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REAL ESTATE LINGO YOU SHOULD KNOW

We’re guessing that if you’ve chosen to read this post, it might be your first time buying or selling a home. That, or you’ve moved a dozen times, but you’ve been doing lots of smiling and nodding at the big words you’ve heard over the years. Either way, we thought we should give you a one-stop-glossary-shop to find definitions for the words you might be hearing next time you talk with your real estate agent.

Our recommendation is to keep this tab open in your browser while you’re looking for a new home, or while you’re selling yours. This way, you can just come on over and hit “Command F” on your Mac (or “Ctrl F” on your PC) to search for whatever new words might come up in conversation. Because we’d hate for you to have to, you know, ask…

A

Abstract of Title – A summary or digest of the conveyances, transfers, and any other facts relied on as evidence of title, together with any other elements for record, which may affect the marketability of the title.

Acceleration Clause – A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

Acceptance – Consent to an o er to enter into contract.

Adjustable Rate Mortgage (ARM) – Mortgage that allows the interest rate to be changed at specified intervals.

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.

Amortized Loan – A loan that is completely paid o , interest and principal, by a series of regular payments that are equal or nearly equal Also called a Level Payments Loan.

Annual Percentage Rate – The total nance charge expressed as a percentage of the mortgage amount.

Appraisal – An evaluation of a piece of property to determine its value.

Appreciation – An increase in value of real estate.

Asbestos – A mineral ber used in some building materials such as flooring, siding, insulation, and roo ng. 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.

Asset – Items of value owned by an individual. Assets that can be quickly converted into cash are considered “liquid assets.” These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual

by others.

Assignment – When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

Assumption of Mortgage – The taking of title to property by a grantee, wherein he or she assumes liability for payments of an existing note secured by a mortgage or deed of trust against the property, becoming a co-guarantor for the payment of a mortgage or deed of trust note.

B

Balloon Mortgage – A mortgage where the amount nanced is not fully amortized over the period of the loan. When the loan be- comes due, a large sum or ‘balloon’ payment is required to satisfy the mortgage.

Bankruptcy – By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Bridge Loan – A short-term mortgage made until a longer-term loan can be made; it is typically used when the purchase of a home occurs before the sale of the present home has been sold.

Broker – A person licensed by a real estate commission to act independently in conducting a real estate brokerage business. Although requirements vary from state to state, an individual must usually have at least one year of experience in the industry and pass an exam to earn a broker’s license.

Building Codes – State and local laws that regulate the construc- tion of new property and the rehabilitation of existing property.

C

Cap – Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.

Closing – The final settlement of a real estate transaction between buyer and seller.

Closing Costs – Fees and expenses, not including the price of the home, payable by the Seller and the Buyer at the closing (e.g. brokerage commission, title insurance premiums, inspections, appraisal, recording fees, and attorney fees.

Closing I – A financial statement rendered to the Buyer and the Seller at the time of transfer of ownership, giving an account of all funds received and expended.

Cloud on Title – Any condition that affects the clear title to real property. Also see Liens and title opinions.

Comparables – Properties similar in size & character to the one being bought or sold.

Condominium – A system of individual fee ownership of units combined with joint ownership of common area of the structure and the land.

Consideration – Anything of value to induce another to enter into a contract (i.e. money, services, a promise.)

Contingency – A condition or conditions that must be satisfied before a contract is binding.

Contract – An agreement to do or not do a certain thing

Contract for Deed – A contract ordinarily used in connection with the sale of property in cases where the seller does not with to convey title until all or certain part of the purchase price is paid by the buyer.

Conventional Mortgage – A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed.

Counter-Offer – A rejection of an offer by a seller along with an agreement to sell the property to the potential buyer on terms differing from the original offer.

Credit – An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

D

Deed – Written instrument which, when properly executed and delivered, conveys title. Also see warranty deed and quitclaim deed.

Debt-To-Income Ratio – The relationship between the total amounts of debt a borrower has to their income. Lenders do have set ratios they use as guidelines to approve a borrower.

Department of Housing and Urban Development – A U.S. Government Agency established to implement certain federal housing and community development programs.

Disclosure Laws – State & Federal regulations which require Sellers to disclose such conditions as whether a house is located in a floodplain or whether there are known defects in or a ecting the property.

Discount Points – Additional charges made by a lender at the time a loan is made. Points are measured as a percent of the loan, with each point equal to one percent. These additional interest charges are paid at the time a loan is closed to increase the rate of return to the lender so as to approximate the market level.

E

Earnest Money Deposit – Down payment made by a purchaser of real estate as evidence of good faith.

Easement – Created by grant or agreement for a specific purpose, an easement is the right, privilege, or interest which one party has in the land of another. (Example: right of way)

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

Estate – The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Equity – The interest or value, which an owner has in real estate over and above the liens against real property.

Equity Loan Also known as Home Equity Loan – A mortgage based on the borrower’s’ equity in their home rather than on their creditworthiness.

Escrow – The deposit of instruments and funds with instructions to a third neutral party (escrow agent) to carry out the provisions of an agreement contract; when everything is deposited to enable carrying out the instructions, it is called a complete or perfect escrow.

F

FHA Loan (Federal Housing Administration) – A loan that has been insured by the federal government guaranteeing its payment in case of default by the borrower.

Fixed Rate Mortgage – A loan that xes the interest rate at a pre- scribed rate for the duration of the loan.

FMHA Loan – A loan insured by the federal government similar to FHA loan.

Fee Appraisal –The act or process of estimating values of real estate or any interest therein for a fee.

G

Growing Equity Mortgage – A mortgage loan in which the month- ly payments increase by a speci c amount each year, with the over-payments applied to principal.

I

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 a mortgage.

J

Joint Tenancy – Joint ownership by two or more persons with right of survivorship: all joint tenants own equal interest and has equal rights in the property.

Judicial Foreclosure – A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.

L

Lease to Buy Agreement or Lease Purchase Agreement – An agreement where the buyer makes a deposit for the future pur- chase of a property with the right to lease the property in the interim.

Lender – A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”

Lien – A legal claim against a property that must be paid when the property is sold.

Loan-to-Value – The relationship between the amount of a home mortgage and the value of the property. Lenders may limit their maximum mortgage to 80-95 percent of the value of the property.

Land Contract – A contract ordinarily used in connection with the sale of property in cases where the seller does not wish to convey title until all of a certain part of the purchase price is paid by the buyer.

M

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

Marketable Title – Merchantable title: title free and clear of objectionable liens or encumbrances.

Mortgage – An instrument recognized by law by which property is hypothetical to secure the payment of a debt or obligation: procedure for foreclosure in event of default is established by statute.

Mortgage Broker – An individual or company that obtains mortgages or others by finding lending institutions, insurance companies, or private sources to lend the money.

Mortgagee –The lender of money or the receiver of the mortgage. (e.g. UICCU, WELLS FARGO, US BANK)

Mortgagor – The borrower of money or the giver of the mortgage document. (Person buying the property or taking the loan)

Multiple Listing – Multiple listing is the name given a service performed by the Local Board of Realtors (Multiple Listing Service). MLS provides necessary information to aid in the sale of listings. It is a marketing tool used by member of the Service to cover required interest charges on the loan.

N

Negative Amortization – An increase in the outstanding balance of a mortgage resulting from the failure of periodic debt service payments to cover required interest charges on the loan.

No Cash-Out Refinance – A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is caculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a “rate and term refinance.”

Note – A written promise to pay a certain amount of money.

O

Origination Fee – A fee charged to the borrower by the lending institution.

P

Prepayment Penalty – A fee paid to the mortgagee for paying the mortgage before it becomes due.

Principal – The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Private Mortgage Insurance – Insurance issued to a lender by a private company to protect the lender against loss on a defaulted mortgage loan. It is used typically for loans that have a high loan to value ratio. The borrower pays a monthly premium.

Promissory Note – Following a loan commitment from the lender, the borrower signs a note promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its repayment.

Purchase Agreement – An agreement between a buyer and seller for the purchase of real estate.

Q

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

R

Real Property – Land and whatever by nature or arti cial annex- ation is a part of it.

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.

Recorder – The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

Rent with Option – A contract giving the right to lease property at a certain sum with the option to purchase at a future date.

S

Second Mortgage – (Also Second Deed or Trust. Second Lien, Junior Mortgage, Junior Lien) – An additional loan imposed on a property with the first mortgage. Generally it will have a higher interest rate and shorter term than the first mortgage.

Special Assessment – Legal charge against real estate by a public authority to pay cost of public improvements such as: streetlights, sidewalks, street improvements, etc.

Subdivision – A parcel of land that has been divided into smaller parts (lots, blocks, or tracts)

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 undivided interests: without right of survivorship; interests need not be equal

Term of Mortgage – The period during which a mortgage must be paid.

Title – A document that is evidence of ownership.

Title Defect – An outstanding claim or encumbrance on property that affects marketability.

Title Insurance – Protection for lenders and homeowners against financial loss resulting from legal defects in the title.

Trust Account – An account separate and apart and physically segregated from broker’s’ own funds, in which broker is required by law to deposit all funds collected for clients.

Trust Accountv – An account separate and apart and physically segregated from broker’s’ own funds, in which broker is required by law to deposit all funds collected for clients.

V

VA Loan (Veterans Administration) – A loan guaranteed by the Veteran’s Administration insuring payment in case of default by the borrower. Available to qualified Veterans.

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

W

Warranty Deed – A deed used to convey real property, which contains warranties of title and quiet possession, and the grantor agrees to defend the premises against the lawful claims of third persons.

Z

Zoning Restrictions – Local municipal ordinances that classify property according to specific uses such as single family, residential, commercial, industrial, multi-family etc.