Buying A Home

A BRIEF OVERVIEW ON BUYING A HOME

The 10 steps to buying a home are:

1.) Visit with mortgage broker or lender to obtain pre-approval for a loan.
2.) Select a competent Realtor.
3.) Choose a home.
4.) Write an offer on the right home.
5.) Place a deposit on the home.
6.) Determine the date of your move.
7.) Order a home inspection.
8.) Order a home appraisal.
9.) Sign the loan documents.
10.) Obtain the keys!

After the loan documents are signed, it takes approximately 24 to 72 hours for the deed to be recorded and the loan funding to take place. Once that happens, your Realtor will make arrangements for you to receive the keys to your new home.

Your Realtor can help you through every one of these steps. She has local partners in place to make sure that you work with the best professionals in each field. These professionals are mortgage brokers, inspectors, appraisers, escrow officers, title clerks, contractors for necessary repairs and more.

Many things can happen on the road to buying a home. It's not always smooth, but one thing's for sure...it's important to hire professionals to help you through the myriad of tasks to be accomplished within your time frame.

Read on for a more detailed progression of events:

DON'T FORGET YOUR PRE-APPROVAL LETTER

Here are 6 reasons why getting a pre-approval letter is vital.
Most homebuyers know they should get a mortgage pre-approval letter from their lender before they begin shopping for a home. But the reasons for this advice aren't always clear, and the buyers are sometimes dismayed by the amount of paperwork involved. Here is some of the reasoning behind the advice:

1.) A pre-approval letter is more reliable than a pre-qualification letter. Getting a pre-qualification letter is easy. You just call a mortgage broker or a lender, provide some basic information, then wait a few minutes for the letter to come through your fax machine. Getting a "pre-qual" from a web site is just as easy. Enter some information, click "submit" and voila.

2.) A pre-approval letter, on the other hand, involves verification of the information. Rather than taking your word on faith, the lender will ask for documentation to confirm your employment, the source of your down payment and other aspects of your financial circumstances. Granted, a pre-approval letter is more time-consuming (and possibly more stressful) than a pre-qualification, but the additional due diligence carries more weight.

3.) You'll know how much money you can qualify to borrow. Most homebuyers have a rough idea of how much they would feel comfortable paying every month on their mortgage. However, there's no quick-and-easy way to translate that monthly payment into a specific maximum mortgage amount because other factors --- down payment percentage, mortgage insurance, property taxes, adjustable interest rates and so on -- are part of the calculation. You might be qualified to borrow more than you think you should be able to borrow, depending on your income, your debts, credit history, and tax liability. (Remember, mortgage interest is tax deductible).

4.) You'll have more leverage in negotiations with the seller. Sellers often prefer to negotiate with pre-approved buyers because the sellers know such buyers are financially qualified to obtain the financing they need to close the transaction. A pre-approval letter is an especially favorable point in a close multiple-offer situation. And, you might feel more confident about making an offer with a pre-approval letter in hand and the knowledge that you'll be able to obtain a mortgage.

5.) Your real estate agent will worker harder on your behalf. A pre-approval letter signals to your real estate agent that you're a well-qualified buyer who is serious about purchasing a home. The increased likelihood of a closed sale will naturally motivate your agent to devote more time and energy to you. In fact, the best agents won't even show property to buyers who don't have a pre-approval letter.

6.) A few caveats: Pre-approval letters are not binding on the lender, are subject to an appraisal of the home you want to purchase and are time sensitive. If your financial situation changes (i.e. You lose your job, lease a car or run up a credit card bill) interest rates rise or a specified expiration date passes, the lender will review your situation and recalculate your maximum mortgage amount accordingly.

HIRING A REALTOR: BUYERS AGENT OR LISTING AGENT?

Is there a difference? You bet!

When you call an agent that is listing a property, he or she is representing a Seller. It is the agent's first and foremost duty to look out for their client, the seller. By Oregon law, it is possible for the same agent to represent you in the sale of that property although; many states have changed that law, eliminating the need for dual agency disclosures.

Most Realtors would never think of violating their moral and ethical code of neutrality, since it could mean putting their license in jeopardy. However, when you think about it, can this Realtor really give you all the time, effort and allegiance you deserve? He/she must remain a neutral party by law. But, it is a Listing Agent's first priority to get that house sold for his/her client (the Seller).

Conversely, a Buyers agent is someone you hire to work for you alone. Although the seller typically pays their commission, the buyer's agent's loyalty is to you. After all, purchasing a home is a complex and major transaction with many details to be handled. A buyer's representative is responsible for protecting the buyer's best interests.

What else does a Buyers representative do? A real estate buyer's representative specializes in the purchase/sale of single-family residences and income property. Most buyer's agents carry a small quantity of listings, usually only those of the clients they represent in a buying agreement. Buyer's agents focus on the details of their clients needs and negotiate diligently on behalf of their clients.

Buyer's reps spend hours looking for homes that will match their client's criteria and notify you immediately with the latest listing information. (A listing agent spends their time promoting their client's property.) Buyer's agents can provide you with reliable resources for your professional inspection, mortgage financing, repair contractors, movers, and other important sources for your transaction.

Buyer's reps know the sales history of many neighborhoods. They do not restrict themselves to one geographical area, as does the typical listing agent. A buyer's agent will take the time to investigate expired listings and For Sale By Owner properties in order to obtain the property that meets your needs. He/she will prepare a marketing analysis of the home you choose to confirm the fair market value of the home.

How do you find a real estate professional that will represent your interests as a buyer? One of the best ways is to consult the Buyers Representative Directory at www.rebac.org. REBAC is the world's largest association of real estate professionals focusing specifically on representing the real estate buyer. The REBAC organization provides education to Realtors wishing to become buyer's agents. Once completing the course, agents are then recognized as "Accredited Buyers' Representatives" or ABR for short. These agents learn how to best act for their clients and continue to be updated in the latest trends, legal matters and ways to assist their clients.

NOTE: In addition to being a licensed Real Estate Broker, Julie McLaughlin is an Accredited Buyer's Representative. For more information about Buyer's Representative's go to the Real Estate Buyer's Agent Council's website at www.Rebac.net.

THE SALES AGREEMENT

The sales agreement or "earnest money agreement" is the legally binding document that sets forth the terms of the sale, establishes the rights and obligations of the parties involved, specifies the actions to be taken in order to close the sale, establishes the time frame for those steps to be completed.

A contract is created when there is a "meeting of the minds" on all terms. The contract is created when the buyer and seller have come to such an agreement and signed the offer form along with any counter-offers and addenda. Real estate contracts must be in writing; verbal contracts to purchase real estate cannot be enforced. Prior to signing a contract to buy or sell real property it is important to understand all of the terms to which you may be obligating yourself.

Typically standard pre-printed purchase contract forms are utilized and filled out by the real estate agents handling the transaction or by the principals if there is no agent involved. While most buyers and sellers are usually full aware of the terms such as price, closing date, and financial terms, there is the tendency to overlook much of the pre-printed portion of the form. Since all the terms of the contract can be binding it is important to understand all of the terms you are agreeing to before you sign the contract. Not doing so can be a costly mistake, especially if there are problems or difficulties in the transaction.

Some of the items that you may be agreeing to when you sign the pre-printed form may include:

What personal property will be included/excluded from the sale
Who will pay for the required repairs/retrofits
What the sellers disclosure obligations will be
What the sellers obligation to maintain the property will be
What the seller is warranting about the property
What the buyers inspection rights will be
What will happen in the event either party does not comply with the contract
What the parties legal rights and attorney fee provisions will be in the event of a breach of contract

It is highly recommended that you read and review the pre-printed forms used most commonly in your area before you have an offer to purchase from a buyer. Your real estate agent can provide you with copies of the forms and should be willing to explain and review them with you. When you have a bona-fide offer being presented your focus will be on issues such as price, terms and closing date.

By reviewing and understanding the purchase contract ahead of time you can strengthen your negotiating position, protect yourself from incurring unnecessary costs or problems, and have a better understanding of what you will need to do to conclude the sale.

WHAT ARE CLOSING COSTS?

Closing costs are simply the fees, costs and taxes associated with the purchasing of a home, the borrowing of money and the preparation of necessary paperwork to finalize the sale. The total amount of your closing costs will vary depending on where your new home will be located, what type of property you are buying, and the price of the home and the complexity of the transaction. It is extremely important that you work closely with your Realtor and lender in the early stages of the home buying process to determine what these costs could be, since closing costs can easily represent thousands of dollars.

The main categories are:

1. Discount Points to Buying Down the Mortgage.
a. This fee is optional and can vary significantly from 0.5 to 3 points on the total of the mortgage loan. It is a one-time charge that is calculated based on the amount of the mortgage loan. A buyer would pay this amount up front to reduce the ongoing cost of the mortgage over the life of the loan. This charge is fully deductible as mortgage interest.

2. The Costs of Originating the Mortgage.
a. These generally include a variety of fees such as the loan origination fee, the appraisal fee and the cost of credit reports. There are also other fees that you will be expected to pay at closing such as hazard and mortgage insurance and interest accrued on the mortgage between the closing date and the end of the month.

3. Taxes and Other Local Fees.
a. These charges will vary according to the requirements of local governments. Some may demand that your property taxes be pro-rated according to when you will officially become the owner of the house. There can also be personal property taxes, homeowners' association dues, and other assessments that are specific to the area that you are moving into.

4. The Cost of Documentation.
a. You will have to pay for any research involving public records and the title history on the property you are buying. This insures that the title on your property is unencumbered by other ownership or liens and can be delivered to you at closing. Other costs include Recording and Transfer fees that cover the legal recording of the deed to your name.

It is critical that you have a clear understanding of the total cost of your closing. Your real estate agent or the attorney/escrow company should supply you with a detailed estimate well in advance of the actual closing.

WHAT HAPPENS AFTER YOUR OFFER IS ACCEPTED?

Finding a home to buy and negotiating the purchase is rarely easy. After you've successfully completed the negotiations, it's time to celebrate. As soon as the euphoria wears off, you may be wondering what happens next.

Within a few days after the sellers accept your offer, your good faith deposit check (earnest money) is cashed. A neutral depository holds the money until the sales is either closed or cancelled. Who holds your money depends on where you're buying. Some states, like Oregon, use escrow accounts to handle the financial aspects of a home sale. In other states, your broker or attorney may take care of these details.

Make sure that you have sufficient funds in the account on which you wrote the deposit check. If you need to transfer funds from one account to another, let your agent or the transaction coordinator (with the Broker) know.

Your contract should include contingencies to protect you. A contingency is a condition that must be satisfied for the sale to go through. If a contingency can't be satisfied, the sale is usually cancelled and the buyer's deposit returned.

Common contract contingencies are for inspections and financing. An inspection contingency usually entitles the buyers to inspect the property to their satisfaction. A financing contingency makes the purchase contingent on the buyers obtaining the financing they'll need to close the sale. Your contract may include other contingencies, such as for the sale of another property.

HOUSE HUNTING TIP: Contingencies should have time periods for performance. For example, the inspection contingency might run for 7 to 10 days following acceptance. Ask your real estate agent to prepare a summary sheet detailing the important contract dates. Most contracts include a provision stating that time is of the essence. This means that if you fail to meet a deadline, you could jeopardize the transaction.

Even though you may have a week or more to complete inspections, you should order a home inspection promptly after your offer is accepted. The home inspector may recommend further inspections, which will take additional time to complete.

A delayed closing can wreak havoc on your moving plans. In most cases, the buyer's can't move in to their new home until title is transferred to them from the sellers. The title transfer doesn't occur until all of the buyers' money is accounted for. Most buyers use mortgages to pay for a good portion of the purchase price. Snafus in the mortgage process are the most common reason a closing is delayed.

To obtain a mortgage, both you and the property you're buying must be acceptable to the lender. Stay in close touch with your lender or mortgage broker to make sure that you have furnished all the required financial documents. Also follow up to ensure that the property appraisal is ordered quickly.

The lender will require that you obtain a fire insurance policy to cover the home, with the lender named as loss payee. The lender will also require that you buy a title insurance policy to protect the lender's interest in the property. It's a good idea for buyers to purchase a title insurance policy to protect their own interests as well.

During the course of your purchase transaction, a title expert will inspect the title record on the property to make sure that you will receive good title to the property. You will need to decide how you want to hold title to the property.

THE CLOSING: How you hold title to real estate has tax consequences. Consult with an accountant or tax attorney before making this decision.

PREPARING FOR A HOME INSPECTION

A home inspection is often one of the real "hurdles" of a real estate transaction. A smart homebuyer will request a home inspection, but may not be aware of what to expect. Here are a few tips to help make the home inspection experience easier for you.

Don't be upset by all the writing. A good report will list items which are not considered to be failures, but may be cosmetic, due to normal aging, or issues related to changing construction codes. Many items in the report will be listed as minor maintenance issues, and not patent defects. You can use the report as an excellent tool or a "to do" list for routine future maintenance.

Let the inspector follow his/her normal routine. You may be very interested in the upstairs bathroom. Be assured the inspector will get there, and will discuss bathroom issues with you at that time. It is very distracting to drag the inspector upstairs in the middle of the kitchen inspection, and may result in something being missed due to the distraction.

Remember: The inspector is not a psychic. Items which are hidden are just that. The inspector is not allowed to dismantle anything other than minor sounding and probing does to damage finished surfaces. The inspection is by definition a "visual" inspection, and this does not include x-ray vision. In addition, the inspector must describe items as they are on the day of the inspection, and cannot predict the future. No one knows when the water heater will fail or when the dishwasher will start leaking.

The inspection is a general inspection. This means it is not technically exhaustive in any single area. A technically exhaustive inspection may be conducted in each area of the inspection by a specialist like a structural engineer, electrical contractor, plumber, roofer, brick mason, and so on. The cost of technically exhaustive inspections is usually prohibitive. You should expect a general report which points out conditions which may need repair or further examination by a licensed expert.

Remember that the professional home inspection is one of your best allies when it comes to consumer protection. For more information about home inspections and standards of practice, visit the Construction Contractors Board website at www.ccb.state.or.us.

HOW DO REAL ESTATE AGENTS GET PAID?

Home Sales have been hot around the country during the past few years. So many people believe that real estate agents are getting rich. But, statistics tell a different tale. According to the National Association of Realtors, a typical Realtor earned $10,000 in 1948. In 1996, the median gross income for a Realtor was $33,500.

Granted, these are national statistics, and nationally, there's a wide variation in home values. An agent working in rural Tennessee, where sale prices are relatively low would have to sell a lot of homes to keep pace with a successful real estate agent in the costly Silicon Valley. There's usually a direct correlation between price range and an agent's income: the higher the price, the higher the income.

Guaranteed salaries are rare in the residential resale business. Most real estate agents work for a commission, most often a percentage of the sale price of the home being sold. Agents usually don't receive any upfront compensation for their efforts. Instead, they are paid when the sale goes through. If a deal falls apart, the agent makes nothing for his/her efforts.

In a conventional home sale, the seller pays the commission. It is negotiable, but is usually about 7% percent of the sale price. The seller's broker typically shares the commission on a 50-50 basis with any broker who finds a buyer for the property. There is usually another commission-splitting arrangement that occurs between the brokers involved and the agents that work for them. It is often these agents who work directly with the buyers and sellers to consummate the transaction.

For example, let's say you're selling a house for $100,000 have agree to pay your listing broker seven percent of the sale price as compensation for completing the sale. The commission in this case is $7000. If another broker is working with the buyer for your house, that broker will receive $2700 at closing, leaving $4300 for your broker.

Expenses are deducted from the commission to pay overhead costs before agents are paid. Overhead includes such things as the cost of running the office and advertising properties. So by the time your agent actually gets paid, it's likely not to be anywhere near the seven percent you agreed to pay for his/her services. A fair estimate would be about 2% of the purchase price up to this point.

Also, agents incur expenses as a cost of doing business. Typically these expenses include such things as a decent car, gasoline, a computer, access to the Multiple Listing Service, advertising, errors and omissions insurance, to name a few. Agents are also responsible for paying their taxes, medical insurance and establishing their own retirement plans. One broker calculated that she would have to earn over $200,000 in gross commissions a year to equal the $80,000 annual salary her daughter earned at Xerox when all the benefits were factored in.

FIRST TIME TIP: One may wonder why agents choose to work the long hours with no guaranteed compensation, under the continual threat of deals falling apart. The most successful agents are those who love the challenge of putting deals together. They have a strong entrepreneurial spirit and they understand that to get ahead requires a business plan.

THE CLOSING: As a consumer of real estate services, you'll have the greatest success if you work with a dedicated professional who puts your needs first, manages his or her finances well, and who has made a long-term commitment to the business. The easiest way to find such an agent is to ask a trusted friend or family member for a recommendation.

WHY DO HOME SALES FALL APART?

In heated real estate markets, buyer's remorse tends to be the leading reason home sales collapse. Nervous buyers, after they're told they got the house, have second thoughts and back out.

Imagine this. A hot new listing hits the market. The owner has prepared the home for sale: it shows beautifully. The owner and her agent set a reasonable list price of $200,000, hoping it will attract multiple bidders.

The seller decided to wait for one week after the broker open house to listen to offers. Fifteen offers materialized, all for significantly more than the $200,000 asking price.

The winners were ecstatic until they awoke the next morning. They suddenly realized that they had far exceeded their comfort level for how much they should be paying for a home.

When an offer is accepted, a good faith deposit from the buyers is usually part of the agreement. This deposit is applied toward the purchase price if the sale goes through. But, the deposit money could be retained by the sellers under certain circumstances, such as backing out of a deal for a reason not provided for in the contract.

FIRST TIME TIP: Should you suffer a severe case of remorse, your best bet is to discuss this with your agent as soon as possible. Ask to be released from the contract and ask for your deposit back. The seller may have the right to your deposit, or part of it, depending on the terms of your contract and where you're buying. But, if the sellers have numerous back-up buyers waiting in line to buy if the first buyers drop out, your chances of a release without financial penalty are high.

In the above situation, the seller was happy to release a nervous buyer so that a more eager buyer could proceed with the sale. A failed sale is never a pleasant experience, but it's usually best to have a deal fall apart sooner rather than later.

Two other common deal-breakers are inspections and financing.

Most buyers and seller attempt a resolution to property problems of the buyers still want the house and the defects can be fixed. The solution may involve financing assistance from the seller. Or the seller may actually fix the problems.

Disclosure laws vary, but in many states, defects discovered during inspections must be disclosed to other buyers. It behooves sellers to work out a resolution with the first buyer because future buyers will also be concerned about the problem.

Financing can also cause a deal to collapse if the buyers are unable to qualify for a mortgage. Sellers can protect themselves by making sure the buyers are pre-approved for the mortgage they'll need. If they're not already pre-approved, the counter-offer should require that the buyer be pre-approved within 5 to 10 days of contract acceptance or the deal will be cancelled.

Two other financing issues can wreak havoc with a home sale. If the appraisal comes in low, the lender won't approve the mortgage for the amount requested. Or, if the lender objects to something in the property title search, this could cause the loan to be turned down.

THE CLOSING: Buyers don't like backup offers. But it may be worthwhile to accept backup if you're the first backup in a multiple offer competition.

PLANNING YOUR SMOOTHEST MOVE, EVER!

One month before moving:

Obtain an IRS change of address form, call 1- (800) 829-1040.
Gather moving supplies, boxes, tape, rope.
If moving far away, make any necessary travel arrangements like airline, hotel, and rental car reservations.
Plan your travel route, if driving.
Call a moving company or make truck rental reservations to move yourself.
Finalize real estate and apartment rental needs.
Place legal, medical and insurance records in a safe and accessible place.
Obtain and file a change of address form with the post office.
Give your mailers your new address.
Friends & family members
Banks, insurance companies & other financial institutions
Charge & credit card companies
State & Federal Tax authorities
Save moving receipts (many moving expenses are tax deductible).
Make maps of your new neighborhood to familiarize yourself with your new area.
Plan your moving budget.

Two Weeks Before Moving:

Inform gas, electric, water, cable, local telephone and trash removal services of your move. Sign up for services at your new address.
Inform long distance company of your move.
Recruit moving day help.
Confirm travel reservation.
Arrange to close or transfer your bank account, if appropriate.

The Day Before Moving:

Set aside moving materials like a tape measure, pocket knife, packing boxes, tape and markers.
Pick up rental truck.
Check oil and gas in your car.
If traveling, make sure you have ticket, charge cards and other essentials.

Special Tip:

Have each member pack an overnight bag containing a fresh set of clothes, a towel, soap, toilet paper and toiletries including the toothbrush and toothpaste. Include snacks in the bag to keep everyone going until there's time to break for a meal.

TAX DEDUCTIBLE MOVING EXPENSES

Moving is generally expensive so utilize this opportunity to save money. Certain moving and relocation expenses are tax deductible. As tax regulations frequently change, please check with your local tax advisors for the latest information on qualified deductions. Remember to keep all receipts to verify your expenses.

The following information is for general reference only and details might vary for your specific circumstance.

Moves that qualify for tax deductions

Your move must:

Take you to a new job, your own business, or post-secondary education.
Take you a required distance closer to your existing job/business/education.

What types of expenses qualify for deduction?

Packing supplies.
Moving company fees.
Cost of insurance for goods in transit.
Storage of household effects for a limited time.
Transportation to the new location.
Temporary accommodations while traveling to the new location.
Disconnect and reconnect fees.
Pro-rated taxes, interest and pre-paid interest often referred to as discount points may be deductible.

AFTER THE MOVE

Things to do following the move:

Locate police and fire stations as well as hospitals and gas stations near your home.
Scout your new neighborhood for shopping areas. You may need furniture, tools or housewares unexpectedly
Call the Department of Sanitation in your new town to find out which day the trash is collected. Also ask whether your new community has recycling programs.
Seek out new service providers such as bank, cleaners, and veterinarian.
Register to vote. Call your local board of elections for specific registration information. Ask them how to notify your previous voting district of your change of address.
If you have moved to a different state, contact the Department of Motor Vehicles to exchange your driver's license.
Call your Chamber of Commerce for helpful information on:
Schools
Cable service
Cultural events and community activities
Libraries and parks
Availability of emergency calling services such as 911

Provide your new doctor and dentist with your medical history. You may need to request your file from your previous doctor/dentist.
Transfer insurance policies to an agent in your new community. You may also wish to make a detailed list of your belongings, their value and your coverage.
Give your new home a good cleaning.
Moving can be stressful. Watch for effects on family members and pets so you can give comfort and a helping hand.

GLOSSARY - Understanding Common Real Estate Terms

Amortization - Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments.

Annual Percentage Rate (A.P.R.) - The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. For example: 6% add-on interest would be much more than 6% simple interest, even though both would say 6%. The A.P.R. is disclosed as a requirement of federal truth in lending statutes.

Appraisal Report - A written report by an appraiser containing his opinion as to the value of a property and the reasoning leading to this opinion. The factual data supporting the opinion, such as comparables, appraisal formulas, and qualifications of the appraiser, will also be set forth.

Assessed Value - Value placed upon property for property tax purposes.

Backup Offer - A secondary offer to buy property, used in case the first (primary) offer fails. A backup offer is especially useful when the primary offer contains several contingencies.

Broker - One who is licensed by the state to carry on the business of doing real estate. A broker may receive a commission for his or her part in bringing together a buyer and seller.

CC&R's (Covenants, Conditions & Restrictions) - a term used to describe the restrictive limitations which may be placed on property.

Closing Costs - Expenses incidental to a sale of real estate, such as loan fees, title fees, appraisal fees, etc.

Contingency - Commonly, the dependence upon a stated event, which must occur before a contract, is binding. For example: The sale of a house, contingent upon a buyer obtaining financing.

Down Payment - Cash portion paid by a buyer from his own funds, as opposed to that portion of the purchase price that is financed.

Dry Rot - A fungal decay of seasoned wood.

Dual Agency - The representation of opposing principals (buyer and seller) at the same time. In brokerage many states get around this by saying that the agent aids the buyer but is the agent of the seller only.

Earnest Money - Money given by the buyer with an offer to purchase. Shows good faith.

Easement - A right created by grant, reservation, agreement, prescription, or necessary implication, which has in the land of another. It is either for the benefit of land, such as right to cross A to get to B, or "in gross", such as a public utility.

Escrow - Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event.

Escrow Instructions - Instructions, which are signed by both the buyer and the seller, which enable an escrow agent to out the procedures necessary to transfer real property.

F.H.A. Federal Housing Administration - A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

Fiduciary - One acting in a relationship of trust regarding financial transactions.

Fixed Rate Mortgage - A mortgage having a rate of interest which remains the same for the life of the mortgage.

Fixtures - Personal property which is attached to real property, and is legally treated as real property while it is so attached. Fixtures not specifically accepted from an accepted offer to purchase, pass with the real estate.

Fully Amortizing Loan - A loan of equal, regular payments which cause the principal and interest to be completely paid by the due date.

Gift Letter - A letter to HUD from the donor (giver) stating that a gift of money has been made to the buyer in order to purchase specific property. The relationship of the donor and the donee is stated, as well as the amount of the gift.

Hazard Insurance - Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

Holdback - Portion of loan held back by the lender until a contingency is met. In the sale of a home insured by VA or FHA, funds may be held back to make necessary improvements to bring the property to VA or FHA standards.

HOA or Homeowners Association - An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. An association formed by the builder of condominiums or planned developments, and required by statute in some states.

Homeowners Insurance - Includes the coverage of hazard insurance plus added coverage such as personal liability, theft away from the home (items stolen from the insured's car), and other such coverage.

HUD or Housing and Urban Development, Department of - The federal department responsible for the major housing programs in the United States, such as FHA.

Involuntary Conveyance - A transfer of real property without the consent of the owner, such as by divorce decree, by condemnation, etc.

Involuntary Lien - A lien, such as a tax lien, judgment lien, etc., which attaches to the property without the consent of the owner, rather than a mortgage lien to which the owner agrees.

Lease With the Option to Purchase - A lease under which the lessee has the right to purchase the property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the lease or only for apportion of the lease period.

Lien - An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but not all encumbrances are liens.

Listing - An agreement between an owner of real property and a real estate agent, whereby the agent agrees to secure a buyer or tenant for specific property at a certain price and terms in return for a fee or commission.

Listing Agent - A real estate agent obtaining a listing as opposed to the selling agent.

Loan Origination Fee - A one-time setup fee charged by the lender.

Mortgage Broker - One, who for a fee, brings together a borrower and lender, and handles the necessary applications for the borrower to obtain a loan against real property by giving a mortgage or deed of trust as security.

Mortgage Insurance (MIC) - Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price.

Note - A unilateral agreement containing and express and absolute promise of the signer to pay a named person, or order or bearer, a definite sum of money at a specified date or on demand. Usually provides for interest and concerning real property, is secured by a mortgage or trust deed.

Offer - A presentation or proposal for acceptance, in order to form a contract. To be legally binding, an offer must be definite as to price and terms.

Payoff - The payment in full of an existing loan or other lien.

PITI (Principal, Interest, Taxes & Insurance) - Used to indicate what is included in a monthly payment on real property. PITI are the four major components of what make up a monthly mortgage payment.

Preliminary Title Report - A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title policy is issued.

Prepayment Penalty - A penalty under a note, mortgage or deed of trust, imposed when the loan is paid before it is due.

Prime Lending Rate - The most favorable interest rates charged by a commercial bank on short term loans, (not mortgages).

Private Mortgage Insurance (PMI) - Insurance against a loss by a lender in event of default by the borrower. The insurance is similar to insurance by a governmental agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

Promissory Note - A promise in writing and executed by the make to pay a specified amount during a limited time or on demand, or at sight, to a named person, or on order, or to the bearer.

Quitclaim Deed - A deed operating as a release; intended to pass any title, interest or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Realtor - A designation given to a real estate broker or sales associate who is a member of a board associated with the National Association of Realtors or with the National Association of Real Estate Boards.

Reconveyance - An instrument used to transfer title from a trustee to the equitable owner of real estate, when title is held as a collateral security for debt. Most commonly used upon payment in full of a trust deed. Also called a deed of reconveyance or release.

Recording - Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors or other interested parties. Recording is controlled by statute and usually requires the witnessing and notarizing of an instrument to be recorded.

Secondary Mortgage Market - The buying and selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value or above, but are usually sold at a discount.

Second Mortgage - A mortgage which ranks after a first mortgage in priority. Properties may have two, three or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc., lien.

Set Back Ordinance - Part of a zoning ordinance. Regulates the distance from the lot line to the point where improvements may be constructed.

Special Assessment - Lien assessed against real property by a public authority to pay costs of public improvements, sidewalks, sewers, streetlights, etc. which directly benefits the assessed property. Also can be part of an HOA lien. See Homeowners Association.

Take Out Loan - The "permanent" (long term) financing of real estate after completion of construction.

Tax Lien - A lien for nonpayment of property taxes. Attaches only to the property upon which the taxes are unpaid. Also, can be a federal income tax lien. May attach to all property of the one owing the taxes.

Time is of the Essence - Clause used in contracts to bind one party to performance at or by a specified time in order to bind the other party to performance.

Title Company - An agency issuing the policy of a title insurance company.

Title Insurance - Insurance against loss resulting from defects of title to a specifically described parcel of property. Defects may run to the fee (chain of title) or to encumbrances.

Title Plant - A filing of all recorded information to real property, paralleling the records of the county recorders office, although the filing system may be different.

Title Search - A review of all recorded documents affecting a specific piece of property to determine the present condition of title.

Trust - A fiduciary relationship under which one holds property (real or personal) for the benefit of another.

Trust Account - An account used by brokers, escrow agents or anyone holding money in trust for another.

Underwriter - One who insures another. A small title company may buy insurance from a larger one (the underwriter) for all or part of the liability of its policies. A larger title company may buy part of the insurance from another company on high liability policies.

Unencumbered - Free of liens and other encumbrances. Free and clear.

Unmarketable Title - Not saleable. A title which has serious defects.

Variable Interest Rate - An interest rate which fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to the frequency and amount of fluctuation.

Warranty Deed - A deed used in many states to convey fee title to real property. Until the widespread use of title insurance, the warranties by the grantor were very important to the grantee. When title insurance is purchased, the warranties become less important as a practical means of recovery by the grantee for defective title.

Wrap-around Mortgage - A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgagee under the wrap-around collects a payment based on its face value and then pays the first mortgagee. It is most effective when the first has a lower interest rate than the second since the mortgagee under the wrap-around gains the difference between the interest rates, or the mortgagor under the wrap-around may obtain a lower rate than if refinancing.

Yield - Ratio of income from an investment to the total cost of the investment over a given period of time.

Zoning - The division of a city or county by legislative regulations into areas (zones), specifying the uses allowable for the real property in these areas.