Page 6, AC Phoenix, March, 1992
A Dictionary of Real Estate Jargon
Adjustable Rate Mortgage
(ARM) - A mortgage loan on
which the interest rate is adjusted at
regular intervals, based on a pre-
established index (for example, one
percent above the prevailing prime
rate at time of adjustment). The
most common ARMs are adjusted
once every year.
Amortize - To reduce a
mortgage debt by making regular
payments on the principal.
Appraisal - An opinion or
estimate of the value of a home or
property.
Appreciation - Increase in real
value (discounting inflation) of a
property.
Assessed value - The value
placed on a property by a
municipality for the purpose of
levying property tax.
Assessment - A levy of charge,
usually by a city or county
government, against property
owners for improvements such as
water service or sidewalks.
Broker - Person licensed by the
state to bring together buyers and
sellers of real estate. Normally, a
4)roker represents the seller and gets
a commission based on a piercentage
of the sale price.
Building code - A set of rules,
usually local, which outlines in
detail requirements for the design,
construction, remodeling, repair
and use of property in that city,
town, village or county.
Building contract - An agree
ment with a builder, setting forth
details of projtosed work, as well as
an amount, method and schedule
for payments.
Buyer's market - When there
are more properties for sale in an
area than there are qualified and
willing buyers. So named because
buyers usually have leverage to
obtain better terms of purchase from
sellers.
Closing costs - Fees and ex
penses due at closing, including
discount points, brokerage fees,
title insurance premiums, attorney's
fees and other charges. The
purchase contract should spell out
which of the fees are to be paid by
the buyer and which by the seller.
Condominium - Form of real
estate ownership in which a person
owns a particular apartment or part
of property in a multi-unit
arrangement. Usually the condo
minium owner will also have joint
ownership of public areas.
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Conventional mortgage
Mortgage not guaranteed by the
Veterans Administration (VA),
Federal Housing Administration
(FHA) or Farmers Home Admini
stration.
Discount points - Fees paid to
a lender, usually by the buyer, to
get a mortgage loan at a certain
interest rate. For the lender, points
help increase their profit on a loan
without raising the interest rate. One
point is equal to one percent of the
mortgage amount.
Equity - The interest or value
that an owner has in property.
Equity is calculated by subtracting
all mortgages and liens on property
from its market value.
Escrow - Money held by a third
party, by consent of a buyer and/or
seller or lender, for disbursement
under prearranged terms.
Fannie Mae - Federal National
Mortgage Association, formed by
Congress, to support the secondary
mortgage market by buying and
selling mortgages from lendere.
Fair market value - Price on
property to which a qualified and
willing buyer and a seller would
probably agree within a reasonable
time. Figure usually is based on
sales of comparable homes in the
area.
Federal Housing Admini
stration (FHA) - Federal agency
that insures first mortgages and
home improvement obligations.
This guarantee allows borrowers
with smaller down payments or
equity to borrow at low interest
rates.
Fee simple - Ownership of pro
perty with all privileges to dispose
of in any way, within the law, the
owner wishes.
Lease/purchase - Method of
payment for a property, essentially
the same as an installment contract
for a car or appliance. In this
arrangement, title to the property
remains with the seller until the full
amount owed is paid. In the event
of default by buyer, seller does not
have to foreclose, since title is
already in his name.
Lien - A charge against property
making it security for a debt,
mortgage or payment.
Loan origination fee - One
time payment to a lender for
expenses in processing and admini
stering loan.
Mortgage assumption
Agreement by a buyer to assume
responsibility for a mortgage and
promissory note owned by a seller.
Unless the lender agrees to release
the original holders of the loan from
all liability, the seller will maintain
responsibility for payment of the
note and mortgage.
Mortgage insurance - Type of
term life insurance often bought by
borrowers. Amount of coverage
decreases as mortgage balance
declines. In the event a borrower
dies while the policy is in force,
debt is automatically satisfied by the
process of the policy.
Point - Represents one percent of
mortgage requested. Charged by
lenders and due at closing of sales.
Increases lenders' profits on loans
without raising interest rates.
Refinancing (Part I) - Process
by which an existing mortgage loan
is retired and a new loan taken out
by a home owner. The objective for
borrowers is to get a lower interest
rate (and thus lower monthly
payments) and/or more favorable
terms than they had with the
original loan.
Refinancing (Part II) -
Homeowners can also use re
financing to raise needed capital, by
leveraging the equity they have in
their home. They do this by
obtaining a new mortgage loan with
a higher principal amount than they
had on the old loan. Example: a
home owner has a $30,000
mortgage balance on a home valued
at $100,000. They refinance and get
a new mortgage loan for $40,000.
They can then use the extra
$10,000, minus refinancing costs,
for other purposes, such as paying
for a child's college tuition.
Survey - The process by which a
property is measured and its size
and diinensions calculated.
Title - Documentary evidence of
ownership of property, "ritle is
given to buyer at closing. Title will
carry history of purchases of
property, as well as restrictions to
its use and easements granted.
Title insurance - Protects buyer
and lender against defects in title
and loss due to liens or unknown
encumbrances.
Title search - Check of all title
records to ensure that a seller is the
legal owner and that there are no
liens and other claims on a title.
Warranty deed - Guarantee
conveyed from a home seller to the
buyer that a title is free of any and
all claims, such as liens and
encumbrances. Once extremely
important to buyers, the importance
of the warranty deed has been
diminished somewhat since the use
of title insurance became
widespread.