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Glossary of Real Estate Terms
Abstract
A
title abstract is the notes made by a title examiner based on his
examination of the land records. These notes are a concise summary of
the transactions affecting the property. The title agency produces a
Binder from the information in the abstract.
Acre
43,560 square feet of land.
Adjustable-rate Mortgage (ARM)
A
mortgage in which the interest changes periodically, according to
corresponding fluctuations in an index. All ARMs are tied to indexes.
Administrator
A person appointed by the Court to settle the estate of a person who dies without a will.
Adverse Possession
A
claim made against land titled in another person based on open,
notorious and hostile possession and use of the land to the exclusion
of the titled owner.
Amortization
The
periodic principal pay down of a loan. The loan payment consists of a
portion, which will be applied to pay the accruing interest on a loan,
with the remainder being applied to
the principal. Over time, the interest portion decreases as the loan balance decreases, and
the amount applied to principal increases so that the loan is paid off (amortized) in the
specified time.
Amortization Schedule
A
table which shows how much of each payment will be applied toward
principal and how much toward interest over the life of the loan. It
also shows the gradual decrease of the loan balance until it reaches
zero.
Annual Percentage Rate (APR)
This
is a value created according to a government formula intended to
reflect the true annual cost of borrowing, expressed as a percentage.
Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
Appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.
Assignment
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.
Assignor
The one who assigns to another person.
Assumable Mortgage
A
mortgage that can be assumed by the buyer when a home is sold. Usually,
the borrower must "qualify" in order to assume the loan.
Assumption
The term applied when a buyer assumes a seller’s loan and becomes personally liable for the repayment.
Attachment
Seizure of property through Court process to repay a debt.
Balloon Mortgage
A
mortgage loan that requires the remaining principal balance be paid at
a specific point in time. For example, a loan may be amortized as if it
would be paid over a thirty-year period, but requires that at the end
of the tenth year the entire remaining balance must be paid.
Balloon Payment
The final lump sum payment that is due at the termination of a balloon mortgage.
Bill of Sale
A written document that transfers title to personal property. For example, when selling an
automobile to acquire funds, which will be used as a source of down payment or for
closing costs, the lender will usually require the bill of sale (in addition to other items) to
help document this source of funds.
Binder
A
title insurance binder is the written commitment of a title insurance
company to insure title to the property subject to the conditions and
exclusions shown on the binder. The binder is delivered to the lender
and the settlement attorney.
Caveat Emptor
Buyer
beware. The buyer must inspect the property and satisfy himself it is
adequate for his needs. The seller is under no obligation to disclose
defects but may not actively conceal a known defect or lie if asked.
Clear Title
A title that is free of liens or legal questions as to ownership of the property.
Closing
This
has different meanings in different states. In some states a real
estate transaction is not consider "closed" until the documents record
at the local recorders office. In others, the "closing" is a meeting
where all of the documents are signed and money changes hands.
Closing Costs
Closing
costs are separated into what are called "non-recurring closing costs"
and "prepaid items." Non-recurring closing costs are any items which
are paid just once as a result of buying the property or obtaining a
loan. "Pre-paids" are items which recur over time, such as property
taxes and homeowners insurance. A lender makes an attempt to estimate
the amount of non-recurring closing costs and prepaid items on the Good
Faith Estimate, which they must issue to the borrower within three days
of receiving a home loan application.
Cloud on Title
Any
conditions revealed by a title search that adversely affect the title
to real estate. Usually clouds on title cannot be removed except by
deed, release, or court action.
Co-borrower
An additional! individual who is both obligated on the loan and is on title to the property.
Collateral
Something
of value pledged to secure a loan. In a home loan, the property is the
collateral. The borrower risks losing the property if the loan is not
repaid according to the terms of the mortgage or deed of trust.
Construction loan
A
short-term, interim loan for financing the cost of construction. The
lender makes payments to the builder at periodic intervals as the work
progresses.
Contingency
A
condition that must be met before a contract is legally binding. For
example, home purchasers often include a contingency that specifies
that the contract is not binding until the purchaser obtains a
satisfactory home inspection report from a qualified home inspector.
Contract
An oral or written agreement to do or not to do a certain thing.
Contract for Deed
A
method of financing where title remains in the Seller's name until the
Buyer has paid the full purchase price. A Contract for Deed will
normally trigger the Due on Sale Clause in a Deed of Trust but Veterans
Administration regulations specifically allow Contracts for Deed
without invoking the Due on Sale Clause.
Conventional Mortgage
Refers to home loans other than government loans (VA and FHA).
Covenant
A
written agreement or restriction on the use of land or promising
certain acts. Homeowner Associations often enforce restrictive
covenants governing architectural controls and maintenance
responsibilities. However, land could be subject to restrictive
covenants even if there is no homeowner's association.
Deed
The written legal document conveying title to a property.
Deed of Trust
A
voluntary lien to secure a debt. Some states, like California, do not
record mortgages. Instead, they record a deed of trust, which is
essentially the same thing. Compare, Mortgage.
Down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Due on Sale Clause or Provision
A
clause or provision in a mortgage that allows the lender to demand
repayment in full if the borrower sells the property that serves as
security for the mortgage. The FNMA/FHLMC Deed of Trust also prohibits
a long-term lease or a lease with an option to buy.
Earnest Money Deposit
A deposit made by the potential homebuyer to show that he or she is serious about buying the house.
Easement
The
right to use the land of another for a specific limited purpose.
Examples include utility lines, driveways, and Ingress and Egress.
Easements can be temporary or permanent.
Encumbrance
Any lien, liability or charge against a property.
Equity
A
homeowner’s financial interest in a property. Equity is the difference
between the fair market value of the property and the amount still owed
on its mortgage and other liens.
Equity Sharing
A
form of joint ownership between an owner/occupant and an
owner/investor. The investor takes depreciation deductions for his
share of the ownership. The occupant receives a portion of the tax
write-offs for interest and taxes and a part of his monthly payment is
treated as rent. The co-owners divide the profit upon sale of the
property. Compare, Joint Ownership.
Escrow
An
item of value, money, or documents deposited with a third party to be
delivered upon the fulfillment of a condition. For example, the earnest
money deposit is put into escrow until delivered to the seller when the
transaction is closed.
Escrow Account
An escrow account or impound account with a lender at the close of a purchase
transaction. This means the payment each month includes an amount above what would
be required paying only the principal and interest. The extra money is held in an impound
account (escrow account) for the payment of items like property taxes and homeowner’s
insurance when they come due.
Escrow Disbursements
The
use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insu!rance, and other property expenses as they become due.
Fair Market Value
The
highest price that a buyer, willing but not compelled to buy, would
pay, and the lowest a seller, willing but not compelled to sell, would
accept.
Fee Simple
The absolute total interest in real property. Compare, Life Estate, Reversion.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA).
First Mortgage
The
mortgage that is in first place among any loans recorded against a
property. Usually refers to the date in which loans are recorded, but
there are exceptions.
Fixed-rate Mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.
Fixtures
An
item of personal property attached to real property so that it can not
be removed without damage to the real property. It then becomes a part
of the real property.
Foreclosure
The process by which a lender sells a property securing a loan in order to repay the loan.
FSBO
Short for “For Sale By Owner.”
General Warranty Deed
The Grantor warrants title against all claims. Compare, Quit Claim Deed, Special Warranty Deed.
Government Loan
A
mortgage that is insured by the Federal Housing Administration (FHA) or
guaranteed by the Department of Veterans Affairs (VA) or the Rural
Housing Service (RHS). Mortgages that are not government loans are
classified as conventional loans.
Homestead Deed
A
declaration filed in the land records that an individual is asserting
his homestead exemption. That exemption allows one to protect up to
$5,000 in assets (plus $500 per dependent) against the claims of
creditors.
Ingress and Egress
Applied to Easements, meaning the right to go in and out over a piece of property but not the right to park on it.
Insurable Title
Title subject to a defect or claim, which a title insurance company is willing to insure against. Compare, Marketable Title.
Joint Tenancy
A
form of ownership or taking title to property, which means each party,
owns the whole property and that ownership is not separate. In the
event of the death of one party, the survivor owns the property in its
entirety. Compare, Tenants in Common, Tenants by the Entirety.
Lender's Title Insurance
A
Title Insurance policy covering the lender for the loan amount. The
coverage declines as the loan is paid down and when the loan is paid
off, there is no further coverage.
Lien
A claim or charge against property. Property is said to be encumbered by a lien and the lien must be removed to clear title.
Mortgage Insurance Premium (MIP)
The
amount paid by a mortgagor for mortgage insurance, either to a
government agency such as the Federal Housing Administration (FHA) or
to a private mortgage insurance (MI) company.
Metes and Bounds
A
means of describing land by directions and distances rather than
reference to a lot number. Generally used when land has not been
subdivided into lots.
Mortgage
A
legal document that pledges a property to the lender as security for
payment of a debt. Instead of mortgages, some states use First Trust
Deeds. Compare, Deed of Trust.
Mortgagee
The lender in a mortgage agreement.
Mortgage Insurance (MI)
Insurance
that covers the lender against some of the losses incurred as a result
of a default on a home loan. Mortgage insurance is usually
required in one form or another on all loans that have a loan-to-value
higher than eighty percent. FHA loans and certain first-time
homebuyer programs require mortgage insurance regardless of the
loan-to-value.
Note
A
written promise to pay a certain sum of money at a certain time. A
negotiable note starts "Pay to the order of" and is transferable by
endorsement similar to a check.
Owner's Title Insurance
A
policy of Title Insurance for the buyer insuring the full purchase
price of the property. The insurance premium is paid at settlement, and
the coverage continues forever.
Plat
A map showing the division of a piece of land with lots, streets and, if applicable, common area.
Prepayment Penalty
An additional charge imposed by the lender for paying off a loan before the due date.
Purchase Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Quitclaim Deed
A deed releasing whatever interest you may hold in a property but making no warranty whatsoever.
Riparian Rights
The rights of an owner of land adjacent to water.
Subject To
Taking
title to property with a lien but not agreeing to be personally
responsible for the lien. If the holder who forecloses the lien can
take the property but may not collect any money from the owner who took
"subject to
."
Tenants by the Entirety
A
husband and wife own the property with the common law right of
survivorship so, if one dies, the other automatically inherits.
Tenant in Common
Two
or more persons own the property with no right of survivorship. If one
dies, his interest passes to his heirs, not necessarily the co-owner.
Either party, or a creditor of one, may sue to Partition the property.
Title Insurance
Insurance
against loss or damage as a result of defect in title ownership to a
particular piece of property. Title insurance covers mistakes made
during a Title Search as well as matters, which could not be found or
discovered, in the public records such as missing heirs, mistakes,
fraud and forgery.
Title Search
An examination of the public records, including court decisions, to disclose facts concerning the ownership of real estate.
Usury
Charging more than the maximum legally permitted rate of interest. There is no usury limit for loans secured by a first trust.
Wraparound
The
debt secured includes an existing debt already on the property. The
payments made to the holder of the wraparound include payments due on
the existing loan and the holder must forward the appropriate portion
of each payment to the existing noteholder. Often used to avoid a
Prepayment Penalty or a Due on Sale Clause. Can be used to refer to a
wraparound Deed of Trust or Contract for Deed.
Zoning
The regulation of private land use and development by local government.
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