[schema type="organization" orgtype="LocalBusiness" url="http://4salebydonna.com" name="Real Estate Agent Donna Baker" description="Real Estate Agent showing homes for sale and available real estate in Monrovia, Pasadena, Arcadia the San Gabriel Valley in Southern California." city="Monrovia" state="Ca" postalcode="91016" email="donna@4salebydonna.com " phone="(626) 408-7766 "]

Real Estate Glossary

October 6, 2008 by · Leave a Comment 

Congratulations! You’re almost a homeowner! You’ve passed many obstacles and hurdles – finding the right agent, the house hunt, open houses, multiple offers, financing, and escrow. Before you sit at the closing table and take possession of the keys to your home, take a few moments to review some of the terms that you may encounter on the real estate contract.

Acceleration Clause: This gives the lender the right to demand immediate full repayment of a loan if the terms of the loan are not met.

Ad Valorem Tax: Tax that is based on a property’s assessed value.

Agency Disclosure: Requires real estate agents who act on behalf of buyers or sellers to disclose who represents whom in a real estate transaction.

Amortization: When a loan is repaid in equal payments at consistent intervals over the full term of the loan. This results in the complete payoff of the loan by the end of its term.

APR or Annual Percentage Rate: This is simply your effective interest rate, calculated by taking your actual interest rate and accounting for all the loan-related closing costs, as expressed over the full term of your loan (i.e., 30 years). It was created to help borrowers better compare interest rates offered by lenders.

Arbitration: A process in which an impartial third party listens to both sides of a dispute and typically issues a binding decision.

As-Is Condition: The purchase or sale of a property in its existing condition.

Balloon Mortgage: A home loan, although typically set up on a 30-year repayment schedule, requires the remaining balance – called the balloon payment – be paid in the future at a specific time, typically after the first five or seven years.

Closing Costs: The various expenses above the cost of the property that buyers and sellers incur in a real estate transaction.

Closing Statement (also known as the Settlement Statement): A document that provides an item-by-item breakdown of all costs, as well as the source of funds associated with every real estate transaction. Also called a HUD-1, the name of the standard form created by the Department of Housing and Urban Development, it is required for the completion of every real estate transaction.

Contingency Clause: These are terms in a contract that give a party to the contract a legal excuse for not performing (i.e., buyer does not have to buy the property if the buyer does not approve of an inspection of the property or the buyer is not able to obtain a loan). Contingency clauses typically have a set number of days in which the contingency must be removed from the contract or the decision made not to proceed with the sale.

Conventional Mortgage: A home loan that is not insured or guaranteed by an agency of the federal government.

Covenants, Conditions and Restrictions (CC&Rs): This document establishes the rights and responsibilities of owners typically within a subdivision, often enforced by an association of owners organized to maintain common areas owned by all owners within the subdivision.

Days on Market (DOM): The number of days that a property is listed as available for sale before being sold or removed from the marketplace.

Earnest Money or Earnest Deposit: Money a buyer provides as a deposit when an offer is made to purchase a property.

Easement: Access given to a third party to use a portion of one’s property for a specific purpose, such as for utilities or a driveway.

Encroachment: Any structure, such as a fence, that extends into a property owned by someone else.

Encumbrance: A claim or lien that appears on the title that, unless resolved, can interfere with the transfer of the property.

Escrow Agent or Closing Agent: A person who is impartially responsible to both the buyer and seller (or borrower and lender) to make certain that all of the terms and conditions of the real estate transaction (or loan) are completed. Also known as a Settlement Agent.

Fee Simple: A type of ownership of property, it entitles the owner to use their property as they see fit, in accordance with state and local laws.

Insurance Binder: Proof of coverage required by a lender to show that a sufficient hazard insurance policy exists on a property. This document must be provided to a lender by an insurance agent before the lender will agree to loan money for the purchase of the property.

Liquidated Damages: The buyer and the seller determine in advance a set amount of money to be paid should one of the parties fail to meet the terms of their Purchase and Sales Agreement.

Mediation: A process in which an impartial third party helps try to resolve a dispute by facilitating communication between a buyer and a seller in an attempt to reach a mutually acceptable agreement.

Negative Amortization: When a mortgage payment does not cover all of the interest that is due, the unpaid amount is added to the principal balance, causing the loan balance to increase instead of decrease.

Non-Conforming Loan (known as a Jumbo Loan): Any loan that is too large to be purchased by the secondary marketing firms, Fannie Mae (FNMA) or Freddie Mac (FHLMC).

PITI (Principal, Interest, Taxes and Insurance): The total monthly payment for a property with an amortizing loan that includes the principal, interest, taxes and insurance.

PMI (Private Mortgage Insurance) or MI (Mortgage Insurance): If the first mortgage loan-to-value ratio is greater than 80%, a special insurance is required – typically paid monthly or annually – to protect the lender should the loan go into default.

Prepaids: Distinct from Closing Costs, these include recurring expenses a buyer would normally pay over time, but pays in advance at closing to set up an escrow or impound account to pay monthly for taxes and insurance. Prepaids will also include any interest due on the loan from the day of closing until the end of the month.

Quitclaim Deed: A document that releases an owner from any interest in a property.

Sale-Leaseback or Sale-Rentback: The buyer rents back the property they are purchasing to the seller for a specific period of time after the close of escrow.

Sales Concession: A cost that is typically paid by the buyer at closing is paid by the seller instead.

Table Funding: The ability of a lender to provide loan funds on the same day the transaction is signed by all parties, usually one day prior to the close of escrow.

Title Insurance: Insurance that protects your home purchase should a title problem that existed prior to the purchase be discovered after your transaction closes. There are two types of title insurance: a fee title policy insures you, the owner; a mortgage title policy protects the lender.

Walk-Through: A buyer does a final inspection of the home prior to the closing to confirm that all conditions in the purchase agreement have been satisfied. This is also the time when the seller provides the buyer with instructions on the use of security systems, A/C, sprinklers, etc.