Arizona Real Estate Glossary of Terms
Scottsdale Arizona Realtor Randi Christel

Arizona Real Estate Glossary of Terms

These definitions are to acquaint the home buyer/seller with terms commonly used In real estate transactions. These terms are intended to be general and brief and are not complete and wholly accurate when applied to all possible uses of the term. Please contact me for more information or questions regarding these terms.

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the Index.

Adjustment Period: The length of time between interest rate changes on an ARM. For example; a loan with an adjustment period of one year is called a one year ARM, which means that the interest rate can change once a year.

Amendment: A change; either to alter, add to, or correct part of an agreement without changing the principal idea or essence.

Amortization: Repayment of a loan in equal installments of principal and interest, rather than interest-only payments.

Annual Percentage Rate(APR): The total finance charge (interest, loan fees, points expressed as percentage of the loan amount).

Appraisal: An estimate of value of property resulting from analysis of facts about the property; an opinion of value.

Assumption of Mortgage: A buyer's agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to assume the loan.

Beneficiary: Lender.

Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

CC&R's: Covenants, Conditions, and Restrictions. A document that controls the use, requirements and restrictions of a property.

Certificate of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed loan.

Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Comparable Sales: Sales that have similar characteristics as the subject property, used for analysis in the appraisal. Commonly called “comps.”

Contingency Clause: A provision in some ARM's to a fixed rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgages. This conversion feature may cost extra.

Covenants, Conditions, Restrictions: Limitations in the deed to a property that dictate certain uses that may or may not be made of the property.

Deed of Trust: An instrument used in many states in place of a mortgage.

Due on Sale Clause: An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership

Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.

Easement: A right, privilege or interest limited to a specific purpose that one party has in the land of another.

Federal National Mortgage Association: Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insure by FHA or guaranteed by VA, as well as conventional home mortgages.

Fee Simple: An estate in which the owner has unrestricted power to dispose of the property as he wishes including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

Graduated Payment Mortgage: A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

Hazard Insurance: Real estate insurance protecting against fire, some natural causes, vandalism, etc., depending upon the policy. Buyer often adds liability insurance and extended-coverage for personal property.

Home Inspection Report: A qualified inspector's report on a property's overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Homestead Exemption: Automatic in Arizona, it allows any resident of Arizona, 18 years of age or older, to exempt from attachment, execution or forced sale $100,000 of equity in a single dwelling unit. Exceptions include: (1) process and sale of a consensual lien, i.e. where a deed of trust or equity loan is foreclosed; (2) a forced sale resulting from a mechanic’s lien; and (3) any equity beyond the $100,000. (You should consult an attorney to determine if this exemption offers you protection in the event of an attachment, execution, or forced sale.)

Home Warranty Plan: Protection against failure of mechanical systems with the property. Usually includes plumbing, electrical, heating systems and installed appliances.

Impounds: A trust type of account established by lender for the accumulation of borrower’s funds to meet periodic payments of taxes, mortgage insurance premiums and/or future insurance policy premiums, required to protect their security.

Index: A measure of interest rate changes used to determine changes in a ARM's interest rate over the term of the loan.

Joint Tenancy: An equal, undivided ownership of property by two or more persons. Upon death of any owner, the survivors take the decedent's interest on the property.

Legal Description: A description of land recognized by law; based on government surveys, spelling out the exact boundaries of the entire piece of land. It should so thoroughly identify a parcel of land that it cannot be confused with any other.

Lien: A legal hold or claim on property as security for a debt or charge.

Loan Commitment: A written promise to make a loan for a specified amount on specific terms.

Loan to Value Ratio: The relationship between the amount of the appraised value of the property, expresses as a percentage of the appraised value.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Negative Amortization: Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn't covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren't high enough to cover the interest.

Origination Fee: A fee or charge for establishing a new loan.

PITI: Principal, interest, taxes and insurance.

Point: An amount equal to 1% of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

Power of Attorney: A written Instrument whereby a principal gives authority to an agent. The agent acting under such a grant is sometimes called an “Attorney-in-Fact”

Prepayment penalty: A fee charged to a mortgagor who pays a loan before it is due.

Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under states terms and conditions. Also called a sales contract, earnest money contract or agreement for sale.

Quitclaim Deed: A deed operating as a release, intending 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 by the grantor.

Realtor: A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors.

Recording: Filing documents affecting real property with the County Recorder as a mailer of public record.

Tenancy in Common: A type of joint ownership of property by two or more persons with no right of survivorship.

Title Insurance Policy: A policy that protects the purchases, mor tgagee or other party against losses.

VA Loan: A loan that is guaranteed by the Veterans Administration and made by a private lender.

Warranty Deed: A real estate-oriented document used to convey fee title to real property from the grantor (usually the Seller) to the grantee (usually the Buyer).

The above information was provided all or in part courtesy of Capital Title Agency.