Refinancing a Home
Refinancing a Home Glossaries
Abstract of title: The condensed history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate.
Acceleration clause: The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant.
Accrued items: On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property.
Adjustable-rate mortgage (ARM): A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.
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 himself or herself and indicates marital status, (2) certifies that since the examination of the title, on the date of the contracts no defects have occurred in the title and (3) certifies that he or she is in possession of the property (if applicable).
Alienation: The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession.
Alienation clause: The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender's option if the property is sold by the borrower. In effect this clause prevents the borrower from assigning the debt without the lender's approval.
Amortized loan: A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.
Annual percentage rate (APR): The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act.
Anticipation: The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.
Appraisal: An estimate of the quantity, quality, or value of something. An appraisal is the process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.
Appraiser: An independent person trained to provide an unbiased estimate of value.
Appreciation: An increase in the value of a property due to economic or related causes; may prove to be either temporary or permanent.
Assessment: The imposition of a tax, charge, or levy, usually according to established rates.
Assumption of mortgage: Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.
Attorney's opinion of title: An abstract of title that an attorney has examined and has certified to be, in his or her opinion, an accurate statement of the facts concerning the property ownership.
Balance: The appraisal principle that states that the greatest value in a property will occur when the type and size of the improvements are proportional to each other as well as the land.
Balloon payment: A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.
Basis: The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner's basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the adjusted basis.
Blanket loan: A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.
Breach of contract: Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.
Broker: One who acts as an intermediary on behalf of others for a fee or commission.
Building code: Describes an ordinance that specifies minimum standards of construction for buildings in order to protect public safety and health.
Building permit: Written governmental permission for the construction, alteration, or demolition of an improvement; shows compliance with building codes and zoning ordinances.
Buy-down: A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.
Buyer-agency agreement: A principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. The broker represents the buyer under the law of agency.
Buyer's agent: A residential real estate broker or salesperson who represents the prospective purchaser in a transaction. The buyer's agent owes the buyer/principal the common-law or statutory agency duties.
Buyer's broker: A residential real estate broker who represents prospective buyers exclusively. As the buyer's agent, the broker owes the buyer/principal the common-law or statutory agency duties.
Capital gain: Profit earned from the sale of an asset.
Cash flow: The net income from an investment determined by deducting all operating and fixed expenses from the gross income. If expenses exceed income a negative cash flow results.
Caveat emptor: A Latin phrase that means, "Let the buyer beware."
Certificate of title: A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.
Chain of title: The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.
Closing: When promises made in a sales contract are fulfilled and mortgage loan funds (if any) are distributed to the buyer.
Closing statement: Detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made, and all cash paid out in the transaction.
Cloud on title: Refers to any document, claim, unreleased lien, or encumbrance that may impair the title to real property or make the title doubtful. A cloud on title is usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.
Commission: Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.
Comparables: Properties used in an appraisal report that are substantially equivalent to the subject property.
Consideration: (1) That received by the grantor in exchange for his or her deed. (2) Something of value that induces a person to enter into a contract.
Contingency: A provision in a contract that requires a certain act to be done or a certain event to occur before the/contract becomes binding.
Contract: A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.
Conventional loan: A loan that requires no insurance or guarantee.
Conveyance: A term used to refer to any document that transfers title to real property. The term is also used in describing the act of transferring.
Counteroffer: A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offering party.
Dedication: The voluntary transfer of private property by its owner to the public for some public use, such as for streets or schools.
Deed in lieu of foreclosure: A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.
Deed in trust: An instrument that grants a trustee under a land trust full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.
Discount point: A unit of measurement used to describe various loan charges; one point equals 1 percent of the amount of the loan.
Dual agency: Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.
Due-on-sale clause: A provision in the mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.
Earnest money: Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.
Eminent domain: The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner.
Equity: The interest or value that an owner has in property over and above any amount owed.
Escrow: The closing of a transaction through a third party called an escrow agent who receives certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.
Escrow account: The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction.
Eviction: A legal process to oust a person from possession of real estate.
Evidence of title: Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer's opinion, title insurance, or a Torrens registration.
External depreciation: Reduction in a property's value caused by outside factors (those that are off the property).
Fair Housing Act: The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status, and national origin.
Fannie Mae: A quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.
FHA Loan: A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA's regulations.
Foreclosure: A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.
Freddie Mac: A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.
Functional obsolescence: A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.
Ginnie Mae: A government agency that plays an important role in the secondary mortgage market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans.
Graduated-payment mortgage (GPM): A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.
Ground lease: A lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease. Such leases are usually long-term net leases; the tenant's rights and obligations continue until the lease expires or is terminated through default.
Home equity loan: A loan (sometimes called a line of credit) under which a property owner uses his or her residence as collateral and can then draw funds up to a prearranged amount against the property.
Homeowner's insurance policy: A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.
Interest: A charge made by a lender for the use of money.
Interim financing: A short-term loan usually made during the construction phase of a building project (in this case often referred to as a construction loan).
Investment: Money directed toward the purchase, improvement, and development of an asset in expectation of income or profits.
Joint and several liability: Each of the individual owners is personally responsible for the total damages.
Joint tenancy: Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent's interest passes to the surviving joint tenant or tenants by the right of survivorship.
Judgment: The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant.
Judicial precedent: In law, the requirements established by prior court decisions.
Junior lien: An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same realty.
Lease: A written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and use of the landlord's real property to the lessee for a specified period of time and for a stated consideration (rent). By state law leases for longer than a certain period of time (generally one year) must be in writing to be enforceable.
Lease option: A lease under which the tenant has the right to purchase the property either during the lease term or at its end.
Lease purchase: The purchase of real property, the consummation of which is preceded by a lease, usually long-term. Typically used for tax or financing purposes.
Legal description: A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.
Lien: A right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.
Life estate: An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person or persons.
Life tenant: A person in possession of a life estate limited partnership. See partnership.
Listing agreement: A contract between an owner (as principal) and a real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner's real estate on the owner's terms, for which service the owner agrees to pay a commission.
Listing broker: The listing broker is the broker in a multiple-listing situation from whose office a listing agreement is initiated. The listing broker and the cooperating broker may be the same person.
Loan origination fee: A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.
Loan-to-value ratio: The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.
Marketable title: Good or clear title, reasonably free from the risk of litigation over possible defects.
Mechanic's lien: A statutory lien created in favor of contractors, laborers, and craftsmen who have performed work or furnished materials in the erection or repair of a building.
Mortgage: A conditional transfer or pledge of real estate as security for the payment of a debt.
Mortgage banker: Mortgage loan companies that originate, service, and sell loans to investors.
Mortgage broker: An agent of a lender who brings the lender and borrower together. The broker receives a fee for this service.
Mortgagee: A lender in a mortgage loan transaction.
Mortgage lien: A lien or charge on the property of a mortgagor that secures the underlying debt obligations.
Mortgagor: A borrower in a mortgage loan transaction.
Multiple-listing clause: A provision in an exclusive listing for the authority and obligation on the part of the listing broker to distribute the listing to other brokers in the multiple-listing organization.
Multiple-listing service (MLS): A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing, and able buyers for their properties more quickly than they could on their own. Most multiple-listing services accept exclusive-right-to-sell or exclusive-agency listings from their member brokers.
Net listing: A listing based on the net price the seller will receive if the property is sold. Under a net listing the broker can offer the property for sale at the highest price obtainable to increase the commission. This type of listing is illegal in many states.
Obsolescence: The loss of value due to factors causing a property to be out of date or less useful. Obsolescence can be functional or economic.
Offer and acceptance: Two essential components of a valid contract; a "meeting of the minds."
Open listing: A listing contract under which the broker's commission is contingent on the broker's producing a ready, willing, and able buyer before the property is sold by the seller or another broker.
Power of attorney: A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the extent indicated in the instrument.
Prepaid items: On a closing statement, items that have been paid in advance by the seller, such as insurance premiums and some real estate taxes, for which he or she must be reimbursed by the buyer.
Prepayment penalty: A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.
Principal: (1) A sum loaned or employed as a fund or an investment, as distinguished from its income or profits. (2) The original amount (as in a loan) of the total due and payable at a certain date. (3) A main party to a transaction — the person for whom the agent works.
Private mortgage insurance (PMI): Insurance provided by private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.
Promissory note: A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party).
Proration: Expenses that are either prepaid or paid in arrears that are divided or distributed between buyer and seller at the closing.
Rate cap: The limit on the amount the interest rate can be increased at each adjustment period in an adjustable-rate loan. The cap may also set the maximum interest rate that can be charged during the life of the loan.
REALTOR®: A registered trademark term reserved for the sole use of active members of local REALTOR® boards affiliated with the National Association of REALTORS®.
Recording: The act of entering or recording documents affecting or conveying interests in real estate in the recorder's office established in each county. Until it is recorded, a deed or mortgage ordinarily is not effective against subsequent purchasers or mortgagees.
Rent: A fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties.
Replacement cost: The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original.
Straight (term) loan: A loan in which only interest is paid during the term of the loan with the entire principal amount due with the final interest payment.
Survey: The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions, and position of a house on a lot, including the determination of any existing encroachments or easements.
Tax lien: A charge against property created by operation of law. Tax liens and assessments take priority over all other liens.
Tenancy by the entirety: The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse the survivor becomes the owner of the property.
Tenancy in common: A form of co-ownership by which each owner holds an undivided interest in real property as if he or she were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have right of inheritance.
Tenant: One who holds or possesses lands or tenements by any kind of right or title.
Time is of the essence: A phrase in a contract that requires the performance of a certain act within a stated period of time.
Title: The right to or ownership of land or real property.
Title insurance: A policy insuring the owner or mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects, and matters specifically excluded by the policy.
Title search: The examination of public records relating to real estate to determine the current state of the ownership.
Uniform settlement statement: A special HUD form that itemizes all charges to be paid by a borrower and seller in connection with the settlement.
Valid contract: A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it.
VA loan: A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs in order to limit the lender's possible loss.
Wraparound loan: A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. In essence it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount without disturbing the existence of the first mortgage.
Zoning ordinance: An exercise of police power used by a municipality to regulate and control the character and use of property.