ACCESS BROKERAGE, INCORPORATED



You may hear these terms...

and wonder what they mean!



TERMS & DEFINITIONS

Acre: 43,560 square feet or 208.71’(L) x 208.71’(W).

Acceleration Clause: A clause in the mortgage loan that permits the lender to call the entire amount due and payable upon certain conditions or violations. (Examples include loan payments stop or upon of sale of property without informing lender.)

Adjustable Rate Mortgage (ARM): A mortgage loan that normally offer a low introductory rate (i.e., low monthly payment to start) and provides for the interest rate to change at specific intervals during the term of the loan. The rate is normally tied to an index like the LIBOR or PRIME interest rate. CAUTION: You need to understand the impact on monthly payments – they could run hundreds of dollars per month higher than the introductory monthly amount.

Appraisal: Valuation of market value by a professional appraiser using standards/guidelines for the local and national real estate industry. The appraisal is critical information used by the lender to confirm/determine loan amounts. NOTE: Under the current environment, appraisers are more sensitive to fluctuating market prices and restrictions on subjective quality factors that were used before.

Back End Ratio:In short, it’s your annual gross income less long term debt (I.e., car loans, student loans, usually not credit card balances, etc,.) divide by your gross annual income.

Balloon Mortgage: Usually fixed monthly payment based on 30 year loan and a lump sum balance at the end of a period of time - normally 3,5, or 7 years.

Balloon Payment: The final payment of a mortgage that is usually a large lump sum that pay off the remainder of the loan amount. Example: Monthly payments of $1,000 per month for 5 years and then a $50,000 lump sum (Balloon) payment.

Builder Warranty: The builder offers homebuyers peace of mind that he/she will come back and try to repair any major structural or system defects. Normally, written guidelines determine what is considered a defect and what repairs will be attempted. Many builders will have a period of time (e.g., 10 months after purchase) that they will return to repair known type repairs of house settlement and normal adjustments.

Buyer Broker/Buyer Agent: Agent hired by the Buyer that represents their best interests in finding a property, negotiating a contract, and all other aspects of the home buying transaction.

CAPS: Amount of rate that can change that is limited each time period and overall. CAPS are listed in X/X format where the first X is the maximum annual rate increase and the second X reflects the total increase over the life of the loan. Under a X/X/X format, the first X reflects maximum rate increase of first adjustment, second X is maximum increase under the next adjustment, and third X reflects maximum rate increase over life of the loan.

Certificate of Occupancy(C/O): The local government issues this document that allows the home to be occupied once the builder has satisfied the building inspector's review of local building codes. WARNING: This inspection is not to be relied upon or considered a thorough home inspection.

Closing: This just refers to when you meet with the closing attorney to sign a lot of papers reflecting the transfer of ownership from the seller to you and your commitment to paying off the loan. Basically, this is where you bring your down payment money and agree to pay on the loan and then you get the house in exchange. The HUD-1 and a lot of other standardized forms and documents are signed here and you understand that if you don’t make payments on the loan, you don’t get to keep the house.

Closing Attorney: An attorney trained and licensed to close loans for lenders. You may also hire one to review your real estate transaction. NOTE: At a loan losing, they do not represent the seller or buyer, but they represent the Lender's best interests.

Closing Costs: Costs necessary to close the loan. They include expenditures like your lender's loan origination fee, underwriting fees, property survey, appraisal fee, credit report, attorney fees, title insurance, recording fees, and any incidental expenses incurred by the lender or attorney. Closing costs (including prepaids/escrows) normally run anywhere from 2.0-3.5% of the amount of your loan. Other expenses to consider are: YOUR Title Insurance coverage; Flood Insurance coverage (if you're in a flood zone); and PMI (Private Mortgage Insurance) or MIP (Mortgage Insurance Premium) that may or may not be required at closing or rolled into the loan. NOTE: You may spend money to "BUY DOWN" (i.e. reduce) the rate of interest your lender would charge you at a competitive market rate based on your credit history. These costs are sometimes referred to as "DISCOUNT POINTS" and may be considered as "ordinary closing costs the seller will cover.

Condominium: This isn’t a style of building, but a form o ownership. This form of ownership means that you share financial responsibility with other owners in the care, insurance, and maintenance of common areas such as parking lot, gates, fitness centers, playground/pool area, walkways, and exterior building maintenance and landscaping.

Contingency Clause: Provisions in a real estate contract that protect either the Buyer’s or Seller’s interest by providing for a critical condition of sale to be satisfied, or else the contract may be terminated.

Deficiency Judgment: A court action taken when a mortgage note holder (i.e., lender) is not paid any longer on the exiting note. The action is normally taken after a foreclosure of the primary loan cancels (wipes out) any secondary lienholders (2nd mortgages). Some soures say that the court action can be taken up to five (5) years after foreclosure and repayment enforced for up to twenty (20) years after the court judgment.

Federal Reserve"discount" rate: Interest rate that is set by the Federal Open Market Committee (12 FR Presidents & FR Governors) for banks to borrow money from other banks in the Federal Reserve System/Network. This rate more closely impacts mortgage rates by affecting consumer iquidity.

Federal Reserve"funds" rate: Interest rate the Federal Reserve sets to allow banks borrow money from other banks in the Federal Reserve system. Lowering the Federal Reserve discount rate is normally seen as a measure to improve bank liquidity in a slow economy.

Five (5) year adjustable: Mortgage where interest rate changes every 5 years based on an index (Prime Rate; LIBOR; etc,.) plus a specified margin.

Fixed Rate Mortgage: Mortgage with 15 or 30 year maturity (sometimes longer) where interest rate is fixed for duration of loan.

Good Faith Estimate (GFE): Generally a form you get from the lender you choose to get a loan from that outlines your interest rate; monthly mortgage payment; total estimated closing costs; and total estimated amount to bring to closing. RESPA requires the lender to provide the Borrower a GFE within 3 business days of applying for a loan.

Home Equity Line of Credit (HELOC): A variable rate loan tied to the prime rate and establishes a "line of credit" against a maximum amount and gives borrower quick access to cash.

Home Inspection: A private inspector, normally under certification from CABO/ASHI, that spends 2-3 hours at a home testing and inspecting for defects, functionality, operation, and possible problems and future repairs. There are normally a set of guidelines (i.e., building codes) that the inspector uses to evaluate whether or not the area/system of the house meets that guideline, and writes a report (including photos) to use to negotiate with seller for repairs.

Home Warranty: For used houses, the builder warranty is normally expired. There are private companies that offer assistance to locate plumbers, electricians, HVAC services, and other home services for you if you purchase a home warranty. The home warranty normally covers a period of 12 months and can cost almost $500 per year.

Homeowner’s Association (HOA): A group of homeowners that establish and enforce guidelines to preserve the quality look of the neighborhood and common areas/elements like pool, playground, and exterior of all homes.

Homeowner’s Insurance: Insurance against loss of your home and its contents due to burglary, flood, fire, wind or other provision of the insurance policy. NOTE: Insurers and policies differ so please evaluate apples to apples of coverage and what their performance is when paying claims.

HOA CCRs (Conditions, Covenants, and Restrictions): This is a set of rules of which you must comply as a condition of home ownership in the community. The CCRs usually establish Board Member election guidelines; power of the Board members; and guidelines on what is and isn’t acceptable on the exterior of your home and in your yard. Pros: Ensures look of community is retained and kept maintained. Con: Restricts exterior house colors; fence styles; and items you can place in the yard.

HUD-1 (Settlement Statement): HUD-1 EXAMPLE - This is a standard form used at all residential real estate transaction closings that itemizes all Buyer and Seller closing costs, the total amount due at closing from the Buyer, the total amount of proceeds to Sellers, and serves as the official evidence of transfer of ownership until the Warranty Deed is recorded in the local real estate office.

Index: Floating index tied to mortgage loans normally using either the one year Treasury Constant Maturity Yield or the LIBOR index.

Interest only Loans: Monthly payment covers only interest with the amount of principal adding to the loan for a number of years up to perhaps 10. (See Pros and Cons about Interest Only Loans)

LIBOR(London Interbank Offered Rate): The rate that international banks charge each other on large loans. This rate has been known to fluctuate and increase faster than the U.S. Treasury 10 year bonds that U.S. mortgage rates parallel. Therefore, they are more volatile in Adjustable Rate Mortgages.

Interest Rate Lock: Lender usually "locks" or "guarantees" the interest rate quoted for only a specific number of days...normally 30 days...without a charge. After this period expires, the rate may fluctuate unless you pay extra to lock the rate for more than the initial period.

Margin: The number of percentage points added to the index on adjustable mortgages.

Mortgage Broker: Generally, organizations that do not lend to you directly, but do charge a fee to you to get a loan from a number of wholesalers/other investors but doesn’t service the loan (i.e., collect mortgage payments).

Mortgage Insurance: This (one-time cost) insurance is required by lenders to insure loans greater than 80% of the sale price (due to higher probability of foreclosure). If the home forecloses, the remaining lender balance is paid.

Option ARM: Adjustable rate loans allow for a fixed period of time (1,3,5 years) a low payment based on interest only or no interest and accrue balance - very risky and for sophisticated borrowers.

Points: Percentage of the loan amount - Each point is 1/100th of the loan amount. (Ex: $1,000 = 1 point of a $100,000 loan.)

Prepaids/Escrows: Accounts established upfront by the lender to pay for your annual property taxes and homeowner’s insurance. Your monthly mortgage payment will include 1/12th of your estimated annual property taxes and homeowner’s insurance. At closing, expect to pay one full year of homeowner’s insurance and 2-3 additional months of insurance to start the escrow account.

Property Taxes: Local governments appraise real property, apply the 40% state assessment rate, and then apply a tax rate to the assessed value to determine how much property tax you pay. The government’s appraised value normally has no bearing on current market value. NOTE: Under current environment of property values falling nationwide, many homeowners are upset to pay taxes on values exceeding current market values.

Prepayment penalty: Some investors provide money in exchange for a certain return over a certain period of time. Therefore, certain home loans carry a provision that charges a fee (sometimes in the thousands of dollars) to pay off a loan early (i.e., before the term expires) so the investor earns a minimum return on their investment. WARNING: Always confirm in writing before you agree to the loan if there is a prepayment penalty and stay away from these loans unless you are willing to assume the risk.

Real Estate Settlement & Procedures Act (RESPA): RESPA DETAILS HERE In 1974, US Congress passed a law that standardized real estate settlement that established the HUD-1 Settlement Statement; required escrow rules; disclosure requirements; closing cost estimates; and generally governed a more fair practice of mortgage lenders.

Short Sale:When a Seller is in a position (job loss, major illness, bankruptcy, etc,) that requires the sale of real property and the net proceeds will not be sufficient (i.e., will be short) to pay the remaining balance of the mortgage(s), the bank(s) involved need to agree to sell the real property at a negotiated price that causes the mortgage to be short. (See Deficiency Judgment)

Survey: A formal measurement of the boundaries of a property that also indicates any easements, encroachments, or right-of-ways. Traditionally, lenders have required a survey on new properties or properties of unusual shapes or sizes. In the past several years, if the property is a resale in an established subdivision, or the loan is a conventional type loan, then the lender doesn't require a survey. However, it doesn't preclude you to get a survey in case you plan to install a fence or just want to know where your property lines exist.

Title Insurance: Generally, a closing attorney will investigate the Chain of Title to a property and determine if the Seller has “clean title” allowing the legal transfer of title to a Buyer. At times, due to recording errors, fraud and other reasons, clear title to a property may not legally exit by the Seller thereby resulting in the Buyer losing the property. Buyers may want to purchase this insurance to cover their down payment and their legal expenses challenging title claims in case they lose the home because real owner reclaims property. (This has happened more than once.)



Here are links to other useful areas of my website

My Services Homebuyer
Rights
"Free"
HomeBuyer Tips
Myths About
Exclusive Buyer Agents
FAQs
Websites of
Homes for Sale
Questions
to ask Your Lender
Pros & Cons of
Interest only Loans
Schools, Neighborhood,
Consumer & General Information
Home Maintenance,
Warranties, & Other Useful
Information


TELL ME WHAT YOU ARE LOOKING FOR ON MY DESIRED FEATURES FORM

SEND AN EMAIL WITH ANY QUESTIONS
or just call me at 770-971-5418 (Office) or 770-265-7293 (Cell Phone)


ACCESS BROKERAGE HOME PAGE

In compliance with Georgia Real Estate Commission (GREC) Rule #520-1-.04 (Requirements for Internet Advertising), the following statement will appear on each page of my real estate website: "James E. Parker is a licensed Real Estate Broker in only the State of Georgia and holds his license with Access Brokerage, Incorporated, located at 1634 Rex Drive, Marietta, GA 30066 - just North of Atlanta in Cobb County, Georgia that serves Atlanta metro area that includes the counties surrounding Atlanta, Georgia."