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Real Estate Jargon Real Estate Brokerage is Truly Dependent On the "Lingo" . . . So Have Some Fun.
Acceleration claus A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.
Adjustable-rate mortgage (ARM) A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index. Amortization The gradual repayment of a mortgage loan by installments.
Annual percentage rate (APR) The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance and loan origination fee (points). Use of the APR permits a standard expression of credit costs, which facilitates easy comparison of lenders.
Appraisal A written analysis of the estimated value of a property prepared by a qualified appraiser. As contrasted to a home inspection.
Assumable mortgage A mortgage that can be taken over ("assumed") by the buyer when a home is sold. It is seldom done in today´s market place. Balloon mortgage A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term. Bridge (swing) loan A form of second trust that is collateralized by the borrower´s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as a "swing loan." Broker A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. Buydown mortgage A temporary buydown is a mortgage on which an initial lump-sum payment is made by any party to reduce a borrower´s monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage. Cap A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. Closing costs Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney´s fee, taxes, an amount placed in escrow and charges for obtaining title insurance and a survey. Closing costs percentages will vary according to the area of the country; lenders or Realtors often provide estimates of closing costs to prospective homebuyers. Collateral In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust. Commission Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property Comparables Recent sales of similar properties in nearby areas used to help determine the market value of a property. Also referred to as "comps." Conforming loan Any loan that meets the qualifications to be purchased by Fannie Mae or Freddie Mac. Contingency A condition thatmust be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector. Conventional mortgage A mortgage that is not insured or guaranteed by the federal government. Cost of fund index (COFI) One of the indexes that is used to determine interest rate changes for certain adjustable- rate mortgages. It represents the weighted-average cost of savings, borrowing and advances of financial institutions such as banks and savings and loans. Credit report A report of an individual´s credit history prepared by a credit bureau and used by a lender in determining a loan applicant´s creditworthiness. Deed The legal document conveying title to a property. Deed of Trust A document that gives a lender the right to foreclose on a piece of property if the borrower defaults on the loan. Due-on-sale provision A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage. Earnest money deposit A deposit made by the potential home buyer to show that they are serious about buying the house. Easement A right of way giving persons other than the owner access to, or over, a property. Encroachment An improvement that intrudes illegally on another´s property. Encumbrance Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements or restrictions. Equity A homeowner´s financial interest in a property. Equity is the difference between the fair market value of and other liens. Escrow An item of value, money or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or funds or documents may be deposited with an attorney to be disbursed upon the closing of a sale of real estate. Fannie Mae (Federal National Mortgage Association) Fannie Mae is a New York Stock Exchange company and the largest nonbank financial services company in the world. It operates pursuant to a federal charter and is the nation´s largest source of financing for home mortgages. Over the past 30 years, Fannie Mae has provided nearly $2.5 trillion of mortgage financing for over 30 million families. Federal Housing Administration (FHA) An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing. FHA mortgage A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage. The loan is made by a private financial institution. Fixed rate mortgage A mortgage in which the interest rate is fixed for the duration of the loan. You always know what the payments will be. Usually the interest is higher than with an ARM. Flood insurance Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas. Foreclosure The legal process by which a borrower in default under a mortgage is deprived of their interest in the mortgaged property. Freddie Mac The Federal Home Loan Mortgage Corporation. This company buys mortgage from lending institutions, pools them with other loans and sells shares to investors. Good faith estimate An estimate from an institutional lender that shows the costs a borrower will incur, including loan-processing charges and inspection fees. Gross income The total income of a household before taxes or expenses are subtracted. Hazard insurance Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism or other hazards. It does not cover personal property, and is almost always required, as a minimum, by the lender. Home inspection A thorough inspection that evaluates the structural and mechanical condition of a home. This is not the same as an appraisal of property. Homeowner´s Association A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements. Homeowner´s insurance An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents. HUD 1 statement A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD 1 statement define the seller´s net proceeds and the buyer´s net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD 1 statement is also known as the "closing statement" or "settlement sheet." Insured conventional loan A loan with less than 20 percent downpayment. The difference is covered by Private Mortgage Insurance (PMI). The PMI can be dropped (with the lender´s approval) from your monthly payments when you have established 20 percent equity in your property. You can accomplish this by your payments and the appreciated cash value of your home (as determined by a qualified appraisal). Interest rate The rate of interest in effect for the monthly payment due. Lease A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time. Lien A legal claim against a property that must be paid off when the property is sold. Loan Commitment A promise by a lender or other financial institution to make or insure a loan for a specified amount and on specific terms. Lock-in A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing. Market Value The most probable price a property would bring in an arms-length transaction under normal conditions on the open market. Maturity The date on which the principal balance of a loan, bond or other financial instrument becomes due and payable. Mortgage A legal document that pledges a property to the lender as security for payment of a debt. Mortgage insurance A contract that insures the lender against loss caused by a mortgager´s default on a mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of policy, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance (PMI). Mortgage insurance premium (MIP) The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (PMI) company. See private mortgage insurance below. MIP is usually a one-time charge. Mortgagee The lender in a mortgage agreement. Mortgagor The borrower in a mortgage agreement. Negative amortization Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization. Nonconforming loan A nonconforming loan is any loan that doesn´t meet the qualification or is too large to be purchased by Fannie Mae or Freddie Mac. Note A legal document that requires a borrower to repay a mortgage at a certain interest rate over a specified period of time. Origination fee A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount. PITI See principal, interest, taxes and insurance (PITI). Planned unit development (PUD) A project or subdivision that includes common property that is owned and maintained by a homeowner´s association for the benefit and use of the individual PUD unit owners. Point A unit of measurement used for various loan charges; one point equals 1 percent of the amount of the loan. Preapproval A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income and savings documentation which an underwriter has reviewed and approved. A preapproval is usually done at a certain loan amount and by making assumptions about what the interest rate will be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes and insurance. Prepayment Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner´s decision to pay off the loan in full or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized. Prequalification The process of determining how much money a prospective home buyer will be eligible to borrow before they apply for a loan. Prime rate The interest rate that banks charge to their approved customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit.
Principal, interest, taxes and insurance (PITI) The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance. Private mortgage insurance (PMI) Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent. This is a recurring monthly charge, reflected in the PITI. Qualifying ratios Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio. Realtor A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of REALTORS. Recording The noting in the registrar´s office of the details of a properly executed legal document, such as a deed, a mortgage note, a ratification of a mortgage or an extension of a mortgage, thereby making it part of the public record. Refinance transaction The process of paying off one loan with the proceeds from a new loan using the same property as security. Right of first refusal A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before they offer it for sale or lease to others. Second mortgage A mortgage that has a lien position subordinate to the first mortgage. Settlement sheet See HUD 1 statement. Subordinate loan A second or third mortgage. Title A legal document evidencing a person´s right to or ownership of a property. Title insurance A policy insuring the owner against loss by reason of defects in the title on a parcel of real estate, other than encumbrance, defects and matters specifically excluded by the policy. Title search The examination of public records relating to real estate to determine the current state of ownership. Truth-in-Lending Act A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges. UnderwritingThe process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower´s creditworthiness and the quality of the property itself.
VA mortgage A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage. The actual loan however, is made by a private financial institution.
Zoning Regulations that control the use of land within a jurisdiction.
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