Terminology Used In Real Estate
It is a separate document describing a change to the initial purchase agreement. An example would be to change the closing date.
ADJUSTABLE RATE MORTGAGE (ARM)
It is a mortgage that has a fluctuating interest rate that it adjusts up or down according to an index.
ANNUAL PERCENTAGE RATE (APR)
An annual percentage rate (APR) is a broader measure of the cost to the buyer of borrowing money. The APR reflects not only the interest rate but also the points, mortgage broker fees, and other charges that the buyer has to pay to get the loan. For that reason, the APR is usually higher than the loan’s interest rate.
This is the process required by the lender to determine the value of a home. A professional is hired by the lender to do this job. The fee is normally paid upfront by the buyer. If the home appraises for less than the purchase price, buyer may cancel the contract.
This refers to the Declaration of “Covenants, Conditions and Restrictions” which sets forth the rules of a community with a Home Owners Association.
This is the time when the Deed is recorded at the county Recorder’s Office, the buyer gets the keys to the home and the seller gets the proceeds of the sale. The buyer would have visited the Tile/Escrow Company a couple of days earlier to sign all the documents and turn in any monies.
These are all the fees associated with the purchase of a home. They include credit report, appraisal, inspections, home warranty plans, lender fees, homeowners’ association fees, prepaids, impounds and escrow fees.
Those portions of a subdivision or condominium building, land, and amenities owned (or managed) by a planned unit development (PUD) or a homeowners’ association (HOA) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
COMPARATIVE MARKET ANALYSIS (CMA)
This is the determination of market value of a given home by your broker. It consists of all the activity in the vicinity of a potential home, specially the “solds.” This information will be the basis for an offer.
The term for properties similar in features that are comparable to the property being analyzed.
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.
Refers to home loans other than government loans (VA and FHA).
These are paid to the Title/Escrow Company for conducting the closing, holding and disbursing monies, researching and guaranteeing the title to property is clear and providing lender and owner title insurance. The Title /Escrow Company oversees the closing as an independent party in the home purchase.
The deed is the legal document that shows the transfer of ownership from the seller to the buyer.
DEED OF TRUST
It is a document wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender.
Information about defects or shortcomings of the home the seller must provide to buyer. Here in Arizona we use the Residential Seller’s Property Disclosure Statement, “SPDS.”
A “point” is one percent of the loan amount. This is an additional fee the borrower pays the lender in order to “discount” the note interest rate from a “par” rate with no discount points.
This is a percentage of the purchase price that the buyer pays in cash. It can be as low as 3% up to 20% or more. Veterans with VA a benefits do not need a down payment.
This is the responsibility of the buyer to discover all possible information about the condition of the home or any issues with the neighborhood or the area, etc.; essentially any information that would change the buyer’s mind to proceed with the purchase. In Arizona the standard contract allows the buyer 10 days from the day of accepting the contract to complete all inspections.
This is a security deposit, part of the down payment that the buyer offers as a sign of commitment to purchase the home. It is customarily 1% of the purchase price. This money is refundable if one of the contingencies in the contract is not removed and buyer wishes to cancel the contract.
The Title/Escrow Company is a third impartial party that handles the legal transfer of ownership. Once a contract is accepted, your earnest money will be deposited with one. “Close of escrow” (COE) this is the time at the end of the process when all paperwork is finally signed by all parties, monies are deposited and disbursed, and the transfer of ownership is completed.
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
A fiduciary duty is a legal duty of an agent or broker to act solely in the interests of the buyer or seller. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Some of the duties include loyalty, obedience, disclosure and confidentiality.
FIXED RATE MORTGAGE
It is a type of mortgage in which the interest rate remains the same for the life of the loan.
This is anything that is permanently attached to or a part of the property. These can include ceiling lights, bookshelves and window coverings.
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
HOMEOWNERS’ ASSOCIATION (HOA)
A homeowners’ association (HOA) is an organization in a subdivision, planned community or condominium that makes and enforces rules for the properties in its jurisdiction. HOAs charge a monthly fee to run the association.
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
A type of insurance often purchased by home buyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
(Homeowners Association Documents)
These are required to be provided to the buyer for review. They include: minutes of their meetings, profit and loss financial statement, yearly budget and a Declaration of Covenants, Conditions, and Restrictions (CC&Rs).
An impound account is a special account that the lender sets up to hold the borrower’s funds to pay for future property taxes and home owner’s insurance. They will collect 1/12th of the annual property taxes and/or insurance along with the mortgage payment every month.
(Mortgage Insurance Premium)
MIP is an insurance policy required for all FHA loans. The FHA assesses an “upfront” MIP (UFMIP) at the time of closing and an annual MIP that is calculated every year and paid in 12 installments.
A multiple listing service (MLS) is a service used by Realtors®. They team together to create a database that allows each of them to see one another’s listings of properties for sale.
Is a legal agreement and a debt instrument in which a person borrows money to buy property (such as a house) and pays back the money over a period of years and the loan is secured by the property.
An origination fee is an up-front fee charged by a lender for processing a new loan. Origination fees are quoted as a percentage of the total loan and are generally between 0.5% and 1%.
(PRINCIPAL, INTEREST, TAXES AND INSURANCE)
This is a common way of describing a total monthly mortgage payment. Principal and interest go to the lender, taxes to the State and insurance to cover the home against damage, which is required by the lender. It is also common to see HOA fees included in this figure.
(Private Mortgage Insurance)
A risk-management insurance that protects lenders against loss if a borrower defaults. Most lenders require private mortgage insurance (PMI) if buyer is putting less than a 20% down payment.
These are expenses or items that the homebuyer pays at closing, before they are technically due. They are necessary to create an escrow account or to adjust the seller’s existing escrow account. Prepaids can include taxes, hazard insurance, private mortgage insurance and special assessments.
This is the quick process by which buyers go through to have a lender review their credit history and financial status to purchase a given home. The Pre-Qualification form must be signed by the lender and has to be submitted with any offer to purchase.
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
A legal document evidencing a person’s right to or ownership of a property.
A company that specializes in examining and insuring titles to real estate.
Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.