Annual Percentage Rate (A.P.R.):
The first year's interest rate plus the total amount of the finance charges in connection
with a mortgage loan. This includes discount points, all loan fees, processing, etc. The
A.P.R. is calculated as a percentage of the borrowed amount and expressed as a yearly
rate. |
Appraisal: The determination, by a certified or licensed
real estate appraiser, of the "current market value" (an opinion) of a property
that is being purchased. It is used by the lending institution to establish the worth of
the house. Usually, an appraisal is based on comparable sales made within the last
6 months inside a 2 mile radius of the subject property. |
Assumption: When a buyer agrees to take over the
mortgage into his or her name. It is similar to "taking over payments" on a car.
Assumptions typically have lower closing costs for the buyer. |
Assumption Fee: A fee paid to the lender in order
to assume someone else's mortgage. This is to cover the cost the lender will incur for
processing the new paperwork. |
Assumability: Whether or not a loan may be assumed by
a buyer. Not all loans are assumable, so you should check with the lender regarding the
status of the loan. |
"Bond Money": Money for low interest rate mortgages
issued by local and state governments. Usually targeted at lower to moderate income
families to make housing more affordable. |
Closing Agent: The party that will handle the
physical aspects of the closing for you. They will take care of the preparation of the
deed, the recording at the court house, etc. |
Closing Date: The date, stated in the contract, on
which the completion of the sale is supposed to take place. It is important to know how
long inspections, appraisals, loan approval, attorneys/title companies, etc. will take in
order to determine a realistic closing date. Communication between all parties is vital on
this point. |
Contract: The signed, written agreement between the buyer
and seller to transfer a piece of property. The contract contains all of the terms and
conditions of the sale. There should be no oral agreement. |
Deed: The legal document, recorded at the court house, which
shows the ownership and transfer of ownership from the seller to the buyer of the
property. |
Default: If a borrower does not pay in accordance with the
mortgage contract, they are said to be in Default. |
Disclosure: Usually describes any written document or
piece of information, the understanding of which the buyer or seller must acknowledge in
writing. Real estate contracts and mortgages have many disclosures that must be signed by
some or all parties to the transaction. Failure to use all of the appropriate disclosures
can adversely affect a transaction. |
Discount Points (Points): These fees are
a percentage of the loan amount charged by the lender. They can range anywhere from zero
to 1, 2, 3 or higher. Points represent "up-front" interest charged by the lender
for a lower interest rate. The higher the points, the lower the interest rate. |
Easement: A right of use by one party over another. The
most common example is the right of utility companies to dig in your yard for water or
sewer pipes, and electric lines. |
Encroachment: When a part of someone else's house,
fence, etc. is on your land, either in whole or in part. This can have an effect on the
title. |
Escrow (Impound) Account: An account the
lender holds for payment of your taxes, hazard insurance, mortgage insurance and any other
payments on the property. Typically you will pay 1/12 of the yearly taxes and insurance
each month as part of your payment. The majority of all mortgages written today have an
escrow account from which the lender will automatically pay your taxes and insurance each
year. |
Fire Insurance: See Homeowners
Insurance |
Fixture: Any personal property that is permanently affixed
to real estate is considered to be part of that property. Things like screen doors, window
screens, chandeliers are considered "fixtures." |
Hazard Insurance: See Homeowners Insurance. |
Homeowners Insurance: This insurance covers
your house in the event of fire, theft, damage, etc. Typically, you will pay into the
escrow account each month so that the lender will make your payment for you each year. |
Home Inspection: When the buyer has the
opportunity to have the house and all mechanical systems inspected by a certified home
inspector. The buyer has the ability to cancel the transaction if they are not satisfied
with the results of the home inspection. |
Home Inspector: An independent contractor who is
hired by the buyer to inspect the property for any physical defects. |
Impound Account: See Escrow Account. |
"Junk" Fees: Fees, charged by the
lender, that appear to fall outside the realm of "Normal and Customary." Things
such as "processing fee," "doc prep fee," "publication fee,"
"special courier fee," "lender's inspection fee," are considered, at
least in my part of the world, to be "Junk" Fees. It is important that you ASK
any lender to identify their "Junk" Fees. |
Improvements: Any changes made to the property that
affect the value and usage of the land. A good rule of thumb says that, if it's not dirt,
it's an improvement. Examples are: Houses, Buildings, Driveways, and Sidewalks. |
Legal Description: The property description
which, by law, sufficiently "locates and identifies" a piece of property. It
appears on all of your legal documents in connection with the house. |
Lender's Policy: See "Title Insurance". |
Lien: Refers to any charge or debt owed on the property.
Usually, all liens must be satisfied in order to sell the property to another party. The
most common liens are Tax Liens, Mortgage Liens and Mechanic's Liens. |
Loan-to-Value (L.T.V.): This ratio is used
to describe the loan amount as a percentage of the appraised value of the house. Various
lenders and loan programs have different requirements as to acceptable L.T.V.'s. This is
one of the reasons why the appraisal is such a vital component of the selling process. |
Mortgage: A legal document by which the buyer pledges the
house as security for the loan. This document also provides for the lender's right to take
back the property in the event the borrower does not pay on the loan in the proper manner. |
Note, The: A legal document in which the terms for
repayment of a loan are specified. The note typically includes the interest rate, term,
type of loan and other information about the mortgage. (The Note is often confused with
the mortgage.) |
Offer: A written proposal from a buyer, to the seller, to
purchase a piece of property. Once the seller signs the offer, it becomes a contract. |
Opinion Letter: A letter from the mortgage company
or lender which states that the buyer appears to meet all of the requirements for the loan
they are applying for. This letter does not mean the loan is approved, but it is better
than not having anything at all. |
Origination Fee: A fee charged by the lender in
connection with a mortgage loan. Most lenders charge this fee as a percentage of the loan
amount, usually 1%. This fee is usually paid by the borrower at closing, but on some
loans, the seller can pay or share in this fee if agreed to in the contract. |
Owner's Policy: See "Title Insurance". |
Plat: See "Survey". |
Points: See "Discount
Points". |
Power of Attorney: A legal document, in writing,
that allows one person to act on another's behalf in legal matters specifically described
in the document. The most common use of the Power of Attorney is for one spouse to act on
behalf of the other because they can't both be at the closing (i.e. a husband in the
military who is overseas and can't come home to sign the papers). Most lenders require a
"Specific Power of Attorney" when used in conjunction with real estate
transactions. |
Pre-Approval: The process by which a buyer gets
approved for their mortgage before they write a contract on a house. This greatly
increases the buyer's credibility with the seller as well as improving their overall
bargaining position. |
Prepaids: Refers to the portion of the total cost for
closing that includes your Homeowners insurance, taxes, mortgage insurance, and interest
from the day you close until the end of the month. This money is used to set up your
escrow or impound account so that your taxes and insurance are paid automatically for you
each year. Usually it involves one year of Homeowners insurance, 2 months of Homeowners
insurance, 3 months of taxes and 2 or 3 months of mortgage insurance. The amount of
mortgage insurance depends on the way in which you have elected to pay it. Prepaids should
not vary significantly between lenders because this is usually not an area where the
lender makes any money or profit. |
Pre-Qualify: See"Qualify". |
Private Mortgage Insurance (PMI): This
insurance is paid by the borrower to protect the lender against the borrower's default on
the mortgage. Usually, PMI is needed on any loan that is above 80% L.T.V. Though PMI adds
to the monthly payment, it does allow lenders to make loans above 80% L.T.V., where they
otherwise could not. |
Qualify (Pre-Qualify): Used to describe the
process by which a banker determines a potential buyer's ability to obtain a certain
mortgage. This is based on their credit, income, assets and a number of other factors that
determine the buyer's ability to borrow money for a mortgage. |
Qualifying Rate: The interest rate on the mortgage
at which the lender calculates the monthly payment to see if the buyer can handle the loan
payments. On adjustable rate mortgages the qualifying rate is usually higher than the rate
with which the mortgage starts off, unless the borrower puts down a substantial down
payment. |
Release of Liability: This term is usually
used with regard to an assumption. Release of liability is obtained when the buyer is
approved, in writing, by the lender that holds the mortgage being assumed. It means that
when a borrower assumes a loan, the seller has no more responsibility for the property. If
the new owner goes into default, the old owner is not responsible. |
Survey: Sometimes referred to as a "Plat", this
is a map of the property that displays the exact boundaries of the piece of property, as
well as the location and measurements of any buildings or other improvements made to the
property. |
Title Insurance: Insurance that covers prior
claims against the property about which no one knows. It also covers against fraud,
forgery, lost heirs, etc. Lenders require the borrower to obtain, at the minimum, a
"Lender's policy." This protects the lender's interest in the property against
any claims, but it does not protect the buyer. It is advisable to strongly consider buying
an "Owner's Policy," which protects the new owner's rights and equity to the
property against claims. |
Underwriting: The "risk review" done by the
lender to determine if the borrower, the property and the terms of the contract meet all
requirements. The lender must ensure that the loan meets all local, state and federal
guidelines before giving a mortgage to the buyer. Underwriting usually constitutes the
final step in the mortgage approval process. |
Underwriting Fee: A fee charged to the borrower,
by most lenders, to pay for the hours they spend considering a loan for approval. This is
generally considered to be a legitimate fee when charged to the buyer. |
