Acceleration
Clause: A
provision in a mortgage that may require the unpaid balance of the
mortgage loan to become due immediately if the regular mortgage payments
are not made, or if other terms of the mortgage are not met.
Acceptance:
An offeree’s consent to enter into a contract and be bound by the
terms of the offer.
Adjustable Rate Mortgage
(ARM): A mortgage that permits
the lender to adjust its interest rate periodically on the basis of
changes in a specified index.
Affordability Analysis:
A detailed analysis of your ability to afford the purchase of a
home. An affordability analysis takes into consideration your income,
liabilities, and available funds, along with the type of mortgage you
plan to use, the area where you want to purchase a home, and the closing
costs that you might expect to pay.
Agent: A person
licensed by the state to act on behalf of another, representing that
person's interest as an intermediary in real estate transactions. There
are three types of agency in the state of Kentucky: seller's agency, buyer's
agency, and dual-limited agency, in addition to transaction brokerage.
Also called Sales Associate.
Amortization:
The gradual repayment of a mortgage loan by regular installment
payments which both principal and interest. In
the early years of your loan, most of the money you pay will be for the
interest you owe. Toward the end of the term of your loan, you will be
paying primarily principal.
Amortization Schedule:
A timetable for payment of a mortgage loan. An amortization
schedule shows the amount of each payment applied to interest and
principal and shows the remaining balance after each payment is made.
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).
Appraisal:
A written analysis of the estimated value of a property
prepared by a qualified appraiser. Appraised value is an opinion of a
property's fair market value, based on an appraiser's knowledge,
experience, and analysis of the property.
Appreciation: An
increase in the value of a property due to changes in market conditions
or other causes. The opposite of depreciation.
Assessed Value:
The valuation placed on property by a public tax assessor for purposes
of taxation.
Assumption of Mortgage: The
promise by the buyer of property to be legally responsible for the
payment of an existing mortgage. With an assumable mortgage, the
mortgage can be taken over ("assumed") by the buyer when the
home is sold.
Average
days on market: The average days
on the market measures the length of time most homes were for sale
before purchase.
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Balloon
mortgage:
A mortgage that has level monthly payments that will amortize
it over a stated term but that provides for a lump sum (balloon) payment
to be due at the end of an earlier specified term.
Bankruptcy:
A proceeding in a federal court in which a debtor who owes more
than his or her assets can relieve the debts by transferring his or her
assets to a trustee.
Breach:
A violation of any legal obligation.
Broker:
A person who has a real estate broker's license, who, for a commission
or a fee, brings parties together and assists in negotiating contracts,
and may operate a real estate business (KRS 324.046). To become a broker
in the state of Kentucky, a licensed real estate agent must be licensed
for over two years and must complete 21 semester credit hours from an
accredited college or university, or 336 clock hours in real estate from
a Kentucky Real Estate Commission approved school.
Building Code:
A systematic regulation of construction of building within a
municipality established by ordinance or law.
Buyer's Agent:
An exclusive buyer's agent works solely on behalf of the buyer and owes
duties to the buyer which include the utmost good faith, loyalty and
fidelity. The agent will negotiate on behalf of and act as an advocate
for the buyer, even if by agreement the agent may receive compensation
for services rendered, either in full or in part from the seller.
Buyer Pool:
The entire market of prospective home buyers in a specific area, price
range, or type of home.
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Caps:
Provisions of an ARM limiting how much the interest rate can
change at each adjustment period (i.e., every six months, once a
year) or over the life of the loan (rate cap). A payment cap
limits how much the payment due on the loan can increase or
decrease.
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Caveat Emptor: Latin
meaning "buyer beware". In real estate, this suggests
the buyer inspect the property.
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Certificate of
Title: A document signed
by a title examiner stating that the seller has an insurable
title to the property.
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Clear
title:
A title that is free of liens or legal questions as to
ownership of the property. A clear title is the opposite of a clouded
title.
Closing: The
final step in the sale and purchase of a property when the title is
transferred from the seller to the buyer; the buyer signs the mortgage,
pays settlement costs, and any money due the seller or buyer is handed
over. Also called Settlement
Closing Costs: Costs
in addition to the price of a house, usually including mortgage
origination fee, title search and insurance, attorney's fee, recording
fees, and prepayable items such as taxes and insurance payments
collected in advance and held in an escrow account. Also called
Settlement Charges
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Closing Statement:
The computation of financial adjustments between the buyer and
seller, as of the day of closing a sale, to determine the net
amount that the buyer must pay to the seller to complete
purchase of the real estate and to define the seller's net
proceeds. Also known as a Settlement Statement.
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Code of Ethics:
The standards of practice that all Realtors, as members of the
National Association of Realtors, adhere and follow.
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Commission:
The negotiable fee charged by a broker or agent for negotiating
a real estate or loan transaction.
Commitment
letter:
A formal offer by a lender stating the terms under which it
agrees to lend money to a home buyer. Also known as a "loan
commitment."
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Comparative Market
Analysis (CMA): A survey
of similar properties on the real estate market or recently sold
to determine a market value for a specific property. CMA are
used by The Tony Clark team to determine the correct pricing
strategy for our client's property.
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Condominium:
A type of real estate ownership in which the owner has title to
a specific unit and a shared interest in the common areas.
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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.
Conventional Mortgage: A
mortgage loan not insured by the federal government such as FHA, HUD, or
guaranteed by the VA. It is subject to the conditions established by the
lending institution and state statutes.
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Condominium:
A type of real estate ownership in which the owner has title to
a specific unit and a shared interest in the common areas.
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Contingency:
A condition in a contract that must be met for the contract to
be binding.
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Contract:
The binding legal agreement between two or more parties that
defines the sale conditions of a specific piece of property.
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Conversion Clause:
A provision that allows converting an ARM to a fixed-rate loan
after a specified time period.
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Conventional Mortgage:
A loan that is not guaranteed, insured or made by the federal or
state government.
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Cooperative (Co-op):
A type of real estate ownership where all shareholders own the
whole property, but each has proprietary occupancy rights for
specific units.
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Counter-offer:
A rejection of an offer by a seller along with an agreement to
sell the property to the potential buyer on terms differing from
the original offer.
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Covenant:
An agreement written into deeds and other recorded instruments,
which may stipulate certain uses, performances, or restrictions of
the property.
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Credit
History:
A record of an individual's open and fully repaid debts. A
credit history helps a lender to determine whether a potential borrower
has a history of repaying debts in a timely manner.
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Deed:
The legal document conveying title to a property.
Default:
Failure to make mortgage payments on a timely basis or to comply with
other requirements of a mortgage.
Depreciation:
A decline in the value of property; the opposite of
appreciation.
Discount
points: Discount
points represent extra money you can pay to the lender at closing in
exchange for a lower interest rate on your loan. For each point you pay
for a 30-year loan, your interest rate is generally reduced by about
1/8th (or .125) of a percentage point. Example: if the current
interest rate on a 30-year mortgage is 8.5 percent, paying 1 point means
you could get that mortgage for an interest rate of 8.375 percent. The
longer you plan to stay in your home, the more sense it makes to pay
discount points.
Down
payment: Part of
the purchase price that the buyer pays in cash and does not finance with
a mortgage. The larger your down payment, the less you will need to
borrow. The less you need to borrow, the smaller your mortgage payments
will be. Lenders often view mortgages with larger down payments as more
secure because you have more of your own money invested in the property.
However, you may have as little as 3 percent to 5 percent of the
purchase price for a down payment.
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Earnest
Money Deposit:
A deposit made by the potential home buyer to show that he or she is
serious about buying the house.
Equity: An
owner's or buyer's ownership rights in the house as he pays off the
mortgage. When the mortgage and all other debts against the property are
paid in full, the owner has 100 percent equity in his 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. Generally, if your down payment is less than 20 percent,
your lender considers your loan riskier than those with larger down
payments. To offset that risk, the lender sets up the escrow account to
collect those additional expenses, which are rolled into your monthly
mortgage payment.
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Fair
Housing Act: Legislation
first enacted in 1968 and expanded by amendments in 1974 and 1988, which
provides the Secretary with investigation and enforcement
responsibilities for fair housing practices. Prohibits discrimination in
housing and lending based on race, color, religion, sex, national
origin, handicap, or familial status.
Fair Market Value:
The highest price that a buyer, willing but not compelled to buy, would
pay, and the lowest a seller, willing but not compelled to sell, would
accept.
Federal Home Loan
Mortgage Corporation (Freddie Mac):
A federally chartered stockholder owned corporation which supports the
secondary market for conventional mortgages.
Federal Housing
Administration (FHA): An insuring
entity established by legislation, administered by the Assistant
Secretary for Housing, who is responsible for the Department's various
mortgage insurance programs.
Federal National Mortgage
Association (Fannie Mae): A
federally chartered, stockholder owned corporation which supports the
secondary market for both conventional mortgages and mortgages insured
by the FHA and guaranteed by VA.
Fixed
interest rate: An
interest rate that is fixed for the entire term of the loan. One
advantage of a fixed-rate loan is that you know your interest rate will
never change over the term of your loan.
Flood Insurance: If your home is in a federally
designated high flood risk zone within a flood plain and you are signing
for a federally insured loan, federal law mandates that you must buy
flood insurance. If you are not in a high flood risk zone, you still may
buy the coverage.
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Government
National Mortgage Association (GNMA or Ginnie Mae):
Major Departmental organization responsible for administering secondary
market programs involving insured mortgage loans such as the
Mortgage-backed Securities Program.
Graduated Payment
Mortgage (GPM): Most GPMs are buy
downs in which the builder, seller, or buyer pays up front to lower
monthly payments for the first three to five years. While initial
payments are lower than market rate, and subsequent increases are known
in advance, payments might end up higher than with a fixed-rate
mortgage, due to negative amortization.
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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.
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. Also known as the "closing statement" or
"settlement sheet."
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Insurance: Lenders won't
let you close the deal on your home purchase if you don't have home
insurance, which covers your home and your personal property against losses
from fire, theft, bad weather and other causes. Even if you pay cash for
your home, you should buy home insurance unless you can afford to repair or
rebuild your home if it's damaged or destroyed.
Interest:
The fee charged for borrowing money, Usually expressed as a
percentage called the interest rate.
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Joint
Tenancy: The joint ownership by
two or more persons with the right of survivorship; all joints tenants
own equal interest and have equal rights in the property.
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Lease:
A contract between an owner and a tenant(s) that establishes the
conditions upon which a tenant(s) may occupy and use the
property, as well as the terms of the occupancy.
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Lien:
A security claim on a property until a debt is satisfied.
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Listing contract:
A contract in which a property owner(s) employees the services
of a real estate broker to represent the property owner(s) in
the sale of his or her property. In exchange for producing a
ready, willing and able buyer, the broker receives compensation.
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Loan-to-value
Ratio: The
relationship between the amount of a home loan and the total value of
the property. Lenders may limit their maximum loan to 80-95 percent of
value.
Lock-in Rate: A
rate commitment made by lenders when making a mortgage loan to commit or
to "lock-in" that rate, pending loan approval. Lock-in
commitment periods vary; loans will specify 30-90 days, for example.
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Market
Analysis: Most commonly
referred to as a Comparative Market Analysis (CMA).
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Marketable Title:
A title that is free and clear of objectionable liens and
encumbrances.
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Median
Home Price: The
median home price gives you the midpoint in the range of sales prices
for a specific period. Compare over the past several years to see
whether prices are rising or falling in the overall market and specific
areas.
Mortgage Bankers
Association of America (MBA):
National organization which seeks to improve mortgage practices and
marketing activities.
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Mortgage Banker:
A company that originates mortgages for sale into the secondary
mortgage market (i.e., to Fannie Mae or Freddie Mac).
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Mortgage Broker:
An individual or company that arranges mortgage financing
between a borrower and a lender.
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Mortgage Interest Deduction:
The ability of mortgage borrower to deduct the interest paid on
a home loan for purposes of federal and state income taxes.
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Multiple Listing Service (MLS):
A marketing service offered by a real estate company, which is a
member of a local board of Realtors. Property for sale can be
submitted to the MLS, in which all other member real estate
companies can participate in the sale. The MLS allows properties
to be exposed to a large but highly targeted market base:
Realtors from various real estate companies and their clients
are made aware of the property's availability.
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National
Association of Home Builders (NAHB):An
organization which represents home builders at all levels of government
and provides information on new developments in the housing industry. It
is also responsible for initiating the Homeowners Warranty Corporation
which provides a guarantee of workmanship in residential homes.
National Association of
Realtors (NAR): An organization
which represents the interests of realtors and promotes education,
professional standards, and modern techniques in real estate practices.
Negative Amortization: The
principal balance of the loan actually grows, due to payments which are
not enough to cover all of the interest due. Often negative amortization
accrues during the years of a variable rate or graduated payment
mortgage when the payments are less than market rate.
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Points: Also
called a discount point. A point is one percent of the loan balance.
Prepayment
Clause: A condition in a
mortgage which allows mortgage payments to be made early without
penalty.
Principal:
The principal is simply the sum of money you borrowed to buy your home.
Before the principal is financed you can give the lender a sum of cash
called a down payment to reduce the amount of money that will be
financed.
Private Mortgage
Insurance (PMI): The insurance
coverage offered by a private company that protects a lender against
loss on a defaulted mortgage loan. PMI is charged to the borrower when
the borrower/buyer put down less than 20% on a home purchase. The
PMI does not protect the buyer, rather it protects the lender from the
buyer defaulting on the mortgage. Its use is usually limited to loans
with high loan-to-value rations. Conventional loans of an 80% loan to value do not require
PMI.
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Rate
Cap: Interest-rate
cap on an ARM loan; it restricts the upward movement of the loan's
interest rate at the time of adjustment.
Real Estate Settlement
Procedures Act (RESPA): Requires
that all borrowers under Federal mortgage loan or insurance programs
must receive specified information regarding the loan transaction.
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Seasonally
adjusted: Housing markets are naturally
more active in the spring and summer months because people prefer to
move during the longer warmer days and between school years. That
pattern means it's difficult to make meaningful comparisons between
results for different months or quarters of the same year. To overcome
this hazard, economists statistically tweak the reported number of homes
sold during various periods to reflect seasonal variations. The tweaked
numbers are denoted as "seasonally adjusted."
Seller's
Agent: A
seller's agent works solely on behalf of the seller and owes duties to
the seller which include the utmost good faith, loyalty and fidelity.
The agent will negotiate on behalf of and act as an advocate for the
seller.
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Taxes: The taxes are property taxes your
community levies based on a percentage of the value of your home. The
tax is generally used to help finance the cost of running your
community, say to build schools, roads, infrastructure and other needs.
You must pay property taxes even if you don't need an escrow account and
even after your mortgage is paid off.
Title:
Evidence of a person's legal
right to possession of a property, normally in the form of a deed.
Title Insurance: Special
insurance which usually protects lenders from loss of interest in
property due to unforeseen occurrences that might be traced to legal
flaws in previous ownerships. An owner can protect his interest by
purchasing separate coverage. (Always keep your title insurance.)
Transaction Broker: A
transaction-broker assists the buyer or seller or both throughout a real
estate transaction with communication, advice, negotiation, contracting
and closing without being an agent or advocate for any of the parties. A
transaction-broker does not owe those parties the duties of an agent.
However, a transaction-broker does owe the parties a number of statutory
obligations and responsibilities, including using reasonable skill and
care in the performance of any oral or written agreement. No
written agreement is required.
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Underwriting:
The process of evaluating a loan application to determine if it meets
the lender's standards.
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Veteran
Administration Loan (VA): A
mortgage program administrated by the government to make affordable home
loans to military veterans. No down payment is required, and the loan is
fully assumable. (Check with your Realtor or Loan Officer for further
details on this.)
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Warranty
Deed: A deed
used to convey real property that contains warranties of title
and quiet possession, and the grantor thus agrees to defend the
premises against the lawful claims of third persons.
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Zoning:
The regulation of private land use and development by local
government or municipality.
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