Glossary
Adjustable Rate Mortgage (ARM)
is a mortgage where the interest rate, and generally the payments, may change over the life of the loan. The interest rate is adjusted to match the rise or fall of a pre-selected interest rate index, and the regular monthly payments increase or decrease accordingly. The initial rate of an ARM is lower than a fixed rate mortgage which lets the borrower buy more house for the same monthly payment. The trade-off is the risk of higher payments later on. ARMs payments may be fixed for a period up to seven years before they begin adjusting. The frequency of adjustments, the limit for each adjustment and the maximum amount of adjustment varies from mortgage to mortgage.
Agent
is one who is legally authorized by another to represent him/her or act in his/her behalf. In real estate there may be an agent for the Seller and one for the Buyer.
Amortization Chart
is the record of repayment of a loan showing the amount applied to the principal as payments are made.
Appraisal
is a report made by a qualified person (the appraiser) which states his opinion of the estimated value and quality of the property.
Appraiser
is licensed person who looks at a property and compares it with similar properties in order to give an opinion of the estimated value and quality of the property.
Assessed Valuation
is the value of aproperty according to an official tax assessor. The real property tax will be based on the assessed valuation.
Balloon Mortgage
is a mortgage set up so that the monthly payments are too small to pay off the loan within the set period. Usually, the remaining unpaid amount becomes due in a lump sum at the end of the term.
Closing
is the final step of a sale transaction, in which the title to, or ownership of, real estate is transferred from the Seller to the Buyer. In closing, the Buyer and the Seller pay any costs that were agreed to (see "Closing Costs", below), any financial adjustments are made, and the Buyer or the escrow agent is given the deed. Closing is sometimes also referred to as "settlement".
Closing Costs
are costs in addition to the price of the property itself that are due at closing. They normally include origination fees, discount points, attorney's fees, costs for title insurance, surveys, and recording documents, and prepayment of real estate taxes and insurance premiums held by the lender.
Closing Statement
is a statement of the funds received and spent at the closing of a real estate sale. It is furnished by the real estate closing agent to the Buyer and Seller separately. The standard federal form HUD 1 is used in most residential transactions.
Comparables
are houses and properties that are similar in style, appearance, construction, quality and usefulness to a particular property in a certain location.
Condominium Documents (CC&Rs)
are legal papers provided to the buyer of a condominium. They usually include the condominium declaration, the plat and plans, and the by-laws of the complex.
Credit Report
is a report from a credit reporting agency issued to a lender disclosing the credit rating of and other pertinent financial information about a prospective borrower.
Deed
is the formal written document which transfers the rights of ownership and possession (i.e. the title) from the Seller to the Buyer. Sometimes the deed is called a title document. It contains a specific, legal description of the property.
Deed of Trust
is used in some states in place of a mortgage or a deed to secure debt. While there are only two people involved in a mortgage, the borrower and the lender, there are three people involved in a deed of trust - the borrower, the lender and the trustee. The borrower transfers legal title to the property to the trustee, who holds the property as a security for the debt. If the borrower pays the mortgage as agreed, the trustee transfers the legal title at the completion of payment. If the borrower does not pay the mortgage as agreed, the trustee can sell the property.
Down Payment
is the difference between the sales price of real estate and the amount of a mortgage loan. The down payment is usually paid in full at the closing.
Earnest Money
is money paid by a buyer at the time of making an offer or entering into a contract to purchase. It is intended to show the Buyer's good faith intention to complete the purchase. Generally, earnest money is applied against the purchase price, but it may be forfeited if the Buyer fails to complete the purchase.
Equity
is the owner's interest in a property after any loans have been subtracted from its market value. When the mortgage has been paid off, the equity in the property is 100%.
Escrow Account
is a special bank account, maintained by the lender or an escrow agent, in which money is set aside so that the lender can pay the taxes, hazard and mortgage insurance, ground rents, and other special costs on a mortgage or property as they come due. Each month a certain portion, called the escrow payment, of your monthly mortgage payment goes into this account.
Examination of Title
is a review which reveals the previous owners of, and encumbrances on, a piece of real estate. To conduct this review, one must search the public records or examine an abstract of title.
Fair Market Value
is the price that the Buyer is willing to pay and that the Seller is willing to accept for a piece of property. In arriving at this price, the Buyer and the Seller must be reasonably aware of the pertinent facts and not be under any duress to buy or sell.
First Mortgage
is the loan that has the primary claim on all proceeds from the sale or other disposition of the property.
Fixed Rate Mortgage
is the basic type of loan in which the interest rate does not change over the life of the loan. For example, if the interest on a 30 year mortgage is set at 9%, it will stay at 9% until the mortgage is paid off.
General Warranty Deed
is a deed of conveyance in which the person conveying his interest in a property fully warrants good and clear title to the premises. It offers the greatest protection of any deed.
Grantee
is the Buyer to whom a property is conveyed. The grantee might be a person, a corporation or a partnership.
Grantor
Is the seller when an interest in property is conveyed to another person or entity.
Ground Rent
is the rent at which land is let (leased) to a tenant either for a long term or perpetually. For example: a corporation can pay to have its office built on land that it rents from the owner of the land. The corporation owns the building but not the land.
Hazard Insurance
is an insurance policy intended to cover an owner occupied private dwelling and its contents against common disasters such as fire, wind damage and theft. In most cases it also protects the owner against legal claims of anyone who becomes injured on the property. This is also known as a package policy.
Homeowners Association
is an organization made up of homeowners who reside within a particular area or development, such as a subdivision or a condominium. The members of such an association enforce any restrictions on the use of property, and both provide and manage community facilities.
Homeowner's Policy
is an insurance policy intended to cover an owner-occupied private dwelling and its contents against common disasters, such as fire, wind damage and theft. In most cases it also protects the owner against the legal claims of anyone who becomes injured on the property. Also known as a package policy.
Home Warranty
is a policy purchased by a Buyer or Seller as assurance against unexpected home repair costs.
HUD 1
is a statement of the funds received and spent at the closing of a real estate sale. It is furnished by the real estate closing agent to the Buyer and Seller separately. The standard form "HUD 1" is used in most residential transactions.
Inspection
is a formal analysis of a home's structure and systems, often performed by a licensed professional.
Interest
is a charge for borrowing money. It is usually expressed as an annual rate, or percentage, of the money still owed. For example, the interest rate might be 9%. It is also a general term meaning partial or total right to property. An interest in real estate might be a right, such as an easement, a lease, partial ownership, or full ownership.
Kick-out Clause
is a clause in a sales contract that permits a Seller to cancel a contract and return the deposit if a contingency is not removed within a certain period of time.
Lease
is a written agreement stating the conditions for the possession and use of real estate (and/or personal property) given by the owner to another person (the tenant) for a specific period of time and rent.
Listing
is a written agreement that authorizes an agent to sell or lease a piece of real estate for the owner.
Loan Fee
is a charge many lenders charge to cover costs of services provided, such as application charges, inspection and preparation of documents.
Loan-to-Value Ratio (LTVR)
is the amount borrowed to purchase property compared to the sale price or the appraised value (whichever is lower) of that property. It is expressed as a percentage. For example, if one is buying a house for $100,000, and arranges for a $90,000 loan, the LTVR is 90%.
Mortgage
is a formal document which proves the legal claim or lien on property that the lender holds as security for the money borrowed. There are two people involved in a mortgage, the borrower and the lender. The borrower pledges the property as security for the repayment of the money borrowed, but does not transfer title to the lender. However, if the debt is not paid as agreed, the lender, through a court proceeding, can compel the sale of the property to pay off the debt.
Mortgage Insurance Premium (MIP)
is insurance provided by a private company to protect the mortgage lender against default. Generally, this insurance is required by the lender when the down payment is less than 20% of the property value. The lender requires the borrower to pay the insurance premiums. With a conventional loan this is referred to as private mortgage insurance (PMI).
Multiple Listing Service (MLS)
is a service where participating real estate brokers share information on the listings they have and agree to share commissions with participating brokers.
Option
is a contract that allows the option holder to purchase a property for a predetermined price within a specific period of time. The holder of the option does not have to go through with the purchase.
Origination Fee
is a fee that the lender charges the borrower. It is one of the incomes for the lender to cover the cost of issuing a loan. This fee could be from a half percent to over 3%. There may also be other fees that the lender charges.
Percolation Test
is a test which determines how fast water seeps through soil. It is required when a septic system is to be used for a property.
PITI
is an acronym for Principal, Interest, Taxes, and Insurance. The part of the payment that applies to taxes and insurance is kept by the lender in an escrow account until the bills are due. Most mortgage payments cover these items although some lenders do not collect the taxes and insurance amounts because they do not want to deal with the escrow account.
Point
is a discount point. One point is one percent of the loan. Points are paid when a loan is made in order to lower the interest rate.
Power of Attorney
is a document where one individual gives another individual the authority to act in their behalf. The document must clearly spell out the limits of the authority. On occasion in real estate transactions a spouse may give their partner a power of attorney to sign for them if they are not able to attend the closing.
Principal
is the amount of the loan that has not yet been paid. As payments are made they are applied to interest, fees such as late charges and then to principal. In the early years of a loan only a small amount of the payment will be applied against the principal.
Private Mortgage Insurance (PMI)
is insurance provided by a private company to protect the mortgage lender against mortgage default. Generally this insurance is required by the lender when the down payment is less than 20% of the property value. The lender requires the borrower to pay the insurance premiums. With an FHA loan this is referred to as a mortgage insurance premium (MIP). When the principal on the loan drops below 80% of the value of the property, the PMI should no longer need to be paid.
Promissory Note
is a document in which one promises to pay a stated amount on a specific date.
Pro Rate
is a term to describe how to divide income or expenses between a Buyer and a Seller in proportionate shares. Two examples of this are taxes and rent payments on investment properties. In Montana property taxes are paid at the end of the year so if a Buyer purchase a property on the first of March, the taxes are prorated so that the Seller gives the Buyer two months worth of taxes because the Buyer will have to pay those taxes at the end of the year.
Qualifying Income Ratio
is a measurement used by lenders to judge the ability of a borrower to repay a loan. One ratio compares monthly income against the proposed monthly mortgage payment. Another compares the monthly income against the total of all monthly payments including such things as the mortgage, credit card monthly fee, car loan, boat loan, furniture loan, etc.
Real Estate Taxes
are levied by the government on real property and personal property. The amount is based on the value of the property.
Real Property
is a term that refers to land and the improvements attached to the land such as buildings, landscaping, driveways, crops, etc.
Realtor
is a licensed real estate practitioner and an active member of the National Association of Realtors.
Recording
is the act of filing papers such as deeds and liens with the county registrar or clerk so that the papers become public records.
Recording Fee
is the charge for filing papers with the county registrar or clerk.
RESPA (Real Estate Settlement Procedures Act)
is an acronym for the Real Estate Settlement Procedures Act. This is a federal law that is designed to protect a home buyer by requiring the lender to provide the Buyer with details about the closing costs before closing day.
Second Mortgage
is a mortgage whose claim is subordinated to a primary (first) mortgage. If a property is sold, mortgages and liens are paid off in the order of their filing. If there are not enough proceeds from a sale, the last ones on the list do not get paid.
Special Warranty Deed
is a deed of conveyance where the grantor (Seller) agrees to protect the grantee (Buyer) from any claims arising against the title of the property from the time the grantor owned it.
Survey
is a map showing the shape and size of a piece of land in relation to known points of reference.
Tenant
Is one who occupies real property but does not own it.
Time Is Of The Essence
is a phrase in legal contracts that means the transaction must be performed within the specified period of time.
Title
can refer to the right of ownership and possession of a particular property or to the document that proves those rights.
Title Insurance Policy
is provided by an insurer as a guarantee against losses arising from claims against the property due to a defect in the title. In Montana the Seller is required to provide this coverage for the Buyer.
Title Search
is an examination of public records find all records associated with the property that affect ownership including encumbrances or restrictions that might exist.
Warranty Deed
is a deed of conveyance where the grantor (Seller) agrees to unconditionally protect the grantee (Buyer) from any claims against the title of the property.
Zoning
is a term used to describe planning by local governments to identify what kind of buildings can be placed in a particular area and what kind of activity can take place there.
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