Real Estate Terms and Definitions
Acceleration Clause:
An acceleration clause in Canadian loan agreements is a provision that requires borrowers to repay their entire loan immediately if certain conditions set by the lender are not met. Common triggers include missed payments, bankruptcy, or other contract breaches. This clause is a risk mitigation tool for lenders and can have significant financial implications for borrowers. The specifics may vary based on the loan type and agreement terms.
Active Contingent:
In Canadian real estate, “active contingent” refers to a status where a seller has accepted an offer on a property, but the sale is contingent on the buyer meeting specific conditions. These may include selling their current home, obtaining mortgage approval, or resolving issues identified during a home inspection. The property remains on the market, and the sale isn’t finalized until all contingencies are met.
Active Under Contract:
A property listed as “active under contract” indicates that the seller has accepted an offer with contingencies, but the listing remains active. This status allows the seller to accept backup offers in case the current offer fails to satisfy its contingencies, such as obtaining financing or selling a current home. The property is essentially under a conditional agreement, but not yet sold.
Addendum:
An addendum is a document added to an existing contract to modify or include additional terms. When either a buyer or seller wishes to change a specific part of a contract, they use an addendum to outline these changes. The original contract remains unchanged except for the specific alterations detailed in the addendum. This is commonly used in real estate transactions to adjust terms or conditions after the initial agreement.
Adjustable-Rate Mortgage (ARM):
Adjustable-rate mortgage (ARM) is a type of mortgage where the interest rate varies over time based on an index or benchmark rate. Initially, ARMs often offer lower monthly payments compared to fixed-rate mortgages. However, because the interest rate can change, typically in response to market conditions, future payments can increase or decrease. This type of mortgage provides flexibility but also involves the risk of higher payments if interest rates rise.
Adjustment Date:
In Canadian mortgages, the adjustment date is the date when the mortgage starts accruing interest, which may occur before the first mortgage payment is made. Typically, this date is set as the first day of the month following the advancement or disbursement of the mortgage funds to the borrower. This is an important date for borrowers to note, as it marks the beginning of their financial obligations in terms of interest on the loan.
Amortization:
Amortization refers to the process of spreading out a mortgage over a set period, during which the borrower makes regular payments to cover both the principal and the interest. Common amortization periods in Canada are 25 or 30 years, with monthly payments being the standard. This schedule details the portion of each payment that goes towards the principal versus interest and how the balance decreases over time. The choice of amortization period affects the size of the monthly payments and the total interest paid over the life of the mortgage.
Annual Percentage Rate (APR):
The Annual Percentage Rate (APR) represents the annual rate charged for borrowing or earned through an investment, expressed as a percentage. It includes the nominal interest rate and any additional costs or fees involved in securing the loan. APR provides a comprehensive figure for comparing the costs of different loans or credit options, as it accounts for all the annual expenses associated with borrowing, not just the interest rate. This makes it an essential tool for borrowers to understand the true cost of a loan.
Appraisal:
An appraisal is an unbiased professional assessment of a property’s value. When purchasing a home, lenders require an appraisal conducted by a third-party appraiser to ensure the requested loan amount aligns with the property’s market value. If the appraisal value is lower than the offered price, the lender may ask the buyer to cover the difference, affecting the loan-to-value ratio and potentially the loan terms. This process helps protect both the lender and buyer by ensuring the property is worth the investment.
Appreciation: Appreciation in Canadian real estate is the increase in a home’s value over time, influenced by market trends, location, and property improvements. It can be estimated by applying the annual appreciation rate to the current property value over a desired number of years.
Assessed Value:
The assessed value of a property is the valuation assigned by a municipal or regional assessor for taxation purposes. This value is determined by analyzing market trends, comparing similar properties in the area, and considering factors from any inspections of the property. The assessed value is used to calculate property taxes owed by the owner. It may differ from the market value or sale price of the property.
Assessed Value:
The assessed value of a property is the valuation assigned by a municipal or regional assessor for taxation purposes. This value is determined by analyzing market trends, comparing similar properties in the area, and considering factors from any inspections of the property. The assessed value is used to calculate property taxes owed by the owner. It may differ from the market value or sale price of the property.
Assignment:
An assignment is a transaction where the seller (assignor) transfers their rights and obligations under a property agreement to a buyer (assignee) before the official closing date. This is common in pre-construction property sales, where the original buyer sells their contract to a new buyer. The assignee assumes all rights and responsibilities, including payments and property ownership upon completion.
Assumable Mortgage:
Assumable mortgages allows a buyer to take over the seller’s existing mortgage along with its terms and conditions. The buyer assumes responsibility for the remaining mortgage debt, often benefiting from the existing interest rate, which could be more favorable than current market rates. This can be an attractive option for buyers, especially in a rising interest rate environment. However, the lender’s approval is typically required, and the buyer must be able to qualify for the mortgage under the lender’s criteria.
Balloon Mortgage:
A balloon mortgage is a type of loan where the borrower pays only interest or small principal repayments for a set period, followed by a large lump sum (the balloon payment) at the end of the term. This is often used in short-term financing situations like investment or construction projects. The final balloon payment covers the remaining principal balance. Balloon mortgages can carry higher risks due to the large sum required at the end, and they are less common than traditional amortizing mortgages in Canada.
Bi-weekly Mortgage:
A bi-weekly mortgage involves making payments every two weeks instead of the traditional monthly schedule. This results in 26 half-monthly payments per year, equivalent to 13 full monthly payments, rather than the usual 12. This accelerated payment schedule allows homeowners to pay off their mortgage faster, reduce the principal balance more quickly, and save on interest over the life of the loan. It’s a popular option for those looking to shorten their mortgage term and build equity in their home more rapidly.
Bridge Loan:
A bridge loan in Canada is a short-term loan designed for homeowners to finance the purchase of a new property while they are in the process of selling their current home. These loans typically have a duration of a few weeks to three years, bridging the financial gap between buying the new property and selling the existing one. This type of loan is particularly useful for managing timing mismatches between sale and purchase transactions.
Broker:
A broker is a real estate professional who has completed additional education and licensing requirements beyond those of a standard real estate agent. Brokers possess a deeper understanding of real estate law, construction, property management, and the real estate market. They are qualified to manage a real estate brokerage, supervise real estate agents, and handle more complex transactions. Real estate agents in Canada must work under the supervision of a broker. The broker’s role includes ensuring compliance with provincial real estate laws and regulations.
Buydown:
A buydown is a mortgage financing technique where the interest rate is temporarily reduced. This is typically achieved through payments made by the seller, builder, or another party to the mortgage lender. These payments lower the buyer’s interest rates, resulting in decreased monthly mortgage payments. This strategy is often used to make home purchases more attractive or affordable for buyers
Call Option:
A call option is a financial contract that gives the holder the right, but not the obligation, to buy a specific property at a predetermined price within a defined period. The seller of the option is obligated to sell the property at that price if the buyer decides to exercise the option. This arrangement is useful in real estate and investment, allowing the buyer to lock in a purchase price for future consideration.
Cash-out Refinance:
A cash-out refinance is a financial strategy where a homeowner refinances their mortgage for an amount larger than their existing mortgage and receives the difference in cash. This method is often used for debt consolidation, home improvements, or other large expenses. Typically, to qualify for a cash-out refi, a borrower needs to have substantial equity in their home, commonly at least 20%. The new mortgage replaces the original loan, often with different terms and interest rates.
Chain of Title:
The chain of title is a historical record of all previous ownerships of a property, tracing from the current owner back to the very first. This documentation is essential in real estate transactions to confirm the property’s ownership history and to ensure there are no disputes or unclear claims on the property. It acts as a comprehensive background check, establishing the legitimacy of ownership through each transfer.
Clear Title:
A clear title, also known as a “just title,” “good title,” or “free and clear title,” signifies that a property is free of liens, levies from creditors, or any other legal encumbrances that could question its ownership. It indicates that the property owner has undisputed legal ownership and there are no issues such as unresolved building code violations, bad surveys, or any other claims or disputes that could impair the property’s transfer. This clarity is essential for a smooth and legally sound real estate transaction.
Closing:
Closing is the final step in a real estate transaction. It’s the prearranged date, agreed upon when the buyer and seller sign the contract, where the legal transfer of the property occurs. On this date, the buyer completes the financial transactions, documents are signed and exchanged, and ownership of the property officially shifts from the seller to the buyer. Closing involves finalizing all agreements and completing all the legal and financial processes required to formally change property ownership.
Closing Costs:
Closing costs refer to the additional expenses, typically ranging between 2% to 5% of the home’s purchase price, incurred at the final stage of a real estate transaction. A Zillow survey indicated that the average homebuyer pays around $3,700 in these costs. They include various fees such as loan origination, appraisal, title insurance, and legal fees, and are payable on or by the closing date of the property sale.
Co-borrower
If a buyer is having trouble getting approved for a loan, they can elicit the help of a co-borrower. This person is usually a family member or friend who’s added to the mortgage and guarantees the loan. They’re listed on the title, have ownership interest, sign loan documents, and are obligated to pay monthly mortgage payments if the buyer is unable to.
Commission
Real estate commission is generally 5-6% of the home’s sale price. That commission is usually split between the buyer’s and seller’s agents and is paid by the seller at the time of closing.
Common area assessments
If you pay a monthly fee towards a Homeowners Association (HOA), part of that fee likely goes toward a common area assessment to maintain an area open to the community.
Community property
Community property refers to property acquired by a married couple and owned equally by both spouses.
Comparable sales
Comparable sales are used by an appraiser to establish how much a home is worth based on what other similar homes in the area have sold for recently. Only homes that have legally closed count as a comp — and most lenders and insurance providers require appraisers to use at least three closed sales.
Construction loan
A construction loan — or self-build loan — is a short-term loan used to finance the construction of a home or real estate project. This type of loan covers project costs before long-term funding can be financed.
Contingency
If a property is contingent, or the contract contains a contingency, certain events must transpire or the contract can be considered null. A contingency might be that the home must past an appraisal or receive a clean inspection.
The sale of a home could also be contingent on the buyer selling their home by a specified date. If either the buyer or seller fail to meet the expectations of the contingency, either party can exit the contract.
Contingent vs. pending
When a property is contingent, it means the owner has accepted an offer — but certain contractual expectations must be met or the offer will be void. If all contingencies are met, the property changes status to “pending.” While contingent offers are still considered active listings, pending offers are taken off the market and other offers will not be entertained.
Conventional mortgage
A conventional mortgage is a loan not guaranteed or insured by the federal government. These borrowers usually make larger down payments (at least 20%), don’t require mortgage insurance, and are at a lower risk of defaulting on their home loan payment.
Convertible ARM
A convertible adjustable rate mortgage (ARM) allows buyers to take advantage of low interest rates by receiving a loan at a “teaser” loan interest rate.
Their monthly mortgage payment stays the same, but interest rates fluctuate (usually every six months). The borrower has the option of converting their ARM to a fixed-rate mortgage, but there are generally fees for the switch.
Cost of funds index (COFI)
A cost of funds index is an average of the regional interest expenses acquired by financial institutions. It’s used to calculate variable rate loans.
Deed
A housing deed is the legal document transferring a title from the seller to the buyer. It must be a written document and is sometimes referred to as the vehicle of the property interest transfer.
Deed-in-lieu of foreclosure
A deed-in-lieu of foreclosure is a document transferring the title of a property from a homeowner to the bank that holds the mortgage. A homeowner might submit a deed-in-lieu of foreclosure if the bank has denied them a loan modification or short sale. However, the bank can deny the request for a deed-in-lieu (and often do).
Default
If a homeowner defaults on their loan, it means they have not paid the sum they agreed to. Typically, a mortgage default means the homeowner hasn’t made a home loan payment in 90 days or more.
Delinquency
A mortgage is considered delinquent when a scheduled payment is not made. If a payment is more than 30 days late, a lender might begin collection or foreclosure proceedings.
Discount points
Discount points are also known as mortgage points. They’re fees homebuyers pay directly to the lender at the time of closing in exchange for reduced interest rates which can lower monthly mortgage payments.
Down payment
The down payment is the amount of cash a homebuyer pays at the time of closing. Typical home loans require a 20% down payment. Some conforming loans will accept a 5% down payment, and FHA loans will accept a 3.5% down payment.
Due-on-sale clause
A due-on-sale clause protects lenders against below-market interest rates. It’s a contract provision requiring the seller of the property to repay the mortgage in full when the property is next sold. It is also called an acceleration clause.
Earnest money deposit
Earnest money is a deposit (usually 1-2% of the home’s total purchase price) made by a homebuyer at the time they enter into a contract with a seller. Earnest money demonstrates the buyer’s interest in the property and is generally deducted from your total down payment and closing costs.
Easement
An easement grants someone else the legal right to use another person’s land or property while leaving the title in the owner’s name.
Eminent domain
The right of eminent domain gives the government the ability to use private property for public purposes. It’s only exercisable when and if the government fairly compensates the owner of the property.
Encroachment
When a property owner violates the rights of a neighbor by building or adding on to a structure that extends onto a neighbor’s land or property line, that is called encroachment.
Encumbrance
A real estate encumbrance is any claim against a property that restricts its use or transfer, including an easement or property tax lien.
Equal Credit Opportunity Act
The Equal Credit Opportunity Act (ECOA) was enacted on October 28, 1974 and rules it unlawful for creditors to discriminate against applications because of race, color, religion, national origin, sex, marital status, age, or because they receive public assistance.
Equity
Home equity is the part of your property you actually own. While you do “own” your home, your mortgage lender has interest in the property until it’s paid off.
To calculate your home’s equity, subtract your outstanding loan balance from the current market value of your property. Home equity will increase as you pay down your loan or the market value of your home increases.
Escrow
Escrow is part of the homebuying process. It happens when a third party holds something of value during the transaction. Most often, the “value” the third party holds onto is the buyer’s earnest money check. When the transaction is complete (usually at closing), the third party will release those funds to the seller.
Examination of title
A title examination reviews all public records tied to a property. It generally reviews all previous deeds, wills, and trusts to ensure the title has passed cleanly and legally to every new owner.
Exclusive listing
An exclusive listing is used to motivate an agent to sell a property quickly — within a specific number of months. If they meet that goal, the agent gains a commission regardless of how a buyer is found.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) was enacted in 1970 and ensures fairness, accuracy, and privacy of personal information contained in files maintained by credit reporting agencies. The goal of this act is to protect consumers from having misinformation used against them.
Fair market value
A property’s fair market value is its accurate valuation in a free and open market under the condition that buyers and sellers are knowledgeable about the asset, acting in their best interests, and free of undue pressure to complete the transaction.
Fee simple
Fee simple refers to the most common type of property ownership. It means the owner’s rights to the property are indefinite and can be freely transferred or inherited when the owner chooses. It is most often associated with single-family homes, as condominiums and townhomes are purchased with covenants, conditions, and restrictions.
FHA mortgage
Federal Housing Administration (FHA) loans have been around since 1934 and are meant to help first-time homebuyers. The FHA insures the loan, making it easier for lenders to offer the homebuyer a better deal, including a lower down payment (as low as 3.5% of the purchase price), low closing costs, and easier credit qualifying.
Fixed-rate mortgage
A fixed-rate mortgage is one of the most common types of loans. It comes with an interest rate that stays the same for the lifetime of the loan, and provides the borrower with more stability and predictability over the lifetime of their loan.
While mortgage payments can fluctuate as property taxes and homeowner’s insurance change, many consumers prefer the fixed-rate mortgage for its long-term reliability.
For sale by owner
Homes listed as for sales by owner (FSBO) are being sold without the help of a real estate agent. The biggest benefit to the seller is they avoid paying commission fees — but there are few benefits to the buyer.
Foreclosure
If a homeowner doesn’t make a mortgage payment (usually, for more than 90 days), foreclosure is a legal process during which the owner forfeits all property rights.
If they are unable to pay off outstanding debt on the property or sell it via short sale, the property enters a foreclosure auction. If no sale is made there, the lender takes control of the property.
Home Equity Conversion Mortgage
The Home Equity Conversion Mortgage (HECM) is an FHA reverse mortgage program enabling homeowners to withdraw equity on their home through either a fixed monthly payment, a line of credit, or a combination of the two.
Home equity line of credit
A home equity line of credit (HELOC) provides a revolving credit line that can be helpful in paying for large expenses or consolidating higher-interest rate debt on loans — like credit cards.
Home inspection
A home inspection is carried out by an objective third party to establish the condition of a property during a real estate transaction. An inspector will report on such things as a home’s heating system, the stability of the foundation, and the condition of the roof. The inspection is meant to identify major issues that might affect the value of the home and the stability of your and your lender’s investment and return.
Homeowner’s association
A homeowner’s association (HOA) is usually found when you purchase a condominium, townhome, or other development property. To purchase the home, you must also join the HOA and pay monthly or yearly HOA fees.
These fees can cover common area maintenance, repairs, and general upkeep. The more amenities your building offers, the higher the HOA fees typically are.
Homeowner’s insurance
When you purchase a home, it’s also necessary to purchase homeowner’s insurance to cover any losses or damages you might incur, such as natural disaster, theft, or damage.
It also protects the homeowner from liability against any accidents in the home or on the property. Insurance payments are usually included in your monthly mortgage payments.
Judicial foreclosure
Judicial foreclosures are mandatory in some but not all states. They require all foreclosures go through the court system to confirm the debt is in default before putting the property up for auction. The goal of judicial foreclosures is to protect property owners from corrupt lenders.
Jumbo loan
Conforming loan limits cap the dollar value that can be backed by government-sponsored programs. A jumbo mortgage exceeds these conforming loan limits, which are tied to local median home values.
Qualifications for these loans are more stringent and the loans themselves are manually underwritten to mitigate risk to the lender.
Lease option
A lease option is like rent-to-own for real estate. It gives the lessee the ability to lease property with the option to buy. It includes a legal agreement with a monthly rental amount due, while also including an option to buy the property for a predetermined price at any time during the length of the agreement.
Lender
In real estate, the lender refers to the individual, financial institution, or private group lending money to a buyer to purchase property with the expectation the loan will be repaid with interest, in agreed upon increments, by a certain date.
Lien
A property lien is unpaid debt on a piece of property. It’s a legal notice and denotes legal action taken by a lender to recover the debt they are owed. It can come from unpaid taxes, a court judgement, or unpaid bills and can slow down the homebuying process when unattended.
Life cap
A life cap refers to the maximum amount an interest rate on an adjustable rate loan can increase over the lifetime of the loan. A life cap is also known as an absolute interest rate or interest rate ceiling and keeps interest rates from ballooning too high over the term of the loan.
Loan officer
Residential loan officers, or mortgage loan officers, assist the homebuyer with purchasing or refinancing a home. Loan officers are often employed by larger financial institutions and help borrowers choose the right type of loan, compile their loan application, and communicate with appraisers.
Loan origination
Loan origination is the process during which a borrower submits a loan application and a financial institution or lender processes that application. There is usually an origination fee associated with this process.
Loan servicing
Loan servicing is a term for the administrative aspects of maintaining your loan, from the dispersal of the loan to the time it’s paid in full.
Loan servicing includes sending the borrower monthly statements, maintaining payment and balance records, and paying taxes and insurance. Servicing is usually carried out by the lender of the loan, typically a bank or financial institution.
Loan-to-value
The loan-to-value (LTV) ratio is the mortgage loan balance divided by the home’s value. It shows how much you’re borrowing from a lender as a percentage of your home’s appraised value.
The higher your LTV, the riskier you’ll appear during the loan underwriting process because a low down payment denotes less equity or ownership in your property making you more likely to default on your loan.
Lock-in period
The period of time in which a borrower cannot repay their loan in full without incurring a penalty fine by the lender.
Mortgage
A mortgage is the agreement between a borrower and a lender giving the lender the right to the borrower’s property if the borrower is unable to make loan payments (with interest) within an agreed upon timeline.
Mortgage banker
A mortgage banker works directly with a lending institution to provide mortgage funds to a borrower. They can only obtain funds from a specific institution and are responsible for each part of the mortgage process, including property evaluation, financial due diligence, and overseeing the application process.
Mortgage broker
A mortgage broker shops several lenders, acting as a middle man between lending institutions and the borrower. A broker can compare mortgages from several different institutions, giving the borrower a better deal.
Mortgage insurance
If a homebuyer makes a down payment of less than 20% of the purchase price of a home or is the recipient of an FHA or USDA loan, they’ll usually be required to pay mortgage insurance. It lowers the risk of a lender giving you a loan, but it also increases the cost of the loan.
Multiple Listing Service (MLS)
An MLS is a suite of around 700 regional databases containing their own listings. Each database has its own listings, requires agents to pay dues for access, and allows agents to share listings across regions — without paying dues to each one. It is widely considered the most comprehensive listing service available.
Negative amortization
Amortization refers to the process of paying off a loan with regular payments so the amount you owe on the loan gradually decreases.
Negative amortization happens when the amount you owe continues to rise, regardless of regular payments, because you’re not paying enough to cover the interest.
No cash-out refinance
A no cash-out refinance is a type of loan used to improve the rate the borrower pays on the loan. It might also shorten the lifetime of a loan to benefit the borrower.
In a no cash-out refinance, the borrower refinances an existing mortgage for equal to or less than the outstanding loan balance. The goal is to lower interest rates on the loan or change certain terms of the mortgage.
No-cost mortgage
A no-cost mortgage is a type of refinancing in which the lender pays the borrower’s loan settlement costs and extends a new loan — usually in exchange for the borrower paying higher interest rates.
The mortgage lender then sells the mortgage to a secondary mortgage market for a higher price because of the high interest rate.
Note rate
The note rate is the interest rate stated on a mortgage note. It is also commonly referred to as the nominal rate or face interest rate.
Original principal balance
The original principal balance is the amount owed on a mortgage before the first payment has been made.
Origination fee
The fee a borrower pays a lender to cover the costs of processing their loan application.
Owner financing
Owner financing (also known as seller financing) takes place when a borrower finances the purchase of a home through the seller, bypassing conventional mortgage lenders and financial institutions.
Pending
A sales is considered “pending” if all contingencies have been met and the buyer and seller are moving toward closing. At this point, it’s unlikely the sale will fall through, and the buyer or seller risk losing the earnest money if they walk out on the deal at this point.
Per Diem
Per diem or “per day” fees are charged if a loan isn’t approved by the date the loan was scheduled to be completed. These charges are payable to the lender during closing.
PITI
PITI stands for principal, interest, taxes, and insurance, and refers to the sum of each of these charges, typically quoted on a monthly basis.
These costs are calculated and compared to the borrower’s monthly gross income when approving a mortgage loan. A borrowers PITI should generally be less than or equal to 28% of their gross monthly income.
Planned unit development
A planned unit development (PUD) is a housing community made up of single family residences, townhomes, and condominiums — as well as commercial units.
PUDs offer many common areas owned by the HOA and amenities beyond what normal apartment buildings or townhomes offer, including tennis courts and outdoor playgrounds.
Pre-approval
Before submitting an offer on a home (or even engaging with a real estate agent) you’ll likely be required to get pre-approved. This means a lender has checked your credit, verified your information, and approved you for up to a specific loan amount for a period of up to 90 days.
Pre-qualification
Unlike pre-approval, pre-qualification is more of an estimate of how much you can afford to spend on a home.
Prime interest rate
The prime interest rate is typically awarded to a U.S. bank’s best customers. It’s the best-available loan rate and is usually three points above the federal funds rate: the rate banks charge each other for overnight loans.
Principal
The principal of a loan is the amount of money owed on that loan. As you make monthly mortgage payments, your principal — in theory — goes down.
The amount of interest you pay on a monthly loan will affect how much of your monthly mortgage payment goes to paying down the principal. A high interest rate means you’ll pay less on the principal, meaning you’ll pay more on your loan over time.
Purchase agreement
A purchase agreement demonstrates a buyer’s intent to purchase a piece of property and a seller’s intent to sell that property. The document outlines the terms and conditions of a sale and holds each party legally accountable to meeting their agreement.
Purchase-money mortgage
A purchase-money mortgage, also known as owner or seller financing, is issued to the buyer by the seller of a home during the purchase transaction.
It is done to bypass a typical mortgage broker or lending channel and allows the buyer to assume the seller’s mortgage.
Quitclaim deed
A quitclaim deed is a document transferring ownership of property from one party to another. It transfers the title of the property — but only transfers what the seller actually owns.
If two people own a home jointly, one person could only transfer their half of the property via quitclaim. This type of transaction is commonly used when property is being transferred between family members not using traditional real estate channels.
Rate lock
A rate lock allows borrowers to lock in an advantageous interest rate before a real estate transaction closes. A rate lock allows the borrower to lock in that interest rate for a specific period of time protecting them from market fluctuations.
Real estate agent
A real estate agent is licensed to negotiate and coordinate the buying and selling of real estate transactions. Most real estate agents must work for a realtor or broker with additional training and certification.
Real estate owned
Real estate owned (REO) refers to property owned by a bank, government agency, or other lender. Homes typically become real estate owned after an unsuccessful foreclosure auction or short sale.
Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) requires lenders to provide disclosures to borrowers informing them of real estate transactions, settlement services, and relevant consumer protection laws.
Its goal is to regulate settlement costs, prohibit specific practices such as kickbacks, and limits the use of escrow accounts.
Refinance
Refinancing replaces an existing loan with a new one. Debt is not eliminated when a borrower refinances. Instead, it typically offers better terms, including a lower interest rate, lower monthly mortgage payments, or a faster loan term.
Right of first refusal
If a third party buyer offers to buy or lease a property owner’s asset, the right of first refusal ensures the property holder is allowed a chance to buy or lease the asset under the same terms offered by the third party before the property owner accepts the third-party offer.
Right of ingress or egress
The right of egress is a person’s legal right to exit a property. The right of ingress is the right to enter a property. It is generally used in rental or easement situations in which the tenant or person to which easement has been granted needs access to a shared driveway, a private road to the property, etc.
Right of survivorship
The right of survivorship is employed most often when there is joint ownership or tenancy of a property. It ensures that the surviving owner automatically receives the deceased owner’s share of the property becoming the sole owner of the property.
Sale-leaseback
A sale leaseback occurs when a buyer closes on a home and then leases back tenancy to the seller. This usually occurs when the seller needs more time to vacate the home, in which case, the buyer becomes a sort of landlord and receives payment from the seller for every day they remain in the home.
Second mortgage
A second mortgage is when a property owner borrows against the value of their home. They are also commonly referred to as HELOCs and draw on the market value of the home to provide the borrower with funds to use however they wish. They are granted in a lump sum or a line of credit that can be paid back using rate choices that help plan payments.
Secured loan
A secured loan is backed by the borrower’s assets, including cars, a second home, or other large items that can be used as payment to a lender if the borrower is unable to pay back the loan.
Seller carry-back
A seller carry-back is financing in which the seller acts as a bank or financial institution financing some or all of the transaction. The buyer will sign a promissory note agreeing to pay a specific amount (like a mortgage) to the seller, and the seller transfers the title to the new owner.
If the buyer is unable to make their monthly payments at any time, the seller can legally foreclose and take back the property.
Servicer
A mortgage servicer manages the daily administrative work around a loan, including processing loan payments, responding to borrower inquiries, and tracking principal and interest paid.
Short sale
A short sale occurs when a homeowner sells their property for less than what’s owed on the mortgage. A short sale allows the lender to recoup some of the loan that’s owed to them but must be approved by the lender before the seller moves forward.
Title
A home’s title represents the rights to the property. Those rights are transferred from the seller to the buyer during a real estate transaction and give the buyer legal rights to the property upon closing.
Transfer of ownership
In real estate, transfer of ownership refers to transfer of a property’s deed and title from the seller to the buyer at closing.
Transfer tax
Transfer tax is a transaction fee charged upon the transfer of a property’s title. It is imposed by the state, county, and municipal authority where the transaction is taking place and is based on the property’s value and classification.
Typically, the seller is responsible for paying real estate transfer tax, unless otherwise agreed upon during the transaction.
Treasury index
The treasury index is published by the Federal Reserve Board and based on the average yield of Treasury securities. Financial institutions often use this index as the basis for mortgage notes.
Under contract
A home is “under contract” when a seller has accepted an offer from a buyer but the transaction has not yet closed.
VA mortgage
Service members, veterans, and eligible surviving spouses can receive home loan guarantees provided by private lenders. The Department of Veteran’s Affairs guarantees a portion of the loan, which leads to more favorable terms for the borrower.
Whether you’re a buyer, seller, or realtor, it’s important to stay up to date on current real estate trends and market fluctuations. Check out this roundup of top real estate blogs and top websites for selling a home.
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