Real Estate Terms
Abstract of Title
The abstract of title is a history of recorded instruments on the title of a property which includes transfers, grants, conveyances, liens and encumbrances. Abstract of title briefly summaries any activity which may affect ownership of a piece of land. Documents are public records of the ownership of a property. Any claims on the title to a property are subject to time restrictions. Potential buyers are recommended to request an abstract of title to determine the status of the property.
Acceptance is a buyers or sellers agreement to enter into a contract and be bound by the terms of the offer.
Accrued interest is interest that has been earned on a loan but has not been paid.
Acquisition cost is the price and all fees required to obtain a property.
An acquisition loan is money borrowed for the purpose of buying a home.
Adjustable Rate Mortgage
An adjustable-rate mortgage means the interest will change periodically in accordance with market conditions. The interest rate on an ARM is fixed for a period of 5 or seven years. After this fixed period, your interest rate can go or down. Due to cap regulations, your rate adjustment cannot exceed 5% your initial rate. ARM could benefit the following:
- You plan to move prior to your fixed period ending
- You plan to use the savings to accomplish other goals
- You plan on making extra payments to pay the load down faster while doing so at the lower interest rate.
Agreement of Sale
The agreement of sale is a contract signed by the buyer and the seller. The contract states terms and conditions under which the home will be sold. This document is often required when apply for your home loan. An agreement of sale is also referred to as a purchase agreement.
Amortization is where a portion of the loan payment will be applied towards the accruing interest of your loan. Your lender will provide an amortization schedule which will show how much of your payments will be applied towards the principal and how much towards the loan’s total interest.
An appraisal is a professional evaluation of your home’s value. This value is based on several factors including a comparative analysis of homes nearby along with the interior and exterior quality of your home. Many lenders require an appraisal prior to approving a loan.
A balloon mortgage is considered a short-term mortgage requiring a remaining principal balance to be paid at a specific point in time. A balloon mortgage does not fully amortize over the term thus leaving a balance due at maturity. Balloon mortgage payments are equivalent to a 30-year fixed mortgage but for a shorter period of time. The total debt repayment is lower than a conventional fixed-rate mortgage and common amongst commercial real estate loans.
Bill of Sale
A bill of sale is a written instrument given to pass title of personal property.
A blanket mortgage is a single mortgage which attaches to more than one property.
Breach of Contract
A breach of contract is a violation of the terms of a legal agreement, default.
Most real estate agents in Wisconsin work under a broker and some realtors may be brokers as well. A real estate broker can work independently and hire real estate salespersons. Brokers are held to a higher standard of knowledge and must have a broker’s license. A broker may be an individual or a firm that charges a fee for executing a purchase or sale of a home. A real estate broker plays the role of an intermediary between the buyer and seller.
Broker Price Opinion (BPO)
A BPO is a real estate broker’s estimated value of a property.
Brownstone is a 3-5 story building townhouse. The name comes from the brown stone used in the façade. Original structure stems from 19th century.
A cash reserve refers to extra money a borrower has in their bank account to cover costs of monthly payments for a predetermined amount of time. A cash reserve is basically a foreclosure-avoidance strategy to cover payment in the event a homeowner is unable to make payments.
Closing costs are fees charged by everyone involved in the home sale. From the loan processing fee to title paperwork fees, your lender will provide you an estimate of closing costs at the time of purchase. Closing costs are divided into 2 separate categories: non-recurring closing costs and pre-paid items. Non-recurring closing costs are any items which are paid just once as a result of buying the home or obtaining a loan. Pre-paids are costs which will reoccur over time. Property taxes and homeowners insurance are examples of pre-paids.
The closing date is a meeting scheduled prior to the final home sale where all legal documents related to the mortgage loan and property transfer are signed and money is exchanged. Once all necessary paperwork is completed, keys are traded. Both parties must agree on the closing date.
A commission fee is paid to the lender for processing, underwriting and originating a mortgage. Otherwise known as an Origination Fee.
A commission is usually a percentage of a property’s purchase price and is paid to the real estate broker for his/her work on marketing and selling a property.
When recently sold properties are compared to the property being appraised. A comparison is for the purpose of gaining an opinion of value for the subject property.
Contingency is a stipulated condition which must be met before a contract is legally binding.
A conventional mortgage is a mortgage loan not insured by any government agency. This type of loan must however, adhere to mortgage guidelines by the Federal National Mortgage Association. A conventional mortgage can be both fixed mortgages and adjustable-rate mortgages.
Counter offers are very common when negotiation a price for a property. A counter offer is a response to another offer. For example, a home is listed as $145,000 and a buyer offers $138,000. A counter offer would be when the seller proposes a new offer between $138K & $145K.
Debt-to-income ratio is a personal finance measure that compares a borrower’s gross income to their debt. The ratio is expressed as a percentage and takes into account your annual income and monthly debts. The percentage helps determine your eligibility for a mortgage loan. Less than 36% is considered acceptable by most mortgage professionals. A DTI below 20% is considered excellent.
A deed is a written document which conveys title to real property and must be properly signed and delivered.
Depreciation recapture is when a property is sold at a gain and accelerated depreciation has been claimed. The owner may be required to pay tax at ordinary income rates to the extent of the excess accelerated depreciation.
A down payment is the amount of money a buyer pays at closing to fund a home purchase and is usually a percentage of the full purchase. Depending on the type of loan will determine what percentage you need to pay for your down payment. FHA loans require a minimum of a 3.5% down payment while conventional loans require at least 20 of the home’s total price. A down payment must be made by cash in the form of a cashier’s check.
Earnest money is the money you pay 1-3 days after the seller has accepted your offer. The amount of earnest money varies but is usually around 1-3% of the sale of your home. Once the sale of a home has been completed, the earnest money will applies toward your closing costs. If any issues arise which are covered by contingencies and the purchase of the home does not occur, your earnest money will be recovered in full. If the purchase doesn’t occur due to reasons not covered by contingencies, your earnest money will be forfeited.
Easements are legal arrangements of a property or common land which is publicly owned and used by the local community. Common examples of easements include easements granted for the placement of water and sewer lines. Easements are documented on a title report and can affect a property and what a homeowner can plant and/or build on the property.
Equity is the amount of a home’s value which is actually owned by the homeowner. Equity is calculated by taking the sale prices and deducting the mortgage amount left to pay. Equity can increase if the value of your property increases and at the same time, if the market declines and the value of your home decreases you will obtain negative equity.
Escrow is a 3rd party which handles the exchange of money and document once mutual acceptance is made on an offer. The transfer of the buyer’s loan documents is made by the escrow.
A fixed-rate mortgage is a mortgage which has a fixed rate the entire term of the loan. The benefits of this type of loan, is that homeowners will not receive fluctuating loan payments when interest rates drop or increase. The downside is if interest rates do drop, your rates remain as they were determined at the time mortgage was originated.
An assessment is exclusively reserved for property taxation purposes. An assessment is based on an appraisal of the fair market value of the property. Assessments occur once every three years and are certified by the Department to local governments then converted to property tax bills.
A contingency is a condition upon which a written contract is dependent relieving a party of liability in the event a predetermined agreement does not occur. Many times, an offer on a house is contingent upon the buyer selling his/her home.
A home inspection takes place prior to a home sale is final. The inspection must be performed by a professional inspector and all necessary paperwork must be completed before a bank will approve a loan. If there are any stipulations, these conditions must be handled and documented prior to closing date.
Homeowner’s insurance is a package policy covering both damage to your property and liability coverage. Coverage includes various personal insurance protection and may cover accidents that happen at the home or at the hands of the homeowner within the policy territory.
A lien is a legal document acting as security for your debt by giving the creditor a stake in your home. When you have a lien on your home, there are limitations on what you can do to your home. For example, you may not be able to take out a second mortgage or home-equity loan with an unpaid lien.
Types of liens include:
- Mechanic’s Lien – contractors may file such lien on the property as insurance making certain they get paid.
- Judgment Lien – If you are involved in a court case and a judgement is filed against you, the winning party can file a judgement lien against your home until the payment is made.
- Tax Lien – If you do not pay your taxes, the government may file a tax lien on your home.
Liens can be removed. RE/MAX Service First recommends having any lien against your home removed as soon as you can. A simple way to do so is by negotiating with the lien holder. If you are certain the lien is unjustified you can file a lawsuit to have the court order the lien removed.
Market value is a price a willing buyer would pay and a willing seller would accept. Both parties must be fully informed and the property will be for sale for a reasonable period of time. The market value of a home may be different from the price the property is actually being sold for. The market value of a real estate property is typically determined by a professional appraiser who makes comparisons to similar properties for sale in the area. These comparisons are often called comparables or comps.
Mortgage insurance is an insurance policy which protects lenders against losses which result from defaults on home mortgages. Defaults of payments may involve death, loss of employment or other various reasons preventing payments from being made.
Offer to Purchase
An offer to purchase is when you decide to buy a real estate property, your real estate agent will prepare an Offer to Purchase. Your offer is the first step toward negotiating a sales contract with the seller. Your goal is to get what you want but at the same time not offend the seller turning them away. The offer should not only include the price you are willing to pay but other details of the purchase like your down payment, closing costs, inspection details and so on. RE/MAX Service First will walk you through every detail of making a successful offer.
Pre-approved Letter for a Mortgage
Working with a lender should be the first step you take in your home buying process. A lender can help determine what you can afford and what you will actually be approved for. A pre-approval usually offered in a pre-qualification letter stating the amount a lender thinks you’ll be able to borrow based on your income and credit profile.
Principal on a Loan
The principal is the amount owed on a loan, separate from the interest. Interest is calculated on the principal. In a loan amortization schedule, the principal and interest are separated, borrowers can see which part of their monthly payment goes to paying off the principal and which part gets used to pay interest.
Realtor's Code of Ethics
The Code of Ethics outlines a realtor’s obligation to a client, colleagues and the public. It is a standard of conduct required by license laws and by the National Association of Realtors.
A title is the rights in a piece of property in which a party may own either legal interest or equitable interest. The rights may be separated and held by different parties. A title may also serve as evidence of ownership.
Title insurance insures against financial loss from defects in title to property and from the invalidity of a mortgage loan. There are two types of policies – owner and lender. Nearly all institutional lenders require title insurance to protect their interest in the collateral of loans secured by real estate.
The Truth-in-lending act was enacted to protect consumers in their dealings with lenders and creditors. The most important aspect of the act involves the information which must be disclosed to a borrower prior to extending credit like the APR and total costs to the borrower.