Hawaii Real Estate Buyer Terms

Helping you understand the unique Hawaii real estate market.

A

Annual Percentage Rate

A 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 Fee

This is a fee a mortgage broker or lender charges to cover processing costs for the loan application.

Appraisal

An 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.

Appreciation

An increase in the market value of a property due to home improvements made or changing market conditions. The opposite of depreciation.

Arbitration

A 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.

Asbestos

A 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 Value

The value placed on a property for the purpose of taxation.

Assessor

The public official that determines the value of properties for taxation.

Asset

A 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 Mortgage

A legal document that provides evidence that a mortgage ownership has been transferred from one person to another.

Assumable Mortgage

A 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 Underwriting

Where 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. 

B

Balloon Mortgage

A 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.

Bankruptcy

A 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 Income

Your gross income before taxes are deducted.

Bonafide

A term meaning “in good faith” or without fraud.

Bridge Loan

Short-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.”

Broker

An 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 Code

Local 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.

Buydown

When 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.

C

Cap

A limit beyond the interest rate of an Adjustable Rate Mortgage can go up or down at a specified adjustment point.

Cash-out Refinance

A 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 Eligibility

Verification by the VA that a veteran is eligible for a VA-guaranteed mortgage loan.

Chain of Title

A 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 Title

Ownership of property that is free of liens, defects or other legal encumbrances.

Closing

The 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 Costs

The 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 Date

The date agreed upon between the seller, buyer, real estate agents, escrow company and lender for the finalization of a real estate transaction.

Closing Statement

A summary of all costs fees and disbursements prepared for the close of a real estate transaction. Also known as the HUD 1 statement.

Co-borrower

Any borrower other than the first borrower whose name appears on the application and mortgage note.

Collateral

Any 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.

Commission

The 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 Letter

A 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 Areas

Those 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 COMPS

An abbreviation for “comparable properties” which are used as a comparison in determining the current value of a property.

Condominium

A 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.

Contingency

A condition that must be satisfied before a contract can be declared binding

Conventional Mortgage

Any mortgage not insured or guaranteed by the federal government or one of its agencies such as FHA or VA

Conversion Option

A 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-offer

An offer made in response to any other offer

Credit

The ability of a person to borrow money or pay for goods and services over time.

Credit History

Information 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 Score

A 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.

Creditor

A person who extends credit and to whom is owned money to repay that debt.

D

Debt

Money owed from one person or institution to another person or institution.

Debt-to-Income Ratio

The 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.

Deed

The legal document that transfers ownership or title to a property.

Deed of Trust

A 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.

Default

Failure to fulfill a legal obligation, such as the failure to pay a legal debt.

Delinquency

Failure 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).

Depreciation

A decline in value of a house due to lack of upkeep or changing market conditions. The opposite of appreciation.

Discount Point

A fee paid by the borrower at closing to reduce the interest rate. One discount point equals one percent of the loan amount.

Down Payment

A portion of the price of the home, usually between 3-20%, not borrowed and paid up front in cash.

Due-on-Sale Clause

A 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.

E

Earnest Money Deposit

A 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.

Easement

The right to use or access land owned by another.

Encroachment

The intrusion onto another’s property without right or permission.

Encumbrance

Any claim on a property such as a lien, mortgage or easement.

Equity

The 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.

Escrow

An 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 Analysis

The 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.

Eviction

The act of legally removing someone from real property.

Exclusive Right-to-Sell Listing

A 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 Listing

A 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.

F

Fair Market Value

The 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 Administration

An agency within the U.S. Department of Housing and Urban Development that insures mortgages and loans made by private lenders.

First Mortgage

A mortgage that is the primary lien against a property.

Fixed-period Adjustable Rate Mortgage

An 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 Mortgage

A mortgage with an interest rate that does not change during the entire term of the loan.

Flood Insurance

Insurance that compensates for physical property damage resulting from floor damage. It is required for properties in areas designated as flood zones.

Foreclosure

A 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.

Forfeiture

The loss of money, property, rights or privileges due to a breach of a legal obligation.

Fully Amortized Mortgage

A mortgage in which the monthly payments are designed to retire the obligation at the end of the mortgage term.

G

Gift Letter

A 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 Estimate

A 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 Mortgage

A 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)

H

Hazard Insurance

Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism or other covered hazards or natural disasters.

Home Equity Conversion Mortgage

Also 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 Inspection

A 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 Insurance

A 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 Warranty

Insurance provided by a seller that covers certain home repairs and fixtures for an initial period of time.

I

Income Property

Real estate developed or purchased to produce income, such as a rental unit.

Inflation

An increase in prices.

Initial Interest Rate

Also called the “start rate,” the original interest rate for an ARM.

Inquiry

A 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.

Installment

The regular payment a borrower agrees to make to a lender to retire a debt.

Installment Debt

A loan that is repaid in accordance with a schedule of payments for a specified time.

Interest

The cost you pay to borrow money, which is usually expressed as a percentage of the amount borrowed.

Interest Rate Ceiling

The maximum interest rate that can be charged on an ARM loan

Interest Rate Floor

The minimum interest rate that can be charged on an ARM loan.

J

Judgment Lien

A lien on the property of a debtor resulting from the decree of a court.

Jumbo Loan

A loan that exceeds the amount eligible for purchase of the loan by Fannie Mae or Freddie Mac. Also called a “non-conforming” loan.

Junior Mortgage

A loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage.

L

Late Charge

A penalty imposed by the lender when a borrowed fails to make a scheduled payment on time.

Lease-Purchase Option

An 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.

Liabilities

A person’s debts and other financial obligations.

Liability Insurance

Insurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party.

Lien

A 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 Asset

A cash asset or any other asset that is easily converted into cash.

Loan Origination

The 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 Rate

A written agreement guaranteeing a specific mortgage interest rate for a certain amount of time.

M

Margin

A percentage added to the index for an adjustable rate mortgage (ARM) to establish the interest rate on each adjustment date.

Market Value

The current value of your home based on what a purchaser would pay. An appraisal is sometimes used to determine market value.

Maturity Date

The date on which a mortgage loan is scheduled to be paid in full, as stated in the note.

Mortgage

A 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 Broker

A mortgage broker typically takes loan applications and may even process and close loans.

Mortgage Insurance

Insurance 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 Lender

The lender providing the funds for the mortgage. Lenders also manage the credit and financial information review, the property and the loan application through processing.

Mortgagee

The institution or individual to whom a mortgage is given: the lender.

Mortgagor

The 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.

N

Negative Amortization

An 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 Income

Your take-home pay after taxes – what you actually receive in your paycheck.

Net Worth

The value of a company or individual’s assets, including cash, less total liabilities.

Non-Liquid Asset

An asset that cannot be easily converted into cash.

Note

A written promise to pay a specified amount under agreed upon conditions.

Note Rate

The interest rat6e as stated on a mortgage note or other loan agreement.

O

Offer

A formal bid from the buyer to the seller to purchase a home

Open House

When 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 Balance

The total amount of principal owed on a mortgage before any payments are made.

Owner Financing

A transaction in which then property seller provides all or part of the financing for the buyer’s purchase of the property.

Owner-Occupied

A property that serves as the buyer’s primary residence.

P

Partial Payment

A payment that is less than the scheduled monthly payment on a mortgage loan.

Payment Change Date

The date when a new monthly payment on an adjustable rate mortgage take effect.

Personal Property

Any property not considered real property.

PITI

An acronym for the four primary components of a monthly mortgage payment: Principal, Interest, Taxes and Insurance.

Planned Unit Development

A 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.

Point

One percent of the amount of a mortgage loan. For example, on a $500,000 loan one point equals $5,000.

Power of Attorney

A 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-Approval

When 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 Letter

A 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-Qualification

A 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 Letter

A 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 Lending

Abusive 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.

Prepayment

Any amount paid to reduce the principal balance of a loan prior to its scheduled due date.

Prepayment Penalty

A 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.

Principal

The 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 Note

A written promise to repay a specified amount over a specified period of time.

Purchase and Sale Agreement

A 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 Mortgage

A mortgage loan that enables a borrower to acquire a property.

Q

Qualifying Guidelines

Criteria used to determine eligibility for loan.

Qualifying Ratios

Calculations 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.

R

Radon

A toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses.

Rate Cap

The limit on the amount an interest rate in an ARM can increase or decrease during an adjustment period.

Rate Lock

An agreement between a borrower and a lender to “lock-in” or guarantee an interest rate for a specific period of time.

Ratified Sales Contract

A 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 Professional

An 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 Act

A 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 Property

Land and anything permanently affixed to the land, including buildings, fences, trees and mineral deposits.

Recorder

The public official/agency that keeps records of real estate transactions for a geographic area.

Recording

The official filing of a lien or other legal documents in the appropriate public record.

Refinance

The act of getting a new mortgage with some or all of the proceeds used to pay off the prior mortgage.

Remaining Term

The original number of payments due on the loan minus the number of payments that have already been made.

Repayment Plan

An arrangement by which a borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Replacement Cost

The cost to replace damaged personal property without a deduction for depreciation.

Rescission

The 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 Debt

A 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 Refusal

A 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.

S

Sale-Leaseback

A transaction in which the buyer leases the property back to the seller for a specified period of time.

Second Mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Secondary Mortgage Market

The market in which mortgage loan and mortgage –backed securities are bought and sold.

Secured Loan

A loan that is backed by property such as a house, car jewelry, etc.

Security

The property that will be given or pledged as collateral for a loan.

Seller Take-Back

An agreement in which the seller of a property provides financing to the buyer for the home purchase.

Servicer

A 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 Properties

One 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 Loan

A second mortgage whose payment is forgiven or deferred until resale of the property.

Subordinate Financing

Any mortgage or other lien that has lower priority than the first mortgage.

Survey

A 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 Equity

A borrower’s contribution to the down payment for the purchase of the property in the form of labor or services instead of cash.

T

Taxes and Insurance

Funds 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 Inspection

An 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 Origination

A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund or package a mortgage loan.

Title

The right to and ownership of property. A title or deed is sometimes used a proof of ownership.

Title Insurance

Insurance that protects lenders and homeowners against legal problems with the title.

Title Search

A 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 Equity

Real estate or assets given to the seller as part of the down payment for the property.

Transfer Tax

State or local tax payable when title to property passes from one owner to another.

Truth-In-Lending Act

A 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.

U

Underwriting

The process used to determine loan approval. It involves evaluating the property and both

Uniform Residential Loan Application

A 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 Loan

A loan that is not backed by collateral.

V

Veteran Affairs

A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance and guaranteed home loans.

VA Guaranteed Loan

A mortgage loan that is guaranteed by the VA. 

W

Walkthrough

A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing.

Warranties

Written guarantees of the quality of a product and the promise to repair or replace defective parts free of charge.

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