Binder
A buyer's written offer to
purchase a property. A binder includes a deposit, the
price the buyer is offering, items the buyer expects to
be included in the purchase price such as window
treatments, swingsets and the like, and the preferred
date of closing. This is a legal document. A buyer would
be wise to write an escape clause into the binder,
stating, for instance, that the offer is contingent upon
the buyer's finding financing or selling his/her present
home. Write everything down - nothing should be left to
oral agreement in a property transaction.
Brokerage fee
A written contract for payment
of fees to the real-estate agent. Typically, the seller
pays the brokerage fees, which are paid from the
proceeds of the sale at closing.
Buyer's agent or
buyer's broker
A real-estate agent who
represents and acts in the best interest of the buyer in
a real-estate transaction.
Cash reserves
A requirement of some lenders
that buyers have enough cash remaining after closing to
cover a borrower's total monthly expenses for at least 2
months.
Closing
Completion of the sale, where
the buyer signs the mortgage. Also called a settlement.
Closing costs
Expenses over and above the
price of the property. These may include points,
appraisal fees, cost of a credit report, title search,
processing fees, underwriting fees, homeowner's
insurance, property taxes for escrow, attorneys' fees,
home inspection fees and transfer of ownership charges.
Commitment letter
A formal letter from the lender
stating the terms under which it agrees to loan money to
the buyer.
Contingency
A condition that must be met
before any agreement on a property is complete.
Co-signer
An individual who signs the
loan along with the buyer, therefore assuming joint
responsibility for the debt.
Credit report
A record of whether or not a
person has paid bills on time, banks often use this to
determine whether a buyer is worthy of a loan. The Fair
Credit Reporting Act gives any consumer access to a
summary of information in the consumer's file showing
the nature, substance and sources of the information it
contains, and provides a method to correct inaccurate
information.
Earnest money
A deposit showing that the
buyer is seriously interested in buying the property.
This money is applied toward the downpayment and held in
escrow if a purchase agreement is reached.
Easement
A right-of-way given a person
to make use of another person's property. For example,
one property owner may need to use a neighbor's property
as a driveway to gain access to his or her own driveway.
To gain this access, the first property owner would
request an easement from the second. Buyers should
always check for easements before signing any purchase
agreements on a property.
Encumbrances
A claim against the property in
which there may be unpaid debts, taxes, etc.
Equal opportunity
housing
State and federal fair housing
laws assure that all people have a free choice of
housing location limited only by a buyer's means and
desires but not limited by one's attributes. Those
attributes are known as protected classes: race, color,
creed, national origin, ancestry, sex, marital status,
mental retardation, a learning, mental or physical
disability, source of income, familial status, national
origin and handicapped. It is illegal to discriminate
against an individual because they are a member of a
protected class with regard to the sale or rental of
housing.
Equity
The difference between the
market value of a property and the outstanding mortgage.
Escrow
The holding of documents and
money by a neutral third party before closing. Escrow
also is an account held by the lender for future
payments of taxes and insurance.
Lien
A legal claim, attached to a
property title, against the property for an unpaid debt.
These can include:
- tax lien - a claim placed
on the title when the owner owes taxes on the
property.
- judgment lien - a
court-ordered claim against the current or previous
owner of the property.
- mechanic's lien - a claim
by a contractor for any work done on the property.
Listing agent
The agent who lists the house
for sale, and who will receive at least a percentage of
the brokerage fees when the house is sold.
Loan discount
A one-time charge used to
compensate the lender for providing the buyer with a
lower interest rate than would normally be given.
Loan origination fee
A payment that covers the
lender's administrative costs in processing a loan,
typically charged as a percent of the loan amount.
Monthly payment
The mortgage payment of
principal, interest, taxes and insurance the buyer pays
to the bank or lender toward the repayment of the loan,
taxes, mortgage insurance (if necessary), and hazard
insurance.
Mortgage
A temporary or conditional
pledge of property to a lender as security for repayment
of a loan.
There are several types of
mortgages available, including fixed rate, in which
mortgage payments are constant for the life of the loan
no matter what the going interest rate is, and
adjustable rate mortgages, which change depending on the
changes in a specified index rate. Therefore, with an
ARM, if market interest rates drop, the payments may
drop, but if market interest rates increase, the
payments may increase.
Some ARMs have an interest rate
cap, which limits how much the interest on the mortgage
rate can increase. Other types of loans are available;
check with a lender and research the pros and cons of
each option.
Mortgage insurance
Insurance to guarantee the
lender will recover a certain percentage of the loan
amount from the insurer if the borrower (or buyer) is
unable to make payments on the loan, and the property is
foreclosed.
Multiple Listing
Service
The MLS is a listing of all
properties available for public sale, and is available
for use by all real-estate agents who are members of the
service.
Points
A point is 1 percent of the
amount of the mortgage loan.
Pre-approval of a loan
A home buyer wins approval of a
mortgage before proceeding with a purchase offer. This
is in contrast to the majority of buyers, who find homes
they want to buy first, then apply for mortgages.
Pre-qualification
A non-binding, preliminary
check by a lender on an applicant's qualification for a
mortgage. Because it is done without a thorough credit
check, a pre-qualification does not necessarily mean the
buyer will receive final approval for a loan.
Principal
The amount of money a buyer
borrows to buy a house.
Promissory note
A document of promise that the
buyer will pay back the money the buyer borrowed.
Property tax
Annual taxes paid on property
to cover local, state and other services.
Purchase agreement
The agreement between a buyer
and a seller for the purchase of a property.
Real-estate broker
An individual licensed by the
state to broker real-estate transactions. Before
selecting one, a buyer should ask for recent references,
and choose one with whom the buyer is most comfortable.
Buyers should remember that,
despite a real-estate broker's best efforts on the part
of the buyer, the broker typically works for the seller.
Real Estate Settlement
Procedures Act (RESPA)
A disclosure law that requires
the buyer receive from a lender in advance certain
information about what the buyer will pay at closing.
The buyer has a right to a Uniform Settlement Statement
- if the buyer requests it - that itemizes closing
services and fees one business day before the
settlement. For more information about RESPA, buyers may
write to the Assistant Secretary for Consumer Affairs,
Attention; RESPA office, U.S. Department of Housing and
Urban Development, 451 7th St., N.W., Washington, D.C.
20410.
Realtor
A licensed real-estate agent
who has taken additional steps to become a member of the
local board of Realtors and a member of the National
Association of Realtors. The group offers professional
courses and award designations signifying that a Realtor
has completed a course.
Resale disclosure
package
Information for condominium
buyers that includes by-laws of the condominium
association and the association's current financial
statement, at a cost of no more than $75. Buyers have
five business days after receiving this package from the
seller to legally rescind the purchase offer.
Recording fees
A fee the borrower (buyer) pays
for the legal recording of the new deed and mortgage.
Seller's agent
A real-estate agent who
represents and acts in the best interests of a seller in
a real-estate transaction.
Seller's disclosure
form
Connecticut law requires that a
buyer receive a seller's disclosure form describing the
characteristics of the dwelling, including whether the
seller knows of the existence of any lead paint,
asbestos or hazardous substances on the property.
Survey
A measure to determine the
exact location of the house, lot lines, easements and
rights-of-way.
Title insurance
Insurance that protects the
insured against the loss of interest in the property due
to defects in the title.
Title search
An examination of the public
records to reveal all interests in a property other than
the owner's, such as mortgages, tax liens, municipal
assessments, easements and rights-of-way, etc. This is
typically done when the buyer has received a mortgage
commitment from the lender.
Truth in Lending Act
Requires lenders to provide an
estimate of the total financing charges over the entire
life of the loan, including the method of calculating
the finance charge - the total dollar amount the buyer
will pay for the loan - and when those finance charges
begin.
