Real Estate 101
Glossary of Real Estate Terms — Page 3

Keogh: A retirement plan for employees of unincorporated businesses or self-employed individuals. You may contribute up to 25 percent of your earned income, to a maximum of $30,000.

Key tenant: In a commercial or office development, the tenant who attracts other customers, such as a major chain store in a mall.

Kicker: Any benefit to a lender above ordinary fixed-interest payments such as an equity position in a property or a percentage participation in the income stream.

Kitchenette: A small kitchen area. A kitchenette is often built into the end of another room as in an efficiency apartment.

Legal description: A specific way of identifying and locating a piece of real estate that is acceptable to a court.

Lien: A charge, hold or claim of another for the purpose of securing a debt or obligation.

Listing: A written contract between an owner (principal) and an agent (broker) authorizing the agent to sell, lease or rent the owner's property in exchange for a compensation.

Loan application: The first step toward submitting a home loan requires the borrower to itemize basic financial information.

Loan Discount Points: Points a lender charges to reduce interest rate; may be paid by either buyer or seller; one point is equal to 1 percent of the loan value.

Loan origination fee: The lender requires a loan origination fee (or points) to cover the direct costs of arranging the loan.

Loan term: The time set by a lender for a buyer to pay a mortgage. Most conforming loans have 30-year or 15-year terms. In the case of balloon loans, payments are based on the amortization period and a final payment due at term.

Loan to Value (LTV): The ratio of the amount borrowed to the property's appraised value or selling price.

Lock-in: A lender's commitment to a borrower to guarantee (or "lock in") a specific interest rate for a limited amount of time.

Lock-in period: A period of time during which the borrower is guaranteed an agreed-upon interest rate, even if market rates rise. The longer the period, the higher the cost (in points) to the borrower.

Low density: A low concentration of housing units in a specific area.

Low-emissivity: A coating or film applied between panes of glass in high-efficiency glazing; abbreviated "low-E."

Market Value: The price for a property that a willing buyer and a willing seller would agree upon when neither is under abnormal pressure.

Master-planned community: A suburban plan that includes homes and commercial, work, educational, and community facilities.

Material defect: Any defect in a specific property that could either affect a buyer's decision to purchase it or affect the property's value, such as a cracked foundation.

Material fact: Any information about a specific property that could affect a buyer's decision to purchase it, such as an upcoming zoning change in the neighborhood.

Mechanic's Lien: A statuary lien to secure payment for persons contributing labor and/or material toward improvement upon real property when the compensation was not paid in a timely manner.

Mechanical systems: A home's plumbing, wiring, heating, and cooling systems.

Mediation: A dispute-resolution process in which a neutral party works to resolve contract differences.

Metes and Bounds: A time-honored land surveying method of describing land in terms of shape and boundary dimensions.

MLS (multiple listing service): The service combines the listings for all available homes in an area, except For Sale By Owner (FSBO) properties, in one directory or database.

Monthly association dues: A payment due monthly to a homeowners' association, to be used for maintenance and communal expenses. Condominiums, townhouse complexes, and planned unit developments (PUDs) may require monthly homeowners' association dues.

Mortgage: In casual use, a sum of money borrowed to purchase a home at a certain interest rate using the property as collateral. In formal use, a mortgage is the legal document that pledges property as collateral for a loan.

Mortgage banker: A company that provides home loans using its own money. The loans are usually sold to investors such as insurance companies and Fannie Mae.

Mortgage broker: A company that matches lenders with prospective borrowers who meet the lender's criteria. The mortgage broker does not make the loan, but receives payment from the lender for services.

Mortgage insurance: Required by lenders on some loans to protect lenders from a possible default. Most conventional loans with down payments or home equity percentages that are less than 20 percent of the home value require private mortgage insurance (PMI).

Mortgage Insurance Premium (MIP): Charged on a FHA loan; insurance that is paid for by the borrower, for the life of the loan, to insure lender against default by the borrower.

Mortgagee: A bank or other financial institution that lends money to the borrower. The borrower is considered the mortgagor.

Mortagee Title Policy: An insurance policy or contract indemnifying against loss resulting from a defect in the title to the interest, or lien, in the real property thus insured.

Mortgagor: The person who borrows money to purchase a house. The lender is called the mortgagee.

Multiple offers: More than one purchase offer made on a property. Multiple offers commonly occur in seller's markets or hot neighborhoods.

NAR (National Association of REALTORS®): A trade organization for real estate agents and brokers who become members by agreeing to abide by the organization's code of ethics. Members may call themselves REALTORS®.

NAR Code of Ethics: A formal code of ethics and standards of practice established by the National Association of REALTORS® (NAR) and by which its members must abide.

Negative amortization: Occurs when a borrower's monthly payment is too small to cover both the principal and interest of a loan, so the outstanding balance of the loan actually grows larger with each payment. Many adjustable rate mortgages are susceptible to this.

Negotiation: The process of creating a meeting of the minds between two or more parties in order to reach an agreement.

Non-conforming loan: A non-conforming loan is any loan that doesn't meet the qualifications or is too large to be purchased by Fannie Mae or Freddie Mac.

Nonrecurring closing costs: One-time-only fees for items including an appraisal, loan points, credit report, title insurance, and home inspection.

Notary Public: A public officer authorized to administer oaths to attest or certify types of documents, to take depositions and to perform certain other civil functions.

Note: A legal document that requires a borrower to repay a mortgage at a certain interest rate over a specified period of time.

Open-End Mortgage: Provision that allows for additional loan advances to be funded to the borrower, while keeping the same security and security documents.

Origination fee: A fee charged by most lenders to cover the direct costs of arranging the loan; also called points. A point is 1 percent of the total loan amount.

Owner's Title Policy: A policy insuring the title of the owner of the property.

Pay-off Penalty: Charged by lender for premature payment of conventional loan balance.

Personal property: Any movable property in a house such as furniture or appliances.

Pest-control inspection: A common pest-control inspection is a termite inspection, which is required in some states, such as California.

Photo Fees: Charged by lender for photographing property.

PITI (principal, interest, taxes, and insurance): A payment amount calculated by the lender to include the principal, interest, taxes, and insurance on an amortizing loan. The figure is designed to represent the borrower's actual monthly mortgage-related expenses.

Planned community: A concept dating back to the 19th century that describes any town or neighborhood built with certain guidelines or goals in mind.

Planned unit development (PUD): A highly designed residential project that features relatively dense clusters of houses, which are usually surrounded by areas of commonly owned open space maintained by a nonprofit community association.

Plat book: A public record containing maps showing the division of streets, blocks, and lots, and indicating the measurements of the individual parcels.

Policy of Title Insurance: A contract indemnifying against loss resulting from a defect in title or outstanding liens on the real property insured

Point: An amount equal to 1 percent of the loan amount. Points may be paid by the borrower at the time the loan is made to get a lower interest rate. Lenders offer various rate/point combinations.

Porte-cochere: A roofed structure extending from the side or front entrance of a home over an adjacent driveway providing shelter for those getting in or out of a vehicle.

Power of Attorney: A document authorizing a person (the attorney-in-fact) to act on behalf of another (the principal); to be directive in real estate, the power of attorney must be recorded.

Pre-approval: A thorough assessment made by a lender of a potential borrower's ability to pay for a home, and a confirmation of the amount to be borrowed. The completion of a loan application is necessary to close the loan.

Prepaid expenses: Expenses including taxes, insurance, and assessments that are paid before the due date.

Prepaid fees: Funds collected by the lender from the borrower to pay certain recurring items in advance, including interest, property taxes, hazard insurance, and, if applicable, private mortgage insurance (PMI).

Prepaid interest: Interest paid before it is due. For example, at the close of a real estate transaction the borrower may prepay interest that will accrue between closing and the first monthly payment.

Pre-Payment Penalty: A provision inserted in a note whereby a penalty is to be paid by the borrower in the event the note is paid off before the due date (or, usually, more than 20 percent in any one year).

Prequalification: A lender's preliminary assessment of a buyer's ability to pay for a home, and an estimate of how much the buyer may borrow.

Prime lending rate: The minimum short-term interest rate charged by commercial banks to their most creditworthy clients. Home loan rates typically are several points above the prime rate, which is also used as the basis for mortgages, business loans, and personal loans.

Principal: The amount of money originally borrowed in a mortgage, minus any payments made subsequently.

Principal: One who has permitted or directed another to act for his or her benefit and subject to his or her direction or control.

Principle of conformity: The idea that a house will more likely appreciate in value if its size, age, condition, and style are similar to (or conform to) other houses in the neighborhood.

Principle of progression: An appraisal term which states that real estate of lower value is enhanced by the proximity of higher-end properties.

Principle of regression: An appraisal term which states that the value of higher-end real estate can be brought down by the proximity of lower-end properties.

Private Mortgage Insurance (PMI): Charged on a Conventional loan; insurance that is paid for by the borrower to insure lender against default by borrower.

Processing: The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

Processing Fee: May be charged by a lender to initiate a loan.

Professional Service Fees: An amount paid to real estate broker as compensation for REALTOR® services.

Procuring cause: Legal term used to determine whether a broker is entitled to a commission.

Property line: The official dividing line between properties.

Property value: The value of a piece of property, based on the price a buyer will pay at a given time.

Prorate: To allocate percentages of certain expenses to be paid by the buyer and seller at the time of closing.

Punch list: A list compiled by a buyer prior to a sale detailing items to be fixed before closing.

Purchase contract: A legal document that binds a buyer to purchase a piece of property for a set price, and also binds the seller to sell that property to the buyer.

Purchase Offer: A written document used to secure a firm offer to purchase property and provide a receipt for the buyer's earnest money. (Also known as a purchase agreement or deposit).

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