Common Real Estate Terms

While the information contained herein is intended to be useful and timely, it should in no way be viewed as a replacement for professional advice a consumer should seek. For the final word on mortgage instruments and lending practices, talk with your real estate salesperson, mortgage lender, a lawyer, or other mortgage finance professional.

Glossary of Real Estate Terms

Acre
A two- dimensional measure of land equaling 4,840 square yards, or 43,560 square feet.

Adjustable-Rate Mortgage
Loan featuring an interest rate that moves up and down as market conditions change. ARMs generally offer a lower initial interest rate, but your mortgage payments may change (usually semiannually or annually). Rate changes are based on an index such as the one-year Treasury Index or the cost-of-funds index (COFi). Some ARMs can be converted to fixed rate.

Affidavit of Title
A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which the grantor: (1) identifies him - or herself and indicates marital status; (2) certifies that since the examination of the title on the date of the contract no defects have occurred in the title; and (3) certifies that he or she is in possession of the property (if applicable)

Agency Relationship
Mn Law Requires that early in any relationship, real estate brokers or salespersons discuss with consumers what type of agency representation they desire. (See your real Estate agent for your available options)

Alexandria Property Inc
The BEST place to go to buy or sell any type of real estate in West-central Minnesota.

ALTA (American Land Title Association)
Since any lending institution funding a loan for the acquisition of property wants assurance of good title on the property, there is a special policy prepared for the benefit of the lender known as ALTA Policy.

Amortization
A schedule for repayment of a loan, including interest and principal, by regular installment payments. Mortgage loans are typically amortized over 15 to 30 years.

APR (Annual Percentage Rate)
The total yearly cost of a loan stated as a percentage of the loan amount: Includes the base interest rate, primary mortgage insurance, and loan origination fee (points). Use the APR to compare various loan programs, as all lenders are required to use the same guidelines in determining APR.

Application Fee
Often non-refundable, this is the fee charged by the lender to cover a portion of the costs of processing a loan application.

Appraisal
A professional opinion of the market value of a property. Sometimes, an appraised value may be dependent upon certain improvements or repairs being made.

Assessed Value
Value placed on a property by the tax assessor for property tax purposes. Assumable Mortgage A mortgage that can be taken over -assumed- by the buyer when a property is sold.

Balloon Mortgage
A mortgage that offers lower interest rates for a shorter term financing, usually seven years, and requires final payment or refinancing at the end of the term.

Balloon Payment
A payment of a loan that extinguishes the debt.

Buy Down
Payment of additional points to lower the interest rate of the loan.

CAP
Limit on the amount an adjustable rate mortgage may increase or decrease during specific intervals and over the term of the loan. This safeguard protects the buyer from dramatic changes in monthly payments.

Capital Gain
Taxable profit derived from the sale of a capital asset. The capital gain is the difference between the sale price and the basis of the property, after making appropriate adjustments for closing costs, fixing up expenses, capital improvements, allowable depreciation, etc.

Closing Costs
Expenses (such as loan fees, title fees, appraisal fees, etc.), over and above the price of the property, incurred by buyers and sellers in transferring ownership. Also called "settlement costs". Closing costs may be paid by the buyer, the seller or shared by both. In some cases, all or a portion of these costs may be included in the financing amount.

Commission
Payment of money or other valuable consideration to a Real Estate broker for services performed.

Construction/end Loan
A mortgage that finances the construction of a home and converts to permanent financing when the home is completed. It allows buyers to deal with only one lender, file only one credit application and pay only one set of closing costs.

Contingency
A condition that must be met before a contract is legally binding.

Conventional Loans
A loan secured by investors, but neither insured by the FHA nor guaranteed by VA. Both fixed rate and adjustable rate loans are available with conventional financing.

Convertible ARM
Some ARMs include a provision allowing conversion to a fixed-rate mortgage at specified times, typically during the first five years of the loan. Some lenders charge a premium for this option, find out the exact conversion terms and costs from your lender. This will help you decide whether this is a cost-effective option.

Deed
The legal document conveying title to a property.

Disclosure Report
Residential real property disclosure act, Is an act relating to disclosure by the seller of residential real property. The purpose of this report is to provide prospective buyers with information about material defects in the residential real property.

Discount Points or Points
Any amount paid to the lender when a loan is originated to account for the difference between the current market-determined cost of interest and the actual lower interest rate of the loan. In most cases each point is equal to one percent of the original loan amount. Points may be paid by either the buyer or seller.

Dual Agency
Some states permit a real estate licensee to potentially act as a dual agent, that is, represent more than one party to the transaction. A licensee may legally act as a dual agent with the written disclosure and informed consent of a consumer in form required by law.

Down Payment
The part of the purchase price which the buyer pays in cash and does not finance with a loan.

Earnest Money
An amount of money, deposited by a buyer under the terms of a contract, that is to be forfeited if the buyer defaults but applied on the purchase price if the sale is closed.

Easement
The right,privilege, or interest that one party has in the land of another.
Ex. The right of public utility companies to lay their lines across other's property is a utility easement.

Encroachment
A building, or part of a building or an obstruction that physically intrudes upon, overlaps, or trespasses upon the property of another.

Equity
The market value of a property minus the amount of any existing loans or liens.

Escrow Account
A separate account for accumulating the portion of your monthly payments that will pay future taxes, insurance, fees, assessments and so forth. Depending on your lender and the financing you select, an escrow account may be required.

Escrow Agent
A disinterested third party appointed to act as custodian for documents and funds during the transfer from seller to buyer.

Exclusive Right to Represent Buyer
You give your Real Estate Agent the exclusive right to locate and/or to assist in negotiations for the purchase, exchange, or option to purchase property at a price and with terms acceptable to the buyer. This agreement has a beginning and ending date. (see your Real Estate salesperson for more information)

FHA Financing
A loan insured by the Federal Housing Administration (FHA) and made by an approved lender in accordance with the FHA's regulations. FHA requires that the property being purchased meets certain minimum standards. This mortgage may be easier to qualify for than a conventional mortgage, but it also has a lower maximum loan limit that varies depending on the average cost of housing in a given region. FHA loans require the borrower to pay mortgage insurance premiums (MIP) if the down payment is less then 20%. Fixed and adjustable rates are available with FHA loans.

Financial Index
An agreed upon basis for making interest rate changes on an adjustable rate mortgage. One example of a financial index could be the cost of U.S. Treasury Bonds. Fixed Rate The interest rate does not change during the entire term of the loan.

Flood Insurance
Insurance that compensates for physical property damages resulting from flooding. It is required for properties located in federally designated flood areas.

Initial Interest Rate
The interest rate charged for the first six or 12 months of an adjustable rate mortgage (before the first interest rate adjustment)

Interest Rate Cap
Limit on the amount an adjustable rate mortgage may increase or decrease during specific intervals and over the term of the loan. This safeguard protects the buyer from dramatic changes in monthly payments.

Listing Contract
Between a home or property owner(as Principal) and a Licensed real Estate Broker(as agent) by which the the Broker is employed to sell the real estate within a given time for which service the owner agrees to pay a commission. Also,"listing agreement."

Loan Commitment
A written promise by a lender to make a loan under certain terms and conditions. These include interest rate, length of the loan, lender fees, annual percentage rate, mortgage and hazard insurance and other special requirements.

LTV (Loan to Value Ratio)
The ratio of the mortgage loan principal (amount borrowed) to the property's appraised value. On a $ 100,000 home, with a mortgage loan of $ 80,000, the loan to value ratio is 80%

MIP (Mortgage Insurance Premium)
The insurance issued by a government agency such as the FHA Mortgage Banker A company that originates mortgages exclusively for resale in the secondary market.

M.L.S.- Multiple Listing Service
Real Estate brokers and their agent who belong to a M.L.S. Service show and sell each others listings. Here in our area most firms are members of the multiple listing service.

Mortgage Broker
An individual or company that for a fee acts as an intermediary between borrowers and lenders.

Mortgagee
The lender of money or the receiver of the mortgage document.

Mortgagor
The borrower of money or the giver of the mortgage document.

Mortgage Pre-Approval Service
A service offered by many lenders that allows you to qualify for financing before finding a property to buy.

Note
A written promise to pay a certain amount of money at a certain time at a certain interest rate.

Origination Fee
A fee charged by the lender for making a real estate loan - usually a percentage of the amount loaned, such as one percent. Not to be confused with an application fee.

PITI (Principal, Interest, Taxes, Insurance)
Stands for principal, interest, taxes, and insurance - the components of the monthly loan payments.

PMI (Private Mortgage Insurance)
Insurance written by a private company that insures repayment of the loan balance to the lender in the event of default by the borrower. Usually required for homes financed with less than a 20 percent down payment.

Points or Discount Points
Amount paid to the lender when a loan is originated to account for the difference between the current market-determined cost of interest and the actual lower interest rate of the loan. Each point is equal to one percent of the original loan amount. In most cases points may be paid by either the buyer or seller.

Prepayment Privilege
The right given to a purchaser to pay all or part of a debt prior to its maturity. The mortgagee cannot be compelled to accept any payment other than those originally agreed to.

Prequalification
The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.

Rate Guarantee
The lender's guarantee, usually for a specified period of time, that the interest rate in effect the date you apply for a loan (or at the time of approval) will be the final rate on your loan when closed.

REALTOR
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.Also see Scott & Jodi Seidl below

Refinance
Replacing an existing loan with a new one to get a lower rate, switch from one loan type to another, or convert equity to cash. A refinance loan will involve various loan fees, just as with any other mortgage.

RESPA Real Estate Settlement Procedures Act
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Scott & Jodi Seidl
The real estate professionals to talk to when you get to Alexandria Property Inc.

Secondary Mortgage Market
The lender will frequently sell his loan to an entity in the secondary mortgage market. This secondary market has nothing to do with second mortgages, instead, it consists of government or private associations which buy loans from primary lenders. Often the loans are bought and grouped together in a pool for resale. The best known of the participants in the secondary mortgage market is FANNIE MAE, the federal national mortgage association. Fannie Mae buys and sells both first and second mortgages. GINNIE MAE tends to favor FHA and VA loans since they are stable loans but also buys conventional mortgages.

Survey
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Term
The number of years before a loan is paid in full; 15 to 30 year terms are most common for home mortgages.

Title
A legal document evidencing a person's right to ownership of a property.

Title Insurance
Insurance to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of property.

Title Option
An attorney's opinion of a title, based on an Abstract of Title.

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's credit worthiness and the quality of the property itself.

VA Financing
A loan guaranteed by the Veterans Administration (VA) to a qualified veteran and made by an authorized lender on an approved property. Fixed and adjustable rates are available with VA loans. The VA charges borrowers a funding fee.

Warranty Deed
A legal document used to convey title.