Real Estate
A 1031 exchange is a real estate transaction in which the buyer and seller effectively swap properties in order to avoid paying capital gains tax on the sale. For example, let’s assume that John D...
An abstract of title is a history of a piece of property. For example, let's say John Doe wants to buy the house at 123 Main St. As part of the transaction, his title insurance company obtains a cop...
An adjustable rate mortgage (ARM) is a type of mortgage using a varying interest rate calculated by adding a premium to a specific benchmark rate. These loans are also called variable-rate mortgag...
Assessed value refers to the value of an asset -- usually real estate -- as determined by an assessor for tax purposes. The assessed value is often computed by incorporating the purchases and sales o...
A balloon mortgage is a mortgage with a large payment made near or at the end of a loan term. Unlike a loan whose total cost (interest and principal) is amortized -- that is, paid incrementally duri...
A buydown, also known as paying points, is a way to lower the interest rate on a mortgage. Let's say John Doe wants to borrow $100,000 to buy a house from Jane Smith. The lender says the interest ra...
In real estate, a capitalization rate is a measure of return on investment. The formula for capitalization rate is: Capitalization Rate = (Expected Income from Property – Fixed Costs – Variable ...
The Case-Shiller Home Price Index refers to a set of indices released by Standard and Poor's that tracks changes in the value of residential real estate. There are several "Case-Shiller" indices to...
A cash out refinance (also called a cash out refinance loan or cash out refinance mortgage) is a type of mortgage loan that lets you to turn the equity you have in your home into cash, similar to a h...
Closing costs are fees and expenses paid by both the buyer and the seller when a transaction is completed. Closing costs are common expenses in real estate transactions. Closing costs are most commo...
A coinsurance clause in regards to property insurance specifies a minimum percentage of a property's assessed cash or replacement value that it must be insured for (typically 80% or 90%). If the in...
Commercial real estate is any property that is exclusively used for business activity. Commercial real estate is any non-residential property used for commercial profit-making purposes. Commercial r...
A condominium, often shortened to condo, is a multi-unit property where units are individually owned. Ownership typically includes an interest in common properties, like sidewalks, lobbies, and pools...
Sometimes referred to as a “self build loan,” a construction loan is a loan that is used to finance the construction of a new home or some other type of real estate project. The loan is made to t...
A conventional loan is a mortgage that is not insured or guaranteed by a government agency. Also known as a conventional mortgage, conventional loans are usually fixed-rate loans. Conventional mortga...
A deed is an ownership document that entitles its holder to specific rights to a property based on a set of explicit conditions. In most cases, a deed establishes proper ownership of a piece of prop...
A deed of trust, most commonly used in real estate transactions, is an agreement between a borrower and a lender that the title to the property purchased by the loan will be held in trust by a neutra...
A distressed sale occurs when a sale must be made under unfavorable conditions for the seller.    In a distressed sale, the seller is affected by unfavorable conditions that force the sale.  For ...
A down payment is the initial payment a borrower puts toward a large purchase, and is usually a specified percentage of the total purchase price. Down payments are typically used for real estate, car...
Earnest money is a good faith deposit, typically on a house purchase. It is not the same as a down payment. For example, let's assume John wants to buy a home that is listed for $500,000. To show th...
An easement is a legal right to trespass.   Let's say John Doe owns five acres of land. He retires and decides that he doesn't want to keep paying property taxes on the full parcel. He decides to s...
An easement in gross is a legal right to use another person's land for as long as the owner owns that land or the holder of the easement dies. Let's say John Doe owns five acres of land, which inclu...
Eminent domain is a legal strategy that allows a federal or local government to seize private property for public use. The seizing authority must pay fair market value for the property seized. Let's...
Escrow is a financial arrangement whereby a third party holds funds in safekeeping pending the completion of a contract or other obligation. For example, let's assume a situation where someone is pu...
In the real estate world, mortgage companies use escrow accounts to collect property taxes, homeowners insurance, private mortgage insurance and other payments that are required by the homeowner but...
Fannie Mae (OTC: FNMA) is the nickname for the Federal National Mortgage Association (FNMA). Established in 1938, Fannie Mae's purpose is to create a secondary market for the purchase and sale of mo...
The Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") is a government-sponsored entity that buys certain types of mortgages from banks and uses them to collateralize mortgage-backed se...
A first-time homebuyer an individual or couple purchasing a home for the first time. The IRS also considers someone who has not owned a home in the past two years to be a first-time homebuyer. First...
Foreclosure occurs when a lender seizes and sells a borrower's collateral after the borrower has failed to repay the lender. The term is most often associated with real estate. In general, there are...
Ginnie Mae is the nickname for the Government National Mortgage Association. Ginnie Mae guarantees the timely payment of interest and principal on certain mortgage-backed securities (MBS).   Ginnie...
A good faith estimate is a written estimate of the fees due at closing for a mortgage. The Real Estate Settlement Procedures Act (RESPA) requires a lender has to provide a written good faith estimat...
Good faith money is money a buyer uses to prove to a seller that he or she intends to complete a transaction. In real estate, good faith money is also called earnest money. It is not the same as a do...
A habendum clause in a real estate contract transfers ownership of a piece of real estate with no restrictions. It generally pertains to oil and gas leases for pieces of property but can relate to an...
High-ratio loans typically have higher interest rates because they are riskier. If the borrower defaults on the loan, the bank might not be able to sell the property for enough to repay the loan. The...
Home equity equals the value of a house less the balance owed on the homeowner's mortgage. Let's assume that John Doe pays $200,000 for a house. He puts 20% down and makes another $25,000 in princip...
A home equity line of credit (or HELOC) is a flexible loan that lets you turn your home's equity into cash whenever you need it, up to a certain amount. A HELOC uses your home as collateral just lik...
A home equity loan (HEL), also called a second mortgage, is a loan secured by the equity in a house. Equity equals the value of the house less the balance owed on the homeowner's mortgage. Home equi...
A home loan (or mortgage) is a contract between a borrower and a lender that allows someone to borrow money to buy a house, apartment, condo, or other livable property. A home loan is typically paid ...
House poor is used to describe a homeowner who spends too large a portion of his or her income on home ownership, leaving too little for discretionary spending. Typically, home ownership expenses, i...
In the real estate world, an impound is an account that mortgage companies use to collect property taxes, homeowners insurance, private mortgage insurance and other payments that are required by the ...
The term interest rate ceiling typically refers to the maximum lifetime interest rate charged on an adjustable rate mortgage according to the terms of a mortgage contract. A potential homebuyer cont...
An interest-only adjustable-rate mortgage (interest-only ARM) is a mortgage in which the borrower only pays the interest on the loan for a set period. There are two parts to an interest-only ARM tha...
An interest-only mortgage is a mortgage in which the borrower only pays the interest on the loan for a set period. In general, an interest-only mortgage means the borrower only pays the interest on ...
An investment property is a real estate investment purchased with the intent of earning a return on the money used to purchase the property. The return on the investment can be earned through rental ...
Investment real estate refers to any residential structure owned solely for the purpose of generating investment returns, either through rental income or through market value appreciation. Often, an...
Joint owned property is a real estate asset with two or more owners. Given the general magnitude of its cost, real estate is often owned in the name of at least two individuals. The most common exam...
Joint tenancy is an arrangement in which two or more individuals occupy a property. Participating tenants each share equally in the rights and responsibilities related to the property. If multiple i...
A jumbo loan, also called a jumbo mortgage, is a mortgage that exceeds the maximum amount that will be guaranteed by a government-sponsored entity like Fannie Mae. Once a loan is made between from a...
Junk fees appear in mortgage closing documents and usually benefit the loan originator or the lender. Let's say John and Jane Doe buy a house and receive the Truth in Lending Act statement at closin...
Just compensation is the fair market value that a federal or local government must pay to a property owner in order to seize that private property for public use. Let's say John Doe lives in a house...
Key money is money paid to a landlord or property owner in order to reserve a spot as a tenant on the property. Let's say Company XYZ is a restaurant firm that wants to open a location in the new AB...
A land contract is a contract in which the buyer of a property agrees to pay the seller in scheduled installments. A land contract allows the buyer of a property to use it while the seller continues...
A land flip is an act of fraud whereby a group of people buy a piece of land and then profits by continually reselling to each other for more than its actual value. In a land flip, several buyers pu...
A land lease option is a section of a lease contract that allows a renter to lengthen his or her use of a piece of land beyond the term specified in the contract. An individual who intends to rent a...
Land rehabilitation is the practice of returning a piece of land to the natural state it was in prior to human interference or damage from natural disasters. Land rehabilitation reclaims the natural...
A land trust is a trust comprised exclusively of real estate assets. A land trust holds one or more properties for the benefit of a designated group or organization (beneficiary). The trust is manag...
Land value is the overall value of a piece of property. The value of a piece of property includes a number of variables including location, the distance of from commercial and health amenities (for ...
Landlocked is a term describing a piece of property that has no direct access. Landlocked property is separated from major access ways including streets, canals and public roads. Landlocked property...
A landlord is an individual who owns real estate that he or she leases to renters. Landlords may own either residential or commercial properties. They lease the properties to families or companies i...
A landominium is a housing community in which residents own the housing units as well as the land on which they are built. Typically developed as retirement communities, landominiums are usually mul...
Leasehold improvements make assets more useable and, in many cases, more marketable. Sometimes, landlords will pay for leasehold improvements in order to entice a tenant to rent a space for a long pe...
Like-kind property is property that, for tax purposes, is similar in nature to property being sold. Like-kind property is a key component of Section 1031 exchanges, which are real estate transactions...
In the tax world, a main home is where a taxpayer has lived for most of the tax year or is the only home the taxpayer owns. For example, let's assume John Doe buys a house in Austin, Texas, for $150...
A maintenance bond is a surety bond for construction projects. For example, let's say Company XYZ is a contracting company hired to build the new ABC office building. It oversees all the constructio...
Making Home Affordable is a government program designed to help homeowners avoid foreclosure. The Making Home Affordable program is actually a collection of several programs: Home Affordable Modific...
This term is a play on the word "McDonalds," which is a global fast-food restaurant chain whose food is usually so consistent that an item from one restaurant is indistinguishable from the same item ...
Minimum lease payments are the lowest total amount that a renter can expect to pay during the term of a lease. When a landlord contracts a renter, the renter agrees to pay the landlord a specific pe...
Homeownership is a cornerstone of the American Dream. A home is a valuable asset for most people, and mortgages (or home loans) make buying one possible for many Americans. A mortgage is a loan for ...
A mortgage accelerator is a type of checking account that allows a borrower to repay a mortgage more quickly using the balance of monthly paychecks as opposed to recurring monthly payments. Common i...
Mortgage allocations refer to the specific mortgage information given to an MBS buyer by an MBS seller. Mortgage-backed securities (MBS) trade in the secondary market as to-be-announced trades. This...
A mortgage application is a document that a prospective property buyer submits to a lender to secure a mortgage. The lender must approve the application before any money is lent. People may fill out...
A mortgage banker is a person or entity who lends mortgages. A mortgage banker may be a sole agent or larger institution that originates mortgages to property buyers in exchange for a commission. La...
The Mortgage Bankers Association (MBA) is a professional organization that represents the property finance industry in the United States. The Mortgage Bankers Association facilitates communication a...
A mortgage broker is an agent who connects property buyers with mortgage lenders. A mortgage broker acts as a professional intermediary on a property buyer's behalf. A mortgage broker collects the p...
A mortgage equity withdrawal (MEW) is a loan that uses the value of a mortgaged property as collateral. When a property is worth more than is owed on it, it has positive equity. If this occurs, the ...
Mortgage excess servicing is the percentage remainder of the annual yield on a mortgage-backed security (MBS) once it has been allocated between the holder, the servicer, and the underwriter. The an...
Mortgage fallout is the percentage of an originator's mortgages that fail to close. A mortgage originator maintains a number of clients for whom it secures mortgages at competitive rates. To avoid t...
Mortgage interest is the compensation a borrower pays a lender for money used to purchase property. Mortgage interest is the percentage charged on a mortgage that must be paid in addition to the pri...
A mortgage originator is an individual or institution that collaborates with the borrower to complete a mortgage transaction. Mortgage originators facilitate the mortgage application process from th...
Mortgage points (also called interest rate points or discount points) are fees you can pay to a lender at closing to lower your mortgage's interest rate -- or annual percentage rate (APR). The cost ...
A mortgage pool is a group of mortgages in a mortgage-backed security (MBS). Once a lender completes a mortgage transaction, it generally sells the mortgage to another entity. The entities that buy ...
A mortgage rate is the rate of interest a borrower pays on his or her mortgage. Mortgage rates can be either fixed or variable. The terms and conditions related to the mortgage rate are outlined in ...
A mortgage rate lock is the term in a mortgage contract that stipulates the rate the borrower will pay for the entire duration of the mortgage. When a mortgage originator finds a competitive rate fo...
A mortgage rate lock deposit is a sum of money that a borrower must pay the lender to lock in a specific interest rate until a borrower's mortgage is approved and given out. When a mortgage originat...
A mortgage rate lock float down is a provision that allows a borrower to obtain a lower rate if interest rates decline during the process of applying for a mortgage. Lenders usually allow those appl...
Mortgage real estate investment trusts (mREITs) invest in residential mortgages that have been bundled together into securities called mortgage-backed securities (MBS) Unlike a regular real estate i...
Mortgage servicing rights (MSR) is an arrangement by which a third party promises to collect and disseminate mortgage payments in exchange for a fee. Mortgage payments are processed continually over...
A mortgage short sale is the sale of a mortgaged property for less than the remaining value of the mortgage itself. In a weak housing market, it is common for the outstanding mortgage balance on a p...
The National Association of Mortgage Brokers (NAMB) is an industry trade group representing mortgage brokers. Founded in 1973, the NAMB's primary objective is to promote ethics and professionalism a...
The National Association of REALTORS (NAR) is a trade association for real estate professionals. The NAR has 1 million members in the United States. Its members are involved in many parts of the rea...
For mortgages, negative points are a strategy for qualified borrowers to decrease the amount of cash they need upfront to finance their home. A mortgage company will pay fees and closing costs on the...
Net payoff is the profit or loss on the sale of a good or service after all the costs of producing and selling that good or service have been subtracted. Let's assume investor X wants to sell his ho...
New Home Sales is an economic indicator released monthly by the United States Census Bureau. The data reflect the number of newly constructed homes purchased in the previous month.   This indicator...
A judicial foreclosure occurs when a court allows a lender to seize and sell a borrower's collateral when the borrower has failed to repay the lender. The term is most often associated with real esta...
Occupancy rate is the ratio of rental units rented versus the total number in the building, city, state, etc. The formula for occupancy rate is: Occupancy Rate = Units Rented Out / Total Units For e...
Odd days interest refers to interest earned on loans that close on any day other than the standard day the lender requires interest and principal payments. For example, let's assume that John obtain...
The Office of Federal Housing Enterprise Oversight (OFHEO) is a defunct regulatory body that ensured the financial safety of Freddie Mac and Fannie Mae. Started in 1922 after the passage of the Fede...
Owner financing is when a seller, usually of a property or a business, provides financing for the purchase directly to the buyer under a for sale by owner situation. Owner financing is also referre...
Private mortgage insurance (PMI), also called mortgage insurance, is what borrowers must pay on each mortgage payment if they didn't make a 20 percent down payment toward their home loan. The insuran...
A price level adjusted mortgage (PLAM) is a mortgage with a fixed interest rate but an adjustable principal balance. For example, let's assume you take out a traditional 30-year, $100,000 mortgage a...
A property lien is a lender's claim against a piece of real estate that may be legally sold should the borrower fail to repay a loan. When someone takes out a sizeable loan, such as a home mortgage,...
Property tax is a tax on property -- usually real estate -- as determined by an assessor. Let's assume you own a house. The property tax assessor in your municipality will likely assign a value to t...
A qualified acquisition cost refers to the cost of buying, building, or rebuilding a home. Investors can often withdraw qualified acquisition costs from their IRAs without paying early withdrawal pen...
Quiet title is the name of a legal action intended to ensure that the owner of a property is in fact the real owner and that the property has no other ownership claims on it. To do this is known as q...
Quiet title action is the name of a legal action intended to ensure that the owner of a property is in fact the real owner and that the property has no other ownership claims on it. To do this is cal...
A quitclaim deed is a document that transfers interest in a property to another person. For example, let's say John Doe and Jane Doe are married and live in a house that they own together. John and ...
A rate and term refinance occurs when a borrower replaces one mortgage with another mortgage that has a different maturity and interest rate. For example, let's say John Doe bought a house 10 years ...
A real asset is a tangible, touchable asset that has value. For example, Company XYZ's factory is a real asset, its fleet of cars are real assets and even its cubicles are real assets. However, its ...
Real estate refers to land, as well as any physical property or improvements affixed to the land, including houses, buildings, landscaping, fencing, wells, etc. Vacant land and residential lots, plu...
A real estate agent, working on behalf of a licensed real estate broker, is a licensed professional who works on behalf of the buyer and seller of real estate during a sales transaction. A real esta...
A real estate investment trust (REIT) is a closed-end investment company that owns assets related to real estate such as buildings, land and real estate securities. REITs sell on the major stock mark...
Real estate owned (REO) is a term describing real estate owned by lenders, usually because the lender has foreclosed on the property. Let's say John Doe falls behind on his house payments, and his l...
A real estate short sale is the sale of property that is worth less than what is owed on it. For example, let's say John Doe buys a house for $500,000. He makes a down payment on the house and borro...
Real property is anything that is attached to land. For example, Company XYZ's factory, the five-acre lot on which the factory sits and whatever oil, gas or mineral rights that are attached to the l...
A realtor is a professional designation for a real estate broker who has membership in the National Association of Realtors (or NAR). Real estate agents must be certified members of the NAR in order...
A recapture occurs when a person or entity takes back an asset from a buyer under certain conditions. Taxing authorities can implement tax recaptures in which the taxing authority requires a taxpaye...
A recapture clause is language in a contract that allows a person or entity to take back an asset under certain conditions. Let's say John Doe owns the ABC Shopping Center. He leases retail space to...
A recording fee is the cost of making a public record of a real estate transaction. Let's say John Doe buys a house from Jane Smith for $300,000 on October 1. At the closing of the transaction, John...
A reverse mortgage is an arrangement whereby a homeowner borrows against his or her home equity and receives regular payments from the lender until the total payments reach a predetermined limit. To...
A short sale is a three-step trading strategy that seeks to capitalize on an anticipated decline in the price of a security.  First, arrangements are made to borrow shares of the security, typicall...
Short selling is a trading strategy that seeks to capitalize on an anticipated decline in the price of a security. Essentially, a short seller is trying to sell high and buy low. Short selling invo...
A short squeeze is a situation in which a stock's price increase triggers a rush of buying activity among short sellers.  Short sellers must buy stock to close out their short positions and cut thei...
A tax lien certificate is written proof that a taxing authority has placed a lien on a piece of property for unpaid property taxes. Let's assume that John owns a house in the country and the annual ...
A tax lien foreclosure occurs when a taxing authority seizes a piece of property after the property owner has failed to pay property taxes due. Let's assume that John owns a house in the country and...
A tax service fee is paid by mortgage borrowers to mortgage lenders to ensure that a mortgaged property's property taxes are paid on time. For example, let's assume that John buys a house. He borrow...
Tenancy at will is a legal term describing an arrangement whereby a tenant occupies a piece of property with the permission of the property owner. Let's say John Doe is a bachelor trying to make it ...
Tenants in common (TIC) describes an ownership status that applies when a property is severally owned by two parties. If two co-owners of a property are tenants in common, they own the property inde...
The Troubled Asset Relief Program (TARP) is a U.S. government program created in an attempt to mitigate the fallout from the subprime mortgage crisis of 2007-2008.  The subprime mortgage crisis cam...
Vacancy rate is the ratio of rental units not rented versus the total number in the building, city, state, etc. The formula for vacancy rate is: Vacancy rate = Units not rented out / Total units F...
A vacation home is a house that the owner uses only a few days or weeks per year. Let's say John Doe lives in Minneapolis. He gets sick of the winters there and buys a house in Phoenix. He spends tw...
A viager is a French method of real estate sale whereby the buyer makes a down payment and agrees to make a series of payments for the rest of the seller's life. Let's say John Doe wants to buy a $7...
Warehouse lending is credit provided to a mortgage lender to fund mortgages until the lender sells them in the secondary market. Let's say John Doe goes to Bank XYZ to borrow $200,000 to buy a house...
Yield maintenance is a kind of prepayment fee that borrowers pay to banks to reimburse them for the loss of interest resulting from the prepayment of a loan.  The formula for the yield maintenance ...
Also known as negative points, yield-spread premiums are rebates lenders pay to mortgage brokers or borrowers. Yield-spread premiums are a percentage of the principal. For example, let's assume tha...
A zero-lot-line house is a house whose structure goes right up the edge of the property line. Let's say John Doe buys a tiny tenth-of-an-acre lot and decides to build a house on it. The lot is 55 fe...