Acceleration clause:A provision in a mortgage that gives the lender the right
to demand payment of the entire principal balance if a monthly payment is missed.
Acceptance: An offeree’s consent to enter into a contract and be bound by
the terms of the offer.
Accommodator: See Qualified intermediary.
Active income: Income from an activity in which you materially participate.
For example, wages, salaries and earnings from a business in which you materially
participate. The distinction between active and passive income is critical because
passive losses can only be taken against passive income, not active income. See
also Material participation.
Active participation: Involvement in a rental real estate activity making
significant management decisions and using independent judgment.
Additional principal payment: A payment by a borrower of more than the scheduled
principal amount due in order to reduce the remaining balance on the loan.
Adjustable-rate mortgage (ARM): A mortgage that permits the lender to adjust
its interest rate periodically on the basis of changes in a specified index.
Adjusted Basis: The original cost of a property plus
the value of any capital expenditures for improvements to the property minus any
Adjustment date: The date on which the interest rate changes for an adjustable-rate
Adjustment period: The period that elapses between the adjustment dates for
an adjustable-rate mortgage (ARM).
Affordability analysis: A detailed analysis of your ability to afford the
purchase of a home. An affordability analysis takes into consideration your income,
liabilities, and available funds, along with the type of mortgage you plan to use,
the area where you want to purchase a home, and the closing costs that you might
expect to pay.
AgentWorld.com: A destination web site used by real estate agents to manage
and enhance their online reputations. Similar to Facebook.com and LinkedIn.com but
dedicated exclusively to real estate agents.
Alternative minimum tax (AMT): An alternative tax system aimed at those with
high incomes who would pay no income tax under the regular tax system because of
certain deductions, exemptions, or other preferences. If the AMT calculation produces
a higher tax liability than the regular calculation, then the taxpayer must pay
the higher amount. The AMT catches a lot of real estate investors because a year
with a large capital gain can trigger the AMT.
Amenity: A feature of real property that enhances its attractiveness and
increases the occupant’s or user’s satisfaction although the feature is not essential
to the property’s use. Natural amenities include a desirable location near water,
scenic views, etc. Man-made amenities include swimming pools, tennis courts, community
buildings, and other recreational facilities.
Amortization: The gradual repayment of a mortgage loan by installments.
Amortization schedule: A timetable for payment of a mortgage loan. An amortization
schedule shows the amount of each payment applied to interest and principal and
shows the remaining balance after each payment is made.
Amortization term: The amount of time required to amortize the mortgage loan.
The amortization term is expressed as a number of months. For example, for a 30-year
fixed-rate mortgage, the amortization term is 360 months.
Amortize: To repay a mortgage with regular payments that cover both principal
Annual mortgagor statement: A report sent to the mortgagor each year. The
report shows how much was paid in taxes and interest during the year, as well as
the remaining mortgage loan balance at the end of the year.
Annual percentage rate (APR): The cost of a mortgage stated as a yearly rate;
includes such items as interest, mortgage insurance, and loan origination fee (points).
Annuity: An amount paid yearly or at other regular intervals, often on a
guaranteed dollar basis.
Application: A form used to apply for a mortgage loan and to record pertinent
information concerning a prospective mortgagor and the proposed security.
Appraisal: A professional opinion or estimate of the value of a property.
The appraised value is the most likely price a seller would receive in an arms-length
transaction for the appraised property. Appraisals are usually performed using one
or more of the following three methods: (1) cost of replacement; (2) value as a
function of income produced by property; and (3) market comparison with similar
Appraised value: An opinion of a property's fair market value, based on an
appraiser's knowledge, experience, and analysis of the property.
Appraiser: A person qualified by education, training, and experience to estimate
the value of real property and personal property.
Appreciation: An increase in the value of a property that can result from
inflation, demand pressures, or improvements and modernizations made to the property.
Articles of incorporation: A document filed in most states with the secretary
of state by the founders of a corporation specifying such items as the name, location,
nature of the business, and capital investment. The document is also known as a
Certificate of Incorporation. The corporation only comes into existence when the
filing is approved by the state.
Articles of organization: Similar to Articles of Incorporation, but is a
document filed with the secretary of state by the founders of a limited liability
company (LLC). It is also known as Articles of Formation.
Assessed value: The valuation placed on property by a public tax assessor
for purposes of taxation.
Assessment: The process of placing a value on property for the strict purpose
of taxation. May also refer to a levy against property for a special purpose, such
as a sewer assessment.
Assessment rolls: The public record of taxable property.
Assessor: A public official who establishes the value of a property for taxation
Asset: Anything of monetary value that is owned by a person. Assets include
real property, personal property, and enforceable claims against others (including
bank accounts, stocks, mutual funds, and so on).
Assignment: The transfer of a mortgage from one person to another.
Assumable mortgage: A mortgage that can be taken over ("assumed")
by the buyer when a home is sold.
Assumption: The transfer of the seller’s existing mortgage to the buyer.
See assumable mortgage.
Assumption clause: A provision in an assumable mortgage that allows a buyer
to assume responsibility for the mortgage from the seller. The loan does not need
to be paid in full by the original borrower upon sale or transfer of the property.
Assumption fee: The fee paid to a lender (usually by the purchaser of real
property) resulting from the assumption of an existing mortgage.
At-risk rules: Tax laws that limit the amount of loss an investor can deduct.
Attorney-in-fact: One who is authorized to act for another under a general
or limited Power of Attorney.