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Buying - Glossary

Amortization: The liquidation of a financial obligation on an installment basis.

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.

Appraisal: The process through which conclusion of the value of the property is obtained; also refers to the report setting for the process of estimation and conclusion of value.

Assumption of Mortgage: Acquiring title to property which has an existing mortgage on it and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

Balloon payment: The final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

Broker: One who buys and sells for another for a commission.

Certificate of Reasonable Value (CRV): The Veterans Administration appraisal commitment of property value.

Conditional Commitment: A commitment of a definite loan amount for some future unknown purchaser of satisfactory credit standing.

Construction Loan: Loan made for the construction of homes or commercial buildings.  Usually funds are disbursed to the contractor-builder during construction and after periodic inspections.  Disbursements are based on an agreement between borrower and lender.

Discount Points: An added loan fee charged by a lender to make a yield on a lower-than-market-value FHA or VA loan competitive with high-interest conventional loans.

Equity: Owner's interest in property after liens.

Earnest Money Deposit: An amount of money deposited by a buyer under the terms of a contract, which is to be forfeited if the buyer defaults, but applied on the purchase price if the sale is closed.

Escalator Clause: A clause in a contract providing for the upward or downward adjustment of certain items, like interest rates, to cover specified contingencies, like the sale of the property.

Firm Commitment: An agreement by a lending institution to provide a loan on a specific property to a specific designated purchaser.

First Mortgage: A legal document pledging collateral for a loan that has first priority over all other claims against the property except taxes and bonded indebtedness.

Homeowners Warranty Program: An insurance program offered to buyers by some brokerages, warranting the property against certain defects for a specified period of time.

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, his or her interest passes to the surviving joing tenant or tenants by the right of survivorship.

Listing Broker or Agent: The broker in a multiple listing situation from whose office a listing agreement is initiated, as opposed to the selling broker, from whose office negotiations leading up to a sale are initiated.  The listing broker and the selling broker may be the same person.

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

Multiple Listing: An exclusive listing (generally, an exclusive right to sell) with the additional authority and obligation on the part of the listing broker to distribute the listing to other brokers in the multiple listing organization.

Points: A unit of measurement used for various loan charges.  One point equals 1 percent of the amount of the loan.

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 establishes personal liability for its repayment.

Purchase Money Mortgage: A note secured by a mortgage or trust deed given by a buyer, as mortgagor, to a seller as mortgagee, as part of the purchase price of real estate.

Sales Contract: A contract containing the complete terms of the agreement between buyer and seller for the sale of a particular parcel or parcels of real estate.

Secondary Financing: A loan secured by a second mortgage or trust deed on real property.  These can be third, fourth, fifth, etc. in actual priority.

Title: The right to or ownership of land; also, the evidence of ownership.  Title encompasses all the bundle of rights attached to a property.  Title may be held individually, jointly, in trust, or in corporate or partnership form.

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 those encumbrances, defects and matters which are specifically excluded by the policy.

Warranty Deed: A deed in which the grantor fully warrants good clear title to the premises.  Used in most real estate deed transfers, a warranty deed offers the greatest protection of any deed.

Wraparound Mortgage: A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position.  In essence, it is an additional mortgage in which another lender refinances a borrower by lending an amount of the existing first mortgage amount without disturbing the existence of the first mortgage.


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