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 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.