Glossary of Real Estate Terms - Courtesy of the California Department of Real Estate
I through S
Initial Note Rate — With regard to an adjustable rate mortgage, the note rate upon origination.
This rate may differ from the fully indexed note rate.
Initial Rate Discount — As applies to an adjustable rate mortgage, the index value at the time
of loan application plus the margin less the initial note rate.
Interest — A portion, share or right in something. Partial, not complete ownership. The charge in
dollars for the use of money for a period of time. In a sense, the “rent” paid for the use of
money.
Interest Only Loan — A straight, non-amortizing loan in which the lender receives only
interest during the term of the loan and principal is repaid in a lump sum at maturity.
Interest Rate — The percentage of a sum of money charged for its use. Rent or charge paid for
use of money, expressed as a percentage per month or year of the sum borrowed.
Lien — A form of encumbrance which usually makes specific property security for the payment
of a debt or discharge of an obligation. Example — judgments, taxes, mortgages, deeds
of trust, etc.
Life of Loan Cap (Cap Rate) — With regard to an adjustable rate mortgage, a ceiling the note
rate cannot exceed over the life of the loan.
Listing — An employment contract between principal and agent authorizing the agent to perform
services for the principal involving the latter's property; listing contracts are entered into
for the purpose of securing persons to buy, lease, or rent property. Employment of an
agent by a prospective purchaser or lessee to locate property for purchase or lease may be
considered a listing.
Loan Application — The loan application is a source of information on which the lender bases
a decision to make the loan; defines the terms of the loan contract, gives the name of
the borrower, place of employment, salary, bank accounts, and credit references, and
describes the real estate that is to be mortgaged. It also stipulates the amount of loan
being applied for and repayment terms.
Loan Closing — When all conditions have been met, the loan officer authorizes the recording of
the trust deed or mortgage. The disbursal procedure of funds is similar to the closing of a real
estate sales escrow. The borrower can expect to receive less than the amount of the loan, as
title, recording, service, and other fees may be withheld, or can expect to deposit the cost of
these items into the loan escrow. This process is sometimes called “funding” the loan.
Loan-to-Value Rate — The percentage of a property's value that a lender can or may loan to a
borrower. For example, if the ratio is 80% this means that a lender may loan 80% of the
property's appraised value to a borrower.
Market Data Approach — One of the three methods in the appraisal process. A means of
comparing similar type properties, which have recently sold, to the subject property.
Commonly used in comparing residential properties.
Market Price — The price paid regardless of pressures, motives or intelligence.
Market Value — The highest price in terms of money which a property will bring in a
competitive and open market and under all conditions required for a fair sale, i.e., the
buyer and seller acting prudently, knowledgeably and neither affected by undue pressures.
Mile — 5,280 feet.
Multiple Listing — A listing, usually an exclusive right to sell, taken by a member of an
organization composed of real estate brokers, with the provisions that all members will
have the opportunity to find an interested buyer; a cooperative listing insuring owner
property will receive a wider market exposure.
Multiple Listing Service — An association of real estate agents providing for a pooling of
listings and the sharing of commissions on a specified basis.
Narrative Appraisal — A summary of all factual materials, techniques and appraisal methods
used by the appraiser in setting forth his or her value conclusion.
Negative Amortization — Occurs when monthly installment payments are insufficient to pay
the interest accruing on the principal balance, so that the unpaid interest must be added to
the principal due.
Offer To Purchase — The proposal made to an owner of property by a potential buyer to
purchase the property under stated terms.
Open Listing — An authorization given by a property owner to a real estate agent wherein said
agent is given the nonexclusive right to secure a purchaser; open listings may be given
to any number of agents without liability by the seller to compensate any except the
one who first secures a buyer ready, willing and able to meet the terms of the listing, or
secures the acceptance by the seller of a satisfactory offer.
Payment Cap— With regard to an adjustable rate mortgage, this limits the amount of increase
in the borrower's monthly principal and interest at the payment adjustment date, if the
principal and interest increase called for by the interest rate increase exceeds the payment
cap percentage. This limitation is often at the borrower's option and may result in
negative amortization.
Principal — This term is used to mean the employer of an agent; or the amount of money
borrowed, or the amount of the loan. Also, one of the main parties in a real estate
transaction, such as a buyer, borrower, seller, lessor.
Private Mortgage Insurance — Mortgage guaranty insurance available to conventional
lenders on the first, high risk portion of a loan (PMI).
Promissory Note — Following a loan commitment from the lender, the borrower signs a note,
promising to repay the loan under stipulated terms. The promissory note establishes
personal liability for its payment. The evidence of the debt.
Proration — Adjustments of interest, taxes, and insurance, etc., on a pro rata basis as of the
closing or agreed upon date. Fire insurance is normally paid for three years in advance. If
a property is sold during this time, the seller wants a refund on that portion of the advance
payment that has not been used at the time the title to the property is transferred.
Real Property —Land and anything growing on, attached to or erected on it, excluding anything
that may be severed without injury to the land.
Real Property Sales Contract — An agreement to convey title to real property upon
satisfaction of specified conditions.
Recording — The process of placing a document on file with a designated public official
for public notice. This public official is usually a county officer known as the County
Recorder who designates the fact that a document has been presented for recording by
placing a recording stamp upon it indicating the time of day and the date when it was
officially placed on file. Documents filed with the Recorder are considered to be placed
on open notice to the general public of that county. Claims against property usually are
given a priority on the basis of the time and the date they are recorded with the most
preferred claim going to the earliest one recorded and the next claim going to the next
earliest one recorded, and so on. This type of notice is called “constructive notice” or
“legal notice”.
Refinancing — The paying-off of an existing obligation and assuming a new obligation in its
place. To finance anew, or extend or renew existing financing.
Risk Rating — A process used by the lender to decide on the soundness of making a loan and to
reduce all the various factors affecting the repayment of the loan to a qualified rating of
some kind.
Sales Contract — A contract by which buyer and seller agree to terms of a sale.
Tenancy In Common — Co-ownership of property by two or more persons who hold
undivided interests, without right of survivorship; interests need not be equal.
