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Terminology

Acceleration Clause – Included to protect the lender, an acceleration clause is a common provision within a mortgage loan contract.  The clause grants the lender the right to demand full and immediate payment of the remaining balance of the loan in the event the borrower violates any of the conditions of the mortgage agreement.  Such violations can include the sale or destruction of the property, refinancing of the mortgage loan, or failure to make a payment or payment, in a timely manner.

 

Amortization Schedule – Set up as a table detailing each periodic payment on a loan, an amortization schedule is a handy tool that shows you when your mortgage will be paid off.  Initially, the majority of each payment is allocated to interest; toward the end of the table, the majority is allocated to the principal, gradually decreasing the loan balance until there’s nothing left to pay.

 

Appraisal Report – Usually commissioned by a mortgage lender in order to ensure a loan doesn’t exceed a property’s value, an appraisal report details the findings of home appraisers, whose job it is to estimate a property’s value.  Include in the appraisal report are:  details about the property’s condition, including significant flaws affecting the property’s value; and an evaluation of local market conditions.

 

Appraisal Value – A property’s fair market value as estimated by a certified appraiser.  The appraiser’s estimate is based primarily on comparable sales, but also takes into account the condition of the property, current market conditions and other factors.  An appraisal value is an important factor in determining how much money may be borrowed for a home loan.  The appraiser is typically selected by the lender, while the appraisal is generally paid for by the borrower.

 

Appraiser – A qualified professional whose job it is to estimate the fair market value of a property.  Appraisers take into account factors including but not limited to, the property’s location and condition, comparable home sales, and previous appraisals.  Their evaluation complete, the appraiser will prepare a written report detailing the methods by which they estimated the property’s fair market value.  Appraisers may or may not be members of a professional association.

 

Annual Percentage Rate (APR) – An APR is the annualized cost of borrowing for a mortgage loan.  APRs provide a standard for comparing mortgage costs between lenders.  They show borrowers a more complete picture that just interest rates, as APRs take into account the total cost of borrowing, including things like interest and transaction fees.  Not all lenders use the same fees in their calculations, so borrowers should check that any APRs they’re comparing are based on the same criteria.

 

Assumption of Mortgage – The agreement undertaken by the buyer of a property to assume personal liability for payment of the seller’s existing mortgage.  When a buyer assumes a mortgage, they do so at the same terms and interest rate specified in the seller’s original mortgage documents, just as if the loan had been issued directly to the buyer.  Mortgage assumption is an attractive option when the interest rate on the seller’s mortgage is lower than current market rates.

 

Assumable Mortgage – A mortgage that can be transferred from the seller of a property to its buyer with no change in the mortgage’s terms, provided the lender agrees and the buyer meets certain criteria.  An assumable mortgage can made a property more attractive if interest rates have risen, as the buyer’s payments will be at the original rate.  Assuming a mortgage can be quicker that securing a new one, but buyers may be charged an assumption fee.

 

Biweekly Mortgage – A mortgage in which you make payments every two weeks as opposed to once per month.  As a result, you end up making 26 extra payments, the equivalent of 13 monthly payments, over the course of a year.  The extra payment reduces the principal amount of your mortgage, significantly reducing the amount of time it will take to pay it off.  Speak to your lender to find out if they offer a biweekly payment option.

 

Clear Title – A clear title is a title that is free of encumbrances, such as liens, mortgages and other interests that affect the title.  In other words, the property is owned outright and no other ownership claims exist against it.  A clear title is a necessary requirement in any real estate transaction, and mortgage lenders require proof of clear title before they will approve a mortgage loan.  Also referred to as good title.

 

Closing Date – The date on which the title and possession of a property are transferred from the seller to the buyer.  The buyer receives the keys to their new home on this date, and the seller receives the money from the sale.  The closing date is agreed upon by both the buyer and seller during negotiations and is specified in the buyer’s offer.  Though most closing do happen on the agreed upon date, delays can occur, for which both parties should be prepared.

 

Closing Costs – The costs a buyer must pay, in addition to the down payment, at the time of closing a home purchase.  These costs can include by aren’t limited to, legal fees, appraisal fees, inspection fees, document preparation fees, taxes and title insurance.  Closing costs can vary depending on the home’s location and price.  As a guideline, they typically amount to somewhere around two to five percent of the property’s purchase price.

 

Commitment Letter – Relative to real estate, a commitment letter is a written notification, formally offering a mortgage loan to a borrower, provided certain conditions are satisfied within a specified time frame.  The letter states the terms under which the lender has agreed to the loan, such as the interest rate and period of time.  As the purchaser, you should ask your salesperson to let the seller know you have been pre-approved, and are in good standing to get the mortgage approved as soon as possible.

 

Comparable Sales – Comparable sales refers to the recent sales of properties similar to a subject property in terms of location, square footage, number of bedrooms, number of bathrooms, etc.  Often called “comps” by real estate professionals, these sales are used to help establish the fair market value of a property.  As such, comparable sales provide valuable information for sellers when determining an asking price and for buyers when determining an offer price.

 

Conditional Offer – An offer to purchase a home provided certain conditions, agreed upon by both buyer and seller, are met within an agreed upon time frame.  Such conditions typically include completion of a home inspection, the buyer’s ability to secure financing, and the sale of the buyer’s current home.  Once the conditions are met, the contract becomes binding and the buyer is then obligated to purchase the property; if the conditions aren’t satisfied, the buyer is not obligated to buy.

 

Days on Market (DOM) – The number of days a property is listed for sale in a Multiple Listing Service before it is sold or taken off the market.  In a seller’s market, when there are fewer properties listed and available inventory sells more quickly, the DOM figure will be low.  In a buyer’s market, when there is more inventory available and properties take longer to sell, the DOM figure will be high.

 

Encumbrance – This legal term refers to any claim against a property made by a third party that affects the title to that piece of real estate.  There are many different types of encumbrances, including liens, unpaid property taxes, outstanding mortgages, and deed restrictions.  An encumbrance can inhibit the property owner’s ability to convey title to the property, negatively affecting the property’s value until the issue is resolved.

 

ENERGY STAR – An international certification and labeling standard for energy-efficient consumer goods. The ENERY STAR label can be found on a variety of products including major appliances, home electronics, office equipment, lighting, windows and doors, and heating, cooling and ventilation systems.  Good news for homebuyers, the ENERGY STAR label can now be found on residential (and commercial) buildings as well.  To qualify as ENERGY STAR rated, products must meet minimum energy-efficiency standards unique to each product category.

 

Expired Listing – When a seller contracts with a real estate sales representative to sell his or her home, the seller determines the length of the listing contract – 60, 90 or even 180 days, for example.  If the property does not sell within that time frame, it becomes what’s known as an expired listing.  Once a listing expires, the seller has the options of re-listing with the same or different real estate sales representative, and the seller may decide to change the price and terms at that point.

 

Fair Market Value – The fair market value of a home refers to the price at which a willing buyer would buy a property and a willing seller would sell that same property, given current market conditions, a reasonable period of time (which in typically defined as 30 to 90 days) and providing the buyer and seller are informed enough to make rational decisions, without any undue pressure placed upon them.

 

FSBO – FSBO (pronounced “fizzbo”) stands for For Sale By Owner.  The term refers to a property that is being sold directly by its owner, without the assistance of a real estate sales representative.  Some homeowners opt to list their homes as FSBO in order to avoid paying an agent’s commission.  However, it should be noted that FSBOs have a high failure rate, for a number of reasons ranging from overpricing to lack of proper marketing and representation.

 

FSC – FSC stands for Forest Stewardship Council, a non-governmental, non-profit organization that promotes the environmentally, socially and economically responsible management of our planet`s forests, and that provides and international certification and labeling system for producers of forestry products.  Look for the FSC`s logo on the forestry products you buy for your home, from flooring to furniture – it`s your guarantee those product are made of wood harvested from responsibly managed forests.

 

Home Appraisal – An estimate of the property’s market value.  Not to be confused with home inspections, which are c commissioned by buyers to determine a property’s condition, home appraisals are typically performed on behalf of a lender prior to approving a mortgage loan.  This is done to ensure that the loan amount isn’t greater than the property’s v value and that the lender could reasonably recoup their loss by reselling the property in the event the buyer defaults on the loan.  Appraisals can be undertaken for a number of reasons, including transfer of ownership, extension of credit, taxation, compensation or damage loss, land use or feasibility studies.

 

Homeowners Insurance – Homeowners insurance protects owners against losses caused by the inability to live in your home (known as “loss of use“) or damages to your property and/or its contents.  As well, it covers liability for any third-party injuries sustained while on your property.  Homeowners insurance can protect against damage resulting from a number of specified causes, including, but not limited to fire, lightning and smoke; theft and vandalism; impact from falling objects; wind and hail; and explosions.  Check with individual insurers for limitations.

 

LEED –The Leadership in Energy and Environmental Design (LEED) Green Building Rating System is North America`s most widely recognized rating system (developed by the U.S. Green Building Council and administered in Canada by the Canada Green Building Council) that certifies the design, construction and maintenance of green buildings, including houses and condominiums.  Buildings are evaluated on the following five criteria:  sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality.

 

Lien – A legal claim placed by a creditor on a piece of real estate to secure the payment of a debt.  A lien give its holder the right to sell the property to satisfy the debt it it`s not otherwise paid; when the debt is paid, the lien is removed.  When buyer a property, it`s important to ensure, by means of a title search, that there are not liens against it that could prevent your securing clear title.

 

Maturity (Balance Due) Date – The date upon which the principal and interest on a mortgage or other loan becomes payable in full and is repaid to the lender, or the agreement is renewed.  The maturity date is most often the due date of the last payment on the loan; as of this date, interest payments stop.

 

Mortgage Calculator – An automated tool that enables users to determine how much money they can afford to borrow – and thus, how much they can spend on a home – at a particular interest rate by calculating what their monthly mortgage payment would be on a given loan.  Variables inputted into a mortgage calculator include the amount borrowed, the term of the loan, and the annual interest rate at which the money is borrowed.

 

Open Mortgage – A type of mortgage that offers borrowers the flexibility to pay off the balance of the loan before it matures, without incurring any pre-payment penalties.  To find out the specifics of an open mortgage, and if it would be a good fit for you, consult your mortgage advisor.

 

Pending or Sold Conditionally – These terms commonly refer to the status of a home sale, when an offer has been made and accepted, but the transaction hasn’t yet closed.  While a closing is almost assured, deals can fall through at this stage.  Once closing occurs (typically within a month or two of signing a contract) the listing is then officially sold.

 

Pre-approval – Pre-approval refers to the process by which a lender determines whether a borrower qualifies for a loan, as well as the amount the lender is willing to lend.  This process involves a close examination of the borrower`s financial status, checking the borrower`s credit history and verifying income, employment history, assets and liabilities.  Pre-approval is not binding for the borrower or lender and is subject to review once the borrower has chosen a property to purchase.

 

Pre-qualification – Pre-qualification is the first step in the mortgage application process, in which the lender takes into account basic information about a borrower’s financial standing, including his or her income, assets, and debts, in order to approximate a loan amount  the borrower might qualify for.  It’s important to note that the amount is not guaranteed for approval, since the figure established by the pre-qualification process is based on unverified information provided by the borrower.

 

Prepayment Privileges – Also known as prepayment rights, this is a mortgage clause that allows borrowers to make voluntary payments against their mortgage without incurring a penalty.  Extra payments are applied to the principal owing, thus allowing borrowers to reduce the amount of interest owed and to pay off the mortgage more quickly.  Prepayment terms vary from lender to lender, so check with your financial institution to see what limitations might be placed on your ability to make prepayments.

 

Title Search – An examination of the chain of title to property as indicated in public records, in order to confirm ownership of the subject property, and to verify that there are no liens or other claims against the property other than those scheduled to be erased at closing if conducted for a purchase.  A title search verifies that all former owners have formally given up their rights to the property.