An Extensive Glossary of Real Estate Terms

This extensive glossary makes knowing real estate terms a whole lot easier.

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1031 Exchange

A legal transaction that lets real estate investors defer capital gains taxes from the sale of a property by exchanging a property for a "like-kind" property within a set period of time.

203K loan

An FHA loan that lets you borrow money to buy (or refinance) a home and borrow for home improvements in a single loan.

A

Abstract of Title

A summary of title, including the details of prior deeds or encumbrances that relate to the property, ultimately proving an owner's right to sell it.

Acceleration Clause

A provision in a loan agreement stating the mortgage lender can demand payment in full in the event of default.

Accelerated Depreciation

An accounting method that depreciates a property faster than a standard depreciation schedule, typically in the first year or two of ownership.

Accredited Investor

Individuals who have a net worth of over $1 million (excluding the value of a primary residence) or have an annual income of $200,000 or more for the past two years filing individually -- $300,000 or more if married filing jointly.

Active Contingent

When a seller accepts an offer from a buyer that's contingent upon the buyer meeting certain conditions such as mortgage approval, home inspection, or getting the buyer's home under contract.

Active Under Contract

A seller has accepted an offer with contingencies, but keeps the listing active to promote backup offers in case the current offer falls through.

Addendum

When a real estate sales contract is changed or amended in any way, the change or amendment is called an addendum. The updated contract is signed by both the buyer and seller.

Adjustable-Rate Mortgage (ARM)

A type of mortgage loan in which the interest rate adjusts periodically based on a set schedule. The interest rate is usually tied to a specific economic index.

Agreement For Deed

See contract for deed.

Amortization

The schedule of mortgage payments spread over the term of the loan. This determines the principal and interest (PMI) payment based on the interest rate.

Annual Percentage Rate (APR)

The annual total interest rate charged on a mortgage or loan. The APR includes fees, often making it higher than the base interest rate.

Appraisal

A formal opinion of value derived from a licensed appraiser. Appraisals are often used by banks or lending institutions to determine a property's value before finalizing a loan for that property.

Appreciation

The increase in an asset's value over time.

As-Is

When a property is sold as-is, no repairs or remedies will be made to sell the home.

Assessed Value

The value of a property determined by a tax collector and used for tax purposes. The assessed value can differ from the actual appraised value.

Assignment

The transfer of rights or ownership of a specific contract or agreement to a new party. For example, you can assign a lease, contract for deed, or mortgage.

Assumable Mortgage

A mortgage in which the buyer assumes the existing mortgage from the seller. The new buyer becomes liable for the mortgage, releasing the previous seller from the mortgage note.

B

Balloon Mortgage

A type of mortgage loan in which the remaining unpaid principal balance becomes payable in one lump sum on a specified date.

Bankruptcy

A legal proceeding in which a debtor cannot pay their legal debts. An individual or company can file bankruptcy under Chapter 11, Chapter 13, or Chapter 7. Depending on the chapter and circumstances, debts can be reallocated according to a specified repayment schedule or discharged.

Basis Point

Represents one-hundredth of one percent (0.01%), used primarily to express differences in interest rates or returns. For example, 200 basis points represents 2%.

Beneficiary

Can refer to several different roles depending on what it relates to. In a mortgage, the beneficiary is the lender. A beneficiary can also be the person who inherits property or an IRA, such as a self-directed IRA, if the primary owner passes away.

Bill of Sale

A document that specifies the transfer of a property or asset. It specifies the collateral being transferred and the amount it was transferred for. 

Blanket Mortgage

A type of mortgage that uses multiple properties as collateral for one loan. The mortgage "blankets" several assets instead of just one.

Breach of Contract

When one party in a lease or contract fails to fulfill their duties according to the agreement. If a contract is breached, there are specific consequences that may include eviction, foreclosure, or loss of an earnest money deposit.

Bridge Loan

A short-term loan that people use until they can finalize their long-term loan. Bridge loans can last a few days to a few months and often charge much higher interest rates than longer-term loans.

Broker

An agent licensed by the National Association of Realtors who acts as a representative for a buyer or seller to oversee a real estate transaction in exchange for a commission.

Brokerage

A firm or company that helps buyers and sellers transact in exchange for a commission or fee. Realtors are required to work with a brokerage firm.

Broker Price Opinion (BPO)

An opinion of value from a licensed broker often used by banks, lending institutions, and real estate investors. BPOs can be calculated based on the interior of the home or solely on the exterior condition.

Building Code

A set of standards that govern rules for building. These codes are often set by cities or counties.

Business Plan

A document that summarizes a company's or individual's identity, what they do, and their plan or goals over the next one to five years.

C

Capitalization (cap) Rate

The ratio used to determine the potential value of commercial property in relation to the income it produces. A cap rate is calculated by dividing the net operating income (NOI) by the property's asking price. The higher the cap rate, the more valuable the asset.

Capital Gains

Income earned when an asset is sold for more than its purchase price. Capital gains are taxed at different rates depending on if it's a short-term capital gain or long-term capital gain. Short-term capital gains apply to assets owned for a year or less.

Capital Improvement

Improvements made to a property that increase its overall value or worth. Some capital improvements are tax-deductible.

Cash Flow

Monthly income produced by an asset. This could be rental income; dividends from a stock, ETF, or REIT; or a principal and interest payment from a mortgage note. 

Cash-on-Cash (CoC) return

The rate of return produced by an investment. Cash-on-cash return is calculated by taking the net profits and dividing them by the initial investment.

Cash-Out Refinance

A type of loan that lets homeowners with equity in their property refinance their mortgage and get cash. For example, a homeowner with $200,000 left on their mortgage might refinance to a $220,000 mortgage and get $20,000 in cash.

Certificate of Title (CoT)

Shows title or ownership and, in certain states, the transfer of ownership to a mortgage lender after foreclosure.

Chain of Title

Shows the chain of ownership or conveyance of title on a specific parcel over time. 

Closing Costs

Additional costs incurred as part of closing a real estate transaction. Closing costs can vary, but typically range from two to five percent of the sale price. If bank financing is involved, they're usually higher.

Closing Statement

A document that summarizes the debits and credits due to and from the buyer and seller in a real estate transaction.

Cloud on Title

Refers to an encumbrance on a title. This could be an incorrect legal description, a missing document, or other issues that need to be rectified before a property can be sold. Also called a defect in title.

Collateral

A tangible asset that holds value, such as a vehicle or property, that secures a loan. Most banks require borrowers to pledge some type of collateral to be approved for a loan. If you get a home loan, the property you're buying is the collateral. If a borrower defaults on a loan, the bank takes possession of the collateral.

Commercial Real Estate

Properties used for business purposes, such as hotels, office buildings, apartment complexes, retail space, or medical facilities.

Commission

A fee paid to a broker, agent, or other professional in a real estate transaction.

Commitment

A statement that a bank has approved a buyer or borrower for a home loan. Commitments are only valid for a specified period.

Comparables

Recently sold properties that are similar in size, age, location, and features to the subject property. These are used to help derive a likely sale price.

Compounding Interest

Interest calculated on a principal amount that also includes all accumulated interest. Compound interest is often used when evaluating investment growth over time.

Comparative Market Analysis (CMA)

An examination of similar properties to determine a reasonable selling price. This may include currently for-sale and recently sold properties. Usually conducted by a Realtor.

Contingency

A provision in a sales contract that requires a party to fulfill certain requirements before the contract becomes binding.

Contract for Deed (CFD)

A seller-financed loan in which the seller or owner of the property provides financing for the buyer. The seller receives monthly payments over time and remains on the property title until the buyer fulfills their contract, when the property is given to the buyer. This can also be called an agreement for deed, installment contract, or land contract.

Conventional Loan

A loan that's not guaranteed or insured by the government and requires at least 20% down.

Co-signer

An additional signer on a loan. This is often used to help the primary borrower if they can't get financing. A co-signer is liable and responsible for the debt along with the primary borrower.

Cost Segregation

A process in which parts of a property are depreciated faster rates than others. For example, the roof, windows, or HVAC system can be depreciated at different rates than the building itself.

Covenant

A promise made by a buyer or seller as a part of a contract.

Crowdfunding

A pooled investment in which multiple investors pledge funds to a third-party investor, called the sponsor, who acquires and manages a real estate investment.

Crowdfunding Platform

A platform on which accredited investors can connect with approved sponsors and specific investment opportunities.

D

Days on the Market (DOM)

The number of days a property has been for sale. This is a helpful indicator to see how long, on average, it takes a property to sell.

Debt Coverage Ratio

The ratio of operating income available to pay for debt servicing including interest principal and/or lease payments. Lenders use it to determine the cash flow available to cover debt service on a commercial loan.

Debt Service

The amount of money required to repay the debt on a specific asset.

Debt-to-Income Ratio

The percentage of a consumer's income allocated to paying debts. Calculated by dividing monthly debt payments by monthly income. Debt-to-income ratio is often used by lenders when approving a loan.

Deed of Trust

An instrument used to convey a property that has a lien. In some states, a mortgage is also called a deed of trust.

Deed in Lieu of Foreclosure (DIL)

An agreement between a borrower and a lender in which the borrower gives the property back to the lender and, in return, the lender forgives the borrower's debt. This is usually done to avoid foreclosure.

Default

When a party, typically a borrower, fails to fulfill their responsibility for the agreement. The most common form of default is when the borrower falls behind on payments.

Defect in Title

See cloud on title.

Deficiency Judgment

A judgment rendered against a borrower when a foreclosure sale doesn't produce sufficient funds to pay the mortgage debt in full.

Deferred Maintenance

Required maintenance on a property stemming from lack of repairs or upgrades over time.

Delinquent Mortgage

A mortgage is delinquent when a payment is at least 30 days past due.

Delinquent Taxes

Property taxes that are past due. Some counties and states can place a lien on delinquent taxes. If they remain unpaid for a long time, this can become a tax deed and go to tax sale.

Depreciation

A reduction of a property's value over time to account for wear and tear. Depreciation is used for tax purposes.

Disclosure

A document provided by the seller disclosing information that's legally required about the property.

Distressed Property

A property being sold out of necessity, such as a foreclosure, pending tax sale, bankruptcy, or because the property is in poor condition.

Dividend

Money paid regularly by a company to its shareholders. Dividends can be paid from real estate ETFs, REITs, or crowdfunding investments.

Doing Business As (DBA)

When an entity is doing business under a different name, it can file a DBA.

Down Payment

The amount of money a property buyer can pledge or put toward the purchase of a property.

Down Payment Assistance

Financial assistance that increases the down payment a home buyer can put toward the purchase of a property. 

Due on Sale

A clause in a contract or loan agreement that says the principal balance of the loan must be paid in full if a property is sold.

E

Earnest Money

A specified amount of money placed into escrow after entering into a contract to purchase a property.

Easement

A legal agreement in which a property owner gives a certain part of the property to a third party for a specific use.

Effective Gross Income

The real income produced from a property before debt, including rent and additional income made from fees, services, or goods, minus vacancy and property expenses.

Eminent Domain

The government's right to take private property for public use upon payment of the property's reasonable value.

Encumbrance

A claim or lien placed on a property. 

Environmental Impact Study

A study used in commercial real estate to assess possible environmental impacts of development on the land or surrounding area.

Equity

The difference in value of what a property is worth in the current market and what's owed on it.

Escrow

A third-party service, typically a title company or attorney, that handles all funds related to a real estate transaction until the contract has been fulfilled as agreed.

Escrow Account

A special account that sets aside money for property taxes and insurance by the mortgagee or servicing company.

Escrow Agent

The agent responsible for handling all funds placed in escrow, including the disbursement or return of funds to either or both parties.

Estate

The real and personal property that's transferred to a beneficiary or heir upon death of the property owner.

Eviction

The legal process a landlord can go through to remove a tenant from a property after a breach in contract.

F

Fair Market Value

The current as-is value of a property in the given market.

Fair Market Rent

A standard rental rate for the Housing Choice Voucher (Section 8) Program and other government housing programs run by the U.S. Department of Housing and Urban Development (HUD). Fair market rent is the fair going rate for a rental based on unit size and location.

Federal Home Loan Mortgage Corporation (Freddie Mac)

A government-sponsored enterprise that buys mortgages from banks, bundles them as mortgage-backed securities, and sells them to other banks, companies, or countries. Banks use funds from Freddie Mac to create more loans.

Federal Housing Administration (FHA)

A governmental agency created in 1934 that provides mortgages to home buyers with as little as 3% down. An FHA mortgage is insured to protect the lender.

Federal National Mortgage Association (Fannie Mae)

A government-sponsored enterprise that buys mortgages from banks, bundles them as mortgage-backed securities, and sells them on the secondary market. Funds from Fannie Mae help banks create more loans.

Fee Simple

The greatest possible right of ownership or interest a property owner can have in a property.

First Mortgage

A mortgage that has a priority lien over all other liens or encumbrances and is in the first position to be repaid.

Fixed-rate Mortgage

A mortgage in which the interest rate remains the same over the life of the loan.

Forbearance

An agreement between a lender and borrower to pause or delay foreclosure proceedings for a temporary period of time. Typically, the borrower and lender work out a potential agreement such as a payment plan or trial modification.

Foreclosure

The legal process taken by a lender to terminate the interest and rights a borrower has in a property after default. Foreclosures can be judicial or non-judicial. After the foreclosure, the property is auctioned off or returned to the bank, which often sells it as a bank-owned property.

Forfeiture

A proceeding in which the lender eliminate a buyer's rights or interest in a property. Forfeiture is often used in a contract for deed.

G

Gift

A monetary donation from a family member or other source that's put toward the purchase of a home.

Government-sponsored Enterprise (GSE)

A governmental entity that supports economic growth and increases lending by enhancing the flow of credit to banks and other institutions.

Government National Mortgage Association (Ginnie Mae)

A government-sponsored enterprise that buys mortgages from banks, bundles them as mortgage-backed securities, and sells shares of them to investors.

Grantee

The person to whom property or interest in a property is conveyed. Also known as the buyer.

Grantor

The person transferring the property or interest in the property. Also known as the seller.

Gross Lease

A type of rental lease in which the tenant pays a set rental amount and the landlord pays for all property-related costs, including taxes, property maintenance, or utilities and water. Most residential or apartment rentals are gross leases.

Ground Lease

An agreement used with vacant land in which the tenant is allowed to develop the property but must turn the land and all improvements over to the property owner when the lease expires.

H

Hazard Insurance

Real estate insurance that protects a property again certain perils such as fire, natural events, theft, or vandalism.

Home Equity Line of Credit (HELOC)

A mortgage in which a property owner that has equity in their property can pull a line of credit to capture a percentage of their equity.

Homeowners Association (HOA)

A group that's responsible for maintaining a set of standards for the community. This could include property maintenance, upgrades, shared communal areas, or specific rules and restrictions. Mandatory fees are paid monthly, quarterly, or annually to reside in the community. HOAs are typically private companies used in condos, townhomes, or some subdivisions.

I

Ingress and Egress

A property owner's right to enter (ingress) and exit (egress) their property. Ingress and egress rights are especially important if a property owner doesn't have direct road access to their parcel.

Intestate

When a property owner dies without a will.

Installment Contract

See contract for deed.

Interest Rate

The rate a borrower is charged by a lender for borrowing money, typically expressed as an annual percentage of the principal balance.

Interest-only Loan

A specific mortgage or loan in which the monthly payment doesn't apply to the principal balance but instead pays only interest.

J

Joint Liability

The shared responsibility of a loan obligation.

Joint Tenancy

Two or more people who jointly own real estate.

Judgment

A legal settlement declared by a judge in which a monetary sum is made payable from one party to the other.

Judicial Foreclosure

The legal process of foreclosure that requires the proceedings to go through a court system and be heard before a judge to confirm the debt is in default and in full legal right to be collected. 

Jumbo Mortgage

A mortgage that exceeds Fannie Mae and Freddie Mac's maximum conforming loan limit, which varies by location and can change from year to year.

Junior Mortgage

See second mortgage.

L

Lease Option

A rent-to-own lease in which the tenant pays monthly rent with the option to purchase the home at a previously agreed-upon price. If the tenant elects to buy the home at the end of the lease, any rental deposits or monthly rent paid to that point is applied to the purchase price.

Lien

A financial claim or encumbrance placed on a property until the balance or amount owed is satisfied. A mortgage is a type of lien.

Limited Liability Company (LLC)

A legal entity in which the owners aren't held personally liable in the event of litigation. LLCs are a common choice for real estate investors because they provide asset protection and potential tax benefits.

Letter of Intent (LOI)

A letter stating the intent to purchase a property based on specific price and terms. Often used in commercial real estate.

Lessee

The tenant who occupies a rental property.

Lessor

The landlord who owns a rental property.

Limited Partnership

A type of legal entity often used by real estate investors in which some partners only contribute financially. Typically, one partner is responsible for managing the investments held within the partnership. Limited partnerships are often used for asset protection or tax advantages.

Lis Pendens

A pending lawsuit that provides public notice that a foreclosure has been initiated.

Licensed Mortgage Loan Originator (LMLO)

An individual or company that originates loans and doesn't qualify for one of the Consumer Financial Protection Bureau's two exemptions.

Loan Commitment

A lender's promise to commit a certain amount of money at a specified rate. The commitment is only good for a short period.

Loan Processor

A representative for both the bank and the borrower during a loan transaction. The loan processor has many roles, but mostly serves as the liaison between the two parties. Processors ensure that transactions proceed as smoothly as possible. Also known as a loan officer.

Loan Underwriter

The person responsible for verifying income, assets, debt, eligibility, and issuing final approval of a loan. Many banks or lenders have a specific underwriter for this task.

Loan Servicer

A professional who handles administrative tasks related to owning and collecting on a mortgage note, including collecting payments, sending borrower statements, and paying taxes and insurance if escrowed.

Loan-to-Value Ratio (LTV)

The current loan amount compared to the value of the property, shown as a percentage. A lower loan-to-value ratio is good; it means the property has equity.

M

Marketable Title

A title to a property that's free of liens and encumbrances, making it transferable to the prospective buyer.

Master Lease

A lease that allows the lessee to sublease the property without needing to adjust or extend the term of the lease.

Maturity Date

The date on which the principal balance of a loan becomes due or is paid in full.

Mechanic's Lien

A lien placed against a property for unpaid work such as construction or labor.

Metes and Bounds

A legal description of a parcel describing boundaries including directions, distances, and monuments around the tract.

Modification

When a loan or mortgage is modified to adjust set terms.

Month-to-Month Tenancy

A rental agreement that renews monthly until terminated by either party.

Mortgage

A legal agreement between a lender and borrower for the purchase of a property in which the borrower promises to repay the lender a set amount over a set period of time, pledging the property as collateral.

Mortgage Broker

A person who helps property buyers secure a loan by working with one of their partnering banks. A mortgage broker is the middleman and connects the banks or lenders with the borrower, often helping the borrower through the loan application process in exchange for a fee.

Mortgagor

The borrower in a mortgage; typically, the property owner.

Mortgagee

The lender on a mortgage; typically, a bank.

Multiple Listing Service (MLS)

A database of available properties for sale by member brokers.

N

Negative Amortization

When the principal balance increases over time because monthly payments don't cover the interest.

Net Lease

A type of lease in which the renter is responsible for paying a portion or all expenses related to owning the property, including taxes, insurance, maintenance, upgrades, or improvements. Common types are single (N), double (NN), and triple net leases (NNN).

Net Operating Income (NOI)

The net income a property produces after accounting for vacancy and operating expenses, but before debt service.

Net Worth

The value of all assets you own, including personal property, investments, real estate, or other assets of worth, minus all liabilities. If you have a positive net worth, you own more assets of value than you have debt. Net worth is used in accrediting investors and by lenders when underwriting jumbo or commercial loans.

Note

See promissory note.

Notice of Default

A legal document that formally notifies a borrower that they're in default. It gives the borrower a set period of time to pay before legal proceedings such as foreclosure continue. 

O

Occupancy Rate

The ratio of rented space to rentable space in a property, typically used with properties that have four or more rentable units.

Operating Expenses

The cost of running, owning, or managing a property. That could include things such as property taxes, insurance, management fees, advertising fees, maintenance and repairs, utilities, and legal fees.

Opportunity Zone (OZ)

One of 8,700 geographic areas identified as low-income census tracts by nomination from governors and certified by the U.S. Department of the Treasury. Opportunity Zones offer preferential tax treatment on capital gains for investors participating in qualified Opportunity Zone Funds, including tax deferral, a step-up basis for capital gains, and capital gains exclusion.

Opportunity Zone Fund (OF)

A private fund structured as a corporation or partnership that invests more than 90% of its capital into an Opportunity Zone.

Owner Financing

When the seller or owner of a property holds financing for the home buyer instead of a bank or lending institution. The home buyer pays the owner each month according to the terms of the loan agreement.

P

Parcel

A tract or lot of land as defined by the county, city, or municipality.

Passive Loss

Financial loss from a passive investment, such as rental property.

Passive Income

Money earned from an investment that requires little to no active involvement, such as a rental property managed by a third-party management company, dividend returns from a REIT, or a return on an investment from a crowdfunding opportunity.

Percentage Lease

A lease commonly used in retail that has a base rental rate with an additional rental rate based on the tenant's gross sales above a given amount.

Planned Unit Development (PUD)

An area of several residential properties grouped together that are individually owned but have some shared common areas, such as an office, exercise facility, or pool.

Pooled Investment Fund

A company that obtains money from multiple investors and puts it into a variety of investments managed as one portfolio by a professional management team. Real estate ETFs, REITs, and hedge funds are pooled investment funds.

Pre-approval Letter

An unofficial letter from a bank or lending institution saying the prospective buyer has undergone an initial review and been approved for financing on a preliminary basis.

Premium

The amount payable for property insurance.

Prepayment Penalty

A penalty that can be charged if a borrower prepays the principal balance of a loan during a specified period of time after a loan has been created. This is typically the first one to three years.

Pre-qualification

The process a prospective buyer goes through with a lending institution to determine if they qualify for a loan. This typically includes verifying income, pulling credit reports, reviewing previous tax filings, and reviewing bank statements.

Principal and Interest Payment (P&I)

The combined principal and interest payment of a mortgage.

Private Mortgage Insurance (PMI)

A type of insurance banks or lenders charge homebuyers who receive a conventional loan in which they put less than 20% down. The insurance protects the lender in the case of default.

Probate

A legal proceeding to verify or confirm the validity of a will or proof of heirship and to settle the affairs, including property, after someone has died.

Pro Forma

Set of calculations projecting a property's maximum potential for operating.

Promissory Note

A legal document that outlines the terms relating to a loan. It represents a promise to pay.

Proof of Funds (POF)

A document, such as a bank statement or formal letter from a banking institution, verifying that the prospective buyer has the funds available to purchase an asset. Some sellers may request a POF when an offer is submitted.

Public Auction

An auction offered to the public when a property goes through legal proceedings such as foreclosure or tax sale in which a third party can bid on the property to gain ownership.

Public Records

Documents made available to the public and accessible in the county recorder's office. They may also be available online in some counties.

Purchase Money Mortgage

Q

Quitclaim Deed

The transfer of ownership from a seller to a buyer without any warranties, guarantees, or title insurance.

Quiet Title

A lawsuit that establishes a party's title to real property against other parties on the title. This "quiets" any challenges or claims to the title, ultimately giving the owner clear title. Quiet title is often used after a tax deed sale to ensure the tax buyer has a marketable title

R

Real Estate Investment Trust (REIT)

A pooled investment fund typically offered on the stock market as a publicly traded company that invests, owns, and manages multiple commercial properties. REITs pay at least 90% of taxable income to shareholders in the form of dividends to receive special tax treatment.

Real Estate Exchange-traded Fund (ETF)

A pooled investment fund in which a fund manager selects various real estate securities, such as REITs, to own in one portfolio. The ETF pays dividends to shareholders.

Real Estate Owned (REO)

Property that is bank-, lender-, or government-owned. This typically happens after foreclosure proceedings.

Real Property

Land and anything affixed to the land that's considered permanent, including physical property.

Realtor

A registered trademark for those belonging to the National Association of Realtors.

Real Estate Settlement Procedures Act (RESPA)

An act passed by Congress that stipulates certain requirements for documenting the loan underwriting process, including any transaction-related costs or settlement fees, and total cost of the loan with interest. 

Reconveyance

The conveyance of complete ownership from a lender or lienholder to the homeowner after a property a mortgage or lien has been paid in full.

Refinance

The process of obtaining a new mortgage in which the original mortgage is paid in full from the funds of the new one. Homeowners may choose to refinance to receive a lower interest rate, shorten the term of their loan, or leverage their equity for cash.

Replacement Reserves

Funds set aside for future repairs, improvements, or replacements to a property. Also called property reserves.

Return on Investment (ROI)

The rate of return in which any profit or loss is returned to the investor in relation to their initial investment. The higher the rate of return, the higher the monetary gain and speed at which the investor's initial investment is returned in addition to any profit.

Reverse Mortgage

A mortgage that allows people 62 years of age or older that have equity in their primary residence to receive a mortgage that requires no payments over the life of the loan. The entire balance with interest becomes due when the homeowner dies or sells the property.

Right of First Refusal

A clause that can be added into a contract stating that a party has the right to first refuse or accept any offer to sell or buy made from a third party.

Right of Survivorship

A stipulation often used in joint tenancy. This right states that, if one owner dies, the surviving owner automatically receives the rights to ownership of the deceased party.

S

Satisfaction of Mortgage

A document stating that a mortgage loan has been satisfied and paid in full. This is typically recorded in public records.

Seller Financing

See owner financing.

Secondary Market

The market in which bonds, mortgages, and other securities are bought and sold.

Secured Loan

A loan collateralized by a tangible asset such as a vehicle or property.

Self-Directed Investment Retirement Account (SDIRA)

A qualified retirement plan that allows individuals to invest in alternative asset investments, such as real estate. Like other retirement accounts, SDIRAs come with tax advantages.

Seller Carryback

Settlement Statement (HUD1)

A statement used in real estate closings that summarizes who paid whom and for what. 

Shared Appreciation Mortgage

A type of mortgage that lets a third party share in potential appreciation of a property. There are typically no payments made to the third party as a part of the mortgage, but the borrower shares a portion of any appreciated the property value at the time of sale or by a specified date.

Short Payoff

When a bank or lender accepts a lower amount than the current unpaid balance and considers a loan paid in full.

Short Sale

When a property is sold for less than what's owed on the mortgage. A short sale has to be approved by the lending institution and is typically performed when a property is significantly underwater.

Solo 401k

A qualified retirement plan designed for small business owners who have no employees. It lets them contribute to the retirement plan personally and from the company. Owners of a solo 401k can use their retirement accounts to invest in qualified alternative assets tax-deferred or tax-free.

Special Assessment

An additional expense that can be imposed on property taxes to increase the overall tax amount. Assessed by the county or local municipality to help pay for public improvements that may benefit the property owner.

Statute of Limitations

The period of time in which a legal action can be pursued. With foreclosures, each state has a period of time in which delinquent payments can be pursued by foreclosure action. It could be three years, five years, or seven years, for example. Payments prior to the statute of limitations cannot be included in the repayment figures the lender tries to get from the buyer.

Step-Rate Mortgage

A type of adjustable-rate mortgage in which the interest rate steps up or increases at a specified date to a specified interest rate. Rates can step up once or several times. A step-rate mortgage isn't usually tied to an economic index.

Subdivision

An area of land divided into lots that complies with local ordinances and regulations.

Subordinate Loan

Survey

A legal document shown as a map or plot indicating a property's location, boundaries, lot lines, dimensions, elevation, and position of buildings. A survey must be conducted by a licensed surveyor.

T

Taxes and Insurance (T&I)

An optional monthly payment in a mortgage loan that's paid into escrow for annual taxes and insurance.

Tax Deed

A legal document that grants ownership of a property to the county tax collector and gives them the authority to auction the property off for the collection of outstanding taxes. This absolves any subordinate liens, including mortgages.

Tax Deferral

A legal way of delaying the payment of taxes on a property. 

Tax Lien

A claim against you or your property for delinquent taxes. The lien can be executed by a county, state, or federal taxing authority to secure the payment of taxes. It takes priority over all other liens, including mortgages.

Tax Shelter

A legal method of protecting or sheltering income from taxation temporarily or permanently.

Tenancy in Common

A type of joint ownership in which each party has a specified percentage of interest and ownership in a property. There's no right of survivorship with tenancy in common.

Tenancy by the Entirety

When a property is owned by a married couple and one spouse passes, the property is automatically conveyed in its entirety to the surviving spouse.

Title Insurance

A type of insurance offered to lenders and borrowers to protect financial damages from issues in title.

Transfer Tax

A fee charged by the county when a property is deeded or transferred from one owner to the next.

Trust

A legal arrangement in which a property is vested to a person or institution, called a trustee, who has a fiduciary responsibility to manage the property on behalf of a beneficiary. Trusts are often used to purchase property for estate planning, but can also be used for asset protection.

Trustee

The person legally and fiduciarily responsible for managing a property that's held in a trust.

Truth in Lending Act (TILA)

A federal law that requires lenders to disclose loan costs and terms to help borrowers be as informed as possible about the costs and terms of any loan they apply for.

U

Underperforming Asset

A property that's not performing to its full potential because of poor management, low rents, high vacancy, or other factors.

Underwater

When a property is valued at less than the mortgage or loan against the property. For example, if a property is worth $100,000, but has a $150,000 mortgage, the homeowner would be $50,000 underwater.

Unpaid Principal Balance (UPB)

The unpaid principal amount owed on the loan at the current moment.

Unsecured Loan

A loan that's not secured by collateral. 

Usury Laws

Regulations intended to keep interest rates reasonable and limit the amount of interest that can be charged when lending money. These laws vary by state.

V

VA Loan

A type of mortgage offered to active military or retired veterans. These loans are guaranteed by the Department of Veterans Affairs (VA).

Vacancy Rate

The percentage of rental units currently vacant or the percentage of time, on average, that a unit is vacant per year.

Value Add

The act of adding value to a property or investment. This could include raising rental rates to market standards, decreasing vacancy, improving management practices, or making capital improvements to the property.

Variable-Rate Mortgage

W

Warranty Deed

A  deed that guarantees and transfers clear title to a property buyer.

Wholesale

The act of getting a property under contract for purchase at a low price and assigning that interest to a third-party buyer at a higher price. The person conducting the wholesale transaction is called a wholesaler and earns income from the difference between the purchase price and sale price.

Wrap-around Mortgage

A form of seller financing that's often used to sell a property that has an existing mortgage. The seller creates new financing terms with the buyer where the buyer's monthly payment exceeds the existing mortgage monthly payment. The seller uses the new monthly payment to continue to pay down the original mortgage while earning income from the difference between the two payments.

Writ of Possession

The document served to a tenant after eviction or to the borrower after foreclosure that gives possession back to the landlord or lender.

Y

Yield

The overall rate of return of an investment that takes into account variable income over time.

Yield to Maturity

The overall rate of return or yield if the investment, typically a mortgage note, is held until the full maturity.

Z

Zoning

The legal regulation appointed from the county or municipality dictating how a property can be used.

Zoning Variance

A request to deviate from the current zone ordinance, giving the property owner a waiver that allows them to use the property outside of its current zoning regulations.

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