The purchase of a new home can be one of the most exciting, and intimidating experiences of one’s life. But, you can eliminate the stress and confusion of this endeavor by securing the services of a licensed Realtor®. When choosing a Realtor®, you want to ensure the person or firm you choose has both the experience and the knowledge to guarantee your real estate transaction is smooth and stress free; one that will be there with you every step of the way.
Before contacting a Realtor® it is prudent to determine the direction you want to go with your new home purchase. You should be ready to tell your Realtor® things like:
*Prequalifying provides many benefits that will help streamline the home purchase process such as:
Once you have these items in order, you are ready to start looking. Most people today use Internet searches to find the homes and properties they want to view. Your Realtor® should assist you in compiling a viable list of available properties and devise a plan for viewing each in a comfortable, efficient manner.
After finding the home you want, your next step is the negotiation of an agreeable selling price. Your Realtor® will assist you with this, and should deliver your offer to the seller in a timely fashion. When you’ve found that special home, and reached an agreeable price, and secured your final financing; your Realtor® will set up your closing.
Everything should be in order for you when you get to the closing table. From the title search to the settlement; your Realtor should be with you every step of the way. Remember, your Realtor® is there to help you and ensure every contingency is covered for you so you have no negative issues where ownership is concerned, now or in the future.
Adjustable Rate Mortgage (ARM) – A mortgage where interest rates will fluctuate with changes in the market. As rates increase in the indexes, the mortgage interest rate will also increase, and vice versa. ARMs will generally have a maximum rate to protect the borrower from dramatic rate increases.
Amortization – Loan payments that include monthly interest payments plus some principle payments. The payment remains the same from month to month; however, over time, the amount paid towards interest will decrease and the amount paid towards the principle will increase.
Annual Percentage Rate (APR) – Different than the rate on a loan. The APR reflects the true cost of borrowing as a percentage.
Appraisal – written explanation of the fair market value of a property. Usually based on comparable home sales in the same area.
Appraised Value – the home value based on the appraiser's opinion. The appraised value usually comes from a survey of the home, comparable sales in the area, and the appraiser's expertise.
Appreciation – The increase in the value of a home based on inflation, market conditions, and other factors.
Appurtenance – any improvement or easement to real property that "goes with the land”
Assessed Value – The value given to a property by the public tax assessor for the amount of property taxes to be paid.
Assumed Loan – The ability for the buyer to take over the sellers current mortgage in a home sale. The buyer generally must also qualify for the loan.
Balloon Note Mortgage – Usually an interest only mortgage where interest payments are made monthly and the entire principle is due upon the end of the term.
Bankruptcy – The ability to relieve oneself from outstanding debts. The person filing for bankruptcy must file in federal bankruptcy court, and usually cannot receive a new loan for two years and must be able to show ability to repay the note. Most people who file for bankruptcy, file for Chapter 7, No Asset Bankruptcy.
Bill of Sale – the document used to transfer personal property rights such as a car.
Broker – The person responsible for managing local real estate businesses; the broker is responsible for all of it's listings and the acts of his/her real estate agents.
Buy down – The ability for the borrower to have the interest rate reduced for a period of time (usually one to three years) by paying a portion of the principle up front.
Cap – the maximum interest rate that may be charged on an ARM
Clear Title – A title that is free of liens and clouds
Closing – The meeting between the buyer, seller, and the agents to finalize a home sale. This is where the documents are signed, and money is exchanged.
Closing Costs – Payments that must be paid at closing. Closing costs consist of non-recurring costs and prepaid items. Non-recurring costs include things that are paid only at the time of closing such as transfer taxes, intangibles taxes, and personal property sales associated with the home sale (i.e.: selling furniture/appliances along with the home). Prepaid items include costs such as property tax and insurance adjustments.
Cloud on Title – Conditions that adversely affect the title to real property. Clouds can be removed by court action, releases, or by the deed. Clouds could include other's claims to property rights, another parties name on the deed, etc.
Collateral – What is given up to the lender in case of default on a loan. In a mortgage, the home is the collateral, as the bank will foreclose on the house in the event of default.
Commission – Monies paid to the realtors for their services in a real estate transaction. Usually a percentage of the sales price, but may be a flat fee.
Common Areas – Areas of a condominium, co-op, or another multi-family establishment that are used by all residents. Ex. Swimming pools, tennis courts, parking areas, etc.
Common Area Assessments – Charges to residents of condos, co-ops, etc. that cover property taxes on the common areas.
Community Property – Property acquired by husband and wife after marriage. Both parties have equal rights to the property. Similar to Joint Tenancy, used mainly in Southwest, USA.
Condemnation – The process used to practice eminent domain.
Condominium – Type of ownership where all parties have ownership rights in common areas, and has freehold title to their individual units.
Contingency – Conditions that must be met in order for a contract to be binding. For example a home sale contract may have a mortgage approval contingency stating that if the buyer cannot qualify for a loan, the contract would be void.
Contract – Written or verbal agreement to perform or not perform a specific act.
Conventional Mortgage – Home loan from traditional lender such as a bank or any other non-government lender
Convertible Adjustable Rate Mortgage (ARM) – an ARM that can be switched over to a fixed-rate mortgage within a specified period of time.
Cooperative (CO-OP) – Form of co-ownership where each party owns a share in the co-oping corporation that owns the property. Each co-op shareowner has the right to occupy a particular apartment or unit of the property.
Credit – the agreement that a borrower will receive something of value with the promise to repay the lender within a certain period of time.
Credit History – record of a person's ability to repay debts. Credit Histories are used by lenders to determine what interest rates to charge and to determine if a loan can be issued at all.
Credit Report – Credit history report compiled by a credit bureau; used to by lenders to ability to issue a loan.
Creditor – The person who is owed the money
Deed – The legal document used to show title to property
Deed of Trust or Trust Deed – Similar to mortgage, but used in states that do not recognize "mortgages”. The satisfaction of the loan is managed by a neutral third party (trustee).
Deed in Lieu of Foreclosure – The opportunity for a person who is facing foreclosure to turn over title to the home to the lender to avoid an actual foreclosure. In some cases, this may be done to save a person's credit, and to keep the situation from becoming a matter of public record.
Default– Failure to make payments on a loan with a specified period of time.
Delinquency – What happens when loan payments are not paid on time. If the payment is late the loan is said to be delinquent.
Deposit or Earnest Money – Good faith payment of a portion of the total sales price in advance. Paying earnest money shows the seller you are sincere in your offer, and secures your offer.
Depreciation – A drop in the value of a property over time. Opposite of Appreciation.
Discount Points – Usually associated with FHA and VA loans. They buyer may receive discount points to lower the interest rate by paying an additional sum down payment with the loan origination fee.
Down Payment – The amount of money paid on a home that comes out of the buyer's pocket and is not covered by the loan amount. For example in a conventional 80% LTV loan, the loan would be for 80% of the sale price and the down payment would be the other 20% paid directly by the buyer.
Due on Sale Clause – provision in a mortgage that allows the lender to call the mortgage due upon sale of the home.
Earnest Money – (see Deposit)
Easement - The irrevocable right of a person(s) to use one's property. Ex: The right of the utility companies to use land for running cables, shared driveways, etc
Eminent Domain – The right of the government to seize one's land for the "good of the public” Ex. The right for the government to take the front ten feet of a person's yard to widen a road, or the right to take a person's entire property to build a shopping center. Must be done through the process of Condemnation.
Encroachment – an improvement to real property that illegally extends onto or above another person's property.
Encumbrance – anything that burdens a person's title to real property. May include, liens, restrictions, and easements.
Equal Credit Opportunity Act (ECOA) – federal law making it illegal for any institutional lender to discriminate against any person that seeks a loan based upon race, color, religion, sex, national origin, age, or familial status.
Equitable Redemption – Click here to learn more about equitable redemption.
Equity – the amount of financial interest a homeowner has in a property. Equity is the difference between the Fair Market Value of the home and the amount of money that is still owed on the mortgage.
Escrow Account- Separate account where additional payments paid with the monthly mortgage payments are held to cover property tax and homeowner's insurance payments.
Estate – The extent of a person's interest in real property rights. Covers the total of all real property and personal property owned at time of death.
Eviction – The lawful removal of tenant from a property. Must generally be performed by the sheriff's department.
Exclusive Listing – unilateral contract between a homeowner and one sales agent. If the agent procures the buyer, then the agent is paid a commission for his/her service. If the seller procures the buyer, then no commission is paid. Often used in F.S.B.O.s
Exclusive Right to Sell Listing – similar to the exclusive listing, only now only the listing agent may sell the home and is paid a commission regardless of if the buyer was procured by the seller or the agent. Most common form of listing with Agents
Executor – the person named in a will to execute the wishes of the will
Executrix – female form of Executor
Fair Credit Reporting Act – created to protect consumers and ensures the disclosure of credit reports by credit reporting agencies and sets procedures for correcting mistakes on one's credit history.
Fair Market Value (FMV) – The highest price a buyer would be willing and able to pay and the lowest price the seller would be willing to accept
Federal National Mortgage Association (FNMA) – Also known as "Fannie Mae". FNMA is the largest secondary mortgage organization and the largest supplier of home mortgage funds. They are a sort of a middleman between institutional banks and the Federal Reserve.
Fee Simple – The highest extent of ownership, extends all the way to death and passes on with heirs. What we typically think of as ownership. Ownership of a fee simple estate has no definite end time making the estate inheritable on one's heirs.
FHA Loan – A lone that is insured by the Federal Housing Administration. Often referred to as a government loan. All FHA loans require and escrow.
Firm Commitment – A lender's promise to issue a mortgage to a particular buyer for a particular property.
First Mortgage – The mortgage that is number one in priority of all other recorded loans against a property
Fixed Rate Mortgage – A mortgage in which the interest rate remains the same for the entire term of the loan.
Fixture – A piece of personal property that has become real property once installed or connected to the property. Ex: Installing ceiling fan, or bookshelves.
Flood Insurance – insures damage to property caused by flooding. Flood insurance is required in designated flood plains.
Foreclosure – legal process in which a property is taken from a defaulting borrower later sold at auction to satisfy the mortgage debt. See Stop Foreclosure for more details.
Grantee – The person who receives the rights to real property in a transaction.
Grantor – The person relinquishes their rights to real property in a transaction.
Hazard Insurance – Insures damage to property caused by natural hazards (i.e. fire, wind, earthquake, etc)
Home Equity Loan / Line of Credit – loan allowing a person to borrow against the equity already put into the home. Home equity loans are generally in a second position to the first mortgage.
Home Inspection – Thorough inspection of a property by a professional who evaluates the structural and mechanical condition of the home. Inspections are generally a requirement in the closing contract.
Homeowners' Association – Organization that oversees neighborhoods, PUDs, and Condos. Used to manage common areas and to ensure that covenants are not broken.
Homeowners' Insurance – insures certain items within the home in need of repair such as heating and air systems and items damaged from theft.
HUD Median Income – median income of a particular city or county as figured by the Department of Housing and Urban Development (HUD).
Joint Tenancy – form of multiple party ownership where each party has an equal interest in the property. Not inheritable as the surviving member takes sole ownership upon the death of the other tenants (Right Of Survivorship).
Judgment– a courts ruling on a case. In the event the judgment requires payment, a lien maybe placed against one's real and personal property.
Judgment Lien – a lien placed against one's personal and real property to satisfy a judgment.
Judicial Foreclosure – Foreclosure process that must be carried out in the courts. Not used in every state.
Land Contract – Click here to find out more about land contracts.
Lease – written contract between a property owner and a tenant specifying the terms and conditions for which the tenant may occupy the property.
Leaseback – Click here to find out more about leasebacks.
Lease Option – Click here to find out more about lease options.
Leasehold Estate – Extent of ownership of real property where the borrower does not actually own the property, but rather has a recorded long-term lease on the property.
Legal Description – Precise, detailed description of a property that identifies it as being unique. Cannot simply be an address and is often acquired through a survey.
Lender – The party who is loaning out the money. Often referred to as the Mortgagee.
Liabilities – Financial obligations including short and long-term debt.
Liability Insurance – covers property owner against claims in which negligence has caused some injury to another party.
Lien – legal claim against a property that must be satisfied by the time the property is sold. (i.e. mortgage, trust deed, security deed)
Loan – lending of a particular sum of cash that is repaid over a set period of time and usually carries interest.
Loan Assumption – Click here to find out more about loan assumptions.
Loan Origination – the process of creating a new loan.
Loan to Value (LTV) – percentage relationship between the amount of the loan and the sales price or appraised value (which ever less).
Lock In – agreement that the lender will agree to a fixed interest rate on loan for a particular period of time and cost.
Margin – The difference in the interest rate on an adjustable rate mortgage (ARM) and the index rate. The difference remains constant as the ARM rate changes with the index.
Maturity – The date in which a loan is called due.
Modification – a change in a written contract. Must be initialed and dated by each party.
Mortgage – legal document that offers real property as collateral for a loan allowing foreclosure in case of default.
Mortgagee – the lender
Mortgagor – the borrower
Note – legal document stating that a loan has been issued and requires repayment with interest within a set period of time
Notice of Default – written notice that a loan is in default and legal action will be taken to satisfy the loan.
Origination Fee – The total number of points a borrower pays on a new loan. One point is equal to one percent of the principle. On government loans, the origination fee is one percent of the principle plus any points.
Owner Financing – closing transaction in which the seller provides financing to the buyer.
Personal Property – all property other than real property
P.I.T.I. – Principle, Interest, Taxes, and Insurance. Everything covered on monthly mortgage payments when the loan requires an escrow.
Planned Unit Development (PUD) – Similar to a condominium where the owner owns the unit in which he/she lives; however, all members own the common areas together. May also be a subdivision where the common areas are owned by a homeowners' association for the sole use of the PUD members.
Point – Once percent of the loan principle paid in advance at closing.
Power of Attorney – written permission for a person to sign legal documents on behalf of another party.
Prepayment – money paid on a loan to reduce the principle prior to the due date
Prepayment Penalty – the fee charged to a borrower who pays of a loan prior to the date of maturity. Usually a percentage of the loan amount.
Principle – the amount of money borrowed or the amount of money remaining on a loan.
Principle, Interest, Taxes & Insurance (P.I.T.I.) – refers to the four components of the total monthly payments on a mortgage.
Private Mortgage Insurance (P.M.I.) – insurance taken out by the lender to protect itself from loss in the event of default by the borrower. P.M.I. is generally required on conventional loans greater than 80% L.T.V.
Promissory Note – written promise to repay a debt over a specific period of time.
Public Auction – public meeting to sell a home that has been foreclosed on to satisfy the loan in default.
Purchase Agreement – written agreement between the buyer and seller explaining the details of the home purchase arrangement.
Quitclaim Deed – a deed that makes no promises of actual ownership. Often used to clear a cloud on the title.
Real Estate Agent – licensed individual to represent buyers and sellers in real estate transactions for a commission
Real Estate Settlement Procedures Act – law requiring lenders to inform consumers in advance of all closing costs.
Real Property – land plus appurtenances. Includes all structures, trees, fences, etc.
Realtor – Agent, broker, or associate broker who is a member of a local real estate board that is associated with the National Board of Realtors.
Recording – noting the details of legal transactions, such as real estate sales, mortgage notes, etc, making them a matter of public record.
Refinancing – process of satisfying one loan with the proceeds of a new loan using the same property as collateral to secure the debt.
Right of Survivorship – In joint tenancy, the right of the surviving parties to inherit the property rights of the deceased party. For example, when a husband dies, the wife would inherit the husband's interest.
Sale - Leaseback – an arrangement in which the seller will lease the property back to the seller.
Second Mortgage – a property lien placed in a secondary position to the original mortgage.
Secondary Market – buying and selling of existing mortgages.
Secured Loan – loans backed by collateral.
Security – the collateral for a secured loan.
Statutory Redemption – Click here to find out more about statutory redemption.
Subdivision – housing development where a larger tract of land is subdivided into smaller lots for purchase.
Subject To – Click here to find out more about Subject To arrangments.
Survey – map of a property outlining the boundaries of a property, location of improvements, easements, and encroachments.
Tenancy in Common – Co-ownership in real property where individual interests may not be equal and is inheritable.
Title – legal document that transfers rights in real property.
Title Insurance – protects lenders and buyers from loss caused by disputes on the title.
Title Search – checking public records to ensure the seller is the legal owner of the property.
Transfer Tax – state tax on the transfer of real property. 1/1000th of the sale price minus any loan assumption.
Trustee – middleman who holds or controls property for the benefit of another.
Truth in Lending (Regulation Z) – federal law requiring lenders to disclose of terms and conditions of a loan
V.A. Loan – mortgages guaranteed by the Dept. of Veteran's Affairs.
Veteran's Administration – department of the federal government to guarantee mortgages to eligible veterans and protects lenders from loss due to default.