Glossary of Real Estate Terms

 

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Real Estate Terms

Appraisal. An appraisal is an estimate of the fair market value of your house, and helps determine if the sales price is consistent with the actual value. An appraiser inspects the house and the neighborhood and makes an estimate based on the price of comparable houses and other factors. The appraisal provides no guarantee that the property is free of defects. They are typically required by your lender to ensure they are not lending more than a property is worth. The fee for this service is usually paid as a cost of your loan and is part of your closing costs.

Appreciation. The increase in the value of a property.

Clear to Close. When the underwriter is satisfied with the buyer’s information, the lender issues a “clear to close”, sends the documents to the title company, and a closing is scheduled.

Closing. A meeting to sign documents which transfer property from a seller to a buyer. (Also called settlement.) The closing typically takes place at the title company and can vary from 30 minutes to over an hour depending on your role in the transaction (buyer vs seller) and your payment/financing requirements.

Closing Costs. Charges paid at settlement for obtaining a mortgage loan and transferring real estate title.

Closing Disclosure (CD) Statement.  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. The CD defines the seller’s net proceeds and the buyer’s net payment at closing.

Conditions, Covenants, and Restrictions (CC and Rs). The standards that define how a property may be used and the protections the developer has made for the benefit of all owners in a subdivision.

Deed. The legal document conveying title to a property

Down Payment. The difference between the sales price and the mortgage amount on a home. The down payment is usually paid at closing.

Earnest Money. A sum paid to the seller to show that a potential purchaser is serious about buying. At closing, the earnest money is applied to your closing costs. Be sure that you understand the conditions where you do and do not get your earnest money refunded.

Easement. Right-of-way granted to a person or company authorizing access to the owner’s land; for example, a utility company may be granted an easement to install pipes or wires. An owner may voluntarily grant an easement, or in some cases, be compelled to grant one by a local jurisdiction. You will see easements on your survey.

Equity. The difference between the value of a home and what is owed on it.

Escrow. The handling of funds or documents by a third party on behalf of the buyer and/or seller. (See Title Company.)

Escrow Account. Depending on the circumstances of your loan, you may be asked to make monthly payments to an escrow account after you purchase your home. Money in the account may be used to pay taxes, insurance, and any other regular assessments as they fall due. Such accounts serve a similar purpose to withholding income tax from your paycheck; by putting aside money each month, you avoid large annual or semiannual payments.

Homeowner’s/Hazard Insurance. Protection against damage caused by fire, windstorm, or other common hazards. Many lenders require borrowers to carry it in an amount at least equal to the mortgage.

Home Warranty. Also known as a residential service contract, home warranty is a service contract that, for a fee, covers the repair and/or replacement costs of home appliances, major systems such as heating and cooling, and possibly other components of a home that fail due to normal wear and tear. Coverage can vary across home warranty companies and does not cover all home repairs.

Option Period. The option period is a time for buyers to do their due diligence, have the property inspected and negotiate any potential repairs. During this time, buyers reserve the unrestricted right to cancel the contract. Typically option periods are between 7 and 14 days. The fee can range from $100-500 depending on the asking price and current market conditions. In most cases the option fee is credited to the buyer at closing. If for any reason the buyer chooses to terminate the contract within the option period, the option fee is forfeited, however, the earnest money will be refunded.

Property Survey. A survey to determine the boundaries of your property. The cost will depend on the complexity of the survey. In most cases your lender will require that you have a survey. In Texas you can use the seller’s existing survey if it is approved by the title company and the lender.

Recording Fee. A charge for recording the transfer of a property, paid to a city, county, or other appropriate branch of government.

R-Value. The resistance of insulation material (including windows) to heat passing through it. The higher the number, the greater the insulating value.

Sales Contract. A contract between a buyer and seller which should explain, in detail, exactly what the purchase includes, what guarantees there are, when the buyer can move in, what the closing costs are, and what recourse the parties have if the contract is not fulfilled or if the buyer cannot get a mortgage commitment at the agreed-upon terms.

Settlement. (See Closing).

Title. Evidence (usually in the form of a certificate or deed) of a person’s legal right to ownership of a property.

Title Company. In Texas, an escrow agent at a title company usually handle the closing process (settlement). Rather than you and the lender meeting to sign all of the documents and transfer money, the title company works with you and the lender separately to ensure that everything is done properly. The title company fees are part of your “closing costs” and are paid at closing.

Walk Through. A final inspection of a home before settlement to search for problems that need to be corrected before ownership changes hands.

Warranty. A promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specified level of performance over a specified period of time. Written warranties on new homes are either backed by insurance companies or by the builders themselves.

Zoning. Regulations established by local governments regarding the location, height, and use for any given piece of property within a specific area.

– See more at: Texas Open Door – Home Buyer Guide Dictionary


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Lending Specific Terms

 Adjustable Rate Mortgage (ARM). A loan whose interest rate is adjusted according to movements in the financial market.

Amortization. A payment plan by which a borrower reduces a debt gradually through monthly payments of principal and interest.

Annual Percentage Rate (APR). The annual cost off credit over the life of a loan, including interest, service charges, points, loan fees, mortgage insurance, and other items.

Assumption. A transaction allowing the buyer of a home to assume responsibility for an existing loan on the home instead of getting a new loan. Assumptions are very rare these days.

Balloon. A loan which has a series of monthly payments (often for 5 years or less) with the remaining balance due in a large lump sum payment at the end.

Buydown. An amount paid to reduce the monthly payments on a mortgage loan, usually by “buying down” the interest rate for a certain period of time.

Conventional Loan. A mortgage loan not insured by a government agency (such as FHA or VA).

Default. A breach of a mortgage contract (such as not making monthly payments).

Federal Housing Administration (FHA). A federal agency which insures mortgages that have lower down payment requirements than conventional loans.

Fixed Rate Mortgage. A mortgage whose interest rate remains constant over the life of the loan. The payments are not necessarily level. (See Graduated Payment Mortgage and Growing Equity Mortgage).

Graduated Payment Mortgage (GPM). A fixed-rate, fixed-schedule loan which starts with lower payments than a level payment loan; the payments rise annually over the first 5 to 10 years and then remain constant for the remainder of the loan. GPMs involve negative amortization.

Growing Equity Mortgage (Rapid Payoff Mortgage). A fixed-rate, fixed-schedule loan which starts with the same payments as a level payment loan; the payments rise annually, with the entire increase being used to reduce the outstanding balance. No negative amortization occurs, and the increase in payments may enable the borrower to pay off a 30-year loan in 15 to 20 years, or less.

Level Payment Mortgage. A mortgage whose payments are identical for each month over the life of the loan.

Mortgage Broker. A broker who represents numerous lenders and helps consumers find affordable mortgages; the broker charges a fee only if the consumer finds a loan.

Mortgage Commitment. A formal written communication by a lender, agreeing to make a mortgage loan on a specific property, specifying the loan amount, length of time and conditions.

Mortgage Company (Mortgage Banker). A company that borrows money from a bank, lends it to consumers who want to buy homes, then sells the loans to investors.

Mortgagee. The lender who makes a mortgage loan.

Mortgage Loan. A contract in which the borrower’s property is pledged as collateral and which can be repaid in installments over a long period. The mortgagor (buyer) promises to repay principal and interest, to keep the home insured, to pay all taxes, and to keep the property in good condition.

Origination Fee. A charge by a lender for the work involved in preparing and servicing a mortgage application (usually 1 percent of the loan amount).

PITI. Principal, interest, taxes, and insurance (the 4 major components of monthly housing payments).

PMI (Private Mortgage Insurance). Required by most lenders for loans with a down payment less than 20% of the value of the property. This risk-management product protects lenders against loss if a borrower defaults. Borrowers are considered “higher risk” until they have at least 20% equity in the property; in most cases, once that threshold is met PMI payments end.

Point. A charge of 1 percent of the mortgage amount. Points are a one-time charge assessed by the lender at closing to increase the interest yield on a mortgage loan.

Prepayment. Payment of all or part of a debt prior to its maturity.

Principal. The amount borrowed in a loan, excluding interest and other charges.

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Other Helpful Terms

Hydrostatic Testing. The process of temporarily plugging the sanitary drain piping under a house, filling the system with water and monitoring the water level to see if it drops. More information.

Camera Line Testing. The process wherein a technician sends a specially made camera through the piping under a house. This allows the technician to visually identify and diagnose problems. More information.

 

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