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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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