Public Resources Glossary

Real Estate Glossary

Term Description

Time is of the Essence:

Clause used in contracts to bind one party to performance at or by a specified time in order to bind the other party to performance.

Abstract of title:

A compilation of the recorded documents relating to a parcel of land, from which an attorney may give an opinion as to the condition of title. This is still in use in some parts of Wisconsin and in some other states, but giving way to the use of title insurance.

Accrual
(of income, expenses, etc.):

An accounting method under which income and expenses are charged to the periods for which they are applicable, rather than when payment is received or made; the method calling for income and expenses to be based on payment being received or made in cash accounting.

Addendum:

Something added; a list or other material added to a document, letter, contractual agreement, escrow instructions, etc. (See also amendment).

Adjustable Rate Loan:

A loan in which the rate of interest is tied to a specific financial index, with both the rate of interest and the monthly payments subject to change at established adjustment intervals.

Adjustment Interval:

The period of time between changes in interest rate and/or monthly payment with an adjustable rate loan. These intervals will vary depending on the lending institution and the type of loan for which application is being made.

Agency:

Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the latter. Agency involving real property should be in writing, such as listings, Buyer brokerage agreements, trusts, powers of attorney, etc.

ALTA
(American Land Title Association):

An organization composed of title insurance companies which has adopted certain insurance policy forms to standardize coverage on a national basis.

Amendment:

A change to alter a part of an agreement without changing the principal idea or essence.

Amortization:

Payment of a debt in installments of principal and interest, rather than interest-only payments.

Application Fee:

A fee, often non-refundable, charged by the lender to cover costs of processing an application.

Appraisal:

A formal, written estimation of the current value of a home.

Appurtenant:

Belonging to, accessory to, or incidental to.

APR
(Annual Percentage Rate):

The cost of credit expressed as a yearly rate. It takes into account interest, points and loan origination fee. Since all lenders are required to use the same guidelines in determining APR, this is a good basis for comparing the cost of various loan programs.

ASCS
(Agricultural Stabilization and Conservation Service):

A division of the U.S. Department of Agriculture.

Assessments:

(1) The estimating of value of property for tax purposes.
(2) A levy against property in addition to general taxes. This is usually for improvements such as streets, sewers, etc.
(3) Charges against unit owners in a condominium by a condo or homeowners association.

Assume and Agree to Pay:

A form of purchase of real estate whereby the Buyer agrees to be personally liable for payment of balance due from Seller on a specific mortgage which is a lien on such real estate.

Assumption Fee:

Fee charged by mortgage lender when new Buyer of property assumes an existing mortgage.

Balloon Note:

A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "balloon" is due at maturity.

Balloon Payment:

The final payment on an obligation that is larger than a regular installment payment. (See balloon note).

Bankrupt:

A person who, through a court proceeding, is relieved from the payment of his/her debts after surrender of all his/her non-exempt assets to a court-appointed trustee. After claiming bankruptcy, a person must reestablish credit and wait a minimum of two to three years before applying for a loan.

Bill of Sale:

An instrument by which one transfers personal property.

Bi-weekly Mortgage:

Typically, a fixed rate mortgage on which payments are due and payable every two weeks. Since a total of 26 bi-weekly payments (equivalent to 13 monthly payments) are made annually, loans of this type are paid off more quickly than loans requiring 12 monthly payments per year.

Blanket Mortgage:

A mortgage covering more than one property of the mortgagor (i.e. a mortgage covering all the lots in a subdivision).

Breach
(also called Default):

Failure to comply with the terms of a contract.

Broker
(Real Estate):

One who engages in any of several sorts of business activities relating to the financing, rental or sale of real property or business opportunity.

Closing Costs:

One-time costs that must be paid before the loan can be "closed" or funded. These costs may include such things as property taxes, insurance, brokers fees, escrow fees, title insurance premium, deed recording fee, title insurance premium, title transfer tax, etc. Escrow instructions will stipulate which portion of the fee is to be paid by Buyer or Seller. An estimate of closing costs will be given to Buyer by the lender within a few days after receiving the loan application. (All or a portion of the closing costs may be financed. Ask lender.)

Closing:

In real estate sales, the procedure in which documents are executed and delivered in return for the payment of the sales price, and the sale (or loan) is completed.

Commission:

Compensation earned by a licensee for negotiating a purchase or sale of property or otherwise complying with his agency contract.

Condominium:

A structure of two or more units, the interior spaces of which are individually owned; the balance of the property (both land and building) is owned in common by the owners of the individual units.

Conventional Financing:

A mortgage or deed of trust not obtained under a government program (i.e., FHA, VA, HUD Sec. 8).

Convertible Mortgage Loan:

An adjustable mortgage loan on which, for a fee and after an initial waiting period, the interest rate can be converted to the prevailing fixed rate. Availability of this type of loan varies from time to time.

Conveyance:

Transfer of title to land. Includes most instruments by which interest in real estate is created, mortgaged or assigned.

Deed of Trust:

An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full.

Default
(also called Breach):

An omission or failure to perform a legal duty.

Due on Sale:

A type of acceleration clause, calling for a debt under a mortgage, deed of trust or land contract to be due in its entirety upon transfer of an interest in the secured property. This is also called an "alienation clause."

Earnest Money:

Money given by the Buyer with an offer to purchase. This shows good faith.

Easements:

A right created by grant, reservation, agreement, prescription or necessary implication, which one has in the land of another. It is either for the benefit of land (appurtenant), such as right to cross A to get to B, "in individual" or " in gross," such as a public utility easement.

Encumbrance:

A claim, lien, charge, or liability attached to and binding real property. This is any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.

Equity:

The interest or value which an owner has in real estate over and above the liens against it.

Escrow Agent:

A neutral third party, appointed to act as custodian for documents and funds.

Escrow Closing:

Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event. Modernly, in some states, all instruments necessary to the sale (including funds) are delivered to a third (neutral) party, with instructions as to their use.

Escrow:

Agreement to retain and disburse items of value to achieve a particular purpose.

Estoppels:

The prevention of one from asserting a legal right because of prior actions inconsistent with its assertion.

Fair Market Value:

Amount of money for which property will sell following negotiations between the owner of such property who will sell but is not required to sell and a proposed Buyer for such property who is not obligated to buy such property.

FHA
(Federal Housing Administration):

A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sales price.

Fixed Rate Mortgage:

A loan in which the rate of interest is fixed over the life of the loan. Payments on a fully amortized, fixed rate loan will not change.

Floodplain:

The extent of the land adjoining water which, because of its topography, would flood if the water overflowed its banks.

Hazardous Materials:

Substances that may be hazardous to health (i.e., asbestos, radon gas, lead based paint).

Indemnify:

To make payment for a loss.

Index:

Used by lenders to calculate the interest adjustments on adjustable rate loans. Some indexes are more volatile than others; this can affect adjustments in the interest rate and, subsequently, the monthly payment. Because these indexes reflect the general movement of interest rates, they tend to keep the rate on an adjustable rate loan in line with market conditions.

Initial Rate:

An interest rate charged for the first six or twelve months of an adjustable rate loan. Normally this rate will be lower than the prevailing fixed market rates.

Interest Rate Cap:

A safeguard built into an adjustable rate loan to protect the consumer against dramatic increases in the rate of interest and, consequently, in the monthly payment. For example, an adjustable rate loan may have a two percentage point limit per year on the amount of increase or decrease, as well as a five percentage point limit (increase or decrease) over the life of the loan.

Interim Financing:

Temporary financing usually for construction or bridge loans to facilitate the purchase of a new home before the sale of the previous home has been closed.

Junior Mortgage:

A mortgage, such as a second mortgage, which is subordinate as security to another mortgage.

Land Contract:

An installment contract for the sale of land. The Seller (vendor) has legal title until paid in full. The Buyer (vendee) has equitable title during the contract term.

Legal Notice:

The notice required by law in a particular case. This may a be actual notice, constructive notice, etc.

Leaser’s Interest:

The right to receive income under a lease and the right to the return of property after the lease expires (reversion).

Margin
(spread):

An amount expressed as a percentage which is added to an index to determine the interest rate on an adjustable rate loan (e.g., index rate + 2.5% margin). Different lenders and loan programs may use different margins and indexes. With an adjustable rate loan, this margin (spread) generally does not change once it is established in loan documents.

Mill Rate:

A percentage applied to the assessed valuation to determine taxes.

Mortgage Insurance:

Insurance to protect the mortgage lender.

Mortgage Note:

A promissory note secured by a mortgage and executed by mortgagor at the same time as the mortgage for the amount stated in the mortgage, with the legal description of land described in the mortgage also stated in such note.

Mortgage:

(1) A conveyance of security interest in property to secure payment of a debt.
(2) An instrument used to encumber land as security for a debt.

Mortgagee:

A lender.

Mortgagor:

Property owner and borrower.

Negative Amortization:

A condition created when a loan payment is less than interest alone. Even though payments are made on time, the amount owing increases.

Open-end Clause:

Clause in mortgage or mortgage note allowing mortgagor to borrow additional money from the mortgagee during the term of the mortgage, using such mortgage as security for such additional loan.

Open-end Mortgage:

A mortgage containing an open-end clause.

Payment Cap:

The limited amount by which the payment on an adjustable rate loan can increase or decrease at each payment adjustment interval (typically one year). A payment cap ensures that payment changes occur at a gradual pace. If the adjusted payment is not sufficient to cover the amount of interest due on the loan due to the payment cap, the unpaid (deferred) interest is added to the loan balance. This is known as "negative amortization." Since most adjustable rate loans have a maximum amount of allowable negative amortization, once this maximum has been reached, the payment will have to be adjusted beyond the payment cap to ensure that the loan will be paid off in the allotted number of years. Provisions for these special adjustments will be in the loan document.

Percolation Test (Perk):

The test to determine the capability of the soil to absorb liquid. This is used both for construction and septic systems.

PITI:

Refers to principal , interest , taxes , insurance . This is the total of the monthly home loan payment including taxes and insurance.

Points and Fees:

A point is a charge equal to one percent of the principal amount of the loan (e.g., 2 points charged on a $100,000 loan would> equal $2,000). Points are generally payable at closing and may be paid by the Buyer or Seller, or split between them. In addition, a flat dollar amount fee may also be charged. Under some lending programs, a Buyer may be allowed to include these points and fees as part of the total amount financed.

Prepayment Clause:

Clause in mortgage, mortgage note or land contract providing that debtor may pay more than agreed installment payment at any time.

Prepayment Penalty:

A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.

Private Mortgage Insurance (PMI)
(also called Mortgage Insurance P:

Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a governmental agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

Processing (turnaround) Time:

The amount of time required from the day loan application documents are submitted in full to the day the loan closes and loan funds are disbursed. This is the total processing time for a home loan.

Pro-rate:

To allocate between Seller and Buyer their proportionate share of an obligation paid or due.

Purchase Money Mortgage:

(1) A mortgage given from Buyer to Seller to secure all or a portion of the purchase price.
(2) Any mortgage from which the funds are used to purchase the property.

Quit Claim Deed:

A deed operating to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of valid interest or title in the grantor.

Rate Guarantee:

A guarantee, at the lenders option, that the rate in effect on the date the application is submitted, or at the time of final approval, will be the final rate on the loan when funded. This guarantee usually expires after a specified period of time.

REALTOR:

A designation given to a real estate licensee who is a member of a board associated with the National Association of REALTORS.

Refinance:

Negotiation of a new loan in order to pay off an existing loan. Homes are usually refinanced in order to (a) take advantage of lower interest rates; (b) switch from one loan type to another (e.g. from adjustable to fixed), or (c) to generate cash from built-up equity. Since refinancing generally involves new loan costs, the costs must be weighed against the benefits to be gained.

Satisfaction:

Discharge of an obligation by payment of the amount due, as on a mortgage, trust deed, or contract; or payment of a debt awarded, such as satisfaction of a judgment. Also the recorded instrument stating said payment has been made.

SBA:

Small Business Administration.

Secondary (financing) Mortgage:

A loan secured by a mortgage or trust deed which lien is secondary (junior) to another mortgage or trust deed.

Secondary Marketing:

Arrangements are made with investors for the sale or purchase of mortgage loans. Mortgages are sold into the "secondary market," as opposed to the "primary market." In the primary market, loans are originated either for sale or to be held "in portfolio." In the secondary market, the loans are traded, bought or sold. There are several Buyers of loans in the secondary market: (a) Government National Mortgage Association – GNMA (Ginnie Mae): this is a government entity that purchases loans which are insured by FHA or guaranteed by VA. It issues securities for financing; (b) Federal National Mortgage Association – FNMA (Fannie Mae): this quasi-government corporation buys government loans as well as conventional loans. Government appointees sit on the board of this corporation, but its stock is sold on the open market; (c) Federal Home Loan Mortgage Corporation – FHLMC (Freddie Mac): this is the quasi-governmental agency that purchases conventional mortgages. It also sells participation certificates that are guaranteed by the federal government; (d) Private Conduits – these companies purchase loans, usually for resale, in larger blocks. Sears Mortgage Corporation and Residential Funding Corporation are such entities; (e) Private Investors – as a corporate investment, insurance companies, savings and loan institutions, commercial banks and other entities may buy loans.

Servicing:

Mortgage bankers typically retain the right to collect monthly payments and take care of any customer problems. They send a payment to the investor each month. For this service, the mortgage banker receives a small fee (1/4% to 1/2% of the mortgage amount).

Survey:

The measurement of the boundaries of a parcel of land, its area, and sometimes its topography.

Term:

The number of years before a loan is scheduled to be paid off. 15-year and 30-year terms are most common.

Title Insurance:

Insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (chain of title) or to encumbrances.

Transfer Tax or Transfer Fee:

Tax on the transfer of real property. Generally based on value of property being transferred (i.e., purchase price). Check statutes for each state. Also called Documentary Transfer tax in some states.

Trust Deed:

See deed of trust.

Trust Funds:

A mortgage, deed of trust, land contract etc. Prior to (underlying) a land contract, mortgage, etc. on the same property.

Underlying Financing:

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Usury:

Charging more than the legal rate of interest for the use of money.

Value Price Range:

Traditionally, when a property is listed for sale, it is placed on the market at a fixed price. Under value range pricing, the property is marketed within a range of values, rather than one specific price. It is important to understand that value range pricing is simply a marketing tool which brokers and sellers can elect to utilize (or not). On this website, if the list price is followed by a +, the price listed is at the low end of the range. If the list price is followed by a -, the price listed is at the high end of the range. If the list price is followed by a =, the price listed is in the middle of the range.

Vesting:

Name(s) in which title property is held.

Veterans Administration (VA) Loans:

Housing loans to veterans by banks, savings and loans, or other lenders which are insured by the Veterans Administration (State and/or Federal) enabling veterans to buy a residence with little or no down payment.

Warranty Deed:

A deed used in many states to convey fee title to real property. Until the widespread use of title insurance, the warranties by the grantor were very important to the grantee. When title insurance is purchased, the warranties become less important as a practical means of recovery by the grantee for defective title.

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  The Battle Creek Area Association of REALTORS®

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Battle Creek, Michigan 49014

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