GLOSSARY OF REAL ESTATE TERMS
Here are some quick Real Estate & Mortgage Terms
Adjustable Rate Mortgage (ARM): A mortgage loan under which the interest rate is periodically adjusted to more closely coincide with the current rates. The amounts and times of adjustments are agreed to at the inception of the loan. (Compare to fixed rate loans.)
Adjustment Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called one year ARM, which means that the interest rate can change in one year.
Amortization: Repayment of a loan in equal installments comprised of principal and interest rather than interest only.
Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points expressed as percentage of the loan amount.) The APR is disclosed as a requirement of the federal Truth in Lending statutes
“As is” Condition: Premises accepted by a buyer in the condition existing at the time of the sale, including all physical defects.
Assumption of Mortgage: A buyer’s agreement to assume the liability under an existing note that is secured by mortgage or deed of trust. The lender must approve the buyer in order to assume the loan.
Buy down: A payment to the lender from the seller, buyer, third party or some combination of these, causing the lender to reduce the interest rate during the early years of the loan. The buy down is usually for the first 1 to 5 years of the loan.
CAP: The limit of how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.
CC&R’s: Covenants, Conditions, and Restrictions. A document that controls the use, requirements, and restrictions of a property.
Closing Costs: Expenses incidental to the sale of real estate, such as a loan fee, appraisal fees etc.
Closing Statement: The financial disclosure statement that accounts for all the funds received and expected at the closing, including deposits for taxes, hazard insurance and mortgage insurance. The form used for the closing statement is the HUD 1.
CLTA New Homeowner’s Policy: A widely used title insurance policy that offers the most extensive title insurance coverage available for homeowners. Special conditions and deductibles apply. Ask your Michelle at Lawyers Title professional for more information.
Contingency Clause: The dependence upon a stated event which must occur before a contract is binding. For example: The sale of the house, contingent upon the buyer obtaining financing.
Conversion Provision: A provision in some ARM’s to convert the loan to a fixed loan, usually after an adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgages. The conversion feature may be at an extra cost.
Deed: Written instrument which, when properly executed and delivered, conveys title.
Due on Sale Clause: An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.
Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the buyer with a written offer as evidence of good faith.
Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both party’s instructions and assuming responsibility for handling all of the paperwork and distribution of funds.
Fair Market Value: Price that probably would be negotiated between a willing seller and willing buyer in a reasonable time. Usually arrived at by using comparable sales in the area.
Federal National Mortgage Accosciation (FNMA): Popularly know as Fannie Mae. A privately owned corporation created by congress to support the secondary mortgage market. It purchases and sells residnental mortgages insured by the FHA or guaranteed by the VA as well as conventional home mortgages.
FHA Loan: A loan issued by the Department of Housing and Urban Development. The Federal Housing Adminstreaition (FHA) guarantees its payment in event of default by the owner.
Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z of the Truth in Lending Law lenders in areas federally designated as potential flood areas. The insurance is private but is federally subsided.
Graduated Payment Mortgage: A residential mortgage with monthly payments that start at low level and increase at a predetermined rate.
Grant Deed: One of the many types of deeds used to transfer real property. Contains warranties against prior conveyances or encumbrances. When title insurance is purchased, warranties in a deed are of little practical significance.
Grantee: One who grant is made. Generally the buyer.
Grantor: One who grants property or property rights. Usually the seller
Hazard Insurance: Real estate insurance protecting against loss caused by fire, some natural causes, vandalism. Etc. depending upon the terms of the policy.
Home Inspection Report: A qualified inspector’s report on property’s overall condition. The report usually includes an evaluation of both the structural and mechanical systems.
Home Owner’s Association:
1) An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area.
2) An association formed by the builder of condominiums or planned developments and required by statues in some states. The builder’s participation as well as duties of the association are controlled by statute.
Home Warranty Plan: Protection against failure of mechanical systems with the property. Frequently includes plumbing, electrical, heating systems and installed appliances.
Homestead: The dwelling (house and continuous land) of the head of a family. Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of the creditors. Property tax exemptions (for all or part of the tax) are also available in some states. Statutory requirements to establish a homestead may include a formal declaration to be recorded.
HUD 1: The form used for closing statement. (See Closing Statement)
Impound Account: Account help by a lender for payment of taxes, insurance, or other periodic debts against real property. For example, the mortgagor or trust or pays a portion of the yearly taxes with each monthly payment. The lender pays the tax bill from the accumulated funds.
Index: A measure of interest rate changes used to determine changes in an Adjustable Rate Mortgage interest rate over the term of the loan.
Joint Tenancy: An equally undivided ownership of property by two or more persons. Upon death of any owner, the survivors take the decedent’s interest on the property.
Lien: A legal hold or claim on property as security for a debt or change.
Loan Commitment: A written promise to make a loan for a specified amount on specific terms.
Loan-to-Value Ratio: The relationship between the amount of the appraised value of the property and the amount of the loan, expressed as a percentage.
Lock or Lock-in: A lender’s guarantee of an interest rate for a set period of time.
Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Negative Amortization: Negative amortization occurs when the monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover the interest.
Origination Fee: A fee or charge for establishing a new loan.
Owner’s Policy: Title Insurance for the owner of property, rather than a lien holder.
PI: Principal and interest. Used to indicate what is included in a monthly payment on real property. If the payment includes only principal and interest, property taxes, and hazard insurance would make the total payment higher.
PITI: Principal, interest, taxes, and insurance. Used to indicate what is included in a monthly payment on real property. Principal, interest, taxes, and insurance are the four major portions of a usual monthly payment.
Point: An amount equal of 1% of the principal amount of the investment or note. When referring to mortgages or deeds of trust, the term is used to describe the percentage of discount rather than interest.
Preliminary Title Report: A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title insurance policy used.
Pre-Payment Penalty: A fee charged to a borrower who repays a loan before it is due.
Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the loan.
Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a Sales Contract, Deposit Receipt, Earnest Money Contract, or Agreement for Sale.
Realtor: A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors.
Regulation Z: Federal Reserve regulation issued under the Truth in Lending Law, which requires that, a credit purchaser be advised in writing of all costs connected with the credit portion of the purchase.
Sole Ownership: Ownership of property by individual or other entity capable of acquiring title.
Statement of Information: A confidential form filled out by buyer and seller to help a title company determine if any liens are recorded against either. Also, called a Statement of Identity.
Tax Rate: Traditionally, the ratio of dollars of tax per one hundred or per one thousand dollars of valuation. Modernly expressed as a percentage of valuation.
Tenancy in Common: A type of joint ownership of property by two or more persons with no right of survivorship.
Title Insurance Policy: A policy that protects the purchaser, lender or other party against losses. Title insurance, offers protection against claims arising from various defects (as set out in the policy) which may exist in the title to a specific parcel of land.
VA Loan: A loan that is guaranteed by the Veteran’s Administration and made by a private lender.
