Glossary

Administrator The individual or institution appointed by a court to oversee the settlement of the estate of a person who has died without a will.

Agreement for Sale A document in which the purchaser agrees to buy certain real estate (or personal property) and the seller agrees to sell under stated terms and conditions. Also called sales contact, binder or earnest money contract.

Amortization Gradual debt reduction. Normally, the reduction is made according to a pre-determined schedule for installment payments.

Annual Exclusion The amount of money or property (currently $10,000 for an individual and $20,000 for a married couple) that may be given as a gift to a recipient each year without incurring a gift tax. The amount will be indexed for inflation after 1998.

Annual Percentage Rate A term used in the Truth in Lending Act to represent the cost of a loan as a yearly rate.

Annuity An interest-bearing contract between an individual and a life insurance company that guarantees periodic payments to the indivdual during a specific time period.

Appraisal

The process of evaluating the monetary worth of property that is part of an estate. A formal, written estimation of the current market value of a home.

Appreciation An increase in value, the opposite of depreciation.

Beneficiary An individual named as the recipient of the income or principal of an estate or trust.

Bequest Property given as a gift under the terms of a will.

Blue Chip Stocks High-quality, common stock of well-known companies with extended records of earnings and dividends, well-respected management, and prospects for continued strong performance. Generally, these stocks are the choice of investors seeking long-term growth.

Bond A debt instrument that is a "promise to pay" issued by corporations, federal and state goverments, and municipalities to raise capital. The bond issuer promises to pay the holder of the bond the

principal amount of the loan when the bond matures and a fixed rate of interest periodically during the term of the bond.

Borrower One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.

Broker (Real Estate) One who receives a commission or fee for bringing buyer and seller together and often assisting in the negotiation of contracts between them. In most states a license is required.

Building Code The local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Bull/Bear Terms frequently used to describe the outlook for short-and long-term market performance:

Capital Gains

bull refers to the belief that stock prices are likely to rise; bear refers to the expectation that prices will decline.

The difference between the cost basis and the amount for which you sold the stock

Capital Gains and Losses

For tax purposes, the difference between the purchase price and selling price.

Profit or loss that occurs when an investor sells an asset. If the asset's sale price is greater than the original purchase price, a capital gain results. If the asset is sold for less than the original price the investor experiences a capital loss.

Certificate of Deposit An arrangement between an investor and a financial institution which calls for the financial institution to pay a specific rate of interest over a set period of time. Certain deposits are FDIC insured up to applicable limits.

Claim Against an Estate Refers to a charge against an estate to settle an agreement or an outstanding obligation (as in the case of bills unpaid at the time of death).

Closing The consummation of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.

Closing Agent/Attorney A closing agent or attorney assures that all documentation related to the sale of a house has been completed properly, including the title search and title insurance. The closing agent explains all closing documents to the buyer and the seller, obtains their signatures where necessary and records the documents.

Closing Costs All of the costs to the buyer and seller individually that are associated with the purchase, sale, or refinancing of real property. They include, but are not limited to, prorating of agreed items such as taxes and rents, the cost of title insurance policies, and the cost of credit reports, recording fees and escrow fees.

Closing Statements A financial disclosure giving an account of all funds received and expected at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

Codicil An addition or other change to an existing will.

Collateral Property pledged as security for a debt, such as real estate as security for a mortgage.

Commission An agent's fee for negotiating a real estate or loan transaction, often expressed as percentage of the sales price or mortgage amount.

Commitment An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.

Common Stock Units of ownership that give voting rights to shareholders. (See Preferred Stock.)

Condominium A form of ownership of real property. The purchaser receives title to a particular unit and a proportionate interest in certain common areas.

Contest of a Will Legal proceedings to prevent or alter distribution of estate assets as described in a will.

Contingency A condition that must be met before a contract is binding. For example, the sale of a house might be contingent upon the seller paying for certain repairs.

Contract of Sale A contract between a purchaser and a seller of real property to convey a title after certain conditions have been met and payments have been made.

Conventional Loan A mortgage loan not insured by the Federal Housing Administration or guaranteed by the Veterans Administration.

Cost Basis The purchase price, including commissions and other expenses, used to determine capital gains and capital losses for tax purposes.

Credit Report A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

Cyclical Stocks Stocks whose earnings fluctuate according to the business cycle.

Death Taxes A general term used to refer to taxes against property or the transfer of assets upon the death of the owner, including all estate and inheritance taxes. Sometimes referred to as estate taxes.

Debt-To-Income Ratio Debt expenses as a percentage of monthly income. Lenders use this ratio to qualify borrowers for mortgage loans, typically setting a maximum debt-to-income ratio of 36 percent.

Deduction For tax purposes, the portion of an estate that does not generate tax (such as a marital deduction).

Discount Broker As opposed to full service brokers, a discount broker charges a lower fee for executing buy and sell orders at the direction of the investor. Generally, discount brokers do not provide investment advice.

Diversification The practice of investing among several categories of investments (including different industries, countries, or investment vehicles) to enhance returnand reduce risk.

Dividend Periodic distribution of earnings to stockholders, in the form of cash or additional shares of stock.

Donee/Donor The recipient of a gift; the giver of a gift.

Dow Jones Industrial Average The average performance of certain blue chip stocks, generally regarded as an indication of how the market at large is performing.

Earnest Money A sum of money given to bind a sale of real estate; a deposit.

Equity The home owner's interest in a property; the difference between fair market value and the current amount the owner owes on the property.

Escrow Account An amount set up by the lender into which the borrower makes periodic payments, usually monthly, for taxes, hazard insurance, assessments, and mortgage insurance premiums. The funds are held in trust by the lender who pays the sums as they become due.

Executor

The individual named in a will charged with carrying out the provisions specified in the will. A coexecutor serves as executor along with one or more designated individuals.

Fair Market Value The price at which property is transferred between a willing buyer and a willing seller, each of whom has reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

Federal Housing AdministrationFHA A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders.

Federal Home Loan Mortgage Corporation FHLMC A private corporation created by Congress to support the secondary mortgage market. It sells participation certificates secured by pools of conventional mortgage loans; principal and interest is guaranteed by the federal government through the FHLMC. Popularly known as Freddie Mac.

Federal National Mortgage Association FNMA A private corporation created by Congress to support the secondary mortgage market. FNMA sells mortgage-backed securities backed by pools of conventional loans. Payment of principal and interest on these securities is backed by the US Government. Popularly known as Fannie Mae.

Fiduciary An individual or institution responsible for acting in the best interests of another party. A fiduciary is bound by law and duty to put aside personal interests and act in good faith when making decisions for the benefit of another.

First Mortgage A real estate loan that creates a primary claim against real property.

Fixed-Income Securities Debt obligations issued by corporations, goverments, or goverment agencies which pay a fixed rate of interest over a defined time period. Bonds and certain mortgage-backed securities are the most common examples of fixed-income investments.

Gift Tax Annual Exclusion The first $10,000 in gifts that an individual can give tax free to another during a calendar year. The amount will be indexed for inflation after 1998. (See Annual Exclusion.)

Grantor An individual who gives property outright or in a trust.

Gross Monthly Income The amount of consistent and stable income that an individual receives each month, averaged over a period of time. This amount includes overtime pay, bonuses, commissions and income from dividends or interest, provided that the individual can show a consistent history of receiving such income.

Growth Stock Stock of a corporation with a record of faster-than-average sales and earnings. Growth stock typically appeals to investors who seek a long-term increase in value.

Guardian An individual or institution named by a court to manage the property of a person who is adjudged incapable of handling his or her own affairs.

Hazard Insurance A contract that pays for loss on a home from certain hazards, such as fire. (See Homeowner's Policy)

Heir One who inherits from the estate of a person who has died.

Homeowners Association An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Homeowners Policy A multiple peril insurance policy commonly called "package policy". It is available to owners of private dwellings and covers the dwelling and contents in the case of fire or wind damage, theft, liability for property damage, and personal liability.

Housing Expense Ratio A home owner's monthly housing expense as a percentage of his or her monthly income.

Income Stock Common stock that pays dividends at a higher-than-average rate, resulting in a higher yield for stockholders. Income stock frequently in preferred by investors who seek current income in addition to growth.

Index Any of a number of composites that reflect movement in financial markets, indicating market prices and shares outstanding of companies included in the index. Examples are: the Down Jones Industrial Index, the Russell 2000 Index, Standard & Poor's 500 Composite Stock Index, and the EAFE Index.

Index Fund A fund managed with the objective of duplicating the performance of securities in a broad-based index by investing in all or most of the securities included in that index.

Individual Retirement Account (IRA) A method of planning for retirement that enables individuals to save up to $2,000 annually. These funds, called contributions, are in addition to any retirement plan already in place by the individual's employer. In addition, if an individual's employer has adopted a Savings Incentive Match Plan for Employees, the employee will be able to make a pre-tax elective contribution to an IRA of up to $6,000 annually. IRA funds are tax-deferred, that is, not subject to tax until

withdrawals are made, when the individual may be in a lower tax bracket. (See Tax-Deferred Investment).

Individual Retirement Account "Rollover" A special IRA that is established specifically for taxable funds distributing from a tax-qualified retirement plan. As in the case of a regular IRA, funds are not subject to tax until they are withdrawn from the account.

Inspector The property/mechanical inspector examines a home to evaluate its plumbing, electrical work, appliances, heating and cooling systems, roof and structural stability.

Interest

Intestate Dying without a will.

Earnings paid by any fixed-income security (a bond, a certificate of deposit, or an annuity, for example.) Money paid for the use of money -- that is, paid for a loan.

Investment Management Account An account whereby a financial institution is given discretionary power with regard to investment decisions on behalf of the investor. Fees for this service vary, but usually are based on a percentage of the overall value of the funds under management.

Irrevocable Trust A type of trust that cannot be revoked or changed in any way.

Invasion of a Trust Refers to a distribution of assets made from the principal of a trust.

Joint Ownership Also called joint tenancy, this phrase refers to ownership of property by two or more persons, generally with right of survivorship (upon the death of one owner, the surviving owner or owners assume ownership).

No listed terms for K.

Last Will Literally, the will last executed by an individual, which revokes any former existing wills.

Liquidity The flexibility of being able to obtain the cash value of investments without incurring significant loss.

Living Trust A trust that takes effect while the settlor is still alive.

Living Will A legal document in which an individual states, in advance of final illness or injury, his or her wishes regarding procedures and equipment designed to extend life.

Load A sales charge associated with buying shares in some mutual funds. (See No-Load Fund.)

Loan-To-Value Ratio The relationship between the amount of a home loan and the total value of the property. For example, if you receive a loan of $95,000 on a home that costs $100,000, the loan-to-value ratio is 95 percent.

Lock-In-Rate A commitment from a lender to make a loan at a preset interest rate at some future date, usually for not more than 60 days. A fee may be charged to "lock-in" a rate.

Market Value The highest price that a willing buyer would pay and the lowest a willing seller would accept.

Money Market The market for short-term debt instruments. Money market investments include Treasury bills, short-term certificates of deposit, commercial paper, and other, similar instrumets.

Money Market Funds Refers to mutual funds investing solely in money market instruments.

Mortgage An interest in real property given as security for the payment of an obligation.

Mortgage Insurance A policy that allows mortgage lenders to recover part of their financial losses from an insurance company if a borrower fails to fully re-pay a loan. Mortgage insurance makes it possible for consumers to buy a home with as little as 5 percent down.

Mortgage Investor Any person or institution that invests in mortgages. By buying mortgage loans from lenders, the mortgage investor gives the lender funds that can be used for more lending.

Mortgage Life Insurance A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mutual Fund An investment company that enables investors to pool their funds in order to invest in a managed portfolio of securities.

No listed terms for O.

PITI Principal, Interest, Taxes, and Insurance are the components of a mortgage payment.

Point A dollar amount paid to a lender for making a loan. A point is 1 percent of the loan amount. Also called discount points.

Portfolio The combined investment holdings of an individual or an institution.

Power of Appointment The power given by an individual to another in a will or trust document to determine which persons will receive an interest in his or her estate.

Power of Attorney A legal document authorizing one individual to act as the agent or "attorney" for another (the "principal"). If the attorney is authorized to act in behalf of another for all matters, he or she has general power of attorney. Authority to act solely regarding specified situations is special power of attorney. If the authority granted extends beyond the disability of the principal, the attorney has durable power of attorney.

Principal

The original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest. Refers to the assets included in a trust that yield income. In an agency relationship, this word refers to the individual who gives authority to the agent to act on his or her behalf.

Preferred Stock A class of stock that has preference over common stock in the event of the liquidation of a company's assets. Typically, preferred stockholders do not have voting rights. (See Common Stock.)

Prime Rate The basic rate of interest on loans charged by commercial banks.

Probate The process through which a will is proved to be valid.

Prospectus A booklet that provides full disclosure of relevant information about a security being offered for sale.

"Prudent Investor" Rule Legal term that refers to the duty of the fiduciary to invest and manage assets in the best interests of another.

No terms listed for Q.

Remainderman In the case of a trust, this term refers to the individual who will receive the principal of a trust when final distribution takes place.

RESPA (Real Estate Settlement Procedures Act) RESPA is a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.

Return Profit earned by a capital investment or other type of security.

Revocable Trust A type of trust that can be terminated by the settler (the opposite of an irrevocable trust).

Risk The chance that an investment could lose or fail to maintain value.

Servicer After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance, and manages delinquent payments. Lenders often "release" servicing to another business, which means that a home buyer will not necessarily send house payments to the original lender.

Settlement The closing of a mortgage loan.

Settlor An individual who establishes a trust in order to transfer property. (See Grantor)

Share An individual unit of ownership in a publicly owned corporation or mutual fund.

Step Up In Basis The change in the value of an asset inherited upon the owner's death. The taxable gain is calculated based on the fair market value at the time of death, not the fair market value at the time the asset was purchased.

Stock Split A method of reducing stock price by allocating newly issued stock to shareholders according to their current holdings.

Successor Trustee or Executor An individual or institution taking the place of a trustee or executor unable to continue the responsibilities designated in the trust agreement or will.

Tax-Deferred Investments An investment whose earnings are not subject to state or federal tax until the investor assumes possession of them. Individual Retirment Accounts are common examples.

Testamentary Trust A type of trust that is established under the will of a deceased individual.

Testate Making and leaving a valid will; an individual who dies without having made a will is said to have died intestate.

Title

The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed. Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.

Title Insurance

Legal ownership of property.

Insurance which provides for the payment of a specific amount of funds for loss caused by defects in the title to real estate.

Trust A legal, fiduciary relationship in which an individual or institution (the trustee) holds legal title to property with the responsibility for keeping or managing this property for the benefit of another person or beneficiary.

Trust Agreement A legal document that establishes a trust and outlines the rules and guidelines affecting its management and disposition.

Unified Credit A federal tax credit that offsets gift and estate tax liability.

U.S. Treasury Securities Debt obligations secured by the full faith and credit of the U.S. government. Income generated by these securities is subject to federal tax, but exempt from state and local tax.

Veterans Administration VA An independent agency of the federal government created in 1930. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low downpayment mortgages to eligible veterans by guaranteeing the lender against loss.

Will A legal document expressing the wishes of an individual regarding distribution of his or her property after death.

No listed terms for X.

No listed terms for Y.

Zoning City or county laws specifying how property may be used in specific areas.