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The Linda Lom Client Guide

Your Guide to All Things Buying, Selling, Home-Ownership and Washtenaw County

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Linda Lom Client Guide - The Language of Real Estate

Linda Lombardini

"Linda is the consummate professional when it comes to dealing with real estate in the Ann Arbor area...

"Linda is the consummate professional when it comes to dealing with real estate in the Ann Arbor area...

Jan 6 12 minutes read

The Language of Real Estate

Adjustable-Rate Mortgage (ARM): A mortgage that permits the lender to adjust the mortgage's interest rate periodically on the basis of changes during the year, as well as the remaining mortgage loan balance at the end of the year.

Annual Percentage Rate (APR): The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

Application: A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. Lenders use the information on the loan application to evaluate whether or not they can give the loan, and if so, the amount of money they can lend.

Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser. Typically required by a bank before a loan is issued. Contrast with home inspection.

Appraised Value: An opinion of a property's fair market value, based on an appraiser's knowledge, experience and analysis.

Assessed Value: The transfer of the seller’s existing mortgage to the buyer. See assumable mortgage.

Bill of Sale: A written document that transfers title to personal property.

Bridge Loan: A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Held by the current owner.

Closing: A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement." At this meeting, ownership of the property is transferred from the seller to the buyer.

Closing Cost Item: A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement.

Closing Costs: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs will vary according to the area of the country. Lenders often provide estimates of closing costs to prospective homebuyers.

Condominium: A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. 

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. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contract: An oral or written agreement to do or not to do a certain thing.

Cooperative (co-op): A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Deed: The legal document conveying title to a property.

Earnest Money Deposit: 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.

Encroachment: An improvement that intrudes illegally on another’s property.

Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

FHA Mortgage: A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

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

Flood Insurance: Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Home Inspection: A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

Homeowner's Insurance: An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Home Warranty: A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is sometimes provided by the builder or seller or can be purchased by the purchaser on the day of closing.

HUD-1 Statement: A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."

Interest Rate: The rate of interest in effect for the monthly payment due.

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

Loan-To-Value (LTV) Percentage: The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80.

Lock-in: A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also specifies the number of points, if any, to be paid at closing.

Master Association: A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.

Mortgage Insurance: A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance.

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.

Origination Fee: A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points.

Point: A one-time charge by the lender for originating a loan. A point is one 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. 

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

Pre-approval: The more formal process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan. Lender requires documentation of assets and liabilities and will check credit history and scores. Written document is produced to verify purchaser’s ability to purchase a home up to a certain amount. Any particular requirements to the loan will be stated at this time.

Pre-qualification: The less formal process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan. Lender will ask purchaser of their assets and liabilities and give a non verified loan amount.

Principal, Interest, Taxes, and Insurance (PITI): The four components of a monthly mortgage payment. 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 (PMI): 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-value (LTV) percentage in excess of 80 percent.

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

Radon: A radioactive gas formed in the earth by uranium decay found in some homes. In sufficient concentrations it is linked to health problems.

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. See lock-in.

Realtor®: A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors. 

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.

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 Tax: State or local tax payable when title passes from one owner to another.

Truth-in-Lending Statement: A statement obligated by 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.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

VA Mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

Reprinted with permission from the National Association of REALTORS.

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