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.
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.
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
for 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.)
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.
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.
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.
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.
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.
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.
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.
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.
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.
Refinancing
The process of the same person
paying off one loan with the proceeds from another loan.
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.
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.
Wraparound mortgage
Seller keeps original mortgage.
Buyer makes payments to seller, who forwards a portion to the lender holding
the original mortgage.
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