Real Estate Terms for the Home Seller
Adjustable Rate Mortgage (ARM):
mortgage with an interest rate that changes over time in line with
movements in the index.
Adjustment Period: The length of
time between interest
rate changes on an ARM. For example, a loan with an adjustment period of
one year is called a one-year ARM, which means that the interest rate
can change once a year.
Amortization: Repayment of a loan
in equal installments of principal and interest, rather than
Annual Percentage Rate (APR): The
total finance charge (interest, loan fee, points) expressed as a
percentage of the loan amount.
Assumption of Mortgage: A buyer's
agreement to assume the liability under an existing note that is secured
by a mortgage or deed of trust. The lender must approve the buyer in
order to release the original borrower (usually the seller) from
Balloon Payment: A lump sum
principal payment due at the end of some mortgages or other long term
Binder: Sometimes known as an
offer to purchase or earnest money request. A binder is the
acknowledgment of a deposit along with a brief written agreement to
enter into a contract for the sale of real estate.
Cap: The limit on how much an
interest rate or monthly payment can change, either at each adjustment
or over the life of the mortgage.
CC&Rs: Covenants, Conditions &
Restrictions. A document that controls the use, requirements and
restrictions of a property.
Certificate of Reasonable Value (CRV):
A document that establishes the maximum value and loan amount
for a VA guaranteed mortgage.
Closing Statement: The financial
disclosure statement that accounts for all of the funds received and
expected at the closing, including deposits for taxes, hazard insurance,
and mortgage insurance.
Condominium: A form of real
estate ownership where the owner receives title to a particular unit and
has a proportionate interest in certain common areas. The unit itself is
generally a separately owned space whose interior surfaces (walls,
floors and ceilings) serve as its boundaries.
Contingency: A condition that
must be satisfied before a contract is binding. For instance, a sales
agreement may be contingent upon the buyer obtaining financing.
Conversion Clause: A provision in
some ARMs that enables you to change an ARM to a fixed-rate loan,
usually after the first adjustment period. The new fixed rate is
generally set at the prevailing interest rate for fixed-rate mortgages.
This conversion feature may cost extra.
Cooperative: A form of multiple
ownership in which a corporation or business trust entity holds title to
a property and grants occupancy rights to share-holders by means of
proprietary leases or similar arrangements.
CRB: Certified Residential
Broker. To be certified, a broker must be a member of the National
Association of Realtors®, have five years experience as a licensed
broker and have completed five required Residential Division courses.
Due-On-Sale Clause: An
acceleration clause that requires full payment of a mortgage or deed of
trust when the secured property changes ownership.
Earnest Money: The portion of the
down payment delivered to the seller or escrow agent by the purchaser
with a written offer as evidence of good faith.
Escrow: A procedure in which a
third party acts as a stakeholder for both the buyer and the seller,
carrying out both parties' instructions and assuming responsibility for
handling all of the paperwork and distribution of funds.
FHA Loan: A loan insured by the
Insuring Office of the Department of Housing and Urban Development; the
Federal Housing Administration.
Federal National Mortgage Association
(FNMA): Popularly known as Fannie Mae. A privately owned
corporation created by Congress to support the secondary mortgage
market. It purchases and sells residential mortgages insured by FHA or
guaranteed by the VA, as well as conventional home mortgages.
Finance Charge: The total cost a
borrower must pay, directly or indirectly, to obtain credit according to
Graduated Payment Mortgage: A
residential mortgage with monthly payments that start at a low level and
increase at a predetermined rate.
GRI: Graduate, Realtors Institute:
A professional designation granted to a member of the National
Association of Realtors® who has successfully completed courses covering
Law, Finance and Principles of Real Estate.
Home Inspection Report: A
qualified inspector's report on a property's overall condition. The
report usually includes an evaluation of both the structure and
Home Warranty Plan: Protection
against failure of mechanical systems within the property. Usually
includes plumbing, electrical, heating systems and installed appliances.
Index: A measure of interest rate
changes used to determine changes in an ARM's interest rate over the
term of the loan.
Joint Tenancy: An equal undivided
ownership of property by two or more persons. Upon death of any owner,
the survivors take the decedent's interest in the property.
Lien: A legal hold or claim on
property as security for a debt or charge.
Loan Commitment: A written
promise to make a loan for a specified amount on specified terms.
Loan-To-Value Ratio: The
relationship between the amount of the mortgage and the appraised value
of the property, expressed as a percentage of the appraised value.
Margin: The number of percentage
points the lender adds to the index rate to calculate the ARM interest
rate at each adjustment.
Mortgage Life Insurance: A type
of term life insurance often bought by mortgagors. The coverage
decreases as the mortgage balance declines. If the borrower dies while
the policy is in force, the debt is automatically covered by insurance
Negative Amortization: Negative
amortization occurs when monthly payments fail to cover the interest
cost. The interest that isn't covered is added to the unpaid balance,
which means that even after several payments you could owe more than you
did at the beginning of the loan. Negative amortization can occur when
an ARM has a payment cap that results in monthly payments that aren't
high enough to cover the interest.
Origination Fee: A fee or charge
for work involved in evaluating, preparing, and submitting a proposed
mortgage loan. The fee is limited to 1 percent for FHA and VA loans.
PITI: Principal, interest, taxes
Planned Unit Development (PUD): A
zoning designation for property developed at the same or slightly
greater overall density than conventional development, sometimes with
improvements clustered between open, common areas. Uses may be
residential, commercial or industrial.
Point: An amount equal to 1
percent of the principal amount of the investment or note. The lender
assesses loan discount points at closing to increase the yield on the
mortgage to a position competitive with other types of investments.
Prepayment Penalty: A fee charged
to a mortgagor who pays a loan before it is due. Not allowed for FHA or
Private Mortgage Insurance (PMI):
Insurance written by a private company protecting the lender against
loss if the borrower defaults on the mortgage.
Purchase Agreement: A written
document in which the purchaser agrees to buy certain real estate and
the seller agrees to sell under stated terms and conditions. Also called
a sales contract, earnest money contract, or agreement for sale.
REALTOR®: A real estate broker or
associate active in a local real estate board affiliated with the
National Association of Realtors®.
Regulation Z: The set of rules
governing consumer lending issued by the Federal Reserve Board of
Governors in accordance with the Consumer Protection Act.
Tenancy in Common: A type of
joint ownership of property by two or more persons with no right of
Title Insurance Policy: A policy
that protects the purchaser, mortgagee or other party against losses.
A loan that is
partially guaranteed by the Veterans Administration and made by a
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