and RE/MAX Preferred
Your NJ Results Team!
With multiple offices to better serve you.
|Home | Back | Sell | Buy | Rent |Search | Relocate | Resources | Contact Me | Site Map | Translate|
We hope that you find the following
Glossary of Real Estate Terms helpful for understanding words
and terms used in real estate transactions. There are,
however, some factors that may affect these
J K L
N O P Q
X Y Z
Abstract (Of Title)
A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.
Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.
The period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are one year, three and five years.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.
A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.
Annual Percentage Rate (APR)
A stated interest rate that reflects all the financing costs of a mortgage. The APR includes points, origination fees and other finance charges in addition to the interest on the mortgage, and includes them all in a yearly interest rate. As a result, the APR is usually higher than the interest rate alone. It also provides a benchmark for comparing different types of mortgages based on the annual cost for each loan.
An expert judgment or estimate of the quality or value of real estate as of a given date. Usually done by an appraiser.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.
The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
Balloon (Payment) Mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
A type of fixed-rate mortgage with payments for half the usual monthly amount scheduled every two weeks. Because you make the equivalent of 13 months of payments every year, the loan term is shortened from 30 years to 18 or 19 years, and total interest cost are substantially lower.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
Consumer safeguard for adjustable-rate mortgages that limit the amount monthly payments can increase. An interest rate cap limits the amount the interest can change, while a payment cap limits the increase in monthly payment to a specific dollar amount.
Certificate of Title
A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. This is a typical list:
The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.
The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the marketability of title.
Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price--6 to 7 percent on houses, 10 percent on land.
The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.
Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.
Contract of Purchase
(See Agreement of Sale)
In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.
A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.)
An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.
A report that documents a borrower's credit
history and current status. Borrowers can examine their own
credit reports, although most credit reporting companies
charge a fee to provide a report.
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans).
A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust, general warranty deed, quitclaim deed, and special warranty deed.)
Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.
Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.
The amount of money to be paid by the purchaser
to the seller upon the signing of the agreement of sale. The
agreement of sale will refer to the downpayment amount and
will acknowledge receipt of the downpayment. Downpayment is
the difference between the sales price and maximum mortgage
amount. The downpayment may not be refundable if the purchaser
fails to buy the property without good cause. If the purchaser
wants the downpayment to be refundable, he should insert a
clause in the agreement of sale specifying the conditions
under which the deposit will be refunded, if the agreement
does not already contain such clause. If the seller cannot
deliver good title, the agreement of sale usually requires the
seller to return the downpayment and to pay interest and
expenses incurred by the purchaser.
The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the downpayment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.
A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.
The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.
Funds paid by one party to another (the escrow
agent) to hold until the occurrence of a specified event,
after which the funds are released to a designated individual.
In FHA mortgage transactions an escrow account usually refers
to the funds a mortgagor pays the lender at the time of the
periodic mortgage payments. The money is held in a trust fund,
provided by the lender for the buyer. Such funds should be
adequate to cover yearly anticipated expenditures for mortgage
insurance premiums, taxes, hazard insurance premiums, and
FHA (Federal Housing Administration) Mortgage
A loan insured by the Federal Housing Administration. FHA mortgages require lower down payments than conventional mortgages, and also feature less stringent income and financial requirements.
A mortgage with an interest rate that remains constant for the life of the loan. The most common fixed-rate mortgage is repaid over a period of 30 years; 15 year fixed-rate mortgages are also available.
A legal term applied to any of the various
methods of enforcing payment of the debt secured by a
mortgage, or deed of trust, by taking and selling the
mortgaged property, and depriving the mortgagor of
General Warranty Deed
A deed which conveys not only all the grantor's
interests in and title to the property to the grantee, but
also warrants that if the title is defective or has a "cloud"
on it (such as mortgage claims, tax liens, title claims,
judgments, or mechanic's liens against it) the grantee may
hold the grantor liable.
That party in the deed who is the buyer or recipient.
That party in the deed who is the seller or
Protects against damages caused to property by fire, windstorms, and other common hazards.
U.S. Department of Housing and Urban
Development. Office of Housing/Federal Housing Administration
within HUD insures home mortgage loans made by lenders and
sets minimum standards for such homes.
An economic indicator, usually a published interest rate, that determines changes in the interest rate of an ARM. ARM rates are adjusted to reflect changes in the index. The margin is the amount a lender adds to the index to establish the actual interest rate on an ARM.
A charge paid for borrowing money. (See mortgage
A lot that has added value because of its strategic location, especially where it is needed for the highest and best use of contiguous property.
Different types of equity participation a lender may seek as a condition for lending money, such as participation in rentals, profits, or extra interest.
Lender Buy-Down Mortgage
A convertible mortgage offering a discounted interest rate at the beginning of the loan that gradually increases to an agreed-upon fixed-rate over the first few years of the loan. It provides lower initial payments and a stable final monthly rate, but the final rate may be somewhat higher than on a standard fixed-rate mortgage.
A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor. (See also special lien.)
Loan Origination Fee
The fee charged by a lender to prepare all the documents associated with your mortgage.
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.
A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.
A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages, this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.
A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.
A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.
The lender in a mortgage agreement.
The borrower in a mortgage agreement.
PITI (Principal, Interest, Taxes and Insurance)
The four components that (for most homeowners) are included in the monthly mortgage payment. Principal and interest are the portions of the payment assigned to repay the mortgage itself; taxes and insurance are paid by your lender into a special escrow account to pay for homeowners insurance and property taxes.
A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.
Sometimes called "discount points." A point is one percent of the amount of the mortgage loan. For example, if a loan is for $25,000, one point is $250. Points are charged by a lender to raise the yield on his loan at a time when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on HUD or Veterans' Administration guaranteed loans (sellers can pay, however). On a conventional mortgage, points may be paid by either buyer or seller or split between them.
Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.
The basic element of the loan as distinguished from interest and mortgage insurance premium. In other words, principal is the amount upon which interest is paid.
See agreement of sale.
A deed which transfers whatever interest the
maker of the deed may have in the particular parcel of land. A
quitclaim deed is often given to clear the title when the
grantor's interest in a property is questionable. By accepting
such a deed the buyer assumes all the risks. Such a deed makes
no warranties as to the title, but simply transfers to the
buyer whatever interest the grantor has. (See deed.)
Real Estate Broker/Agent
A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner. Generally licensed by the state in which he/she does business.
A member of the National Association of REALTORS®. Usually a real estate broker, agent or appraiser.
The process of the same mortgagor paying off one loan with the proceeds from another loan.
An information system created by eNeighborhoods Inc., in association with Cendant Mobility, which is the premiere tool for calculating cost of living differentials between any two neighborhoods in the USA.
Private restrictions limiting the use of real
property. Restrictive covenants are created by deed and may
"run with the land," binding all subsequent purchasers of the
land, or may be "personal" and binding only between the
original seller and buyer. The determination whether a
covenant runs with the land or is personal is governed by the
language of the covenant, the intent of the parties, and the
law in the State where the land is situated. Restrictive
covenants that run with the land are encumbrances and may
affect the value and marketability of title. Restrictive
covenants may limit the density of buildings per acre,
regulate size, style or price range of buildings to be
erected, or prevent particular businesses from operating or
minority groups from owning or occupying homes in a given
area. (This latter discriminatory covenant is unconstitutional
and has been declared unenforceable by the U.S. Supreme
See agreement of sale.
A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, street lights, etc.
A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.
See documentary stamps
A map or plat made by a licensed surveyor
showing the results of measuring the land with its elevations,
improvements, boundaries, and its relationship to surrounding
tracts of land. A survey is often required by the lender to
assure him that a building is actually sited on the land
according to its legal description.
As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.
As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate.
Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to a "mortgagee's title policy." Insurance benefits will be paid only to the "named insured" in the title policy, so it is important that an owner purchase an "owner's title policy", if he desires the protection of title insurance.
Title Search or Examination
A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record, which would adversely affect the marketability or value of title.
A party who is given legal responsibility to
hold property in the best interest of or "for the benefit of"
another. The trustee is one placed in a position of
responsibility for another, a responsibility enforceable in a
court of law. (See deed of trust.)
The process of deciding whether to make a loan
based on credit, employment, assets and other
VA (Department of Veterans Affairs) Mortgage
Government insured loans guaranteed by the
Department of Veterans Affairs, requiring very low or no down
payments and with generous requirements for qualification.
They are available only to veterans of the armed services,
those currently on active duty or in the reserves, and their
To voluntarily give up or surrender a right.
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
A method of refinancing in which the new mortgage is placed in a secondary or subordinate position. In essence, it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount, without cashing out or distributing the existence of the first mortgage.
The acts of an authorized local government
establishing building codes, and setting forth regulations for
property land usage.