UNDERSTANDING REAL ESTATE, ESCROW AND FINANCIAL TERMINOLOGY

Adjustable Rate Mortgage(ARM): A Mortgage loan which bear interest at a rate subject to change during the term of the loan, predetermined or otherwise.

Agent: One who acts for and with authority from another called the principal.

Amortization: The liquidation of a financial obligation on an installment basis; also, recovery over a period of cost or value.

Amortized Loan: A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity. Also called a Level Payments Loan.

Annual Percentage Rate: The relative cost of credit as determined in accordance with Regulation Z of the Board of Governors of the Federal Reserve System of implementing the Federal Truth in Lending Act.

Appraisal: An estimate of the value of property resulting from an analysis of facts a bout the property. An opinion of value.

Appraiser: One qualified by education, training and experience who is hired to estimate the value of real and personal property based on experience, judgement, facts and use of formal appraisal processes.

APR: See ANNUAL PERCENTAGE RATE.Balloon Payment: An installment payment on a promissory note; usually the final one for discharging the debt-which is significantly larger than the other installment payments provided under the terms of the promissory note.Blighted Area: A district affected by detrimental influences of such extent or quantity that real property values have seriously declined as a result of adverse land use and/or destructive economic forces; characterized by rapidly depreciating buildings, retrogression and no recognizable prospect for improvement. However, renewal programs and changes in use may lead to resurgence of such areas.

Bond: Written evidence of an obligation given by a corporation or government entity. A surety instrument.

Broker: A person employed for a fee by another to carry on any of the activities listed in the license law definition of a broker.

Broker-Salesperson Relationship Agreement: A written agreement required by the regulations of the Real Estate Commissioner setting forth the material aspects of the relationship between a real estate broker and each salesperson and broker performing licensed activities in the name of the supervising broker.

CCRs: Covenants, conditions and restrictions. The basic rules establishing the rights and obligations of owners (and their successors in interest) of real property within a subdivision or other tract of land in relation to other owners withing the same subdivision or tract and in relation to an association of owners organized for the purpose of operating and maintaining property commonly owned by the individual owners.

Closing: Process by which all the parties to a real estate transaction conclude the details of a sale or mortgage. The process includes the signing and transfer of documents and distribution of funds.

Closing Costs: The miscellaneous expenses buyers and sellers normally incur in the transfer of ownership of real property over and above the cost of the property.

Closing Statement: An accounting of funds made to the buyer and seller separately. Required by law to be made at the completion of every real estate transaction.

Commission: An agent's compensation for performing the duties of the agency; in real estate practice, a percentage of the selling price of property, percentage of rentals, etc. A fee for services.Common Area: An entire common interest subdivision except the separate interest therein.

Comparable Sales: Sales which have similar characteristics as the subject property and are used for analysis in the appraisal process. Commonly called comparables, they are recent selling prices of properties similarly situated in a similar market.Compound Interest: Interest paid on original principal and also on the accrued and unpaid interest which has accumulated as the debt matures.

Condition: In contracts, a future and uncertain event which must happen to create an obligation or which extinguishes an existent obligation. In conveyances of real property conditions in the conveyance may cause a interest to be vested or defeated.

Conditional Sales Contract: A contract for the sale of property stating that delivery is to be made to the buyer, title to remain vested in the seller until the conditions of the contract have been fulfilled.

Condominium: An estate in real property wherein there is an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are described on a recorded final map, parcel map or condominium plan. The areas within the boundaries may be filled with air , earth, or water or any combination and need not be attached to land except by easements for access and support.

Conventional Mortgage: A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed. The type customarily made by a bank or saving and loan association.

Cooperative(apartment): An apartment building, owned by a corporation and in which tenancy in an apartment unit is obtained by purchase of shares of stock of the corporation and where the owner of such shares is entitled to occupy a specific apartment in the building. In California, this type of ownership is called a stock cooperative.

Co-signer: A second party who signs a promissory note together with the primary borrower.

Discount Points: The amount of money the borrower or seller must pay the lender to get a mortgage at a stated interest rate. This amount is equal to the difference beween the principal balance on the note and the lesser amount which a purchaser of the note would pay the original lender for it under market condition. A point equals one percent of the loan.

Effective Interest Rate: The percentage of interest that is actually being paid by the borrower for the use of the money, distinct from nominal interest.

Equity: The interest or value which an owner has in real estate over and above the liens against it.

Equity Build up: The increased of owner's equity in property due to mortgage principal reduction and value appreciation.

Escrow: The deposit of instruments and/or funds with instructions with a third neutral party to carry out the provisions of an agreement or contract.Escrow Agent: The neutral third party holding funds or something of value in trust for another or others.

Fair Market Value: This is the amount of money that would be paid for a property offered on the open market for a reasonable period of time with both buyer and seller knowing all the uses to which the property could be put and with neither party being under pressure to buy or sell.

First Mortgage: A legal document pledging collateral for a loan(seemortgage) that has first priority over all other claims against the property except taxes and bonded indebtedness. That mortgage superior to any other.

Initial Note Rate: With regard to an adjustable rate mortgage, the note rate upon origination. This rate may differ from the fully indexed note rate.

Initial Rate Discount: As applies to an adjustable rate mortgage, the index value at the time of lan application plus the margin less the initial note rate.

Interest: A portion, share or right in something. Partial, not complete ownership. The charge in dollars for the use of money for a period of time. In a sense, the rent paid for the use of money.

Interest Only Loan: A straight, non-amortizing loan in which the lender receives only interest during the term of the loan and principal is repaid in a lump sum at maturity.

Interest Rate: The percentage of a sum of money charged for its use. Rent or charge paid for use of money, expressed as a percentage per month or year of the sum borrowed.

Lien: A form of encumbrance which usually makes specific property security for the payment of a debt or discharge of an obligation. Example- judgments, taxes, mortgages, deeds of trust, etc.

Life of Loan Cap(Cap Rate): With regard to an adjustable rate mortgage, a ceiling the note rate cannot exceed over the life of the loan.

Listing: An employment contract between principal and agent authorizing the agent to perform services for the principal involving the latter's property; listing contracts are entered into for the purpose of securing persons to buy, lease or rent property. Employment of an agent by a prospective purchaser or lessee to locate property for purchase or lease may be considered a listing.

Loan Application: The loan application is a source of information on which the lender bases a decision to make the loan; defines the terms of the loan contract, gives the name of the borrower, place of employment, salary, bank accounts, and credit references, and describes the real estate that is to be mortgage. It also stipulates the amount of loan being applied for an repayment terms.

Loan Closing: When all conditions have been met, the loan officer authorizes the recording of the trust deed or mortgage. The disbursal procedure of funds is similar to the closing of a real estate sales escrow. The borrower can expect to receive less than the amount of the loan, as title, recording, service and other fees may be withheld, or can expect to deposit the cost of these items into the loan escrow. This process is sometimes called funding the loan.

Loan-to-value Rate: The percentage of a property's value that a lender can or may loan to a borrower. For example, if the ratio is 80% this means that a lender may loan 80% of the property's appraised value to a borrower.

Market Data Approach: One of the three methods in the appraisal process. A means of comparing similar type properties, which have recently sold, to the subject property. Commonly used in comparing residential properties.

Market Price: The price paid regardless of pressures, motives or intelligence.

Market Value: The highest price in terms of money which a property will bring in a competitive and open market and under all conditions required for a fair sale, i.e., the buyer and seller acting prudently, knowledgeably and neither affected by undue pressures.1Mile = 5,280 feet

Multiple Listing: A listing, usually an exclusive right to sell, taken by a member of an organization composed of real estate brokers, with the provisions that all members will have the opportunity to find an interested buyer; a cooperative listing insuring owner property will receive a wider market exposure.

Multiple Listing Service: An association of real estate agents providing for a pooling of listings and the sharing of commissions on a specified basis.

Narrative Appraisal: A summary of all factual materials, techniques and appraisal methods used by the appraiser in setting forth his or her value conclusion.

Negative Amortization: Occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance, so that the unpaid interest must be added to the principal due.

Offer To Purchase: The proposal made to an owner of property by a potential buyer to purchase the property under stated terms.

Open Listing: An authorization given by a property owner to a real estate agent wherein said agent is given the nonexclusive right to secure a purchaser; open listings may be given to any number of agents without liability by the seller to compensate any except the one who first secures a buyer ready, willing and able to meet the terms of the listing, or secures the acceptance by the seller of a satisfactory offer.

Payment Cap: With regard to an adjustable rate mortgage, this limits the amount of increase in the borrower's monthly principal and interest at the payment adjustment date, if the principal and interest increase called for the interest rate increase exceeds the payment cap percentage. This limitation is often at the borrower's option and may result in negative amortization.

Principal: This term is used to mean the employer of an agent; or the amount of money borrowed, or the amount of the loan. Also, one of the main parties in a real estate transaction, such as a buyer, borrower, seller, lessor.

Private Mortgage Insurance: Mortgage guaranty insurance available to conventional lenders on the first, high risk portion of a loan(PMI).

Promissory Note: Following a loan commitment from the lender, the borrower signs a note, promising to repay the loan under stipulated terms. The promissory note establisher personal liability for its payment. The evidence of the debt.

Proration: Adjustments of interest, taxes, and insurance, etc., on a pro rata basis as of the closing or agreed upon date. Fire insurance is normally paid for three years in advance. If a property is sold during this time, the seller want a refund on that portion of the advance payment that has not bee used at the time the title to the property is transferred.

Real Property: Land and anything growing on, attached to or erected on it, excluding anything that may be severed without injury to the land.

Real Property Sales Contract: An Agreement to convey title to real property upon satisfaction of specified conditions.

Recording: The process of placing a document on a file with a designated public official for the public notice. This public official is usually a county officer knowns as the County Recorder who designates the fact that a document has been presented for recording by placing a recording stamp upon it indicating the time of the day and the date when it was officially placed on file Documents filed with the Recorder are considered to be placed on open notice to the general public of that county. Claims against property usually are given a priority on the basis of the time and the date they are recorded with the most preferred claim going to the earliest one recorded and the next claim going to the next earliest one recorded, and so on. This type of notice is called constructive notice or legal notice.

Refinancing: The paying-off of an existing obligation and assuming a new obligation in its place. To finance anew, or extend or renew existing financing.

Risk Rating: A process used by the lender to decide on the soundness of making a loan and to reduce all the various factors affecting the repayment of the loan to a qualified rating of some kind.

Sales Contract: A contract by which buyer and seller agree to terms of a sale.

Tenancy in Common: Co-ownership of property by two or more persons who hold undivided interests, without right of survivorship; interest need not be equal.

Tenant: The party who has legal possession and use of real property belonging to another.

Title: Indicates "fee" position of lawful ownership and right to property. Bundle of Rights possessed by an owner. Combination of all elements constituting proof of ownership.

Title Report: A Report which discloses condition of the title, made by a title company preliminary to issuance of title insurance policy.

Townhouse: One of a row of houses usually of the same or similar design with common side walls or with a very narrow space between adjacent side walls.

Transfer Fee: A charge made by a lending institution holding or collecting on a real estate mortgage to change its records to reflect a different ownership.

Trust Deed: Just as with a mortgage this is a legal document by which a borrower pledges certain real property or collateral as guarantee for the repayment of a loan. However, it differs from the mortgage in a number of important respects. For example, instead of there being two parties to the transaction there are three. There is the borrower who signs the trust deed and who is called the trustor. There is the third, neutral party, to whom trustor deeds the property as security for the payment of the debt, who is called the trustee. And, finally, there is the lender who is called the beneficiary, the one who benefits from the pledge agreement in that in the event of default the trustee can sell the property and transferee the money obtained at the sale to lender as payment of the debt.

Underwriting: Insuring something against loss; guaranteeing financially.Value: See Market Value.

Variable Rate: (VIR or VMR Variable Mortgage Rates.) An Interest rate in a real estate loan which by the terms of the note varies upward and downward over the term of the loan depending on money market conditions.