ACCESS BROKERAGE, INCORPORATED


You may hear these terms...

and wonder what they mean!

TERMS & DEFINITIONS

Abstract (of Title): This is a summary of the public records relating to the title of the property. It could be all the Security Deeds, property and materialsmen liens, easements, and other legitimate claims against the use of the property. The closing attorney and mortgage lender usually review these records to ensure title is clear or to ensure any "defects' (i.e., claims from other parties) are cleared and clear, marketable, and insurable title can be transferred to the next owner.

Acre: 43,560 square feet or 208.71’(L) x 208.71’(W).

Acceleration Clause: A clause in the mortgage loan that permits the lender to call the entire amount due and payable upon certain conditions or violations. (Examples include loan payments stop or upon of sale of property without informing lender.)

Adjustable Rate Mortgage (ARM): A mortgage loan that normally offers a low "fixed" introductory rate (i.e., low monthly payment to start) for a few periods and then provides for the interest rate to change at specific intervals during the term of the loan. The rate is normally tied to an index like the One Year US Treasury Bill, LIBOR rate or PRIME interest rate. CAUTION: You need to understand the impact on monthly payments – they could run hundreds of dollars per month higher than the introductory monthly amount. Borrowers who know they will only be in the property for a short period of time choose this option to keep payments low and then sell before the adjustable rate kicks in.

Amortize: The act of paying off a loan over time to a balance of zero. Your "amortization" schedule for your mortgage on your home simply demonstrates where your monthly payment goes over time and how much of each payment goes toward principal and interest over time. Ask your lender to prepare one for you to see how many years it take to start paying over half your loan balance. Over 30 years, it takes more than 20 years before you start paying over half your mortgage since mortgage loans "front load" your interest.

Appraisal: Valuation of market value by a professional appraiser using standards/guidelines for the local and national real estate industry. The appraisal is critical information used by the lender to confirm/determine loan amounts. NOTE: Under the current environment, appraisers are more sensitive to fluctuating market prices and restrictions on subjective quality factors that were used before.

Back End Ratio: In short, it’s your annual gross income less long term debt (I.e., car loans, student loans, usually not credit card balances, etc,.) divide by your gross annual income.

Balloon Mortgage: Usually fixed monthly payments for a period of years (normally in 3,5, or 7 years) based on a 30 year loan and a lump sum balance is then due at the end of that period.

Balloon Payment: The final payment of a mortgage, usually a large lump sum, which pays off the remainder of the loan amount. Example: Monthly payments of $1,000 per month for 5 years and then a $50,000 lump sum (Balloon) payment.

Builder Warranty: The builder offers home buyers peace of mind that he/she will come back and try to repair any major structural or system defects. Normally, written guidelines determine what is considered a defect and what repairs will be attempted. Many builders will have a period of time (e.g., 10 months after purchase) that they will return to repair known type repairs of house settlement and normal adjustments.

Buyer Broker/Buyer Agent: Agent hired by the Buyer that represents their best interests in finding a property, negotiating a contract, and all other aspects of the home buying transaction.

CAPS: Amount of rate that can change that is limited each time period and overall. CAPS are listed in X/X format where the first X is the maximum annual rate increase and the second X reflects the total increase over the life of the loan. Under an X/X/X format, the first X reflects maximum rate increase of first adjustment, second X is maximum increase under the next adjustment, and third X reflects maximum rate increase over life of the loan.

Certificate of Occupancy (CO): The local government issues this document that allows the home to be occupied once the builder has satisfied the building inspector's review of local building codes. WARNING: This inspection is not to be relied upon or considered a thorough home inspection.

Closing: This just refers to when you meet with the closing attorney to sign a lot of papers reflecting the transfer of ownership from the seller to you and your commitment to paying off the loan. Basically, this is where you bring your down payment money and agree to pay on the loan and then you get the house in exchange. The HUD-1 and a lot of other standardized forms and documents are signed here and you understand that if you don’t make payments on the loan, you don’t get to keep the house.

Closing Attorney: An attorney trained and licensed to close loans for lenders. You may also hire one to review your real estate transaction. NOTE: At a loan losing, they do not represent the seller or buyer, but they represent the Lender's best interests.

Closing Costs: Costs necessary to close the loan. They include expenditures like your lender's loan origination fee, underwriting fees, property survey, appraisal fee, credit report, attorney fees, title insurance, recording fees, and any incidental expenses incurred by the lender or attorney. Closing costs (including prepaids/escrows) normally run anywhere from 2.0-3.5% of the amount of your loan. Other expenses to consider are: YOUR Title Insurance coverage; Flood Insurance coverage (if you're in a flood zone); and PMI (Private Mortgage Insurance) or MIP (Mortgage Insurance Premium) that may or may not be required at closing or rolled into the loan. Here is a Zillow blog post regarding closing costs

Closing Disclosure(CD): This form has replaced the HUD-1 Settlement Statement for all residential purchases that involve a mortgage loan from a licensed lender or mortgage company. A Closing Disclosure is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs). The lender is required to give you the Closing Disclosure at least three business days before you close on the mortgage loan. This three-day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate that you previously received from the lender. The three days also gives you time to ask your lender any questions before you go to the closing table.

Cloud On Title: An unresolved claim or encumbrance negatively affecting the marketability of the real property.

Condominium: This isn't a style of building, but a form o ownership. This form of ownership means that you share financial responsibility with other owners in the care, insurance, and maintenance of common areas such as parking lot, gates, fitness centers, playground/pool area, walkways, and exterior building maintenance and landscaping.

Contingency Clause: Provisions in a real estate contract that protect either the Buyer’s or Seller’s interest by providing for a critical condition of sale to be satisfied, or else the contract may be terminated.

Conventional Mortgage: A type of mortgage not insured by any Government Agency (Federal Housing Authority (FHA) or Department of Veterans Affairs (VA)), and normally requires a larger minimum down payment than Federally Insured Loans (between 5% - 20% of the price). (Note: HUD homes may be purchased with conventional mortgages.)

Convertible Arm: A type of mortgage which starts out as an adjustable rate loan, but then converts to a fixed mortgage loan within a period of time giving the borrower flexibility when income will be higher years down the road.

Deed: A type of legal document evidencing a type of ownership in a real property. The different levels of deeds from a General to a Limited to a Specific Warranty Deed to a Quit Claim Deed offer regressive levels of defense protection by former owners if challenged for right of ownership. Consult your real estate attorney for the differences and to discuss what form of deed will be transferred to you at your closing.

Deficiency Judgment If your short sale or foreclosure sale price is less than the amount remaining on your mortgage (or total lender losses exist including real estate commissions or other unexpected costs) you might still owe your mortgage lender money after the sale. This is determined a 'deficiency" but a court may order a "deficiency judgment" lien in which the creditor may also have an interest in any personal property that you owned up through the time it filed the judgment lien including jewelry, equipment, business assets, art, antiques, electronics, and any other valuables. It is best advised to read your loan paperwork for such terminology to understand your responsibility. See more on Deficiency Judgments.

Discount Points: This simply means your lender would allow you to pay an extra amount of money at closing to "BUY DOWN" (i.e. reduce) your mortgage interest rate. Typically, the amount you would pay equals 1% of the loan amount which would equate to one "DISCOUNT POINT" or 1% reduction in the interest rate. However, sometimes the first "discount point" you pay is less and only reduces the rate a fraction of 1%, but the savings still adds up over time, so you need clear numbers of the savings v. costs of discount point. NOTE: The Neighborhood Assistance Corporation of America (NACA) will allow all negotiated closing costs to be applied toward Discount Points thereby lowering interest rates to significantly low interest rates.

Earnest Money: Funds provided up front with an offer to purchase a real property that is normally held in the real estate broker's escrow account. It becomes part of the down payment or toward closing costs.

Equity: This is "your" ownership interest balance in your property after deducting the principal amount of your loan by the portion of all your previous monthly mortgage payments that was paid toward reducing your principal mortgage balance. It's important to determine when selling your home how much of that "equity" you will actually get back after your sale.

Escrow Account: There are 2 types of Escrow Accounts - (1) Normally a specific checking account dedicated only for your earnest money deposits in your contract when you purchase a property. State laws govern that these funds "must not" be commingled in regular Brokerage checking accounts, but held in a separate Escrow Account by the Broker holding such funds; and (2) Escrow at your property closing will mean where certain portions of your monthly mortgage payment will be held - see "Prepaids/Escrows" in the definition further down this list.

Escrow Analysis: Analysis performed by the servicer, normally each year, to ensure they are collecting and holding a sufficient Borrower funds from their monthly mortgage payments, not excessive, cushion to cover annual property tax and homeowner's insurance bills. (Note: Be sure to follow up with your lender each year to verify they have performed an escrow analysis in case your property taxes or homeowner's insurance amounts are reduced enough that they should remit to you "excess" funds exceeding an appropriate cushion in your accounts.)

Federal Reserve” discount" rate: Interest rate that is set by the Federal Open Market Committee (12 FR Presidents & FR Governors) for banks to borrow money from other banks in the Federal Reserve System/Network. This rate more closely impacts mortgage rates by affecting consumer liquidity.

Federal Reserve "funds" rate: Interest rate the Federal Reserve sets to allow banks borrow money from other banks in the Federal Reserve System. Lowering the Federal Reserve discount rate is normally seen as a measure to improve bank liquidity in a slow economy.

FHA Mortgage: An entire mortgage that is insured against loss by the U.S. Department of Housing and Urban Development (HUD) and requires a down payment from 3-5%.

Five (5) year adjustable: Mortgage where interest rate changes every 5 years based on an index (Prime Rate; LIBOR; etc,.) plus a specified margin.

Fixed Rate Mortgage: Most of these mortgages with 15 or 30 year maturity (sometimes longer) where interest rate is fixed for the entire duration of the loan.

Fixed Rate Mortgage: A mortgage rate where the interest rate is fixed over the duration of your loan.

Good Faith Estimate (GFE): Generally a form you get from the lender you choose to get a loan from that outlines your interest rate; monthly mortgage payment; total estimated closing costs; and total estimated amount to bring to closing. RESPA requires the lender to provide the Borrower a GFE within 3 business days of applying for a loan.

Home Equity Line of Credit (HELOC): A variable rate loan tied to the prime rate and establishes a "line of credit" against a maximum amount and gives borrower quick access to cash.

Home Inspection: A private inspector, normally under certification from CABO/ASHI, that spends 2-3 hours at a home testing and inspecting for defects, functionality, operation, and possible problems and future repairs. There are normally a set of guidelines (i.e., building codes) that the inspector uses to evaluate whether or not the area/system of the house meets that guideline, and writes a report (including photos) to use to negotiate with seller for repairs.

Home Warranty: For used houses, the builder warranty is normally expired. There are private companies that offer assistance to locate plumbers, electricians, HVAC services, and other home services for you if you purchase a home warranty. The home warranty normally covers a period of 12 months and can cost almost $500 per year.

Homeowner’s Association (HOA): A group of homeowners that establish and enforce guidelines to preserve the quality look of the neighborhood and common areas/elements like pool, playground, and exterior of all homes.

Homeowner’s Insurance: Insurance against loss of your home and its contents due to burglary, flood, fire, wind or other provision of the insurance policy, or liability in case someone is injured on or damages your property. NOTE: Insurers and policies differ so please evaluate apples to apples of coverage and what their performance is when paying claims.

HOA CCRs (Conditions, Covenants, and Restrictions): This is a set of rules of which you must comply as a condition of home ownership in the community. The CCRs usually establish Board Member election guidelines; power of the Board members; and guidelines on what is and isn’t acceptable on the exterior of your home and in your yard. Pros: Ensures look of community is retained and kept maintained. Con: Restricts exterior house colors; fence styles; and items you can place in the yard.

HUD-1 (Settlement Statement): This document has been replaced by the Closing Disclosure form mentioned previously, but is still used when cash sales of real estate are closed.

HUD-1 EXAMPLE - This is a standard form used at all residential real estate transaction closings that itemizes all Buyer and Seller closing costs, the total amount due at closing from the Buyer, the total amount of proceeds to Sellers, and serves as the official evidence of transfer of ownership until the Warranty Deed is recorded in the local real estate office.

Index: Floating index tied to mortgage loans normally using either the one year Treasury Constant Maturity Yield or the LIBOR index.

Interest only Loans: Monthly payment covers only interest with the amount of principal adding to the loan for a number of years up to perhaps 10. (See Pros and Cons about Interest Only Loans)

Intangibles Tax: This is a closing cost and a state charge of $1.50 per whole or partial $500 of "new" mortgage loan generated in the state of Georgia. Again, I'm not sure what this finances at the state level other than monitoring the real estate or mortgage industry.

Interest Rate Lock: Lender usually "locks" or "guarantees" the interest rate quoted for only a specific number of days...normally 30 days...without a charge. After this period expires, the rate may fluctuate unless you pay extra to lock the rate for more than the initial period.

Investment Property: A real property purchased by an investor who plans to either (a) renovate/repair and place it back on the housing market in a short period of time, or (b) repair/renovate portions of the property and rent it for a period of time, until such time the sale of it will generate a desired return on investment.

Lender Inspection Fee: Normally the lender needs to make sure all repairs or a new home is finished with construction after closing your mortgage. This is the fee to have the representative visit the property to make sure all repairs/construction has been completed and any "hold-back of closing proceeds" can be released to the contractor and/or the homeowner.

LIBOR (London Interbank Offered Rate): The rate that international banks charge each other on large loans. This rate has been known to fluctuate and increase faster than the rate of U.S. Treasury 10 year bonds that U.S. mortgage rates parallel. Therefore, they are more volatile in Adjustable Rate Mortgages.

Loan Estimate(LE): A Loan Estimate is a three-page form that you receive after applying for a mortgage. The Loan Estimate tells you important details about the loan you have requested. The lender must provide you a Loan Estimate within three business days of receiving your application. The form provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan. The Loan Estimate also gives you information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future.

Loan Origination Fees: Fees charged by your lender to process the mortgage application, but may not include the processing, application, or other fees the lender charges to make the loan. Traditionally it has been 1% of the loan amount itself. Please compare these charges along with lender processing, application, and all other fees between lenders when selecting your lender.

Margin: The number of percentage points added to the index on adjustable mortgages.

Mortgage: The legal document which pledges your home to the lender in exchange for your loan as "security" for your repayment of the loan. Often this is evidenced by a "Security Deed" which is represented by a "lien" against your property in order to satisfy the debt (i.e., mortgage) and reflects the lender's rights to foreclose, take legal possession the property, and sell it to pay for the remaining loan balance and any other expense incurred in the foreclosure process.

Mortgage Broker: Generally, organizations that have relationships with the actual financial institutions that have the funds to lend. They do not lend to you directly, but do charge a fee to you to get a loan from a number of wholesalers/other investors but doesn’t service the loan (i.e., collect mortgage payments).

Mortgage Insurance: Insurance for mortgage lenders in case of mortgage default (i.e., foreclosure). A portion of the loan (usually anything above 80% original LTV) is insured either by the US Government (on FHA, VA, or USDA loans) or a private mortgage insurer (Conventional or non-Government insured loans). On FHA loans, it consists of an up-front lump sum and monthly payments over the "entire" (i.e., never expires) life of an FHA loan. On conventional loans, it is a monthly payment until the equity value of your home reaches 78% of the original loan balance. This insurance is required by lenders to insure loans greater than 80% of the sale price (due to higher probability of foreclosure). If the home forecloses, the remaining lender balance is paid.

Mortgage Interest: In addition to being the daily cost of getting your mortgage, it is accrued and paid in arrears...so you live in your home for a month and pay the interest for the previous month. It is charged to you at closing for the day of your closing and any other day left in the calendar month, but then your mortgage payment skips to the 2nd month after closing. (i.e., Close July 28th, you pay 4 day of interest at closing and your first monthly mortgage payment is due September 1st.)

Option ARM: Adjustable rate loans allow for a fixed period of time (1,3,5 years) a low payment based on interest only or no interest and accrue balance - very risky and for sophisticated borrowers.

Origination Fee: Percentage of loan amount usually charged by the lender as a cost to process the loan paperwork & follow through to underwriter and then to closing. (Note: Part of your lender closing costs.)

Points: Percentage of the loan amount - Each point is 1/100th of the loan amount. (Ex: $1,000 = 1 point of a $100,000 loan.)

Prepaids/Escrows: Accounts are established by the lender to collect upfront charges for your annual property taxes and homeowner’s insurance, as well as the daily interest charges for the day of closing through to the end of the month. Your monthly mortgage payment will include 1/12th of your estimated annual property taxes and homeowner’s insurance. At closing, expect to pay one full year of homeowner’s insurance and 2-3 additional months of insurance to start the escrow account.

Pre-qualification: Low level of loan qualification from a lender normally based on simple income and expense numbers provided over a 1st time phone call to the lender. It normally always is conditioned upon the borrower providing factual evidence of information. Because no "factual" data has been furnished to the lender, this type of qualification doesn't provide alot of confidence if you submit offer and another competitive offer.

Pre-approval: High level of loan qualification from a lender that is normally based on actual documentation like W-2 statements, bank statements, and data that provides a clearer picture of financial ability to purchase the home. It also shows you are a serious buyer to have yourself qualified and ready to go. Another benefit, once you do find a home, you don't need to run through a lengthy pre-qualification process and waste time during a Due Diligence period under the contract and then find time you have a qualification problem. And that could prohibit you from getting your earnest money back once the Due Diligence period ends, or past the expiration date of the Finance Contingency period.

Property Taxes: Local governments appraise real property, apply the 40% state assessment rate, and then apply a tax rate to the assessed value to determine how much property tax you pay. The government’s appraised value normally has no bearing on current market value. NOTE: Under current environment of property values falling nationwide, many homeowners are upset to pay taxes on values exceeding current market values.

Prepayment penalty: Some investors provide money in exchange for a certain return over a certain period of time. Therefore, certain home loans carry a provision that charges a fee (sometimes in the thousands of dollars) to pay off a loan early (i.e., before the term expires) so the investor earns a minimum return on their investment. WARNING: Always confirm in writing before you agree to the loan if there is a prepayment penalty and stay away from these loans unless you are willing to assume the risk.

Real Estate Settlement & Procedures Act (RESPA):

RESPA DETAILS HERE In 1974, US Congress passed a law that standardized real estate settlement that established the HUD-1 Settlement Statement; required escrow rules; disclosure requirements; closing cost estimates; and generally governed a more fair practice of mortgage lenders.

Refinance: This occurs when you payoff your existing mortgage with another mortgage and usually at a lower interest rate.

Servicer: A company who specializes in collection of the monthly mortgage payments from the borrower, pay the borrower's property taxes and homeowner's insurance, and managing the two escrow accounts to ensure (a) payments are made for all expenses on time and (b) perform an annual Escrow Analysis.

Security Deed: This is your "mortgage" or the "lien" document which represents a "lien" against your property in order to satisfy the debt (i.e., mortgage) and reflects the lender's rights to foreclose, take legal possession the property, and sell it to pay for the remaining loan balance and any other expense incurred in the foreclosure process.

Shadow Inventory: This simply means housing units that would ordinarily be for sale, but aren't yet on the market unless certain conditions were met. For instance, homes that home owners plan to sell, and may even be making repairs or updates to prepare them for sale, but do not place them on the market yet. This also includes bank owned or foreclosed properties that are still under the control of the bank, yet are not formally listed for sale in the marketplace. Or even perhaps those properties of which the homeowners are delinquent on their mortgage with no intention of making payments and in some stage of foreclosure or seeking short sale approval.

Short Sale: When a Seller is in a position (job loss, major illness, bankruptcy, etc,) that requires the sale of real property and the net proceeds will not be sufficient (i.e., will be short) to pay the remaining balance of the mortgage(s), the bank(s) involved need to agree to sell the real property at a negotiated price that causes the mortgage to be short. (See Deficiency Judgment)

Survey: A formal measurement of the boundaries of a property that also indicates any easements, encroachments, or right-of-ways. Traditionally, lenders have required a survey on new properties or properties of unusual shapes or sizes. In the past several years, if the property is a resale in an established subdivision, or the loan is a conventional type loan, then the lender doesn't require a survey. However, it doesn't preclude you to get a survey in case you plan to install a fence or just want to know where your property lines exist.

Tax Service Fee: If the lender establishes an escrow to collect for payment of property taxes, most lenders work through a tax service company to receive tax information on property directly with each county or through the tax service company's computer database.

Title: Documented evidence a person/organization has rightful ownership of the property. This simply means the "rights of ownership" and is perfectly outlined in the Warranty Deed (designating the type of claim you have on property and the level of which previous owners will help you defend title challenges) filed on the property, but could also represent any other legitimate claims against the property such as utility easements, Security Deed (mortgage claim), etc,.

Title Examination Fee: This fee is charged by the closing attorney and is normally for someone to perform an examination of the "chain-of-title" on the property being purchased to ensure the Buyer is receiving clean and marketable title. Normally lenders want to make sure the title is good, but if you're paying all cash and no loan is involved, the Buyer needs to have the title examined to ensure it's a good one and I also recommend purchasing title insurance.

Title Insurance: Insurance to protect the owner and lender from legal challenges to the property's title. Generally, a closing attorney will investigate the Chain of Title to a property and determine if the Seller has “clean title” allowing the legal transfer of title to a Buyer. At times, due to recording errors, fraud and other reasons, clear title to a property may not legally exit by the Seller thereby resulting in the Buyer losing the property. Buyers may want to purchase this insurance to cover their down payment and their legal expenses challenging title claims in case they lose the home because real owner reclaims property. (This has happened more than once.)

Title Insurance Binder: Title insurance actually isn't written at the closing table, but a final "binding" insurance policy is written after the warranty and security deeds get recorded in the county records and get returned to the closing attorney.

Transfer tax: Part of closing costs - In Georgia, it is a $1 per $1,000 of sales price. I'm not sure what the state does with the funds - maybe offset the costs of investigating and monitoring mortgage lenders in Georgia.

Underwriting: The process of a lender evaluating the property itself and both credit and ability of Borrower to pay mortgage with the objective of approving the Borrowers loan.

Uniform Residential Loan Application: A standard mortgage application used to complete all Borrower's personal and financial information to apply for a mortgage. It asks for Borrower's income, assets and liabilities.

VA Mortgage Loan: A mortgage guaranteed by the Department of Veterans Affairs against loss to lender, made through a private lender. (Note: HUD homes may be purchased with a VA loan.)

Yield Spread Premium (YSP): Mortgages with rates below what was quoted to a borrower were be acquired at the lower rate and the difference in rates annuitized to current value is the premium that some lenders made in their other pockets. Old rules didn't require this to be disclosed on the Settlement Statement unless another lender provided the lower rate loan. This YSP is pretty rare these days.

Zoning Ordinances:Regulations/rules/building codes, issued by local governmental authorities, governing the general category of property usage and what are acceptable behavior and practices within that category. Have you heard of a term, word, or phrase that isn't listed here? If so, please let me know and help you define it and determine its importance in your search or real estate transaction.



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Myths About
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FAQs
Websites of
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Questions
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Pros & Cons of
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