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The Real Estate business has many words that the agents, mortgage
sources, and attorneys use. These words can be confusing to the buyer and
seller.
Listed below are several basic real estate words and terms that will make
your real estate buying or selling more understandable.
Adjustable Mortgage Loans—Mortgage loans that have an interest rate that is periodically adjusted
to mirror current interest rates. The amount of and times the rate is
adjusted agreed upon when the loan is approved. Other names are: Adjustable
Rate Loans - Adjustable Rate Mortgages (ARMs) - Flexible Rate Loans -
Variable Rate Loans.
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Amortization—Paying off the mortgage (or debt) in equal payments of principal and
interest instead of interest-only payments.
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Annual Percentage Rate (A.P.R.)—The yearly interest percentage of a loan, as expressed by the total
finance charge actually paid (interest, loan fees, points). The A.P.R. is
disclosed as a requirement of federal truth in lending statutes.
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Buydown—The seller, buyer, third party, or some combination of these causing the
lender to reduce the interest rate in the loan's early years.
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Cap—The limit on how much the interest rate or monthly payment can change in
adjustable rate mortgages.
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Closing—The sale (and loan) is completed. It includes executing and/or recording
the documents. The Closing Statement lists the financial settlement
between buyer and seller and the costs each party must pay.
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CMA—CMA (Competitive Market Analysis) compares homes similar to a seller’s
home in size, style, features, and location that have recently sold or
are on the market. The real estate agent prepares a CMA to help establish
the home's listing value.
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Contingency—An event which must occur before a contract becomes binding. For example,
a home sale may be contingent upon the buyer obtaining a mortgage.
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Deposit—A part of the down payment the buyer gives to the seller or escrow agent
with a written offer to purchase the real estate.
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Down payment—Cash portion of the purchase price that the buyer pays from his own funds
as opposed to financed portion.
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Escrow—A procedure where a third (neutral) party holds all funds, documents,
etc. necessary to the sale. Escrows have instructions from both buyer and
seller as to their use and disposition.
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FHA Loan—A loan insured by the Federal Housing Administration (part of the
Department of Housing and Urban Development). FHA insurance enables lenders
to borrow a high percentage of the sale price.
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Graduated Payment Mortgage—A mortgage that initially offers a low monthly payment that increases at
fixed intervals and at a predetermined rate.
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Hazard
Insurance—Known as homeowners’ insurance.
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Index or Rate Index—A measure of interest rate changes used to adjust the interest rate of
Adjustable Mortgage Loans.
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Lien— A legal claim or charge against a
property that is a security for paying a debt or for discharging obligation.
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Loan-to-Value Ratio—The ratio
(expressed as a percentage) mortgage's loan amount to the property's
appraised value or selling price.
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Lock box—A secure key storage system, placed
on the outside a home's entrance, that is only accessible by active,
licensed real estate agents that abide by a strict set of guidelines when
showing a seller’s home.
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Margin—In Adjustable Mortgage Loans, the
number of percentage points the lender adds to the index rate to determine
the new interest rate at each adjustment.
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MLS—MLS = multiple listing service. The member
brokers cooperate selling each other’s listings. Sellers can choose not to
list their property in multiple listing.
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PITI—PITI = Principal, Interest, Taxes, and
Insurance. The four major items included in a monthly mortgage payment.
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Points—Each point represents 1% of the loan
amount.
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Principal—Amount of the loan not including
the interest. It's the face value of a loan.
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Private Mortgage Insurance—Insurance
issued by a private company against a loss incurred by a lender if a
borrower defaults on a loan. Private mortgage insurance is generally
required for conventional financing with less than a 20% down payment.
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Second Mortgage—A mortgage which
ranks second in priority to the first mortgage's lien.
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Settlement—It is the same as a closing.
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Title Insurance—Insurance against loss
resulting from defects in the title of public record.
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VA Loans—Loans partially guaranteed by the
Veteran’s Administration. It enables veterans to buy a home with little or
no down payment.
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