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Real Estate and Mortgage terms, definitions & glossary
~A~
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
. --top-- 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. --top--
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. --top--
Something added. Items added to a document, letter, contract,
escrow instructions, etc. --top--
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. --top--
A written agreement of contract in which the seller agrees to
sell and the buyer agrees to buy under specific terms and conditions.
--top--
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. --top--
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. --top--
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. --top--
An estimate of the value of property, made by a qualified professional
called an "appraiser". --top--
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). --top--
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. --top--
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. --top--
A local tax levied against a property for a specific purpose,
such as a sewer or street lights. --top--
One appointed to assess property for taxation. --top--
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.
--top-- -
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. --top--
~B~
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. --top--
A mortgage covering at least two pieces of real estate as security
for the same mortgage. --top--
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. --top--
Violation of an obligation in a contract. --top--
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. --top--
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.
--top--
A set of stringent laws that control the construction of buildings,
design, materials and other similar factors. --top--
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. --top--
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.
--top--
A market condition which occurs in real estate where more homes
are for sale than there are interested buyers. --top--
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.) --top--
Income that results from sale of a capital (tangible) asset. --top-
An appraising term used in determining value by considering net
operating income and a percentage of reasonable return on investment.
--top--
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).
--top--
A history of conveyances and encumbrances affecting the title
as far back as records are available. --top--
The end of the transaction when the seller hands over the title
to the buyer in exchange for payment. Also called settlement. --top--
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. --top--
An outstanding claim or encumbrance which adversely affects the
marketability of title. --top--
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. --top--
A declaration by governing powers that a structure is unfit for
use. --top--
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. --top--
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.
--top--
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. --top--
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. --top--
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. --top--
A fixed rate and fixed term loan that is made without government
insurance. --top--
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. --top--
The transfer of the title to land from one to another. --top--
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. --top--
Agreements written into deeds and other instruments stating performance
or non-performance of certain acts or noting certain uses or non-uses
of property. --top--
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. --top--
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. --top--
A legal document by which property title is transferred from one
owner to another. --top--
Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mortgage. --top--
Decline in value of a house due to wear and tear, adverse changes
in the neighborhood, or any other reason. --top--
A person who receives real estate from another by will. --top--
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. --top--
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. --top--
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. --top--
~E~
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. --top--
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. --top--
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. --top--
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. --top--
A legal right or interest in land that affects a good or clear
title, and diminishes the land's value. --top--
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. --top--
The value of the property less the amount of unpaid mortgages
and any outstanding liens. --top--
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. --top--
The reverting of property to the state in the absence of heirs.
--top--
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. --top--
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. --top--
The ownership interest of a person in real property. Also refers
to a deceased person's property. --top--
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. --top--
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. --top--
~F~
That price a property will bring given that both buyer and seller
are fully aware of market conditions and comparable properties. --top--
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. --top--
Ownership of title to property without any limitation, which can
be sold, left at will, or inherited. --top--
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. --top--
A mortgage loan insured by the Federal Housing Administration.
--top--
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. --top--
The forced sale of a piece of real estate to repay a debt.--top--
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. --top--
Loss in value due to out-of-date or poorly designed equipment
while newer equipment and structures have been invented since it's construction.
--top--
~G~
Government National Mortgage Association
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. --top--
That party in the deed who is the buyer or recipient. --top--
That party in the deed who is the seller or giver. --top--
~H~
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. --top--
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. --top--
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. --top--
The ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by his or her gross monthly income. --top--
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 home ownership 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. --top--
~I~
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.
--top--
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. --top--
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. --top--
A charge paid for borrowing money. --top--
~J~
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. --top--
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. --top--
~L~
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. --top--
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.
--top--
The geographical identification of a parcel of land. --top--
A hold or claim on the property of another to satisfy an unpaid
debt or obligation. --top--
Life time cap governs the maximum amount the interest rate increase
or decrease over the life of the loan. --top--
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. --top--
A fee charged by the lender for evaluating, preparing and submitting
a proposed mortgage loan. --top--
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. --top--
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. --top--
~M~
The highest price a buyer will pay for a property and the lowest
price the seller will accept in a typical market. --top--
The amount a lender adds to the index on an adjustable rate mortgage
to establish the adjusted interest rate. --top--
A lien created by statute on a specific property for labor or
materials contributed to an improvement on that property. --top--
A lien on real estate given by the buyer to secure money borrowed
to purchase the real estate. --top--
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.
--top--
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. --top--
Insurance from FHA to the lender against incurring a loss on account
of the borrower's default. --top--
A listing taken by a member of an organization of brokers, whereby
all members have an opportunity to find a buyer. --top--
~N~
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.
--top--
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. --top--
A statement in a mortgage contract forbidding the assumption of
the mortgage without the prior approval of the lender. --top--
One who is authorized by federal or local government to attest
authentic signatures and administer oaths. --top--
A written instrument acknowledging a debt and promising payment.
--top--
~O~
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. --top--
Application fee(s) for processing a proposed mortgage. --top--
A right given, for consideration, to purchase or lease property
upon stipulated terms within a specific period of time. --top--
~P~
Periodic caps limit the change per adjustment period of a loan.
--top--
A loan payment that combines Principal, Interest, Taxes and Insurance.
--top--
A map or chart of a lot, subdivision or community drawn by a surveyor
showing boundary lines, buildings, improvements on the land, and easements.
--top--
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. --top--
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. --top--
A legal document authorizing one person to act on behalf of another.
--top--
A privilege in a mortgage permitting the borrower to make payments
in advance of their due date. --top--
Money charged for an early repayment of debt. Prepayment penalties
are allowed in some form, but are not necessarily imposed in many states.
--top--
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. --top--
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. --top--
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. --top--
An agreement between buyer and seller denoting price and terms
of the sale. --top--
~R~
Rate caps limit how much the interest rate can move up or down.
--top--
A licensed person who works under the direction of a broker selling
and renting real estate. --top--
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. --top--
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. --top--
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. --top--
Obtaining a new mortgage loan on a property already owned. Often
to replace existing loans on the property. --top--
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. --top--
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. --top--
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. --top--
~S~
A mortgage made subsequent to another mortgage and subordinate
to the first one. --top--
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. --top--
More buyers than sellers. --top--
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.
--top--
A special tax imposed on property, individual lots or all property
in the immediate area, for road construction, sidewalks, sewers, street
lights, etc. --top--
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. --top--
~T~
Ownership of real property. Title is transferred from one party
to another through a document called a deed. --top--
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. --top--
An examination of municipal records to determine the legal ownership
of property. Usually is performed by a title company. --top--
A property interest held by one person for the benefit of another.
--top--
A party who is given legal responsibility to hold property in
the best interest of or "for the benefit of" another. --top--
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. --top--
~U~
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. --top--
~V~
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. --top--
A mortgage loan guaranteed by the US Department of Veterans Affairs
against loss to the lender and made through a private lender. --top--
A fluctuating interest rate which can go up or down depending
on the going market rate. --top--
~W~
To relinquish, or abandon. To forego a right to enforce or require
anything. --top--
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. --top--
~Z~
The acts of an authorized local government establishing building
codes, and setting forth regulations for property land usage. --top--
Index of terms
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