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GLOSSARY OF REAL ESTATE TERMS

A

Abstract of Title:

A summary of the public records relating to the ownership of a particular piece of land. It represents a short legal history of an individual piece of property and traces the ownership of that property from the time of the first recorded transfer to present.

Acceptance:

Consent to an offer to enter into contract.

Adjustable Rate Mortgage (ARM):

A mortgage where the rate changes over time in line with movements in an index. ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages).

Adjustment Period:

The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.

Agency:

A legal relationship in which an owner-principal engages a broker-agent in the sale of property or a buyer-principal engages a broker-agent in the purchase of property.

American Society of Home Inspectors (ASHI):

A professional trade association providing training and education in home inspections. Members meet qualification requirements to join.

Amortization:

Repayment of a loan in equal installments of principal and interest, rather than interest-only payments.

Annual Percentage Rate (APR):

The total finance charge (interest, loan fees, and points) expressed as a percentage of the mortgage amount.

Appraisal:

An evaluation of a piece of property used to determine its value.

Increase in value due to any cause.

Asbestos:

A mineral fiber used in some building materials, such as flooring, siding, insulation, and roofing. It is presently banned for most uses in real property.

Assessed Value:

The valuation placed on property by a public tax assessor as the basis of property taxes.

Assumption of Mortgage:

An agreement whereby the buyer assumes responsibility for a mortgage owed by the seller; the seller remains liable to the lender unless lender agrees to release the seller from the liability.

B

Balloon Payment:

A lump sum principal payment due at the end of some mortgages or other long-term loans.

C

Cap:

The limit on how much interest rates or monthly payments can change, either at each adjustment or over the life of the mortgage.

CC&Rs (Covenants, Conditions & Restrictions):

A document that controls the use, requirements and restrictions of a property.

Certificate of Reasonable Value (CRV):

A document that establishes the maximum value and loan amount for a VA guaranteed loan.

Closing Disclosure:

The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Comparables:

Properties similar in size and character to the one being bought or sold.

Condominium:

A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.

Contingency:

A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Conventional Mortgage:

A fixed rate, fixed-term mortgage not insured by the federal government.

D

Deed:

A legal document conveying title to a property.

Deed (quit claim):

A deed that transfers only that title or right to a property that the holder of that title has at the time of the transfer. It does not warrant or guarantee a clear title.

Department of Housing and Urban Development:

A U.S. government agency established to implement certain federal housing and community development programs.

Disclosure Laws:

State and federal regulations which require sellers to disclose such conditions as whether a house is located in a flood plain or whether there are known defects in or affecting the property.

E

Earnest Money:

A portion of a down payment given to the seller by a potential buyer indicating the buyer’s intent to complete the purchase of the property.

Easement:

A right to use the land of another.

Encroachment:

A condition that limits the interest in a title to property, such as a mortgage, deed restrictions, easements, unpaid taxes, etc.

Equity Mortgage:

A mortgage based on the borrower’s equity in their home rather than on their credit worthiness.

Escrow:

A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

F

FHA Loan:

A loan insured by the Insuring Office of the Department of Housing and Urban Development, the Federal Housing Administration.

Federal National Mortgage Association (FNMA):

Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages.

Fee Simple:

An estate in which the owner has unre­­stricted power to dispose of the property as he/she wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

Federal Home Loan Mortgage Corp. (FHLMC):

Nickname Freddie Mac, is a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.

Federal Housing Administration (FHA):

An agency within the Department of Housing and Urban Development (HUD) that administers loan guarantee programs and loan insurance programs to make more housing available.

Finance Charge:

The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

Fixed Rate Mortgage:

A loan that fixes the interest rate at a prescribed rate for the duration of the loan.

Foreclosure:

Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default.

G

Graduated-Payment Mortgage:

A mortgage that starts with low monthly payments and increases at a predetermined rate.

Growing-Equity Mortgage:

A mortgage loan in which the monthly payments increase by a specific amount each year, with the “overpayments” applied to the principal.

H

Home Inspection Report:

A qualified inspector’s report on a property’s overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Home Warranty Plan:

A warranty that protects against failure of mechanical systems within the property. Usually this includes plumbing, electrical, heating systems and installed appliances.

I

Index:

Benchmarks on which changes to an ARM’s interest rate are based. Common indices include: industry cost of funds, 6-month Libor, and various term treasury notes.

Installment Debts:

Long-term debts that usually extend for more than one month.

Investor:

The holder of a mortgage or the permanent lender for whom the mortgage maker services the loan. Any person or institution that invests in mortgages.

Improvement Location Certificate:

Typically used in order for mortgage and/or title companies to have some assurance that the improvements to a property are not encroaching into an easement or beyond the deed lines. Easements of public record are shown graphically, which may delineate areas of land that belong to the property owner, but in which other parties (such as utility companies) may have limited rights.

J

Joint Tenancy:

An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent’s interest in the property.

L

Lease Purchase Agreement:

Buyer makes a deposit for the future purchase of a property with the right to lease the property in the interim.

Lien:

A legal hold or claim against a property that must be paid when the property is sold.

Loan Commitment:

A written promise to make a loan for a specified amount on specified terms.

Loan-To-Value (LTV) Ratio:

The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.

M

Margin:

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value:

The highest price a buyer will pay for property and the lowest price the seller will accept.

Mortgage:

One type of document used to make property the security for the payment of a loan.

Mortgage Broker:

An individual or company that obtains mortgages for others by finding lending institutions, insurance companies, or private sources to lend the money; may also handle collections and disbursements.

N

Negative Amortization:

Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover the interest.

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O

Origination Fee:

A fee or charge for work involved in the evaluation, preparation, and submission of a proposed mortgage loan.

P

PITI:

Principal, Interest, Taxes and Insurance

Planned Unit Development (PUD):

A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Users may be residential, commercial or industrial.

Point:

An amount equal to 1 percent of the loan principal. Lenders charge loan points to increase their yield on a mortgage. Points are considered prepaid interest.

Prepayment Penalty:

A fee charged to a borrower who pays a loan before it is due.

Private Mortgage Insurance (PMI):

Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage. Generally required for loans exceeding 80%LTV.

Purchase Agreement:

A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.

Promissory Note:

A written contract containing a promise to pay a definite amount of money at a definite future time.

R

Radon:

A colorless, odorless gas formed by the breakdown of uranium in subsoil. It can enter a house through cracks in the foundation or in water and is considered to be a health hazard.

Realtor:

Registered collective membership marks that identify real estate professionals who are members of the National Association of REALTORS and who subscribe to its strict Code of Ethics.

Regulation Z:

The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

S

Savings and Loan Association (S&Ls):

Depository institutions that specializes in originating, servicing, and holding mortgage loans, primarily on owner-occupied residential property.

Severalty Ownership:

Ownership by one person only

Shared-Equity Mortgage:

A home loan in which an investor is granted a share of the equity, thereby allowing the investor to participate in the proceeds from resale.

Survey:

The process by which a parcel of land is measured and its area ascertained.

T

Tenancy in Common:

Ownership by two or more persons who hold an undivided interest without right of survivorship (in the event of the death of one owner, his/her share will pass to the heirs).

Title:

A document that is evidence of ownership.

Title Defect:

An outstanding claim or encumbrance on property that affects marketability.

Title Insurance Policy:

A policy that protects the purchaser, mortgagee or other party against losses concerning title to the property and matters such as easements, encroachments and liens.

V

Veterans Administration (VA):

A government agency that provides services for eligible veterans of the armed forces. It guarantees mortgage loans made by private lenders to veterans.

VA Loan:

A loan that is partially guaranteed by the Veterans Administration and made by a private lender.

Variance:

A special suspension of zoning laws to allow the use of property in a manner not in accord with existing laws.

Z

Zoning Restrictions:

Local municipal ordinances that classify property according to specific uses such as single family, residential, commercial, or industrial.

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New Roots Real Estate supports the principles of the Fair Housing Act and the Equal Opportunity Act. For information on fair housing and free housing counseling, please visit www.hud.gov.
All information deemed reliable but not guaranteed. Listings are subject to errors, omissions, changes in price, prior sale, rental, and withdrawal without notice.
All data and information set forth on this website regarding real property, for sale, purchase, rental and/or financing, are from sources regarded as reliable. No warranties are made as to the accuracy of any descriptions and/or other details and such information is subject to errors, omissions, changes of price, tenancies, commissions, prior sales, leases or financing, or withdrawal without notice. Square footages are approximate and may be verified by consulting a professional architect or engineer.

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