A Guide to Real Estate Terms

ADJUSTABLE RATE MORTGAGE (ARM) - A mortgage in which the interest rate is adjustable, meaning that the rate can go up or down, periodically, based on a pre-selected index. Often that index is the prime interest rate.

AMORTIZATION - a schedule of systematic loan payments that establishes the amount of payment to be applied to the principal and/or interest over a set period of time so that at the end of the period of time there is a zero balance.

APPRAISAL - an estimate of opinion of the value of a Real Estate property by a professional unbiased third party, known as an appraiser. All non-owner financed mortgages will require an appraisal and is generally paid for by the Buyer through the Buyer's lender.

ASSUMPTION - purchasing a property by agreeing to assume an existing mortgage, and agreeing to be personally liable for the terms and conditions of the mortgage, including the payments. Not all existing mortgages can be assumed.

CLOSING - the meeting between the Buyer, the Seller, and/or their agents, and the Lender to legally transfer the property and the deed from the Seller to the Buyer. The loan is also "closed" which is the legal transfer of funds between the Lender and the Buyer.

CLOSING COSTS - Funds needed from the Buyer and/or the Seller (if Seller hasn't enough equity to pay off his mortgage, and pay his closing expenses), at the time of closing. These are expenses of the sale and/or the loan financing. Some examples are: recording fees, propane pro-ration, and purchase of personal property by the Buyer.

CONSTRUCTION TO PERMANENT LOAN - a loan requiring a single application process and fee which covers the construction costs of the project and converts to a permanent mortgage loan at the time of the Real Estate closing.

CONTINGENCIES - A provision or condition, written into a Real Estate offer or contract that requires the completion of a certain act or event before that contract is binding. Examples of contingencies are: obtaining financing, rezoning a property, or removing an easement.

CONVENTIONAL LOAN - mortgage not insured by Federal Housing Administration (FHA), or guaranteed by the Veterans Administration (VA) or Farmers Home Administration (FHA).

CREDIT REPORT - a detailed report of a persons or businesses credit history and current credit status, used to determine creditworthiness.

CREDIT SCORE - a score applied to the information obtained on the credit report which may affect the interest rate for a mortgage.

DEBT TO INCOME RATIO - the ratio of a borrowers total amount of debt, as a percentage of their total gross income.

DEED - the document that, when recorded with your local government, proves the ownership of a property. The deed is transferred from the Seller to the Buyer at the time of closing.

DEED OF TRUST - similar to a mortgage, but rather than being held by the lending institution as in the case of a mortgage, the document called the deed of trust is transferred to a third-party trustee to secure the debt owed to the lender by the borrower.

DEFAULT - the condition that occurs when the duties and obligations of a contract are not performed. In Real Estate terms it usually refers to the mortgage not being paid and the owner being "in default" to the lender.

EARNEST MONEY - money that accompanies an offer to purchase Real Estate, paid by the prospective Buyer, to indicate to the Seller the Buyer's serious intent to complete the transaction. The Earnest Money is placed in an escrow account and at the time of closing becomes part of the down payment.

e-PRO - a REALTOR® who has successfully completed the National Association of Realtors ® endorsed course, called e-PRO training program, which teaches the Real Estate professional about the use of internet tools in the practice of Real Estate.

EQUITY - the value remaining in a property after the mortgage and any liens are paid.

ESCROW - the process by which the money and/or the documents are held and processed per the instructions of the parties to the Real Estate contract. The "closing" occurs when all of the contract terms have been satisfied and the delivery and transfer of the escrowed funds and documents takes place.

FHA LOAN - a loan insured by the Federal Housing Administration. These loans require mortgage insurance paid by the borrower, which protects the lender should the borrower be unable to make the mortgage payments and the property go in to foreclosure.

FSBO - For Sale By Owner

FORECLOSURE - the legal process, undertaken by the lender, whereby real property which secures a debt is sold to satisfy the debt when the note maker defaults.

GOOD FAITH ESTIMATE - a written preliminary accounting of all loan charges (loan closing costs) provided by a lender to a borrower, in a timely manner, as required by the Real Estate Settlement Procedures Act (RESPA)

GRI - Graduate, Realtor® Institute - a professional designation recognized by the National Association of Realtors® and the Colorado Association of Realtors(R), which is an indicator that a Realtor® has much greater than the minimum amount of education required for licensure renewal.

HAZARD INSURANCE - insurance on real property to cover loss due to certain hazards, such as fire, wind, or flood.

HUD - a federal cabinet department, U. S. Department of Housing and Urban Development. This department is active in housing programs, including programs whose goal is to provide housing and programs whose goal is to improve housing standards.

INSPECTION - the visit and review of real property for the purpose of knowing the condition of the property and all of its systems (electrical, foundation, roof, plumbing, etc.)

INTEREST - the part of the mortgage payment that the lender collects for the use of the lender's money.

LIEN - a legal charge or claim by one party on the property of another to ensure payment of a debt either prior to or at the time the property is sold.

LISTING - a written contract between a property owner and a Real Estate Agent entered into for the purpose of selling a property.

LOAN DISCOUNT POINTS - an additional fee charged by a lender to allow the borrower to "buy down" the interest rate of their loan.

LOAN TO VALUE - the ratio of the principal of the mortgage loan to the appraised value of the property OR the sales price of the property (whichever is lower).

MARKET VALUE - the highest price a property will sell for based on the highest figure a willing Buyer will give AND the lowest figure a willing Seller will take.

MORTGAGE - the legal written document signed by the property's owner, binding him to repay the debt or give up the property to the lender so he may sell it to repay the debt.

NOTE - the note is the written document signed by the borrower as a promise he will pay a debt.

ORIGINATION FEE - the finance fee a lender charges to make a mortgage, usually computed as a percentage of the loan amount, used to cover the fees to prepare the loan documents, the credit report, and the appraisal.

PITI - the principal, interest, taxes and insurance usually paid as one sum to the holder of the mortgage. Commonly known as a "monthly payment" on a property debt

POWER OF ATTORNEY - a written legal document signed by a party, giving the right to another party to act on behalf of the signing party, limited to what is indicated in the document.

PREPAIDS - expenses paid by a Buyer (borrower) for the purpose of establishing an impound or reserve account to cover such items as hazard insurance, taxes, private mortgage insurance.

PREQUALIFICATION - the first step in a mortgage application process which reveals how much house one can afford to buy by determining the amount of a mortgage one can qualify for. It is very helpful to have this information when you begin to shop for a home.

PRINCIPAL - the amount of money borrowed.

PRIVATE MORTGAGE INSURANCE (PMI) - insurance written to protect a conventional lender against loss if the borrower cannot make his mortgage payments. The borrower pays this as a monthly fee. It is generally required if the down payment is less than 20% of the purchase price.

PROMISSORY NOTE - the written promise of one person to pay another person a specified amount of money by a specified time or pay the specified interest. Sometimes used in place of a check or cash for Earnest Money.

REALTOR® - a trade name which can be used only by members of the local and state boards which are affiliated with the National Association of Realtors®, and designates a professional who adheres to the code of ethics which govern the conduct of a Realtor® as put forth by the National Association of Realtors®.

RECORDING - entering the information regarding the transfer of ownership and other related information into the public record of the local authorities. Fees are charged to the Buyer at the time of closing for this service.

SETTLEMENT STATEMENT - the written document which shows how all the monies related to a transfer of ownership are adjusted, prorated, and disbursed. Some charges are credits, others are debits, some are settlement costs. Buyers and Sellers should have access to these prior to closing with any needed explanation by their agent. These documents will also be explained at the time of the settlement, or closing.

SURVEY - the process by which a property is examined to determine boundary measurements, land areas, easements, rights of way, position and dimension of any improvements on the land, encroachments and setback requirement compliance.

TITLE - the document which reveals ownership to a property or estate. There are several types of ownership which should be determined by a property purchaser depending on the circumstances he is in, and on the advice of his attorney, should he have questions.

TITLE INSURANCE - insurance issued at closing to protect the purchaser in his ownership rights to a property. The insurance is against any loss to the policyholder relating to the title of the property and any defects which might be discovered after the closing (a forged document, an unrecorded easement known to a previous owner but not revealed at the time he transferred ownership to another party, incorrect legal interpretations, etc.)

VA LOAN - a mortgage assistance program, sponsored by the government through the Veteran's Administration, available only to qualifying veterans or qualifying spouses.

Mike Williams, GRI, e-PRO
Montrose Home and Land Co.
1104 So. Townsend Ave. Montrose, CO 81401
Cell: 970-209-2500    Office: 970-964-4050
Fax: 970-249-0489

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