Adam Dow Real Estate

Real Estate Dictionary

Abandonment - The relinquishment of all rights and title to a property with no intention of reclaiming ownership.

Abstract of Title - A condensed history of the title to parcel of land consisting of a summary of every recorded instrument, together with a statement of all liens, charges or encumbrances affecting title to the land.

Acceleration Clause - A clause in a mortgage stating that upon default of a payment due, immediate and full payment of the balance of the obligation becomes due and payable.

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.

Adjustment Date - The date the interest rate changes on an adjustable-rate mortgage.

Administrator - A person appointed by the court to administer the estate of a deceased person who died intestate, or left no will.

Administrator's Deed - A deed given by an Administrator.

Agency - The legal relationship resulting from an agreement that the agent is authorized by a principal to perform certain acts on behalf of the principal in dealing with a third party. The agent has a fiduciary duty to the principal.

Agreement of Sale - A written agreement in which the buyer agrees to buy certain realty and the seller agrees to sell upon terms and conditions set forth therein. Title remains with the seller until the terms and conditions are fulfilled; buyer has equitable title.

Amortization - The gradual paying off of a debt on an installment basis. Payment consists accruing interest and 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 timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.

Annual Percentage Rate (APR) - The total yearly cost of a mortgage stated as a percentage of the loan amount; includes such items as the base interest rate, primary mortgage insurance and loan origination fee (points).

Appraisal - A written estimation of the values of real estate; the report stating and supporting the estimated values of realty. Residential appraisals are primarily based on an analysis of comparable sales of similar homes in the area.

Appraised values - An opinion of a property's fair market values, based on an appraiser's knowledge, experience, and analysis of the property and current market. An appraisal is based primarily on the most recent sales of comparable properties

Appraiser - An individual qualified by education, training, and experience to estimate the values of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

Appreciation - The increase in the values of a property due to changes in market conditions, inflation, or other causes.

Assessed values - The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment - A charge against real estate made by a unit of government. It is calculated by using the property's assessed values and a tax rate established by the government.

Assessor - A public official who establishes the values of a property for taxation purposes.

Asset - Items of values owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets". These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

Assignment - When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

Assumable Mortgage - A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

Assumption of Mortgage - Buyer takes title to property by assuming liability for payment of an existing note secured by a mortgage.

Balloon Mortgage - A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid

Balloon Payment - The final lump sum payment that is due at the termination of a balloon mortgage

Bankruptcy - By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Bill Of Sale - A written instrument which passes title of personal property from seller to buyer.

Biweekly Mortgage - A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year.

Blanket Mortgage - One mortgage covering two or more specific parcels of realty.

Bond Market - Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.

Broker (Mortgage) - In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.

Broker (Real Estate) - A licensed person who negotiates the purchase and sale of real estate for another. See definition of REALTOR for distinction.

Building Codes - Rules established by local governments to regulate construction standards.

Building Restrictions - Limitations on the use of property or the size and location of improvements established by legislation or by covenants in deeds.

Bureau of Conveyances - The state office which houses all legal documents relative to title to both land court and regular system property recorded since 1848.

Buydown - Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower's payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

Cap (ARM) - A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease.

Capitalization (CAP) - The act of converting future income into current equivalent values.

Capitalization Rate - The relationship or ratio between the net income from a real estate investment and the values of the investment, usually expressed as a percentage; the rate of the interest which is considered a reasonable return on the investment. - The percentage rate of return on a property during a one year period. The formula is expressed as follows: annual net income/purchase price x 100 = cap rate.

Certificate of Eligibility - A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.

Certificate of Reasonable values (CRV) - Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

Chain Of Title - An analysis of the transfers of title to a piece of property over the years.

Clear Title - A title that is free of liens or legal questions as to ownership of the property.

Closing - The time when a transaction is consummated, or the actual signing over of the documents and delivery of the deed; the time after signing when the documents are recorded at the Bureau of Conveyances.

Closing Costs - Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.

Closing Statement - A statement of settlement made by a by an escrow company that reflects the financial position of the buyer and seller in that particular real estate transaction. Also see Settlement Statement.

Cloud On Title - Any conditions revealed by a title search which may affect or impair the owner's title to property because of their apparent or probable validity. Usually clouds on title cannot be removed except by deed, release, or court action.

Co-Borrower - An additional individual who is both obligated on the loan and is on title to the property.

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 - An agent's compensation for performance of the duties of his agency; in real estate practice, a percentage of the selling price of the property, or percentage of rentals, etc. Typically the total commission is split between the seller's and buyer's brokers.

Commitment Letter - A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.

Common Areas - Areas used by two or more tenants and/or third parties, and not under the control of anyone tenant.

Common Area Maintenance Fees - Also known as net operating expenses. Expenses paid by tenants under triple net leases.

Common Element - In a condominium, land and all parts of a building normally used by all of the owners for their mutual convenience or safety.

Common Expense - In a condominium, the expenses of operation, all sums designated as such by the declaration or bylaws.

Common Interest - The percentage of undivided interest in the common elements of a building appertaining to each apartment in a condominium.

Common Law - An unwritten body of law based on general custom in England and used to an extent in some states.

Community Property - In some states property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances.

Comparable Sales - Recent sales of similar properties in nearby areas and used to help determine the market values of a property. Also referred to as "comps."

Comprehensive Zoning Code (CZC) - Code which sets forth the zoning regulations.

Condominium (Ownership) - The individual outright ownership of a single unit in a multi-unit property together with an interest in the common element of the property.

Construction Allowance(Tenant Improvement Allowance) - A landlord's contribution to the cost of construction and or alteration necessary to prepare a space for a tenant's occupancy.

Construction Loan - A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Contingency - A condition that must be met before a contract is legally binding.

Contract - A legal agreement between competent parties for a consideration to perform or refrain from performing certain acts. An oral or written agreement to do or not to do a certain thing.

Conventional Mortgage - Any mortgage that is not insured or guaranteed by the federal government.

Convertible ARM - An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Conveyance - The transfer of the title of land from one to another; an instrument which carries from one person to another an interest in land.

Conveyance Tax - A tax paid by the seller upon transfer of deed, based upon (currently) .1% of the sales price.

Cooperative (Co-op) Ownership - Ownership which usually takes the form of shares of stock in a corporation owning the entire building and a proprietary lease giving the stockholder/tenant the right to occupy a unit for which he pays a proportionate share of the maintenance and operating expenses.

Cost Of Funds 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, borrowings, and advances of the financial institutions such as banks and savings & loans.

Covenant - A clause in a mortgage that obligates or restricts the borrower and that, if violated, can results in foreclosure.

Credit History - A record of an individual's repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk. Credit histories are also used by landlords and property managers when considering prospective rental tenants.

Credit Report - A report of an individual's credit history prepared by a credit bureau and used by a lenders as well as property managers in determining an applicant's creditworthiness.

Deed - A legal document, duly executed and delivered by the grantor that conveys to the grantee some right, title or interest in or to real estate.

Deed-In-Lieu - Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

Default - The failure to make a mortgage payment on a timely basis or to comply with other requirements of a mortgage.

Delinquency - A loan in which a payment is overdue but not yet in default.

Deposit - A sum of money given by one to another as evidence of “good faith" 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 values of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary values 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 Points - 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.

Down Payment - The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

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 - A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement - A right of way giving persons other than the owner access to or over a property.

Effective Age - An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective Gross Income - The scheduled gross income of a property minus the vacancy rate.

Eminent Domain - The right of a government to take private property for public use upon payment of just compensation. Eminent domain is the basis for condemnation proceedings.

Encroachment - An improvement that intrudes partly or wholly on another's property.

Encumbrance - Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

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.

Equity - A homeowner's financial interest in a property. Equity is the difference between the fair market values of the property and the amount still owed on its mortgage and other liens.

Escrow - An item of values, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Escrow Account - Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Escrow Disbursements - The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Estate - The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction - The lawful expulsion of an occupant from real property.

Exclusive Right To Sell - A written agreement between owner and agent giving agent the right to sell and to collect a commission if the property is sold by anyone during the term of the agreement.

Executor - person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form.

Fair Credit Reporting Act - A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair Market values - The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA) - The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA).

Fannie Mae's Community Home Buyer's Program - An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

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.

Fee Simple - The greatest possible interest a person can have in real estate.

Fee Simple Estate - An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA Mortgage - A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

Fiduciary - A person in a position of great trust and confidence, as the relationship between principal and broker (agent).

Firm Commitment - A lender's agreement to make a loan to a specific borrower on a specific property.

First Mortgage - The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed-Rate Mortgage - A mortgage in which the interest rate does not change during the entire term of the loan.

Fixture - Personal property that becomes real property when attached in a permanent manner to real estate.

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 his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

401(k)/403(b) - An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

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.

Government National Mortgage Association (Ginnie Mae) - A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA).

Graduated Lease - A lease that provides for specific increases or decrease in rent at definite times during the term of the lease.

Grantee - The person to whom an interest in real property is conveyed.

Grantor - The person conveying an interest in real property.

Gross Lease - A lease of property whereby the lessor is to pay all property charges regularly incurred through ownership.

Hazard Insurance - Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

Home Equity Conversion Mortgage (HECM) - Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the values of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the 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.

Homeowners' 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.

Homeowner's Warranty - A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

HUD Median Income - Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 Settlement Statement - A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet."

Joint Tenancy - A form of ownership by two or more persons in which each of the owners has an equal interest. A distinctive feature of the joint tenancy is the right of survivorship by which the surviving tenants succeed to the interest of the deceased joint tenant.

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.

Judicial Foreclosure - A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.

Jumbo Loan - A loan that exceeds Fannie Mae's and Freddie Mac's loan limits (currently at $227,150). Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Late Charge - The penalty a borrower must pay when a payment is made a stated number of days. On a first trust deed or mortgage, this is usually fifteen days.

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.

Leasehold Estate - A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

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.

Legal Description - A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

Lender - A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as "lenders."

Lessee- The tenant in a lease.

Lessor - The landlord/owner in a lease.

Liabilities - A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Liability Insurance - Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner's insurance policy.

Lien - A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.

Life Cap - For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.

Line Of Credit - An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid Asset - A cash asset or an asset that is easily converted into cash.

Loan - A sum of borrowed money (principal) that is generally repaid with interest.

Loan Origination - How a lender refers to the process of obtaining new loans.

Loan Servicing - After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

Loan-To-values (LTV) - The percentage relationship between the amount of the loan and the appraised values or sales price (whichever is lower).

Lock-In - An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Lock-In Period - The time period during which the lender has guaranteed an interest rate to a borrower.

Margin - The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.

Maturity - The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Merged Credit Report - A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.

Modification - Occasionally, a lender will agree to modify the terms of your mortgage without requiring you t refinance. If any changes are made, it is called a modification.

Mortgage - A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.

Mortgage Banker - A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.

Mortgage Broker - A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.

Mortgagee - The lender in a mortgage agreement.

Mortgage Insurance (MI) - Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-values higher than eighty percent. Mortgages above 80% LTV that call themselves "No MI" are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-values.

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 (MI) company.

Mortgagor - The borrower in a mortgage agreement.

Multi-Dwelling Units - Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Net Operating Income (NOI) - The Effective gross income from a property minus operating expenses.

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

Note Rate - The interest rate stated on a mortgage note.

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.

Partial Payment - A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

Payment Change Date - The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Periodic Payment Cap - For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap - For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

Personal Property - Any property that is not real property.

PITI - This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

PITI Reserves - A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned Unit Development (PUD) - A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.

Point - A point is 1 percent of the amount of the mortgage.

Power Of Attorney - A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-Approval - 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 pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.

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.

Prepayment Penalty - A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-Qualification - This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

Prime Rate - The interest rate that banks charge to their preferred 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. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

Principal - The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance - The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.

Principal, Interest, Taxes, And Insurance (PITI) - The four components of a monthly mortgage payment on impounded loans. 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 (MI) - Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-values (LTV) percentage in excess of 80 percent.

Promissory Note - A written promise to repay a specified amount over a specified period of time.

Public Auction - A meeting in an announced public location to sell property to repay a mortgage that is in default.

Planned Unit Development (PUD) - A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

Purchase Agreement - A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase Money Mortgage - A mortgage on property given by a buyer, either to the seller or to a third party in order to secure a portion of the purchase price.

Purchase Money Transaction - The acquisition of property through the payment of money or its equivalent.

Qualifying Ratios - Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The "top" or "front" ratio is a calculation of the borrower's monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner's association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as will as all other monthly debt.

Quitclaim Deed - A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

Rate Lock - A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

Real Estate Agent - A person licensed to negotiate and transact the sale of real estate

Real Estate Settlement Procedures Act (RESPA) - A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real Property - Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

REALTOR® - A real estate broker who holds active membership with a local board of the National Association of Realtors. Only brokers who are members of local real estate boards are entitled to use the trademark name "REALTOR".

REALTOR-ASSOCIATE - A salesperson who is associated with a REALTOR/Broker and belongs to the local Board of Realtors.

Recorder - The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

Recording - The noting at the Bureau of Conveyances of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Remaining Balance - The amount of principal that has not yet been repaid.

Remaining Term - The original amortization term minus the number of payments that has been applied.

Replacement Reserve Fund - A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.

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 he or she offers it for sale or lease to others.

Right Of Ingress Or Egress - The right to enter or leave designated premises.

Right Of Survivorship - In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Sale-Leaseback - A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

Second Mortgage - A mortgage that has a lien position subordinate to the first mortgage.

Security - The property that will be pledged as collateral for a loan.

Seller Carry-Back - An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

Servicer - An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

Servicing - The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Setback - An ordinance prohibiting the erection of a building or structure between the curb or other established line and the setback line; the distance a house must be set back from the street or the adjoining property in accordance with local zoning rules

Settlement Statement - See HUD1 Settlement Statement

Severalty - Sole or independent ownership

Subdivision - A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Subordinate Financing - Any mortgage or other lien that has a priority that is lower than that of the first mortgage

Survey - A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Sweat Equity - Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

Tenancy At Sufferance - A tenancy arising when the tenant wrongfully holds over after the expiration of his term. The landlord has the choice of evicting the tenant or accepting him for a similar term and under the conditions of the previous holding.

Tenancy by the Entirety - A special joint tenancy between spouses, with both spouses having equal undivided interest in the whole property. Upon the death of one spouse, the surviving spouse succeeds to the entire property without the need of probate. An important aspect of this tenancy is that a creditor of one spouse cannot force a partition sale of a property owned in tenancy by the entirety, as could a creditor of one spouse if title were held as joint tenants.

Tenancy in Common - A form of ownership of property between two or more persons in which each owner has an undivided interest in the whole property. Each owner is called a co-tenant and the interest of each may be equal or unequal. Unlike a joint tenancy, there is no right of survivorship in a tenancy in common. Thus, on death the interest of the deceased co-tenant will pass according to will or by intestacy, and probate will be required.

Tenancy in Severalty - This tenancy is for an individual person. The individual holds the entire title. When the individual dies the title will usually pass through probate. There is no right of survivorship.

Time Is Of The Essence - In a contract, a requirement of punctual performance.

Title - A legal document evidencing a person's right to or ownership of a property.

Title Company - A company that specializes in examining and insuring titles to real estate.

Title Insurance - Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Search - A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Transfer Of Ownership - Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.

Transfer Tax - See Conveyance Tax.

Treasury index - An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

Triple Net Lease (Net Lease) - Lease under which the lessee pays the agreed upon rent plus all costs of maintenance, repair, real property taxes, insurance, utilities, etc.

Truth-in-Lending - 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.

Trustee - One who holds property in trust for another to secure the performance of an obligation.

VA Mortgage - A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

Variance - Permission obtained from the zoning authorities permitting the construction of a building or structure that is forbidden by present zoning ordinances; a departure from the general rule.

Vested - Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.

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.

Warranty Deed - A deed in which the grantor fully warrant a good clear title to the property; a deed that contains covenants of title.

Zoning - An act of the city or county authorities by exercise of police power in regulating, controlling or specifying the type of use to which property may be put in specific areas.

Adam Dow Real Estate Team


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