Acceptance - consent to an offer to enter into a contract. Offer and
acceptance create a contract when the acceptance is communicated to the
offeror.
Adjustable Rate Mortgage (ARM) - interest rates on this type of mortgage
are periodically adjusted up or down, depending on a specified financial index.
Adjustment Cap - the maximum amount that an interest rate can adjust
each period. (usually 1% per 6 months or 2% per year)
Adjustment Period - the time period that the interest rate of the loan
is reviewed and adjusted if necessary. (usually 6 months or 1 year)
Agency - the fiduciary relationship in which one person (the agent)
represents another (the principal) in dealing with third parties, as authorized
by the principal. *See Agency Disclosure Form.
Agreement of Sale - see "Contract"
Amenities - attractive or desirable features of a property, beyond the
purely monetary and utilitarian.
Amenity Value - the value of the pleasures a property offers, such as a
good neighborhood, schools, parks, a view, or other tangible or intangible
assets.
Amortization - a method of equalizing the monthly mortgage payments over
the life of the loan, even though the proportion of principal to interest
changes over time. In the early part of the loan, principal repayment is very
small and interest repayment very high, at the end of the loan, that
relationship is reversed. *See also Negative Amount.
Amortized Loan - a loan that is completely paid off, interest and
principal, by a series of regular payments that are equal or nearly equal.
Annual Percentage Rate (APR) - the actual finance charge for a loan,
including points and loan fees in addition to the stated interest rate. A term
used in the Truth in Lending Act.
Appraisal - Real Estate Law Book, pg. 359.
Appraiser - one who provides the appraisal.
Assumption of Mortgage - buyer assumes liability for an existing loan.
This is subject to approval by the lender.
Assessed Value - the value placed on property by a municipality for
purposes of levying taxes. It may differ widely from appraised or market value.
Balloon Payment - a large principal payment due all at once at the end
of some loan terms.
Binder - *See Earnest Money Deposit.
Broker - *See Real Estate Broker.
Brokerage Fee - *See Commission.
Buyer's Market - a situation where many properties are for sale with few
buyers. Supply is up demand is down.
Cap - *See Interest Rate Cap.
Chain of Title - a chronological list of recorded instruments affecting
the title to land, beginning with the earliest in point of time and concluding
with the latest evidence of ownership.
Client - the party represented by a broker.
Closing - close of escrow - The date and time of the transfers of one
owner to another. *see Recordation
Closing Statement - a financial statement rendered to the buyer and
seller at the close of escrow, giving an account of all funds received or
expended by the escrow holder.
Code of Ethics - the set of standards that a professional is bound to
observe. The Real Estate Commissioner's Regulations establish such a code, and
professional associations such as the National Association of Realtors also
have codes for their members.
Commission/Brokerage Fee - usually a percentage of the total transaction
paid to an agent or broker. A compensation or fee for negotiating a real estate
transaction.
CMA (Comparative Market Analysis) - a survey of attributes and selling
prices of comparable houses on the market or recently sold; used to help
determine correct pricing strategy or a seller's property.
Condo (Condominium) - type of real estate ownership where the owner has
title to a specific unit and shared interest in common areas.
Contingency - a condition in contract that must be met for the contract
to be binding.
Contract - binding legal agreement between two or more parties that
delineates the conditions for the exchange of value (example: money exchanged
for title to property). *see Deposit Receipt
Conversion Clause - a provision that allows converting an ARM to a
fixed-rate loan after a specified interval.
Cooperative (Co-op) - type of real estate ownership where all
shareholders own the whole property, but each has proprietary occupancy rights
for specific units.
Counter Offer -a response from the seller modifying the offer you
submitted. (You can either accept or counter offer back.)
Credit Report - source of information on which the lender bases his
decision to make the loan.
Deed - legal document that formally conveys ownership of property from
seller to buyer.
Deposit Receipt - the form used for receipt of "earnest money"
accompanying an offer to purchase real property. When the offer is accepted and
the acceptance communicated, the form becomes a purchase contract.
Documentary Transfer Tax - a tax on the transfer of real property
located in any county in the state. Applies when the consideration exceeds
$100. Tax is computed at the rate of $1.10 per $1,000 of sales price.
Down Payment - percentage of the purchase price that the buyer must pay
in cash and may not borrow from the lender.
Dual Agency - a situation where one agent represents both sides with
consent of all parties. The most common dual agency in real estate is escrow.
Earnest Money/Earnest Money Deposit - deposit paid when the sale
contract/offer is signed. A.k.a. - Good Faith Deposit.
Equity - the value of the property actually owned by the homeowner.
Escrow - a fund or account held by a third-party custodian until
conditions of a contract are met.
Escrow Holder - a third party that acts as the stakes holder for a buyer
and seller. The escrow holder is an agent for both buyer and seller. Title
companies often act as escrow holders.
Escrow Fee - an amount charged by the escrow company to execute the
instructions of the buyer and the seller.
Fannie Mae (Federal National Mortgage Association FNMA) - privately
owned corporation created by Congress that buys mortgage notes from local
lenders and is responsible for the guidelines a majority of lenders use to
qualify borrowers.
Finance Charge - the total cost, including all fees, points, and
interest payments a borrower pays to obtain credit.
Financial Statement - a written statement often required of a borrower
by a bank, stating all of the borrower's assets, liabilities and net worth.
Fixed Rate Mortgage - interest rates on this type of mortgage remain the
same over the life of the loan term. Compare to "Adjustable Rate Mortgage."
Fully Indexed Rate - the rate of the index + the margin. (This is the
rate that your loan will be adjusted to, and it changes to reflect current
economic conditions throughout the life of the loan.)
Good Faith Deposit - * see Earnest Money Deposit.
Graduated Payment Mortgage - monthly payments start low and increase at
a predetermined rate. Compare to "ARM".
Grant Deed - the customary document used in California to transfer title
to real property. It uses the word "grant" to convey a fee estate, and contains
two implied warranties.
Grantee - the receiver of the title being granted; the seller, the
person who makes a grant.
Hazard Insurance - compensates for property damage from specified
hazards such as fire and wind. More complete coverage is given by all-risk
homeowner's insurance.
Home Inspection Report - prepared by a qualified inspector, it evaluates
a property's structure and mechanical systems.
Impounds - prepayments of taxes and insurance. (Different lenders and
loan amounts determine if these are needed, and if so how much these are.)
Impound Account - a trust account in which funds are held, usually by a
lender, for the payment of property taxes and insurance premiums required to
protect the lender's security. These amounts are usually collected with the
note payment.
Index - the economic indicator that the adjustable loan is tied to.
Interest - the cost of borrowing money, usually expressed as a
percentage over time.
Interest Rate Cap - a rate of return on capital, usually expressed as an
annual percentage of the amount loaned or invested.
Lien - a security claim on property until a debt is satisfied.
Life Cap - this is the interest rate ceiling that is placed on the loan
(typically 6% over the start rate).
Listing Agent - he/she is the Real Estate Agent that is representing the
person(s) selling their home.
Listing Contract - agreement whereby an owner engages a real estate
agent for a specified period to sell property, for which sale the agent
receives a commission.
Loan Origination Fee - a fee paid by the borrower or buyer to procure
the loan. Loan fees are established by the lender generally in direct
correlation to the aggregate demand for money.
Loan to Value - the percentage of the money lent compared to the
appraised value of the home.
Margin - the amount of increase over the index that the bank charges
(see index).
Market Value - the price that is established by present economic
conditions, location, and general trends.
Mortgage - security claim by a lender against property until the debt is
paid.
Mortgage Banker - he/she finds you a loan based upon the package of your
financial information and gets a lender to loan to you. A person whose
principal business is the originating, financing, closing, selling and
servicing of loans.
Mortgage Insurance - insurance written by an independent mortgage
insurance company protecting the mortgage lender from default losses usually on
loans with less than 20% down payment.
Multiple Listing Service (MLS) - a system that provides to its members
detailed information about properties for sale.
Negative Amortization - when monthly payments aren't enough to cover
interest costs, they are added to the principal balance. This is most likely to
occur with ARM's that have payment caps.
Offer - the price and conditions you are offering a seller to pay for a
property (this can be accepted or countered by the seller). *See Deposit
Receipt
Origination Fee - application fee(s) for processing a proposed mortgage
loan.
PITI - principal, interest, taxes and insurance, forming the basis for
monthly mortgage payments.
Point - one percent of the loan principal. It's charged in addition to
interest and fees.
Prepaid Interest - a pro-ration of a prepaid item for a specific period
of time based on the close of escrow date.
Prepayment Penalty - a fee paid by a borrower who pays off the loan
before it is due.
Pre-qualification - informal estimate of how much financing a potential
borrower might expect to obtain, done before paying substantial loan
application fees.
Principal - one of the parties to a contract; or the amount of money
borrowed for which interest is charged.
Purchase Contract and Receipt for Deposit - the formal name for the
"deposit receipt" used when accepting "earnest money" from a prospective
purchaser with an offer to buy property.
Purchase Money - money paid to acquire a property. A purchase money loan
is a loan either from the seller or from a lender to buy the property that
secures the loan.
Realtor - a state licensed member of the National Association of
Realtors, the California Association of Realtors and a local association of
Realtors. Each member must subscribe to a code of ethics and standard of
practice. Only licensees meeting all of these membership requirements are
authorized to use the title "Realtor".
Real Estate Broker (Broker) - a D.R.E. licensee designation.
Recordation - filing for record in the office of the county recorder for
the purpose of giving constructive notice of a title or interest in real
property. A.k.a. - Close of Escrow.
RESPA Statement - Real Estate Settlement Procedures Act, a precise
breakdown of closing costs for both seller and buyers.
Selling Agent - he/she is the Real Estate Agent that represents you when
you are making a sales transaction as a buyer.
Settlement - all financial transactions required to make the contract
final.
Start Rate - the initial interest rate charged at the beginning of the
loan. (This rate is commonly artificially low and is called a "teaser rate".)
Tax-Deferred Exchange (1031) - a method of deferring capital gains by
exchanging real property for other like-kind property.
Tax Service - a report to the lender, biannually, concerning the timely
payment of proper taxes and reports any delinquencies.
Tax Impounds - allow a trust-type account to be established by the
lender for the accumulation of funds to meet tax assessments required to
protect their security. They are usually collected with the note payment.
Teaser - * see Start Rate.
Title - document that indicates ownership of a specific property.
Title Company - a private company that issues a title insurance policy
which protects the buyer and lender from loss sustained by defects in the
title.
Title Insurance - protects against loss from legal defects in the title.
The seller buys Title Insurance for the buyer. The buyer buys Title Insurance
for their lender.
Title Search - detailed examination of the entire document history of a
property title to make sure there are not legal encumbrances that affect the
seller's right to sell.
Trust Account - a special account into which money is deposited by an
agent for the account of a principal, to be kept intact and not commingled.
Trust Deed - also called Deed of Trust. It is a deed by which a trustor
or borrower conveys legal title to a trustee as security for the payment of a
debt.
Trust Funds - a collective term for money or things of value received by
a broker or salesperson on behalf of a principal. The funds are held for the
benefits of others.
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