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Terminology
Here Are Some Helpful Terms Used Throughout The Real Estate,
Mortgage, and Title Processes.
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Abstract (Of Title) |
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Summary of public records relating to the title to a particular piece of land. An attorney or title insurance company searcher reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title. |
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Acceleration Clause |
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Standard clause in a mortgage that requires the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage. |
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Adjustable-Rate Mortgage (ARM) |
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Interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARMs referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages). |
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Adjustment Date |
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The date the interest rate changes on an adjustable-rate mortgage (ARM). |
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Adjustment Period |
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Length of time for which the interest rate is fixed on an ARM. After that period it will be adjusted. Typically once (T-Bill) or twice a year (LIBOR), depending on the index. |
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Agreement of Sale |
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A.K.A. Purchase Agreement or Sales Agreement. Contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. |
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Alienation Clause/Due on Sale Clause |
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Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred. |
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Amortization |
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The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time. |
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Amortization |
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A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal. |
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Amortization Schedule |
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A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero. |
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Amount Financed |
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This figure is used to calculate your APR. It represents your loan amount minus any prepaid finance charges (i.e., the sum of "Amount Financed" and "Finance Charge") assuming you kept the loan to maturity and made only the required monthly payments. |
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Annual Percentage Rate (APR) |
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There are two interest rates applicable to your loan: (i) your Actual Interest Rate and (ii) your Annual Percentage Rate. Your Actual Rate is the annual interest rate of your loan (sometimes referred to as the "note rate"), and is the rate used to calculate your monthly payments. The amount of interest you pay, as determined by your Actual Rate, is only one of the costs associated with your loan... there may be others. The Annual Percentage Rate (referred to as the "APR") encompasses both your interest and any additional costs or prepaid finance charges you may pay such as prepaid interest (necessary to adjust your first payment if you close mid-month), private mortgage insurance, closing fees, points, etc. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It will usually be slightly higher than your Actual Rate because it includes these additional items and assumes you will keep the loan to maturity. |
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Application |
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The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more. |
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Application Fee |
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Some lenders charge an "Application Fee" fee for accepting and reviewing your loan application. |
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Appraisal |
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Expert's estimate of the quality or value of real estate as of a given date.
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Appraisal |
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An appraisal is a written analysis of the estimated value of your property. A qualified appraiser who has knowledge, experience and insight into the marketplace prepares the document. It ensures you're paying fair market value for your home and is required to close on your new home or property. |
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Appraisal Fee |
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This fee is paid to the outside appraisal company engaged to objectively determine the fair market value of your property. This fee varies based on the location and type of your property. |
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Appraised Value |
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An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price. |
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Appraiser |
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An individual qualified by education, training, and experience to estimate the value of real and personal property. Although some appraisers work directly for mortgage lenders, most are independent. |
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Appreciation |
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The increase in the value of a property due to changes in market conditions, inflation, or other causes. |
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Assessed Value |
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Figure in dollars determined for tax purposes by an assessor which reflects a property's worth and which, unless exempt, is used to compute a tax dollar obligation by multiplying it by a tax rate. This is often confused with the term appraisal. |
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Assessment |
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The placing of a value on property for the purpose of taxation. |
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Assessor |
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A public official who establishes the value of a property for taxation purposes. |
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Asset |
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Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others. |
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Assignment |
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When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment. |
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Assignment Recording Fee |
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In many instances, after closing your loan is transferred to a specialized loan "servicer" who handles the collection of your monthly payments. The Assignment Fee covers the cost of recording this transfer at the local recording office. |
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Assumability |
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When a home is sold, the seller may be able to transfer the mortgage to the new buyer. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home. It is common for FHA an VA Loans. |
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Assumable Mortgage |
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A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan. |
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Assumption |
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The term applied when a buyer assumes the seller's mortgage. |
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Attached Home |
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A home that has one or more common walls adjoining another home. Condominiums, townhomes and row houses are attached homes. |
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