Real
Estate Terminology and Definitions
ADJUSTABLE RATE LOAN (ARM)
A
mortgage loan in which the interest rate may increase
or decrease over the course of the loan depending
on specific economic indicators. Differs from
a fixed rate loan where the interest rate remains
the same throughout the loan term.
AMORTIZATION
A
process of gradually paying off a debt by making
equal periodic payments of principal and
interest on a loan at equal intervals of time. Eg.
(250.00 per month for 30 years.)
APPRAISAL
An
estimate of a property's valuation by an appraiser.
APR (
Annual Percentage Rate)
Rate
of interest charged on a loan that takes into account
all up-front fees and points.
ASSESSED
VALUE
A
value placed on a property by a public officer (assessor)
or a board as a basis for property taxes.
ASSUMABLE MORTGAGE
A
mortgage that is transferred to the buyer who then
becomes personally liable for the terms and conditions
including payments.
CLOSING
The
actual transfer of title for money or other consideration. This
is the day that parties actually consummate a deal.
CONTINGENCY
A
provision in a contract that requires that a certain
act be done or a certain event occur before the contract
becomes binging. Eg. (When it is necessary
for a person to sell their existing home before they
can close on a new home.)
CLOUD
ON TITLE
An
outstanding claim or encumbrance that would impair
the title. Eg. (mechanics lien, judgments etc)
CONVENTIONAL LOAN
A
loan not insured or guaranteed by a government.
DEED
A
written instrument that, when executed and delivered,
conveys title to or an interest in real estate.
DISCOUNT
POINTS
An
added loan fee charged by a lender to make the yield
on a lower than market value loan competitive with
higher interest rate loans. One point is equal
to one percent of the loan.
DOWN
PAYMENT
The
amount of cash that a purchaser puts down to buy
property. Most lenders require a minimum of
5% down payment for an owner occupied purchase where
the purchaser(s) intend to live in the property and
at least 20% down for an investor purchased property
where the investor does not intent to use the property
as their primary residence.
EQUITY
The
value of a property over and above any mortgage indebtedness. Eg.
( Your house is worth 80,000 market value and you
have a current mortgage balance of 60,000 therefore,
your equity would equal 20,000.)
ESCROW
ACCOUNT
An
account usually established by the lender to make
payments for hazard insurance and property taxes. You're
monthly payment will include enough money to pay
principal and interest to the bank for the loan as
well as enough money to pay 1/12 of the annual taxes
and insurance which gets deposited into the escrow
account. This process protects the bank by
insuring that the property remains insured and that
the property is not taken through a process known
as in-rem for unpaid taxes.
FHA
LOAN
A
loan insured by the Federal Housing Administration
and made by an approved lender.
HUD-1 SETTLEMENT STATEMENT
A
closing statement that outlines all costs associated
with a real estate transaction.
LIEN
A
right given by law to certain creditors to have their
debt paid out of the property of a defaulting debtor. Court
judgments become liens against a persons real property. Liens
and judgments are recorded at the county clerk's
office and are considered public information.
LOAN
ORIGINATION FEE
Same
as discount points. A point is equal to 1%
of the loan.
LOAN
PROCESSING FEE
A
flat fee charged by lenders for administration of
the loan process. Some banks waive this fee.
LTV%
(LOAN TO VALUE)
Commonly
referred to as loan to value ratio, this figure tells
the lender what percentage of the purchase price
the loan is going to be. Eg. (On a 100,000.00
house a 97%LTV would equal 97,000.00)
MARKET
VALUE
The
actual value of property at a specific time. Eg.
(What your house would sell for today if you were
to decide to sell.)
MORTGAGE
A
pledge of real estate as security for the payment
of a debt. Simply put, a mortgage is a recorded
document that tells the lender that the borrower
pledged their real estate as collateral for a loan.
PITI
An
abbreviation for principal, interest, taxes and insurance
and generally referring to an all encompassing monthly
payment on a mortgage to a lender. Lenders
use this figure to pre-qualify a buyer. Lenders
will traditionally allow buyers to use up to 28%
of their monthly income to pay PITI. Anything
higher than this is considered risky to the lender. Coupled
with other monthly debt like a car payment or credit
card payments the lender will allow up to 40% of
your monthly income to pay PITI+OTHER DEBT.
PMI
Abbreviation
for private mortgage insurance. Lenders
require PMI when the LTV (loan to value) exceeds
80%. PMI insurance as a rule of thumb costs
approximately 1% of the loan amount per year. The
cost is generally added to the monthly payment.
PRE-QUALIFICATION
A
process where a lender or a REALTOR® determines
how large a monthly payment a purchaser can afford. Lenders
generally allow a buyer to apply 28% of their monthly
income towards PITI.
PRINCIPAL
The
amount of money that a borrower owes on a loan at
a given time.
TITLE
Evidence
of ownership.
TITLE
INSURANCE
Insurance
that guarantees a return of your investment should
a title problem arise after you take possession. There
are two types of title insurance. A fee title
policy insures the owners title. 2) A mortgagee
title policy insures the lender for the mortgaged
amount. Most lenders require the purchaser
to pay for a mortgagee policy to indemnify the lender. Policies
typically run anywhere from approximately 350.00
to 750.00 depending on the mortgage amount.
TRUTH IN LENDING DISCLOSURE
(RESPA)
A
federal law commonly known as the real estate settlement
and procedures act that requires certain disclosures
to consumers about mortgage loan settlements. The
law also prohibits the payment or receipt of kickbacks. |
