Glossary
Amortization
A gradual paying off of a debt by periodic installments which pay principal and interest.
Arm's length transaction
A transaction among parties each of who acts in his or her own best interest.
Example : A transaction between a father and his son would NOT be an Arm's length transaction
The financial inability to pay one's debts when due. The debtor surrenders his assets to the bankruptcy court. An individual typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes a payment plan to pay off debts). A bankruptcy stays on an individual's credit report for 7 years.
Bi-weekly Mortgage
Bridge Loan
Certificate of Title
An opinion rendered by an attorney as to the status of title to a property, according to the public records. This certificate does not the same level of protection as title insurance.
Clear Title
A marketable title, free of clouds and disputed interests. Most lenders require a clear title prior to closing.
1. The act of transferring ownership of a property from seller to buyer in accordance with a sales contract.
2. The time when a closing takes place.
Closing Costs
Expenses incurred by the buyer and seller in a real estate or mortgage transaction. There are two types of costs : recurring and non recurring.
Non-recurring costs are one time transactional costs which include
Discount and origination points
Lender fees - underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc.
Title insurance fees
Escrow, attorney or closing agent fees
Recording fees
Inspection and appraisal fees
Real estate brokerage commissions
Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing including
Pre-paid interest - interest charges from the date of closing to the end of the month
Property taxes if due
Hazard insurance, fire insurance or homeowner's insurance has to be paid for one year
Mortgage insurance (PMI) - may be required if the loan amount is more than 80% of the value of the property. In the past a whole year of PMI had to be paid up front, however in recent years many PMI companies only require 1-2 months up front. Mortgage insurance premiums are normally paid every month with the loan payment
A short term loan to pay for the construction of buildings or homes. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed or is used to pay off the construction loan.
Contract
An agreement between competent parties to do or not do certain things for consideration.
Example : To have a valid contract for the sale of real estate there must be :
an offer
an acceptance
competent parties
consideration
legal purpose
written documentation
description of the property
signatures by principals or their attorney-in-fact
A report detailing a borrowers credit history including payment history on revolving accounts (eg. credit cards) and installment accounts (e.g.. car loan). A credit report also includes information found from public records including tax liens and judgements.
Deed
A written document by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the buyer at closing.
Finance Charge
Interest charged by a lender.
A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages. See also second mortgage
Foreclosure (Repossession)
A legal process by which the lender forces a sale of a property because the borrower has not met the terms of the mortgage.
Grantee
That party in the deed who is the buyer or recipient.
That party who is the seller or the giver.
Homeowners Association
An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.
Land Contract
A real estate installment selling arrangement whereby the buyer may use and occupy land, but no deed is given by seller until the sales price has been paid.
A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease
Legal Description
Legally acceptable identification of real estate by one of the following:
the government rectangular survey
metes and bounds
recorded plat (lot and block number)
A person to whom property is rented under a lease. (Tenant)
A person who rents property to another under a lease. (Landlord)
A claim against the property for the payment of a debt, judgement, mortgage or taxes.
Example : Unpaid contractors may file a mechanic's lien.
Loan Application
A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.
Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest.
Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
The right of an unpaid contractor or subcontractor to file a lien against property to recover the amount due to him/her.
A written instrument that creates a lien upon real estate as security for the payment of a specified debt.
Mortgagee The lender.
Mortgagor The borrower.
Points
Fees paid to lenders. 1 point=1% of the loan amount. On a $100,000 loan 1 point is $1000.
A written document authorizing a person to act on the behalf of another person. That person does not have to be an attorney. See Attorney-in-fact.
Prepaid interest is the interest charged to borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the following month, the lender will charge 12 days of prepaid interest.
Full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property, or refinances the existing loan.
Fees paid by the borrower if they pay the loan before its due date.
Companies that originate and service mortgage loans (banks, savings & loans, credit union, mortgage bankers, institutional lenders) make up the primary mortgage market.
Prime Rate
The lowest commercial interest rate charge by a bank on short term loans to their most credit worthy customers. View current prime rate.
The outstanding balance on a loan.
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 2 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance payments are normally made annual or monthly.
Property Tax
A government levy based on the market value (as assessed by the county assessor's office) of the property.
Realtor
A real estate professional who is a member of the National Association of Realtors.
An individual who often owns a real estate company or is in a management position, and who is licensed to represent a buyer or a seller in a real estate transaction.
Rollover Loan
A loan that is amortized over a long period of time (e.g. 30 years) but the interest rate is fixed for a short period (e.g. 5 years). The loan may be extended or rolled over, at the end of the shorter term, based on the terms of the loan.
Second Mortgage
A subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second mortgages generally carry a higher rate than a first mortgage since they represent a higher risk for an investor.
Spec House
A single family dwelling constructed by a builder in anticipation of finding a buyer.
Subdivision
A tract of land divided into lots suitable for home building purposes.
Title
Evidence that the owner of the property is in lawful possession. Evidence of ownership.
An insurance policy which protects the insured against loss arising from defects in title. Title insurance policies are typically obtained for the buyer and the lender.
A document indicating the current state of title. The report includes information on the current ownership, outstanding deeds of trust or mortgages, liens, easements, covenants, restrictions, and any defects.
An examination of the public records to determine the ownership and encumbrances affecting the property.
Waiver
he voluntary renunciation, abandonment, or surrender of some claim, right, or privilege.