A Abstract
(of title)
A summary of the public records relating
to the title of a particular piece of land. An attorney or title insurance company
reviews an abstract of title to determine whether there are any title defects
which must be cleared before a buyer can purchase a clear, marketable and insurable
title.
Acceleration clause
Condition
in a mortgage that may require the balance of the loan to become due immediately,
if regular mortgage payments are not made or for breach of other conditions of
the mortgage.
Adjustable-rate
mortgage (ARM)
A mortgage in which the interest rate
increases or decreases over the life of the loan based on market conditions, resulting
in possible changes in monthly payments. Some plans have rate caps that limit
the amount your interest rate may change. This loan, which has many variations,
generally carries a lower initial rate than a fixed-rate loan because the borrower
assumes the risk of the rising or falling market.
Agreement
of sale
Known by various names, such as contract
of purchase, purchase agreement, or sales agreement according to location or jurisdiction.
A contract in which a seller agrees to sell and a buyer agrees to buy, under certain
specific terms and conditions spelled out in writing and signed by both parties.
Amortization
A
payment plan which enables the borrower to reduce his or her debt gradually through
monthly payments of principal.
Annual percentage rate
(APR)
The cost of your loan, expressed as an annual
percentage. Lenders are required by law to provide you with the APR calculation.
The lender must calculate all the financing charges paid by the borrower, including
the interest paid on the loan, the loan origination fee and mortgage insurance
you may be required to pay.
Appraisal
An
expert judgment or estimate of the quality or value of real estate as of a given
date.
top
B
Binder
or "offer to purchase"
A preliminary agreement
to buy real estate that is secured by the payment of earnest money. A binder secures
the right to purchase real estate upon agreed terms for a limited period of time.
If the buyer changes his or her mind or is unable to purchase, the earnest money
is forfeited unless the binder expressly provides that it is to be refunded.
top
C
Certificate
of title
A certificate issued by a title company
or a written opinion rendered by an attorney that the seller has good marketable
and insurable title to the property offered for sale. A certificate of title offers
no protection against any hidden defects in the title that an examination of the
records could not reveal. The issuer of a certificate of title is liable only
for damages due to negligence. The protection offered to a homeowner under a certificate
of title is not as great as that offered in a title insurance policy.
Closing
costs
The expenses that buyers and sellers normally
incur while transferring the ownership of a piece of real estate. These costs
are in addition to price of the property and are prepaid on the closing day. This
is a typical list:
Buyer's
Expenses: * Documentary stamps
on notes
* Recording deed and mortgage
* Escrow fees
* Attorney's
fee
* Title insurance
* Appraisal and inspection
* Survey charge Seller's
Expenses: * Cost of abstract
* Documentary stamps
on deed
* Real estate commission
* Recording mortgage
* Survey charge
* Escrow fees
* Attorney's fee The
agreement of sale negotiated previously between the buyer and the seller may state
in writing who will pay each cost. Closing
day
The day on which the formalities of a real estate
sale are concluded. The certificate of title, abstract and deed are generally
prepared for the closing by an attorney and charged to the buyer. The buyer signs
the mortgage, and closing costs are paid. The final closing merely confirms the
original agreement reached in the agreement of sale.
Cloud
(on title)
An outstanding claim or encumbrance which
adversely affects the marketability of title.
Commission
Money
paid to a real estate agent or broker by the seller as compensation for finding
a buyer and completing the sale. Usually it's a percentage of the sale price:
six to seven percent on houses, 10 percent on land.
Conventional
mortgage
A mortgage loan not insured by HUD or guaranteed
by the Veterans' Administration. It is subject to conditions established by the
lending institution and state statutes. The mortgage rates may vary with different
institutions and between states. (States have various interest limits.)
top
D
Deed
A
formal written instrument by which title to real property is transferred from
one owner to another. The deed should contain an accurate description of the property
being conveyed, should be signed and witnessed according to the laws of the state
where the property is located and should be delivered to the purchaser at closing
day. There are two parties to a deed: the grantor (seller) and the grantee (buyer).
Default
Failure
to make mortgage payments as set forth in the mortgage or deed of trust. It is
the responsibility of the buyer--the mortgager-to remember the due date and send
the payment prior to the due date, not after. Generally, if the payment is not
received by thirty days after the due date, the mortgage is in default. In the
event of default, the mortgage may give the lender the right to accelerate payments,
take possession and receive rents and start foreclosure. Defaults may also come
about by failure to observe other conditions in the mortgage or deed of trust.
Depreciation
Decline
in the value of a house due to wear and tear, adverse changes in the neighborhood
or any other reason.
Documentary
stamps
A state tax, in the forms of stamps, required
on deeds and mortgages when a real estate title passes from one owner to another.
The amount of stamps required varies with each state.
Down
payment
The amount of money the purchaser pays to
the seller upon the signing of the agreement of sale. The agreement of sale will
refer to the down payment amount and will acknowledge receipt of the down payment.
Down payment is the difference between the sales price and maximum mortgage amount.
The down payment may not be refundable if the purchaser fails to buy the property
without good cause. If the purchaser wants the down payment to be refundable,
he or she should insert a clause in the agreement of sale specifying the conditions
under which the deposit will be refunded. If the seller cannot deliver good title,
the agreement of sale usually requires the seller to return the down payment and
to pay interest and expenses incurred by the purchaser.
top
E
Earnest
money
The deposit money given to the seller or his
agent by the potential buyer upon the signing of the offer to purchase to show
that he or she is serious about buying the house. If the sale goes through, the
earnest money is applied against the down payment. If the sale does not go through,
the earnest money will be forfeited or lost unless the binder or offer to purchase
expressly provides that it is refundable.
Easement
rights
A right-of-way granted to a person or company
authorizing access to or over the owner's land. An electric company obtaining
a right-of-way across private property is a common example.
Encroachment
An
obstruction, building or part of a building that intrudes beyond a legal boundary
onto neighboring private or public land, or a building extending beyond the building
line.
Encumbrance
A
legal right or interest in land that affects a good or clear title and diminishes
the land's value. It can take numerous forms, such as zoning ordinances, easement
rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes
or restrictive covenants. An encumbrance does not legally prevent transfer of
the property to another. A title search is all that is usually done to reveal
the existence of such encumbrances, and it is up to the buyer to determine whether
to purchase with the encumbrance, or to find a way to remove it.
Equity
The
value of a homeowner's unencumbered interest in real estate. Equity is computed
by subtracting from the property's fair market value the total of the unpaid mortgage
balance and any outstanding liens or other debts against the property. A homeowner's
equity increases as he pays off his mortgage or as the property appreciates in
value. When the mortgage and all other debts against the property are paid in
full, the homeowner has 100 percent equity in the property.
Escrow
Funds
paid by one party to another (the escrow agent) to hold until the occurrence of
a specified event, after which the funds are released to a designated individual.
In FHA mortgage transactions, an escrow account usually refers to the funds a
borrower pays the lender at the time of the periodic mortgage payments. The money
is held in a trust fund provided by the lender for the buyer. Such funds should
be adequate to cover yearly anticipated expenditures for mortgage insurance premiums,
taxes, hazard insurance premiums and special assessments.
top
F
Foreclosure
A
legal term applied to any of the various methods of enforcing payment of the debt
secured by a mortgage, or deed of trust, by taking and selling the mortgaged property
and depriving the mortgagor (borrower) of possession.
top
G
General
warranty deed
A deed which also warrants that if
the title is defective or has a "cloud" on it (such as mortgage claims,
tax liens, title claims, judgments or mechanic's liens against it), the grantee
may hold the grantor liable.
top
H
Hazard
insurance
Protects against damages caused to property
by fire, windstorms and other common hazards.
HUD
U.S.
Department of Housing and Urban Development. The Office of Housing/Federal Housing
Administration within HUD insures home mortgage loans made by lenders and sets
minimum standards for such homes.
top
I
top
J
top
K
top
L
Lien
A
claim by one person on the property of another as security for money owed. Such
claims may include obligations not met or satisfied, judgments, unpaid taxes,
materials or labor.
top
M
Marketable
title
A title free and clear of objectionable liens,
clouds or other title defects. A marketable title enables an owner to sell his
or her property freely to others and allows others to accept without objection.
Mortgage
A
lien or claim against real property given by the buyer to the lender as security
for money borrowed. Under government-insured or loan-guarantee provisions, the
payments may include escrow amounts covering taxes, hazard insurance, water charges
and special assessments. Mortgages generally run from 10 to 30 years, during which
the loan is to be paid off.
Mortgage
commitment
A written notice from the bank or other
lending institution saying it will advance mortgage funds in a specified amount
to enable a buyer to purchase a house.
Mortgage
note
A written agreement to repay a loan. The agreement
is secured by a mortgage, serves as proof of indebtedness and states the manner
in which it shall be paid. The note states the actual amount of the debt that
the mortgage secures and renders the borrower personally responsible for repayment.
Mortgage
(open-end)
A mortgage with a provision that permits
borrowing additional money in the future without refinancing the loan or paying
additional financing charges. Open-end provisions often limit such borrowing to
no more than what would raise the balance to the original loan figure.
top
N
top
O
top
P
Plat
A
map or chart, drawn by a surveyor, of a lot, subdivision or community; it shows
boundary lines, buildings, improvements on the land and easements.
Points
Sometimes
called "discount points." A point is one percent of the amount of the
mortgage loan. For example, if a loan is for $25,000, one point is $250. Points
are charged by a lender to raise the yield on the loan at a time when money is
tight, interest rates are high, and there is a legal limit to the interest rate
that can be charged on a mortgage. Buyers are prohibited from paying points on
HUD or Veterans' Administration guaranteed loans (sellers can pay, however). On
a conventional mortgage, points may be paid by either the buyer or seller or split
between them.
Prepayment
Payment
of mortgage loan, or part of it, before due date. Mortgage agreements often restrict
the right of prepayment either by limiting the amount that can be prepaid in any
one year or charging a penalty for prepayment. The Federal Housing Administration
does not permit such restrictions in FHA-insured mortgages.
Principal
The
basic element of the loan as distinguished from interest and mortgage insurance
premium. In other words, principal is the amount upon which interest is paid.
top
Q
Quitclaim
deed
A deed that transfers whatever interest the
maker of the deed may have in the particular parcel of land. A quitclaim deed
is often given to clear the title when the grantor's interest in a property is
questionable. By accepting such a deed the buyer assumes all the risks. Such a
deed makes no warranties as to the title, but simply transfers to the buyer whatever
interest the grantor has.
Rate
lock-in
A guarantee the interest rate will remain
the same for a specified period of time. Whether the loan's interest rate index
rises or falls during that period, the borrower pays the rate which was current
at the time of the lock-in agreement.
top
R
Refinancing
The
process of the same person paying off one loan with the proceeds from another
loan.
top
S
Special
assessments
A special tax imposed on property, individual lots, or all property
in the immediate area, for road construction, sidewalks, sewers, street lights,
etc. top
T
Title
As
generally used, the rights of ownership and possession of particular property.
In real-estate usage, title may refer to the instruments or documents by which
a right of ownership is established (title documents), or it may refer to the
ownership interest one has in the real estate.
Title
Insurance
Protects lenders or homeowners against
loss of their interest in property due to legal defects in the title. Title insurance
may be issued to a "mortgagee's title policy." Insurance benefits will
be paid only to the "name insured" in the title policy, so it is important
that an owner purchase an "owner's title policy," if he or she desires
the protection of title insurance.
Title
search or examination
A check of the title records,
generally at the local courthouse, to make sure the buyer is purchasing a house
from the legal owner and there are no liens, overdue special assessments, or other
claims or outstanding restrictive covenants filed in the record, which would adversely
affect the marketability or value of the title.
top
U
top
V
top
W
Wraparound
mortgage
Seller keeps original mortgage. Buyer makes
payments to seller, who forwards a portion to the lender holding the original
mortgage.
top
X
top
Y
top
Z
top
| 
