Real estate mumbo-jumbo can get confusing! Buying a house is a big step and accomplishment in one’s life. Wouldn’t it be a more pleasing and smooth process if the paperwork included more easily understood terms? Until those big words are put into plain, simple English, let me give you the definition to a few important real estate terms you will run across at some point.
Deed – A deed is a legal document representing the property to be transferred from one owner to another. Deeds contain a description of the property. It is signed, witnessed, and delivered to the buyer at closing.
Deed of Trust – Deed of Trust is the document which creates a lien on a property. It uses the property as security for the payment of a debt. In most states, a mortgage is used instead.
Default – Failure to meet legal obligations in a contract, usually failure to make payments on a loan, makes you go into default. A mortgage is typically considered to be in default when payment is 30 days late.
Delinquency – Delinquency is a failure to make required payments on time. After 30 to 90 days of being delinquent, based on your own state, the loan is placed into foreclosure.
Equal Credit Opportunity Act (also known as ECOA) – ECOA is the federal law requiring creditors to offer credit available without discrimination based on race, color, religion, national origin, age, sex, and marital status. It even extends to those who receive income from public assistance programs.
Escrow/Attorney/Title – These three terms refer to a neutral third party who handles the “legal” duties in the closing process. He/She carries out the instructions of both the buyer and seller to handle all the paperwork. You will either use an escrow company, an attorney, or a title company – depending on the rules in the state you reside in.
Fixed-Rate Mortgage – A fixed-rate mortgage is one whose interest rate does not change for the life of the loan. Payments are also fixed and remain the same throughout.
Flood Check – A flood check is done if the house you want to purchase is close to water, such as a Bay, Ocean, River, etc. A survey is conducted to determine whether the property is in a flood zone. A fee is also charged for each flood check.
Floor – The term “floor” refers to the minimum interest rate payable on an adjustable-rate mortgage. Floor is the opposite of Ceiling (maximum rate).
Lock or Lock In – This is a lender’s guarantee of an interest rate and related points but only for a set length of time. It usually begins at loan application and ends at a loan closing. All this protects borrowers against possible rate increases during that time.
Points (or Discount Points) – This is money paid to a lender at closing in exchange for a lower interest rate. Each point is equal to 1% of the loan amount.