When embarking on a home shopping experience, or simply reading up on deeds, you enter a world of legal jargon and terms of art. We’re on a mission to help our readers become fluent in the language of deeds! In this spirit, we offer a concise guide to the key terminology every loan applicant and homeowner needs to know — categorized for ease of reference into five sections:
- Mortgage Terminology
- Deed Talk
- Speaking of Titles
- Real Estate Language
- Death & Taxes
OK, let’s jump in!
The process of applying for a loan to buy a new home is a crash course (or a refresher course) in industry lingo. The more you know, the better questions you ask your mortgage specialist, so here are some of the terms to look for.
Appraisal: A professional evaluation your lender will order to know the individual property’s current worth.
Bridge loan: A short-term loan, sometimes used to buy a new home by drawing on the owner’s equity from a home to be sold.
Debt-to-income ratio: A person’s DTI ratio indicates the portion of income needed to pay all their monthly bills and charges. As a rule, a buyer’s DTI ratio should be under 43%.
Deed in lieu of foreclosure: Conveyance of title to the mortgagee by a mortgagor in default to avoid a record of foreclosure. See more here about deeds in lieu and short sales.
Deed of trust: A deed held by a trustee to until the buyer pays off the loan. In some states, a deed of trust is used rather than a mortgage.
Forbearance: A lender’s agreement to allow delayed mortgage payments, giving the borrower time to bring an account up-to-date.
Foreclosure: Legal action to force a mortgage repayment, which can result in a sale of the foreclosed home.
Government-backed loan: A mortgage loan whose repayment to the lender is guaranteed by a government agency, such as the Federal Housing Administration (FHA loan), the Agriculture Department (USDA loan), or the Department of Veteran Affairs (VA loan). A conventional mortgage loan, in contrast, has no federal guarantee of repayment for the lender. The Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) buy both types of mortgages.
HELOC: A home equity line of credit — a credit charge account of homeowner tapping the paid-off value in a home. Contrast to a home equity loan, taken out by a homeowner to tap the paid-off value in a home.
Judicial foreclosure: A court proceeding enabling a debtor’s property to be sold on behalf of a creditor.
Principal: The core amount of the loan, on which the borrower pays interest. Many mortgage agreements allow borrowers to make extra payments on the principal, to save on interest and pay off the loan more quickly.
Private mortgage insurance (PMI): Insurance coverage paid by a borrower with a high loan-to-value ratio, to lower the lender’s risk. An LTV ratio of 80%, for a buyer putting 20% down, is enough to avoid PMI.
Reverse mortgage: For homeowners with most of their mortgage paid off, this option means the lender makes monthly payments to the homeowner. See more here on reverse mortgages and cash-out loans.
Underwriter: The lender’s underwriter has the role of verifying applicants’ financial details and the property facts, in order to grant final mortgage approval. Underwriting is at work when the mortgage specialist calls for pay stubs, sources of money, employment history, and additional documentation.
Transfer tax: A tax the state may require when the title to a home is conveyed by deed.
Speaking of Titles
The title, which represents ownership, proves the current status of the home as a result of its entire history of ownership, or chain of title. Each transfer of ownership occurs by a deed and is called a conveyance.
The title might be vested in various ways:
- Sole ownership, when the home is individually owned.
- Joint ownership, when the home is co-owned.
- Co-owners who are joint tenants with rights of survivorship enjoy equal shares. Upon the death of one owner, that interest passes automatically to the surviving owner(s).
- Right of survivorship also vests in a tenancy by the entirety, so the surviving owner gets the title to a co-owner’s share upon death of the co-owner, immediately and without probate.
- Co-owners who are tenants in common may bequeath their interests to others, and the property is probated when one owner dies.
- Community property is co-ownership limited to spouses and life partners in a number of states. The house acquired by the marriage partners belongs to them in equal, transferable shares. Where community property with survivorship rights is allowed, the home can avoid probate, with the deceased marriage partner’s interest automatically vesting in the surviving co-owner.
Encumbrance: A claim or liability on the real estate. A lien, for example, is one party’s claim against the property of another for some debt or charge. In addition to a mortgage, common liens include:
- Judgment liens: Ordered in a court case.
- Mechanics’ liens: Claims for unpaid construction work or materials.
Covenant: Specified limit on the use and enjoyment of the property. A covenant running with the land binds all future owners. Also called deed restrictions, some restrictive covenants have perpetuated discriminatory practices.
Easement: Right-of-way permission for non-owners. For a detailed exploration, see our easement guide and glossary.
Encroachment: An overhang or intrusion by some structure or object over the property line.
Title search: A verification, by examining the chain of title in the county records, that today’s owner has the right to transfer a piece of real estate. A cloud on title is a significant claim uncovered against the property’s value.
Opinion of title: An attorney’s opinion of the status of ownership, given the information available in public records.
Abstract of title: Title history and status, based on a title examination.
Quiet title: A court action to clear a questionable property title so it can be insured.
Title insurance: A policy shielding its beneficiary from financial loss resulting from undisclosed title defects and unrecorded easements. Title insurance also covers fraud, forgery, and various title problems. The buyer must obtain a lender’s policy to protect the mortgage lender. Purchasing owner’s insurance is optional — but the owner’s policy is recommended.
Homeowner’s insurance: A policy protecting the value of the home from various risks.
Real Estate Language
Agent: A person with authority to represent another. In contrast to a broker, who connects people to help them negotiate a house sale, an agent has fiduciary duties to a particular client.
Closing costs: Costs of a real estate transaction, made at settlement.
Co-op: A real estate corporation whose members purchase shares in a building and surrounding property. Rather than deeds, co-op buyers hold stock certificates.
Contract for deed: Seller-financed agreement of sale, anticipating a transfer of title when the buyer completes the installment payments.
Disclaimer of interest: The legal refusal to accept a deed.
Disclosure: Form enabling notification to the buyer about a property’s condition, potential hazards and material defects.
Escrow: The deposit of funds or legal instruments with a neutral party — such as a lender or real estate broker — to later transfer a down payment or to pay taxes, insurance, or other costs.
Homeowners’ association (HOA): An organization of neighborhood or condominium owners, responsible for maintaining and managing common areas.
Remote online notarization (RON): A fast-moving trend which goes beyond digital notarization (eSigning and eNotarizing) and allows signing and notarization from a distance.
A deed is a written legal instrument that passestitle to a grantee (the new owner or owners). It is typically drafted by or on behalf of the grantor (seller or giver). The deed represents the grantor’s interest in the property and references the prior deed, and names the seller, a buyer and the vesting of the transferred title (see the above Speaking of Titles section). It also sets for the price, a property description, and a citation to the recording information of an earlier deed. Some types of deeds include:
- General warranty deed: A deed denoting an unlimited guarantee of title.
- Quitclaim deed: A deed, containing no warranty of title, that only relinquishes or releases a claim on real estate. The quitclaim deed is sometimes used to remove a cloud on a title.
- Grant deed: A moderate level of risk is presented with the grant deed. The conveyor of a grant deed offers the buyer stronger protections than a quitclaim gives, but lesser protections than a general warranty deed provides. For other examples of splitting the risk, see the limited warranty or special warranty deeds.
- Bargain and sale deed: A form of deed by which the buyer assumes the house as-is. See this article for an explanation of the difference between a quitclaim and a bargain and sale deed.
Among various other deed types, note the correction deed — an instrument to remedy mistakes in the property’s legal description by stating the error, and restating the description in corrected form.
Death and Taxes
For homeowners, it’s especially important to have an estate plan — that is, to plan out how the value of one’s assets pass on to surviving recipients after the owner’s death. The vocabulary of estate planning reflects the elements of the continued chain of title that transcends individual lives.
Acknowledgment: A formal attestation before an authorized official that a person voluntarily executed a will or other document. A notary public is an example of a person authorized to take oaths and acknowledgments.
Beneficiary: Future recipient named in an owner’s will, trust, or beneficiary deed (see transfer on death deed, below).
Capital gains: Any profit made when selling the home over the original cost basis, or purchase price.
Deed of distribution: Instrument to convey property left in the will to multiple parties, identifying the new owners and their interests.
Executor’s deed: Instrument for transferring the home to the will’s beneficiaries or to a different buyer. An administrator’s deed is used by a court-appointed personal representative to transfer the real estate of someone who died intestate (without a will).
Holographic will: A handwritten will, allowed in some states.
Intestate succession: State law indicating the relatives next in line to receive property if the deceased person left no will. Property will escheat (transfer to the state) if no will or eligible heirs can be located.
Life estate: Ownership rights in the home during life, while preserving the property’s value for a beneficiary after death. The recipient of the later interest is the remainder interest holder.
Personal representative: A person authorized by the probate court to distribute estate assets. Called an executor if appointed by the deceased person through a will; or an administrator if court-appointed.
Probate: The procedure overseen by the county court for proving a will is valid and distributing the property of a person who has died.
Tax lien: A claim by the local, state, or federal government on the title to property for unpaid taxes.
Trust: A legal arrangement in which the title is held, and property is managed and controlled, for the benefit of another party. A trustee holds title on behalf of a beneficiary.
- A revocable (living) trust remains under the tax identity of the trust’s creator. Its creator may change or amend the beneficiaries’ right to acquire the property.
- An irrevocable trust becomes a separate tax entity, and avoids estate tax and probate.
- A testamentary trust is written into a will, and effective upon death.
Transfer on death deed: Allowed for real estate in some states, the transfer on death deed, also called a beneficiary deed, conveys a home and all related obligations to a beneficiary, without probate, after the death of its creator.
Thanks to Our Readers.
We aim to help every reader engage with real estate deeds in an informed way. We thank our readers for taking a voyage through the verbiage of real estate with Deeds.com!
Photo: stevepb, via Pixabay.