— Home Buyers Vocabulary —
The potential home buyer may find this Vocabulary helpful for understanding words and terms used in real estate transactions. There are, however, some factors that may affect these definitions:
- Terms are defined as they are commonly understood in the mortgage and real estate industry. The same terms may have different meanings in another context.
- The definitions are intentionally general, non- technical and short. They do not encompass all possible meanings or nuances that a term may acquire in legal use.
- State laws, as well as custom and use in various States or regions of the country, may modify or completely change the meanings of certain terms defined.
Before signing any documents or depositing any money preparatory to entering into a real estate contract, the purchaser should consult with an attorney to ensure that his rights are properly protected.
Abstract (Of Title): A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause: Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.
Agreement of Purchase and Sale: Known by various names, such as contract of purchase, purchase agreement, or sales agreement. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.
Amortization: A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.
Appraisal: An expert judgment or estimate of the quality or value of real estate as of a given date.
Assumption of Mortgage: An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee’s consent is usually required.
The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments
An “Assumption of Mortgage” is often confused with “purchasing subject to a mortgage.” When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee’s consent is not required to a sale subject to a mortgage.
Both “Assumption of Mortgage” and “Purchasing Subject to a Mortgage” are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
In most instances, the lender’s written consent is required for an “Assumption of Mortgage” or “Purchasing Subject to a Mortgage”.
Binder or “Offer to Purchase”: A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.
Broker (See real estate broker)
Building Line or Setback: Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
Certificate of Title: A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
Closing Costs: The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. This is a typical list: