Real Estate has some terminology that may throw you off if you are a first time homebuyer. Below sets forth some common terms used in Real Estate Transactions and what each means in lay terms.
ALTA- Stands for American Land Title Association, the national trade association for the title insurance industry. ALTA member companies include businesses that conduct your closing and issue you an Owner’s Policy of Title Insurance.
CLOSING- In some areas called a “settlement.” The process of completing a real estate transaction where lender and in-house documents are signed, an accounting between the parties is made, the documents are recorded, and all other details such as payment of outstanding liens and transfer of hazard insurance policies are attended to.
DEED- A legal document that showcases the owners of a property and what type of ownership said owner has.
DEED OF TRUST- what is commonly referred to as a “mortgage”- it is a security document that gets filed with the court in the jurisdiction where the property is located. A Deed of Trust is often abbreviated as “DOT”.
DEFAULT- Failure to perform a promised task or failure to timely pay an obligation.
DTI- Debt to Income- This number is determined by taking all your monthly debt payments divided by your gross monthly income. This figure is often used by Lenders to determine how much of a risk you may be for borrowing money.
EASEMENT- A right held by a person to legally enjoy or make limited use of another’s real property. Easements should be recorded with land records.
HAZARD INSURANCE- Same thing as homeowner’s insurance, which is essentially insurance that protects the home against fire, some natural causes, vandalism, etc., depending upon the policy. The buyer often adds liability insurance and extended coverage for personal property.
IMPOUND- Just another word for Escrow Account. An Impound/Escrow Account is the “forced savings account” your lender sets up for you, then when your property taxes, homeowner’s insurance premium, and flood insurance (if required) comes due,
LTV- Loan to Value- This is a value that shows you what the fair market value of your home is compared to the amount of your loan with your lender. It often is sued by lenders to determine the risk of the loan. If you have 80% LTV, you are generally positioned pretty well. If you have higher than 80% LTV, your lender may require you to have Mortgage Insurance.
PMI- Private Mortgage Insurance- A type of insurance that is often required with Conventional financing when the Purchaser puts down less than 20% of the purchase price. PMI is designed to protect and safeguard the Lender in the event the borrower defaults on the loan.
PROMISSORY NOTE- The “I promise to pay” document that is written and sets forth a promise to pay or re-pay a sum of money over a stated duration or at a stated time, or on demand, to a specified entity or to (an) individual(s).
SURVEY- A document that is created by a surveyor which depicts the property’s lot lines, boundaries, and structures of the property. The Survey also depicts easements and encroachments, Sometimes a survey is called a “plat”.
TENANTS BY THE ENTIRETY- A type of way ownership can be held that is only available to married persons. This is also referred to as “TBE” and if it is Tenants by the entirety with rights of survivorship, then upon the death of either spouse, full title/ownership passes to the survivor of them.
TITLE- The type of ownership that is set forth and protected by law. Oftentimes, people refer to the Deed as title.
TITLE INSURANCE- Is insurance that protects purchasers of real estate and lenders against loss from defective titles, liens and encumbrances. Owner’s title insurance is an optional feature of a real estate transaction but is HEAVILY encouraged.
TITLE SEARCH- Where a title examiner or other person conducts a search of the public records searching for recorded documents that show a chain of title, or in certain circumstances, show documents that can affect title.
UNDERWRITER- A person who works for an insurance company (the title insurance company) that issues insurance policies either to the public or to another insurer.
This is not an exhaustive list of terms used in a real estate transaction; however, the above terms are frequently used. There will be a part two of common real estate transaction terms forthcoming, so keep your eyes peeled.
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