Real Estate


What is an Acceleration Clause?

It is a provision that permits a lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you (the borrower) default on your loan.

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What is an Addendum?

It is an addition to the contract that must be signed by both parties to be binding.

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What is an Adjustable Rate Mortgage (ARM)?

It is a loan that adjusts on a regular schedule based on a national economic index and the lender's margin. It is also called "variable rate mortgage."

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What is Amortization?

It is the gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time.

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What is Annual Percentage Rate (APR)?

It is the cost of borrowing money expressed as a yearly rate, which includes the interest, points, and other fees charged by the lender.

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What is Appreciation?

It is an increase in the value of a house due to changes in the market conditions, home improvement or other factors.

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What is an Assessed Value?

The value placed on a house by a public tax assessor for the purpose of determining property taxes.

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What is an Assumption?

It is an agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a mortgage is simply taking the loan over from the seller and becoming liable for the repayment. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charge will apply. The lender of record should be contacted. Lender approval is needed, and the seller may continue to have liability for the mortgage.

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What is a Balloon Payment Mortgage?

It is a loan with fixed monthly payments based on a 30-year schedule of payments on which the entire balance of the loan comes due at the end of a set period, usually five, seven, or 10 years.

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Who is a Borrower?

It is the person who obtains a mortgage loan. He/She is also called a “Mortgagor."

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What is a Bridge Loan?

A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.

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Who is a Buyer's Agent?

A real estate broker who enters into a contract-of-agency relationship with the buyer and typically gets paid by splitting the sales commission with the listing (seller's) agent; also known as a "buyer broker”.

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What is a Cap?

It is the maximum amount an interest rate can increase or decrease in a designated period of time or over the life of the loan on an adjustable rate mortgage.

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What is Clear Title?

It is title that is free of liens and legal questions about the ownership of the property.

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What is a Closing?

It is final step in transfer of property ownership. Closing occurs after both buyer and seller have signed final documents at escrow and the buyer has delivered funds to purchase the property to escrow. The title and escrow company then records the transfer of property with the county and the transaction is referred to as "closed" or "recorded."

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What are Closing Costs?

Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3% to 6% of the mortgage amount.

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What is Closing Date?

The date of the final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded.

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What is a Closing Statement?

Also called a HUD-1 STATEMENT which is the financial disclosure statement prepared by the escrow holder (attorney, broker, escrow company, or lender) that accounts for all of the funds received and expected at closing, including deposits for taxes, hazard insurance and mortgage insurance.

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What is a Cloud on Title?

It is a condition that affects the clear title of real property.

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What is Collateral?

It is an item of economic value, such as real estate, pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default.

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What is a Conventional Loan?

It is a loan that is not underwritten by a government agency. It is a mortgage made by for-profit lenders and not insured by FHA or guaranteed by the VA or Farmers Home Administration (FmHA).

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What is Credit Score?

It is a number that reflects your credit risk level, typically with a higher number indicating lower risk. It is generated through statistical models using elements from your credit report; however, your score is not physically stored as part of your credit history on the credit file. Rather, it is typically generated at the time a lender requests your credit report, and is then included with the report viewed by the creditors. Your credit score changes as the elements in your credit report change.

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What is a Deed?

It is a legal document conveying title to a property.

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What is a Deed of trust?

It is one form of real estate security agreement granting a security interest in real estate which typically contains a power of sale allowing a trustee to hold a non-judicial public sale much more quickly than would be the case in a judicial foreclosure.

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What is Default?

It is the failure to make required payments on a timely basis or to comply with other conditions of an obligation or agreement.

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What is Due on Sale?

It is the concept of accelerating the maturity of a loan if the mortgagor/borrower sells or conveys an interest in mortgaged property prior to the contractually agreed maturity date of the loan.

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What is an Encumbrance?

It is anything that affects or limits the ownership of real property, such as mortgages, liens, easements, or restrictions of any kind.

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What is an Escrow Account?

It is an account that is held by a lender or an escrow agent. Funds are placed into the account for a specific purpose. When the funds are needed for that purpose, they are paid out of the escrow account. When you have a mortgage, a certain amount of your payment normally goes into an escrow account, out of which your property taxes and insurance payments are made.

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What is Fee Simple?

It is an estate in which the owner has unrestricted power to dispose of the property as he or she wishes, including leaving by will or inheritance.

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Who is a Fiduciary?

It is a person holding a position of trust; agents, trustees, attorneys, etc.

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What is a Finance Charge?

The total cost that a borrower must pay (directly or indirectly) to obtain credit according to Regulation Z, the set of rules governing consumer lending issued by the Federal Reserve Board.

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What is a Financial Statement?

It is a statement in writing often required of a borrower of money from a bank, stating fully all of the borrower's assets, liabilities and net worth.

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What are Fixed Expenses?

They are the regular recurring costs or charges required in the holding of a property, such as taxes and fire insurance.

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What is a Fixed-Rate Mortgage?

It is a conventional loan with the same interest rate for the life of the loan.

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What is a Fixture? It is personal property that is attached to real property and is legally treated as real property when its attached-such as light fixtures and window treatments.

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What is Foreclosure?

It is the process of enforcing a mortgage or other security interest against real property, usually through a judicial or court-supervised process.

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What is a Guaranty?

It is the agreement of a person or entity to pay amounts due, or otherwise perform the obligations, of another person or entity (for example, the promise by Tom to pay the loan Dick owes to Harry).

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What is Homeowners Association?

It is an association is comprised of two or more homeowners who belong to a membership organization for the maintenance of commonly owned real estate and improvements. It can range from a simple duplex up to a huge development with thousands of homes, condominiums and townhouses that maintain marinas, golf courses and other extensive facilities (often improvements like a tennis court or swimming pool for the development where the house is located).

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What is Junior Financing?

It is a loan relationship which is junior or lower in priority to a first or more senior loan.

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What is a Junior Lien?

It is a lien which is subordinate to, or lower in priority, to another (senior) lien.

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What is a Lease?

It is a contract granting use or occupation of property during a specified time for a specified payment.

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What is a Leasehold Estate?

It is an interest in real estate granted by a lease, typically limited to a specified term of years, and which estate terminates at the end of the lease.

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What is Leasehold Mortgage?

It is a mortgage and security interest in a leasehold estate.

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What are Lending Regulations?

They are regulations and rules issued periodically by federal or state governmental agencies (e.g., Federal Reserve Bank, FDIC or the Office of Thrift Supervision) which govern the lending and other business practices of banking and thrift/savings institutions.

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What is a Lien?

It is the right to retain the lawful possession of the property of another until the owner fulfills a legal duty to the person holding the property, such as the payment of lawful charges for work done on the property.

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What is a Loan Origination Fee?

It is the fee charged by a lender for processing a loan application, typically calculated as a percentage of the mortgage amount.

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What is a Mortgage?

It is an agreement creating a security interest and other rights in a parcel of real property for the benefit of a lender or other secured party.

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Who is a Mortgage Broker?

It is an individual or company who brings borrowers and lenders together for the purpose of loaning money. The mortgage broker might also negotiate with the lender to help the borrower get a better deal on the mortgage loan.

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What is Mortgage Insurance?

It is insurance protecting a lender against loss from the mortgagor's (i.e., the borrower’s) default. Mortgage insurance is issued by the FHA or a private mortgage insurer. If the borrower defaults on the loan, the insurer would pay the lender the lesser of the loss incurred or the insured amount.

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What is Negative Amortization?

It is when a borrower's monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The risk of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

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What is a Note?

It is a document signed by the borrower of a loan that states the loan amount, the interest rate, the time and method of repayment and the obligation to repay. The note serves as the evidence of debt. It is also called a Promissory Note.

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What is an Origination Fee?

It is the fee charged by a lender to prepare loan documents, make credit checks, and carry out related tasks, usually computed as a percentage of face value of the loan.

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What is the Power of Sale?

It is the right to hold a sale of an asset (such as real property secured by a deed of trust) without having to go through a judicial process.

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What is a Pre-approved Loan?

It is a loan is “pre-approved” when a potential borrower has passed a preliminary credit screening. A pre-approval from a lender shows that a potential borrower has a solid credit history and is qualified for a mortgage loan of a specified size. In a competitive market, a pre-approval letter can provide greater negotiating clout with a seller, as other potential buyers may not be pre-approved and the seller can be more comfortable that you will be able to complete the purchase.

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What is Predatory Lending?

It is the deceptive and sometimes-fraudulent sales tactics used when a party is taking out a mortgage or home equity loan.

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What is Prepayment?

It is the concept of paying all or a portion of an outstanding loan balance prior to the contractually agreed date for such payment.

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What is Prepayment Penalty?

It is a fee assessed by a lender on a borrower who repays all or part of the principal of a loan before it is due. The prepayment penalty compensates the lender for the loss of interest that would have been earned had the loan remained in effect for its full term.

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What is Principal?

It is the amount borrowed, or the part of the amount borrowed which remains unpaid (excluding interest). This term is also used to describe that part of a monthly payment that reduces the outstanding balance of a mortgage.

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What is a Promissory Note?

It is a written contract containing a promise to pay a definite amount of money at a definite future time. It is the evidence of a debt.

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What is a Quitclaim Deed?

It is a deed used to transfer any interest in real property that the grantor may have. It contains no warranties of any kind.

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What is Rescission?

It is the cancellation of a contract. With respect to mortgage refinancing, the law gives the homeowner three days to cancel a contract in some cases once it is signed, if the transaction uses equity in the home as security.

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What is Refinance?

It is the paying off an existing loan with the proceeds from a new loan using the same property as security. It is usually done to lower the interest payment or to take cash from the equity in the property. It is often referred to as a "refi."

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What is RESPA?

The Real Estate Settlement Procedures Act (RESPA) is a federal consumer protection law that was originally implemented in 1974. It covers one to four-family properties and requires, among other matters, that your lender provide you with advance notice of all of your closing costs prior to closing. RESPA also establishes guidelines for escrow account balances and prohibits "kickbacks" to parties for referring business associated with the loan.

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What is a Security Agreement? It is a document granting a lender (e.g., a bank) the right to execute against certain specified real and/or personal property as collateral for a loan or other obligation.

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What is a Security Interest?

It is the interest granted a lender by a borrower in a security agreement.

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What is a Sub-mortgage?

It is an arrangement in which a mortgage lender pledges a mortgage as collateral for its loan.

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What is Subordination?

It is the concept of agreeing to make an otherwise senior interest junior (or subordinate) to an interest which otherwise would be a junior interest.

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What is TILA?

The Truth In Lending Act (TILA) is a federal law designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs so the borrower can make informed choices about credit. Five terms must be disclosed: Finance Charge, Annual Percentage Rate (APR), Amount Financed, Schedule of Payments and Total of Payments.

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What is Title Insurance?

It is an insurance policy issued to protect a property owner or the owner of a security interest against losses resulting from defects which affect or impair the ownership rights of the insured person.

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What is Underwriting?

It is the process by which a lender decides whether a potential creditor is creditworthy and should receive a loan. These are standards set by the lender which the borrower must meet in order to qualify for the loan.

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What is a Waiver?

It is the intentional or voluntary relinquishment of a known right, essentially a unilateral act.

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What is Yield Maintenance Fee?

It is the fee stated to be designed to make a lender whole for earnings it would have realized on a loan through the contractual maturity date when that loan is prepaid.

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What is Yield Spread Premium?

It is the commission a mortgage broker receives from a lender for matching a borrower with one of its loans.

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What is Zoning?

It refers to government laws and/or regulations describing how properties can be used in specific areas (such as residential neighborhoods, commercial development, etc.).

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What is Subleasing?

Subleasing is a way of leasing property not owned outright, but already part of a lease. Essentially, a tenant may lease down to a new tenant, but this may require a landlord’s express consent or approval.

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