Real Estate Glossary

Abstract of Title – A condensed history or summary of all transactions affecting a particular tract of land.

Adjustable-Rate Mortgage (ARM) – interest rates on this type of mortgage are periodically adjusted up or down, depending on a specified  financial index.

AIR – Adjustable interest rate.

Adverse Possession – a claim made against the land of another by virtue of open and notorious possession of said land by the claimant.

Agent – acts on behalf of another, representing that person’s interests and serving as an intermediary.

ALTA – American Land Title Association, a national association of title insurance companies, abstractors and attorneys specializing in real property law. Its headquarters are in Washington, D.C.

Amortization – a method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, principal repayment is very small and interest repayment very  high; at the end of the loan, that relationship is reversed.

Annual Percentage Rate (APR) – the actual finance charge for a loan, including points and loan fees in addition to the stated interest rate.

AP – Adjustable Payment

Application – the submission of a consumer’s financial information for the purposes of  obtaining an extension of credit, and consists of the submission of the consumer’s name,  income, social security number, property address, estimate of the value of the property, mortgage loan amount sought.

Appraisal – an expert judgment of the value or worth of a property.

Appraiser – works on behalf of a lender and provides a market analysis of the property.

ARM – see “Adjustable Rate Mortgage

Assessed Value – value placed on property by a municipality for purposes of levying  taxes which may differ widely from appraised or market value.

Assignment of Funds – a direction to a third party to transfer funds from the sale or mortgage of one property directly to the Settlement Agent for the specified contract  property.

Assumable Mortgage – A mortgage which, by its terms, allows a new owner to take over its obligations.

Balloon Payment – a large principal payment due all at once at the end of some loan terms.

Buyer’s Broker – Most real estate brokers and agents work only for the sellers. A buyer’s broker serves the interest of the buyer and has no relationship with the seller.

Broker – a real estate professional that has a higher level of training than an agent. Generally, this is one who is the legal representative or proprietor of the office.

Business Day – defined differently for the Long Estimate (LE) vs. Closing Disclosure (CD). For the Loan Estimate, a business day is a day on which the creditor’s offices are open to the public for carrying out substantially all of its business functions. For the Closing Dis-closure, a business day refers to all calendar days except Sundays and federal holidays specified in 5 U.S.C. 6103(a) such as New Year’s Day, Martin Luther King Jr.’s Birthday, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran’s Day, Thanksgiving Day, and Christmas Day.

Buyer’s Agent (or Selling Agent): – works with the buyer to locate a suitable property and negotiate a successful home purchase.

Cap – limit on how much the interest rate can change in an ARM.

Capital Gains – the profits that an investor realizes when he or she sells their investment property for a price that is higher than the purchase price. For example, if you purchase a property for $100,000 and sell it some years later for $150,000 your capital gain is $50,000.

CFPB – Consumer Financial Protection Bureau, an entity created by the Dodd-Frank Act.

Chain of Title –  a term applied to the past series of transactions and documents affecting the title to a particular parcel of land.

Closing – The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.

Closing Costs – expenses for services incidental to a sale of real estate, such as sales commissions, loan fees, title fees, appraisal fees, etc.

Closing Disclosure (CD) –CFPB mandated form replacing the HUD-1 and TIL (Truth in Lending) on impacted transactions designed to provide helpful disclosures to consumers in un- derstanding all the costs of the transaction. This form is given to the buyer (consumer) three business days before closing.

Commission – fee (usually a percentage of total transaction) paid to an agent or broker for services performed.

Comparable Market Analysis (CMA) – a written analysis of houses having similar characteristics currently being offered for sale as well as comparable houses sold in the past six months. This enables you to determine if you are paying market value for a home, and to identify whether market prices are rising or falling.

Condominium (Condo) – type of real estate ownership where the owner has title to a specified unit and shared interest in common areas.

Consummation – when the consumer becomes contractually obligated to the creditor on the loan.

Consumer – borrower / buyer

Contingency – a condition in a contract that must be met for the contract to bebinding.

Contract – binding legal agreement between two or more parties that delineates the conditions for the exchange of value (example: money exchanged for title to property).

Conversion Clause –  a provision that allows converting an ARM to a fixed-rate loan after a specified interval.

Debt-to-Income Ratio –  a formula lenders use to determine the loan amount for which you may qualify. Also known as the “back-end ratio“. Guidelines may vary, depending on the loan program.

Deed –  legal document that formally conveys ownership of property from Seller to Buyer.

Down Payment – percentage of the purchase price which the Buyer must pay in cash and may not borrow from the lender.

Earnest Money – monetary deposit paid when the sales contract is signed before closing.

Eminent Domain – the power of the state to take private property for public use upon payment of just compensation.

Encroachment – A trespass or intrusion onto another’s property, usually by a structure, wall or fence.

Equity – the value of the property actually owned free & clear by the homeowner: purchase price plus appreciation plus improvements, less mortgages and liens.

Escrow – an item of value, money or documents, deposited with a third party to be delivered upon fulfillment of a condition. For example, the doposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing sale of real estate.

Exception – in legal descriptions, that portion of land to be deleted or excluded. The term often is used in a different sense to mean an encumbrance on title, excluded from coverage in a title insurance policy.

Fannie Mae – see Federal National Mortgage Association.

Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (FNMA, called “Fannie Mae”) – privately owned corporations created by Congress that buy mortgage notes from local lenders and are responsible for the guidelines a majority of lenders use to qualify borrowers.

Fee Simple Estate – the greatest possible estate in land where the title is held completely and without any limitations or conditions. Sometimes designated simply as “Fee.”

FICO Score – a numerical rating developed and maintained by Fair Isaac and Company that indicates a borrower’s credit worthiness based on a number of criteria.

Finance Charge – the total cost, including all fees, points and interest payments a borrower pays to obtain credit.

Fixed Rate Mortgage – a mortgage on which the same rate of interest is charged for the life of the mortgage.

Fixture – a recognizable entity (such as a toilet bowl, kitchen cabinet, or light unit) that is permanently attached to property and belongs to the property when it is sold.

Float the Rate – this term is used when a mortgage applicant chooses not to secure a rate lock, but instead allows the note rate pricing to fluctuate until the applicant decides to lock in, usually no later than five days prior to closing.

Flood Certification – a common term for a Federal Emergency Management Agency (FEMA) Standard Flood Hazard Determination Form (SFHDF). This determines whether land or a building is located within a Special Flood Hazard Area for purposes of flood insurance requirements under the National Flood Insurance Program.

FSBO – a property that is For Sale by Owner and is not listed with a real estate broker.

GFE – Good Faith Estimate provided by the lender on a federally mandated form to disclose to borrower the estimated charges for closing.

Hazard Insurance – compensates for property damage from speciffied hazards such as fire and wind. More complete coverage is given by all-risk homeowner’s insurance.

Home Equity Line of Credit (HELOC) – A loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower’s equity in his/her house.

Home Inspector – provides an objective and independent comprehensive written report on a home’s condition, major systems and components.

Home Inspection Report – prepared by a qualifed Home inspector to evaluate a property’s structure and mechanical systems.

HUD-1 – a precise breakdown of closing costs for both Sellers and Buyers (also known as HUD 1 Settlement Statement) required by RESPA until October 3, 2015, then only in the following transactions – HELOCs, reverse mortgages, mobile, homes, co-ops, consumer-purpose loan secured by commercial real estate. Also commonly used in Cash transactions.

Impounds – another term sometimes used for “Escrows” collected and held by a lender to pay taxes and insurance on the mortgaged property.

Interest – the cost of borrowing money, usually expressed as a percentage over time.

Joint Tenancy – an estate where two or more persons hold real estate jointly for life, the survivors to take the entire interest on the death of one of the joint tenants.

Judgment – a decree of a court. In practice, this is the lien or charge upon the land of a debtor resulting from the court’s award of money to a creditor. Also see “Judgment Lien”.

Judgment Lien – the charge upon the land of a debtor resulting from the decree of a court properly entered into the judgment docket.

Lien – a security claim on property until a debt is satisfied.

Listing Agent – through a broker forms a legal relationship with the homeowner to sell the property.

Listing Agreement – agreement whereby an owner engages a real estate broker for a specified period to sell property, for which sale the agent & broker receives a commission.

Loan Estimate (LE) – form replacing the GFE and early TIL designed to provide disclosures that will help consumers understanding the key features, costs, and risks of the mortgage loan for which they are applying. Initial disclosure to be given to the consumer three business days after application.

Loan Officer (or Mortgage Consultant) – representative of a bank or other financial institution, who helps customers identify their borrowing options and helps them understand & secure the terms of their loan.

Market Value – the price that is established by present economic conditions, locations, and general trends.

Mortgage – security claim by a lender against property until the debt is paid.

Mortgagee – the mortgage lender.

Mortgagor – the mortgage borrower.

Multiple Listing Service (MLS) – a computer-based shared listing service for real estate agents that provides information on most of the houses for sale in an area.

Negative Amortization –  a method of calculating fixed monthly payments in combination with a variable interest rate. When monthly payments are not enough to cover interest costs, unpaid interest is added to the principal balance.

Nonconforming Loan –  conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics, or underwriting guidelines.

Origination Fee – application fee(s) for processing a proposed mortgage loan.

Piggy Back Loan – “Piggy Back Loan” is a slang term, which really is another way of describing 1st and 2nd mortgages that close concurrently. In today’s mortgage lending environment, obtaining a piggy back loan can be very difficult if a borrower has less than 20% for a down payment. In such instances, obtaining one mortgage with private mortgage insurance may be the only option.

PITI – principal, interest, taxes, and insurance forming the basis for monthly mortgage payments.

PMI – Private Mortgage Insurance. An insurance contract which insures that the named lender will recover a specific percentage of the loan amount from the insurer in the event the loan goes bad.

Points – a one-time special fee or extra charge paid to a lender in order to secure a loan. Expressed as a percentage of face amount of mortgage.

Power of Attorney – an instrument authorizing another to act on one’s behalf in legal matters.

Pre-Paids – closing costs related to the mortgage loan which are collected at loan closing – including per diem prepaid interest and initial deposits of monthly escrows of taxes and insurance.

Prepayment Penalty – a fee paid by a borrower who pays off the loan before it is due.

Prequalification – informal estimate of how much financing a potential borrower might expect to obtain, done before paying substantial loan application fees.

Principal – one of the parties to a contract; or the amount of money borrowed, for which interest is charged.

Prorate – divide or assess proportionately, typically property taxes & HOA dues.

Realtor® – a licensed real estate agent and member of the National Association of Realtors®. They also belong to state and local Association of REALTORS.

Real Estate Agent – individual licensed by the state to represent parties in the transfer of property. Every Realtor is a real estate agent, but not every real estate agent has the professional designation of a realtor.

RESPA – Real Estate Settlement Procedures Act.

Set Back Lines – Those lines which delineate the required distances for the location of structures in relation to the perimeter of the property.

Settlement – all financial transactions required to complete contract performance / obligations.

Survey – a house location survey (also known as a physical improvement survey), which is the type of survey generally required by lenders and title insurance underwriters. If a purchaser plans on making improvements to the property, or wants to be able to see the property line on location, a boundary survey (also known as a staked survey) can be ordered. The cost of a boundary survey usually runs twice the cost or more of a location survey.

TIP – Total Interest Percentage: total amount of interest paid over the life of the loan, expressed as a percentage of amount borrowed.

Title – legal ownership and right to use and possession of a specific property.

Title Insurance – protects insured against covered loss resulting from defects in the title.

Title Search – detailed examination of the recorded document history of a property to determine condition of title & any encumbrances.

Unreleased Mortgage – a mortgage or lien recorded in the Court records that appears to be outstanding because no Certificate of Satisfaction/Deed of Release has been recorded.

USDA Rural Home Loan – along with loans guaranteed by the VA, loans guaranteed by the USDA remain one of the few nationally offered loan programs available with no down payment.  While the program includes the word “rural” in its name, this is not necessarily the case with all properties. The program’s requirements mandate that both the property and borrower must qualify. These requirements are dependent on the physical location of the property and the  maximum household income. Ask your lender for details so you can determine if this type of program would be a good option for your situation.

Vacation Home – a home where you spend any appreciable amount of time away from your primary residence for the purpose of leisure activities. A vacation home is not rented out for longer than 14 days in even given calendar year.

Variable Rate Mortgage – a loan in which the interest rate fluctuates with the cost of funds or some other index.

Variance – (also known as tolerance) the change between a good faith charge provided on  the Loan Estimate and the actual charge on the Closing Disclosure.

Walk Through – Depending on the terms of the contract of sale or based on local custom, a walk-through or pre-settlement inspection may be scheduled prior to settlement or closing of the transaction. The primary purpose of this type of inspection is to make certain the property is in the agreed-upon condition, repairs (if any) from the home inspection are complete, and to confirm that nothing has gone wrong with the property since the buyer’s last viewing.

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