Abstract of Title - A
written history of the title to a property including every owner and
every claim since its original owner. It is the result of a title search
(see Title Search) and it tells you if someone else has a legal claim on
the property you are buying.
Acceleration Clause - A common feature of
mortgages protecting the lender. If a borrower does not comply with all
the requirements of the mortgage, for example, he fails to make the
monthly payments; the lender can accelerate the maturity date and
require full and immediate payment of the loan.
Accident and Health Premium - An insurance
premium paid by you, the borrower, along with your mortgage payments
each month. The lender sends the premium to an insurance company, which
promises to make your monthly mortgage payments if you become disabled
or ill.
Accrued Interest - The interest that has
accumulated over the time elapsed since you the borrower made your last
interest payment. (See Interest)
Add On Interest - Interest which is
calculated on the original principal for the full term of the loan and
then added to the original amount borrowed. This sum is then divided
into a number of equal payments. (See Interest)
TOP OF PAGE
Adjustable Rate Mortgage (ARM) - A general
term for any mortgage in which the interest rate and generally the
payments change over the life of the loan. Your interest rate will be
adjusted to match the rise or fall of a preselected interest rate index
and your regular payments will increase or decrease accordingly.
Different types of ARM’s have different frequencies for these
adjustments. Some ARM’s have limits on payment and interest rate
changes and the maximum interest rate over the life of your loan. To
your advantage, the initial rate of an ARM is usually low, permitting
you to buy real estate that would be unaffordable with a fixed rate
mortgage. But you risk higher payments later on (see Index, Initial
Interest Rate, Floating Rate of Interest)
Adjustment Interval - A term used in
adjustable rate mortgages. It is the period of time specified in your
loan between changes in your interest rate and/or monthly payment.
Adjustments in currently offered ARM’s may be made every 3 months, 6
months, 1 year, 3 years or 5 years. (See Adjustable Rate Mortgage)
Affidavit - A sworn statement in writing,
made before a public official, usually a notary.
Agent - One who is legally authorized by
another to represent him/her or act in his/her behalf. For example, you
may hire a broker to act as an agent in selling your property.
TOP OF PAGE
Agreement for Deed - A kind of agreement of
sale in which the deed is delivered at closing (see Closing) to an
escrow agent (see Escrow Agent) and not placed immediately in the public
land records. The escrow agent holds the deed, for an agreed period of
time, until the specified payments are made and then places the deed in
the public records. (See Agreement of Sale, Deed)
Agreement of Sale - A contract in which the
buyer agrees to purchase specific property and the seller agrees to sell
under the stated conditions. This is also called a binder, a sales
contract and an earnest money contract.
Alienation Clause - A special type of
acceleration clause. (See Due-On-Sale Clause)
Amenity - Any non-monetary benefits you
enjoy as the owner of a particular piece of property. A prestigious
address, access to a private parking space and reliable transportation
are all amenities.
American Land Title Association (ALTA) - A
national association of title insurance companies, title abstractors and
attorneys who specialize in real estate law. ALTA establishes standard
procedures and uniform title abstract and insurance policy forms.
Amortization - A plan for gradually
repaying the money you’ve borrowed in periodic payments. Generally
with each payment, you pay back part of the money originally borrowed
(the principal) plus interest on the declining balance of the principal.
The amount of your periodic payments depends, in part, on the principal,
the interest rate and the length of time allowed for repayment.
TOP OF PAGE
Amortization Schedule - A table that
outlines your schedule for loan repayment. It shows the amount of
principal and interest due at regular intervals. It also shows the
unpaid balance of the loan remaining after each payment.
Annual Mortgagor Statement - A report
prepared by the lender or servicing agent for you, the borrower
(mortgagor), at the start of each year of your loan. It states which
portions of your payments for the previous year were applied to
principal, interest, taxes and insurance. (See PITO) It also states how
much of the principal balance remains to be paid.
Annual Percentage Rate (ARP) - The total
cost of finance charge for a loan per year, expressed as a percentage. It
is the sum of the interest and any other fees, such as discount points,
compared to the amount of the loan. Your lender is required by the
Truth-In-Lending Act to disclose the APR using a procedure prescribed by
the federal government. (See Interest, Point)
Annuity - An amount paid at regular
intervals for a set period of time. Your mortgage payments are a form of
annuity paid to the lender.
Apportionment - The division of property
expenses and income between the buyer and the seller, at the time of
sale. Expenses may include taxes and insurance premiums; income may
include rents. The buyer only assumes the portions of expenses and
incomes that apply after closing day.
TOP OF PAGE
Appraisal - A report made by a qualified
person (or appraiser), which states his opinion of the estimated value
and quality of the property.
Appraisal Value - An estimate of property
value, made by a qualified expert. The expert, called an appraiser
qualified by his education, training and experience to evaluate the
property based on available facts.
Appreciation - An increase in the value of
your property. Appreciation may be the result of an increased demand for
your property; any improvements or additions you’ve made; improvements
to your neighborhood, etc.
Appurtenance - Anything that becomes your
property because it is attached or closely related to your land upon
purchase. It may be a structure, such as a well, barn or garage; or it
might be a right or interest enjoyed by the previous owner, such as an
easement. (See Easement)
Assessed Valuation - The value of your
property, according to an official tax assessor. Your real property tax
will be based on the assessed valuation.
Assessment - The assessed Valuation. Also
refers to a tax on property for a specific purpose. For example, a sewer
assessment is levied on your property to help pay for the installation
of a sewer line.
TOP OF PAGE
Assignee - A person or party to whom an
assignment or transfer is made. When an agreement, contract or interest
is transferred to you, you become the assignee. The Assignee might also
be a corporation or partnership.
Assignor - The person or party who assigns
or transfers an agreement, contract or interest to another person or
party.
Assumption Fee - Money paid to a lender,
usually by you, the buyer, when you assume a mortgage to buy someone’s
property. Sometimes, the owner of the property will pay this fee to the
lender. (See Assumption of Mortgage)
Assumption of Mortgage - Sometimes to help
you buy a house you can take responsibility for the seller’s mortgage;
agreeing to all the terms, making the monthly payments on the existing
mortgage, after obtaining the lender’s consent.
Attorney-In-Fact - A type of agent who has
been granted a written power of attorney by you, the grantor. This
authorizes him to sign, seal and deliver documents in your behalf.
Balloon Mortgage - With
this mortgage, your monthly payments are too small to pay off the loan
within the set period. Usually the remaining unpaid amount becomes due
in a lump sum at the end of the term.
TOP OF PAGE
Binder, Real Estate - See Agreement of
Sale.
Breach - To violate or default on any legal
agreement or obligation. For example, you breach your mortgage when you
fail to make a monthly payment on time.
Buydown - 1. Occurs when the person selling
you real estate pays your lender a certain fee in order to reduce the
rate of interest or monthly payments on your mortgage. The reduced
interest rate may hold for all or part of the loan term.
2. A loan that has been bought down by the seller
for the benefit of you, the buyer.
Call Provision - A clause
in a loan that gives the lender the right to demand payments sooner than
originally agreed upon, under certain specified conditions. For
instance, the call provision might allow the lender to collect the full
debt remaining after a certain time elapses or if you, the borrower,
sell or transfer the property.
Cap - A term used in adjustable rate
mortgages. Caps limit the increase or decrease allowed in your interest
rate or monthly payments from one adjustment period to the next. Caps
also may limit the interest rate over the entire term of the loan. For
example, if your mortgage has an adjustment cap of 2% per year and 16%
for its life, your interest rate can never be increased or decreased by
more than 2% per year or exceed 16% even though the market or fully
indexed rate may go much higher.
TOP OF PAGE
Certificate of Eligibility - If you are a
veteran, you are eligible for a Veterans Administration (VA) mortgage
loan guarantee. The federal government will issue a document, called a
Certificate of Eligibility, to certify that you are eligible.
Certificate of Occupancy - In some areas,
before you can move into a newly constructed building, your local
government must first issue this public document. It authorizes
occupancy of the building and certifies that you are eligible.
Certificate of Reasonable Value - Issued by
the Veterans Administration (VA) to qualifying veterans, this document
states the maximum amount of principal it will guarantee for a mortgage
loan.
Certificate of Title - A document that
assures you, the buyer, that the person selling you his house is indeed
the legal owner of the property and that no one else has any legal claim
to the property. This certificate does not protect you against loss if a
hidden claim emerges after you buy the house, only a title insurance
policy can do that.
Clear Title - When the seller holds the
only legal claim to the property and no one holds any demands on that
seller for the property, (i.e. there are no defects or encumbrances) he
has a clear title. In contrast, a marketable title and an insurable
title may include some minor claims on the property, but they are
insignificant to the transfer of the property.
TOP OF PAGE
Closing - The final step of your sale
transaction, in which the title to, or ownership of real estate is
transferred from the owner to you, the buyer. In closing, you’ll sign
the mortgage notes, and both you and the seller will pay any costs that
were agreed to previously. Any financial adjustments will be made at
this time and you or the escrow agent will be given the deed. Closing is
sometimes called "settlement."
Closing Cost - Costs, in addition to the
price of the property itself, that are due at closing. They normally
include origination fees, discount points, attorney’s fees, costs for
title insurance, surveys, recording documents and prepayments of real
estate taxes and insurance premiums held by the lender. Sometimes the
seller will help you pay some of these costs.
Closing Day - The formal exchange of
property form the owner to you, the buyer, is performed on closing day.
The seller will sign the Deed to Property and you will sign the mortgage
and both you and the seller will pay the closing costs to which you
agreed. (See Closing Costs)
Closing Statement - A statement of the
funds received and spent at the closing of a real estate sale. It is
furnished by the real estate closing agent to the buyer and seller
separately. The standardized federal form HUD Form 1 is used in most
residential transactions.
Cloud on Title - An outstanding claim on
the property, which, if valid, would affect the owner’s rights to the
property. It could be a lease or some legal restriction on the title
such as an easement or deed restriction. A cloud can be removed from the
title by a court action, a release or quitclaim deed. (See Easement,
Quitclaim Deed)
TOP OF PAGE
Collateral - Property you pledge as
security for a debt, such as your home as security for your mortgage
loan.
Commitment - A written agreement, in which
the lender agrees to loan money if the borrower meets certain
conditions. (See Agreement for Deed)
Compliance Inspection Report - A report
prepared by a compliance inspector for a mortgage lender. It states
whether construction or repair work on a property meets the conditions
of a previous inspection.
Conditional Sales Contract - A contract for
the sale of property in which the seller remains the owner until you,
the buyer, have fulfilled certain conditions. One example is a land
contract. Under the terms of this contract, you would not be able to use
or occupy the land sold to you until you have paid all or part of the
sale price. Also called an Agreement for Deed.
Condominium Declaration - Also called a
Master Deed, it is a document which the developer of an entire
condominium complex must place in the public records before the first
unit is transferred to a buyer. It states the terms of ownership of each
private unit in detail, as well as any areas, such as a porch or lobby,
that will be shared by the residents. It is just one of several
condominium documents. (See Condominium Documents)
TOP OF PAGE
Condominium Documents - A set of legal
papers provided to the buyer of a condominium. They usually include the
condominium declaration, the plat and plans, and the buy-laws of the
complex. (See Condominium Declaration, Plat)
Conventional Loan - A mortgage loan that is
neither insured by the Federal Housing Administration or the Farm Home
Administration, nor guaranteed by the Veterans Administration.
Convertibility - A feature sometimes found
I adjustable rate mortgages. It allows you to change
("convert") your loan type from an ARM to a fixed rate
mortgage. Usually you can only change your mortgage type a certain
designated times during the early years of your ARM. You may be required
to pay a fee at the time you want to change your loan type. (See
Adjustable Rate Mortgage, Fixed-Rate Mortgage)
Convey - To transfer an interest in real
estate to another party. Usually the conveyance involves a transfer of
property ownership.
Cooperative - Ownership of a multi-unit
building by a type of corporation. If you wish to own or invest in a
unit in a cooperative building, you must buy stock in the corporation,
which will assign a particular unit to you. As an occupant, you’re
allowed to deduct a portion of the interest and property taxes paid by
the corporation from your income tax.
TOP OF PAGE
Coupon Rate - The annual interest rate
stated or specified on the face of your mortgage note. Also, known as
the Nominal Interest Rate.
Covenant - A promise. For instance, a
covenant may require you to insure your property against fire loss. When
a covenant is breached, your mortgage is said to be in default. This
could result in the loss of your property. (See Breach)
Credit Life - A life insurance policy that
pays off your mortgage in the event of your death. A lender as
additional assurance that your debt will be repaid may require credit
life.
Credit Rating - An evaluation of your
ability to pay back a loan. It is based on your current financial
situation and past performance in debt repayment. It takes into account
any defaults (see Breach) and slow repayments.
Credit Report - A report from a credit
reporting agency issued to a lender which discloses your credit rating
and any other pertinent financial information about you as a prospective
borrower. (See Credit Rating)
Cul de Sac - A street with a dead-end,
usually with space at the end for vehicles to turn around.
Custodial Account - A bank account for the
deposit of another person’s funds. One example is a real estate tax
escrow account.
TOP OF PAGE
Deed - This
is the formal written document which transfers the rights of ownership
and possession (i.e. the Title) from the seller to you, the buyer.
Sometimes the deed is also called a title document. It contains an
accurate, specific and legal description of the property and is
delivered at closing.
Deed Restriction - An agreement in a deed
which forbids certain activities on your property. For example, a deed
might contain a covenant restricting you from selling alcohol on your
property. If you breach (see Breach) this covenant, you could risk the
loss of your property. (See Deed)
Deed of Trust - In some states, this is
used in place of a mortgage or deed to secure debt. While there are only
two people involved in a mortgage, the borrower and the lender, there
are three people involved in a deed of trust: the borrower, the lender
and the trustee. Here, the borrower transfers the legal title for the
property to the trustee who holds the property as a security for the
debt. If the borrower pays the mortgage as agreed, the trustee gives the
legal title to the owner. If the borrower does not pay the mortgage as
agreed, the trustee can sell the property. (See Mortgage)
Deed to Secure Debt - See Deed of Trust.
Default - See Breach.
TOP OF PAGE
Deferred Interest - A term used in
Adjustable Rate Mortgages. When your monthly payments do not cover the
interest cost, the interest left unpaid is deferred to later years by
adding it to your unpaid principal balance. In subsequent months you are
charged interest on this unpaid interest. Many lenders place a limit to
deferred interest, (e.g. not allowing it to go above 125% of the
original mortgage loan balance.) If your unpaid balance exceeds the
limit placed by your lender, you can no longer defer interest and must
begin making payments large enough to fully pay what is due over the
remaining term. In this case, your payments can increase suddenly and
significantly. Deferred interest can occur when you choose a graduated
payment option. (See Graduated Payment Mortgage) where the loan starts
out below current rates but you agree to pay the difference (the
Deferred Interest) in later years. Deferred Interest can also occur when
you choose a monthly payment cap. (See Cap)
Demand Note - A note, such as a mortgage
note, that gives a lender the right to demand payment from you, the
borrower, at any time without prior notice.
Designated Appraiser - Someone who
determines the value of property and whose expertise is recognized and
licensed by a professional association such as the Society of Real
Estate Appraisers. Many lenders accept only those appraisals performed
by a designated appraiser.
Discount Point - See Point.
TOP OF PAGE
Downpayment - The difference between the
sale price of real estate and the amount of your mortgage loan. The
downpayment is usually paid in full at the closing of a sale. For
example, if you buy a house for $70,000, and your mortgage is for
$50,000, you must make a downpayment of $20,000 at the closing. Your
earnest money deposit will be credited to the downpayement. (see Earnest
Money)
Due-On-Sale-Clause - A kind of acceleration
clause in a mortgage which allows the lender to demand payment of the
full remaining balance of your loan, when you, the borrower, sell or
transfer your property. (see Acceleration Clause)
Earnest Money - This is a
deposit that you give to the seller, proving to him that you are serious
about buying his house. If the sale goes through, the earnest money
becomes part of your downpayment (see Downpayment) on the house. If the
sale does not go through, you lose the earnest money, unless the seller
agreed from the beginning to refund it to you.
Easement - The right to make limited use of
another person’s land. It is usually granted in writing by the owner
and becomes an interest in the land and an encumbrance (see Encumbrance)
on the title. For example, as the owner, you may wish to grant an
easement for the installation of a utility line through your property.
(see Cloud on Title)
Effective Age - The age, given in years, of
your property, figured solely on the basis of its physical condition.
Usually figured for the purpose of appraisal (see Appraisal) it may
differ from the chronological age of your property. For instance, if you
own a 10 year old house which has been carefully maintained, it may be
assigned an effective age of 5 years, whereas a 10 year old house that
has been neglected may have an effective age of 15 years.
TOP OF PAGE
Effective Gross Income (Personal) - Your
normal yearly income, including overtime that is regular or guaranteed.
Usually, it is from one source, normally a salary. But any other income
which is regular, significant and verifiable will qualify to be
included.
Encroachment - Any physical condition or
improvement belonging to another person that intrudes upon a part of
your property; or any physical condition or improvement belonging to you
that intrudes upon the property of another person. An encroachment on
your property may be the result of survey error or negligence. A common
example is a neighbor’s fence which is built on your property by
mistake.
Encumbrance - Any previously established
right or interest to property that would restrict your rights of
ownership upon purchase. Zoning ordinances, leases, easements, unpaid
taxes, existing mortgages and restrictive covenants are all examples of
encumbrances. A title search will tell you whether such encumbrances
exist. If so, they will not prevent you from purchasing the property.
Rather, they will complicate the terms of ownership, and in some cases
may diminish the property’s value. It’s up to you to decide how an
encumbrance will affect the value of the property before purchase; or to
determine how the encumbrance can be removed. (see Title Search)
End Loan - the final mortgage loan that is
made to you, the borrower. It is called the "end loan" in
order to distinguish it from construction loans, or other previous loans
that have been made for the purchase, development and construction of
the same property.
TOP OF PAGE
Endorsement - 1. When you sign your name on
the back of a check, note or other negotiable instrument, your signature
becomes the endorsement. Your endorsement transfers ownership or payment
to a specified party. 2. An addition made to a document, such as a title
policy, in order to alter or clarify it.
Equal Credit Opportunity Act (ACOA) -
Enacted in 1974 and since amended, this federal statute prohibits
lenders from discrimination of the basis of a prospective borrower’s
sex, marital status, age race, color, income, national origin or receipt
of public assistance income.
Equity - The owner’s interest. It is your
interest in the property after all loans have been subtracted from the
market value of the property. When you have paid off your mortgage, your
equity in the property will be 100%.
Escrow Account - A special bank account
maintained by the lender or an escrow agent. In it you set aside money
so that the lender can pay the taxes, hazard and mortgage insurance,
ground rents and other special costs on your mortgage property as they
come due. Each month, a certain portion, called the escrow payment, of
your monthly mortgage payment goes into this account. (see Ground Rent)
Escrow Agent - (Usually the escrow company)
A third party who acts for both the seller of property and you, the
buyer. He holds any pertinent documents and/or funds for safekeeping,
and sees that the terms of the agreement are carried out. The escrow
agent may be an individual trusted by both you and the seller; or a law
firm, bank or other financial institution.
TOP OF PAGE
Escrow Analysis - A regular examination of
an escrow account to make certain that the amount of money in the
account is sufficient to pay taxes, insurance and other expenses when
they become due. (see Escrow Account)
Escrow Contract - An agreement that
establishes an escrow and states the specific obligations of the escrow
agent. (see Escrow Account)
Escrow Overage or Shortage - The difference
between the amount of funds in your escrow account and the amount of
escrow funds needed to cover certain expenses. This difference is
revealed through an escrow analysis. (see Escrow Analysis, Escrow
Account)
Escrow Payment - Each month, a portion of
your monthly payment is set aside by the lender in an escrow account to
pay the taxes, hazard insurance, mortgage insurance, ground rents (see
Ground Rent) and other special items as they come due.
Examination of Title - A review which
reveals the previous owners of, and encumbrances on a piece of real
estate. To conduct this review, you must search the public records or
examine an abstract to title. (see Abstract of Title)
Execute - A legal term meaning "to
complete". To execute a deed (see Deed) means to sign, seal and
deliver it.
TOP OF PAGE
Extended Coverage Endorsement - An
endorsement that may be added to your fire insurance policy, so that
your home will be more fully protected. It may include coverage against
loss or damages due to windstorm, hail, smoke, explosion, riot, civil
commotion and colliding aircraft or vehicles.
Fair Market Value - An
appraisal term (see Appraisal). It is the price that you, the buyer, are
willing to pay and that the seller is willing to accept for a price of
property. In arriving at this price, both you and the seller must be
reasonably aware of the pertinent facts and under no obligation to buy
or sell.
Federal Home Loan Mortgage Corporation -
FHLMC or "Freddie Mac." An organization that buys already
existing loans in packages from mortgage bankers and financial
institutions. It sells shares of these mortgage packages to finance the
purchase of more loan packages. (see Mortgage Banker)
Federal Housing Administration - FHA. A
federal agency within the U. S. Department of Housing and Urban
Development (HUD). Using loan insurance programs to insure mortgage for
lenders, the FHA stimulates the availability of housing for low and
moderate income families.
Federal National Mortgage Association -
FNMA or "Fannie Mae". A corporation created by Congress but
privately owned by stockholders. It buys pools or packages of mortgages
and sells them or shares of them for profit.
TOP OF PAGE
Fee Simple - The largest possible interest
in real estate. When you own property in fee simple, you enjoy
substantial rights to it, and may dispose of it as you see fit. This
includes selling it, using it for any lawful purpose and leaving it to
your heirs.
First Mortgage - The loan that has the
primary claim on all proceeds from the sale or other disposition of the
property. (see Second Mortgage)
Fixed-Rate Mortgage - The basis type of
loan where your interest rate can never change for the entire term of
the loan. For example, it the interest on your 30-year mortgage is set
at 13%, it will stay at 13% until the mortgage is paid off. ( compare
with Adjustable Rate Mortgage)
Floating Rate of Interest - An interest
rate that varies throughout the term of the loan instead of being fixed.
The degree to which the interest rate may vary is governed by changes in
a selected index and by interest rate caps (see Cap). For example, if
your initial interest rate is 14% and after the first year the index has
increased by one percentage point, then your interest rate generally
would be raised to 15% if interest rate caps were not reached. Used in
ARM’s (see Adjustable Rate Mortgage)
Flood Plain - Areas of land that are
subject to periodic flooding by a neighboring river, stream or other
body of water. Flood plains are classified according to the anticipated
frequency of flooding.
Front Foot - A measurement of land along
its border with a street.
TOP OF PAGE
Front Foot Benefit Charge - A tax that some
counties charge for providing utilities or other services to your
property. It is based on the measurement of your property’s border
along a road or street.
Fully Indexed Rate - A term used in
adjustable rate mortgages. It reflects the true market interest rate or
going market rate without interest caps of any kind. It is calculated by
adding the margin to the index. (see Cap, Margin, Index)
General Warranty Deed
- A deed of conveyance, in which the person conveying his interest
in a property guarantees to protect the buyer against all claims to the
title arising from events that occurred at any time before or during his
period of ownership. (compare with Special Warranty Deed, Quitclaim
Deed)
Government National Mortgage Association -
GNMA or "Ginnie Mae" a government organization that is
responsible for the Special Assistance Loan Program, which provides
those in need with low-interest rate mortgage loans. It also administer
and guarantees a mortgage-based securities program backed by FHA and VA
mortgages that channels new sources of funds from the national capital
market into residential mortgages.
Grantee - When an interest in property is
conveyed to you, you become the grantee. The grantee might also be a
corporation or partnership.
TOP OF PAGE
Grantor - When an interest in property is
conveyed by you to another person, you become the grantor.
Gross Income - Your total stable and
verifiable income before expenses, such as mortgage payments, utility
expenses, insurance premiums, other loan payments, taxes, etc. are
deducted.
Ground Rent - The payment for use of land
in accordance with a ground lease.
Guaranteed Loan - When a government agency
or other party guarantees a loan, it agrees to reimburse the lender if
the borrower fails to pay back the loan as promised. A loan can be
guaranteed for all or a portion of the unpaid principal. An example, is
the Veterans Administration loan to a veteran. (see VA)
Hidden Defect -
Any claim on a property that does not appear in the public records; for
example, an unknown heir. If such a claim is valid, the value of the
property may be diminished. Also, a hidden defect is any physical
problem with the property that is not easily seen.
Homeowners Association - An organization
made up of homeowners who reside within a particular area or
development, such as a subdivision or a condominium. The members of such
an association enforce any restrictions on the use of property and both
provide and manage community facilities.
TOP OF PAGE
Homeowner’s Policy - An insurance policy
intended for owner occupied private dwellings. It covers the dwelling
and its contents against common disasters, such as fire, wind damage and
theft. In most cases, it also protects you, the owner, against the legal
claims of anyone who becomes injured on your property. Also known as a
package policy.
Homeowner’s Warranty Program - A program
to guarantee the workmanship and materials of a home, and to warrant
against any major structural defects. It is offered by participating
builders of the National Association of Home Builders.
Impound - A
part of your monthly mortgage payments which is set aside by the lender
to cover the cost of taxes, insurance, ground rents and other items.
Also known as reserves or escrow. (see Escrow Account)
Index - A term used in Adjustable Rate
Mortgages, (see Adjustable Rate Mortgage) It is a measure of prevailing
market interest rates. The index is used with the margin to determine
your new interest rate at the time of adjustment. If the index
increases, your interest rate increases unless an interest rate cap (see
Cap) is reached. if the index decreases, your interest rate decreases,
unless a cap is reached. Often, these interest rates are the rates for
U. S. treasury securities. Treasury securities have become popular as
indexes because they are easy to monitor and reflect economic conditions
accurately.
TOP OF PAGE
Initial Interest Rate - A term used in
adjustable rate mortgages. It is the beginning interest rate on your
ARM. It may be lower than the fully indexed rate or "going market
rate." It will remain constituent until it is adjusted up or down
on the adjustment date. (see Fully Indexed Rate, Introductory Rate,
Teaser Rate)
Installment - Your monthly mortgage
payment.
Insurable Title - A title to a property
which a title insurance company will insure and will issue a title
insurance policy to you as evidence of its insurance. (compare with
Marketable Title and Clear Title)
Insurance Binder - A written document
proving that you have temporary hazard or title insurance coverage (see
Title Insurance Policy) on your property. This must be replaced with a
permanent policy.
Insured Closing Letter - A letter issued by
a title insurance company to protect you against improper use of the
funds you forward to the company’s agent or approved attorney. It also
protects you against failure on the part of the parties involved to
follow specific closing instructions. Your closing agent should be able
to provide you with this letter. (see Title Insurance Policy)
Interest - 1. A charge for borrowing money.
It is usually expressed as an annual rate, or percentage, of the money
you still owe. For example, your interest rate might be 14%. If you’ve
borrowed $10,000 and you’ve agreed to pay in full at the end of one
year, your interest will be $1,400.
TOP OF PAGE
2. A general term meaning partial or total right
to a property. An interest in real estate might be a right, such as an
easement (see Easement), a lease, partial ownership, or full ownership.
Interest Reduction Programs - Programs that
lower the cost of housing for the benefit of you, the home buyer. Such
programs use subsidies generally paid to lenders (by property sellers)
at closing, to reduce the interest rate for mortgage loans.
Introductory Rate - A term used in
adjustable rate mortgages. It is an initial interest rate that is
usually below the "going market rate" which is set by the
index plus the margin. (see Adjustable Rate Mortgage, Index, Margin)
Joint and Several Note - A
signed promise that obligates borrowers to a lender both collectively
(jointly) and individually (severally). Each borrower is liable to the
lender for the full amount of the debt, not just his individual share.
For instance, if you and a partner borrow $10,000 and your partner fails
to make payments in time, the lender can collect the remaining balance
from either one of you.
Joint Tenancy - Occurs when two or more
people are legally granted at the same time, equal interests and equal
rights to a property. If one of them dies, the others share his interest
equally so that the remaining people still have equal interests. (see
Right of Survivorship; compare with Tenancy in Common and Tenancy by the
Entirety)
TOP OF PAGE
Junior Mortgage - A mortgage that is
subordinate to any of the previous mortgages on the same property. If
the borrower defaults (see Breach) on the mortgage and his property is
sold, the proceeds of the sale would go to the first mortgage lender to
reimburse him for the unpaid mortgage debt interest, and any legal
expenses. The junior mortgage lender would receive the remainder, if
any, of the proceeds. A second mortgage is a junior mortgage. (see
Second Mortgage)
Kick-Our Clause - A clause
in a sales contract that permits a seller to cancel your contract and
return your deposit if you do not remove a contingency within a certain
period of time.
Late Charge -
A fee that the borrower must pay for failing to make a payment when it
is due.
Lease - A written agreement stating the
conditions for the possession and use of real estate (and/or personal
property) given by the owner to another person (the tenant) for a
specified period of time and rent.
Legal Description - A description of your
property that is recognized by law. It must be exact and sufficient in
itself for the purposes of identifying and locating your property.
Level Payment Mortgage - Your periodic
payments for this type of mortgage will be the same throughout the term
of your loan. Part of each payment will be applied toward the interest;
the remainder will be used to reduce the principal. (see Interest,
Principal)
TOP OF PAGE
Leverage - The use of borrowed money to
increase both the amount of property you can purchase and the amount of
profit this property generates. For example, if you have $100,000 in
cash you could purchase one house costing $100,000. But if you use
leverage you could buy the same property using only $20,000 in cash and
borrowing $80,000. You could then use the remaining $80,000 in cash to
buy more properties or make other investments.
Lien - A legal claim on the property of a
borrower pledged as a security for the payment of a debt. If the debt is
not repaid as promised, the lender or the lien holder can enforce
his/her claim on the property and compel the sale of the property to pay
off the debt. (e.g.,see Mechanic’s Lien)
Life of Loan - The number of years you have
to repay your mortgage. If you have a 30 year mortgage, the life of your
loan is 30 years.
Liquidity - The degree of ease with which
your assets, such as stocks, real estate and U.S. Savings Bonds, may be
converted into cash. Because real estate is not easily converted into
cash, it is said to have poor liquidity or to be illiquid.
Listing - 1. A written agreement which
authorizes an agent, called a broker, to sell or lease real estate of an
owner. 2. The record of your real estate for sale, which is dept by a
broker who has been authorized by you, the owner. 2. The listed real
estate for sale.
TOP OF PAGE
Loan Administration - The department of a
lender that receives and keeps records of your monthly payments and pays
your real estate taxes and insurance premiums.
Loan Balance Cap - Only applicable to
ARM’s (see Adjustable Rate Mortgage) with deferred interest or
negative amortization (see Deferred Interest) . Because your loan
balance may increase with these types of loans, many lenders place
limits on how much deferred interest may be added to your original loan
balance. If, during the life of your loan, the unpaid principal (see
Principal) which you owe exceeds this limit, you can no longer defer
interest. Your monthly payment must be increased (perhaps significantly,
resulting in "payment shock") to pay all interest due monthly
and enough of the principal monthly to fully pay off your loan within
its remaining life.
Loan Fee - In addition to points (see
Point) many lenders charge fees to cover costs of services provided,
such as application charges, inspections and preparation of documents.
Loan Guaranty Certificate - If the Veterans
Administration (VA) guarantees your loan, it will issue a loan guaranty
certificate. This certificate states exactly how much of the amount you
borrowed is guaranteed. If you fail to make payments on your loan as
promised, the VA will reimburse your lender for the guaranteed amount
(see Guaranteed Loan, Certificate of Reasonable Value)
Loan Submission - Before a lender agrees to
grant you a mortgage loan, he considers a package of documents that
describe the value of the property pledged by you, the borrower, as
security for the loan and your history of paying off past debts and your
ability to repay this debt.
TOP OF PAGE
Loan-to-Value Ratio
- The amount you’ve borrowed to purchase property compared to the sale price or the appraised value (whichever is
lower ) of that property. It is expressed as a percentage. For example,
if you’re buying a house for $100,000, and you arrange for a $90,000
loan, the LTV is 90%.
Lock-In Period - A time period during the
term of a mortgage loan during which you cannot pay off your debt before
the due date. (see Prepayment)
Loss Payable Clause - A clause in your
insurance policy that provides payment (in the event of loss) first to
your lender in order to pay off or reduce your loan.
Margin - Used with ARM’s
(see Adjustable Rate Mortgage). The margin is the amount the lender adds
to the index (see Index) value to determine the new interest rate at the
time of adjustment for your loan. Margins do not normally change over
the life of the loan. The margin reflects the lender’s cost of doing
business and an allowance for profit.
Market Approach To Value - A method of
estimating the value of your property. With this approach, recent sale
prices of property comparable to your own are analyzed. The estimate of
property value is then based on this analysis by an appraiser. (compare
with Fair Market Value)
TOP OF PAGE
Market Value - See Fair Market Value.
Marketable Title - When the title, or
rights to a property, has only minor problems that any well-informed and
prudent buyer will accept, that property is said to have a marketable
title.
Mechanic’s Lien - If you fail to pay
someone for his/her labor and materials used in construction, repair or
rehabilitation of your house, he can f file a legal claim or lien
against your property for the amount due. If you do not pay him, he can
enforce his lien by compelling the sale of your property to recover the
amount which you owe him.
Metes and Bounds - A method of describing
land boundaries in terms of directions and distances. The metes and
bounds of a property generally appear in real estate documents when the
property has not been legally subdivided into lots, but remains as a
large parcel of land with no interior streets.
Mortgage - A formal document which proves
the legal claim or lien (see Lien) on your property that your lender
holds as security for the money you borrowed. There are two people
involved in a mortgage, you and the lender. You pledge the property as
security for the repayment of the money you borrowed, but you do not
transfer title to the lender. However, if you do not pay the debt as
agreed the lender, through a court proceeding, can compel the sale of
your property to pay off your debt. (see Deed of Trust)
TOP OF PAGE
Mortgage Banker - A person or firm that
originates your mortgage loan, collects and manages your payments and
sells loans in packages to outside investors. The mortgage banker is not
really a "banker," but a middleman who arranges and sells
loans. The mortgage banker negotiates the terms of your loan and
prepares the loan documents. Usually a mortgage banker will also service
your mortgage for the life of the mortgage. (see Servicing)
Mortgage Broker - An individual or firm
that acts as an agent for both the borrower and the lender of a mortgage
loan. The broker places the borrower and lender in contact with each
other, and receives a commission from the borrower if a loan results.
Unlike the mortgage banker, he does not negotiate the terms of your
loan, issue a loan commitment, prepare the loan documents or service
your loan.
Mortgage Commitment - An agreement between
you, the borrower, and the lender to disburse a mortgage loan at a
future date if specified conditions are satisfied. For example, a lender
may be willing to disburse a mortgage loan only if you pay off your
current mortgage loan.
Mortgage Discount - See Point
Mortgage Insurance Premium (MIP) - The
amount that you, the borrower, are required by the lender to pay for
mortgage insurance. It helps to protect the lender if you default. It is
required by lenders when your downpayment is less than 20% (or some
other specified percentage) for conventional loans and for all FHA
loans. The premium is paid periodically either to a private mortgage
insurance company or to the Federal Housing Administration, which
insures residential mortgage loans.
TOP OF PAGE
Mortgage Life and Disability Insurance - An
insurance policy that guarantees repayment of your mortgage in the event
of your death or, in some cases, disability. In case your survivors are
unable to continue loan payments, it protects them against loss of the
property by paying off the loan. This insurance is different from
mortgage insurance which a lender may require you to pay for because it
will pay the lender if you default.
Mortgage Note - A promissory note that is
secured by a mortgage. (see Promissory Note, Mortgage)
Mortgagee - The lend of money which is to
be used by you, the borrower, for the purchase of property. The lender
holds the property as security for your debt. (see Mortgage, Security)
Mortgagee Clause - A clause that may be
attached to your fire or hazard insurance policy. In the event of a
covered fire loss to your property, it stipulates that the mortgage
lender (mortgagee) receives enough of the insurance proceeds to pay off
the remaining debt.
Mortgagese - The language of real estate
finance. It is spoken by mortgage bankers, savings and loan officers,
real estate agents, title attorneys, and real estate investors.
Mortgagor - The borrower of money which is
to be used for the purchase of property pledged as a security for the
loan. (see Mortgage, Security)
TOP OF PAGE
Negative Amortization - See
Deferred Interest.
Net Worth - The value of all your assets:
property, investments and cash, less your total liabilities: debts etc.
worthiness for credit.
Nominal Interest Rate - The stated charge
for a loan. It is expressed as a percentage of the amount borrowed. (see
Coupon Rate)
Nonassumption Clause - Built into many
loans, it states that you cannot allow anyone to assume your loan,
unless your lender gives special written approval. (see Assumption of
Mortgage)
Nonrecourse Loan - A type of mortgage loan
in which the lender cannot hold you personally liable if you fail to
repay the debt as promised. He can, using a legal procedure, take the
property you’ve pledged as security for your loan, but he cannot claim
any other assets or money from you if you default ( see Breach)
Option - An agreement
allowing (but not requiring) you to buy or sell property for a stated
price within a specified period of time. For example, if you are given a
90-day option to buy a piece of land for $500 per acre, you may purchase
it within 90 days at that price, but you have no obligation to purchase.
TOP OF PAGE
Origination Fee - The fee that the lender
charges you, the borrower, to cover the cost of issuing a loan. It pays
for processing your loan which includes collecting information about
your credit worthiness and the property you are buying. This information
is analyzed to determine whether you will be able to pay the loan back
as agreed, and, whether the property provides sufficient collateral in
case you file to repay the loan. The fee is usually computed as a
percentage (e.g. 1%) of your mortgage loan. It usually does not include
fees for appraisals, credit reports, inspections and loan document
preparation.
Overimprovement - An improvement to land,
such as a building that is inappropriate due to excessive size,
excessive cost or inadequate financial returns. For example, if a house
costs $200,000 in a neighborhood of $100,000 homes, the market value of
the house (see Fair Market Value) may only be $150,000. Because the
original value of the house is too great for the value of the site, it
is said to be an over improvement.
Par - A
period in time where the face amount of a mortgage or other loan equals
the current market value of the mortgage or loan.
Partial Payment - In loan collection, a
loan payment that is less than the amount due. Usually, it will not be
credited to your account until you submit the rest of the full amount
due.
Party Wall - A wall built along a boundary
line between two properties, occupying a narrow strip of each. Both
property owners may use the party wall.
Percolation Test - A test which determines
how fast waterless through soil. It is required when a septic tank is
being considered for a property.
TOP OF PAGE
Perfecting Title - The process of
eliminating any and all claims, other than the owner’s to the title of
a property. (see Title)
Permanent Loan - Also called permanent
financing. This mortgage loan covers most costs of a building project;
development costs, interim loans, construction loans, financing
expenses, marketing, administrative and legal costs. It differs from
construction or interim loans because the money from the loan is not
received by the borrower until the project is constructed and ready for
occupancy. It is a longer term loan of at least 5 years and generally 30
years for residential property. (see End Loan)
Personal Liability - When you pledge all of
your own assets and property as a security for your mortgage debt, you
agree to personal liability. It is your unconditional and absolute
promise to pay the debt using all your assets. It occurs in addition to
the primary security of the real estate you pledge to the lender.
(compare with Nonrecourse Loan)
Personal Property - Any property that
doesn’t fall under the category of real property. It includes all of
your movable possessions, such as furniture, automobiles and clothing
and other investments such as stocks and bonds or limited partnership
interest. (see Real Property)
PITI - This stands for the principal,
interest, taxes (real estate) and insurance (fire): the four costs
normally included in a monthly mortgage payment. The monthly payment for
the principal and interest go to the lender to repay the debt while the
real estate taxes and fire insurance ego into the escrow or custodial
account (see Escrow Account) to pay these amounts when due.
TOP OF PAGE
PITI Ratio - Also called an
"income-to-debt" ratio. It is used by lenders in deciding
whether to give you, the borrower, a loan. It compares the amount of
your monthly income to the amount you will owe each month in principal,
interest, real state tax and insurance on that mortgage. (compare to
Qualifying Income Ratio)
Plat - A map generally showing the
ownership interests in a piece of land. For example, if you won urban or
suburban real estate, the plat will show streets, easements (see
Easement) and lots with their boundaries and dimensions. It will not
show mortgage or mechanics’ liens (see Mechanic’s Lien) or
deviations and contours of the land.
Point - Also called discount point. It is a
one-time charge due at closing (see Closing). One point is one percent
of your loan. For example, if your loan is for $100,000, two points is
$2,000. By paying points, you increase your initial costs in order to
decrease your interest rate. Sometimes the seller will split the cost of
the points with you.
Power of Attorney - 1. The authority to act
in another person’s behalf, at this request. If your are granted such
authority you are called the attorney-in-fact. If you are the grantor
(see Grantor), you may revoke a power of attorney at any time. If you,
as grantor die, relocate or are judged legally incompetent, the power of
attorney will automatically terminate. 2. A document granting the power
of attorney.
TOP OF PAGE
Preclosing - A rehearsal of the closing day
for the sale of property. Preclosings are often used when the closing is
complicated by many buyers and sellers, or by multiple loans. Often
during a preclosing, legal documents, such as the deed (see Deed) and
mortgage, are prepared and signed by some or all of the parties
involved. (see Closing)
Preliminary Title Search - A title search
(see Title Search) conducted by a title insurance company, before it
commits itself to insure your rights in property ownership.
Prepaid Interest - Interest that you, the
borrower, pay the lender before it becomes due. Until 1976, you could
deduct prepaid interest from your income tax. this is no longer
permissible.
Prepayment - Paying off your mortgage loan,
or part of it, before the due date. Many fixed rate loans forbid
prepayment, charge a penalty for it, or limit the amount that you can
prepay in any one year. Adjustable Rate Mortgages (see Adjustable Rate
Mortgage) usually allow prepayment without penalty.
Prime Rate - The interest rate that
commercial banks set as their base lending rate. This rate is not
determined by the financial markets, but is established separately by
each bank. It is a closely watched indicator of general trends in
interest rates.
TOP OF PAGE
Principal - At the beginning of your loan,
it is the amount that you borrow: when you borrow $100,000 your
principal is $100,000. During the term of your loan it is the amount you
owe exclusive of interest, late charges and other fees. The principal is
always the amount on which you pay interest (see Interest). With most
loans, your early mortgage payments pay mostly the interest that you
owe, with very little from each payment going to pay off the principal.
Only later will a larger portion of your payments begin to pay off the
principal.
Private Mortgage Insurance (PMI) -
Insurance provided by a private company helping to protect the mortgage
lender against your mortgage default (see Breach). Generally, this
insurance is required by your lender when your downpayment is less than
20% of your property value. The lender requires you to pay the insurance
premiums. (see Mortgage Insurance Premium)
Processing - Gathering your loan
application and all of the required supporting documents (including the
property appraisal, credit report, your credit history and your income
and expense situation) so that a lender can consider you for a loan.
Promissory Note - A document in which you
promise to pay a stated amount on a specific date. The note normally
states the name of the person you’ll be paying, as well as the terms
for payment and any interest rate.
TOP OF PAGE
Pro Rate - To divide expenses and income
between a buyer and a seller in proportionate shares. For example, you
purchase property at mid-year after the seller has already paid taxes on
the property for the whole year. You reimburse him one half of those
taxes, your pro-rata share, for your share of that year.
PUD - Planned Unit Development. 1. It is
the comprehensive development plan for a large area. Usually indicating
where roads, schools, recreational, office, commercial or industrial and
residential areas will be. 2. It also refers to a subdivision that has
common areas reserved for the use of and commonly owned by the separate
lot owners.
Punch List - A list of flaws in the
construction of property that must be corrected by the seller. An
example of such a flaw is a leaky roof.
Purchase Agreement - A contract to buy.
(see Agreement of Sale)
Purchase-Money Mortgage - A mortgage loan
given by you, the buyer, directly to the seller as partial payment of
the purchase price of his real estate. For example, you purchase a home
for $50,000 which has an already existing mortgage of $30,000. You may
make a cash payment of $10,000 and, if the lender agrees, assume the
existing mortgage (see Assumption of Mortgage). To close the sale,
you’d give the seller a purchase-money mortgage of $10,000 which would
be junior to or subordinate to the existing mortgage.
TOP OF PAGE
Qualifying Income Ratio -
Used by lenders in deciding whether to offer you a loan. One type
compares only the amount of your proposed monthly mortgage payment to
your monthly income (see PITI Ratio) Another compares the amount of your
total monthly payments (e.g. you car, credit card and proposed mortgage
payments) to your monthly income.
Quitclaim Deed - A legal document which
transfers to the buyer or owner, whatever interests in the property are
held by the maker of the deed. It does not guarantee that those interest
are valid. By accepting such a deed, you accept the risk that someone
may later appear with a valid claim to your property. (compare with
General Warranty Deed)
Real Property - A general
term meaning land, buildings and other improvements on the land and
certain rights arising from its ownership. Your real property includes
any land you own, the structures built on it, the crops growing from it
and the water and minerals under it. It also includes the right to enjoy
the scenic view, sunlight, wind and easements (see Easement) that arise
from the terms of ownership or lease. Real property is commonly known as
real estate.
Realtors - Anyone who is both licensed to
buy and sell real estate in an area and who is an active member in the
local real estate board affiliated with the national Association of
Realtors.
Realty - Real property. (see Real Property)
TOP OF PAGE
Recording - Any legal document that affects
the ownership of real property is recorded in a book of public records.
For example, when property is sold to you, the deed (see Deed) is
recorded by the registrar or county clerk. This gives notice of your
ownership to all other interested parties.
Recourse Loan - A type of loan in which a
lender can hold you, the borrower, personally liable if you fail to meet
all the requirements of the mortgage. By signing a recourse note you
pledge all of your assets to repay the note. Through legal action, the
lender can force the sale of any of your assets to pay off the loan.
Examples of possible actions include a lawsuit and wage garnishing to
collect the judgment. (compare with Nonrecourse Loan)
Refinancing - Occurs when a borrower pays
off one loan with the proceeds from another loan using the same property
as security.
Reinstatement - Happens when a borrower
corrects a mortgage default. A mortgage is reinstated if it is brought
back up to date by paying all charges that had become overdue. Not all
mortgages allow reinstatement.
Release Clause - A clause in a mortgage
that grants the owner or borrower the privilege of releasing a portion
of the property from the mortgage by paying off a portion of the
mortgage loan. That portion released can no longer be considered by the
lender as direct security for your loan.
TOP OF PAGE
Renegotiable Rate Mortgage (RRM) - A type
of Adjustable Rate Mortgage (ARM). the interest rate and the terms of
the mortgage are completely renegotiated at regular intervals. Unlike
other ARM’s where fluctuations in your interest are controlled by a
preselected index, changes in an RRM are totally at the lender’s
discretion. (see Adjustable Rate Mortgage)
Rescission - Cancellation of a contract or
a transaction. A rescission can occur when all involved parties agree to
make the transaction invalid or when some law or rule makes the
transaction void.
RESPA - Real Estate Settlement Procedures
Act. A federal law protecting you, the home buyer, by requiring your
lender to provide you with estimates and information about closing costs
before closing date. (see Closing Costs)
Reverse Annuity Mortgage (RAM) - An unusual
mortgage where someone who owns their home free and clear (i.e. has paid
off all mortgages on the property) receives monthly payments from
a lender for a short period of time, usually less than ten years. At the
end of the mortgage, the owner agrees to refinance the loan or sell the
property to pay off the loan. Such payments from the lender are often
beneficial for retired people who know they won’t be in a house for
more than 5 or 10 years, because they can help them make tax and
insurance payments.
Right of First Refusal - A provision or
agreement given by a property owner so that you have the first
opportunity to buy or lease a property before it is offered to others.
For example, if you are renting an apartment that is converted to a
condominium, you may begin a right of first refusal to buy the unit
before it is offered for sale to another party.
TOP OF PAGE
Right of Survivorship - In certain types of
joint ownership, surviving co-owners legally inherit the interest of a
deceased co-owner. This is called the right of survivorship. you are
granted this right if you hold either joint tenancy or a tenancy by the
entirety; but not if you hold a tenancy in common. (see Joint Tenancy,
Tenancy of the Entirety, Tenancy in Common)
Right of Way - The privilege to pass over
another person’s land, as granted by the owner of that land. Right of
way falls under the general category of easement. ( see Easement)
Riparian Rights - The right of owners to
the water and land below the high water mark.
Rollover Mortgage - A type of ARM (see
Adjustable Rate Mortgage). With this mortgage, you can renegotiate your
interest rate and payment terms, usually every five years.
SAM - A Shared Appreciation
Mortgage. In exchange for receiving a below-market interest rate on your
mortgage, you promise to give your lender a certain portion of the value
that your property will gain.
Satisfaction of Mortgage - Also known as a
release deed. It is the legal document which proves that you have
completely paid off your mortgage. It is given to you by your lender.
TOP OF PAGE
Second Mortgage - A junior mortgage. A
second mortgage loan can be used to reduce the cash downpayment (see
Downpayment) for your purchase of property. For example, if you’re
buying a house for $100,000 and your downpayment is $20,000, you can
reduce that downpayment to $10,000 by getting another mortgage for
$10,000. Usually the second mortgage will have a higher interest rate
because it involves a greater risk to the lender since any proceeds from
the property go first to pay off the first mortgage.
Secured Party - Usually the lender who
holds the security interest in, or lien on a property. Also known as the
mortgagee. (see Security Interest, Lien)
Security - The collateral or property
given, deposited or pledged to insure the fulfillment of an obligation
or to pay off a debt. When you sign a mortgage, you pledge your property
as the security for the money that you borrowed.
Security Instrument - A legal document
(that is recorded) given by you, the borrower, to your lender. It
pledges the title of your property as insurance to the lender for the
full payment of your mortgage. Mortgages, deeds of trust, trust deeds
and deeds to secure debt (see Mortgage, and Deed of Trust) are
considered security instruments. The security instrument contains the
description of the property.
Security Interest - The legal right or
share that your mortgage lender holds in your property.
TOP OF PAGE
Servicing - All the management and
operational procedures that your mortgage company does for you for the
life of the mortgage, including: collecting your mortgage payments,
making sure that your taxes and insurance charges are paid promptly, and
sending you an annual report on your mortgage and your escrow accounts.
(see Escrow Account)
Settlement Costs - A term sometimes used
inter changeably with closing costs. These actually include the closing
costs plus the downpayment and pre-paid expenses such as the escrows for
insurance and taxes. (see Closing Costs)
Special Warranty Deed - With is deed of
conveyance, the grantor (seller) agrees to protect you, the grantee
(buyer) from any claims to the title of the property only while he owned
it.
Spot Loans - What most home buyers receive.
It is a loan secured by residential real estate and received on an
individual basis.
Subordination - Occurs when a party agrees
in writing that its claim on a property is inferior to the claim of
another. For example, a second mortgage lender agrees to subordination
when he agrees that the proceeds from the sale of a property will go
first to pay off the first mortgage lender.
Subsidy - Money given (usually by the
seller in a lump sum at settlement) to lower the buyer’s share of
housing costs. A subsidy is generally given for a limited number of
years by a seller to a buyer to pay a portion of the buyer’s monthly
mortgage payments.
TOP OF PAGE
Survey - A measurement of your land,
performed by a registered land surveyor. The surveyor will draw up a
plat (see Plat), or map, to show your land’s location in relation to
known points of reference, as well as its dimensions and features. The
plat will also include the locations and dimensions of any structures on
your land.
Tax Basis - The cost of
your property, used for tax purposes. The tax basis includes any cash
you paid and the principal amount of your mortgage loan at purchase. As
you invest more in your property, the tax basis will increase. It
decreases as you take the tax deductions (such as depreciation) or
withdraw cash.
Tax Lien - A claim on your property by
government (local, state or federal) for the amount of due and unpaid
taxes.
Teaser Rate - A term used in adjustable
rate mortgages. It is an initial interest rate that is considerably
below the "going market rate" which is determined by the index
plus the margin. The teaser rate may result in a large increase in the
interest rate and/or in your monthly payment at the first adjustment
date. (see Adjustable Rate Mortgage, Index, Margin)
Tenancy by the Entirety - The co-owner of
real estate by a married couple. Upon the death of one spouse, the other
automatically owns the entire property. (see Right of Survivorship)
TOP OF PAGE
Tenancy in Common - When two or more people
are legally granted interest in the same property, they hold a tenancy
in common. The interests need not be equal nor created at the same time
as in joint tenancy. If one of them dies, the others do not
automatically own his interest, as they would in a joint tenancy. His
interest passes to his heirs. (see Joint Tenancy, Tenancy by the
Entirety, and Right of survivorship)
Tenant - One who is not the owner but
occupies real property (see Real Property) with the consent of the
owner. The tenant is entitled to exclusive possession and enjoyment of
the property for a specified period of time and payment of rent as
specified in a lease.
Title - In mortgagese, title can refer to
two things: 1. The rights of ownership and possession of a particular
property. 2. The documents that proved those rights. You can buy the
rights of ownership and possession (title), inherit them or accept them
as a gift.
Title Binder - A temporary title insurance
policy. The title binder insures your right to property ownership for an
interim period only. It must be replaced by a permanent title insurance
policy. (see Title Insurance Policy)
Title Defect - Any legal right to a
property claimed by a person other than the owner. For examples include
unpaid real estate taxes or claims to the property such as those of an
unknown heir.
TOP OF PAGE
Title Exception - An encumbrance or
potential encumbrance (see Encumbrance) on a title against which an
insurance company will not insure. If a current survey is not provided
at a property settlement (see Closing), the title insurance policy will
not cover any encumbrance revealed by a later survey.
Title Insurance Policy - Protects you, the
insured, up to a specified amount against losses arising from claims
against your property due to a defect in the title (see Title Defect,
Encumbrance, Cloud on Title, Clear Title). You are insured from loss up
to a specific amount only when you have your own policy, listing your
name as the beneficiary. A mortgagee’s (e.g. your lender’s) title
insurance policy does not protect you, the owner.
Title Search - An examination of public
records, laws and court actions to make sure that the seller is the
legal owner and to disclose all other claims or encumbrances on the
property affecting its ownership. (see Encumbrance)
Town House - A residential unit on a small
lot that shares at least one exterior wall with the other similar units.
The title to the entire lot (see title) belongs to an individual buyer
and, in some cases, the buyer also receives a fractional interest in the
common areas.
Transfer Fees - The cost of changing the
public records when ownership of property is transferred from one person
to another. Either you, the buyer, or the seller will pay the transfer
fees to the city or county government.
TOP OF PAGE
Transfer Tax - State and local taxes
charged on the price of the property for transferring property from one
person to another. Either you, the buyer, or the seller will pay this
tax.
Trustee - Someone who holds the legal title
to your property, either as a favor to you or as security for a debt you
owe a lender.
Underwriting - In mortgage
lending, the process of approving or denying a loan based on an
evaluation of the property and the applicant’s ability to repay the
loan. The underwriter analyzes the risks involved and selects an
appropriate loan term and interest rate.
Usury - the practice of charging more for a
loan than law permits. In committing usury, the lender sets your
interest rate (see Interest) above the maximum rate allowed by law.
VA - Veterans
Administration. An independent agency of the federal government which
helps a veteran get a long-term, low-downpayment mortgage. The agency
normally does this by guaranteeing a portion of a lender’s loans
against loss. In return for this guarantee, lenders must follow
prescribed procedures for loans established by the VA.
TOP OF PAGE
Variable Rate Mortgage (VRM) - A long-term,
mortgage loan in which the interest rate may vary, or float,
periodically throughout the term of the loan. The rate fluctuations
generally are based on an interest rate index, and are restricted under
the terms of your mortgage. For example, the rate increase may be
restricted to no more than 1 percentage point per year. (see Floating
Rate of Interest) To your advantage, the initial interest rate on a VRM
is usually low, making it easier for you to obtain this type of loan,
but rate increases may make future monthly payments higher. (see
Adjustable Rate Mortgage, Index)
Waiver of Lien - Normally,
someone who supplies labor or materials, such as a contractor, holds his
legal claim to the value of those materials until he is paid for them.
When a supplier signs a waiver of lien, he surrenders that claim against
the property, and coincidentally, his right to force payment through it.
(see Mechanic’s Lien)
Water Table - The depth, usually expressed
in feet, from the surface of your land to the level at which natural
ground water is found.
Wraparound Mortgage - A form of refinancing
(see Refinancing). When you already own a house and borrow more money,
you can combine the amount you still owe on your home’s original loan
(see First Mortgage) with the new amount to form one wraparound
mortgage.
Yield - In real estate it
is the effective amount income from an investment. It is expressed as a
percentage of the initial amount of the investment.
Zero Lot Line -
The positioning of a structure so that one side of it sits directly on
the lot’s boundary line. Although usually prohibited by setback
ordinances see Setback Lines), such positioning can be part of special
planned unit developments. (see PUD)
Zoning - Local governments establish and
can sometimes change the types of land usage that affect any property in
their area. The basic zoning categories are residential, commercial and
industrial. To build a business on property zoned for residences, you
must request and wait until the property is rezoned for business use.
TOP OF PAGE
