closing terminology
Definitions of terms used at your real estate closing
Adjustable Rate Mortgage: A mortgage allowing
the interest rate to be adjusted according to an index after a
specific period of time.
Agency: The legal relationship in which the
seller or buyer engages the broker to act on its behalf in a real
estate transaction.
Agent: A person licensed by the State of Minnesota
to act on behalf of another in a real estate transaction.
Amortization: The monthly repayment of the principal
amount of a mortgage over the term of the mortgage.
Appraisal: A written estimate of the value of
a property on a given date.
Assessed Value: The value placed on land and
improvements of a property to determine property taxes.
Balloon Mortgage: A mortgage that has a substantial
amount of principal due upon maturity of the loan.
Bridge Loan: An equity mortgage placed on presently
owned real estate that is used to finance the down payment of
newly acquired real estate.
Broker: An experienced agents acting on behalf
of others in a real estate transaction.
Buyer's Agent: A broker and the agents under
his or her supervision who have been formally appointed by a buyer
to act on its behalf in a real estate transaction.
Cap: A maximum or ceiling of interest that can
be charged on a mortgage when it is adjusted.
Closing: Expenses, not including the purchase
price of a property, that are paid by the seller and buyer to
other parties at Closing.
Convey: To transfer real estate property from
one owner to another.
Contract of Sale: A written, signed agreement
in which the seller agrees to sell and the buyer agrees to buy
a particular property under specific terms and conditions.
Conventional Loan: A fixed-rate, fixed-term
loan that is made by a bank or lending source.
Condo: A residential development in which an
owner owns one unit plus a percentage of the common areas and
pays a maintenance fee to a condominium association made up of
all unit owners for maintenance, insurance, management, repairs
and improvements to the property.
Deed: A document by which legal title to real
property is conveyed from the seller to the buyer.
Down Payment: An amount which in addition to
the mortgage, equals the purchase price of a property.
Disclosed Dual Agent: A broker and the agents
under his or her supervision who represent both parties in a real
estate transaction after obtaining the written, informed consent
of both parties.
Equity: The interest or value that the owner
has in real estate over and above the liens against it.
Escrow: Money or other valuables left in trust
with a third party, usually the broker, attorney, or title company,
until closing.
Exclusive Right To-Sell: A written agreement
between the broker and the owner whereby the owner promises to
pay a fee or commission to the broker if his or her property is
sold during the listing period.
Fannie Mae: Nickname for the Federal National
Mortgage Association, which buys and sells FHA and VA mortgages.
Freddie Mac: Nickname for the Federal Home Loan
Mortgage Corporation which buys and sells FHA, VA, and, conventional
loans from the members of the Federal Reserve System and Federal
Home Loan Bank System. [top of page]
FHA Mortgage: A mortgage loan insured by the
Federal Housing Administration.
Fixture: Personal property that is permanently
attached to real property.
Fixed-Rate Mortgage: A loan that has only one
stated interest rate.
Home Inspection: An examination of the physical
structure and systems of a home and property.
Listing Contract: A written agreement between
a seller and a broker that allows the broker to sell the property
during a given time period for a stated commission.
Loan Application Fee: The charge paid by the
buyer to the lender when applying for a mortgage.
Loan Origination Fee: The charge paid by the
buyer to the lender for processing a mortgage.
Market Value: The highest price a buyer is wilting
to pay and the lowest price a seller is willing to accept (the
price property can be bought and sold for!)
Mortgage: A lien on real estate given by the
buyer to a lender as security for money borrowed on a Note.
Mortgage Insurance: A policy that provides protection
for the lender in the case of default. Also may guarantee repayment
of the loan in the event of the death or disability of the borrower.
Option: The right to purchase property under
certain terms for a specified period of time.
Points: A point is 1 percent of the amount of
the mortgage loan.
PMI: Private mortgage insurance provides protection
for the lender when the borrower's down payment is less that 20%
of the purchase price.
Prepayment Penalty: Penalty for the payment
of a mortgage before it becomes due, usually not applicable to
home mortgages.
Principal: A person who appoints another person
to act as his or her representative. Also refers to the amount
loaned that is subject to interest.
Rollover Loan: A loan that is renewed at an
established time at then- current market interest rates.
Survey: A map or plat that indicates the boundaries,
measurements, and improvements to a piece of property.
Title: Indicates evidence and quality of ownership
in real estate.
Title Insurance: Protection for lenders and
homeowners against financial loss resulting from legal defects
in the title. [top of page]
