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Buying a home can be one of the most valuable and significant investments an individual can make. Laws and contracts regulating one’s rights and obligations as a property owner form the foundation of our legal system.

Because of this long history, many terms used in real estate may have implications that are not at first apparent. This dictionary of terms provides you with functional, working definitions of all the terms commonly encountered.

A

ADJUSTABLE MORTGAGE LOANS (AML’S)
AMORTIZATION SCHEDULE
APPRAISAL
APPRAISED VALUE
APPRAISER
APPROVED ATTORNEY

B

BALLOON NOTE
BROKER, REAL ESTATE
BUILDING CONTRACT
BUYERS MARKET

   

C

CLOSING
CLOSING COSTS
COMMISSION
CONDITIONAL COMMITMENT
CONDOMINIUM
CONSTRUCTION LOAN
CREATIVE FINANCING
CREDIT

E

EQUITY
EQUITY LOAN

F

FARMER HOME ADMINISTRATION (FmHA)
F.H.A. (FEDERAL HOUSING ADMINISTRATION)
FHLMC (FREDDIE MAC)
FIRST MORTGAGE
FIXED RATE MORTGAGE
FNMA (FANNIE MAE)

   

G

GROSS INCOME

H

HOME OWNERS’ ASSOCIATION

   

I

IMPOUND ACCOUNT

L

LISTING AGENT
LOAN ORIGINATION FEE
LOAN PACKAGE

   

M

MORTGAGE
MORTGAGE INSURANCE

O

ORIGINATION FEE

   

P

PAYMENT CAP
PER DIEM
PERMANENT MORTGAGE
POWER OF ATTORNEY
PRELIMINARY TITLE REPORT
PREPAYMENT PENALTY
PURCHASE AGREEMENT
PURCHASE MONEY MORTGAGE

R

REALTOR
REFINANCE
RESCIND
RESPA (REAL ESTATE SETTLEMENT PROCEDURES ACT)

   

S

SECONDARY MORTGAGE MARKET
SECOND MORTGAGE
SETTLEMENT STATEMENT
SINGLE FAMILY HOUSE
SUBORDINATE

T

TITLE
TITLE COMPANY
TITLE INSURANCE
TITLE INSURANCE COMPANY
TITLE ORDER

   

V

VARIABLE INTEREST RATE
VETERAN’S ADMINISTRATION (V.A.) LOANS

 


ADJUSTABLE MORTGAGE LOANS(AML’S)   Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan. Also called: Adjustable Rate Loans, Adjustable Rate Mortgages (ARM’s), Flexible Rate Loans, Variable Rate Loans.
AMORTIZATION SCHEDULE A schedule showing each payment of a loan to be amortized and breaking down the payment into the amount applied to principal and the amount applied to interest.
APPRAISAL An opinion of value based upon a factual analysis. Legally, an estimation of value by two disinterested persons of suitable qualifications.
APPRAISED VALUE An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.
APPRAISER One who is trained and educated in the methods of determining the value of property through analysis of various factors which determine said value.
APPROVED ATTORNEY

In states where attorneys examine the chain of title before title insurance is issued, the title company will approve certain attorneys as those whose opinion it will accept for the issuance of a title policy.


BALLOON NOTE A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "balloon" is due at maturity.
BROKER, REAL ESTATE One who is licensed by the state to carry on the business of dealing in real estate. A broker may receive a commission for his or her part in bringing together a buyer and seller, landlord and tenant, or parties to an exchange.
BUILDING CONTRACT A contract setting forth the terms under which construction is to be undertaken. Price may be set, or based on the builder’s cost plus a profit
BUYERS MARKET A market condition favoring the buyer. In real estate, when more homes are for sale than there are interested buyers.
CLOSING (1) In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed. (2) A selling term meaning the point at which the client or customer is asked to agree to the sale or purchase and sign the contract. (3) The final call in a metes and bounds legal description which "closes" the boundaries of the property.
CLOSING COSTS

Expenses incidental to a sale of real estate, such as loan fees, title fees, appraisal fees, etc.


COMMISSION An amount, usually as a percentage paid to an agent (real estate broker) as compensation for his services. The amount to a real estate broker is generally a percentage of the sale price or total rental.
CONDITIONAL COMMITMENT A loan commitment given before a borrower (buyer) is obtained, and subject to approval of the buyer by the lender.
CONDOMINIUM A structure of two or more units, the interior space of which are individually owned; the balance of the property (both land and building) is owned in common by the owners of the individual units. The size of each unit is measured from the interior surfaces (exclusive of paint or other finishes) of the exterior walls, floors, and ceiling. The balance of the property is called the common area.
CONSTRUCTION LOAN Short term financing of real estate construction . Generally followed by long term financing called a "take out" loan, issued upon completion of improvements.
CREATIVE FINANCING A general term which encompasses any method of financing property going beyond traditional real estate lending.
CREDIT (1) The financial worthiness of a borrower. The history of whether this borrower has met financial obligations on time in the past (2) An accounting term designating money received or receivable, as opposed to debit which is money paid or payable.
EQUITY (1) A legal doctrine based on fairness, rather than strict interpretation of the letter of the law. (2) The market value of real property, less the amount of existing liens.
EQUITY LOAN A loan based upon the equity in a property. The credit of the borrower is not a major factor.
FARMER HOME ADMINISTRATION (FmHA)  

The federal agency which makes, participates, and insures loans for rural housing and farms.


F.H.A. (FEDERAL HOUSING ADMINISTRATION)  

A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.


FHLMC (FREDDIE MAC) Federal Home Loan Mortgage Corporation. A federal agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System, and the Federal Home Loan Bank System.
FIRST MORTGAGE A mortgage having priority over all other voluntary liens against certain property.
FIXED RATE MORTGAGE A mortgage having a rate of interest which remains the same for the life of the mortgage.
FNMA (FANNIE MAE) A private corporation dealing in the purchase of first mortgages, at discounts.
GROSS INCOME The scheduled (total) income, either actual or estimated, derived from a business or property.
HOME OWNERS’ ASSOCIATION (1) An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. (2) An association formed by the builder of condominiums or planned developments, and required by statute in some states. The builder’s participation as well as the duties of the association are controlled by statute.
IMPOUND ACCOUNT Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.
LISTING AGENT A real estate agent obtaining a listing (see which), as opposed to the selling agent
LOAN ORIGINATION FEE  

A one time set up fee charged by the lender.


LOAN PACKAGE The file of all items necessary for the lender to decide to give or not give a loan. These items would include the information on the prospective borrower (loan application, credit report, financial statement, employment letters, etc.), and information on the property (appraisal, survey, etc.). There may be a charge for “packaging” the loan.
MORTGAGE (1) To hypothecate as security, real property for the payment of a debt. The borrower (mortgagor) retains possession and use of the property. (2) The instrument by which real estate is hypothecated security for the repayment of a loan.
MORTGAGE INSURANCE Insurance written by an independent mortgage insurance company (referred to as an 'MIC') protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price. The Federal Government writes this form of instance through the FHA and the VA.
ORIGINATION FEE A fee made by a lender for making a real estate loan. Usually a percentage of the amount loaned, such as one percent.
PAYMENT CAP A maximum amount for a payment under an Adjustable Mortgage Loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.
PER DIEM Daily.
PERMANENT MORTGAGE A mortgage on completed construction for a long period of time, usually over ten years.
POWER OF ATTORNEY An authority by which one person (principal) enables another (attorney in fact) to act for him. (1) General power - Authorizes sale, mortgaging, etc. of all property of the principal Invalid in some jurisdictions. (2) Special power- Specifies property, buyers, price and terms. How specific it must be varies in each state.
PRELIMINARY TITLE REPORT A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued.
PREPAYMENT PENALTY A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.
PURCHASE AGREEMENT An agreement between a buyer and seller of real property, setting forth the price and terms of the sale.
PURCHASE MONEY MORTGAGE (1) A mortgage given from buyer to seller to secure all or a portion of the purchase price. (2) Any mortgage from which the funds are used to purchase the property.
REALTOR A designation given to a real estate broker who is a member of a board associated with the National Association of Real Estate Boards.
REFINANCE (1) The renewing of an existing loan with the same borrower and lender. (2) A loan on the same property by either the same lender or borrower. (3) The selling of loans by the original lender.
RESCIND To void or cancel in such a way as to treat the contract or other object of the recision as if it never existed.
RESPA (REAL ESTATE SETTLEMENT PROCEDURES ACT)  

A federal statute effective June 20, 1975, requiring disclosure of certain costs in the sale of residential (one to four family) improved property which is to be financed by a federally insured lender.


SECONDARY MORTGAGE MARKET The buying And Selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value (par) or above, but are usually sold at a discount The secondary mortgage market should not be confused with second mortgage.
SECOND MORTGAGE A mortgage which ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc. lien.
SETTLEMENT STATEMENT

A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale. A separate statement is prepared for the seller and buyer.


SINGLE FAMILY HOUSE A general term originally used to distinguish a house designed for use by one family from an apartment house. More recently, used to distinguish a house with no common area from a planned development or condominium.
SUBORDINATE To make subject or junior to.
TITLE The evidence one has of right to possession of land.
TITLE COMPANY A company acting as agent for a Title Insurance Company. (See: Title Insurance Company).
TITLE INSURANCE Insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (chain of title) or to encumbrances.
TITLE INSURANCE COMPANY A company which issues insurance regarding title to real property.
TITLE ORDER An order for a search of the title to some parcel of property, eventually leading to the issuance of a policy of title insurance.
VARIABLE INTEREST RATE An interest rate which fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to the frequency and amount of fluctuation. Also called 'flexible interest rate'.
VETERAN’S ADMINISTRATION (V.A.) LOANS Housing loans to veterans by banks, savings and loans, or other lenders which are Insured by the Veteran’s Administration, enabling veterans to buy a residence with little or no down payment.

 

These terms were prepared by John Talamo, J.D., who works in real estate and teaches at Fullerton College in Fullerton, California. A graduate of Notre Dame, he received his law degree from Detroit College of Law.

 



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