Lexicon of Real Estate Investing Terms

A

Abatement: A reduction or elimination of property taxes or other expenses.

Acceleration Clause: A provision in a loan agreement that allows the lender to demand full repayment of the loan if the borrower defaults on payments.

Ad Valorem Tax: A tax on the assessed value of a property, typically used to fund local government services.

Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that changes periodically over the life of the loan.

After Repair Value (ARV): the estimated value of a property after completed renovations, not in its current condition. House flippers commonly use ARV as a way to gauge the worth of a fixer-upper property, including how much it can be bought, and then resold for after repairs.

Agent: A licensed professional who represents buyers and sellers in real estate transactions.

Amortization: The process of paying off a mortgage loan over time through regular payments that include both principal and interest.

Appraisal: An estimate of the value of a property, typically performed by a licensed appraiser.

B

Balloon Payment: A large, final payment due at the end of a loan term that is usually larger than previous payments.

Building Code: A set of regulations and standards that dictate the design, construction, and safety of buildings.

Building Permit: A permit issued by a local government that allows the construction or renovation of a building.

Buyer's Market: A real estate market in which there are more homes for sale than there are buyers.

Broker: A licensed professional who works on behalf of buyers and sellers to facilitate real estate transactions.

C

Certificate of Occupancy: A document issued by a local government that certifies that a building is safe for occupancy and meets all relevant building codes and regulations.

Closing: The final step in a real estate transaction when the buyer takes possession of the property.

Closing Costs: Fees and expenses incurred during a real estate transaction, such as title insurance, appraisal fees, and legal fees.

Closing Disclosure: A document provided to the buyer and seller before closing that outlines the final terms of the loan and closing costs.

Closing Statement: A document that summarizes the financial aspects of a real estate transaction, including the amount due to the seller and the buyer at closing.

Collateral: Property that is pledged as security for a loan.

Commission: The fee paid to a real estate agent or broker for their services in a real estate transaction.

Conforming Loan: A loan that meets the criteria set by Fannie Mae or Freddie Mac, typically with a lower interest rate and more favorable terms.

Contingency: A condition in a real estate contract that must be met before the sale can be completed, such as a satisfactory home inspection.

D

Deed: A legal document that transfers ownership of a property from one party to another.

Deed of Trust: A legal document that provides security for a mortgage loan, typically used in states where a mortgage is not the preferred method of securing a loan.

Depreciation: A decrease in the value of a property over time due to wear and tear, obsolescence, or other factors.

Disclosure: The act of providing information about a property or transaction to all parties involved.

Down Payment: The amount of money a buyer pays upfront when purchasing a property.

E

Easement: The right of one party to use a portion of another party's property for a specific purpose, such as a driveway or utility lines.

Encumbrance: A legal claim on a property, such as a mortgage, lien, or easement, that limits the owner's ability to transfer or use the property.

Equity: The difference between the value of a property and the amount owed on any outstanding mortgages or other liens.

Escrow: A neutral third party that holds and disburses funds during a real estate transaction.

F

Fair Market Value: The price that a property would sell for under normal market conditions.

FHA Loan: A type of mortgage loan insured by the Federal Housing Administration and available to qualified buyers with low down payments and credit scores.

Fixtures: Items that are permanently attached to a property, such as light fixtures or built-in appliances, that are included in the sale of the property.

Flood Insurance: Insurance that protects against damage from flooding, typically required in areas designated as flood zones.

Forbearance: A temporary pause in mortgage payments granted by a lender to a borrower experiencing financial hardship.

Foreclosure: The legal process by which a lender takes possession of a property from a borrower who has defaulted on their mortgage payments.

H

Home Equity: The difference between the market value of a property and the amount owed on any outstanding mortgages or other liens.

Home Equity Loan: A loan that uses a homeowner's equity as collateral.

Home Inspection: An inspection of a property by a professional inspector to identify any issues that may need to be addressed before closing.

Home Warranty: A contract that provides coverage for repairs or replacements of certain systems and appliances in a home.

HOA: Homeowners association, an organization that manages and enforces rules for a community of homes or condominiums.

I

Inheritance: The transfer of property or assets from a deceased person to their heirs.

Inspection Contingency: A clause in a real estate contract that allows the buyer to have the property inspected by a professional inspector, and to back out of the contract if significant issues are found.

Interest: The cost of borrowing money, typically expressed as a percentage of the loan amount.

Investor: A person or entity that invests in real estate for the purpose of making a profit.

J

Joint Tenancy: A type of property ownership in which two or more people own the property together, with each owner having an equal share.

L

Lien: A legal claim on a property that provides security for a debt or other obligation.

Listing Agreement: A contract between a seller and a real estate agent that outlines the terms of the agent's services and the terms of the sale.

Loan Officer: A licensed professional who helps borrowers obtain mortgage loans.

Loan Servicing: The process of collecting mortgage payments and managing the day-to-day aspects of a mortgage loan.

Loan-To-Value (LTV) Ratio: An assessment of lending risk that financial institutions and other lenders examine before approving a mortgage.

M

Mortgage: A loan used to finance the purchase of a property, with the property serving as collateral for the loan.

Mortgage Broker: A licensed professional who works as an intermediary between borrowers and lenders to facilitate mortgage loans.

Mortgage Insurance: Insurance that protects a lender against loss if a borrower defaults on a mortgage loan.

N

Net Operating Income (NOI): The income generated by a property, minus expenses such as taxes, insurance, and maintenance costs.

Non-Conforming Loan: A loan that does not meet the criteria for a conforming loan, typically because it exceeds the maximum loan amount or other requirements.

O

Option: A contract that gives the holder the right, but not the obligation, to purchase or sell a property at a specified price and time.

Origination Fee: A fee charged by a lender for processing a loan application.`

P

PITI: An acronym that stands for principal, interest, taxes, and insurance, which are the components of a monthly mortgage payment.

Pre-Approval: The process of obtaining a lender's commitment to lend a specific amount of money to a borrower, subject to certain conditions.

Prepayment Penalty: A fee charged to a borrower who pays off a loan before the end of its term.

Private Mortgage Insurance (PMI): Insurance that protects a lender against loss if a borrower defaults on a mortgage loan and the sale of the property does not cover the outstanding balance.

Property Management: The management and maintenance of a property on behalf of the owner.

Q

Quitclaim Deed: A legal document that transfers ownership of a property from one party to another, typically used to transfer ownership between family members or in other non-sale situations.

R

Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-generating real estate properties.

Real Property: Land and any improvements or structures attached to it.

Refinance: The process of replacing an existing mortgage with a new one, typically to obtain a better interest rate or to change the terms of the loan.

S

Second Mortgage: A mortgage taken out on a property that is subordinate to the first mortgage.

Seller's Market: A real estate market in which there are more buyers than there are homes for sale.

Settlement: The final step in a real estate transaction when the buyer and seller sign the necessary documents and funds are disbursed.

T

Tax Lien: A legal claim on a property due to unpaid property taxes.

Tenancy in Common: A type of property ownership in which two or more people own the property together, with each owner having a separate and distinct share.

Title: A legal document that establishes ownership of a property.

Title Company: A company that searches and guarantees the legal ownership of a property, and provides title insurance.

Title Insurance: Insurance that protects against losses due to defects in the title or ownership of a property.

Title Search: The process of searching public records to verify the legal ownership of a property.

Trust Deed: A legal document that provides security for a mortgage loan, similar to a deed of trust.

U

Unsecured Loan: A loan that is not secured by collateral, such as a personal loan or credit card debt.

Usury: The practice of charging excessive interest rates on loans, typically prohibited by law.

V

Vacancy Rate: The percentage of unoccupied rental units in a particular area.

Verification of Employment (VOE): A document provided by an employer that verifies a borrower's employment and income.

W

Waiver: A document that relinquishes or gives up a right or claim.

Z

Zoning: The regulation of land use by local government authorities, typically divided into different zones or districts for residential, commercial, and industrial uses.