trustee
One who holds property in trust for another to secure performance of an obligation, the neutral party in a trust deed transaction.

U

U.S. Department. of Housing and Urban Development (HUD)
A federal agency that oversees the Federal Housing Administration and a variety of housing and community development programs.

Underwriting
The act of applying formal guidelines that provide qualitative and quantitative standards for determining whether or not a loan should be approved.

Undivided Interest
An ownership right to use and possession of a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.

Unencumbered Property
Real estate that is owned free and clear.

Unilateral Contract
An obligation given by one party contingent on the performance of another party, but without obligating the second party to perform.

Unimproved Property
Land that has received no development, construction, or site preparation (raw land).

Unrealized Gain
Excess of current market value over cost for an asset that is not sold.

Unrecorded Deed
Instrument that transfers title from one party (grantor) to another party (grantee) without providing public notice of the change in ownership.

Urban Renewal
Process of redeveloping deteriorated sections of the city, often through demolition and new construction, may be privately funded, but most often associated with government renewal programs.

Usufruct
The right to use property–or income from property–that is owned by another.

Usury
Charging a rate of interest greater than that permitted by state law.

Utility Easement
Use of another’s property for the purpose of laying gas, water, electric and sewer lines.