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Abstract (Of Title)
A summary of the public records relating to the title to a particular piece
of land. An attorney or title insurance company reviews an abstract of title
to determine whether there are any title defects which must be cleared before
a buyer can purchase clear, marketable, and insurable title.
Acceleration
The right of the mortgagee (lender) to demand the immediate repayment of the
mortgage loan balance upon the default of the mortgagor (borrower), or by
using the right vested in the Due-on-Sale-Clause.
Acknowledgment
A formal declaration before an authorized official (usually a notary public)
by a person who has executed a document, that he did in fact execute (sign)
the document.
Addendum
Something added. Items added to a document, letter, contract, escrow
instructions, etc.
Agent
A person who acts or has the power to act for another. A real estate agent
acts on behalf of the principal (the buyer or seller) and has a fiduciary
responsibility towards the principal. Buyer's Agent: a
agent who represents the buyer and owes fiduciary duties to the buyer.
Seller's Agent: an agent who represents the seller and owes fiduciary duties
to the seller. They are usually referred to as the listing agent who is
authorized by a property owner to find a buyer or a tenant for the property.
Agreement of Sale
A written agreement of contract in which the seller agrees to sell and the
buyer agrees to buy under specific terms and conditions.
Alienation Clause
A clause within a loan instrument calling for a debt in its entirety upon the
transfer of ownership of the secured property. Also called a "due on
sale" clause.
Amenities
Features that enhance and add to the value or desirability of real estate.
Common amenities include swimming pools, professional landscaping, gourmet kitchen and so on.
Amortization
The reduction of a debt over time by making periodic payments, usually
monthly, a portion of which is interest and a portion of which reduces the
outstanding amount of the debt. The monthly mortgage payments remain the same
over the life of the loan, even though the proportion of principal to
interest changes over time. In the early part of the loan period the
principal repayment is very small and interest repayment is very high. At the
end of the loan that relationship is reversed.
Appraisal
An estimate of the value of property, made by a qualified professional called
an "appraiser".
Appraiser
Someone who practices appraisal. Appraisers' work involves appraising, review
(the process of critically studying a report prepared by another), or
consulting (the process of providing information, analysis of real estate
data, and recommendations on diversified problems in real estate, other than
estimating value).
APR - Annual Percentage Rate
The actual interest rate taking into account the points and other prepaid
fees expressed in annual percentage terms. Not to be confused with initial
interest rate, a teaser rate lenders use to get you into a loan.
ARM-Adjustable Rate Mortgage
A loan that allows the interest rate to change periodically up or down.
The interest rate on an ARM is determined by adding a margin or spread to a
specified financial index. Financial indexes include; Treasury, Certificate
of Deposit,Cost of Funds.
The margin is the difference between the index rate and the ARM rate.
Adjustment interval is how often the interest rate is adjusted. A loan that
adjusts its interest rate after six months is called a six-month ARM.
Rate caps limit how much your interest rate can move up or down. Periodic
caps limit the change per adjustment period, and a lifetime cap governs the
maximum amount the interest rate can increase or decrease over the life of
the loan.
Assessment
A local tax levied against a property for a specific purpose, such as a sewer
or street lights.
Assessor
One appointed to assess property for taxation.
Assignment
A transfer or making over to another the whole of any property, real or
personal, or of any estate or right therein. To assign is to transfer.
Assumption
The agreement between the buyer and seller where the buyer takes over the
payments on an existing mortgage from the seller. Assuming a loan can usually
save the buyer money since this is an existing mortgage debt, unlike a new
mortgage where closing costs and new, probably higher, interest rates will
apply.
Balloon Mortgage
A mortgage for a fixed term shorter than necessary to fully repay the debt.
As a result, the remaining amount of principal is due at the maturity of the
loan.
Blanket Mortgage
A mortgage
covering at least two pieces of real estate as security for the same
mortgage.
Bond
An insurance agreement by which one party is insured against loss or default
by a third party. In the construction business a performance bond ensures the
interested party that the contractor will complete the project.
Breach
Violation of an obligation in a contract.
Bridge Loan
A loan, usually short term, that finances the
portion of the purchase price not provided by the mortgage loan and the down
payment. A bridge loan is commonly used when a purchaser has not sold his
existing home before he closes on his purchase of a new home. The bridge loan
is paid off when the old home is sold, out of the proceeds of that sale.
Broker
A real estate professional who has acquired a higher level of training and
experience than a sales agent. A minimum number of classes must be taken
along with passing a state exam to acquire a brokers
license. Generally they are a legal representative or a proprietor of the
office. Brokers usually charge a fee or receive a commission for their
services.
Building Code
A set of stringent laws that control the construction of buildings, design,
materials and other similar factors.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may
not extend. The building line may be established by a filed plat of
subdivision, by restrictive covenants in deeds or leases, by building codes,
or by zoning ordinances.
Buy-down
When the lender and or the home builder subsidized the mortgage by lowering
the interest rate during the first years of the loan. While the payments are
initially low, they will increase when the subsidy expires.
Buyers Market
A market condition which occurs in real estate where more homes are for sale
than there are interested buyers.
Cash Flow
The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough to pay the
expenses of the income producing property (mortgage payment, insurance,
maintenance, utilities, etc.)
Capital Gain
Income that results from sale of a capital (tangible) asset.
Capitalization
An appraising term used in determining value by considering net operating
income and a percentage of reasonable return on investment.
Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed
loans for homes, business, and mobile homes. Certificates of eligibility may
be obtained by sending DD-214 (Separation Paper) to the local VA office with
VA form 1880 (request for Certificate of Eligibility).
Chain Of Title
A history of conveyances and encumbrances affecting the title as far back as
records are available.
Closing
The end of the transaction when the seller hands over the title to the buyer
in exchange for payment. Also called settlement.
Closing Costs
Costs the buyer must pay at the time of the closing in addition to the down
payment which may include points, title charges, credit report fee, document
preparation fee, mortgage insurance premium, inspections, appraisals,
prepayments for property taxes, deed recording fee, and homeowners insurance.
Closing costs can vary considerably from one financial institution to
another.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the marketability
of title.
Commission
Money paid to a real estate agent or broker by the seller as compensation for
finding a buyer and completing the sale. Usually it is a percentage of the
sale price: 4 to 7 percent on houses, 10 percent on land.
Condemnation
A declaration by governing powers that a structure is unfit for use.
Conditional Sales Contract
A contract for the sale of property where the buyer has possession and use,
but the seller retains title until the conditions of the contract have been
fulfilled. Also known as a land contract.
Condominium or Condo
A condominium is a home in a shared building or development. The buyer gets
title the space inside the unit, shares the common areas with other unit
owners and pays a maintenance fee to the condominium association to pay for
needed maintenance, repairs and improvements to the property.
Construction Loan
A short term interim loan to pay for the construction of building or homes.
These are usually designed to provide periodic disbursements to the builder
as he progresses.
Contingency
A condition that must be met before a contract is binding. Contingencies
include: the property must appraise for sales price or buyers approving of
various inspections.
Contract Sale or Deed
A contract between purchaser and a seller of real estate to convey title
after certain conditions have been met. It is a form of installment sale.
Conventional Loan
A fixed rate and fixed term loan that is made without government insurance.
Convertible Loan
Some ARM Color loans include a provision that allows it to convert to a fixed
rate mortgage at specific times, usually from the end of the first through
the fifth years. There is usually an additional fee, $300-$500, to convert
it.
Conveyance
The transfer of the title to land from one to another.
Co-operative or Co-op
In a residential co-operative, the buyer purchases shares in the co-op
corporation which is made up of the residents in the co-op property. The
buyer owns the shares rather than owning real property. In exchange he has
the right to lease and occupy a co-op unit.
Covenants
Agreements written into deeds and other instruments stating performance or
non-performance of certain acts or noting certain uses or non-uses of
property.
Credit Report / History
Lenders will investigate your credit record which is a history of your debts.
They get a report from a credit reporting agency (TRW, Equifax, TransUnion) which shows if you
pay you debts on time and with who you have current debts with.
Debt-to-income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly
payment obligation on long-term debts is divided by his or her gross monthly
income.
Deed
A legal document by which property title is transferred from one owner to
another.
Default
Failure to meet legal obligations in a contract, specifically, failure to
make the monthly payments on a mortgage.
Depreciation
Decline in value of a house due to wear and tear, adverse changes in the
neighborhood, or any other reason.
Devisee
A person who receives real estate from another by will.
Down Payment
The down payment is the percentage of the purchase price that the buyer must
pay in cash and may not borrow from the lender. The down payment amount in
addition to the mortgage equals the purchase price of a property. They can
vary from 0% to over 50%. The less your down payment the better your credit
has to be. Lower down payments generally result in higher interest rates.
Dual Agency
Representing both parties in a transaction. In virtually all states it is
unethical and illegal for a broker to represent buyer and seller in a real estate
transaction without written consent of both.
Due-on-Sale Clause
A provision in a mortgage or deed of trust that allows the lender to demand
immediate payment of the balance of the mortgage if the mortgage holder sells
the home.
Earnest Money
The deposit money given to the seller by the potential buyer as evidence of
good faith in purchasing real estate. The broker places the money in an
escrow or trust account until closing, when it becomes part of the down
payment.
Easement Rights
A right- of- way granted to a person or company authorizing access to or over
the owner's land. An electric company obtaining a right- of- way across
private property is a common example.
Economic Obsolescence
Loss of useful life and desirability of a property through economic forces,
such as change in zoning, changes in traffic flow, etc., rather than
deterioration.
Encroachment
An obstruction,
building, or part of a building that intrudes beyond a legal boundary onto
neighboring private or public land, or a building extending beyond the
building line.
Encumbrance
A legal right or interest in land that affects a good or clear title, and
diminishes the land's value.
Equal Credit Opportunity Act (ECOA)
Is a federal law
that requires lenders and other creditors to make credit equally available
without discrimination based on race, color, religion, national origin, age,
sex, marital status or receipt of income from public assistance programs.
Equity
The value of the property less the amount of unpaid mortgages and any outstanding
liens.
Escalation Clause
A clause in a lease providing for an increased rent at a future time due to
increased costs to lessor, as in cost of living
index, tax increases, etc.
Escheat
The reverting of property to the state in the absence of heirs.
Escrow
Money or other valuables given to a third party with directions to deliver
them to another party upon the fulfillment of a specific act or condition.
Escrow Instructions
This discloses
when the escrow should be closing and when possession should take place, proration of property taxes, transfer taxes, release of
funds and the basics of satisfying the escrow demands.
Estate
The ownership interest of a person in real property. Also refers to a
deceased person's property.
Exclusive Agency Listing
A written agreement giving the broker the right to market an owner's property
for a certain period of time, but also allowing the owner to sell the
property during that period without paying a commission.
Exclusive Right - to Sell
A written agreemen Color
t between the agent and the owner whereby the owner promises to pay a fee or
commission to the broker if his property is sold during the listing period,
regardless of whether the broker is responsible for the sale.
Fair Market Value
That price a property will bring given that both buyer and seller are fully
aware of market conditions and comparable properties.
Fannie Mae - FNMA
Nickname for the Federal National Mortgage Association. FNMA is a public
corporation originally established by the federal government. Fannie Mae
purchases mortgage loans from lenders and results in a major source of funds
for mortgage companies.
Fee Simple
Ownership of title to property without any limitation, which can be sold,
left at will, or inherited.
FHA - Federal Housing Administration
Part of the US Department of Housing and Urban Development (HUD). It was
established in 1934 to encourage improvement in housing standards and
communities. The FHA insures mortgage loans.
FHA Mortgage
A mortgage loan insured by the Federal Housing Administration.
FHA Mortgage Insurance
Requires a fee (up to 2.25% of the loan amount) paid at closing to insure the
loan with FHA. In addition, FHA mortgage insurance requires an annual fee of
up to 0.5% of the current loan amount, paid in monthly installments. The
lower the down payment, the more years the fee must be paid.
Foreclosure
A legal process by which the lender or the seller forces a sale of a
mortgaged property because the borrower has not met the terms of the
mortgage. Also known as a repossession of property.
Freddie Mac - FHLMC
Nickname for Federal Home Loan Mortgage Corporation. It is a
quasi-governmental agency that purchases conventional mortgages from insured
depository institutions and HUD- approved mortgage bankers.
Functional Obsolescence
Loss in value due to out-of-date or poorly designed equipment while newer
equipment and structures have been invented since it's
construction.
Ginnie Mae - GNMA
Government National Mortgage Association
Graduated Payment Mortgage - GPM
A type of flexible-payment mortgage where the payments increase for a
specified period of time and then level off. This type of mortgage has
negative amortization built into it.
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party in the deed who is the seller or giver.
Home or Property
Inspection
A detailed inspection of the physical structure, the plumbing, electrical and
heating systems and the overall condition of the home. Typically the cost is
$150-$300 and the results are detailed in a multiple page report.
Homeowners Insurance
Insurance that protects the homeowners from Casualty losses or damage to the
home or personal property and from liability damages to other people or
property. Homeowners insurance is required by the lender and may be included
in the monthly mortgage payment.
Home Owners Association
An association of homeowners within a community formed to improve and
maintain the quality of the community. An association formed by the developer
of condominiums or planned developments.
Housing Expense-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing
expenses are divided by his or her gross monthly income.
HUD-The US Department of Housing and Urban
Development
Department of Housing and Urban Development, a government agency created to
make the American Dream of home ownership a real possibility for everyone.
HUD has many programs involving homeownership assistance for low and moderate
income families, community planning and development, fair housing and equal
opportunity, and home improvement loans. The Housing and Urban Development
home page is a rich resource of information.
Impound
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as they become due. Also known as
reserves.
Index
A published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage and that
earned by other investments (such as one-three and five-year U.S. Treasury
security yields, the monthly average interest rate on loans closed by savings
and loan institutions, and the monthly average costs-of-funds incurred by
savings and loans), which is used to adjust the interest rate on an
adjustable mortgage.
Initial Interest Rate
The initial rate quoted usually is a lower introductory rate, sometimes
called a teaser or discount rate. This lower rate lasts only until the first
adjustment, after which you will be charged the fully indexed rate.
Interest
A charge paid for borrowing money.
Joint Tenancy
Joint ownership by two or more persons with right of survivorship. Upon the
death of a joint tenant, his interest does not go to his heirs, but to the
remaining joint tenants.
Jumbo Loan
A loan which is larger than the limits set by the FNMA and FHLMC (more than
$207,000 as of 1/1/96). Because jumbo loans cannot be funded by these two
agencies, they usually carry a higher interest rate.
Lease
A contract between the owner of real property, called the lessor,
and another person referred to as the lessee, covering all conditions by
which the lessee may occupy and use the property.
Lease With Option To Purchase
A lease where the lessee has the option to purchase the leased property. The
terms of the purchase option must be set forth in the lease.
Legal Description
The geographical identification of a parcel of land.
Lien
A hold or
claim on the property of another to satisfy an unpaid debt or obligation.
Life Time Cap
Life time cap governs the maximum amount the interest rate increase or
decrease over the
life of the loan.
Listing Contract
An agreement between a homeowner and a licensed real estate broker that
authorizes the broker to market the property for sale during a given time
period.
Loan Origination Fee
A fee charged by the lender for evaluating, preparing and submitting a
proposed mortgage loan.
Loan-to-Value Ratio
The ratio of a mortgage loan principal to the property's appraised value or
its sales price, whichever is lower. Loan-to-value ratios vary depending upon
the individual lender's policy.
Lock-in Rate
A commitment made by a lender to make a mortgage loan at a specified rate,
pending loan approval, on or prior to a specified date.
Market Value
The highest price a buyer will pay for a property and the lowest price the
seller will accept in a typical market.
Margin
The amount a lender adds to the index on an adjustable rate mortgage to
establish the adjusted interest rate.
Mechanic's Lien
A lien created by statute on a specific property for labor or materials
contributed to an improvement on that property.
Mortgage
A lien on real estate given by the buyer to secure money borrowed to purchase
the real estate.
Mortgage Broker
An individual or company that obtains mortgages for others by finding lending
institutions, insurance companies or private sources to lend the money. The
mortgage broker may also handle collections and disbursements.
Mortgage Insurance
A policy that provides protection for the lender in case of default and or
which guarantees repayment of the loan if the borrower becomes disabled or
dies.
Mortgage Insurance Premium - MIP
Insurance from FHA to the lender against incurring a loss on account of the
borrower's default.
Multiple Listing
A listing taken by a member of an organization of brokers, whereby all
members have an opportunity to find a buyer.
NAR - National
Association of Realtors
The largest trade association in the country serving over 700,000 Realtors.
The purpose of the association is to enhance the ability and opportunity of
its members to conduct business successfully and ethically and to promote the
preservation of the right to own, transfer and use real property.
Negative Amortization
Occurs when your monthly payments are not large enough to pay all the
interest due on the loan. This unpaid interest is added to the unpaid balance
of the loan. The danger of negative amortization is that the home buyer ends
up owing more than the original amount of the loan.
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage
without the prior approval of the lender.
Notary Public
One who is authorized by federal or local government to attest authentic
signatures and administer oaths.
Note
A written instrument acknowledging a debt and promising payment.
Offer
A proposal to purchase real estate at a particular price, subject to other
specified terms and conditions. Acceptance of the offer by the seller creates
a purchase contract. A counteroffer is a different offer made in response to
the initial offer.
Origination Fee
Application fee(s) for processing a proposed mortgage.
Option
A right given, for consideration, to purchase or lease property upon
stipulated terms within a specific period of time.
Periodic Caps
Periodic caps limit the change per adjustment period of a loan.
PITI Payment
A loan payment that combines Principal, Interest, Taxes and Insurance.
Plat
A map or chart of a lot, subdivision or community drawn by a surveyor showing
boundary lines, buildings, improvements on the land, and easements.
PMI - Private Mortgage Insurance
Insurance issued to a lender to protect it against loss on a defaulted
mortgage loan. Its use is usually limited to loans with high loan-to-value ratios,
generally in excess of 80%. The borrower pays the premiums.
Point
An amount equal to one percent of the loan amount paid to a lender for making
the loan. A lender may charge the borrower several points in order to provide
the loan.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance
of their due date.
Prepayment Penalty
Money charged for
an early repayment of debt. Prepayment penalties are allowed in some form,
but are not necessarily imposed in many states.
Primary Mortgage Market
Lenders making
mortgage loans directly to borrowers such as savings and loan associations,
commercial banks, and mortgage companies. These lenders sometimes sell their
mortgages into the secondary market such as FNMA or GNMA.
Pre-qualification
Getting pre-qualified for a loan is a free process and normally takes between
15 minutes to an hour on the phone. The lender will ask you some basic
questions about your household income, time on the job, credit history, down
payment and personal savings. You should get pre-qualified before looking for
properties so you and your real estate agent know in what price range to
start looking.
Principal
One of the parties to a transaction. For example, the buyer and seller are
principals in the purchase of real property. Also the amount of debt, not
counting interest, left on a loan.
Purchase Agreement
An agreement between buyer and seller denoting price and terms of the sale.
Rate Caps
Rate caps limit how much the interest rate can move up or down.
Real Estate Agent
A licensed person who works under the direction of a broker selling and
renting real estate.
Real Estate Broker
A middle man or agent who buys and sells real estate for a company, firm, or
individual on a commission basis. The broker does not have title to the
property, but generally represents the owner.
Realtor
A Realtor is a real estate professional who is a member of the National
Association of Realtors and subscribes to its strict Code of Ethics. This
professional is committed to protecting and promoting private ownership of
real property, establishing and maintaining high professional standards of
practice, and creating unity in the National Association of Realtors
organization and respect for the real estate profession.
Recision
The cancellation of a contract. With respect to mortgage refinancing, the law
that gives the homeowner three days to cancel a contract in some cases once
it is signed if the transaction uses equity in the home as security.
Refinance
Obtaining a new mortgage loan on a property already owned.
Often to replace existing loans on the property.
RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law
that allows consumers to review information on known or estimated settlement
costs once after application and once prior to or at a settlement. The law
requires lenders to furnish the information after application only.
Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive covenants
are created by deed and may "run with the land," binding all
subsequent purchasers of the land, or may be "personal" and binding
only between the original seller and buyer.
Reverse Annuity Mortgage - RAM
A form of mortgage in which the lender makes periodic payments to the
borrower using the borrower's equity in the home as Satisfaction of Mortgage:
the document issued by the mortgagee when the mortgage loan is paid in full.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first
one.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to
obtain more funds to originate more new loans. It provides liquidity for the
lenders.
Seller's Market
More buyers than sellers.
Shared Appreciation Mortgage - SAM
A mortgage in which a borrower receives a below-market interest rate in
return for which the lender or investor, receives a
portion of the future appreciation in the value of the property. May also
apply to mortgage where the borrowers share the monthly principal and
interest payments with another party in exchange for part of the
appreciation.
Special Assessments
A special tax imposed on property, individual lots or all property in the
immediate area, for road construction, sidewalks, sewers, street lights, etc.
Survey
A map or plat made by a licensed surveyor showing the results of measuring
the land with its elevations, improvements, boundaries, and its relationship
to surrounding tracts of land.
Title
Ownership of real property. Title is transferred from one party to another
through a document called a deed.
Title Insurance
Protection for lenders and homeowners against financial loss resulting from
legal defects in or other claims against the property's title. The cost of
the policy is usually a function of the value of the property and is often
borne by the purchaser and or seller.
Title Search
An examination of municipal records to determine the legal ownership of
property. Usually is performed by a title company.
Trust
A property interest held by one person for the benefit of another.
Trustee
A party who is given legal responsibility to hold property in the best
interest of or "for the benefit of" another.
Truth-In-Lending
A federal law requiring disclosure of the APR-Annual Percentage Rate to home
buyers shortly after they apply for the loan. Also known as Regulation Z.
Underwriting
The decision whether to make a loan to a potential home buyer based on
credit, employment, assets, and other factors and the matching of this risk
to an appropriate rate and term or loan amount.
VA or US Department of
Veterans Affairs
A federal agency designed and operated to help veterans enter the housing
market. The VA assists veterans in terms of low or no down payment, mortgage
qualifications assistance and low interest rates.
VA Loan
A mortgage loan guaranteed by the US Department of Veterans Affairs against
loss to the lender and made through a private lender.
Variable Interest Rate
A fluctuating interest rate which can go up or down depending on the going
market rate.
Waive
To relinquish, or abandon. To forego a right to enforce or require anything.
Wraparound Mortgage
Results when an existing assumable loan is combined with a new loan,
resulting in an interest rate somewhere between the old rate and the current
market rate. The payments are made to a second lender or the previous
homeowner, who then forwards the payments to the first lender after taking
the additional amount off the top.
Zoning Ordinances
The acts of an authorized local government establishing building codes, and
setting forth regulations for property land usage.
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