Glossary of Real Estate Terms

Adjustable Rate Mortgage (ARM) - interest rates on this type of mortgage are periodically adjusted up or down depending on a specified financial index.

Agent - acts on behalf of another, representing that person's interest and serving as an intermediary.

Aggregate Escrow Accounting - a required method of accounting for and reconciling the borrower's escrow account. Limits the amount of excess or "cushion" the Lender May retain or require in an escrow account.

Amortization - a method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, principal repayment is very small and interest repayment very high; at the end of the loan, that relationship is reversed.

Annual Percentage Rate (APR) - the actual finance charge for a loan, expressed as a percentage, including any points and loan fees paid by the borrower in addi­tion to the stated interest rate.

Appraisal - an expert judgment of the value or worth of a property. Completed by a licensed appraiser and required by the Lender as a condition of loan approval. Usually ordered by the Lender.

Assessed Value - the value placed on property by a municipality for purposed of levying taxes. It may differ widely from appraised or market value.

Assumption of Mortgage - Buyer assumes liability for an existing mortgage note held by the Seller. This is subject to approval by the Lender, who must be willing to approve the Buyer and release the Seller from liability on the loan.

Balloon Payment - a large principal payment due all at once at the end of some loans.

Broker - a real estate professional that has a higher level of training than an agent. Generally, this is one who is the legal representative or proprietor of the office.

Cap - limit on how much the interest rate change in an adjustable rate mortgage.

Closing - see "Settlement"

Commission - fee (usually a percentage of the property sales price) paid to a real estate agent or brokerage for services performed.

Condominium (Condo) - type of real estate ownership where the owner has title to a specific unit and shared interest in common areas.

Contingency - a condition in a contract that must be satisfied or removed for the contract to be binding.

Contract - binding written legal agreement between two or more parties that delineates the conditions for the exchange of value (for example: money exchanged for title to property).

Conversion Clause - a provision that allows an adjustable rate mortgage (ARM) to be changed to a fixed-rate loan after a specified interval and after all required conditions are met.

Deed - legal document that formally conveys ownership of property from the Seller to Buyer.

Disclaimer Statement - Seller makes no disclosures, representations or warranties about the condition of the property.

Down Payment - percentage of the purchase price that the buyer may pay in cash and may not borrow from the lender.

Earnest Money - Deposit paid by Buyer when the sales contract is ratified by all parties.

Equity - the value of the property actually owned by the homeowner; purchase price plus appreciation, plus improvements, less mortgages and liens.

Escrow - a fund or account held by a third-party custodian until conditions of a contract are met.

Fannie Mae (FNMA, Federal National Mortgage Association) - privately owned corporation created by Congress that buys mortgage notes from local lenders and is responsible for the guidelines a majority of lenders use to qualify borrowers.

Freddie Mae (FHLMC, Federal Home Loan Mortgage Corporation) - privately owned corporation created by Congress that buys mortgage notes from local lenders and is responsible for the guidelines a majority of lenders use to qualify borrowers.

Finance Charge - the total cost, including all fees, points and interest payments a borrower pays to obtain credit.

Fixed Rate Mortgage - interest rates on this type of mortgage remain the same over the life of the loan term.

Fixture - a recognizable object (such as a toilet bowl, kitchen cabinet, or lighting unit) that is permanently attached to property and thus belongs to the property when it is sold.

Hazard Insurance - compensates for property damage from specified hazards such as fire and wind. Insurance must be obtained prior to settlement by the Buyer and provided to the Lender.

HELOC (Home Equity Line of Credit) - from which Buyer, as needed, may obtain funds up to a stated maximum during a specified draw period. Typically, during the draw period only interest is due, but during the repay­ment period, both interest and principal are paid. Mostly used for second trusts.

Home Inspection Report - prepared by a qualified inspector, it evaluates a property's structural and mechanical systems.

Interest - the cost of borrowing money, usually expressed as a percentage over time.

Lead-Based Paint and Lead-Based Paint Hazards - houses and apartments built before 1978 may have paint that contains lead (called lead-based paint). Lead from paint, chips and dust can pose serious health hazards to children and/or women of child bear­ing age, if not taken care of properly.

Lien - a secured claim on property until a debt is satisfied.

Listing Contract - agreement whereby an owner engages a real estate agent for a specified period to sell property, for which sale the agent receives a commission.

Market Price - the actual price at which a property is sold.

Market Value - the price that is established by present economic conditions, locations and general trends.
Mortgage - a security claim by a Lender against property until the debt is paid.

MRIS (Metropolitan Regional Information System) - a system that provides to its members detailed information about properties for sale throughout the Washington Metropolitan area.

Negative Principal Amortization - type of loan product where by monthly payments aren't enough to cover interest costs, the additional amounts of interest due are added to the principal balance. Borrowers have the potential of a higher principal balance over time.

Origination Fee - application fee(s) for processing a proposed mortgage loan, usually a percentage of the loan principal.

PITT (principal, interest, taxes and insurance) - forming the basis for monthly mortgage payments.

Point - a percentage of the loan principal. Charged in addition to interest and fees. Typically paid up front to guarantee a specified interest rate.

Post-Settlement Occupancy Agreement - permits Seller to rent back the home for a specified period of time after closing. Often in exchange for Seller paying Buyer's daily PITT (principal, interest, taxes and insurance) and HOA/Condo fees during the occupancy period.

Prepayment Penalty - a fee paid by a borrower who pays off the loan before it is due according to the terms of the loan.

Prequalification - informal estimate by a lender of how much financing a potential borrower might expect to obtain.

Principal - one of the parties to a contract; or the amount of money borrowed for which interest is charged.

Prorate - divide or assess proportionately

Radon Gas - a naturally occurring emission of gas from the ground. Studies have shown that extended expo­sure to high levels of radon gas can adversely affect human health.

REALTORŽ - a member of the National Association of REALTORS° and/or a local REALTORŽ association.

Settlement - culmination of legal and financial transac­tion required to make the contract terms finalized and transfer title of property to Buyer.

Time is of the Essence - a legal concept that when applied makes a time frame absolute. Violation of a stated time frame under this theory is a breach of the contract term.

Title - document that indicated ownership of a specific property, i.e. a deed for real property.

Title Insurance - protects against loss from legal defects in the title.

Title Search - detailed examination of the land records for a customarily prescribed period of time during the history of a property.

Types of Ownership - there are four types of ownership for real property:

  1. Sole Ownership - only one person/entity owns the property entirely
  1. Tenants in Common - two or more persons have a divided and specific ownership in the property. The percentage of ownership need not be equal; each party has a right to sell their interest, and upon the death of that owner, his interest in the property passes to his heirs.
  1. Joint Tenants - ownership taken by two or more persons at the same time in equal percentages with an undivid­ed right to possession. If one owner dies, his or her interest automatically passes to the remaining owner(s) through a right of survivorship.
  1. Tenants by the Entirety - owners are husband and wife and together they hold title to the property with a right of survivorship. Upon the death of either, the sur­vivor takes sole ownership of the entire property by operation of law.

 

Source: Key Title