real estate terms d-h
cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or
mortgage payments may increase or decrease. See lifetime payment cap, lifetime rate cap,
periodic payment cap, and periodic rate cap.
capital
(1) Money used to create income, either as an investment in a business or an income
property. (2) The money or property comprising the wealth owned or used by a person or
business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth
of a business represented by the amount by which its assets exceed liabilities.
capital expenditure
The cost of an improvement made to extend the useful life of a property or to add to its
value.
capital improvement
Any structure or component erected as a permanent improvement to real property that adds
to its value and useful life.
cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds
the total of the money needed to repay the existing first mortgage, closing costs, points,
and the amount required to satisfy any outstanding subordinate mortgage liens. In other
words, a refinance transaction in which the borrower receives additional cash that can be
used for any purpose.
certificate of deposit
A document written by a bank or other financial institution that is evidence of a deposit,
with the issuer's promise to return the deposit plus earnings at a specified interest rate
within a specified time period. See adjustable rate mortgage (ARM).
certificate of deposit
index
An index that is used to determine interest rate changes for certain adjustable-rate
mortgage (ARM) plans. It represents the weekly average of secondary market interest rates
on six-month negotiable certificates of deposit. See adjustable-rate mortgage.
Certificate of
Eligibility
A document issued by the federal government certifying a veteran's eligibility for a
Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable
Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum
value and loan amount for a VA mortgage.
certificate of title
A statement provided by an abstract company, title company, or attorney stating that the
title to real estate is legally held by the current owner.
chain of title
The history of all of the documents that transfer title to a parcel of real property,
starting with the earliest existing document and ending with the most recent.
chattel
Another name for personal property.
clear title
A title that is free of liens or legal questions as to ownership of the property.
closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage
documents and paying closing costs. Also called "settlement." At this meeting,
ownership of the property is transferred from the seller to the buyer.
closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or
product. Closing costs are made up of individual closing cost items such as origination
fees and attorney's fees. Many closing cost items are included as numbered items on the
HUD-1 statement.
closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in
transferring ownership of a property. Closing costs normally include an origination fee,
an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title
insurance and a survey. Closing costs percentage will vary according to the area of the
country; lenders or Realtors often provide estimates of closing costs to prospective
homebuyers.
cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate.
Usually clouds on title cannot be removed except by a quitclaim deed, release, or court
action.
coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance depends on
the relationship between the amount of the policy and a specified percentage of the actual
value of the property insured at the time of the loss.
coinsurance clause
A provision in a hazard insurance policy that states the amount of coverage that must be
maintained -- as a percentage of the total value of the property -- for the insured to
collect the full amount of a loss.
collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower
risks losing the asset if the loan is not repaid according to the terms of the loan
contract.
collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices
to proceed with foreclosure when necessary.
co-maker
A person who signs a promissory note along with the borrower. A co-maker's signature
guarantees that the loan will be repaid, because the borrower and the co-maker are equally
responsible for the repayment.
commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A
commission is generally a percentage of the price of the property or loan.
commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home
buyer. Also known as a loan commitment."
common area assessments
Levies against individual unit owners in a condominium or planned unit development (PUD)
project for additional capital to defray homeowners' association costs and expenses and to
repair, replace, maintain, improve, or operate the common areas of the project.
common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit
development (PUD) or condominium project's homeowners' association (or a cooperative
project's cooperative corporation) that are used by all of the unit owners, who share in
the common expenses of their operation and maintenance. Common areas include swimming
pools, tennis courts, and other recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress, etc.
common law
An unwritten body of law based on general custom in England and used to an extent in the
United States.
Community Land Trust
Mortgage Option
An alternative financing option that enables low- and moderate-income home buyers to
purchase housing that has been improved by a nonprofit Community Land Trust and to lease
the land on which the property stands.
community property
In some western and southwestern states, a form of ownership under which property acquired
during a marriage is presumed to be owned jointly unless acquired as separate property of
either spouse.
Community Seconds
An alternative financing option for low- and moderate-income households under which an
investor purchases a first mortgage that has a subsidized second mortgage behind it. The
second mortgage may be issued by a state, county, or local housing agency, foundation, or
nonprofit organization. Payment on the second mortgage is often deferred and carries a
very low interest rate (or no interest rate at all). Part of the debt may be forgiven
incrementally for each year the buyer remains in the home.
comparables
An abbreviation for "comparable properties" used for comparative purposes in the
appraisal process. Comparables are properties like the property under consideration; they
have reasonably the same size, location, and amenities and have recently been sold.
Comparables help the appraiser determine the approximate fair market value of the subject
property.
compound interest
Interest paid on the original principal balance and on the accrued and unpaid interest.
condemnation
The determination that a building is not fit for use or is dangerous and must be
destroyed; the taking of private property for a public purpose through an exercise of the
right of eminent domain.
condominium
A real estate project in which each unit owner has title to a unit in a building, an
undivided interest in the common areas of the project, and sometimes the exclusive use of
certain limited common areas.
condominium conversion
Changing the ownership of an existing building (usually a rental project) to the
condominium form of ownership.
construction loan
A short-term, interim loan for financing the cost of construction. The lender makes
payments to the builder at periodic intervals as the work progresses.
contingency
A condition that must be met before a contract is legally binding. For example, home
purchasers often include a contingency that specifies that the contract is not binding
until the purchaser obtains a satisfactory home inspection report from a qualified home
inspector.
contract
An oral or written agreement to do or not to do a certain thing.
cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit housing complex own
shares in the cooperative corporation that owns the property, giving each resident the
right to occupy a specific apartment or unit.
cooperative corporation
A business trust entity that holds title to a cooperative project and grants occupancy
rights to particular apartments or units to shareholders through proprietary leases or
similar arrangements.
cooperative project
A residential or mixed-use building wherein a corporation or trust holds title to the
property and sells shares of stock representing the value of a single apartment unit to
individuals who, in turn, receive a proprietary lease as evidence of title.
corporate relocation
Arrangements under which an employer moves an employee to another area as part of the
employer's normal course of business or under which it transfers a substantial part or all
of its operations and employees to another area because it is relocating its headquarters
or expanding its office capacity.
cost of funds index
(COFI)
An index that is used to determine interest rate changes for certain adjustable-rate
mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and
advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See
adjustable-rate mortgage (ARM).
covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can
result in foreclosure.
credit history
A record of an individual's open and fully repaid debts. A credit history helps a lender
to determine whether a potential borrower has a history of repaying debts in a timely
manner.
credit life insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage debt
if the mortgagor dies while the policy is in force.
creditor
A person to whom money is owed.
credit repository
An organization that gathers, records, updates, and stores financial and public records
information about the payment records of individuals who are being considered for credit.
debt
An amount owed to another. See installment loan and revolving liability.
deed
The legal document conveying title to a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also
called a "voluntary conveyance."
deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.
default
Failure to make mortgage payments on a timely basis or to comply with other requirements
of a mortgage.
delinquency
Failure to make mortgage payments when mortgage payments are due.
deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure
payment or an advance of funds in the processing of a loan. See earnest money deposit.
depreciation
A decline in the value of property; the opposite of appreciation.
dower
The rights of a widow in the property of her husband at his death.
down payment
The part of the purchase price of a property that the buyer pays in cash and does not
finance with a mortgage.
due-on-sale provision
A provision in a mortgage that allows the lender to demand repayment in full if the
borrower sells the property that serves as security for the mortgage.
due-on-transfer provision
This terminology is usually used for second mortgages. See due-on-sale provision.
earnest money deposit
easement
A right of way giving persons other than the owner access to or over a property.
effective age
An appraiser’s estimate of the physical condition of a building. The actual age of a
building may be shorter or longer than its effective age.
effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be
from more than one source. Salary is generally the principal source, but other income may
qualify if it is significant and stable.
eminent domain
The right of a government to take private property for public use upon payment of its fair
market value. Eminent domain is the basis for condemnation proceedings.
Employer-assisted housing
A special housing initiative that offers several different ways for employers to work with
local lenders to develop plans to assist their employees in purchasing homes.
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.
endorser
A person who signs ownership interest over to another party. Contrast with co-maker.
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.
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 deposit by a borrower with the lender of
funds to pay taxes and insurance premiums when they become due, or the deposit of funds or
documents with an attorney or escrow agent to be disbursed upon the closing of a sale of
real estate.
escrow account
The account in which a mortgage servicer holds the borrower’s escrow payments prior
to paying property expenses.
escrow analysis
The periodic examination of escrow accounts to determine if current monthly deposits will
provide sufficient funds to pay taxes, insurance, and other bills when due.
escrow collections
Funds collected by the servicer and set aside in an escrow account to pay the
borrower’s property taxes, mortgage insurance, and hazard insurance.
escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance,
and other property expenses as they become due.
escrow payment
The portion of a mortgagor’s monthly payment that is held by the servicer to pay for
taxes, hazard insurance, mortgage insurance, lease payments, and other items as they
become due. Known as "impounds" or "reserves" in some states.
estate
The ownership interest of an individual in real property. The sum total of all the real
property and personal property owned by an individual at time of death.
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.
exclusive listing
A written contract that gives a licensed real estate agent the exclusive right to sell a
property for a specified time, but reserving the owner’s right to sell the property
alone without the payment of a commission.
executor
A person named in a will to administer an estate. The court will appoint an administrator
if no executor is named. "Executrix" is the feminine form.
Fair Credit Reporting Act
fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the
lowest a seller, willing but not compelled to sell, would accept.
Fannie
Mae
A New York Stock Exchange company and the largest non-bank financial services company in
the world. It operates pursuant to a federal charter and is the nation's largest source of
financing for home mortgages.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity
is the insuring of residential mortgage loans made by private lenders. The FHA sets
standards for construction and underwriting but does not lend money or plan or construct
housing.
fee
simple
The greatest possible interest a person can have in real estate.
fee simple estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and
most extensive interest in land that can be enjoyed. It is of perpetual duration. When the
real estate is in a condominium project, the unit owner is the exclusive owner only of the
air space within his or her portion of the building (the unit) and is an owner in common
with respect to the land and other common portions of the property.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a
government mortgage.
finder's
fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a
prospective borrower.
firm commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.
fixed installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both
principal and interest.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.
fixture
Personal property that becomes real property when attached in a permanent manner to real
estate.
flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is
required for properties located in federally designated flood areas.
foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or
her interest in the mortgaged property. This usually involves a forced sale of the
property at public auction with the proceeds of the sale being applied to the mortgage
debt.
forfeiture
The loss of money, property, rights, or privileges due to a breach of legal obligation.
401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have
accumulated in these plans -- monies must be repaid to avoid serious penalty charges.
fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize
the remaining balance, at the interest accrual rate, over the amortization term.
Government National Mortgage
Association
A government-owned corporation within the U.S. Department of Housing and Urban Development
(HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the
special assistance loan program formerly administered by Fannie Mae. Popularly known as
Ginnie Mae.
grantee
The person to whom an interest in real property is conveyed.
grantor
The person conveying an interest in real property.
ground
rent
The amount of money that is paid for the use of land when title to a property is held as a
leasehold estate rather than as a fee simple estate.
group
home
A single-family residential structure designed or adapted for occupancy by unrelated
developmentally disabled persons. The structure provides long-term housing and support
services that are residential in nature.
growing-equity mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period
of time, with the increased amount of the monthly payment applied directly toward reducing
the remaining balance of the mortgage.
guarantee mortgage
A mortgage that is guaranteed by a third party.
hazard insurance
Insurance coverage that compensates for physical damage to a property from fire, wind,
vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM)
A special type of mortgage that enables older home owners to convert the equity they have
in their homes into cash, using a variety of payment options to address their specific
financial needs. Unlike traditional home equity loans, a borrower does not qualify on the
basis of income but on the value of his or her home. In addition, the loan does not have
to be repaid until the borrower no longer occupies the property. Sometimes called a
reverse mortgage.
home equity line of credit
A mortgage loan, which is usually in a subordinate position, that allows the borrower to
obtain multiple advances of the loan proceeds at his or her own discretion, up to an
amount that represents a specified percentage of the borrower's equity in a property.
home inspection
A thorough inspection that evaluates the structural and mechanical condition of a
property. A satisfactory home inspection is often included as a contingency by the
purchaser. Contrast with appraisal.
HomeKeeperSM
Fannie Mae's adjustable-rate conventional reverse mortgage, which allows older homeowners
to borrow against the value of their homes and receive the proceeds according to the
payment option they select. The amount available is based on the number of borrowers and
their ages and the adjusted property value. Anyone 62 years or older who either owns his
or her own home free and clear or has very low mortgage debt is eligible.
homeowners' association
A nonprofit association that manages the common areas of a planned unit development (PUD)
or condominium project. In a condominium project, it has no ownership interest in the
common elements. In a PUD project, it holds title to the common elements.
homeowner's insurance
An insurance policy that combines personal liability insurance and hazard insurance
coverage for a dwelling and its contents.
homeowner's warranty (HOW)
A type of insurance that covers repairs to specified parts of a house for a specific
period of time. It is provided by the builder or property seller as a condition of the
sale.
housing expense ratio
The percentage of gross monthly income that goes toward paying housing expenses.
HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing.
Items that appear on the statement include real estate commissions, loan fees, points, and
initial escrow amounts. Each item on the statement is represented by a separate number
within a standardized numbering system. The totals at the bottom of the HUD-1 statement
define the seller's net proceeds and the buyer's net payment at closing. The blank form
for the statement is published by the Department of Housing and Urban Development (HUD).
The HUD-1 statement is also known as the "closing statement" or "settlement
sheet."
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