| Real Estate Terms |
|
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 agreement 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. (return to top) |