Real Estate Glossary
Listed below are a glossary of real estate terms in alphabetical order that you may find usefull when considering a real estate transaction.
Backup offer: An offer to buy, submitted to a seller, with the understanding that the seller has already accepted a prior offer; a secondary offer. Sometimes the seller accepts the backup offer contingent on the failure of the sales transaction on the part of the first purchaser within a specified period of time. The seller must be careful how he or she proceeds, however, when the time for the buyer's performance, under the first contract, has expired.
Back-end qualification: When qualifying a prospective buyer for financing, the ratio of the borrower's income to monthly debt obligation is a primary consideration. Based on "back-end qualification," the ratio of a prospect's income to their total housing expense plus their long-term debt obligation should not exceed 36%.
Balloon mortgage: A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
Balloon payment: The final lump sum payment that is due at the termination of a balloon mortgage.
Bankruptcy: By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
Basic form homeowner's policy: The most common homeowner's policy is called a basic form. It provides property coverage against fire and lightning; glass breakage; windstorm and hail; explosion; riot and civil commotion; damage by aircraft; damage from vehicles; damage from smoke; vandalism and malicious mischief; theft; and loss of property removed from the premises when it is endangered by fire or other perils.
Beneficiary: A person who receives benefits from the gifts or acts of another, as in the case of one designated to receive the proceeds from a will, insurance policy, or trust; the real owner, as opposed to the trustee who holds only legal title. With a trust, the trustee holds the legal title, but the beneficiary enjoys the benefits of ownership.
Bill of sale: A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.
Binder: An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser's good faith and intent to complete the transaction.
Biweekly mortgage: A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.
Blanket loan: A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.
Blockbusting: An illegal and discriminatory practice whereby one person induces another to enter into a real estate transaction from which the first person may benefit financially by representing that a change may occur in the neighborhood with respect to race, sex, religion, color, handicap famial status or ancestry of the occupants. A change possibly resulting in the lowering of the property values, a decline in the quality of schools or an increase in the crime rate. Also called panic selling or panic peddling.
Bona fide: In good faith, honestly, openly, and sincerely and without deceit or fraud. In an attitude of trust and confidence, without notice of fraud.
Bond market: Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.
Breach of contract: Violation of any of the terms or conditions of a contract without legal excuse; default; nonperformance. The nonbreaching party can usually seek one of three alternative remedies upon a material breach of the contract: rescission of the contract, action for money damages or an action for specific performance.
Break-even point: In income property, the figure at which rental income is equal to expenses and debt service.
Bridge loan: Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
Broker: Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Building inspection: An overall inspection of a home or building performed by a qualified contractor or inspector. The inspection usually covers all major systems including foundation, plumbing, electrical, roof, heating and air conditioning.
Building permit: Written governmental permission for the construction, alteration or demolition of an improvement, showing compliance with building codes and zoning ordinances.
Bullet loan: A loan that includes a call date earlier than its normal amortization period; also called a renegotiable rate loan or a rollover loan.
Business cycle: The wavelike movement of increasing and decreasing economic prosperity consisting of four phases: expansion, recession, contraction and revival.
Buydown: Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
Buyer's remorse: Buyers of expensive items, like a home or automobile, sometimes regret their decision. They wonder if they paid too much or made the wrong selection. This fear of having made a serious mistake is referred to as "buyer's remorse."
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