Thursday, July 16, 2009

Glossary of Real Estate Terms

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

An increase in value of real estate.

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

Balloon Payment
The final payment of a mortgage loan when it is larger than the regular payment. It usually extinguishes the note.

Capital Gains
The taxable profit derived from the sale of a capital asset. It is the difference between the sale price and the basis of the property, after making appropriate adjustments for closing costs, fixing-up expenses, capital improvements, allowable depreciation, etc.

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

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

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

Contract of Title
A summary or digest of the conveyances, transfers, and any other facts relied on as evidence of title, together with any other elements or records which may affect the marketability of the title.
Conventional Mortgage
A mortgage securing a loan made by investors without governmental underwriting, i.e., not FHA-insured or VA-guaranteed.

Counter Offer
A seller’s rejection of an offer made by a buyer accompanied by an agreement to sell the property to the potential buyer on terms differing from the original offer.

Certificate of Reasonable Value. A document of appraisal issued by the VA establishing their opinion of the maximum value.

The written instrument which, when properly executed and delivered, conveys title.

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

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

Created by grant or agreement for a specific purpose, an easement is the right, privilege or interest which one party has in the land of another.

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

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

The trading of equity in a piece of property for equity in another property.

Fannie Mae
The nickname of the Federal National Mortgage Association (FNMA), a tax-paying corporation created by Congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

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

FHA Loan
A loan which has been insured by the federal government guaranteeing its payment in case of default by the owner.

Firm Commitment
A lender’s agreement to make a loan to a specific borrower on a specific property. An FHA or PMI agreement to insure a loan on a specific property, with a designated purchaser.

A loan insured by the federal government similar to FHA loans, usually used for residential properties in rural areas.

Freddie Mac
The nickname for the Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.

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

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

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

Lease Purchase Agreement
The buyer makes a deposit for the future purchase of property with the right to lease the property in the interim.

An encumbrance on the property which usually names the property as security for the payment of a debt or discharge of an obligation. Examples: Judgments, taxes, mortgages, deeds of trust, etc.

Loan Commitment
A written promise by a lender to make a loan under certain terms and conditions. These include interest rate, length of the loan, lender fees, annual percentage rate, mortgage and hazard insurance and other special requirements.

Loan to Value Ratio
The ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value (selling price). On a $100,000 home with a mortgage loan principal of $80,000, the loan to value ratio is 80%.

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

Mortgage/Deed of Trust
An instrument recognized by law by which property is pledged as security or collateral for debt without transfer of title or possession, to secure the payment of a debt or obligation to the lender. Title transfers to the lender during the foreclosure process which occurs in the event that the debtor defaults on the loan obligation to 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. On an FHA loan, the payment is one-half of one percent annually on the declining balance of the mortgage. It is a part of the regular monthly payment and is used by FHA to meet operating expenses and provide loss reserves.

The lender of money or the receiver of the mortgage document.

The borrower of money or the giver of the mortgage document.

A written promise to pay a certain amount of money with or without specific terms.

Origination Fee
A fee or charge for the work involved in the evaluation, preparation, and submission of a proposed mortgage loan. Origination fees are paid by the borrower to the lender.

Personal Property
Any property which is not real property. For instance, money, savings accounts, appliances, cars, boats, etc.

One percent of the loan amount.

Prepayment Penalty
The fee paid to the mortgagee for paying the mortgage before it becomes due. Also known as prepayment fee or reinvestment fee.

Prepayment Privilege
The right given a purchaser to pay all or part of a debt prior to its maturity. The mortgagee cannot be compelled to accept any payment other than those originally agreed to.

Private Mortgage Insurance (PMI)
Insurance written by a private company protecting the mortgage lender against loss occasioned by a mortgage default.

Privately Insured Mortgage
A conventional mortgage loan on which a private mortgage insurance company protects the lender against loss.

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

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

Real Property
Any land and whatever by nature or artificial annexation is a part of it.

Rent with Option
A contract which gives one the right to lease property at a certain sum with the option to purchase it at a future date.

Second Mortgage/Second Trust
Also known as a Junior Mortgage or Junior Lien. An additional loan imposed on property with a first mortgage, generally at a higher interest rate and shorter terms than a “first” mortgage.

Special Assessment
A legal charge against real estate by a public authority to pay the costs of public improvements such as street lights, sidewalks, street improvements, etc.

Straight Loan
A loan with periodic payments of interest only; the principal sum is due in one lump sum upon maturity.

A parcel of land that has been divided into smaller parts.

Tenancy in Common
Ownership by two or more persons who hold undivided interest, without the right of survivorship. Interests need not be equal.

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

Often used interchangeably with the word ownership. It indicates the accumulation of all rights in a property.

Title Insurance
An insurance policy which protects the insured (purchaser or lender) against loss arising from defects in title.

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

VA (Veteran’s Administration) Loan
A loan guaranteed by the Veteran’s Administration.

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

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