Capitol Title

Glossary of Terms

 

APPRAISAL
A written opinion of property value by a licensed professional. Appraisals, generally, are not professional statements of the property condition and should not be relied upon as such.

ARM
This acronym stands for Adjustable Rate Mortgage. In contrast with a mortgage loan with a fixed rate of interest, the ARM rate will adjust from time to time in accordance with an agreed upon formula. Upon each adjustment, the new payment amount will be calculated by applying the new interest rate to the principal balance amortized over the remaining life of the loan.

ASSUMABLE MORTGAGE
Provisions in a mortgage loan that allow for the purchaser of your home to assume the balance of your mortgage and to take over your payments. Most fixed rate mortgages are not assumable, unless the prospective purchasers make application with and are approved by the holder of the existing loan.

BUY-DOWN
An amount which is paid to the lender, at the time of settlement, to reduce the borrower’s monthly payments. The funds are typically deposited with the lender and drawn from in monthly installments over a specified period of years and applied against what would otherwise be the full principal and interest payments on a loan. By applying the cash paid at settlement to the borrower’s monthly payments, the borrower may qualify for a higher loan amount.

CLOSING DISCLOSURE (“CD”)
The final accounting of all lender’s fees, settlement costs and adjustments paid by or exchanged between the Buyer and Seller.  The CD is most commonly prepared on a standardized form  by your lender; it is reviewed and signed by all parties at the settlement table. A sample is shown on pages 22 of this guide.

COLLATERAL
Property pledged to the lender to secure the repayment of the loan.

DEED
A legal instrument by which an interest in real estate is transferred from one owner to the next. Upon filing the Deed in the land records office, the record title to real estate is said to be “vested” in the new owner(s). The Deed is prepared by the settlement attorney. It will contain the names of the existing owners as "Grantors" and the new owners as “Grantees” and will describe the property conveyed.  A sample is included on page 23 of this guide.

DEED OF TRUST (MORTGAGE)
The legal instrument by which real estate is pledged as collateral for a loan. Like the Note, the Deed of Trust or Mortgage is prepared by the Lender and delivered to the settlement agent in the closing package. The Deed of Trust/Mortgage will typically contain many standard terms and covenants. One important condition is that it gives the holder or beneficiary of the Deed of Trust/Mortgage the legal right to foreclose on the real estate pledged as collateral if the other terms of the loan are breached and not cured. A sample is included on page 26 of this guide.

DEFAULT
Failure to comply with the terms of the loan. A borrower’s default may allow the lender to demand full repayment of the loan immediately or result in foreclosure of the Deed of Trust.

DISCOUNT FEE
A fee paid to the lender, at or before settlement, to secure a preferred rate of interest on a loan. This fee is generally referred to in terms of a percentage of the loan amount or “points.” Generally, the more discount points paid, the lower the interest rate.

DUE ON SALE CLAUSE
A standard provision in a note which provides that the note will become due immediately (or may be “accelerated” by the lender) upon the transfer by borrower of any interest in the real estate pledged as collateral for the loan, unless written consent from the lender is obtained.

EQUITY
The extent to which the fair market value (FMV) of the property exceeds the mortgage loan balance. (FMV – LOAN BALANCE = EQUITY)

FORECLOSURE
The process by which a lender, after a default by the borrowers, auctions off real estate securing its loan, which the proceeds of the sale applied to the balance due on the loan.

HOME INSPECTION REPORT
A written report of the physical condition of the premises, prepared by a professional inspector. Typically this inspection is ordered by the purchaser to be conducted within a specified time period following contract ratification.

HOUSE LOCATION DRAWING
A drawing which shows the structures and improvements on a lot in relation to the platted boundary lines, building restriction lines and easements. The drawing will also include a certification that the property is not within a special flood hazard zone.

LOAN ESTIMATE (“LE”)
The Loan Estimate (“LE”) replaces the commonly known Good Faith Estimate (“GFE”) and the Initial Truth in Lending Disclosure (“TIL.”)    Once an official loan application is taken by the creditor, the LE must be prepared and sent to you, the borrower, within three (3) business days and includes estimates of the costs and fees that you will pay in conjunction with the closing.  A sample is shown on page 21 of this guide.

MORTGAGE INSURANCE PREMIUM (M.I.P.)
The premium paid for insurance to protect the lender in the event of a foreclosure where the money collected from the sale of the real estate is insufficient to cover the outstanding balance and costs due to the lender. Mortgage insurance is usually required for conventional loans that exceed 80% of the appraised value of the property and for all Federal Housing Administration (FHA) loans.

NOTE
A legal instrument constituting a promise to repay money borrowed from a lender. The Note is typically prepared by the lender and is signed by the borrower at closing. A Note will include the original principal amount of the loan, the initial rate of interest, the maturity date, and it will describe any contemplated changes to the interest rate or due date. The note will also describe the conditions of repayment and the penalties for failure to comply with its terms. A sample is included on page 24 of this guide.

ORIGINATION FEE
A fee charged by a lender or mortgage broker to initiate the loan process. This fee is typically referred to in terms of a percentage of the loan amount or “points.”

POINTS
Common term used in the industry when referring to loan origination fees and discount fees. Each “point” represents one percent (1%) of the loan amount.

SHORT SALE
When the proceeds from the sale of a property are less than the amount owed on the seller’s loan secured by the property, the mortgage lender agrees to accept a lower amount to satisfy the debt. Typically, the lender will decide if the debt is completely satisfied based on the financial situation of the borrower, as well as the real estate market conditions at the time of the sale.

TENANCY
The legal term used to describe the form of co-ownership in which real estate title is held by more than one person. The tenancy of co-owners must be specified in the Deed. Joint Tenancy (with right of survivorship) is a form of co-ownership where, upon the death of any joint tenant, title to the property will, by operation of law, vest in the surviving joint tenant(s) (NOTE: each joint tenant must take title to an equal share of the property). Tenancy by the Entirety is a form of co-ownership between a husband and wife. Upon the death of either spouse, title to the property will, by operation of law, vest in the surviving spouse. Tenancy in Common is a form of ownership where, upon the death of any tenant in common, the share owned by  the deceased does not automatically vest in the surviving tenant(s) in common, but  rather is distributed as part of the estate of the deceased (i.e., as designated in the decedent’s will or through intestate succession if the deceased died without a will.)

TITLE INSURANCE
Insurance which protects the purchaser and the lender against loss or damage resulting from defects of title or the enforcement of liens against real estate existing at the time of issuance. Potential defects covered will include matters that may not be discovered from a search of the public records, such as past frauds or forgeries. Title insurance requires a one-time premium paid at settlement which protects you for as long as you own the property