amortization: The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

 

amortization schedule: A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

 

annual percentage rate (APR): This is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. As a guide, you can say that you deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan.

 

application: The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.

appraisal:  an estimate of the quantity, quality or value of something.  The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.  More Information On Appraisals

broker:  one who acts as an intermediary on behalf of others for a fee or commission.

buyer’s agent:  a residential real estate broker or salesperson who represents the prospective purchaser in a transaction.  The buyer’s agent owes the buyer/principal the common-law or statutory agency duties.

buyer’s broker:  a residential real estate broker who represents prospective buyers exclusively.  As the buyer’s agent, the broker owes the buyer/principal the common-law or statutory agency duties.

capital gain:  profit earned from the sale of an asset.

certificate of title:  a statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

closing statement:  a detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction.

comparable sales (Comps): Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."

condominium: A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.  More Info on Condominiums

consideration:  (1) that received by the grantor in exchange for his or her deed.  (2) something of value that induces a person to enter a contract.

contingency: A condition that must 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.

conveyance:  a term used to refer to any document that transfers title to real property.  The term is also used in describing the act of transferring.

counteroffer:  a new offer made in response to an offer received.  It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.

deed:  a written instrument that, when executed and delivered, conveys title to or an interest in real estate. More Information On Deeds

deed in trust:  an instrument that grants a trustee under a land trust full power to sell, mortgage and subdivide a parcel of real estate.  The beneficiary controls the trustee’s use of these powers under the provisions of the trust agreement.

deed restrictions:  Clauses in a deed limiting the future uses of the property.  Deed restrictions may impose a vast variety of limitations and conditions; for example, they may limit the density of buildings, dictate the types of structures that can be erected or prevent buildings from being used for specific purposes or even from being used at all.

default: Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.  More Information on Default

delinquency: Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

 

deposit: A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an "earnest money deposit."

 

depreciation: A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
 

discount point:  a unit of measurement used for various loan charges; one point equals one percent of the amount of the loan. In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.

earnest money:  money deposited by a buyer under the terms of the contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.

Equal Credit Opportunity Act (ECOA): A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.  More Info on ECOA
 

escrow:  the closing of a transaction through a third party called an escrow agent, or escrowee, who receives certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.

estoppel certificate:  a document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest.

executed contract:  a contract in which all parties have fulfilled their promises and thus performed the contract.

flipping: The practice of buying initial public offerings at the offering price and then reselling them once trading has begun, usually for a substantial profit.  More Information on Flipping

foreclosure:  a legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document.  The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, fee of all encumbrances affecting the property subsequent to the mortgage. More Information On Foreclosures

government loan (mortgage): A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

 

grantee: The person to whom an interest in real property is conveyed.

 

grantor: The person conveying an interest in real property.

home equity line of credit: A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

home inspection: A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

judgment: A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor

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.

lease option: An alternative financing option that allows home buyers to lease a home with an option to buy. Each month's rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.  More Information On Lease Options.

lease purchase:  the purchase of real property, the consummation of which is preceded by a lease, usually long term.  Typically done for tax or financing purposes.

legal description:  a description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.

lien:  a right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.  More Information On Liens

listing broker:  the broker in a multiple-listing situation from whose office a listing agreement is initiated, as opposed to the cooperating broker, from whose office negotiations leading up to a sale are initiated.  The listing broker and the cooperating broker may be the same person.

loan origination fee:  a fee charged to the borrower by the lender for making a mortgage loan.  The fee is usually computed as a percentage of the loan amount.

loan-to-value ratio:  the relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

market value:  the most probable price property would bring in an arm’s-length transaction under normal conditions on the open market.

mortgage:  a conditional transfer or pledge of real estate as security for the payment of a debt.  Also, the document creating a mortgage lien. More Information On Mortgages

mortgage broker:  an agent of a lender who brings the lender and borrower together.  The broker receives a fee for this service.

mortgagee:  a lender in a mortgage loan transaction.

mortgage lien:  a lien or charge on the property of a mortgagor that secures the underlying debt obligations.

mortgagor:  a borrower in a mortgage loan transaction.

multiple-listing service (MLS):  a marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing and able buyers for their properties more quickly that they could on their own.  Most multiple-listing services accept exclusive-right-to-sell or exclusive agency listings from their member brokers.

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.


no-cost loan: Almost all lenders offer loans at "no points." You will find the interest rate on a "no points" loan is approximately a quarter percent higher than on a loan where you pay one point.

note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
 

original principal balance: The total amount of principal owed on a mortgage before any payments are made.

 

origination fee: On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

 

owner financing: A property purchase transaction in which the property seller provides all or part of the financing.

prepayment penalty:  a charge imposed on a borrower who pays off the loan principal early.  This penalty compensates the lender for interest and other charges that would otherwise be lost.

promissory note:  a financing instrument that states the terms of the underlying obligation, is signed by its maker and is negotiable (transferable to a third party).

public auction: A meeting in an announced public location to sell property to repay a mortgage that is in default.  More Information on Public Auctions

Public Offering Statement: includes condominium documents, association by-laws, and the pre-construction purchase and escrow agreement.  More Info on Public Offering Statements

quitclaim deed:   a conveyance by which the grantor transfers whatever interest he or she has in the real estate, without warranties or obligations.

Realtor ®:  a registered trademark term reserved for the sole use of active members of the local Realtor ® boards affiliated with the National Association of Realtors ®.

recording:  the act of entering or recording documents affecting or conveying interests in real estate in the recorder’s office established in each county.  Until it is recorded, a deed or mortgage ordinarily is not effective against subsequent purchasers or mortgagees.

secured loan: A loan that is backed by collateral.

survey:  the process by which boundaries are measured and land areas are determined; the onsite measurement of lot lines, dimensions and position of a house on a lot, including the determination of any existing encroachments or easements.

sweat equity: Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.    

title:  (1) the right to or ownership of land.  (2) The evidence of ownership of land.

title insurance:  a policy insuring the owner or mortgagee against  loss by reason of defects in the title to a parcel of real estate, other than encumbrances, 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 the ownership.

trust deed:  an instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust.

trust deed lien:  a lien on the property of a trustor that secures a deed of trust loan.

trustee:  the holder of bare legal title in a deed of trust loan transaction.

trustee’s deed:  a deed executed by a trustee conveying land held in trust.

trustor:  a borrower in a deed of trust loan transaction.

VA mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs (VA)

Veterans Administration (VA):  An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

  Copyright © 2005.  Lou Vukas/Real Estate Fortunes. All Rights Reserved.