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Acceleration
The
right of the mortgagee (lender) to demand the immediate repayment
of the mortgage loan balance upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale Clause.
Adjustable
rate mortgage (ARM)
Is
a mortgage in which the interest rate is adjusted periodically based
on a preselected index. Also sometimes known as the re-negotiable
rate mortgage, the variable rate mortgage or the Canadian rollover
mortgage.
Adjustment
interval
On
an adjustable rate mortgage, the time between changes in the interest
rate and/or monthly payment, typically one, three or five years,
depending on the index.
Amortization
Means
loan payment by equal periodic payment calculated to pay off the
debt at the end of a fixed period, including accrued interest on
the outstanding balance.
Annual
percentage rate (A.P.R.)
Is
a interest rate reflecting the cost of a mortgage as a yearly rate.
This rate is likely to be higher than the stated note rate or advertised
rate on the mortgage, because it takes into account point and other
credit cost. The APR allows home buyers to compare different types
of mortgages based on the annual cost for each loan.
Appraisal
An
estimate of the value of property, made by a qualified professional
called an "appraiser".
Assessment
A
local tax levied against a property for a specific purpose, such
as a sewer or street lights.
Assumption
The
agreement between buyer and seller where the buyer takes over the
payments on an existing mortgage from the seller. Assuming a loan
can usually save the buyer money since this is an existing mortgage
debt, unlike a new mortgage where closing cost and new, probably
higher, market-rate interest charges will apply.
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Balloon
(payment) mortgage
Usually
a short-term fixed-rate loan which involves small payments for a
certain period of time and one large payment for the remaining amount
of the principal at a time specified in the contract.
Blanket
Mortgage
A
mortgage covering at least two pieces of real estate as security
for the same mortgage.
Borrower
(Mortgagor)
One
who applies for and receives a loan in the form of a mortgage with
the intention of repaying the loan in full.
Broker
An
individual in the business of assisting in arranging funding or
negotiating contracts for a client buy who does not loan the money
himself. Brokers usually charge a fee or receive a commission for
their services.
Buy-down
When
the lender and/or the home builder subsidized the mortgage by lowering
the interest rate during the first few years of the loan. While
the payments are initially low, they will increase when the subsidy
expires.
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Cash
Flow
The
amount of cash derived over a certain period of time from an income-producing
property. The cash flow should be large enough to pay the expenses
of the income producing property (mortgage payment, maintenance,
utilities, etc).
Caps
(interest)
Consumer
safeguards which limit the amount the interest rate on an adjustable
rate mortgage may change per year and/or the life of the loan.
Caps
(payment)
Consumer
safeguards which limit the amount monthly payments on an adjustable
rate mortgage may change
Certificate
of Eligibility
The
document given to qualified veterans which entitles them to VA guaranteed
loans for homes, business, and mobile homes. Certificates of eligibility
may be obtained by sending DD-214 (Separation Paper) to the local
VA office with VA form 1880 (request for Certificate of Eligibility).
Certificate
of Reasonable Value (CRV)
An
appraisal issued by the Veterans Administration showing the property's
current market value
Certificate
of Veteran Status
The
document given to veterans or reservists who have served 90 days
of continuous active duty (including training time) It may be obtained
by sending DD 214 to the local VA office with form 26-8261a (request
for certificate of veteran status). This document enables veterans
to obtain lower down payments on certain FHA insured loans.
Closing
The
meeting between the buyer, seller and lender or their agents where
the property and funds legally change hands. Also called settlement.
Closing costs usually include an origination fee, discount points,
appraisal fee, title search and insurance, survey, taxes, deed recording
fee, credit report charge and other costs assessed at settlement.
The cost of closing usually are about 3 percent to 6 percent of
the mortgage amount.
Commitment
A
promise by a lender to make a loan on specific terms or conditions
to a borrower or builder. A promise by an investor to purchase mortgages
from a lender with specific terms or conditions. An agreement, often
in writing, between a lender and a borrower to loan money at a future
date subject to the completion of paper work or compliance with
stated conditions.
Construction
loan
A
short term interim loan to pay for the construction of buildings
or homes. These are usually designed to provide periodic disbursements
to the builder as he progresses.
Contract
sale or deed
A
contract between purchaser and a seller of real estate to convey
title after certain conditions have been met. It is a form of installment
sale.
Conventional
loan
A
mortgage not insured by FHA or guaranteed by the VA.
Credit
Report
A
report documenting the credit history and current status of a borrower's
credit standing.
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Debt-to-Income
Ratio
The
ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by his
or her gross monthly income. See housing expenses-to-income ratio.
Deed
of trust
In
many states, this document is used in place of a mortgage to secure
the payment of a note.
Default
Failure
to meet legal obligations in a contract, specifically, failure to
make the monthly payments on a mortgage.
Deferred
interest
When
a mortgage is written with a monthly payment that is less than required
to satisfy the note rate, the unpaid interest is deferred by adding
it to the loan balance. See negative amortization.
Delinquency
Failure
to make payments on time. This can lead to foreclosure.
Department
of Veterans Affairs (VA)
An
independent agency of the federal government which guarantees long-term,
low-or no-down payment mortgages to eligible veterans.
Discount
Point
See
Point.
Down
Payment
Money
paid to make up the difference between the purchase price and the
mortgage amount.
Due-on-Sale-Clause
A
provision in a mortgage or deed of trust that allows the lender
to demand immediate payment of the balance of the mortgage if the
mortgage holder sells the home.
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Earnest
Money
Money
given by a buyer to a seller as part of the purchase price to bind
a transaction or assure payment.
Entitlement
The
VA home loan benefit is called entitlement. Entitlement for a VA
guaranteed home loan. This is also known as eligibility.
Equal
Credit Opportunity Act (ECOA)
Is
a federal law that requires lenders and other creditors to make
credit equally available without discrimination based on race, color,
religion, national origin, age, sex, marital status or receipt of
income from public assistance programs.
Equity
The
difference between the fair market value and current indebtedness,
also referred to as the owner's interest. The value an owner has
in real estate over and above the obligation against the property.
Escrow
An
account held by the lender into which the home buyer pays money
for tax or insurance payments. Also earnest deposits held pending
loan closing.
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Fannie
Mae
See
Federal National Mortgage Association.
Farmers
Home Administration (FmHA)
Provides
financing to farmers and other qualified borrowers who are unable
to obtain loans elsewhere.
Federal
Home Loan Bank Board (FHLBB)
The
former namefor the regulatory and supervisory agency forfederally
chartered savings institutions. Agency is now called the Office
of Thrift Supervision
Federal
Home Loan Mortgage Corporation (FHLMC) also called "Freddie
Mac"
Is
a quasi-governmental agency that purchases conventional mortgage
from insured depository institutions and HUD-approved mortgage bankers.
Federal
Housing Administration (FHA)
A
division of the Department of Housing and Urban Development. Its
main activity is the insuring of residential mortgage loans made
by private lenders. FHA also sets standards for underwriting mortgages
Federal
National Mortgage Association (FNMA) also know as "Fannie Mae"
A
tax-paying corporation created by Congress that purchases and sells
conventional residential mortgages as well as those insured by FHA
or guaranteed by VA. This institution, which provides funds for
one in seven mortgages, makes mortgage money more available and
more affordable.
FHA
loan
A
loan insured by the Federal Housing Administration open to all qualified
home purchasers. While there are limits to the size of FHA loans
($155,250 as of 1/1/96), they are generous enough to handle moderately-priced
homes almost anywhere in the country.
FHA
mortgage insurance
Requires
a fee (up to 2.25 percent of the loan amount) paid at closing to
insure the loan with FHA. In addition, FHA mortgage insurance requires
an annual fee of up to 0.5 percent of the current loan amount, paid
in monthly installments. The lower the down payment, the more years
the fee must be paid.
FHLMC
The
Federal Home Loan Mortgage Corporation provides a secondary market
for savings and loans by purchasing their conventional loans. Also
known as "Freddie Mac."
Firm
Commitment
A
promise by FHA to insure a mortgage loan for a specified property
and borrower. A promise from a lender to make a mortgage loan.
Fixed
Rate Mortgage
The
mortgage interest rate will remain the same on these mortgages throughout
the term of the mortgage for the original borrower.
FNMA
The
Federal National Mortgage Association is a secondary mortgage institution
which is the largest single holder of home mortgages in the United
States. FNMA buys VA, FHA, and conventional mortgages from primary
lenders. Also known as "Fannie Mae."
Foreclosure
A
legal process by which the lender or the seller forces a sale of
a mortgaged property because the borrower has not met the terms
of the mortgage. Also known as a repossession of property.
Freddie
Mac
See
Federal Home Loan Mortgage Corporation.
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Ginnie
Mae
See
Government National Mortgage Association.
Good
Faith Estimate
Written
estimate of the settlement costs the borrower will likely have to
pay at closing. Under the Real Estate Settlement Procedures Act
(RESPA), the lender is required to provide this disclosure to the
borrower within three days of receiving a loan application.
Government
National Mortgage Association (GNMA)
to
be added
Grace
Period
Period
of time during which a loan payment may be made after its due date
without incurring a late penalty. The grace period is specified
as part of the terms of the loan in the Note.
Graduated
Payment Mortgage (GPM)
A
type of flexible-payment mortgage where the payments increase for
a specified period of time and then level off. This type of mortgage
has negative amortization built into it.
Gross
Income
Total
income before taxes or expenses are deducted.
Guaranty
A
promise by one party to pay a debt or perform an obligation contracted
by another if the original party fails to pay or perform according
to a contract.
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Hazard
Insurance
A
form of insurance in which the insurance company protects the insured
from specified losses, such as fire, windstorm and the like.
Housing
Expenses-to-Income Ratio
The
ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by his/her gross monthly income. See
debt-to-income ratio.
Housing
and Urban Development
See
HUD.
HUD
Housing
and Urban Development. A U.S. government agency established to implement
federal housing and community development programs; oversees the
Federal Housing Administration.
HUD-1
Uniform Settlement Statement
A
standard form which itemizes the closing costs associated with purchasing
a home or refinancing a loan.
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Impound
That
portion of a borrower's monthly payments held by the lender or servicer
to pay for taxes, hazard insurance, mortgage insurance, lease payments,
and other items as they become due. Also known as reserves
Index
A
published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage
and that earned by other investments (such as one- three-, and five-year
U.S. Treasury security yields, the monthly average interest rate
on loans closed by savings and loan institutions, and the monthly
average costs-of-funds incurred by savings and loans), which is
then used to adjust the interest rate on an adjustable mortgage
up or down.
Interim
Financing
A
construction loan made during completion of a building or a project.
A permanent loan usually replaces this loan after completion.
Initial
Rate
The
rate charged during the first interval of an ARM loan.
Interest
Charge
paid for borrowing money, calculated as a percentage of the remaining
balance of the amount borrowed.
Interest
Rate
The
annual rate of interest on the loan, expressed as a percentage of
100.
Interest
Rate Cap
Consumer
safeguards which limit the amount the interest rate on an ARM loan
can change in an adjustment interval and/or over the life of the
loan. For example, if your per-period cap is 1% and your current
rate is 7%, then your newly adjusted rate must fall between 6% and
8% regardless of actual changes in the index.
Investor
A
money source for a lender.
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Jumbo
Loan
A
loan which is larger (more than $359,650 as of 1/1/2003) than the
limits set by the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. Because jumbo loans cannot
be funded by these two agencies, they usually carry a higher interest
rate.
Joint
Liability
Liability
shared among two or more people, each of whom is liable for the
full debt.
Joint
Tenancy
A
form of ownership of property giving each person equal interest
in the property, including rights of survivorship.
Junior
Mortgage
A
mortgage subordinate to the claim of a prior lien or mortgage. In
the case of a foreclosure, a senior mortgage or lien will be paid
first
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K
No
K terms.
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Loan-to-Value
Ratio
The
relationship between the amount of the mortgage loan and the appraised
value of the property expressed as a percentage.
Late
Charge
Penalty
paid by a borrower when a payment is made after the due date.
Lender
The
bank, mortgage company, or mortgage broker offering the loan.
LIBOR
(London Interbank Offered Rate)
The
interest rate charged among banks in the foreign market for short-term
loans to one another. A common index for ARM loans.
Lien
A
legal claim by one person on the property of another for security
for payment of a debt.
Loan
Application
An
initial statement of personal and financial information required
to apply for a loan.
Loan
Application Fee
Fee
charged by a lender to cover the initial costs of processing a loan
application. The fee may include the cost of obtaining a property
appraisal, a credit report, and a lock-in fee or other closing costs
incurred during the process or the fee may be in addition to these
charges.
Loan
Origination Fee
Fee
charged by a lender to cover administrative costs of processing
a loan.
Loan-to-Value
Ratio (LTV)
The
percentage of the loan amount to the appraised value (or the sales
price, whichever is less) of the property.
Lock
or Lock-In
A
lender's guarantee of an interest rate for a set period of time.
The time period is usually that between loan application approval
and loan closing. The lock-in protects you against rate increases
during that time.
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Margin
The
amount a lender adds to the index on an adjustable rate mortgage
to establish the adjusted interest rate.
Market
Value
The
highest price that a buyer would pay and the lowest price a seller
would accept on a property. Market value may be different from the
price a property could actually be sold for at a given time.
MIP
(Mortgage Insurance Premium)
It
is insurance from FHA to the lender against incurring a loss on
account of the borrower's default.
Mortgage
Banker
An
individual or company that originates and/or services mortgage loans.
Mortgage
Broker
An
individual or company that arranges financing for borrowers.
Mortgage
Insurance
Insurance
to protect the lender in case you default on your loan. With conventional
loans, mortgage insurance is generally not required if you make
a down payment of at least 20% of the home's appraised value. (Note,
however, that FHA and VA loans have different insurance guidelines.)
Mortgage
Loan
A
loan for which real estate serves as collateral to provide for repayment
in case of default.
Mortgage
Note
Legal
document obligating a borrower to repay a loan at a stated interest
rate during a specified period of time. The agreement is secured
by a mortgage or deed of trust or other security instrument.
Mortgagee
The
lender in a mortgage loan transaction.
Mortgagor
The
borrower in a mortgage loan transaction.
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Negative
Amortization
Occurs
when your monthly payments are not large enough to pay all the interest
due on the loan. This unpaid interest is added to the unpaid balance
of the loan. The danger of negative amortization is that the home
buyer ends up owing more than the original amount of the loan.
Net
Effective Income
The
borrower's gross income minus federal income tax.
Non
Assumption Clause
A
statement in a mortgage contract forbidding the assumption of the
mortgage without the prior approval of the lender. Note: The signed
obligation to pay a debt, as a mortgage note.
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Office
of Thrift Supervision (OTS)
The
regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board.
Origination
Fee
The
fee charged by a lender to prepare loan documents, make credit checks,
inspect and sometimes appraise a property; usually computed as a
percentage of the face value of the loan.
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Permanent
Loan
A
long term mortgage, usually ten years or more. Also called an "end
loan."
PITI
Principal,
Interest, Taxes and Insurance. Also called monthly housing expense.
Pledged
account Mortgage (PAM)
Money
is placed in a pledged savings account and this fund plus earned
interest is gradually used to reduce mortgage payments.
Points
(loan discount points)
Prepaid
interest assessed at closing by the lender. Each point is equal
to 1 percent of the loan amount (e.g., two points on a $100,000
mortgage would cost $2,000).
Power
of Attorney
A
legal document authorizing one person to act on behalf of another.
Prepaid
Expenses
Necessary
to create an escrow account or to adjust the seller's existing escrow
account. Can include taxes, hazard insurance, private mortgage insurance
and special assessments.
Prepayment
A
privilege in a mortgage permitting the borrower to make payments
in advance of their due date.
Prepayment
Penalty
Money
charged for an early repayment of debt. Prepayment penalties are
allowed in some form (but not necessarily imposed) in many states.
Primary
Mortgage Market
Lenders
making mortgage loans directly to borrower's such as savings and
loan associations, commercial banks, and mortgage companies. These
lenders sometimes sell their mortgages into the secondary mortgage
markets such as to FNMA or GNMA, etc.
Principal
The
amount of debt, not counting interest, left on a loan.
Private
Mortgage Insurance (PMI)
In
the event that you do not have a 20 percent down payment, lenders
will allow a smaller down payment - as low as 5 percent in some
cases. With the smaller down payment loans, however, borrowers are
usually required to carry private mortgage insurance. Private mortgage
insurance will usually require an initial premium payment and may
require an additional monthly fee depending on you loan's structure.
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Q
No
Q terms.
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Realtor
A
real estate broker or an associate holding active membership in
a local real estate board affiliated with the National Association
of Realtors.
Recision
The
cancellation of a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a contract
in some cases once it is signed if the transaction uses equity in
the home as security.
Recording
Fees
Money
paid to the lender for recording a home sale with the local authorities,
thereby making it part of the public records.
Refinance
Obtaining
a new mortgage loan on a property already owned. Often to replace
existing loans on the property.
Renegotiable
Rate Mortgage
A
loan in which the interest rate is adjusted periodically. See adjustable
rate mortgage.
RESPA
Short
for the Real Estate Settlement Procedures Act. RESPA is a federal
law that allows consumers to review information on known or estimated
settlement cost once after application and once prior to or at a
settlement. The law requires lenders to furnish the information
after application only.
Reverse
Annuity Mortgage (RAM)
A
form of mortgage in which the lender makes periodic payments to
the borrower using the borrower's equity in the home as Satisfaction
of Mortgage: The document issued by the mortgagee when the mortgage
loan is paid in full. Also called a "release of mortgage."
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Sales
Agreement
Contract
signed by buyer and seller stating the terms and conditions under
which a property will be sold.
Second
Mortgage
An
additional mortgage placed on a property that has rights that are
subordinate to the first mortgage.
Settlement
(or Closing)
The
settlement or closing is the conclusion of your real estate transaction.
It includes the delivery of your security instrument, signing of
your legal documents and the disbursement of the funds necessary
to the sale of your home or loan transaction (refinance).
Settlement
Costs
Also
known as closing costs, these costs are for services that must be
performed before your loan can be initiated. Examples include title
fees, recording fees, appraisal fee, credit report fee, pest inspection,
attorney's fees, taxes, and surveying fees. See closing/closing
costs.
Settlement
Cost (HUD guide)
HUD
- published booklet that provides an overview of the lending process,
and that is given to consumers after completing loan application.
Secondary
Mortgage Market
The
place where primary mortgage lenders sell the mortgages they make
to obtain more funds to originate more new loans. It provides liquidity
for the lenders. Security.
Servicing
All
the steps and operations a lender performs to keep a loan in good
standing, such as collection of payments, payment of taxes, insurance,
property inspections and the like.
Shared
Appreciation Mortgage (SAM)
A
mortgage in which a borrower receives a below-market interest rate
in return for which the lender (or another investor such as a family
member or other partner) receives a portion of the future appreciation
in the value of the property. May also apply to mortgage where the
borrowers shares the monthly principal and interest payments with
another party in exchange for part of the appreciation.
Simple
Interest
Interest
which is computed only on the principle balance.
Survey
A
measurement of land, prepared by a registered land surveyor, showing
the location of the land with reference to know points, its dimensions,
and the location and dimensions of any buildings.
Sweat
Equity
Equity
created by a purchaser performing work on a property being purchased.
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Tax
Impound
Money
paid to and held by a lender for annual tax payments.
Tax
Lien
Claim
against a property for unpaid taxes.
Tax
Sale
Public
sale of property by a government authority as a result of non-payment
of taxes.
Term
The
period of time between the beginning loan date on the legal documents
and the date the entire balance of the loan is due.
Title
Document
which gives evidence of ownership of a property. Also indicates
the rights of ownership and possession of the property.
Title
Company
A
company that insures title to property.
Transfer
Tax
Tax
paid when title passes from one owner to another.
Truth-in-Lending
Act
Federal
law requiring written disclosure of the terms of a mortgage (including
the APR and other charges) by a lender to a borrower after application.
Also requires the right to rescission period. Also known as Regulation
Z.
Title
Insurance
A
policy, usually issued by a title insurance company, which insures
a home buyer against errors in the title search. The cost of the
policy is usually a function of the value of the property, and is
often borne by the purchaser and/or seller. Policies are also available
to protect the lender's interests.
Title
Search
An
examination of municipal records to determine the legal ownership
of property. Usually is performed by a title company.
Two-Step
Mortgage
A
mortgage in which the borrower receives a below-market interest
rate for a specified number of years (most often seven or 10), and
then receives a new interest rate adjusted (within certain limits)
to market conditions at that time. The lender sometimes has the
option to call the loan due with 30 days notice at the end of seven
or 10 years. Also called "Super Seven" or "Premier"
mortgage.
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Underwriting
The
decision whether to make a loan to a potential home buyer based
on credit, employment, assets, and other factors and the matching
of this risk to an appropriate rate and term or loan amount.
USURY
Interest
charged in excess of the legal rate established by law.
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VA
Loan
A
long-term, low-or no-down payment loan guaranteed by the Department
of Veterans Affairs. Restricted to individuals qualified by military
service or other entitlements.
VA
Mortgage Funding Fee
A
premium of up to 1-7/8 percent (depending on the size of the down
payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage
with no down payment, this would amount to $1,406 either paid at
closing or added to the amount financed.
Variable
Rate Mortgage (VRM)
See
adjustable rate mortgage.
Verification
of Deposit (VOD)
A
document signed by the borrower's financial institution verifying
the status and balance of his/her financial accounts.
Verification
of Employment (VOE)
A
document signed by the borrower's employer verifying his/her position
and salary.
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Warehouse
Fee
Many
mortgage firms must borrow funds on a short term basis in order
to originate loans which are to be sold later in the secondary mortgage
market (or to investors). When the prime rate of interest is higher
on short term loans than on mortgage loans, the mortgage firm has
an economic loss which is offset by charging a w
Wraparound
mortgage
Results
when an existing assumable loan is combined with a new loan, resulting
in an interest rate somewhere between the old rate and the current
market rate. The payments are made to a second lender or the previous
homeowner, who then forwards the payments to the first lender after
taking the additional amount off the top.
Waiver
Voluntary relinquishment or surrender of some right or privilege.
Walk-through
A
final inspection of a home to check for problems that may need to
be corrected before closing.
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X,
Y
No
X or Y terms.
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Z
Zoning
Ordinances (or Zoning Regulations)
Local
law establishing building codes and usage regulations for properties
in a specified area.
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