Real Estate Glossary

Abstract (of title) - The summary of the public records relating to the title of a particular piece of land.  An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase a clear, marketable and insurable title.

Amortization - The period of time required to reduce a debt to zero when payments are made regularly.

Appraisal - For mortgage lending purposes it is a process whereby the (lending) value of the property is determined. The lending value may or may not match the purchase price of the home. An appraisal done for mortgage lending purposes is carried out for the benefit of the lender or the mortgage insurer.

Acceleration clause - Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made, or for breach of other conditions of the mortgage.

Adjustable-rate mortgage (ARM) - A mortgage in which the interest rate increases or decreases over the life of the loan based on market conditions, resulting in possible changes in monthly payments. Some plans have rate caps that limit the amount your interest rate may change. This loan, which has many variations, generally carries a lower initial rate than a fixed-rate loan because the borrower assumes the risk of the rising or falling market.

Annual percentage rate (APR) - The cost of your loan expressed as an annual percentage. Lenders are required by law to provide you with the APR calculation. The lender must calculate all the financing charges paid by the borrower, including the interest paid on the loan, the loan origination fee and mortgage insurance you may be required to pay.

Bridge Financing - Interim financing to bridge the time gap between the closing date on the purchase of the new home and the closing date on the sale of the current home.

Building Permit  - A certificate that must be obtained from the municipality by the property owner, or contractor, before a building can be erected or repaired. It must be posted in a conspicuous place until the job is completed and passed as satisfactory by a municipal building inspector.

Binder or "offer to purchase" - A preliminary agreement to buy real estate that is secured by the payment of earnest money.  A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his or her mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

Closing Date - In most cases, the date on which the sale of the property becomes final and the new owner takes possession.

Conventional Mortgage Loan - A mortgage loan up to a maximum of 75% of the lending value of the property for which a lender does not require mortgage loan insurance.

Certificate of title - A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property offered for sale. A certificate of title offers no protection against any hidden defects in the title that an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered to a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

Closing costs - The expenses that buyers and sellers normally incur while transferring the ownership of a piece of real estate. These costs are in addition to price of the property and are prepaid on the closing day. This is a typical list:

Closing day - The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract and deed are generally prepared for the closing by an attorney and charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Cloud (on title) - An outstanding claim or encumbrance which adversely affects the marketability of title.

Commission - Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it's a percentage of the sale price: six to seven percent on houses, 10 percent on land.

Conventional mortgage - A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and state statutes. The mortgage rates may vary with different institutions and between states. (States have various interest limits.)

Deed - A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the state where the property is located and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor (seller) and the grantee (buyer).

Default - Failure to make mortgage payments as set forth in the mortgage or deed of trust. It is the responsibility of the buyer--the mortgager-to remember the due date and send the payment prior to the due date, not after. Generally, if the payment is not received by thirty days after the due date, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents and start foreclosure. Defaults may also come about by failure to observe other conditions in the mortgage or deed of trust.

Depreciation - Decline in the value of a house due to wear and tear, adverse changes in the neighborhood or any other reason.

Down payment - The amount of money the purchaser pays to the seller upon the signing of the agreement of sale. The agreement of sale will refer to the down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the down payment to be refundable, he or she should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and to pay interest and expenses incurred by the purchaser.

Easement - A right acquired for access to or over, and perhaps use of, another person's land for a specific purpose such as a driveway or public utilities.

Equity  - The difference between the price for which a home could be sold and the total debts registered against the home. Owner equity usually increases as the outstanding principal of the mortgage is reduced through regular payments. Market values and improvements to the property also affect equity.

Earnest money - The deposit money given to the seller or his agent by the potential buyer upon the signing of the offer to purchase to show that he or she is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Encroachment - An obstruction, building or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance - A legal right or interest in land that affects a good or clear title and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether to purchase with the encumbrance, or to find a way to remove it.

Escrow - Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. In FHA mortgage transactions, an escrow account usually refers to the funds a borrower pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums and special assessments.

Foreclosure - A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgaged property and depriving the mortgagor (borrower) of possession.

General warranty deed - A deed which also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments or mechanic's liens against it), the grantee may hold the grantor liable.

Hazard insurance - Protects against damages caused to property by fire, windstorms and other common hazards.

HUD - U.S. Department of Housing and Urban Development. The Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

Insured Mortgage Loan - A first mortgage loan, often for more than 75% of the value of the property, where the lender has the mortgage insured by either CMHC or a private mortgage insurance company. Mortgage loans of more than 75% of the value are also called high-ratio loans.

Lien - A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials or labor.

Marketable title - A title free and clear of objectionable liens, clouds or other title defects. A marketable title enables an owner to sell his or her property freely to others and allows others to accept without objection.

Mortgage - A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.

Mortgage note - A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the borrower personally responsible for repayment.

Mortgage (open-end) - A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than what would raise the balance to the original loan figure.

Mechanic's Lien - A claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labor or materials and has not been paid. A lien must be properly filed by a claimant. It has a limited life, prescribed by statute that varies from province to province. If the lien-holder takes action within the prescribed time, the homeowner may be obliged to pay the amount claimed by the lien-holder.

Offer To Purchase - A written contract setting out the terms under which the buyer agrees to buy. Upon acceptance by the seller, it forms a legally binding contract subject to the terms and conditions stated in the document.

Option Agreement - A document stipulating that, in exchange for a deposit, a specified individual is to be given the first chance of buying a property at or within a specified period of time. If the option holder does not buy at or within the specified period, he or she loses the deposit and the agreement is canceled.

Principal - The amount of money actually borrowed.

Plat - A map or chart, drawn by a surveyor, of a lot, subdivision or community; it shows boundary lines, buildings, improvements on the land and easements.

Points - Sometimes called "discount points." A point is one percent of the amount of the mortgage loan. For example, if a loan is for $25,000, one point is $250. Points are charged by a lender to raise the yield on the loan at a time when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on HUD or Veterans' Administration guaranteed loans (sellers can pay, however). On a conventional mortgage, points may be paid by either the buyer or seller or split between them.

Prepayment - Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA-insured mortgages.

Purchase Agreement - Known by various names, such as contract of purchase, agreement of sale, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Quitclaim deed - A deed that transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

Rate lock-in - A guarantee the interest rate will remain the same for a specified period of time. Whether the loan's interest rate index rises or falls during that period, the borrower pays the rate which was current at the time of the lock-in agreement.

Refinancing - The process of the same person paying off one loan with the proceeds from another loan.

Special assessments - A special tax imposed on property, individual lots, or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.

Title - As generally used, the rights of ownership and possession of particular property. In real-estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate.

Title Insurance - Protects lenders or homeowners against loss of their interest in property due to legal defects in the title. Title insurance may be issued to a "mortgagee's title policy." Insurance benefits will be paid only to the "name insured" in the title policy, so it is important that an owner purchase an "owner's title policy," if he or she desires the protection of title insurance.

Title search or examination - A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record, which would adversely affect the marketability or value of the title.

Term - The length of time during which you pay a specific interest rate on your mortgage loan. You may not have paid off your entire mortgage principal at the end of a term because your amortization period will likely be longer than the term.

Title (Freehold or Leasehold) - A freehold title is evidence of ownership of land and buildings for an indefinite period of time. A leasehold title is evidence of a right to sue and occupy land and buildings for a defined period of time. In a leasehold arrangement actual ownership of the land, and perhaps buildings, remains with the landlord.

Type Of House - These definitions apply to the different types of housing on the market

Single Family Detached: This is what most American's want. It is free standing on its own lot and is occupied by one family.

Semi-detached: One of two single-family houses joined by a common wall.

Duplex: Two dwelling units, one above the other. Often the owner lives in one unit and rents the other.

Row or town house: One of several single-family homes joined by common walls.

Link or carriage homes: Row houses where homes are joined by garages or carports which provide access between the front and rear yards. Builders sometimes join basement walls so that, when see above ground, link houses look like singles on small lots.

High-rise buildings: Multistory residential buildings containing apartments for rent or condominium units.

Mobile or manufactured housing: A factory-built, single family dwelling designed to be transported to its ultimate site. They come in single widths or multiple width which have to be joined on site.

Note: A condominium is not a type of house. It is a type of ownership. Condominiums are most often in high-rise buildings or in row houses arrangements.

Vendor Take Back Mortgage - Mortgage financing arranged between the seller of the property and the buyer. The title is transferred to the buyer. Often this type of loan is a second mortgage which the seller is willing to arrange at below market rates to ensure the buyer can make the purchase of the house. Most of these arrangements are not renewable nor can they be transferred to the next owner of the house.

Wraparound Mortgage - Seller keeps original mortgage. Buyer makes payments to seller, who forwards a portion to the lender holding the original mortgage.