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Glossary
of Real Estate Abstract
of Title: A written
history of the title transactions or conditions bearing on the title to
a designated parcel of land. It
covers the period from the original source to the present and summarizes
all subsequent instruments of public record by setting forth their
material parts. Adjustable
Rate Mortgage: A
loan that allows the lender to adjust the borrower's interest rate and
payments at prescribed times and sometimes with prescribed limits.
Lower interest rates are customary. Agency:
The relationship between a principal and an agent, usually a
property owner and a real estate broker. Agent:
One who acts or has the power to act for another.
A fiduciary relationship is created under the law of agency when
a property owner, as the principal, executes a listing agreement or
management contract authorizing a licensed real estate broker to be his
or her agent. Amortized
Loan: A
loan which is paid off in equal installments during its term. Annual
Percentage Rate: The
actual interest rate the borrower pays when all the costs of obtaining
credit are included. Appraisal:
A report made by a qualified appraiser setting forth an opinion
of estimate of value. The
term also refers to the process by which the estimate is obtained. Appraised
Value: An
estimation of property value made by a qualified expert. Appreciation:
An increase in the value of a property.
Appreciation may be the result of an increased demand for
property, any improvements or additions made, improvements to the
neighborhood, etc. Assumable
Mortgage: Purchaser
takes ownership to real estate encumbered by an existing mortgage and
assumes responsibility as the guarantor for the unpaid balance of the
mortgage. Attorney's
Opinion of Title: An
abstract of title that an attorney has examined and has certified to be,
in his or her opinion, an accurate statement of the facts concerning the
property ownership. Balloon
Mortgage: A
mortgage with periodic installments of principal and interest that, at
the end of such a period, do not fully amortize the loan.
The balance of the mortgage due is usually paid in a lump sum at
a specified date, usually at the end of the term of such periodic
installments. Broker:
One who acts as an intermediary on behalf of others for a fee or
commission. Brokerage:
The bringing together of parties interested in making a real
estate transaction. Buydown:
A sum of money paid to the lender at closing to reduce the
borrower's out-of-pocket monthly payment.
A buydown can be temporary or permanent. Capital
Gains Tax: The
taxable profit derived from the sale of a capital asset.
The capital gain is the difference of the sale price and the
basis of the property after making appropriate adjustments for closing
costs, fixing up expenses, capital improvements, allowable depreciation,
etc. Certificate
of Title: A
statement of opinion on the status of the title to a parcel of real
property based on an examination of specified public records. Chain
of Title: The
succession of conveyances from some accepted starting point, whereby the
present holder of real estate property derives title. Closing:
The process that brings a loan into legal existence, including
the signing of all loan documents, their delivery to the appropriate
parties, and the disbursing of at least some of the loan funds. Closing
Costs: Costs, in
addition to the price of the property itself, that are due at closing. These costs normally include, but are not limited to,
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 the borrower pay some of these
costs. Cloud
on Title: Any
documents, claim, unreleased lien or encumbrance that may impair the
title to real property or make the title doubtful; usually revealed by a
title search and removed by either a quitclaim deed or suit to quiet
title. Co-borrower:
A party who signs the mortgage along with the borrower and shares
the title to and the obligation to pay for the property with the
borrower. Commission:
Payment to a broker for services rendered, such as in the sale or
purchase of real property; usually a percentage of the selling price of
the property. Commitment:
An agreement, often in writing, between a lender and a borrower
to loan money at a future date subject to compliance with stated
conditions. Comparables:
Properties used in an appraisal report that are substantially
equivalent to the subject property. Competitive
Market Analysis (CMA): A
comparison of the prices of recently sold homes that are similar to a
listing seller's home in terms of location, style and amenities. Condominium:
A form of ownership of real property.
The purchaser receives title to a particular unit and a
proportional interest in certain common areas.
A condominium generally defines each unit as a separately owned
space limited to the interior surfaces of the perimeter walls, floors
and ceilings. Title to the
common areas is in terms of percentages and refers to the entire project
less the separately owned units. Contingency:
A provision in a contract that requires a certain act to be done
or a certain event to occur before the contract becomes binding. Contract:
A legally enforceable promise or set of promises that must be
performed and for which, if a breach of the promise occurs, the law
provides a remedy. A
contract may be either unilateral, by which only one party is bound to
act, or bilateral, by which all parties to the instrument are legally
bound to act as prescribed. Conventional
Loan: A mortgage
loan not insured by the Federal Housing Administration (FHA) or
guaranteed by the Veterans Administration (VA) or Farmers Home
Administration (FmHA). No
government agency approval is required of the lender, borrower or
property. It is called
"conventional" because it conforms to accepted standards,
modified within legal bounds by mutual consent of the borrower and the
lender. Counteroffer:
A new offer made as a reply to an offer received.
It has the effect of rejecting the original offer, which cannot
be accepted thereafter unless revived by the offeror. Covenant:
A written agreement between two or more parties in which a party
or parties pledge to perform or not to perform specified acts with
regard to property; usually found in such real estate documents as
deeds, mortgages, leases and contracts for deed. Credit
Report: A document
completed by a credit-reporting agency providing information about the
buyer's credit cards, previous mortgage history, bank loans and public
records dealing with financial matters. Deed:
The formal written document that transfers the rights of
ownership and possession (that is, the title) from the seller to the
buyer. Deed
of Trust: A legal
document which conveys title to real estate to a disinterested third
party (trustee) who holds the title until the owner of the property has
repaid the debt. Discount
Point: A unit of
measurement used for various loan charges; one point equals one percent
of the amount of the loan. Down
Payment: The
difference between the sales price of real estate and the amount of the
mortgage loan. Dual
Agency: Representing
both parties to a transaction. This
is unethical unless both parties agree to it, and it is illegal in many
states. Due-On-Sale
Clause: A clause
allowing the lender to demand payment of the entire loan balance upon
sale or other transfer of title by the borrower to a third party. Earnest
Money: Money
deposited by a buyer under the terms of a contract, to be forfeited if
the buyer defaults but applied to the purchase price if the sale is
closed. Easement:
A right to use the land of another for a specified purpose, such
as for a right-of-way or utilities; an incorporeal interest in land. Equity:
The owner's interest, or the amount of cash the owner has
realized, paid in, or invested in real estate. Escrow
Payment: The
portion of a borrower's monthly payment that is set aside by the lender
in an escrow account to pay the taxes, hazard insurance, mortgage
insurance, ground rents and other special items as they come due. Exclusive
Agency Listing: A
listing contract under which the owner appoints a real estate broker as
his or her exclusive agent for a designated period of time to sell the
property, on the owner's stated terms, for a commission.
The owner reserves the right to sell without paying anyone a
commission if he or she sells to a prospect who has not been introduced
or claimed by the broker. Federal
Home Loan Mortgage Corporation (Freddie Mac):
A secondary market facility of the Federal Home Loan Bank System
that is authorized to buy and sell conventional home loans and
participating interests in blocks of conventional loans. Federal
National Mortgage Association (Fannie Mae):
A privately owned corporation created by Congress to support the
secondary mortgage market. It
purchases and sells residential mortgages insured by the FHA or
guaranteed by the VA, as well as conventional home mortgages. FHA
Mortgage: A
mortgage with federally sponsored mortgage guaranty insurance provided
through the FHA. Fixed-Rate
Mortgage: The type
of loan where the interest will not change for the entire term of the
loan. Good
Faith Estimate: Provides
a breakdown of the estimated closing charges. Government
National Mortgage Association (Ginnie Mae):
A government corporation within the Department of Housing and
Urban Development (HUD)
that provides assistance for the purchase of certain FHA and VA
mortgages and guarantees securities backed by pools of mortgage loans. Hazard
Insurance: A broad
form of casualty insurance coverage for real estate that includes
protection against loss from fire, certain natural causes, vandalism and
malicious mischief. Home
Equity Loan: A loan
under which a property owner uses his or her residence as collateral and
can then draw up funds to a prearranged amount against the property. Homeowner's
Insurance Policy: A
standardized packaged insurance policy that covers a residential real
estate owner against financial loss from fire, theft, public liability
and other common risks. Land
Survey: An
instrument that specifies precise property boundaries.
It is useful in determining if boundary violations
(encroachments) exist. Lease
Purchase Agreement: Buyer
makes a deposit for the future purchase of a property with the right to
lease the property in the interim. Listing
Agreement: A
contract between an owner (as principal) and a real estate broker (as
agent) by which the broker is employed as agent to find a buyer for the
owner's real estate on the owner's terms, for which service the owner
agrees to pay a commission. Loan
Closing: A meeting
between borrower and lender in which transfer of ownership is
accomplished, funds and deed are exchanged, and all loan documents,
including the promissory note and mortgage, are signed. Loan-To-Value
Ratio (LTV):
The ratio, expressed as a percentage, of the amount of a loan
(numerator) to the value or selling price of real property
(denominator). Usually, the
higher the percentage, the greater the interest charged.
Maximum percentages for banks, savings and loans, or
government-insured loans are set by statute. Mortgage
Banker: An
entity or individual active in the field of mortgage banking.
Mortgage bankers, as local representatives of regional or
national institutional lenders, act as correspondents between lenders
and borrowers. Mortgagee:
The institution, group or individual that lends mortgage on the
security of pledged real estate; also known as the association or the
lender. Mortgage
Insurance Premium (MIP): The
consideration paid by a mortgagor for mortgage insurance either
to FHA or a private mortgage insurance (PMI) company.
This insurance protects the investor from possible loss in the
event of a borrower's default on a loan. Mortgagor:
The owner of real estate who pledges his property as security for
the repayment of a debt; also known as the borrower. Multiple-Listing
Service (MLS): A
marketing organization composed of member brokers who agree to share
their listing agreements with one another in the hope of procuring
ready, willing and able buyers for their properties more quickly than
they could on their own. Most
MLS accept only exclusive-right-to-sell listings from their member
brokers, although any broker can sell a property in an MLS. Note:
A written promise by one party to pay a specified sum of money to
a second party under conditions agreed upon mutually.
Also called a "promissory note". Origination
Fee: The
fee that the lender charges the borrower to cover the cost of issuing a
loan commitment. It pays
for processing the loan which includes collecting information about the
borrower's creditworthiness and the property.
The fee is usually computed as a percentage of the mortgage loan.
It usually does not include fees for appraisals, credit reports,
inspections and loan document preparation. Planned
Unit Development: A
project that may consist of any
combination of one to four family homes, condominiums and other styles
of residential housing. The
individual unit and often the real estate under it are owned by the
individual owner. The common facilities are owned and maintained by a
homeowner's association. Points:
An amount equal to one percent of the principal amount of a note.
Loan discount points are a one-time charge assessed at closing by
the lender to increase the yield on the mortgage loan to a competitive
position with other types of investments. Private
Mortgage Insurance: Insurance
written by a private company protecting the mortgage lender against loss
occasioned by a mortgage default. Qualifying
Income Ratio: Income
analysis used by lenders in deciding whether to offer the borrower a
loan. One type of analysis
compares only the amount of the proposed monthly mortgage payment to the
monthly income. Another
compares the amount of the total monthly payments (i.e. car, credit card
and proposed mortgage payments) to the monthly income. Real
Property: Land
and anything permanently affixed to the land, such as fences, buildings
and those things attached to the buildings, such as light fixtures or
plumbing. May refer to
rights in real property as well as the property itself. RealtorÒ:
Anyone who is licensed to both 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. Sales
Contract: A written
agreement between competent parties stating all terms and conditions of
a sale. Secondary
Market: An informal
market where existing mortgages are bought and sold.
It is the traditional after market for mortgage loans that brings
together lenders that sell mortgages with lenders, investors and
agencies that buy mortgages. Also
called "secondary mortgage market," it should not be confused
with a second mortgage. Second
Mortgage / Second Trust: Junior
mortgage or junior lien; an additional loan imposed on property with a
first mortgage. Generally
at a higher interest rate and with shorter terms than a
"first" mortgage. Settlement
/ HUD-1: A
detailed cash accounting of a real estate transaction showing all cash
received, all charges and credits made and all cash paid out in the
transaction. Survey:
A measurement of land, prepared by a registered land surveyor,
showing the location of the land with reference to known points, its
dimensions and the location and dimensions of any improvements. Title:
The evidence of the right to or ownership in property.
In the case of real estate, the documentary evidence of ownership
is the title deed, which specifies with whom the legal state is vested
and the history of ownership and transfers.
Title may be acquired through purchase, inheritance, devise, gift
or through the foreclosure of a mortgage. Title
Insurance Binder: (1)
A report issued by a title insurance company stating that the condition
of title to certain property as of a certain date and also stating
conditions which, if satisfied, will cause a policy of title insurance
to be issued. Also called a "commitment". (2) A policy of title insurance (used primarily by investors)
calling for a reduced rate for future policy if the property is sold
within a specified period. Title
Insurance: An
insurance policy which protects the insured (purchaser or lender)
against loss arising from defects in title. Underwriting:
In mortgage lending, the process of approving or denying a loan
based on an evaluation of the property and the applicant's
creditworthiness and ability to repay the loan.
The underwriter analyzes the risks involved and selects an
appropriate loan term and interest rate. Veterans
Administration (VA): An
independent agency of the federal government which helps veterans obtain
long-term, low down payment mortgages.
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. |
