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1031 Exchange
This tool, also known as a like-kind exchange, allows investors to defer paying capital gains taxes on the sale of a property. The catch is that they must sell one property and buy a similar one within a set time frame, typically 180 days. Specific rules apply in order to comply with tax laws.
Active contingent
If a property has an active contingent status, it means that a buyer has submitted an offer to purchase a property, but the sale won’t be finalized until certain conditions, or contingencies, are met. A contingency might be the buyer selling their current house, requiring certain repairs to be made, or obtaining a clean termite inspection.
Active with contract
A property that’s active with contract — also known as active under contract — is a property that has an accepted offer with contingencies that have yet to be met.
Annual percentage rate (APR)
Buyers may be confused about the difference between an interest rate on their mortgage loan and an APR. Simply put, the APR is the total amount, including interest and fees, that it costs to borrow money, all expressed as a percentage.
Assignment
This is when the seller signs over all rights and obligations related to a property to the buyer before the actual closing.
Bridge loan
A bridge loan is a short-term loan that helps a buyer cover costs in the interim between buying a new house and selling one.
Buydown
A buydown is a financing technique that allows borrowers to secure a lower interest rate on their mortgage. This can involve buying discount points as a one-time fee paid at closing. A buydown can also exist when a seller makes initial payments toward the mortgage to reduce the interest rate, usually in exchange for a higher purchase price.
Call option
This gives a buyer an exclusive right, or option, to purchase a certain property at a set time for a specified price.
Chain of title
The chain of title is a historical record of previous owners of a property that’s essential in establishing the legal ownership of the property. An established chain of title helps protect the buyer from future challenges to ownership. A title search helps create that chain and is usually conducted by a lawyer or title company prior to closing.
Comparative market analysis (CMA)
This is an estimate of a property’s worth, determined by local comparable sales, market data, sale history, and location.
Contingencies
Contingencies are specific conditions that must be met before a real estate transaction can be finalized. They act as clauses within a purchase agreement, providing a safety net for both buyers and sellers by allowing them to back out of the deal if these conditions aren't satisfied.
Debt-to-income ratio (DTI)
As the name suggests, this is the ratio of a homebuyer’s debt to their income. This is an important calculation for lenders when considering mortgage applications and whether borrowers can afford to make payments. You can help your clients calculate their DTI by adding together all of their monthly payments and dividing the total by their gross monthly income.
Deed in lieu of foreclosure
This is when a homeowner turns a deed over to the mortgaging bank to avoid going into foreclosure. This allows the borrower to avoid personal liability for the remaining unpaid debt. In some cases, they may be able to continue living on the property.
Due diligence period
This period is a specified amount of time after an offer is made during which the buyer can inspect the property and review relevant documents. It’s a chance for the buyer to be sure in their decision to move forward with the purchase.
Easement
An easement is a legal right for a non-owner to use or cross a property for a specific purpose while the title remains with the owner.
One example is someone using a private road to access their own land. Another one that is popular down here in Charleston is a conservation easement. This means the owner has donated a portion of the property to be protected because it has historical, cultural, or environmental significance. The owner can receive tax credits in exchange.
Eminent domain
This is the government’s right to use private land for a specific, public purpose after compensating the owner.
Loan servicing
Servicing is everything involved in the administration and maintenance of a loan. It includes sending out statements, collecting, recording, and tracking payments, managing escrow funds, and following up on unpaid debts. This is important for mortgagees to understand because the company that they ultimately pay might be different from the institution from which they originally took out the loan (the originator).
Loan-to-value (LTV)
This is the ratio between the loan amount and the property value. To find the LTV, divide the loan amount by the value. A higher LTV denotes greater risk to the lender.
PITI (Principal, interest, taxes & insurance)
This figure calculates monthly housing costs by adding up principal, interest, taxes, and insurance. PITI represents the total amount owed by a borrower every month.
Probate
This is the process of reviewing a deceased person’s estate and will and administering the transfer of property. Probate can take place whether or not the deceased had a will in place.
REO (Real-estate owned)
Properties that have been repossessed by a lender after the borrower has defaulted on a loan are called real estate (or bank) owned.
Short sale
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
Zero lot line
A zero-lot-line home is one that is built right up to the edge of its property line.
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