Real Estate Terms

Abstract of title

A collection of a property’s history. The attorneys use the abstract to look at who owned it in the past. They’re also looking at any other facts that are tied to the property. This could include deeds, surveys, liens, and other recorded documents which affect the title.

Amortization

Repayment of a loan in equal installments. As payments continue, the total payment remains the same. However, the amount of the payment going toward interest decreases while the amount going toward principle increases.

Annual Percentage Rate (APR)

The total finance charge, including interest, loan fees, and points. APR is a percentage of the loan amount and is usually higher than the contract interest rate.

Appraisal

A professional opinion of a property’s value. It’s based on a property’s style and appearance, construction, quality, usefulness, and the value of comparable properties.

Appreciation

An increase in the value of a property as a result of outside factors. Value may increase due to the economy or just because more people want to move to the neighborhood.

Assumption of a mortgage

Assuming a mortgage means a buyer is going to take on an existing mortgage from someone else. They are agreeing to be responsible for the terms and conditions of the mortgage, including payments. Usually, the lender must still approve the buyer.

Closing

Closing is the official meeting where the buyer pays for a property and signs title documents. The buyer’s attorney conducts closing most of the time. The seller’s attorney and bank attorney are usually there as well but (The seller often signs documents ahead of time.) At this point, the buyer receives keys to her new home! The seller’s attorney distributes funds as soon as the closing documents go on record with the County Clerk.

Closing costs

The fees associated with closing on real estate and for getting a mortgage. Your loan officer can give you a specific list of what fees to expect, as they are unique to each person’s situation.

Closing statement

The financial disclosure statement that accounts for all of the fees already paid and what is needed for closing.

Condominium

A system of ownership where an individual owns a housing unit. However, multiple people share ownership of common areas and the land.

Contingency

A condition that must be satisfied before a contract is binding. These are built into contracts to protect both the buyer and seller. (For example, a contract may be contingent upon the buyer getting approved for a mortgage.)

Conventional mortgage

Investors are the driving force behind conventional mortgages. In this case, the government does not do any underwriting. (Some examples of government-backed loans are FHA and VA loans.)

Home inspection report

A qualified inspector’s report on a property’s overall condition. The report usually includes an evaluation of both the structural and mechanical systems. It’s a good idea to ask your inspector whether their report will include pictures of any issues. This goes a long way if any problems are discovered, and will help if you need to ask for a credit or repair from the seller.

Interest

Charge paid to a lender for borrowed money.

Joint tenancy

Joint ownership by two or more persons with right of survivorship. All joint tenants have equal interest and equal rights in the property. On the death of a joint tenant, his/her interest passes to the surviving tenants or tenant.

Land Contract (aka Contract for Deed)

A land contract is a written legal contract used to purchase property. However, this is a form of seller financing and not a “traditional” sale of property. It is similar to a mortgage, but instead of borrowing money from a lender, the buyer makes payments to the seller until the purchase price is paid in full. At that point, the seller will sign over the title to the property.

Lien

A legal hold or claim on property as security for a debt or charge. (For instance, judgments, taxes, and mortgages.)

Loan commitment

A written promise to make a loan for a specified amount on specified terms.

Loan-to-value ratio

The relationship between the amount of the loan and the appraised value of the property. This is usually writtten out as a percentage of the appraised value.

Marketable title

Merchantable title; title free and clear of objectionable liens or encumbrances.

Mortgage

Claim that a lender receives on a property as its security for the loan it makes to a home buyer.

Mortgagee

The lender of money.

Mortgagor

The borrower of money.

Mortgage Deed of Trust

Pledge of real property to secure a debt. The County Clerk records this document.

Mortgage broker

Independent third-party broker who arranges loans between borrowers and lenders. Mortgage brokers streamline the application and approval process and find favorable terms for the buyer.

Multiple Listing Service (MLS)

The MLS is a service provided by the local Board of Realtors®. It has information to aid in the sale of listings. Realtors use the MLS to expose properties to more potential buyers.

Note

A written promise to repay a loan in regular monthly payments.

Origination fee

A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to 1% for FHA and VA loans.

PITI

Principle, Interest, Taxes and Insurance; the four parts of a regular mortgage payment.

Points

An amount equal to one percent of the principle amount of a mortgage. Points are a one-time charge the buyer can pay at closing. The extra interest charges are paid to increase the rate of return to the lender so it’s similar to the market level.

Prepayment penalty

A fee charged for a mortgagor who pays off a loan before it is due. There are no pre-payments penalties in New York State.

Private Mortgage Insurance (PMI)

A private company writes PMI to protect mortgage lenders against financial losses from borrowers defaulting on loans.

Mortgage Insurance Premium (MIP)

The federal government writes MIP to protect itself against financial losses from borrowers defaulting on loans.

Processing

The preparation of a mortgage loan application and supporting documents for underwriting.

Promissory note

A promissory note establishes personal liability for its repayment. The borrower signs this at closing. They agree to repay the loan according to the terms in the note.

Purchase agreement

A written agreement between a buyer and seller for the purchase of real estate under stated terms and conditions.

Ratio analysis

Ratio analysis is a residential underwriting procedure. The underwriter calculates the ratio of debt to income. They’re checking the proposed housing expense plus other long-term debt expenses as a percentage of monthly income.

Real property

Land and whatever by nature or artificial annexation is a part of it.

Realtor®

A real estate broker or associate active in a local real estate board. Realtors® are affiliated with the National Association of Realtors®.

Regulation Z

The set of rules governing consumer lending. The Federal Reserve Board of Governors issues these in accordance with the Consumer Protection Act. The Truth-in-Lending Act is another name for Regulation Z.

Servicing

Servicing a loan means handling the receipt of payments, customer service, escrow administration, and investor accounting. It also involves collections and foreclosures.

SONYMA

New York State insures SONYMA loans. These can be a great tool for first time home buyers. However, there is sometimes a penalty for resale within the first few years.

Special assessment

A fee against property by a public authority. This is a way to fund public improvements such as street lights, sidewalks, street improvements, etc.

Subdivision

A parcel of land that has been divided into smaller parts (lots, blocks or tracts).

Tenancy in common

Ownership by two or more persons who hold undivided interest. The right of survivorship doesn’t apply to this type of ownership. It’s also important to note that interests need not be equal.

Term of Mortgage

The period of time in which a mortgage must be paid.

Title

Right of ownership and possession of property.

Title Insurance Policy

A policy that protects the purchaser, mortgagee, or other party against losses.

Underwriting

Underwriters analyze the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. They evaluate the property as outlined in the appraisal report and the borrower’s ability and willingness to repay the loan.

VA loan

The Veterans Administration partially guarantees VA loans despite them coming from a private lender. VA loans are only available to qualified veterans.

Warranty deed

A deed used to convey real property. It contains warranties of title and quiet possession. Additionally, the grantor agrees to defend the premises against the lawful claims of third persons.