GLOSSARY OF TERMS
During the course of your house hunting, you may come across unfamiliar terms. The following list helps explain some common terms associated with the home-buying process. Can’t find the term you’re looking for in this list? Just ask me for a description – I’m always here to help you!
Abstract of Title: A summary of the public records relating to the ownership of a particular piece of land. It represents a brief legal history of the property and traces its ownership from the time of the first recorded transfer to present.
Adjustable Rate Mortgage: This type of mortgage allows the interest rate to be changed periodically.
Agency: A legal relationship in which an owner-principal engages a broker-agent in the sale of property or a buyer-principal engages a broker-agent in the purchase of property.
Appraisal: An evaluation of a piece of property to determine its value. A bank requires an appraisal before approving your mortgage.
Asbestos: A mineral fiber used in some building materials such as flooring, siding, insulation and roofing. It is presently banned for most uses in homes and buildings.
Assessed Value: The valuation placed on property by a public tax assessor as the basis of property taxes.
Bridge Loan: A short-term mortgage made until a longer-term loan can be made. It is sometimes used when a person needs money to build or purchase a home before the present one has been sold.
Broker: A person licensed by his or her state to act independently in conjunction with a real estate brokerage business. Although requirements vary from state to state, an individual must usually have advanced training, at least one year of experience in the industry, have successfully closed a certain number of transactions and must pass an examination to earn a broker’s license.
Building Codes: State and local laws that regulate the construction of new property and the rehabilitation of existing property.
Closing: The final step in the sale and transfer of ownership of a property. The title is transferred from the seller to the buyer; the buyer signs the mortgage and pays costs of settlement. Any monies due to the seller and buyer are paid.
Closing Costs: Fees and expenses, not including the price of the home, payable by the seller and the buyer at the closing (e.g., brokerage commissions, title insurance premiums, fees for recording and attorney’s fees).
Comparables: Properties similar in size and character to the one being bought or sold.
Condominium: Ownership of a unit only, rather than the entire building with the land.
Contingency: A specific condition that must be satisfied before a contract is binding such as an inspection and mortgage approval.
Conventional Mortgage: The most common type of mortgage from a traditional lender, usually requiring a minimum of 5% down payment. Can be a fixed rate, fixed term, adjustable or balloon. Ask for more details!
Disclosure Laws: State and federal regulations which require sellers to disclose conditions such as whether a house is located in a flood plain or if there are known defects in/or affecting the property.
Earnest Money: A portion of a down payment given to the seller by a potential buyer indicating the buyer’s intent to complete the purchase of the property. This is also called a “Good Faith” deposit, which is held in escrow until closing.
Engineer Inspection: A physical inspection of the major systems of a house by a licensed professional as a contingency of the sale. The fee is paid by the buyer and typically ranges from $250 to $400. An engineer’s inspection is recommended but not required. Also, it’s not to be confused with an “appraisal” or “assessment.”Escrow The placement of money or documents with a third party for safekeeping, pending the fulfillment or performance of a specified act or condition. Example: Your earnest money will be held in a non-interest-bearing escrow account until closing.Federal Housing Administration (FHA)An agency within the Department of Housing and Urban Development (HUD) that administers loan guarantee programs and loan insurance programs to make more housing available.
Lien: A legal claim against a property that must be paid when the property is sold.Loan-to-Value Ratio (LTV)The relationship between the amount of a home mortgage and the total value of the property. Most mortgages are between 80 to 95% of the value. Example: If your down payment is 10%, your LTV is 90%.Lock-in-RateA commitment made by lenders on a mortgage loan to “lock in” a certain rate, pending mortgage approval. Lock-in periods vary.
Market Value: The highest price a buyer will pay for a property and the lowest price the seller will accept.
Mortgage Broker: An individual or company that obtains mortgages for others by fi nding lending institutions, insurance companies or private sources to lend the money. A mortgage broker may also make collections and handle disbursements.
Mortgage Insurance: A policy required by the lender when the buyer borrows more than 80% LTV, as protection against default.
Points: A dollar amount paid to a lender if it is necessary to reduce the interest rate (not commonly done).
Principal, Interest, Taxes and Insurance (PITI) Payment: A periodic (typically monthly) payment that includes the principal and interest payment, plus a contribution to the escrow account established by the lender to pay insurance premiums and property taxes on the property.
Private Mortgage Insurance (PMI): Insurance issued to a lender by a private company to protect the lender against loss on a defaulted mortgage loan. Its use is usually limited to loans with high loan-to-value ratios. The borrower pays the premiums.
Radon: A colorless, odorless gas formed by the breakdown of uranium in subsoils. It can enter a basement through pores or cracks in the foundation. Long-term, constant exposure is considered to be a health hazard. Devices designed to eliminate this gas cost about $1,200.
Savings and Loan Association (S&L): Depository institutions that specialize in originating, servicing and holding mortgage loans, primarily on owner-occupied residential property.
Savings Bank: A financial institution organized to hold individual depositors funds in interest-bearing accounts – and to make long-term investments such as home mortgage loans.
Title: A document that proves ownership.
Title Insurance: Protection for lenders and homeowners against financial loss resulting from legal defects in the title.
Zoning Restrictions: Local municipal ordinances that classify property according to specific uses such as single-family, residential, commercial, industrial, multi-family, etc.