Real Estate Terms - A
1031 Tax Exchange Like-Kind Exchanges
You should contact your accountant before doing any
like-kind exchanges. There are time
stipulations to do this type of property transfer.
for more information.
An employer-sponsored investment plan that allows individuals to set aside tax-deferred
income for retirement or emergency purposes. 401(k) plans are provided by employers that are
private corporations. 403(b) plans are provided by employers that are not for profit organizations.
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have
accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.
Abstract of Title
A summary of the public records relating to the title to a particular piece of land. If there
are any title defects they must be cleared before a buyer can purchase clear, marketable, and insurable title.
A acceleration clause is a clause in which your mortgage which allows the lender to demand
payment of the outstanding loan balance for various reasons. The most common reasons for
accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
Accessed value is the valuation placed on property by a public tax assessor for purposes of taxation.
Adjustable Rate Mortgage (ARM)
An adjustable rate mortgage is a mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
On an adjustable rate mortgage (ARM), the time between changes in the interest rate and/or monthly payment, usually one, three, five or seven years.
An entity related to a Seller that is subject to common operating control and that is operated as
part of the same system or enterprise. The Seller typically owns less than a majority of
the voting stock or the Seller and the entity are subsidiaries of a third party.
Subsidized secondary financing or other financial assistance provided under an
established, documented secondary financing or financial assistance program that has formal
procedures in place to provide applicant qualification, loan processing, and loan program administration on an ongoing basis.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement, or sales agreement
according to location or jurisdiction. A contract in which a seller agrees to sell and a
buyer agrees to buy, under specific terms spelled out in writing and signed by both parties.
The loan payment consists of a portion which will be applied to pay the accruing interest on
a loan, with the remainder being applied to the principal. Over time, the interest portion
decreases as the loan balance decreases, and the amount applied to principal increases so that
the loan is paid off (amortized) in the specified time.
An amortization schedule is a table which shows how much of each payment will be applied toward
principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
Annual Percentage Rate (APR)
This is not the note rate on your loan. It is a value created according to a government formula
intended to reflect the true annual cost of borrowing, expressed as a percentage. It works
sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs
from your loan amount, then using your actual loan payment, calculate what the interest rate
would be on this amount instead of your actual loan amount. You will come up with a number
close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on the loan.
The form used to apply for a mortgage loan, containing information about a borrowers income, savings, assets, debts, and more.
An appraisal is a written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes in the same area.
Appraised value is an opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily
on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
An appraiser is an individual qualified by education, training, and experience to estimate
the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most appraisers are independent.
Appreciation is the increase in the value of a property due to changes in market conditions, inflation, or other causes.
The placing of a value on property for the purpose of taxation.
Report that appraisers use to record property values, marketability analyses and any pertinent comments regarding the subject property.
Assessment reports are classified as appraisal reports or inspection reports.
A public official who establishes the value of a property for taxation purposes.
Items of value owned by an individual. Assets that can be quickly converted into cash are
considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so
on. Other assets include real estate, personal property, and debts owed to an individual by others.
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.
Most loans are not assumable.
The term applied when a buyer assumes the seller's mortgage.
Real Estate Terms - B
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a
loan may be amortized as if it would be paid over a thirty year period, but requires that at the
end of the tenth year the entire remaining balance must be paid.
The final lump sum payment that is due at the termination of a balloon mortgage.
A payment method where your loan payment is automatically deducted from your checking or savings account, so you
don't have to mail in your payment each month.
Filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities.
Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy, which
relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two
years after the bankruptcy has been discharged and requires re-establishment of an ability to repay debt.
Best Faith Estimate
An estimate of the total costs for securing a real estate loan, that is given to borrowers prior to closing.
A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of
making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing
the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with
them on your thirty year mortgage. Some charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust
account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to
make the additional payment which will then be paid to reduce your principle balance. You could save money by doing the same thing yourself,
plus you have to have faith that once you transfer money to them that they will actually transfer your funds to the lender.
Bill of Sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds, which will be
used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help
document this source of funds.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A
binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to
purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down,
fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. This is why
rates change daily, and in a volatile market can and do change during the day as well.
Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase
property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second
mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
Broker has several meanings in different situations. Most REALTORS® are "agents" who work under a "broker." Some agents are brokers as well,
either working for themselves or under another broker. In the mortgage industry, a broker usually refers to a company or individual that does not lend the
money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a
normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee or commission for doing so.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be set by a filed plat of subdivision, by
restrictive covenants in deeds or leases, by building codes, or by local zoning ordinances.
Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of
the term, the borrowers payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an
account used to supplement the borrowers monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce
someone to buy their property. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the
buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can
qualify for a higher loan amount. Another reason is that a borrower may expect his/her earnings to go up substantially in the near future, but wants a lower payment right now.