At American Relocation Connections one of our primary goals is to educate the customer. This section of the web site is focused to promote understanding and communication. Therefore, the definitions below are not meant to be encyclopedic, but instead are designed to provide a working application that is practical, understandable, and may be used in your next real estate transaction. Please select a link to the right or scroll down to browse this section.
Abstract of Title – The condensed history of a title to a particular parcel of real estate. The abstract consists of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property. The abstract of title usually also includes a certificate by the abstractor that the history is complete and accurate. (Think of it as a brief history record for your home.)
Addendum – Something added. A list or other material added to a document, letter, contractual agreement, escrow instructions, etc. An example could be that a home owners disclosure may be added to the contract of sale. This document was filled out by the home owner before a buyer submitted the offer. It then becomes part of, or an addendum to the contract.
Amortization – Gradual debt reduction by means of periodic payments, which includes amounts paid towards both the principal loan amount and the interest (may want to be cautious of loans that have negative amortization).
Arrears – Payment that is made to the date of payment rather than in advance. Interest for mortgages are usually paid in arrears.
Association Fees – Charges for the maintenance or operation of facilities for a property by a management group or organization. For example the association dues for a condominium may cover trash and snow removal, and the insurance on the building’s structure.
Broker – A licensed real estate professional who may receive commission for his or her part in bringing together a buyer and seller to a sale of real estate.
Broker Referral Fee – The fee paid by the broker upon completion of the transaction to the referrer. For our rebate program, American Relocation Connections captures a broker to broker referral fee and rebates a portion of that fee back to you, the consumer
Capital Improvements – An expenditure which adds to the value or useful life of the property. A Capital Improvement is considered a permanent investment that adds to the cost basis of the property. An example of a Capital Improvement would be finishing the basement of a home (Capital Improvements can be important information for an appraiser to consider when doing an appraisal on your home or for a seller/ listing realtor to consider when setting a sales price for a home).
Closing – A closing usually consists of a meeting between, or among the parties to the contract of sale such as the buyer and seller (all pertinent parties involved such as the attorneys, realtors, and representatives from the title company). When all negotiations have been finalized and the terms of the contract have been complied with, the seller signs and delivers the deed to the buyer. The buyer then in turn authorizes the payment of proceeds of the sale to the seller, mortgage company, taxing authority and any other applicable liens.
Closing Costs – Fees and charges associated with the closing. Included are: the broker’s commission, transfer taxes, legal and title expenses, revenue stamps, recording fees, and any other costs required by the mortgage lender (consult American Relocation Connections to make sure your Closing Costs are normal and customary).
Closing Fees – Closing fees are the fees that are charged by an attorney, title company, lender, escrow agent, or trust company to prepare the necessary documents for closing a real estate sales transaction. These fees are separate and distinct from attorney’s fees, title costs, and lender fees defined elsewhere.
Closing Statement – Whenever a real estate sales transaction takes place, a closing statement should be generated and a copy provided to both the buyer and seller. This statement lists the financial settlement between the buyer and the seller. The most common settlement statement is the HUD 1 settlement statement.
Contingency – The insertion of language into a contract of sale which requires that the stated event take place before the contract becomes binding. For example, a sales contract may be contingent on a home inspection. Until that home inspection is complete and both the buyer and seller have come to terms on it, the contract is not binding.
Contract of Sale – An agreement between buyer(s) and seller(s) of real property. The contract of sale sets forth all the terms of the sale to include, but not limited to price, closing date, items being conveyed with the sale of the home, inspections buyer will be performing (if any), etc.
Conventional Mortgage – A mortgage loan not issued by Federal Housing Authority (FHA), or guaranteed by the Veteran’s Administration (VA) or Farmers Administration. Conventional loans are usually advantageous in the sense that the borrower does not have to pay mortgage insurance (MI). However, conventional loans may have more requirements on the borrower to qualify.
Deed – A document or instrument used to convey, give and or pass ownership of a property upon sale.
Deed of Trust – An instrument used in many states in place of a mortgage. The property is transferred to the trustee by the borrower (or trustor) in favor of the lender (or beneficiary). Reconveyance takes place once payment in full has occurred (this instrument secures the mortgage).
Depreciation – The decline in value of a property due to the physical deterioration, age, functional or economic obsolescence. (Tip – If used for a business, many people may use a portion of their home as a home office, and depreciate their home’s value to save money for tax purposes. Always consult an accountant before making such decisions.)
Discount Points – Payment of “points” (about 1% of the mortgage amount for each 1/8 of 1% change in simple interest) in the form of cash to the lender assures the same return as the lender would have received if the loan were issued at the going interest rate. These fees are also called commitment fees or origination fees. (Tip – Many employers will reimburse a transferring employee for 1 or more discount points.) Take advantage of this benefit, as it will save you thousands of dollars in interest.)
Earnest Money – Money given by the buyer with an offer to purchase, as evidence of good faith (many times the earnest money is held in a third party account such as the banking account of the seller’s real estate company).
Equity – The amount of money a home owner has after subtracting the money owed for the mortgage, taxes, and any other liens from the sales price. (Tip – Concessions paid to buyer by a seller will also negate a seller’s equity. For example, paying for a buyer’s closing costs will lower your over all equity.)
Escrow – The delivery of money and/or documents associated with real estate sale to a neutral party for delivery, exchange, or execution at the closing or some other specified time. One such example for “escrow” would be if a home were being sold in NJ in the dead of winter, the Air Conditioning system may not be able to be tested properly. A common practice may be to close on the home, and the seller to place a determined amount of money in “escrow” until the buyer can test the AC system properly. If, at the time of the test, the system is in working order, the escrow money will normally be refunded to the seller. If replacement and or repairs are required, the money to perform such replacement or repairs may be taken from the escrow money (as outlined in the contract).
Escrow Account – Money held in reserve by a mortgage lender to pay taxes and insurance for the property. An escrow account can also be called a reserve, trust or impound account. The escrow account becomes a separate part of the monthly mortgage payment.
Escrow Agent – The individual who administers an escrow. The escrow agent also carries out all necessary procedures to transfer real property (also called an escrow officer).
F.H.A. Insurance – Insurance required by the F.H.A. to insure F.H.A. mortgages. Also can be called MIP or Mortgage Insurance Premium.
Federal Housing Administration Mortgage – A housing loan insured by the Federal Housing Administration which usually enables borrowers to put less money down and borrow a high percentage of the purchase price.
Financing – Methods of providing money to a borrower for the purpose of purchasing a home.
Foreclosure – A process in which a court, to extinguish all rights, title, and interest, of the owner(s) of property in order to sell the property to satisfy a lien against it. Simply put, if a home owner does not make the agreed upon payments to the mortgage company, taxing authority or any other lien authority, that entity will proceed forward to foreclose on the home and sell the home to recover payment.
Good Faith – Something done with good intentions, without reason to inquire further.
Home Equity Loan – A line of credit that can be drawn upon as needed. (Tip – The total amount available becomes a lien on the property and can affect your borrowing power, as it is considered a debt.)
Home Protection Plan – Private insurance, which protects a buyer against defects such as plumbing, heating, and electrical systems in the property he/she is purchasing. The period and coverage of the insurance varies widely, and both new and existing homes may be insured (many times when a home is being sold a buyer may purchase (or a seller may purchase for the buyer) a one year home warranty. This warranty protects the parties if something in the house fails and generally costs anywhere from $300 – $450). Consult your realtor for specific warranties offered in your area.
Inspection – A report from an outside technician or expert rendering an opinion of the condition of a property. These reports can include, but are not limited to, a general home inspection, termite inspection, well, septic, plumbing, heating, electrical, structural, roof, radon, and geotechnical exploration. A home inspection is always recommended for a buyer’s protection, and can even be a requirement by a lender for a protection on the lender’s investment.
Insurance – Protection against loss arising from certain risks such as fire, vandalism, theft, life, liability, credit life, flood, and mineral exploration subsidence (Home Owners Insurance may be required by some lenders).
Interest – A charge for the use of funds. The basis for this charge is usually the prime rate plus or minus a negotiated amount and may be calculated as simple or compound interest per a negotiated agreement (make sure to consult American Relocation Connections today on a “good rate”).
IRS Form 1099 – A document required by the Internal Revenue Service which reports the selling of a home and provides certain financial data related to the sale. Required by the Tax Law of 1986, it is generally prepared by a lender or title company.
Late Charge – A penalty that is charged by the lender when debt is not paid in a timely manner. (Tip – Sometimes late fees may not be required to be paid by a lender until the loan is being paid in full.)
Legal fees – Fees paid to an attorney, title, and escrow or mortgage company for services rendered (such fees are usually charged to clear a problem with the title or to remove a lien from a property. These are different from and in addition to Attorney Fees).
Legal Description – A method of geographically identifying a parcel of land, which is acceptable in a court of law. A title company may ask you for a legal description when selling your home. This helps them to narrow the search when performing the title search. The legal description can be located on your deed.
Lender Fees – Fees charged by a lender to cover administrative costs of originating a mortgage loan. These fees may include application processing, credit check, appraisals, title prep, survey review and approval, preparation of the closing package, and others (please consult American Relocation Connections to make sure the Lender Fees you are being charged are normal and customary).
Listing agreement – An agreement between a seller of a real property and a broker, whereby the broker agrees to secure a buyer for the property at a certain price and terms in return for a fee or commission. Please do not hesitate to consult American Relocation Connections to review your listing agreement today.
Mortgage– The lien which usually has priority over all other liens on a property. The mortgage is a pledge by the buyer or borrower of the real estate as security for the money being loaned by the lender or mortgage company. The money must be paid back at the terms agreed to in the mortgage contract.
Power of Attorney – A written, signed authorization empowering another person to act in the name of the signer (often times a “limited Power of Attorney” may be required by a closing company to be signed by the seller with their deed documents. This should be limited to this specific transaction and only for the purpose of signing legal corrections).
Pre-Payment Penalty – A charge imposed for paying off a mortgage earlier than stipulated in the mortgage document (always remember to review the terms of your loan product closely before you decide to utilize that product. A prepayment penalty may negate the advantage of going with a specific loan product depending on how early you plan on paying that loan off. Call us, we’re here to help!).
Pre-qualification – A process whereby a borrower may obtain an estimate of the mortgage amounts he or she may borrow (Call us today and get Pre-qualified!).
Private Mortgage Insurance (PMI) – The key word is private. This insurance is insurance on a conventional loan written by a private company protecting the lender against loss in case of mortgage default. Typically this insurance is required for loans that have lower down payments or a loan value ratio of less than 80%.
Property Tax – A mandatory charge the government levied on any kind of property that is either real, personal or both. Normally it is a charge at a fixed rate per hundred or per thousand dollars in assessed value.
Real Estate – Land and anything permanently affixed to that land such as buildings, fences, and those things attached to that building.
Realtor – A professional designation given to a real estate broker who is a member of a board association with the National Association of Realtors. Find the ideal Realtor for you now by clicking on “Find a Realtor”.
Revenue Stamps – Similar to a postage stamp, a revenue stamp is a seal or piece of paper affixed to a deed that is required by the government. It is actually a form of taxation and is affixed when the deed is recorded.
Sales Price – The cost of the property as set forth in a contract of sale. The sales price reflects the total amount of money paid for a property and may be a result of negotiation between the buyer and seller.
Second Mortgage – A second mortgage is a second lien on a house, usually in addition to a primary mortgage. A second mortgage is typically taken out for a shorter period of time (10 – 15 yrs). There are many products available and the way interest is charged can depend on the product (i.e. fixed, balloon etc).
Selling Costs – The costs associated with the marketing and ultimate closing of a property.
Terms – The considerations, other than price, in a sales transaction. Examples can include: the closing date, time of possession, items conveying with the sale, the way money is paid, etc.
Title Insurance Company – A company that issues insurance regarding the title to a real property.
Title Search – The examination of public records, laws, and court decisions to disclose the past and current facts regarding the ownership of real estate. A title search is conducted in order to discover whether there are any mortgages, judgments, easements, tax liens, or other encumbrances on a property.
Transfer of Title – Usually takes place at the closing and is the act in which the title and ownership of a property is transferred from a seller to a buyer.
Underwriting – A process usually conducted by a mortgage company to make sure that a mortgage applicant and the property meet all the requirements set forth by the mortgage company (may also be a process utilized for homeowner insurance purposes).
Utilities – Those services rendered by public utility companies such as telephone, cable, electricity, gas, and water. (A good tip to save money when buying a house is to remember to have the utilities switched to your name as of the date of closing. This can avoid break in service and the initial activation fees associated with reactivating a utility.)
Veterans Administration Mortgage – A mortgage loan to a qualified veteran, a portion of which is guaranteed by the Veterans Administration. These loans allow veterans to buy a home with little or no down payment. If you are active or former military this may be a benefit to you. Call American Relocation Connections today for more information!
Veterans Administration Points – Those discount points charged by the lender to issue a V.A. Mortgage. By law these points are paid by the seller. If you are active or former military, this is a benefit that can save your thousands in interest! For more info call American Relocation Connections now!