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Abstract or Title Search
The process of reviewing all recorded
transactions in the public record to determine
whether any title defects exist that could
interfere with the clear transfer of ownership
of the property.
Acceptance
The seller's written approval of a buyer's
offer.
Acre
A
measurement of land equal to 43,560 square feet.
Actual age
The number of years a
structure has been standing.
Additional Principal Payment
Extra
money included in the monthly payment to help
reduce the principal and shorten the term of the
loan.
Adjustable Rate
Mortgage (ARM)
A loan with an
interest rate that is periodically adjusted to
reflect changes in a specified financial index.
Adjustment Period
The amount of
time between interest rate adjustments in an
adjustable-rate mortgage.
Agency
The relationship of trust
that exists between sellers and buyers and their
agents. The agency is formed through a written
contract.
Agency Closing
The process by which a lender uses a title
company or other firm as an agent to complete a
loan.
Allowance
A budget offered by builders of new homes for
the purchase of carpeting and fixtures.
Amortization
The process of paying
the principal and interest on a loan through
regularly scheduled installments. Initially,
most of each payment is applied toward interest
owed, and later in the loan term increasingly
applied toward principal.
Amortization Tables
Mathematical
tables that lenders use to calculate a
borrower's monthly payment.
Annual Percentage Rate (APR)
A
measure of interest rate that expresses the cost
of a mortgage as a yearly rate on the loan
balance. The APR assumes the loan is held for
its full term. For adjustable-rate loans, the
APR assumes the loan's index doesn't change from
its initial value.
Annuity
The payment of a fixed sum to an investor at
regular intervals.
Appraisal
An opinion of the value of a property at a given
point in time.
Appraisal
Report
A detailed written report
on the value of a property based on recent sales
of comparable sites in the area.
Appraised Value
An opinion of the
current market value of a property.
Appreciation
An increase in the
value of a home or other property.
Approval
A thorough assessment
made by a lender of a borrower's ability to pay
for a home, and a confirmation of the amount the
borrower may obtain.
ARM
(adjustable rate mortgage)
A loan
with an interest rate that is periodically
adjusted to reflect changes in a specified
financial index.
ARM Index
A publicly published number used to adjust the
interest rate for an adjustable rate loan (ARM).
An index (such as Treasury bills or the prime
rate) reflects the lender's cost of credit, and
is not controlled by individual lenders.
As-Is Condition
The purchase or
sale of a property in its existing condition.
Asking Price
A seller's initial
price for a property.
Assessed Value
A tax assessor's
determination of the value of a home in order to
calculate a tax base.
Assessment
The estimated value of
a piece of real estate or a levy placed on
property in addition to taxes.
Assessor
An official who
determines the assessed value of a property.
Assignment
The transfer of rights
to pay a debt from one party to another, with
the original party remaining liable for the debt
if the second party defaults.
Average Price
The price of a home
determined by totaling the sales prices of all
houses sold in an area and dividing that number
by the number of homes.
Balloon Loan
A mortgage in which monthly installments are not
large enough to repay the loan by the end of the
term. As a result, the final payment due is the
lump sum of the remaining principal.
Balloon Payment
The final lump-sum
payment due at the end of a balloon mortgage.
Bankruptcy
A proceeding in which
an insolvent debtor can obtain relief from
payment of certain obligations. Bankruptcies
remain on a credit record for seven to 10 years
and can severely limit a person's ability to
borrow.
Before-Tax Income
Total income before taxes are deducted.
Beneficiary
The lender who makes a
loan, also called a mortgagee. The person
borrowing money is the mortgagor.
Bill of Sale
A document that
transfers ownership of personal property.
Biweekly Mortgage
A mortgage that
requires payments every two weeks and helps
repay the loan over a shorter term.
Blanket Mortgage
A mortgage that
covers more than one property owned by the same
borrower.
Bylaws
The rules and regulations that a homeowners
association or corporation adopts to govern
activities.
Cap
A
limit on the amount the interest rate or monthly
payment can increase in an adjustable rate
mortgage.
Carryback Financing
Financing in which a seller agrees to take back
a note for a set amount of the sale of the home.
Cash Flow
The amount of cash a
rental property investor receives after
deducting operating expenses and loan payments
from gross income.
Cash-Out
Refinance
The refinancing of a
mortgage in which the money received from the
new loan is greater than the amount due on the
old loan. The borrower can use the extra funds
in any manner.
Central Air
Conditioning
A device that
generates cold air through an outside unit
connected to ductwork inside the house.
Chain of Title
The official record
that details the ownership history of a piece of
property.
Chattel
Personal property such as furniture, clothing,
or a car.
Closing
The final procedure in which documents are
signed and recorded and the property is
transferred.
Closing Costs
Expenses incidental to the sale of real estate,
including loan, title, and appraisal fees. These
costs exist in addition to the price of the
property and are paid at closing. Some are
one-time expenses and some are recurring.
Closing Statement
A document which
details the final financial settlement between a
buyer and seller and the costs paid by each
party.
Comparables
Properties used as comparisons to determine the
value of a certain property.
Comparative Market Analysis
An
estimate of the value of a property based on an
analysis of sales of properties with similar
characteristics.
Condominium
Individual units in a building or development in
which owners hold title to the interior space
while common areas such as parking lots,
community rooms, and recreational areas are
owned by all the residents.
Conforming Loan
Any loan that
meets the qualifications to be purchased by
Fannie Mae or Freddie Mac. The current
conforming loan limit is $252,700.
Construction-to-Permanent Loan
A
construction loan that is converted to a
longer-term traditional mortgage after
construction has been completed.
Consumer Credit Counseling Service (CCCS)
A nationwide, nonprofit organization that helps
consumers get out of debt and improve their
credit profile. National headquarters: 8701
Georgia Avenue., Suite 507, Silver Springs, MD
20910. Phone: (800) 388-2227.
Contiguous Lots
Pieces of property
that are adjoined.
Contingency
A condition specified
in a purchase contract, such as a satisfactory
home inspection.
Contract for
Deed
A contract in which the
seller agrees to defer all or part of the
purchase price for a specified period of time.
Conveyance
The transfer of title
of property.
Courier Fee
Fee charged at closing to cover the delivery of
documents between lenders, escrow companies, and
other parties during a real estate transaction.
Credit History
A record of an
individual's current and past debt payments.
Credit Rating
The degree of
creditworthiness assigned to a person based on
credit history and financial status.
Credit Report
A detailed account
of an individual's credit, employment, and
residence history. A lender uses this report to
determine a loan applicant's creditworthiness.
The three largest credit bureaus are Trans Union
Corp., Equifax, and Experian (formerly TRW).
Credit Repository
Large companies
that gather financial and credit information
from various sources about individuals who have
applied for credit.
Current
Value
The value of a home at the
time of appraisal.
Debt
Any
amount one person owes to another.
Decorating Allowance
An amount of
money supplied by the seller and held in escrow
for the buyer, to be applied toward negotiated
decorating changes.
Deed
The legal document that transfers ownership of a
piece of property.
Deed of
Trust
A document that gives a
lender the right to foreclose on a piece of
property if the borrower defaults on the loan.
Deferred Maintenance
Any repair or
maintenance of a piece of property that has been
postponed, resulting in a decline in property
value.
Delinquent Mortgage
A mortgage that involves a borrower who is
behind on payments. If the borrower cannot bring
the payments up to date within a specified
number of days, the lender may begin foreclosure
proceedings.
Depreciation
The decline in value of a piece of property.
Disclosure
A statement to a
potential buyer listing information relevant to
a piece of property, such as the presence of
radon or lead paint.
Discount
Points
Fees that a borrower pays
when the lender makes the loan, to get a lower
interest rate. Lenders offer various rate/point
combinations, and borrowers pay points to adjust
the interest rate to the market rate. One point
equals one percent of the loan amount.
Distressed Property
Property that
is in poor physical or financial condition.
Documentation Preparation
A fee
charged by the settlement agent (escrow company
or attorney) to ready the necessary paperwork
for closing.
Down Payment
The difference between purchase price and the
portion of the purchase price financed by a
lender. Most lenders require that the down
payment come from the buyer's own funds, but may
also allow gifts from relatives.
Due-On-Sale Clause
Standard
language in a mortgage which states that the
loan must be paid when a house is sold.
Earnest Money
Money a buyer gives with an offer to purchase a
property. Also called a deposit.
Easement
A right given to a third
party to use a portion of the property for
certain purposes, such as power lines or water
mains.
Effective age
The age of a structure estimated by its
condition rather than its actual age.
Electronic transfer
The process of
having a mortgage payment automatically deducted
from a borrower's checking or savings account.
Many lenders offer this service.
Eminent domain
The government's
right to condemn private land for public use,
such as the routing of a public highway.
Encumbrance
A claim or lien on a
property which complicates the title process.
Equal Credit Opportunity Act (ECOA)
Federal law that prohibits a lender or other
creditor from refusing to grant credit based on
the applicant's sex, marital status, race,
religion, national origin, or age, or because
the applicant receives public assistance.
Equifax
Equifax Credit Information
Services, Inc., is one of the "Big Three"
credit-reporting bureaus that operate
nationwide. Address: P.O. Box 740249, Atlanta,
GA 30374. URL: http://www.equifax.com. Phone:
(800) 685-1111.
Equity
A determination of the value of a property after
existing liens are deducted.
Escrow Account
An account that a
lender or mortgage servicer establishes to hold
funds for the payment of expenses such as
homeowners insurance and property taxes. Also
known as an impound account.
Estimated Closing Costs
An
estimate of expenses incidental to the sale of
real estate, including loan, title, and
appraisal fees. These costs are in addition to
the price of the property, and are prepaid at
closing. Some are one-time expenses and some are
recurring.
Examination of
Title
An inspection by a title
company of public records and other documents to
determine the chain of ownership of a property.
Experian
Experian, formerly known
as TRW Information Systems & Services, is one of
the "Big Three" credit-reporting bureaus.
Address: 505 City Parkway West, Orange, CA
92868. Phone: (800) 392-1122.
Fair Credit Reporting Act
A federal law designed to regulate procedures
and prevent old or inaccurate information from
staying in consumer credit files. The act gives
individuals the right to inspect their own
credit files, although the credit bureau may
charge a fee.
Fair Housing
Act
Landmark federal law that
makes it illegal to refuse to rent or sell to
anyone based on race, color, religion, sex, or
national origin. The 1988 amendments to the act
expanded the protections to include family
status and disability.
Fannie
Mae
The official name of the
Federal National Mortgage Association, it is a
congressionally chartered, shareholder-owned
company that buys mortgages from lenders and
resells them as securities on the secondary
mortgage market.
Federal Home
Loan Mortgage Corporation (FHLMC)
The Federal Home Loan Mortgage Corporation is
commonly known as Freddie Mac. The company buys
mortgages from lending institutions, pools them
with other loans, and sells shares to investors.
Federal Housing Administration (FHA)
This government agency operates a variety of
home-loan programs. Its most popular is the
Section 203(b) program, which provides low-rate
mortgages to buyers who make a down payment as
small as 3 percent.
Federal
National Mortgage Association (FNMA)
Now officially dubbed Fannie Mae, this federally
chartered agency buys mortgages from lending
institutions, pools them with other loans, and
sells shares to investors.
Federal Reserve Board
A group of
economists and other experts who set the
nation's monetary policy. Its chief tool to
control inflation is the power to control
interest rates.
Fee Simple
This type of ownership, also called fee simple
absolute, is the maximum interest a person can
have in a piece of real estate. It entitles the
owner to use the property in any manner they see
fit, in accordance with state and local laws.
FHA Loans
Mortgages that are
insured by the Federal Housing Administration
(FHA). The FHA operates loan plans for investors
and purchasers of rural property, and provides
low-rate mortgages to buyers who make a down
payment as small as 3 percent.
Financed Closing Costs
Closing
costs that are added to the loan amount. This
practice saves the borrower cash up front, but
increases the borrower's monthly payment.
Fixed-Rate Mortgage
A home loan
with an interest rate that will remain at a
specific rate for the term of the loan. About 75
percent of all home mortgages have fixed rates.
Flood Certification
The process of
determining whether a property is located within
a known flood zone. If the property is in a
flood zone, the lender will probably require
federally provided flood insurance.
Flood Insurance
Hazard coverage
that is required in designated flood areas.
Foreclosure
Legal process by which
a lender ends the borrower's interest in a
property after a loan is defaulted. The lender
may sell the property and keep the proceeds for
mortgage and legal costs, using excess proceeds
to satisfy other liens or return to the
borrower.
Freddie Mac
The common name for the Federal Home Loan
Mortgage Corporation (FHLMC), a congressionally
chartered institution that buys mortgages from
lenders and resells them as securities on the
secondary mortgage market.
Functional obsolescence
A loss in
value to an improvement resulting from
functional problems caused by age or poor
design.
Good-Faith Estimate (GFE)
An estimate from an institutional lender that
shows the costs a borrower will incur, including
loan-processing charges and inspection fees.
Government National Mortgage Association (GNMA)
Commonly known as Ginnie Mae, this agency buys
home loans from lenders, pools them with other
loans and sells shares to investors. Unlike
similar agencies Fannie Mae and Freddie Mac,
Ginnie Mae only purchases loans backed by the
federal government.
Hazard Insurance
Also known as homeowner's insurance or fire
insurance, hazard insurance covers physical
risks such as fire and wind damage. Lenders
usually require coverage for at least the
replacement value of the home.
Home Equity Line of Credit (HELOC)
An open-ended line of credit based on a
homeowner's accumulated equity. Most loan
amounts are limited to 75 to 85 percent of
home's appraised value; withdrawals can be made
at any time within the credit line's guidelines.
Home Equity Loan
A loan that
allows owners to borrow against the equity in
their homes.
Home Inspection
An examination of a home's construction,
condition, and internal systems by an inspector
or contractor prior to purchase.
Homeowner's Insurance
This
insurance includes hazard coverage for any
damages that may affect the value of a house, in
addition to personal liability and theft
coverage.
HUD
Abbreviation of (the U.S. Department of) Housing
and Urban Development, a federal agency that
oversees the Federal Housing Administration
(FHA) and a variety of housing and community
development programs.
HUD-1
Uniform Settlement Statement
A
closing statement or settlement sheet that
outlines all closing costs on a real estate
transaction or refinancing.
HVAC
Heating, ventilation, and air
conditioning.
Individual Retirement Account (IRA)
A tax-deferred savings account in which a person
may accrue retirement funds.
Interest Rate
The fee, expressed
as a percentage, charged for a loan. The
interest rate also helps determine the monthly
payment. For adjustable-rate loans, the interest
rate may change from its initial level.
Investment Property
Real estate
that generates income, such as an apartment
building or a rental house.
Joint Tenancy
Ownership by two or more people that gives equal
shares of a piece of property. Rights pass to
the surviving owner or owners.
Judgment
The decision of a court
or law. If a court decides that a person must
repay a debt, a lien may be placed against that
person's property.
Lease Option
A lease that contains the right to purchase the
property for a specific price within a certain
time frame.
Leasehold
The limited interest in a property held by a
tenant; primarily the right to inhabit it for a
specified period of time. At the end of the
lease, the property reverts to the owner or
landlord.
Lender
A bank, savings institution, or mortgage company
that offers home loans.
Liabilities
A borrower's debts and
financial obligations.
LIBOR
Acronym for "London Interbank Offered Rate." An
index used to determine interest rate changes
for adjustable rate mortgages.
Liquid Assets
Cash and all other
assets that can be converted to cash relatively
quickly. Liquid assets can include money in
savings and checking accounts, money-market
accounts, and most certificates of deposit.
Loan Application
The first step
toward submitting a home loan requires the
borrower to itemize basic financial information.
Loan Officer
An official lending
institution representative who is empowered to
act on behalf of the lender within certain
limits.
Loan Origination Fee
The lender requires a loan origination fee (or
points) to cover the direct costs of arranging
the loan.
Loan-to-Value Ratio
(LTV)
The ratio of the total loan
amount to the value of the property. For lending
purposes, the value is equal to the purchase
price or the appraised value, whichever is
lower.
Lock-In Period
A period of time during which the borrower is
guaranteed an agreed-upon interest rate, even if
market rates rise. The longer the period, the
higher the cost (in points) to the borrower.
Mechanic's Lien
Subcontractors or suppliers sometimes will file
an encumbrance, or mechanic's lien, against a
property to seek payment.
Merged Credit Report
A report that
draws information from the Big Three
credit-reporting companies: Equifax, Experian,
and Trans Union Corp.
Mixed-Use Development
A project
that combines several different functions, such
as residential space above a commercial
establishment or an entire development combining
commercial, residential, and public
accommodations.
Mortgage
In casual use, a sum of money borrowed to
purchase a home at a certain interest rate using
the property as collateral. In formal use, a
mortgage is the legal document that pledges
property as collateral for a loan.
Mortgage Banker
A company that
provides home loans using its own money. The
loans are usually sold to investors such as
insurance companies and Fannie Mae.
Mortgage Broker
A company that
matches lenders with prospective borrowers who
meet the lender's criteria. The mortgage broker
does not make the loan, but receives payment
from the lender for services.
Mortgage Insurance
Required by
lenders on some loans to protect lenders from a
possible default. Most conventional loans with
down payments or home equity percentages that
are less than 20 percent of the home value
require private mortgage insurance (PMI).
Mortgage-Interest Deduction
The
tax write-off that the Internal Revenue Service
allows most owners to claim for annual interest
payments made on real estate loans.
No-Cash-Out Refinance
The amount of the new mortgage covers the
remaining balance of the first loan plus closing
costs and any liens, and yields no more than 1
percent of the new loan's principal in cash.
Non-Conforming Loan
A
non-conforming loan is any loan that doesn't
meet the qualifications or is too large to be
purchased by Fannie Mae or Freddie Mac.
Note Rate
The interest rate
specified in a mortgage note.
Original Principal Balance
The amount of principal owed on a loan before a
borrower makes any payments.
Origination Fee
A fee charged by
most lenders to cover the direct costs of
arranging the loan; also called points. A point
is 1 percent of the total loan amount.
Owner Financing
A transaction in
which the seller of a property agrees to finance
all or part of the purchase.
PITI (principal, interest, taxes, and insurance)
A payment amount calculated by the lender to
include the principal, interest, taxes, and
insurance on an amortizing loan. The figure is
designed to represent the borrower's actual
monthly mortgage-related expenses.
PMI (private mortgage insurance)
A
form of insurance required by a lender when the
borrower's down payment or home equity
percentage is less than 20 percent of the home
value. This insurance partially protects the
lender if the borrower defaults on the loan.
Point
An amount equal to 1 percent
of the loan amount. Points may be paid by the
borrower at the time the loan is made to get a
lower interest rate. Lenders offer various
rate/point combinations.
Portfolio lender
A lender that
makes loans with its own funds and keeps the
loans on the company's books-in other words,
inside the institution's portfolio-rather than
selling loans on the secondary market.
Possession
A buyer officially
takes possession of a house upon signing the
closing papers and receiving the keys.
Power of Attorney
A document that
authorizes an individual to act on behalf of
someone else.
Prequalification
A lender's
preliminary assessment of a buyer's ability to
pay for a home, and an estimate of how much the
buyer may borrow.
Prepayment
Penalty
A penalty that a lender
may impose on a borrower who pays a loan off
before its expected end date.
Prime Lending Rate
The minimum
short-term interest rate charged by commercial
banks to their most creditworthy clients. Home
loan rates typically are several points above
the prime rate, which is also used as the basis
for mortgages, business loans, and personal
loans.
Processing Fee
A fee charged by some lenders for gathering
information necessary to process the loan.
Property Tax
Tax paid on privately
owned property. Property taxes are usually paid
semiannually, or monthly if the lender requires.
The amount is based on local tax rates and
assessed property value.
Property Tax Deduction
The U.S.
tax code allows homeowners to deduct the amount
they have paid in property taxes.
PUD (planned unit development)
A
highly designed residential project that
features relatively dense clusters of houses,
which are usually surrounded by areas of
commonly owned open space maintained by a
nonprofit community association.
Purchase Agreement
A document that
details the purchase price and conditions of the
transaction.
Qualifying Ratio
A ratio calculated by a lender to determine how
much a potential buyer can borrow.
Quitclaim Deed
A document that
releases a party from any interest in a piece of
real estate.
Real Estate
Land and anything permanently affixed to it,
including buildings.
Real
Estate Settlement Procedures Act (RESPA)
A federal law designed to make sellers and
buyers aware of settlement fees and other
transaction-related costs. RESPA also outlaws
kickbacks in the real estate business.
Recorder
A public official
responsible for keeping record of all real
estate transactions.
Refinancing
The process of
replacing an older mortgage with a new mortgage
that has better terms.
Real
Property
Land and any permanent
fixtures on it, including buildings, trees, and
other fixtures.
Replacement
Cost
The current cost of
rebuilding a structure to its original
specifications.
Reverse
Mortgage
A special type of loan
available to equity-rich, older owners.
Repayment is not necessary until the borrower
sells the property.
Right to
Rescission
A provision in the
federal Truth in Lending Act that allows
borrowers to cancel certain kinds of loans
within three days of signing.
Seller Financing
The seller allows the borrower to use a portion
of the equity in the property to finance the
purchase.
Settlement or
Closing Fees
Fees paid to the
escrow agent (and often a title insurance
company) for carrying out the written
instructions of the agreement between buyer and
seller and/or borrower and lender.
Settlement Statement
A document
that details who has paid what to whom.
Sweat Equity
The non-cash value
added to a piece of property by the owner, such
as do-it-yourself home improvements.
Tax Lien
A lien placed against a property for nonpayment
of taxes.
Tenancy by the
Entirety
Ownership by a husband
and wife in which they together hold title to
the whole property with right of survivorship.
Tenancy in Common
A form of
ownership in which two or more owners hold an
undivided (though not necessarily equal)
interest in the property, with no right of
survivorship.
Title
The legal document conferring ownership of a
piece of real estate.
Title
Insurance
A policy issued to
lenders and buyers to protect against loss due
to disputed property ownership.
Title Search
The process of
reviewing all recorded transactions in the
public record to determine whether any title
defects exist that could interfere with the
clear transfer of ownership of the property.
Trans Union Corporation
Trans
Union Corporation is one of the "Big Three"
credit-reporting bureaus that operate
nationwide. Address: 760 Sproul Road, P.O. Box
390, Springfield, PA 19064-0390. Phone: (800)
888-4213 .
Transfer of
Ownership
Any legal means by which
a piece of real estate changes hands.
Transfer Tax
An assessment by
state or local authorities at the time a piece
of property changes hands.
Treasury Index
An index used to
determine interest rate changes for adjustable
rate mortgages.
Truth in
Lending Act
A federal law that
allows a consumer to cancel a home-improvement
loan, second mortgage, or other loan until
midnight of the third business day after a
contract is signed, if the home was pledged as
security (except for a first mortgage or first
trust deed).
Underwriting
The process in which lenders evaluate the risks
posed by a particular borrower and set
appropriate conditions for the loan.
Underwriting Fee
A fee charged by
the lender to verify information on the loan
application, authenticate the property's worth
as collateral, and make a final determination
about whether to grant a loan to the applicant.
U.S. Department of Housing and Urban Development
Also known as HUD. A federal agency that
oversees the Federal Housing Administration and
a variety of housing and community development
programs.
VA loan
A loan through the Veterans Administration
program, which allows most veterans to purchase
a house without a down payment.
Verification of Deposit
Part of
the loan process, in which a lender will ask a
borrower's bank to sign a statement verifying
the borrower's account balances and history.
Verification of Employment
Part of
the loan process, in which a lender asks the
borrower's employer for confirmation of the
borrower's position and salary.
Waiver
A
voluntary relinquishing of certain rights or
claims.
Walk-Through
A buyer's final inspection of the home to
determine if conditions in the purchase
agreement have been satisfied.
Zero-Net
When the seller receives little or no net proceeds from the
property sale.
Zoning
Regulations that control the use of land within a jurisdiction.
Zoning Variance
A one-time modification of existing zoning law.
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