Real Estate Terminology

ACCELERATION CLAUSE

A term in a loan agreement that requires the borrower to pay off the loan immediately under certain conditions.

ACH

(See Automated Clearing House)

ADDITIONAL PRINCIPAL PAYMENT

An additional payment is made toward the principal balance. This reduces the interest paid. For example, if you make one extra payment per year, you may reduce the loan by as much as a quarter.

ADJUSTABLE-RATE MORTGAGE (ARM)

A home loan where the interest fluctuates.

AFTER REPAIR VALUE (ARV)

The appraised value of a home after repairs are made.

AGREEMENT OF PURCHASE AND SALE

(See Assignment)

AMC

(See Appraisal Management Company)

AMORTIZATION

Amortization is the method used to decrease an asset cost over time.

AMORTIZATION SCHEDULE

A record of loan payments showing principal and interest paid over time.

ANNUAL PERCENTAGE RATE (APR)

The yearly cost to borrow money. Interest payments and fees (such as servicing fees) into account.

ANNUITY

A single payment to a retirement fund (or multiple payments to an insurance company) in exchange for a fixed sum of money paid out every year — typically for life.

APPLICATION FEE

An added cost for submitting an application for consideration.

APPRAISAL

A fair market valuation made by an authorized person.

APPRAISAL MANAGEMENT COMPANY (AMC)

Broadly, an independent entity (third party) used by mortgage lenders. Specifically, state-licensed (or state-qualified) appraisers who ensure a high level of quality control when delivering appraisal reports.

APPRAISER

An authorized person who determines fair market valuation.

APPRECIATION

The increase in value of an investment property over time.

APR

(See Annual Percentage Rate)

ARBITRATION

A procedure used to settle a dispute.

ARM

(See Adjustable Rate Mortgage)

ARREARS (OR ARREARAGE)

Money that is owed, which should have been paid already.

ARV

(See After Repair Value)

ASSESSED VALUE

The value of a property used to determine tax rates, completed by an assessor.

ASSET

A useful or valuable thing, person, or quality.

ASSIGNEE

A person to whom a right or liability is legally is transferred.

ASSIGNMENT

A sales transaction where the original buyer of a property (assignor) allows another buyer (assignee) to take over the buyer's rights and obligations (Agreement of Purchase and Sale) before the original buyer closes on the property. Private lenders will allow no more than a 2% assignment fee.

ASSUMABLE MORTGAGE

When a new owner assumes the existing owner’s mortgage. An attractive option when the interest rates are high and the current owner has mortgaged the sale property at a much lower interest rate. A conventional mortgage offered only by the USDA, FHA, and VA and not private lending companies.

AUTOMATED CLEARING HOUSE (ACH)

The electronic clearing and settlement system used for financial transactions by US commercial banks and other institutions. Most private lenders use ACH for their pay back agreement.

AUTOMATED VALUATION MODEL (AVM)
A software-based tool that's used in residential and commercial real estate to determine property value.

AVM

(See Automated Valuation Model)

BAD BOY CLAUSE

If triggered by enumerated bad acts, the bad boy clause requires the borrower and/or guarantor to be personally liable for damages to the lender. Alternatively, it converts an otherwise non-recourse loan into a full-recourse loan against the borrower or guarantor.

BALLOON LOAN

A balloon loan is a type of loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan.

BALLOON PAYMENT

A balloon payment is a one-time payment (larger than usual) due at the end of the loan term. If a borrower has a mortgage with a balloon payment, the payments may be lower in the years leading up to the one-time payment comes due, but the borrower could owe an enormous amount at the end of the loan term. Typically, borrowers will plan to refinance their mortgage or sell the property before the loan matures.

BANKRUPTCY

Bankruptcy helps people who can no longer pay their debts get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. Most private lending companies require a two year bankruptcy discharge before a borrower can qualify for a loan.

BASIS POINT (BPS)

One hundredth of one percent, used for interest rates. If the FED raises interest rates by 50 basis points, that would equate to .50% OR 9.25% increased to 9.75%.

BENEFICIARY DEMAND

A statement setting forth the amount required to payoff a loan in full.

BENEFICIARY STATEMENT

A disclosure from the lender of record noting the unpaid balance remaining on a mortgage loan as of a certain date, including the interest rate.

BINDER TITLE POLICY

A temporary contract of insurance in which the title company agrees to issue a specified policy within a certain period of time, requested before the property being purchased closes escrow.

BI-WEEKLY MORTGAGE

A mortgage that allows the borrower to make payments every two weeks rather than once a month.

BLANKET LOAN

A single mortgage that covers two or more pieces of real estate.

BPO

(See Broker Price Option)

BPS

(See Basis Point)

BRIDGE LOAN

A short-term loan used to bridge the gap between buying a home and selling a previous one. More often used with borrowers who have a Fix & Flip loan that has matured with no buyer. The borrower will take out a short-term loan (12 to 24 months) and hold the property while a buyer is found.

BROKER

A liaison between buyer and seller and/or borrower and lender.

BROKER PRICE OPINION (BPO)

The price (or value) of a property as estimated by a real estate broker or other qualified individual.

BRRRR

Acronym for Buy, Rehab, Rent, Refinance, Repeat.

BUY & HOLD

A long-term, passive strategy in which investors keep a somewhat stable portfolio of properties over the long term, regardless of the short-term fluctuations in the market. Also known as Turnkey Rental.

BUYDOWN

A way for a borrower to obtain a lower interest rate by paying discount points at closing.

CALL OPTION

An option to buy assets at an agreed price on or before a particular date.

CAP (CAP RATE)

Indicates the expected rate of return to be generated on a real estate investment property.

CAPEX

(See Capital Expenditure)

CAPITAL EXPENDITURE (CAPEX)

Money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.

CASH FLOW

The total amount of money being transferred into and out of a business, especially as affecting liquidity. The amount of money received from an investment property used to pay for expenses.

CASH-OUT REFINANCE

A mortgage option that allows a homeowner to pull cash (equity) from a property. With private lenders, the amount is limited to 75% of the appraised value and only to the extent that the current rental income covers and/or exceeds the mortgage debt service.

CERTIFICATE OF DEPOSIT

A certificate issued by a bank to a person depositing money for a specified length of time.

CERTIFICATE OF ELIGIBILITY (COE)

A document generated by the United States Department of Veterans Affairs (VA), which informs the lender that the borrower meets the necessary VA eligibility requirements.

CHAIN OF TITLE

A sequential list that shows all the owners of a piece of property.

CHAPTER 7 BANKRUPTCY

The sale of a debtor's nonexempt property and the distribution of the proceeds to creditors. Also known as Liquidation.

CHAPTER 13 BANKRUPTCY

Enables individuals with regular income to develop a plan to repay all or part of their debts. Also known as the Wage Earners Plan.

CLA

(See Conditional Loan Approval)

CLEAR TITLE

A title without any type of lien or levy from creditors or other parties that would pose a question as to legal ownership.

CLOSE OF ESCROW

When both the buyer and the seller meet the conditions in the home-buying contract, and the third party that holds the documents and funds can move forward with the sale.

CLOSING

The final phase of mortgage loan processing when the property title passes from the seller to the buyer.

CLOSING COSTS

Processing fees paid to a lender such as underwriting fees, closing fees, and loan origination fees. Third party closing costs are not included in these fees, such as the appraisal, title work, government stamps, transfer and legal fees.

CLOSING DATE

The day a purchaser becomes the legal owner of a property.

CLOSING STATEMENT

A form used in a real estate transaction, which includes an itemized list of all the buying or selling costs associated with that transaction.

CLTV

(See Combined Loan-To-Value)

CO-BORROWER

A person who applies for and shares liability of a loan with another borrower.

COE

(See Certificate of Eligibility)

COFI

(See Cost of Funds Index)

COLLATERAL

Something pledged as security for repayment of a loan, to be forfeited in the event of a default.

COLLATERAL PROTECTION INSURANCE

(See Force-Placed Insurance)

COLLECTION

When a bank or mortgage company collects either the full amount of the loan or the payments owed, including extra fees.

COMBINED LOAN-TO-VALUE (CLTV)

The total percentage of all of the loans on the property to the value of the property.

COMMISSION

A percentage of a property's purchase price that is paid to the real estate agents and brokers who facilitated the purchase and sale of a property.

COMMITMENT LETTER

A formal, legal and binding document that is issued to a loan applicant by a lender that would indicate the borrower has passed the lenders underwriting guidelines, and is approved for the loan. However, many private lending companies provide CLA (Conditional Loan Approval) based on the information the borrow has provided before going to underwriting, hence the "conditional."

COMMON AREAS

In real estate or real property law, the area which is available for use by more than one person such as porches, yards, driveways, and garages.

COMPARABLES (COMPS)

A list of recent property sales that reflect the characteristics (property age, style, location, and size) of another asset.

CONDITIONAL LOAN APPROVAL (CLA)

A letter or notice from a lender stating that the borrower's assets and documentation have been reviewed.

CONDITIONAL PERSONAL GUARANTEE

The guarantor will perform the obligation should the principal default or when another event occurs, such as the creditor exhausts all of its remedies against the principal.

CONDOMINIUM

A building or complex of buildings that contain a number of individually owned apartments or houses.

CONCESSION

A gift that a seller can offer a potential buyer to reduce the cost of buying a home, typically no more than 2% of the purchase price.

CONSTRUCTION LOAN

A short-term loan that provides funds to cover the cost of building or rehabilitating a home.

CONTINGENCY

A provision for an unforeseen event or circumstance. Typical contingency in real estate investing would be legal approval, loan approval, inspection and appraisal coming in at the purchase price. In the event the criteria is not met, the borrower can cancel the contract within a specific timeframe agreed upon between seller and borrower.

CONVENTIONAL MORTGAGE

Any mortgage that is not insured or guaranteed by a government agency such as the Department of Veterans Affairs (VA), Federal Housing Administration (FHA), or the Farmers Home Administration (FmHA). Additionally, the mortgage also meets lending guidelines issued forth by Fannie Mae and Freddie Mac.

CONVERSION OPTION

A clause or provision used in an adjustable-rate mortgage (ARM), which allows a person to change the adjustable-rate mortgage to a fixed-rate mortgage at a specific future date.

CONVERTIBLE ARM

A hybrid mortgage that combines an adjustable-rate mortgage (ARMs) and a fixed-rate mortgage, which gives borrowers the ability to convert the ARM to a fixed-rate mortgage after a certain period of time rather than have the loan balloon.

COOPERATIVE (CO-OP)

A business that is owned and operated by members who may choose to purchase real estate.

CO-SIGNER / CO-BORROWER

Someone who takes full responsibility for paying back a loan, along with the primary borrower.

COST OF FUNDS INDEX (COFI)

A regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating variable rate loans.

COUNTER OFFER

An offer made in response to another.

CREDIT

The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.

CREDIT BUREAU

A company that collects information relating to the credit ratings of individuals and makes it available to others, such as credit card companies and financial institutions.

CREDITOR

A person or company to whom money is owed.

CREDITOR-PLACED INSURANCE
(See Force-Placed Insurance)

CREDIT REPORT

A detailed breakdown of an individual's credit history that is usually provided by the three major credit bureaus: Experian, TransUnion, and Equifax.

CREDIT SCORE

A number assigned to a person that indicates to lenders the person's capacity to repay a loan.

CREDITWORTHY

A person or company considered suitable to receive credit, especially due to their history of paying money back in the past.

DEBT

Something, typically money, that is owed or due.

DEBT CONSOLIDATION

The act of combining several loans or liabilities into one by taking out a new loan to pay off the debts.

DEBT SERVICE COVERAGE RATIO (DSCR)

A calculation used typically in commercial lending transactions to ensure the lender that the property considered will generate enough income to cover the mortgage debt payments. Calculation: Rental income divided by mortgage debt (See PITI/PITIA). Most private lending companies require a minimum 1.1 ratio, while NSS Lending recommends a 1.3 or greater.

DEBT-TO-INCOME RATION (DTI)

A formula used by banks when determining borrowing risk. The percentage of gross monthly income that is used to pay monthly debt. Private lending companies do not use DTI when calculating risk.

DEED

A legal document that is signed and delivered, especially one regarding the ownership of property or legal rights.

DEED-IN-LIEU FORECLOSURE

A borrower and a lender reach a mutual understanding that borrower is no longer able to make the mortgage loan payments and essentially gives the lender back the property.

DEED OF TRUST

An agreement between a home buyer and a lender at the closing of a property, transferring the legal title of a property to a third party — such as a bank, escrow company or title company — to hold until the borrower repays their debt to the lender. Also known as a mortgage.

DEED TRANSFER TAX

(See Transfer Tax)

DEFAULT

Failure to fulfill an obligation, especially to repay a loan.

DEFAULT INTEREST RATE

The percentage of all outstanding loans that a lender has written off as unpaid after a prolonged period of missed payments.

DELINQUENCY

A failure to pay an outstanding debt on the agreed upon payment date

DEPRECIATION

The loss in value of an asset over time.

DISCLOSURES

A fact, especially a secret, made known. Regarding real estate transactions, items such as lead paint, water damage, asbestos, and structural issues.

DISCOUNT POINTS

Fees on a mortgage paid up front to the lender, in return for a reduced interest rate over the life of the loan.

DISCOUNT RATE

The minimum interest rate set by the Federal Reserve for lending to other banks.

DOWN PAYMENT

An initial payment made when something is bought on credit.

DSCR

(See Debt Service Coverage Ratio)

DTI

(See Debt-To-Income Ratio)

DUE-ON-SALE CLAUSE

A loan clause that stipulates that the full balance be called due (paid in full) upon a property sale or transfer of ownership.

EAH

(See Employee Assisted Housing)

EARNEST MONEY

Money paid by the borrower to the seller to confirm a contractual agreement of an asset. Earnest money can be risked if borrower fails to meet the terms of the contractual agreement. Alternatively, the money can be returned in the event that the contingencies are not met such as mortgage approval, inspection, legalities, and appraisal.

EASEMENT

A right to cross or otherwise use someone else's land for a specified purpose. For example, passage way to the beach or a driveway that crosses another property.

ECOA

(See Equal Credit Opportunity Act)

EIN

An Employer Identification Number (EIN) is a unique number assigned to a business for easy IRS identification for tax reporting purposes.

EMINENT DOMAIN

The right of a government or its agent to expropriate private property for public use, with payment of compensation.

EMPLOYEE-ASSISTED HOUSING (EAH)

Programs that provide a channel through which employers can help their employees with the cost of owning or renting a home, typically in neighborhoods close by.

ENCROACHMENT

One property owner violating their neighbor's rights by building or extending some feature and crossing onto their neighbor's property lines.

ENCUMBRANNCE

A mortgage or other charge on property or assets.

ENTITY

Any limited partnership, limited liability company, corporation or other person which has, as its principal business, the ownership of real property.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)

A federal civil rights law that protects someone from being discriminated against by lenders.

EQUITY

The difference between how much a home is worth and how much owed on the mortgage.

ESCROW

For private lending companies, the escrow is the earnest money provided by the borrower to secure a sales contract which is kept in the custody of a third party, often the title company, to be released when the property exchanges hands at closing.

ESCROW ACCOUNT

Essentially, a savings account that is managed by your mortgage servicer and where escrow is held to pay taxes & insurance on the property.

ESCROW ANALYSIS

A review of a borrower's escrow account to ensure enough funds have ben collected to pay upcoming installments of insurance premium(s) and/or property taxes.

ESCROW COMPANY

An escrow company manages a buyer's deposit and may also be responsible for holding on to deeds and other documents related to the sale of a property.

ESTOPPEL CERTIFICATE

A document signed by a tenant that states what the current status is on their lease.

EVICTION

The action of expelling someone, especially a tenant, from a property.

EXCLUSIVE AGENCY LISTING

A type of real estate listing agreement in which one broker is appointed as the seller's sole agent.

EXCLUSIVE-RIGHT-TO-SELL LISTING

Only one broker is specifically authorized to act as the exclusive agent of the seller.

EXECUTOR

A person or institution appointed by a testator to carry out the terms of their last will and testament.

FAIR CREDIT REPORTING ACT (FCRA)

Protects information collected by consumer reporting agencies such as credit bureaus, medical information companies and tenant screening services.

FAIR MARKET VALUE

A selling price for an item to which a buyer and seller can agree.

FANNIE MAE

The Federal National Mortgage Association is a government-sponsored enterprise that makes mortgages available to low and moderate income borrowers who meet specific guidelines. They do not originate mortgages but purchase them from approved lenders and sell those mortgages to investors. In doing so, capital continues to be infused into the housing market. Fannie Mae.

FANNIE MAE FORM 1003

(See Uniform Residential Loan Application)

FANNIE MAE LOAN LIMIT

The dollar cap on the size of a mortgage that Freddie Mac and Fannie Mae are willing to buy or guarantee.

FANNIE-MAE-SELLER

A lender approved by Fannie Mae to service of residential home mortgage loans.

FARMERS HOME ADMINSTRATION (FmHA)

A former government agency that financed businesses, housing, and facilities in rural areas during the Great Depression.

FCRA

(See Fair Credit Reporting Act)

FEDERAL HOUSING ADMINISTRATION (FHA)

A federal agency that provides mortgage insurance on FHA-approved loans.

FEE SIMPLE

Land owned completely and without limitations or conditions. In other words, the owner may do anything they wish on the land as long as changes adhere to zoning and easement laws.

FHA

(See Federal Housing Administration)

FHA-INSURED LOAN

A mortgage that is insured by the FHA and issued by a bank or other approved lender.

FICO SCORE

A type of credit score that makes up a substantial portion of the credit report lenders use to assess an applicant's credit risk.

FINANCE CHARGE

A fee charged for the use of credit or the extension of existing credit.

FINDER'S FEE

A commission paid to an intermediary or the facilitator of a transaction. Also known as a Referral Fee.

FIRST MORTGAGE

The primary or initial loan obtained for a property.

5-YEAR ARM

A hybrid mortgage with a fixed interest rate period (up to 5 years) followed by an adjustable rate period (up to 25 years). The adjustment can occur as often as every six months (5/6 ARM) or once per year (5/1) during the term of the loan. The first number (5) represents the number of years until the rate adjusts. The second number (/6 or /1) represents how often if will adjust.

FIX & FLIP

The strategy of purchasing a property, renovating it, then selling it at a profit.

FIXED-RATE LOAN

A loan where the interest rate remains unchanged for the entire loan term, most often 20 and 30-year fixed rates.

FORCED-PLACE INSURANCE

An insurance policy placed onto a mortgaged property by lien holders to provide coverage after a borrower has allowed their policy to lapse.

FORECLOSURE

The action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments.

FORECLOSURE FEES

The sum of all costs and/or other charges of publication, service of notice, prosecution, or other proceedings against a foreclosure.

FORFEITURE

The loss or giving up of something as a penalty for wrongdoing.

FmHA

(See Farmers Home Administration)

FRACTIONALIZED LOAN

A way to jointly own real estate, primarily vacation property.

FREDDIE MAC

A government-sponsored enterprise that purchases, guarantees, and securitize home loans.

FREDDIE MAC LOAN LIMIT

The dollar cap on the size of a mortgage that Freddie Mac and Fannie Mae are willing to buy or guarantee. Currently $647,200 You cannot update a glossary every time this number changes.

FRONT-END RATIO

(See Housing Expense Ratio)

FULL AMORTIZED MORTGAGE

A borrower makes every payment according to the original term loan schedule, the loan paid in full by the end of the term.

FULL RECOURSE LOAN

Grants the lender the right to seize any additional assets that the borrower may own and use them to recoup the remaining amount due.

(See General Contractor)

GEM

(See Growing Equity Mortgage)

GENERAL CONTRACTOR (GC)

A person or organization that manages construction projects. In some states, this person or organization is required to be licensed.

GIFT LETTER

A piece of legal, written correspondence explicitly stating that money received from a friend or relative is a gift.

GOOD FAITH ESTIMATE

A form that a lender must give a borrower when they apply for a reverse mortgage.

GOVERNMENT MORTGAGE

Home loans that are fully or partially insured (backed) by a government agency such as the Federal Housing Administration (FHA), the US Department of Agriculture (USDA), or the Department of Veterans Affairs (VA).

GROSS MARGIN

Equates to net sales minus the cost of goods sold.

GROSS MONTHLY INCOME

An individual's total earnings before taxes or other deductions.

GROUND RENT

A rental agreement between a tenant and a landlord.

GROUND-UP CONSTRUCTION

Projects that start with an undeveloped portion of land and work towards a finished building.

GROWING EQUITY MORTGAGE (GEM)

A type of fixed-rate mortgage where monthly payments increase over time according to a set schedule, rather than remaining fixed and equal over the loan term.

HARD MONEY LENDER

A specific type of asset-based loan financing (private money lending) through which a borrower receives funds secured by real property.

HAZARD INSURANCE

Coverage that protects a property owner against damage caused by fires, severe storms, or other natural events.

HECM

(See Home Equity Conversion Mortgage)

HELOC

(See Home Equity Line of Credit).

HOA

(See Homeowners Association)

HOME EQUITY CONVERSION MORTGAGE (HECM)

A Federal Housing Administration (FHA) reverse mortgage program, which enables homeowners to withdraw some of the equity in their home.

HOME EQUITY LINE OF CREDIT (HELOC)

A revolving source of funds, much like a credit card, that gives homeowners access to equity. Private lenders do not offer HELOCs as these are non-owner-occupied properties and not primary residences.

HOME INSPECTION

An examination of real estate property to determine the property's condition and safety.

HOMEOWNERS ASSOCIATION (HOA)

A self-governing organization that makes (and enforces) community rules and guidelines for a subdivision, planned community, or condominium building.

HOMEOWNERS INSURANCE

A form of property insurance that covers losses and damages to an individual's house and assets in the home.

HOMEOWNER'S WARRANTY

A residential service contract that covers the cost of maintaining household systems or appliances for a set period.

HOUSING EXPENSE RATIO

A percentage determined by dividing the borrower's housing expenses by their pre-tax income. Also known as Front-End Ratio.

HUD-1 SETTLEMENT STATEMENT

A form that lists all of the costs a borrower pays and the credits a borrowers receives when they close on the loan, including how much the lender is charging to issue the loan and how much the borrower paid to have their home appraised.

HYBRID LOAN
A combination of fixed-rate and adjustable-rate loans.

INCOME PROPERTY

Essentially, a piece of real estate that is purchased (or developed) in order to earn income by renting it out.

INDEX

A broad measure of the movement of single-family property prices in the United States.

INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (ITIN)

A nine-digit number issued by the Internal Revenue Service (IRS) to someone living in the United States who doesn’t have a Social Security number.

INSPECTION

(See Home Inspection)

INSTALLMENT

A sale of property where the borrower receives at least one payment after the tax year of the sale.

INTEREST ONLY

A type of mortgage in which the the borrower is required to pay only the interest on the loan for a certain period.

INTEREST RATE

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

INTER VIVOS REVOCABLE TRUST

A legal document created while the individual for which the trust is drawn up is still living and allows changes to be made.

INVESTMENT PROPERTY

Real estate purchased to generate income. With private lenders, these investments properties are non-owner occupied, not second homes that are periodically rented.

ITIN

(See Individual Taxpayer Identification Number)

JUDGEMENT LIEN

Allows a creditor to force the sale of property owned by the debtor.

JUMBO LOAN

A type of financing that exceeds the limits set by the Federal Housing Finance Agency and cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac.

JUNIOR DEBT

(See Subordinate Financing)

JUNIOR LIEN

A second loan a borrower takes out using the property as collateral while the first loan remains in place. Also known as a second mortgage.

LATE FEE

A charge imposed on a borrower who fails to make a payment on a debt or other financial obligation by the due date.

LEASE-PURCHASE OPTION

An agreement that gives a tenant the choice to purchase the rented property during or at the end of the lease.

LENDER

An organization or person that loans money.

LENDER-PLACED INSURANCE

(See Forced-Place Insurance)

LETTER OF INTENT (LOI)

An "agreement to agree” between two parties.

LEVERAGE

The ratio of a company's loan capital (debt) to the value of its common stock (equity).

LIBOR

The basic rate of interest used in lending between banks on the London interbank market and also used as a reference for setting the interest rate on other loans.

LIEN

A right to keep possession of property belonging to another person until a debt owed by that person is discharged.

LIMITED PERSONAL GUARANTEE

If a borrower defaults on a loan, another party shares the burden of repayment amongst any shareholder that has a 20 percent stake, or more, in the borrower's company.

LIQUIDATION

(See Chapter 7 Bankruptcy)

LIQUIDITY

The availability of immediate assets such as savings accounts, checking accounts, CDs, money markets, or brokerage accounts.

LIVING TRUST

(See Inter Vivos Revocable Trust)

LOAN-TO-VALUE RATIO (LTV)

An assessment of lending risk that banks and other lenders examine before approving a mortgage. Private lending companies' maximum loan-to-value is 80% of the purchase price.

LOCK-IN RATE

A guarantee that the interest rate will not change between the offer and closing, as long as the closing occurs within the specified time frame and there are no changes to the borrower's application. Also known as Rate Lock.

LOI

(See Letter of Intent)

LTV

(See Loan-To-Value Ratio)

MANUFACTURED HOUSING

Prefabricated houses that are constructed in a factory and then assembled at the building site in modular sections.

MARGIN

A measurement that indicates a change between the purchase price and the selling price of an asset.

MARKET RENT

The amount of rent that can be expected by the landlord in comparison with similar properties in the same area.

MARKET VALUE

The amount for which something can be sold on a given market.

MATURITY DATE

The date on which the principal amount of a loan is due.

MLS

(See Multiple Listing Service)

MORTGAGE

An agreement between a home buyer and a lender at the closing of a property. Also known as a Deed of Trust.

MORTGAGE LOAN ORIGINATOR

A company or person that works with an underwriter to complete a loan transaction for a borrower.

MOVE-IN READY

The property is structurally sound, meets all local code requirements, and is deemed livable.

MULTIFAMILY PROPERTY

Any residential property containing more than one housing unit.

MULTIPLE LISTING SERVICE (MLS)

A database established by cooperating real estate brokers, which provides data about properties for sale.

NEGATIVE AMORTIZATION

An increase in the principal balance of a loan caused by a failure to cover the interest due on the loan.

NET OPERATING INCOME (NOI)

A formula used to quickly calculate profitability of a particular real estate investment.

NET WORTH

The total wealth of an individual, company, or household, taking account of all financial assets and liabilities.

NOI

(See Net Operating Income)

NON-RECOURSE LOAN

A loan secured by collateral.

NOTE

An IOU secured by property.

OFFER

When a prospective buyers proposes a purchase price to the owner.

OPEN HOUSE

An event when the general public is invited to view a property that is for sale.

ORIGINATION FEE

An upfront fee charged by a lender to process a new loan application.

OWNER FINANCING

Allows buyers to pay for a new home without relying on a traditional mortgage. Also known as seller financing.

OWNER-OCCUPIED PROPERTY

A piece of real estate in which the person who holds the title (or owns the property) also uses the home as their primary residence.

PARTIAL RELEASE CLAUSE

A mortgage provision that allows some of the collateral to be released from a mortgage after the borrower pays a certain amount of the loan.

PAYOFF

The amount a borrower will have to pay to satisfy the terms of the mortgage loan in full.

PAYOFF STATEMENT

A document that details the exact amount of money needed to fully pay off your mortgage loan.

PENDING

The provisions on a contingent property are successfully met, and the sale is being processed.

PER DIEM

The interest charged on a loan on a daily basis.

PERSONAL GUARANTEE

A borrowers's legal promise to repay credit issued to a business for which they serve as an executive or partner.

PITI (PITIA)

An acronym which stands for principal, interest, taxes, and insurance.

An acronym which stands for principal, interest, taxes, insurance, and association fees.

PITI RESERVES

The cash that is left from a borrower's liquid assets after the borrower makes a down payment and pays the closing costs on a home.

PLANNED UNIT DEVELOPMENT (PUD)

A community, usually small, that can contain many types of single-family homes such as townhomes or condominiums.

PLAT OF SURVEY

(See Survey)

PMI

(See Private Mortgage Insurance)

PML

(See Private Money Lender)

POINT(S)

Any upfront fee that is calculated as a percentage of a borrower's loan amount, whether or not they receive a lower interest rate.

PORTFOLIO

A collection of two or more properties held in one entity and/or a comprehensive document that details an investor's real estate assets.

POWER OF ATTORNEY

The authority to act on behalf of another person in specified or all legal or financial matters.

PREAPPROVAL

A document from a lender stating that the lender is tentatively willing to lend a borrower up to a certain amount based on the borrower's current financial status, usually reflected in three months' of bank statements.

PREPAYMENT PENALTY

A fee that some lenders charge if the borrower pays off all or part of the mortgage early.

PREQUALIFICATION

An estimate for credit given by a lender based on information provided by a borrower.

PRIME INTEREST RATE

The interest rate that lenders charge their most creditworthy borrowers.

PRINCIPAL

The responsible party, also called the managing broker or the qualifying broker.

PRIOR TO DOC CONDITIONS (PTD)

Conditions that must be signed-off on before the lender will prepare the final loan documents.

PRIOR TO FUNDING CONDITIONS (PTF)

Conditions that come up after an underwriter reviews the loan.

PRIVATE MONEY LENDER (PML)

An individual or company who finances real estate investors.

PRIVATE MORTGAGE INSURANCE (PMI)

A type of insurance that conventional mortgage lenders, such as banks, require when home buyers offer less than a 20% down payment.

PROHIBITED TRANSACTIONS

Certain transactions between a retirement plan and a disqualified person, prohibited by law.

PROMISSORY NOTE

A written promise on the part of the borrower to pay back another party.

PTD

(See Prior To Doc)

PTF

(See Prior To Funding)

PUD

(See Planned Unit Development)

QUITCLAIM DEED

A document that releases a borrower's interest in a property without stating the nature of the borrowers's interest or rights.

RADON

A radioactive, colorless, odorless, and tasteless noble gas.

RATE AND TERM REFINANCE

A type of refinancing that allows the borrower to change the terms of their current loan and replace them with more favorable terms.

RATE CAP

A limit on how high an interest rate can rise on variable rate debt.

RATE LOCK

(See Lock-In Rate)

RATIFIED SALES CONTRACT

A contract in which the terms have been agreed upon by all parties, but the contract has not yet been fully executed, signed, and delivered.

RECEIVABLE TRUST

(See Inter Vivos Revocable Trust)

REFERRAL FEE

A commission paid to the person or entity that facilitated an investment deal by linking up a potential borrower with a lender.

REFINANCE

To fund a property at a different interest rate and typically with a longer term.

REINSTATEMENT STATEMENT

The restoration of a loan to its former position.

RELIEF OF STAY

Permission to continue collections, which a creditor requests from the bankruptcy court.

REMAINING TERM

The number of months outstanding on a loan.

RENEWAL FEE

The fee a broker or realtor must pay annually.

REPAYMENT PLAN

Determines a borrower's monthly mortgage payment amount, how much interest will be paid over the loan term, and how many years it will likely take to repay the loan in full.

REPLACEMENT COST

The cost to replace an existing asset with a similar asset at the current market price.

REVOLVING DEBT

Allows a borrower to obtain a loan with the flexibility to drawdown, repay, and redraw loans advanced.

RHS

(See Rural Housing Service)

RIGHT OF EGRESS

The legal means to enter a property.

RIGHT OF FIRST REFUSAL

A contractual right to enter into a transaction with a person or company before anyone else is able.

RIGHT OF INGRESS OR EGRESS

The legal means to exit or leave a property.

RIGHT OF RESCISSION

A borrower's right to cancel certain types of loans.

RIGHT OF SURVIVORSHIP

Used to ensure that surviving occupants can keep the property if they are a joint owner and the other owner becomes deceased.

RURAL HOUSING SERVICE (RHS)

A division of the USDA (United States Department of Agriculture) that manages loan programs focusing on rural housing and community service facilities.

SALE LEASEBACK

An arrangement in which the property owner that sells can lease back that same asset from the purchaser.

SDIRA

(See Self-Directed IRA)

SECOND MORTGAGE

A mortgage made while the original mortgage is still in effect. Also known as a Junior Mortgage.

SECOND POSITION

A mortgage taken out using the property as collateral while you still have another loan secured by your house. Also known as a Junior Lien.

SECURED MORTGAGE

The lender has a security interest in the property and that property is being used as collateral to secure the debt.

SECURITY INTEREST

An enforceable legal claim (or lien) on collateral that has been pledged, usually to obtain a loan.

SELF-DIRECTED IRA (SDIRA)

A self-directed individual retirement account (SDIRA) that a borrower may use to hold real estate as an investment.

SELLER FINANCING

(See Owner Financing)

SELLER TAKE-BACK

A type of mortgage in which the buyer obtains a loan from the seller to secure the sale of the property.

SERVICER

Someone who collects homeowners' mortgage payments and passes those payments on to investors, tax authorities, and insurers, often through escrow accounts.

SETTLEMENT SERVICES

Services provided in connection with a real estate settlements, including a title searches, title examinations, document preparation, and more.

SETTLEMENT STATEMENT

(See HUD-H1)

SFR

(See Single-Family Residence)

SHORT SALE

When a property owner sells for less than what's owed on the mortgage.

SINGLE-FAMILY RESIDENCE (SFR)

A standalone structure on its own plot of land, intended for one family to occupy.

SUBORDINATE FINANCING

Debt that ranks behind a first secured lender's debt such as a first mortgage. Also known as Junior Debt.

SURVEY

An examination and record of the area and features for the purpose of creating a map, plan, plat, or description.

SWEAT EQUITY

An interest or increased value in a property earned from labor toward upkeep or restoration.

TAKEOUT LOAN

Long-term financing a lender promises to provide at a particular date or when particular criteria for completion of a project are met.

THIRD PARTY ORIGINATION

Any third-party that works with a lender to originate a mortgage loan.

TILA

(See Truth In Lending Act)

TIME VALUE OF MONEY (TVM)

A financial principle describing how money in the present is worth more than an equal amount in the future.

TITLE

The legal right to ownership of a property, including the right to sell.

TITLE BINDER

A form of temporary real estate insurance used during ownership transfer.

TITLE COMPANY

A third party that works on behalf of both the lender and the buyer.

TITLE INSURANCE

A policy meant to protect borrowers and lenders from either damages or financial losses caused by a problematic title.

TITLE SEARCH

The examination of public records on the property to confirm the property's rightful legal owner.

TITLE VESTING

(See Vesting Option)

TRADE EQUITY

The money given when a prospective buyer sells an existing property in order to finance the down payment on the purchase of another property.

TRANSFER OF OWNERSHIP

The means by which ownership of a property is transferred from one party to another.

TRANSFER TAX

A third-party fee charged by either a state or local government in order to complete the sale of property. Also known as a Deed Transfer Tax.

TRUST DEED

An agreement between a borrower and a lender at the time of closing. Also known as a Deed of Trust.

TRUTH IN LENDING ACT (TILA)

A law protecting home buyers and investors from inaccurate and unfair credit billing and credit card practices.

TURN-KEY RENTAL PROPERTY

(See Buy & Hold)

TVM

(See Time Value of Money)

2 to 4 PROPERTY

A single building that provides housing for more than one family but less than five families. Also known as Two-To-Four Property.

TWO-TO-FOUR PROPERTY

(See 2 to 4 Property)

UNDER CONTRACT

Term used when a buyer and seller have signed and dated a legal document to purchase a home.

UNDERWRITING

When the lender verifies a borrower's income, assets, debt, and property details in order to issue final approval for the mortgage.

UNIFORM RESIDENTIAL LOAN APPLICATION

Used by lenders to determine a borrower's creditworthiness when seeking a loan. Also known as Fannie Mae Form 1003.

UNLIMITED PERSONAL GUARANTEE

Allows the lender to recover the entire loan amount, plus interest and legal fees, by whatever means possible, if the borrower defaults.

UNSECURED LOAN

A mortgage that does does not require collateral.

USURY

Interest that a lender charges a borrower at a rate above the lawful ceiling, which is illegal.

VA GUARANTEED LOAN

A mortgage offered through a U.S. Department of Veterans Affairs program.

VARIABLE RATE

An interest rate that may be changed in response to economic conditions.

VESTING OPTION

The manner (legal rights) in which a property owners title is held. Also known as Title Vesting.

WAGE EARNERS PLAN

(See Chapter 13 Bankruptcy)

WALK-THRU

The act of going slowly through a property.

WARRANTY

A written guarantee, issued to the purchaser.