A separate document form describing a change or addition to the initial purchase agreement. Addendums can be used for many items, for example changing the closing date.
ADJUSTABLE RATE MORTGAGE (ARM)
A mortgage that has a fluctuating interest rate. ARMs may have lower initial interest rates for a set time and then start to adjust according to an index.
The appraisal is the process of determining the value of a home. This is required by the lender and organized by a third party professional appraiser that is not chosen by either the buyer or seller. The results may not be the same amount as the selling price. If the value comes back lower, it could result in additional negotiations between the buyer and seller.
Is the value placed on the property by the public or county tax assessor for tax purposes. In general this value is different from the appraised value.
BROKER or AGENT
An agent is a person who has taken the necessary state courses and exams to be a real estate agent. They work for a Brokerage. A broker is a person who has taken education beyond the agent level as required by state laws and has passed a broker’s license exam. Brokers can work alone or they can hire agents to work for them.
The real estate company is known as the brokerage. All REALTORS® work for a broker. The fees and commissions are paid to the broker and the broker pays the REALTOR®.
CERTIFICATE OF TITLE
This proves that the property is legally owned by the seller and no other institution or party has any claims against it.
These costs are broken down into two categories, Non-Recurring Closing Costs and Prepaid Items. The Non-Recurring Closing Costs are that are paid just once as the result of buying the buying the property or obtaining a loan. An example of this would be mortgage points on a loan. Prepaid Items are that are likely to continue for a specified about of time or continue the entire time the borrower owns the property. These are like property taxes and homeowners insurance. A lender will give a borrower a Good Faith Estimate that attempts to estimate what these closing costs will be.
CLOSING STATEMENT (HUD1)
Also known as a Settlement Statement. Is a financial statement given to the buyer(s) and seller(s) prior to the property closing. It breaks down the borrower funds and seller funds on the transaction.
This is how real estate professionals get paid for their services. Typically the seller pays all real estate commissions for both listing and selling agents.
COMPARATIVE MARKET ANALYSIS (CMA)
This is when a home’s market value is determined in order to come up with a fair asking price. This will be done by a broker who will find the CMA by comparing the home to other similar properties in the vicinity that have recently sold.
The term for properties that are comparable (in size, amenities, location, and more) to the property being analyzed.
The deed is the legal document that proves the transfer of ownership from the seller to the buyer.
Information about the home (not always flattering) that a seller must provide to a buyer. Examples might include noting that the basement often floods in heavy rain or if there is lead paint anywhere in the house.
This is the responsibility of the buyer to take all necessary care before closing on the purchase. For example, it would include confirming the seller’s broker and attorney are legitimate and confirming there are no issues that have yet to be disclosed that would prevent the buyer from wanting to proceed with the purchase.
EARNEST MONEY (EMD)
Also called the earnest money deposit. This is the sum of money the buyer gives in advance as good faith that they will complete the terms of the agreed upon contract. If the buyer defaults on the terms of the contract they run the risk of losing the deposit.
A right of way giving persons other than the owner of the property access to or over a property.
Used by real estate appraisers, it is the estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
This refers to the time period and process where the purchase funds are released and the transfer of the house between parties is completed. The escrow company is a neutral third party and executes the transaction utilizing the purchase agreement and other documents as the directive.
This refers to the obligation your broker or real estate agent has to act solely in your interest. Examples of these duties are disclosure, confidentiality, and loyalty.
FIXED – RATE MORTGAGE
A type of mortgage in which the interest rate does not change over the course of the loan.
Anything of value that is permanently attached to or a part of the property. This can include lighting, carpet, or landscaping. These items can be a source of dispute between buyer and seller and can be leverage for negotiations. It is always best practice to get everything in writing so there is no confusion.
Insurance that covers the property from damage resulting from flooding. It is required for mortgaged properties located in federally designated flood areas. Flood insurance may also cover items like water damage from a broken pipe, etc.
The short form of Homeowner’s Association Documents. These apply when purchasing a condo or in a neighborhood and include HOA meeting minutes, a copy of the building’s yearly budget, and/or rules for shared spaces.
A professional home inspector will evaluate the structural and mechanical condition of a property. Receiving a satisfactory home inspection is often included as a contingency in the contract by the buyer. It is at the buyers expense that a home inspection is done.
HOMEOWNERS ASSOCIATION (HOA)
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. They sometimes collect fees and enforce the deed restrictions in the community.
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
This is a property description that is recognized by law. It is sufficient to locate and identify the property without oral testimony. An example of a legal description is FISHHAWK RANCH PHASE 2 PARCEL DD-1A LOT 6 BLOCK 74.
Also known as a Property Lien. This is a legal claim against property granting the lien holder a specified amount of money upon the sale of the property. These liens are used to ensure the payment of a debt, with the property acting as collateral. A good example of this would be a mortgage lien.
This is a term used a lot in the mortgage world. It is the percentage ration between your loan amount and the appraised value of your home. So if you loan amount was $150,000 and the appraised value is $200,000 the LTV would be 75%.
This stands for Multiple Listing Service and is where brokers to share their listings with other brokers.
A document that pledges the property to the lender as security for the loan needed to purchase the home.
MORTGAGE INSURANCE (MI)
Also known as Private Mortgage Insurance. This is insurance that the lender requires a borrower to purchase. It covers the lender against some of the losses that could occur if the borrower defaults on the loan. Mortgage insurance is generally required for all loans with more than an 80% LTV. Over time when the LTV improves to less than 80% the mortgage insurance terminates.
MORTGAGE INSURANCE PREMIUM (MIP)
Is an insurance policy used in FHA loans if your down payment is less than 20%. The FHA assesses either an “upfront” MIP (UFMIP) at the time of closing, or an annual MIP that is calculated every year and paid in 12 installments.
PITI – PRINCIPAL, INTEREST, TAXES AND INSURANCE
This is another way of describing your monthly mortgage payment. Principal is the portion of the payment that goes toward paying down the loan and interest is the portion that pays the lender for loaning the money to purchase the property.
The process the loaner goes through to confirm if a borrower qualifies for a loan based on their credit history and current financial status as well as the amount of money a recipient qualifies to receive.
Land and any items that go with it that include items like structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
A real estate agent, real estate broker or broker associate who holds active membership in a local real estate board that is affiliated with the NATIONAL ASSOCIATIONS of REALTORS®
This is when the buyer (or seller) and the escrow agent (more on that later) meet to finalize the purchase by signing final documents. This will incur fees known as closing costs which include attorney’s fees, a loan origination fee, and other charges totaling around six percent of the house. (Closing & Signing appointments are not the same thing. You will sign documents on one day and “Closing” will happen on another day)
Is a legal document proving a person’s right of ownership of a property.
This is a company that specializes in examining and insuring titles to real estate. They also will perform real estate closings and hold EMD’s.
Lenders employ underwriters they work like real estate detectives. Their job is to make sure you have represented yourself and your finances truthfully, and that you haven’t made any false or misleading claims on your loan application.