Hawaii Real Estate Buyer TermsHelping you understand the unique Hawaii real estate market.AAnnual Percentage RateA way to express the true costs of a mortgage loan as an annual rate. The Annual Percentage Rate (APR) calculation takes into account the interest rate, points, broker fees and certain other charges a borrower is required to pay. Application FeeThis is a fee a mortgage broker or lender charges to cover processing costs for the loan application. AppraisalAn estimation of value of a property based on an analysis conducted by a licensed professional appraiser. This analysis includes examples of sales of similar properties. A licensed professional that does the property analysis to determine estimated value and prepares a report for the customer. AppreciationAn increase in the market value of a property due to home improvements made or changing market conditions. The opposite of depreciation. ArbitrationA process of dispute resolution where the parties appear before a fair and neutral third party, state their respective cases and agree in advance to accept the decision of the arbitrator. This is called a binding arbitration. AsbestosA material once used for insulation and fireproofing in homes that was found to be linked to certain lung diseases. The material, as a result, is no longer used in construction and must be disclosed if present in an older home on the market for sale. Assessed ValueThe value placed on a property for the purpose of taxation. AssessorThe public official that determines the value of properties for taxation. AssetA thing of monetary value that is owned by an individual or a company. Assets include cash, personal property, stocks, mutual funds and real property Assignment of MortgageA legal document that provides evidence that a mortgage ownership has been transferred from one person to another. Assumable MortgageA mortgage that can be assumed by the new buyer of a property. However, even after the new owner takes over, or assumes, the mortgage the original borrower may remain liable unless released by the lender. Automated UnderwritingWhere loan approval is conducted with a technological process to streamline processing of applications. The process may recommend approval or that the application be manually underwritten to allow review of certain conditions or data. BBalloon MortgageA mortgage where monthly payments are based upon a 30-year fixed amortization schedule, with the unpaid balance due in a lump sum at the end of a specific period (usually five to seven years). This type of mortgage may also contain a clause allowing it to be “reset” at current market and to have the loan period extended if certain conditions are met. BankruptcyA legal action taken to declare your inability to pay your debts. Filing bankruptcy can limit your ability to secure credit or borrow money in the future. Before-tax IncomeYour gross income before taxes are deducted. BonafideA term meaning “in good faith” or without fraud. Bridge LoanShort-term financing using your current home as collateral that allows the proceeds to be used to fund construction or closing of your new home prior to the current home being sold. Also known as a “swing loan.” BrokerAn individual or firm that acts as an agent between a seller and buyer of goods or services, such as a mortgage broker or real estate broker. Building CodeLocal regulations that dictate the standards of construction, occupancy and maintenance of a building. The codes are designed to provide for the safety, health and welfare of the general public. BuydownWhen a developer or another third party provides a subsidy that is used to lower the initial interest rate for a specified period of time in the early years of the loan. CCapA limit beyond the interest rate of an Adjustable Rate Mortgage can go up or down at a specified adjustment point. Cash-out RefinanceA refinance loan in which the borrower receives any funds over and above the amount needed to repay the existing mortgage, closing costs, points and any subordinate items. Certificate of EligibilityVerification by the VA that a veteran is eligible for a VA-guaranteed mortgage loan. Chain of TitleA paper trail of property ownership for a parcel of real property, starting with the earliest existing document and ending with the most recent certificate of title. Clear TitleOwnership of property that is free of liens, defects or other legal encumbrances. ClosingThe process of completing a financial transaction. For a mortgage loan, this process includes signing mortgage documents, disbursing funds, transferring title and recording the transaction. Closing CostsThe upfront fees charged in connection with a mortgage loan transaction. These fees generally include, but are not limited to a loan origination fee, title fees and insurance, delivery charges, recordation fees and any prepaid items such as escrow deposits for taxes and insurance and homeowners association dues. Closing DateThe date agreed upon between the seller, buyer, real estate agents, escrow company and lender for the finalization of a real estate transaction. Closing StatementA summary of all costs fees and disbursements prepared for the close of a real estate transaction. Also known as the HUD 1 statement. Co-borrowerAny borrower other than the first borrower whose name appears on the application and mortgage note. CollateralAny asset you pledge as security for a loan. The borrower risks losing the asset of the loan is not paid according to the terms of the loan agreement. In the case of a mortgage, the real property is the collateral for the loan. CommissionThe fee charged for services performed, usually based on a percentage of the price of the items sold, such as the commission a real estate professional earns on the sale of a home. Commitment LetterA letter provided by your lender that binds them to providing you a mortgage loan, which usually states the amount of the mortgage, the interest rate and the repayment terms. Common AreasThose portions of a building, land or improvements owned by a planned unit development (PUD) or condominium association that are used by all the owners. The common owners share the expenses of their operation and maintenance. Common areas can include community swimming pools, tennis courts and other recreation facilities as well as common building corridors, parking areas and private streets. Comparables or COMPSAn abbreviation for “comparable properties” which are used as a comparison in determining the current value of a property. CondominiumA unit in a multi-unit building. A condominium owner owns the unit itself and has a right, with the other owners, to use the common areas, but does not own the common elements such as the exterior walls, floors and ceilings or the structural systems outside of the unit. The condominium association owns all the common area and imposes monthly fees to cover building maintenance and upkeep, landscaping, taxes and insurance and reserves for repairs, replacement and improvements. ContingencyA condition that must be satisfied before a contract can be declared binding Conventional MortgageAny mortgage not insured or guaranteed by the federal government or one of its agencies such as FHA or VA Conversion OptionA clause in an Adjustable Rate Mortgage which allows the bower to covert the loan to a fixed-rate mortgage under specified conditions. Cost of Funds Index (COFI)An index that is used to determine interest rate changes for certain ARM loans. Counter-offerAn offer made in response to any other offer CreditThe ability of a person to borrow money or pay for goods and services over time. Credit HistoryInformation in the files of a credit bureau that lists a consumer’s debt and a history of whether or not the debts were paid back on time or “as agreed.” Credit ScoreA numerical value that ranks a borrower’s credit risk at a given point in time based on a statistical evaluation of information in the individual’s credit history that have proven to be predictive of loan performance. CreditorA person who extends credit and to whom is owned money to repay that debt. DDebtMoney owed from one person or institution to another person or institution. Debt-to-Income RatioThe percentage of gross monthly income that goes toward paying monthly housing expense, alimony, child support, car payments and other installment debts and payments on revolving or open-ended accounts such as credit cards. DeedThe legal document that transfers ownership or title to a property. Deed of TrustA legal document in which the borrower transfers the title to a third party (trustee) to hold as security for the lender. This is not used in Hawaii. DefaultFailure to fulfill a legal obligation, such as the failure to pay a legal debt. DelinquencyFailure to make a payment when it is due. Also the condition of a loan when a scheduled payment hasn’t been received by the due date (generally when the payment is 30 or more days past due). DepreciationA decline in value of a house due to lack of upkeep or changing market conditions. The opposite of appreciation. Discount PointA fee paid by the borrower at closing to reduce the interest rate. One discount point equals one percent of the loan amount. Down PaymentA portion of the price of the home, usually between 3-20%, not borrowed and paid up front in cash. Due-on-Sale ClauseA provision in a mortgage that allows the lender to demand repayment of the outstanding balance in full if the property securing the mortgage is sold. EEarnest Money DepositA deposit which demonstrates the buyer is committed to purchasing the home. This deposit will usually not be refunded after the seller accepts the offer, unless one of the sales contract contingencies is not fulfilled. EasementThe right to use or access land owned by another. EncroachmentThe intrusion onto another’s property without right or permission. EncumbranceAny claim on a property such as a lien, mortgage or easement. EquityThe value in your home above the total amount of liens against the home. For example, if your home is valued at $550,000 and your mortgage balance is $450,000 you have $100,000 in equity. EscrowAn item of value, money or documents deposited with a third party to be delivered upon fulfillment of a condition. For example, an escrow or impound account can be set up for a borrower to collect funds in advance used to pay taxes or insurance. Escrow AnalysisThe accounting a mortgage servicer performs to determine the appropriate balances for the escrow account, compute the borrower’s monthly escrow payments and determine whether any shortages, surpluses or deficiencies exist in the account. EvictionThe act of legally removing someone from real property. Exclusive Right-to-Sell ListingA listing agreement where the seller appoints a real estate broker (known as the listing broker) as exclusive agent to sell the property on the owner’s stated terms. The seller also then agrees to pay the listing broker a commission when the property is sold, regardless of whether the buyer is found by the broker, the owner or another broker. Exclusive Agency ListingA listing agreement where the seller does not have to pay the listing broker a full commission when the property is sold if, for example, the property owner finds the buyer instead of the broker. FFair Market ValueThe price at which a property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to sell. Federal Housing AdministrationAn agency within the U.S. Department of Housing and Urban Development that insures mortgages and loans made by private lenders. First MortgageA mortgage that is the primary lien against a property. Fixed-period Adjustable Rate MortgageAn ARM that offers a fixed-rate for an initial period, typically from three to ten years, and then adjust every six months, annually or at another specified period for the remainder of the term. Fixed-Rate MortgageA mortgage with an interest rate that does not change during the entire term of the loan. Flood InsuranceInsurance that compensates for physical property damage resulting from floor damage. It is required for properties in areas designated as flood zones. ForeclosureA legal action that ends all ownership rights in a home when the homebuyer fails to make the mortgage payments or is otherwise in default under the mortgage terms. ForfeitureThe loss of money, property, rights or privileges due to a breach of a legal obligation. Fully Amortized MortgageA mortgage in which the monthly payments are designed to retire the obligation at the end of the mortgage term. GGift LetterA letter from a family member that verifies a certain amount of money has been given to you as a gift and that you will not be required to repay the amount. Some mortgages allow a gift to be used as part of the down payment. Good-Faith EstimateA form mandated by the Real Estate Settlement Procedures Act (RESPA) that discloses an estimate of the amount or range of changes for specific settlement services the borrower is likely to incur in connection with the property purchase. Government MortgageA mortgage insured or guaranteed by the federal government or one of its agencies such as the FHA and VA. Gross Monthly Income(see Before-tax Income) HHazard InsuranceInsurance coverage that compensates for physical damage to a property from fire, wind, vandalism or other covered hazards or natural disasters. Home Equity Conversion MortgageAlso called a “Reverse Mortgage,” a mortgage developed and insured by FHA that enables older homeowners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs while they are still able to reside in their home. Home Equity Line of Credit (HELOC)A type of revolving loan that enables a homeowner to receive multiple advances of the loan proceeds up to an amount that represents a specified percentage of the borrower’s equity in the property. Home InspectionA professional inspection of a home to determine the condition of the property. The inspection usually includes an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and status of pest infestation. Homeowner’s InsuranceA policy that protects the owner and the lender from structural damage to the house from fire or floor, liability from injury to a visitor or damage to your personal property such as furniture, clothing or appliances. Homeowner’s WarrantyInsurance provided by a seller that covers certain home repairs and fixtures for an initial period of time. IIncome PropertyReal estate developed or purchased to produce income, such as a rental unit. InflationAn increase in prices. Initial Interest RateAlso called the “start rate,” the original interest rate for an ARM. InquiryA request by a lender or other business for a copy of your credit report. You need to know that too many inquiries over a prolonged period can damage your credit score. InstallmentThe regular payment a borrower agrees to make to a lender to retire a debt. Installment DebtA loan that is repaid in accordance with a schedule of payments for a specified time. InterestThe cost you pay to borrow money, which is usually expressed as a percentage of the amount borrowed. Interest Rate CeilingThe maximum interest rate that can be charged on an ARM loan Interest Rate FloorThe minimum interest rate that can be charged on an ARM loan. JJudgment LienA lien on the property of a debtor resulting from the decree of a court. Jumbo LoanA loan that exceeds the amount eligible for purchase of the loan by Fannie Mae or Freddie Mac. Also called a “non-conforming” loan. Junior MortgageA loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage. LLate ChargeA penalty imposed by the lender when a borrowed fails to make a scheduled payment on time. Lease-Purchase OptionAn option sometimes used by sellers to rent a property to a consumer, who is then given the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs. LiabilitiesA person’s debts and other financial obligations. Liability InsuranceInsurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party. LienA claim or charge on property for payment of a debt. With a mortgage, the lender has the right to take the title to your property if the mortgage payments are not made. Liquid AssetA cash asset or any other asset that is easily converted into cash. Loan OriginationThe process by which a loan is made, which may include taking a loan application, processing and underwriting the application and closing the loan. Loan-To-Value Ratio (LTV)The relationship between the loan amount and the value of the property (the lower of appraised value or sales price) expressed as a percentage of then property’s value. For example, a $1,000,000 home with an $800,000 mortgage has an LTV of 80%. Lock-In RateA written agreement guaranteeing a specific mortgage interest rate for a certain amount of time. MMarginA percentage added to the index for an adjustable rate mortgage (ARM) to establish the interest rate on each adjustment date. Market ValueThe current value of your home based on what a purchaser would pay. An appraisal is sometimes used to determine market value. Maturity DateThe date on which a mortgage loan is scheduled to be paid in full, as stated in the note. MortgageA loan using your home as collateral. In some states the term mortgage is also used to describe the document you sign to grant the lender a lien on your property. Mortgage BrokerA mortgage broker typically takes loan applications and may even process and close loans. Mortgage InsuranceInsurance that protects lenders against losses caused by a borrower’s default on a mortgage loan. Private Mortgage Insurance (PMI) is typically required when a borrower has less than a 20% down payment. Mortgage LenderThe lender providing the funds for the mortgage. Lenders also manage the credit and financial information review, the property and the loan application through processing. MortgageeThe institution or individual to whom a mortgage is given: the lender. MortgagorThe owner of the real estate who pledges the property as security for the repayment of the debt; the borrower. Multiple Listing Service (MLS)A clearinghouse through which member real estate brokerage firms regularly and systematically exchange information on listings of real estate properties and share commissions with members who locate buyers. The MLS for an area is usually operated by the local, private real estate association as a joint venture among its members designed to foster real estate brokerage services. NNegative AmortizationAn increase in the balance of the loan caused by adding unpaid interest to the loan balance. This occurs when the payment does not cover the interest due. Net Monthly IncomeYour take-home pay after taxes – what you actually receive in your paycheck. Net WorthThe value of a company or individual’s assets, including cash, less total liabilities. Non-Liquid AssetAn asset that cannot be easily converted into cash. NoteA written promise to pay a specified amount under agreed upon conditions. Note RateThe interest rat6e as stated on a mortgage note or other loan agreement. OOfferA formal bid from the buyer to the seller to purchase a home Open HouseWhen the seller’s home is opened to the public by the listing real estate agent. It is not attendees should tell then listing agent if they have professional real estate representation. Original Principal BalanceThe total amount of principal owed on a mortgage before any payments are made. Owner FinancingA transaction in which then property seller provides all or part of the financing for the buyer’s purchase of the property. Owner-OccupiedA property that serves as the buyer’s primary residence. PPartial PaymentA payment that is less than the scheduled monthly payment on a mortgage loan. Payment Change DateThe date when a new monthly payment on an adjustable rate mortgage take effect. Personal PropertyAny property not considered real property. PITIAn acronym for the four primary components of a monthly mortgage payment: Principal, Interest, Taxes and Insurance. Planned Unit DevelopmentA real estate project in which individuals hold title to a residential lot and home, but where the common facilities are owned and maintained by a homeowners association for the benefit and use of each individual PUD unit owner. PointOne percent of the amount of a mortgage loan. For example, on a $500,000 loan one point equals $5,000. Power of AttorneyA legal document that authorizes another person to act on one’s behalf. The power of attorney can be limited to certain acts and/or certain periods of time. Pre-ApprovalWhen a lender provides a borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This pre-approval is usually issued after a review of the applicant’s credit history and may involve the review and verification of income and assets needed to close. Pre-Approval LetterA letter from the mortgage lender indicating that you qualify for a mortgage of a specific amount. Helpful in showing a seller that you are a serious buyer. Pre-QualificationA step before pre-approval where the lender makes a preliminary assessment of the amount it will lend a potential home buyer. This is usually done prior to loan application. Pre-Qualification LetterA letter from a mortgage lender that says a buyer is pre-qualified for a loan buy does not commit the lender to a specific mortgage loan amount. Predatory LendingAbusive lending practices that can include making mortgage loans to people who do not have the income to repay them or the practice of repeatedly refinancing loans, charging high fees each time and “packing” credit insurance onto a loan. PrepaymentAny amount paid to reduce the principal balance of a loan prior to its scheduled due date. Prepayment PenaltyA fee a borrower may be required to pay to the lender in the early years of the mortgage loan as compensation for repaying the loan in full prior to the due date or prepaying a substantial amount to reduce the unpaid principle balance and reduce the amount of interest paid to the lender. PrincipalThe amount of money borrowed or the amount of the loan that has not yet been repaid to the lender. Principal does not include the interest the lender will charge to borrow the money. Private Mortgage Insurance (PMI)Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower. Promissory NoteA written promise to repay a specified amount over a specified period of time. Purchase and Sale AgreementA legal document that details the price and conditions for a transaction. If prepared for the sale of a residential property it usually includes information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid and any special contingencies. Purchase Money MortgageA mortgage loan that enables a borrower to acquire a property. QQualifying GuidelinesCriteria used to determine eligibility for loan. Qualifying RatiosCalculations that are used in determining the loan amount that a borrower qualified for, typically a comparison of the borrower’s total monthly income to monthly debt payments and other recurring monthly obligations. RRadonA toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses. Rate CapThe limit on the amount an interest rate in an ARM can increase or decrease during an adjustment period. Rate LockAn agreement between a borrower and a lender to “lock-in” or guarantee an interest rate for a specific period of time. Ratified Sales ContractA contract that shows both you and the seller of a property have agreed to your offer. The contract may also contain contingencies that must be satisfied before the contract becomes binding, including being able to secure a mortgage loan or securing an acceptable home inspection. Real Estate ProfessionalAn individual who provides services in buying and selling homes. The real estate professional is paid a percentage of the sales price of the home. Unless you are specifically contracted with a buyer’s agent, the real estate professional represents the interest of the seller. RESPA – Real Estate Settlement Procedures ActA federal law that mandates lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement or closing. This law also prohibits kickbacks and unearned fees in the mortgage loan business as an additional protection to consumers. Real PropertyLand and anything permanently affixed to the land, including buildings, fences, trees and mineral deposits. RecorderThe public official/agency that keeps records of real estate transactions for a geographic area. RecordingThe official filing of a lien or other legal documents in the appropriate public record. RefinanceThe act of getting a new mortgage with some or all of the proceeds used to pay off the prior mortgage. Remaining TermThe original number of payments due on the loan minus the number of payments that have already been made. Repayment PlanAn arrangement by which a borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments. Replacement CostThe cost to replace damaged personal property without a deduction for depreciation. RescissionThe cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers have a right to cancel certain mortgage refinance and home equity transactions within three business days after closing, or for up to three years in certain instances. Revolving DebtA credit plan extended to a borrower in which 1) the creditor contemplates repeated transactions; 2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and 3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extend that any outstanding balance is repaid. Right of First RefusalA provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before it is offered for sale or lease to others. SSale-LeasebackA transaction in which the buyer leases the property back to the seller for a specified period of time. Second MortgageA mortgage that has a lien position subordinate to the first mortgage. Secondary Mortgage MarketThe market in which mortgage loan and mortgage –backed securities are bought and sold. Secured LoanA loan that is backed by property such as a house, car jewelry, etc. SecurityThe property that will be given or pledged as collateral for a loan. Seller Take-BackAn agreement in which the seller of a property provides financing to the buyer for the home purchase. ServicerA firm that provides servicing functions, including collecting mortgage payments, paying the borrower’s taxes and insurance and generally managing buyer escrow accounts. Settlement(See Closing) Single-Family PropertiesOne to four-unit properties including detached homes, townhouses, condominiums, cooperatives and manufactured homes attached to a permanent foundation and classified as real property under applicable state law. Soft Second LoanA second mortgage whose payment is forgiven or deferred until resale of the property. Subordinate FinancingAny mortgage or other lien that has lower priority than the first mortgage. SurveyA precise measurement of a property by a licensed surveyor that shows the legal boundaries of a property and the dimensions and locations of improvements. Sweat EquityA borrower’s contribution to the down payment for the purchase of the property in the form of labor or services instead of cash. TTaxes and InsuranceFunds collected as part of a borrower’s monthly payment that are held in escrow to make future tax and insurance payments on the borrower’s behalf. Termite InspectionAn inspection to determine whether a property has termite infestation or termite damage. In Hawaii a home must be inspected for termites before it can be sold. Third-Party OriginationA process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund or package a mortgage loan. TitleThe right to and ownership of property. A title or deed is sometimes used a proof of ownership. Title InsuranceInsurance that protects lenders and homeowners against legal problems with the title. Title SearchA check of public records to ensure the seller is the legal owner of the property and to identify any liens or claims against the title. Trade EquityReal estate or assets given to the seller as part of the down payment for the property. Transfer TaxState or local tax payable when title to property passes from one owner to another. Truth-In-Lending ActA federal law that requires disclosure of a truth-in-lending statement for consumer credit. The statement includes a summary of the total cost of the credit, such as the annual percentage rate (APR) and other specifics of the credit. UUnderwritingThe process used to determine loan approval. It involves evaluating the property and both Uniform Residential Loan ApplicationA standard mortgage application you will have to complete. The form requests details about your income, assets, liabilities and a description of the property you plan to buy, among other things. Unsecured LoanA loan that is not backed by collateral. VVeteran AffairsA federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance and guaranteed home loans. VA Guaranteed LoanA mortgage loan that is guaranteed by the VA. WWalkthroughA common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing. WarrantiesWritten guarantees of the quality of a product and the promise to repair or replace defective parts free of charge. |