ALTA
(American Land Title Association):
An organization composed of title insurance companies which
has adopted certain insurance policy forms to standardize
coverage on a national basis.
Abstract of Title
A compilation of the recorded documents relating to a parcel
of land, from which an attorney may give an opinion as to
the condition of title.
Accrual (of income, expenses, etc.)
An accounting method under which income and expenses are
charged to the periods for which they are applicable, rather
than when payment is received or made; the method calling
for income and expenses to be based on payment being
received or made in cash accounting.
Addendum
Something added; a list or other material added to a
document, letter, contractual agreement, escrow
instructions, etc. (See also amendment).
Adjustment Interval
The period of time between changes in interest rate and/or
monthly payment with an adjustable rate loan. These
intervals will vary depending on the lending institution and
the type of loan for which application is being made.
Adjustable Rate Loan
A loan in which the rate of interest is tied to a specific
financial index, with both the rate of interest and the
monthly payments subject to change at established adjustment
intervals.
Agency
Any relationship in which one party (agent) acts for or
represents another (principal) under the authority of the
latter. Agency involving real property should be in writing,
such as listings, Buyer brokerage agreements, trusts, powers
of attorney, etc.
Amendment
A change to alter a part of an agreement without changing
the principal idea or essence.
Amortization
Payment of a debt in installments of principal and interest,
rather than interest-only payments.
Application Fee
A fee, often non-refundable, charged by the lender to cover
costs of processing an application.
Appraisal
A formal, written estimation of the current value of a home.
Appurtenant
Belonging to, accessory to, or incidental to.
APR (Annual Percentage Rate)
The cost of credit expressed as a yearly rate. It takes into
account interest, points and loan origination fee. Since all
lenders are required to use the same guidelines in
determining APR, this is a good basis for comparing the cost
of various loan programs.
Assessments
(1) The estimating of value of property for tax purposes.
(2) A levy against property in addition to general taxes.
Usually for improvements such as streets, sewers, etc.
(3) Charges against unit owners in a condominium by a condo
or homeowners association.
Assume and Agree to Pay
A form of purchase of real estate whereby the Buyer agrees
to be personally liable for payment of balance due from
Seller on a specific mortgage which is a lien on such real
estate.
Assumption Fee
Fee charged by mortgage lender when new Buyer of property
assumes an existing mortgage.
Balloon
Payment
The final payment on an obligation that is larger than a
regular installment payment. (See balloon note).
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.
Bankrupt
A person who, through a court proceeding, is relieved from
the payment of his/her debts after surrender of all his/her
non-exempt assets to a court-appointed trustee. After
claiming bankruptcy, a person must reestablish credit and
wait a minimum of two to three years before applying for a
loan.
Bill of Sale
An instrument by which one transfers personal property.
Bi-weekly Mortgage
Typically, a fixed rate mortgage on which payments are due
and payable every two weeks. Since a total of 26 bi-weekly
payments (equivalent to 13 monthly payments) are made
annually, loans of this type are paid off more quickly than
loans requiring 12 monthly payments per year.
Blanket Mortgage
A mortgage covering more than one property of the mortgagor
(i.e. a mortgage covering all the lots in a subdivision).
Breach (also called Default)
Failure to comply with the terms of a contract.
Broker (Real Estate)
One who engages in any of several sorts of business
activities relating to the financing, rental or sale of real
property or business opportunity, and is licensed by the New
Jersey Real Estate Commission.
Closing
In real estate sales, the procedure in which documents are
executed and delivered in return for the payment of the
sales price, and the sale (or loan) is completed.
Closing Costs
One-time costs that must be paid before the loan can be
"closed" or funded. These costs may include such
things as property taxes, insurance, broker's fees, escrow
fees, title insurance premium, deed recording fee, title
insurance premium, title transfer tax, etc. Escrow
instructions will stipulate which portion of the fees are to
be paid by Buyer or Seller. An estimate of closing costs
will be given to Buyer by the lender within a few days after
receiving the loan application. (All or a portion of the
closing costs may be financed. Ask lender.)
Commission
Compensation earned by a licensee for negotiating a purchase
or sale of property or otherwise complying with his agency
contract.
Condominium
A structure of two or more units, the interior spaces 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.
Conventional Financing
A mortgage or deed of trust not obtained under a government
program (i.e., FHA, VA, HUD Sec. 8).
Convertible Mortgage Loan
An adjustable mortgage loan on which, for a fee and after an
initial waiting period, the interest rate can be converted
to the prevailing fixed rate. Availability of this type of
loan varies from time to time.
Conveyance
Transfer of title to land. Includes most instruments by
which interest in real estate is created, mortgaged or
assigned.
Deed
of Trust
An instrument used in many states in place of a mortgage.
Property is transferred to a trustee by the borrower (trustor),
in favor of the lender (beneficiary), and reconveyed upon
payment in full.
Default (also called Breach)
An omission or failure to perform a legal duty.
Due on Sale
A type of acceleration clause, calling for a debt under a
mortgage, deed of trust or land contract to be due in its
entirety upon transfer of an interest in the secured
property. Also called "alienation clause."
Earnest
Money
Money given by the Buyer with an offer to purchase. Shows
good faith.
Easements
A right created by grant, reservation, agreement,
prescription or necessary implication, which one has in the
land of another. It is either for the benefit of land
(appurtenant), such as right to cross A to get to B,
"in individual" or " in gross," such as
a public utility easement.
Encumbrance
A claim, lien, charge, or liability attached to and binding
real property. Any right to, or interest in, land which may
exist in one other than the owner, but which will not
prevent the transfer of fee title.
Equity
The interest or value which an owner has in real estate over
and above the liens against it.
Escrow
Agreement to retain and disburse items of value to achieve a
particular purpose.
Escrow Agent
A neutral third party, appointed to act as custodian for
documents and funds.
Escrow Closing
Delivery of a deed by a grantor to a third party for
delivery to the grantee upon the happening of a contingent
event.
Fair
Market Value
Amount of money for which property will sell following
negotiations between the owner of such property who will
sell but is not required to sell and a proposed Buyer for
such property who is not obligated to buy such property.
FHA (Federal Housing Administration)
A federal agency which insures first mortgages, enabling
lenders to loan a very high percentage of the sales price.
Fixed Rate Mortgage
A loan in which the rate of interest is fixed over the life
of the loan. Payments on a fully amortized, fixed rate loan
will not change.
Floodplain
The extent of the land adjoining water which, because of its
topography, would flood if the water overflowed its banks.
Hazardous
Materials
Substances that may be hazardous to health (i.e., asbestos,
radon gas, lead based paint).
Indemnify
To make payment for a loss.
Index
Used by lenders to calculate the interest adjustments on
adjustable rate loans. Some indexes are more volatile than
others; this can affect adjustments in the interest rate
and, subsequently, the monthly payment. Because these
indexes reflect the general movement of interest rates, they
tend to keep the rate on an adjustable rate loan in line
with market conditions.
Initial Rate
An interest rate charged for the first six or twelve months
of an adjustable rate loan. Normally this rate will be lower
than prevailing fixed market rates.
Interest Rate Cap
A safeguard built into an adjustable rate loan to protect
the consumer against dramatic increases in the rate of
interest and, consequently, in the monthly payment. For
example, an adjustable rate loan may have a two percentage
point limit per year on the amount of increase or decrease,
as well as a five percentage point limit (increase or
decrease) over the life of the loan.
Interim Financing
Temporary financing usually for construction or bridge
loans to facilitate the purchase of a new home before the
sale of the previous home has been closed.
Junior
Mortgage
A mortgage, such as a second mortgage, which is subordinate
as security to another mortgage.
Margin
(spread)
An amount expressed as a percentage which is added to an
index to determine the interest rate on an adjustable rate
loan (e.g., index rate + 2.5% margin). Different lenders and
loan programs may use different margins and indexes. With an
adjustable rate loan, this margin (spread) generally does
not change once it is established in loan documents.
Mill Rate
A percentage applied to the assessed valuation to determine
taxes.
Mortgage
(1) A conveyance of security interest in property to secure
payment of a debt.
(2) An instrument used to encumber land as security for a
debt.
Mortgage Insurance
Insurance to protect the mortgage lender.
Mortgage Note
A promissory note secured by a mortgage and executed by
mortgagor at the same time as the mortgage for the amount
stated in the mortgage, with the legal description of land
described in the mortgage also stated in such note.
Mortgagee
A lender.
Mortgagor
Property owner and borrower.
Negative
Amortization
A condition created when a loan payment is less than
interest alone. Even though payments are made on time, the
amount owing increases.
Open-end
Clause
Clause in mortgage or mortgage note allowing mortgagor
to borrow additional money from the mortgagee during the
term of the mortgage, using such mortgage as security for
such additional loan.
Open-end Mortgage
A mortgage containing an open-end clause.
Payment
Cap
The limited amount by which the payment on an adjustable
rate loan can increase or decrease at each payment
adjustment interval (typically one year). A payment cap
ensures that payment changes occur at a gradual pace. If the
adjusted payment isn't sufficient to cover the amount of
interest due on the loan due to the payment cap, the unpaid
(deferred) interest is added to the loan balance. This is
known as "negative amortization." Since most
adjustable rate loans have a maximum amount of allowable
negative amortization, once this maximum has been reached,
the payment will have to be adjusted beyond the payment cap
to ensure that the loan will be paid off in the allotted
number of years. Provisions for these special adjustments
will be in the loan documents.
Percolation Test (Perk)
The test to determine the capability of the soil to absorb
liquid. Both for construction and septic systems.
PITI
Refers to principal , interest , taxes , insurance . The
total of the monthly home loan payment including taxes and
insurance.
Points and Fees
A point is a charge equal to one percent of the principal
amount of the loan (e.g., 2 points charged on a $100,000
loan would equal $2,000). Points are generally payable at
closing and may be paid by the Buyer or Seller, or split
between them. In addition, a flat dollar amount fee may also
be charged. Under some lending programs, a Buyer may be
allowed to include these points and fees as part of the
total amount financed.
Prepayment Clause
Clause in mortgage, mortgage note or land contract providing
that debtor may pay more than agreed installment payment at
any time.
Prepayment Penalty
A penalty under a note, mortgage, or deed of trust, imposed
when the loan is paid before it is due.
Private Mortgage Insurance (PMI)
(also called Mortgage Insurance Premium (MIP)) Insurance
against a loss by a lender in the event of default by a
borrower (mortgagor). The insurance is similar to insurance
by a governmental agency such as FHA, except that it is
issued by a private insurance company. The premium is paid
by the borrower and is included in the mortgage payment.
Processing (turnaround) Time
The amount of time required from the day loan application
documents are submitted in full to the day the loan closes
and loan funds are disbursed. This is the total processing
time for a home loan.
Pro-rate
To allocate between Seller and Buyer their proportionate
share of an obligation paid or due.
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.
Quit
Claim Deed
A deed operating to pass any title, interest, or claim which
the grantor may have in the property, but not containing any
warranty of valid interest or title in the grantor.
Rate
Guarantee
A guarantee, at the lender's option, that the rate in effect
on the date the application is submitted, or at the time of
final approval, will be the final rate on the loan when
funded. This guarantee usually expires after a specified
period of time.
REALTOR®
A designation given to a real estate licensee who is a
member of a board associated with the National Association
of REALTORS®.
Refinance:
Negotiation of a new loan in order to pay off an existing
loan. Homes are usually refinanced in order to (a) take
advantage of lower interest rates; (b) switch from one loan
type to another (e.g. from adjustable to fixed), or (c) to
generate cash from built-up equity. Since refinancing
generally involves new loan costs, the costs must be weighed
against the benefits to be gained.
Satisfaction
Discharge of an obligation by payment of the amount due, as
on a mortgage, trust deed, or contract; or payment of a debt
awarded, such as satisfaction of a judgment. Also the
recorded instrument stating said payment has been made.
SBA
Small Business Administration.
Servicing
Mortgage bankers typically retain the right to collect
monthly payments and take care of any customer problems.
They send a payment to the investor each month. For this
service, the mortgage banker receives a small fee (1/4% to
1/2% of the mortgage amount).
Survey
The measurement of the boundaries of a parcel of land, its
area, and sometimes its topography. See Section 6.25 at page
6-15.
Term
The number of years before a loan is scheduled to be paid
off. 15-year and 30-year terms are most common.
"Time is of the essence"
Clause used in contracts to bind one party to performance at
or by a specified time in order to bind the other party to
performance.
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.
Transfer Tax or Transfer Fee
Tax on the transfer of real property. Generally based on
value of property being transferred (i.e., purchase price).
Check statutes for each state. Also called Documentary
Transfer tax in some states.
Trust Deed
See deed of trust.
Trust Funds
Money or other things of value not belonging to the broker
but received by him/her or his/her salespeople on behalf of
a principal and being held for the benefit of others.
Underlying
Financing
A mortgage, deed of trust, land contract etc. Prior to
(underlying) a land contract, mortgage, etc. on the same
property.
Usury
Charging more than the legal rate of interest for the use of
money.
Value
Price Range
Traditionally, when a property is listed for sale, it is
placed on the market at a fixed price. Under value range
pricing, the property is marketed within a range of values,
rather than one specific price. It is important to
understand that value range pricing is simply a marketing
tool which brokers and sellers can elect to utilize (or
not).
Vesting
Name(s) in which title property is held.
Veteran's Administration (VA) Loans
Housing loans to veterans by banks, savings and loans, or
other lenders which are insured by the Veteran's
Administration (State and/or Federal) enabling veterans to
buy a residence with little or no down payment.
