Real Estate

Glossary of Terms

ACRE

a unit of measure used in real estate, one acre equals 43,560 square feet of land. Sometimes you will hear of a "Builder's Acre" or "Horse Acre" which are less than a full acre (not a legal acre).

ADJUSTABLE RATE MORTGAGE (ARM)

interest rates on this type of mortgage are periodically adjusted up or down depending on the specified financial index.

AGENCY

WA law that deals with your legal rights when dealing with a real estate broker or sales person. Ask you Windermere agent to explain in detail how you will be represented.

AMORTIZATION

a method of equalizing the monthly mortgage payments over the life of the loan, even though the proportions of principle to interest changes over time. In the early part of the loan, the principle repayment is very low, while the interest payment is very high. At the end of the loan, the relationship is reversed.

ANNUAL PERCENTAGE RATE

the actual finance charge for a loan, including points and fees, in addition to the stated interest rate.

APPLICATION FEE

the amount, usually non refundable, that a lender charges for processing a borrower's application for a loan.

APPRAISAL

an expert opinion of the value or worth of a property

APPRECIATION

an increase in property value, normally due to inflation.

ASSESSED VALUE

the value place on property by a municipality for purposes of levying taxes. It may differ widely from appraised or market value.

ASSUME A LOAN

a buyer assumes the responsibility to repay an existing  loan as a condition of sale.

BALLOON PAYMENT

a large principal payment due all at once at the end of some loan terms.

BUILDING CODES

local safety codes regulating the construction of buildings, including design, materials, and other related aspects of building.

CAP

a limit on how much the interest rate can change in an adjustable rate mortgage.

CAPITAL GAINS

the taxable "profit" made on the sale of real estate, which must either be recognized (and paid) or deferred.

CAPITAL LOSS

the loss derived from the sale of a capital asset.

CERTIFICATE OF TITLE

a document, signed by a title examiner, stating that a seller has an insurable title to the property.

CLOSING

the deed to property is legally transferred from seller to buyer and documents are recorded.

CLOSING COSTS

the numerous expenses incurred by both buyer and seller in the transfer of title during a real estate transaction. These costs are in addition to the cost of the property and are items prepaid on the closing day. This is a typical list:

documentary stamps on notes cost of abstract

recording deed and mortgage

documentary stamps on deed

escrow fees

real estate commission

attorney’s fee recording mortgage

title insurance survey charge

appraisal and inspection

survey charge attorney’s fee

COMMISSION

a fee (usually a percentage of the total transaction) paid to an agent or broker for services performed.

COMMUNITY PROPERTY

property acquired and jointly owned by husband and wife in which each has equal Interest

COMPARABLES

recently sold properties that are similar in size end location to the property being purchased.

COMPARATIVE MARKET ANALYSIS (CMA)

a survey of attributes and selling process of comparable homes on the market or recently sold; used to help determine a correct pricing strategy for a seller’s property.

CONTINGENCY

a condition in a contract that must be met for the contract to be binding.

CONTRACT

a binding legal agreement between two or more parties that outlines the conditions for the exchange of value (for example: money exchanged for title or property)

CONVENTIONAL MORTGAGE

a mortgage loan not insured by HUD or guaranteed by the Department of Veterans Affairs. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.)

CONVEY

to transfer property or title from one person to another

CO-SIGNER

a person who signs a note and becomes liable for repayment of same with the borrower.

DEED

a legal document that formally conveys ownership of property from seller to buyer.

DEED RESTRICTIONS

any provisions in a deed restricting ownership or use of the property--for example, limitations on rights-of-way, or easements granted to other parties.

DEPOSIT

a percentage of the purchase price, paid by the buyer when the Purchase and Sale agreement is signed and typically held in escrow until the transaction is completed

DOWN PAYMENT

a percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender.

EARNEST MONEY

the deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house.

ENCUMBRANCE

a legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants.

EQUITY

the value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.

ESCROW

a fund or account held by a third-party custodian until conditions of a contract are met.

FIXED RATE MORTGAGE

interest rates on this type of mortgage remain the same over the life of the loan. Compare to “adjustable rate mortgage.”

FIXTURE

a recognizable entity (such as a kitchen cabinet, drape or light fixture) that is permanently attached to property and belongs to the property when it is sold.

“GOOD FAITH ESTIMATE”

an approximation of closing costs, which a lender is required to give to a prospective mortgage borrower within three days of the time an application for a loan is submitted.

HAZARD INSURANCE

compensates for property damage from specified hazards such as fire and wind.

HOME INSPECTION

the professional scrutiny of a home to assess its overall condition and identify existing or potential structural and/or mechanical problems.

HUD

U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders. HUD-1 Form Also known as the RESPA statement, detailing all the loan closing costs and itemizing all payments made by and due from both the buyer and the seller

INCOME-TO-DEBT RATIO

a lender's calculation of the percentage of income represented by a borrower's housing payments plus all other revolving debt payments.

INTEREST

the cost of borrowing money, usually expressed as a percentage rate.

LIEN

a security claim on property until a debt is satisfied.

LISTING CONTRACT

an agreement whereby an owner engages a real estate company for a specified period of time to sell property, for which, upon the sale, the agent receives a commission.

LOAN-TO-VALUE RATIO

the relationship between the mortgage on a property and its value. If the mortgage is $80,000 and the property is worth $100,000, the loan-to-value is 80 percent.

MARKET PRICE

the actual price at which a property sold.

MARKET VALUE

the price that is established by present economic conditions, locations and general trends.

MORTGAGE

security claim by a lender against property until the debt is paid.

MORTGAGE COMMITMENT

a written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

MULTIPLE LISTING SERVICE (MLS)

a system that provides to its members detailed information about properties for sale.

ORIGINATION FEE

an application fee(s) for processing a proposed mortgage loan.

P.I.T.I.

principal, interest, taxes and insurance, forming the basis for monthly mortgage payment.

PLAT

a map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

POINT

one percent of the loan principal. It’s charged in addition to interest and fees.

POWER OF ATTORNEY

written document giving authorization to one person to act on behalf of another

PRE-APPROVAL

the process of obtaining preliminary approval for a mortgage before application is complete. May or may not constitute a formal commitment by the lender to make the loan

PREPAYMENT

payment of mortgage loan, or part of it, before due date.

PREPAYMENT PENALTY

a fee paid by a borrower who pays off the loan before it is due.

PRE-QUALIFICATION

an informal estimate of the maximum mortgage a borrower could obtain, based on a calculation of available income and existing debt.

PRINCIPAL

the basic element of the loan as distinguished from interest and mortgage insurance premium. In other words, principal is the amount upon which interest is paid.

PRIVATE MORTGAGE INSURANCE

an insurance policy that protects the lender should the borrower default on the mortgage. Usually required for borrowers whose down payment represents less than 20 percent of the purchase price.

PROMISSORY NOTE

a written agreement promising to repay a loan.

PRORATE

divide or assess proportionately.

PURCHASE AND SALE AGREEMENT

See “Contract.”

REALTOR

a licensed real estate agent who belongs tot he local or state affiliate of the the industry's professional trade association, the National Association of Realtors (NAR).

SETTLEMENT

all financial transactions required to make the contract final

SURVEY

a map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.

TITLE

a document that indicates ownership of a specific property.

TITLE INSURANCE

protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to either the mortgagor, as an " owner's title policy, " or to the mortgagee, as a "mortgagee's title policy." Insurance benefits will be paid only to the "named insured" in the title policy, so it is important that an owner purchase an "owner's title policy", if he desires the protection of title insurance

TITLE SEARCH

detailed examination of the entire document history of a property title to make sure there are no legal encumbrances.

VA (VETERANS ADMINISTRATION) LOAN

mortgages issued by lenders but guaranteed by the Veterans Administration and available only to eligible veterans and their spouses and Dependents.

VARIANCE

a limited exemption from local zoning requirements

WARRANTY

a written or implied guarantee that property (including mechanical systems or appliances) is in the condition described and will perform as promised

ZONING ORDINANCES

the acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.