Real estate defines and deals with the process of buying and selling property. To buy a home, the buyer must pay down payment or equity and close the deal by signing a sales contract or title insurance policy with a title company, usually a bank. Then, the property is sold to a licensed real estate buyer, called a property buyer.
To sell a house, the seller must make the buyer understand the terms of the sales contract and mortgage loan. The buyer then makes the payments in regular increments until the full amount has been paid.
The balance of the mortgage loan is known as the down payment. Most banks and other lending institutions set the interest rate for a mortgage. This rate is usually based on the prime rate, which is the rate applied to the funds available to the lending institution from various sources, including the Federal Reserve.
A mortgage loan is a written agreement between the buyer and the seller.
It is a legal contract that is recorded in a public record. This contract specifies the exact terms of the loan including the interest rate, down payment, time period, and closing costs. It is also necessary to set forth the responsibilities of the buyer and seller as far as any issues with the real property are concerned.
The third type of lien is the mortgage broker fee. This fee is charged by a mortgage broker, also known as a mortgage broker or mortgage lender, who is acting on behalf of the principal in the sale.
Usually, the mortgage broker is paid a commission, and in some states a fee is also imposed for each loan sold. The mortgage broker is required to calculate and estimate the cost of the loan, taking into account the prepayment penalty. These fees are recorded on a mortgage statement of the date of sale. They must be paid before the closing of title.
The fourth type of lien is the title insurance. This is an insurance policy that is required by the seller, to protect his title from any deterioration due to neglect or damage.
The title insurance covers the holder’s right to recover any damages that are due to the owner’s negligence, unless otherwise stated in the policy. In most states, the title insurance is a part of the real estate purchase and is separate from the closing fee.
Escrow is a specific fee that is paid by the buyer and seller, with the objective of receiving the funds deposited by the third party, by way of a written agreement between the buyer and seller.
This fee is typically paid monthly, quarterly, or annually. It is a portion of the down payment or purchase price agreed upon between the buyer and seller. The escrow agent or broker, who is paid from the escrow fee, shall hold the funds for the third party until the agreed upon amount has been received.
The fifth type of lien is the dry closing. A dry closing occurs when the mortgage contract has already been executed and the mortgage lender has already declined the offers by the buyer and the seller. Instead of holding a title insurance policy to protect the title, this occurs when there is no third party or mortgage lender involved.
There are times when sellers and buyers agree to a dry closing without holding title insurance. The seller signs the title confirmation, which states that title to the property will be transferred to the buyer upon acceptance of an offer. In most states, this is the final leg of the transaction and does not require title insurance.
The above real estate definitions are important to understand before entering into a mortgage transaction. These terms can differ from state to state and from agency to agency.
The Internet is a great resource to help understand these definitions. It is recommended that buyers and sellers to review their respective mortgage documents to verify their definitions prior to signing the document.