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Abstract of Title

The condensed history of a title to a parcel of real estate. Consists of a a summary of the original grant and all subsequent conveyances and encumbrances impacting the property, as well as a certification by the abstractor that the history is accurate and complete. (More Info)

Acceleration Clause

The clause in a mortgage or deed of trust that can make the entire debt due immediately if the borrower defaults on an installment payment or other covenant, or sells the home. In the case of a home sale, also known as a “due-on-sale” or “alienation” clause.

Adjustable-rate Mortgage (ARM)

A loan with a fluctuating interest rate. Adjustments to the rate are tied to movements in an index. Typically the initial interest rate for an ARM is lower than that for a comparable fixed-rate mortgage and the initial rate is fixed for a specified period, often 3 years. Thereafter, adjustments to the interest rate can occur at fixed intervals (such as annually) and cannot increase beyond a certain amount, known as the “rate cap”. (More Info)

Ad Valorem Tax

A tax imposed on real estate based on its value.

Adverse Possession

The continuous, open, and hostile possession of another's land. Possession for a period of time (as governed by statute) may be a means of acquiring title. See easement categories.

Alienation

The transfer of property from one party to another. Alienation can be voluntary, as by a gift or sale, or involuntary, as by adverse possession or eminent domain.

Amortization Schedule

A table which shows each monthly payment of a mortgage loan, broken down into an interest component and a principal repayment component.

Appraisal

An estimation of the fair market value of a parcel of real property by a qualified expert. An appraisal is commissioned and/or carried out by banks as a condition of extending financing for a home purchase - if the agreed-upon sales price of the property is reasonably higher than the appraised value, financing will generally be denied.

Balloon Payment

The final installment under a balloon mortgage - a substantial payment frequently representing essentially all of the principal. This is often used by flexible sellers as a part of seller financing. A balloon mortgage entails the risk that the buyer will be unable to acquire new financing in time to meet the final large payment obligation and will fall into default.

Basis

The figure the Internal Revenue Service ascribes to an investment property for the purpose of determining annual depreciation and gain/loss when the asset is sold. The owner's basis is typically calculated as the cost of the property, plus the value of any capital expenditures for improvements, minus allowable depreciation.

Buffer Zone

In zoning law, a strip of land separating two different types of zones to make them blend more easily. An example would be a park separating a residential zone from a commercial one.

Building Code

Laws or rules which specify minimum requirements for the construction, maintenance, operation, and occupancy of buildings. Conditions for FHA financing include that real estate must meet certain building code standards.

CC&R's

Covenants, conditions and restrictions of record limiting a property's use in some way. Examples include, "no dogs weighing more than 30 pounds" or "no trees over 41 feet".

Certificate of Title

A statement of opinion on the status of the title to a parcel of real property. The opinion is based on an examination of specified public records. (More Info)

Closing Costs

Costs required at closing, above and beyond the actual purchase price of the property. These typically include bank fees, adjustments, attorney fees, brokerage and title company fees, and so on. (More Info)

Closing Statement

A summary and reconciliation of all expenses, adjustments, and disbursements involved in any closing. (More Info)

Cloud on Title

A document, claim, lien or encumbrance that impairs the clear title to real property until it is disproved or removed. Usually revealed by a title search and removed by a quitclaim deed or a suit to quiet title.

Common Elements

Parts of a property typically in common use by all condominium residents of one or more buildings, or necessary for the safety and maintenance of a condominium. Each condominium owner has undivided ownership of the common elements.

Comparative Market Analysis (CMA)

An estimate of the current fair market value of a seller's home, based on a comparison with the prices of recently sold homes that are similar in location, style, and amenities. (Get one)

Conforming/Conventional Loans

Any loan that meets the qualifications to be purchased by Fannie Mae or Freddie Mac. Current regulations cap the loan amount at $252,700 - loans issued for amounts above this level are called jumbo loans.

Contingency

A provision within a contract which keeps it from becoming binding until a certain event occurs or a certain act is done. A real estate contract can contain several types of contingencies.

Conveyance

Any document that transfers title to real property. The term is also used to describe the act of transferring title.

Counteroffer

A new offer made in response to an original offer that was not completely satisfactory to one party. It has the effect of rejecting the original offer.

Deed

A document that transfers title to real estate.

Deed of Trust (or Trust Deed)

An instrument used to create a mortgage lien by which the borrower conveys title to a trustee. The trustee holds title as a security for the benefit of the note holder (lender).

Default

Failure to fulfill the conditions of a mortgage agreement, usually by having a monthly installment which is overdue by a specific period of time. When a mortgage loan is in default, the lender can demand accelerated payments to bring the borrower up to date, or begin foreclosure proceedings.

Dual Agency

Situation in which a real estate agent represents both buyer and seller in a transaction. Legal in Washington (but illegal in many states), dual agency requires the agent to "do no harm" - versus sole representation, which requires the agent to represent either buyer or seller to the best of his/her ability. As a buyer, you should never allow the listing agent to represent you in a transaction - as a seller, you should insist that an agent other than yours represent the buyer. (More Info)

Earnest money

Money deposited by a buyer under the terms of a purchase and sale agreement (contract), to be forfeited if the buyer walks away from the deal (unless certain conditions are met), or applied to the purchase price if the sale is closed.

Easement

A right to use the land of another for a specified purpose, such as for a right-of-way or utilities. There are different easement categories.

Eminent Domain

The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public one and determines the amount of compensation to be paid to the owner.

Encroachment

A building or some portion of it (such as a wall or fence) that extends beyond the land of the owner and illegally intrudes on the land of an adjoining owner or a street, alley, highway, navigable river, etc.

Encumbrance

Any claim, lien, charge, or liability attached to the title of real property that may cloud the title and affect the value of the property. Examples of encumbrances include a mortgage, tax, or court judgment lien, an easement, a restriction on land use, etc.

Equal Credit Opportunity Act (ECOA)

The federal law which prohibits discrimination in the extension of credit becuase of race, color, religion, national origin, sex, age, or marital status.

Escrow

The closing of a real estate transaction via a third party, called an escrow agent. For a fee, the escrow agent receives funds (in an escrow account) and documents to be dispersed/delivered once conditions outlined in the escrow instructions are met. (More Info)

Escrow Instructions

A document which defines the escrow agent's duties, as well as the buyer's and seller's obligations.

Fannie Mae

Popular slang term for the Federal National Mortgage Association (FNMA) - a government-sponsored, privately owned corporation that supplements private mortgage operations by purchasing mortgage loans in the secondary market from primary lenders. Fannie Mae establishes the guidelines that most lenders use in qualifying prospective borrowers.

FHA loan

A loan insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender in compliance with FHA regulations. (More Info)

Fixed-rate Mortgage

A loan on which the interest rate remains the same throughout the loan term, unlike the rate on an adjustable-rate mortgage (ARM), which is adjusted periodically. Fixed-rate mortgages carry the advantage of a monthly payment which will not change throughout the loan term. (More Info)

Foreclosure

The legal procedure by which a lender forces the sale of a mortgaged property to recover the outstanding principal remaining when a borrower defaults on a loan.

Freddie Mac

Popular slang term for the Federal Home Loan Mortgage Corporation (FHLMC) - a corporation established to purchase mainly conventional mortgage loans in the secondary market.

General Warranty Deed

A deed in which a grantor offers good clear title to the premises. A general warranty deed offers buyers the greatest protection of any deed and is used in the majority of real estate deed transfers.

Ginnie Mae

Popular slang term for the Government National Mortgage Association (GNMA). Sells mortgage-backed securities secured by pools of FHA and VA loans in the secondary mortgage market.

Homeowner's Insurance

A standardized package insurance policy that protects a residential real estate owner against financial loss from fire, theft, public liability, and other common risks. A typical condition of bank financing. Lenders will often collect payment of applicable home insurance premiums as part of the monthly mortgage payment and disburse them on behalf of the homeowner, ensuring that the borrower stays current in payment of premiums.

Improvement

A structure added to a property to enhance its value. Examples include a fence, a driveway, or a swimming pool.

Index

A benchmark market interest rate to which the rate for an adjustable-rate mortgage (ARM) is tied. Common indexes for ARMs are one-year Treasury securities and the national average cost of funds to savings and loan associations.

Jumbo Loans

Loans for amounts which exceed $252,700. These are non-conforming loans, meaning that they do not follow the guidelines set forth by Fannie Mae and Freddie Mac. As a result, the interest rate is usually higher than on conforming loans.

Lien

A right given by law to eligible creditors to have their debts satisfied out of the property of a defaulting debtor, often via a court sale. Tax liens and assessments take priority over all other liens - for this reason, lenders will often collect payment of applicable taxes as part of the monthly mortgage payment, ensuring that the borrower will not fall behind in property tax payments.

Marketable Title

Clear evidence of ownership, reasonably free from the risk of litigation.

Negative Amortization

In an adjustable-rate mortgage (ARM), occurs when monthly payments are not large enough to cover all of the interest cost. The interest cost is then added to the loan's principal, which could increase to more than the amount initially borrowed. Can happen in ARMs with payment caps, when the interest rate is adjusted aggressively upward early in the life of the loan.

Payment Cap

A limit on the amount the montly payment can be increased in an adjustable-rate mortgage (ARM) when the interest rate is adjusted. In certain situations, payment caps can lead to negative amortization.

Percolation Test

A test to determine if the soil will absorb and drain water well enough to allow placement of a septic system for sewage disposal. A common contingency for buyers of land in more remote areas.

Planned Unit Development (PUD)

A combination of several different land uses (like housing, recreation, and shopping) in one contained development or subdivision. PUDs often entail a monthly maintenance fee to cover professional landscaping and upkeep of common areas, but unlike in the case of a condominium, the fee does not cover structural problems exclusive to the units of other homeowners.

Plat Map

Map of a subdivision marking the location and boundaries of individual properties. Typically encountered by buyers looking at new homes still under development.

Points

A fee mortgage lenders charge for processing a loan, usually due at the closing. Each point equals one percent of the loan amount. Points are a form of prepaid interest and, when charged for loans on a primary residence, are usually tax deductible.

Prepaid Items

On a closing statement, items - like insurance premiuims and property taxes - that the seller has paid in advance, which the buyer must reimburse at the closing.

Private Mortgage Insurance (PMI)

Insurance that protects the lender against losses resulting from a foreclosure sale which does not produce sufficient funds to satisfy the mortgage debt. PMI is generally a condition for bank financing until a buyer's equity in the home reaches 20%.

Prorations

Expenses divided between buyer and seller at closing.

Quiet Title Suit

Legal action filed to establish or settle the title to a particular property, especially when there is a cloud on the title.

Quitclaim Deed

A conveyance by which a party transfers whatever interest (s)he has in a property. Unlike in the case of a warranty deed, this is done without warranties or obligations. Quitclaim deeds offer buyers the weakest protection of any deed.

Real Estate Settlement Procedures Act (RESPA)

The federal law which requires certain disclosures to consumers about mortgage loan settlement costs in the sale of residential homes to be financed by a federally insured lender. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees.

Real Property

The interests, benefits, and rights inherent in real estate ownership.

Realtor^®

A registered trademark reserved for the exclusive use of active agent and broker members of local Realtor^® boards affiliated with the National Association of Realtors^®. All members agree to abide by a 17-article Code of Ethics which prescribes honesty and integrity in their actions. In additon, Realtors^® have access to a variety of informational resources, allowing them to provide buyers with local community information on utilities, zoning, schools, etc. and sellers with a strong network of cooperative relationships and marketing tools.

Reduction Certificate (Payoff Statement)

In the escrow and closing process, document issued by a lender stating the amount required to pay a seller's loan balance in full and satisfy the debt.

Satisfaction of Mortgage

In the escrow and closing process, document issued by a lender verifying that the seller's mortgage debt has been fully paid.

Title Insurance

Policy insuring the buyer or mortgage lender against financial loss arising from defects in the title, with the exception of encumbrances and matters specifically excluded by the policy.

Title Search

Examination by a title company to determine the current state of ownership. A title search should reveal whether a title is defective (a cloud on title) or marketable.

VA Loan

A loan through the Veterans Administration (VA) program, which allows qualified armed services veterans to purchase a home with zero down. The property must be VA-approved, the lender VA-authorized, and the buyer must live in the home - rental properties do not qualify. VA loans are guaranteed to a specific dollar amount by the Department of Veterans Affairs, limiting lenders' default risk. VA loans are fully assumable. (More Info)

Walk-through

A buyer's final inspection of the home to determine if conditions in the purchase agreement have been satisfied.

Wraparound Mortgage

A type of owner financing offered by flexible sellers. A new mortgage loan is issued with a secondary (subordinate) position to the seller's prior existing mortgage loan(s). The new loan has an original principal amount equal to the outstanding balance under the seller's prior existing mortgage loan(s), plus the amount actually advanced by the seller to the buyer under the wraparound mortgage loan. The seller then collects payments from the buyer and forwards applicable portions to the underlying mortgagees. This relieves the buyer from the need to apply for bank financing and creates an income for the seller with a loan secured by the property being sold. (More Info)

Zoning Ordinance

Rules legislated by a municipality which divide a city or town into zones (districts) and regulate the type of land usage, physical dimensions of uses, and aesthetic features of the area.