Glossary Of Terms
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 loan with an interest rate that changes periodically in keeping with a current
index, like one-year treasury bills. Typically, however, ARM's can't jump more
than two percentage points per year or six points above the starting rate.
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.
An expert judgment or estimate of the quality or value of real estate as of a
An early agreement to buy a home from a seller, which is usually ensured with
(See real estate broker.)
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:
Documentary Stamps on Notes
Recording Deed and Mortgage
Appraisal and Inspection
Cost of Abstract
Documentary Stamps on Deed
Real Estate Commission
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
A written promise from a lender that you will receive a mortgage of a specified
amount at a specified rate.
An offer to buy a property, but only under certain circumstances. (For example,
the buyer receives financing or sells her old home first.)
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.)
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
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 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 down
payment. 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
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 portion of a property you own outright. If, for example, you put 20 percent
down on a house, you have 20 percent equity in your property. Over time, you
earn more equity as you pay off the mortgage.
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 special assessments.
Escrow money is held by a third party until the deal is sealed. Earnest money,
for example, may be held in escrow until closing day.
A loan that carries an unchangeable interest rate over its entire term -
typically a period of 15-30 years.
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
That party in the deed who is the buyer or recipient.
That party in the deed who is the seller or giver.
Protects against damages caused to property by fire, windstorms and other common
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.
A charge paid for borrowing money. (See mortgage note.)
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.)
A guarantee - for which you are usually charged a fee - that you will receive a
specific rate when you close your mortgage.
The price that a home will likely fetch on the market, based on comparisons to
similar homes that have sold recently.
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
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 an 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.
Abbreviation for principal, interest, taxes and insurance, all of which are
lumped together in your monthly mortgage payment.
A map or chart of a lot, subdivision or community drawn by a surveyor showing
boundary lines, buildings, improvements on the land and easements.
A one-time-only fee you pay up front to your lender, sometimes in exchange for a
slightly lower mortgage rate. One point equals one percent of the total amount
you plan to borrow.
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
The basic element of the loan as distinguished from interest and mortgage
insurance premium. In other words, principal is the amount upon which interest
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
Real Estate Broker
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.
The process of the same mortgagor paying off one loan with the proceeds from
A special tax imposed on property, individual lots or all property in the
immediate area, for road construction, sidewalks, sewers, street lights, etc.
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
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
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
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.)