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Mortgage and Real Estate Glossary ~ E

Earnest money

A sum of money that a buyer gives to the seller when making an offer on a home.
See: Deposit

Easement

The right to enter or use another person's land for a specific purpose. Utility companies commonly get easements to install poles and string wire across private land. You can create an easement either with a written contract or deed, government action, or if you can prove that you made use of someone's property for 5 or more years. For example, if your home is landlocked, and you have to cross your neighbor's property everyday to reach the street. Two common ways to end an easement are by court action or quitclaim deed. An easement is also called right-of-way.
See: Acceptable debt

Effective age

A building's age based on its condition and use. The effective age of a building is not its actual age. Effective age takes into account major renovations made on the building and how it has been maintained. Appraisers, professionals who estimate the value of a property, will use the effective age to calculate accrued depreciation, a value that is used for tax purposes and equal to the difference between the cost to replace the building and its current value.

Effective rate

The total cost of a loan over the number of years that you expect to hold onto it. The effective rate takes into account the fact that most people don't stay in a home for the full length of a loan's term, which is usually 30 years. The effective rate gives you the chance to compare loans based on the actual time you plan to keep a home.
See: Annual Percentage Rate

Eminent domain

The government's right to take private property for public use.

Encroachment

When a permanent object from your next door neighbor's property crosses over onto your property. A preliminary title report or a survey, a physical inspection of the home and grounds, can tell you if there's an encroachment on a property that you want to buy. The most common kinds of encroachments are fences, garages, driveways, shrubs and trees, all which can intrude, usually not on purpose, into a neighbor's property-even if by just a few inches.

Not all encroachments are illegal. For example, if you built your driveway 3 feet into your neighbor's property and your neighbor was fully aware of this for at least 3 years, you're in the clear. If an encroachment is illegal, you can sue for damages and get the object removed from your property.
See: Title search, Cloud on title

Encumbrance

An interest in or right to a property by someone other than the home owner. Before you buy a home, you will receive a preliminary title report that details any encumbrances on the property. There are two types of encumbrances:
(1) a money encumbrance, which affects a property's ownership. Money encumbrances include any lien placed on a property, such as a mortgage, mechanic's lien, or tax lien.
(2) A non-money encumbrance, such as an encroachment, affects how a property is used. An encroachment is when something from your neighbor's property, like a garage or tree crosses over onto your property.
See: Lien, Encroachment, Cloud on title

Equity

The difference between a home's market value and the amount the owner owes on the mortgage. Equity is the amount of money you'd have if you sold your home today and paid off your mortgage-it includes your down payment, all the payments you've made against the loan's principal and any appreciation in your home's value. As the market value of your home increases, so does your equity. Similarly, if your home's value decreases, your equity does too.

One of the main advantages of owning a home is that you can tap into the equity to use for other investments, such as a down payment on another home, college tuition or mutual funds.You bought your home 3 years ago for $110,000 with a $20,000 down payment. Your property's value went up by 3% every year and you've paid off $4,574 of your principal. If you add the down payment, total appreciation and the amount paid off on your principal, your total equity after 3 years is $34,773.
See: Home equity loan, Appreciation

Escrow

A way of closing on a home that requires the buyer and seller to transfer fees and documents to a neutral third party. You may complete your home's purchase/sale in escrow, depending on where the property is located. How escrow works varies, but in general:
(1) the buyer and seller sign anagreement requiring them both to hand over all the closing fees and documents to a neutral third party, called an escrow agent
(2) the escrow agent distributes the money and documents to the proper party, such as the lender or title company
(3) the escrow is considered "closed."
Escrow does not require any meeting between the buyer and seller. Though, if any change needs to be made to how escrow is handled, it must be mutually agreed on.
States that close in escrow: Alaska, Arizona, California, Kansas, Oregon, Montana, Utah, Nevada, Washington, Idaho, and New Mexico.
See: Escrow agent/officer, Closing date, California

Escrow account

An neutral account that holds a sum of money, usually until a specific transaction is completed. Lenders often set up a type of escrow account, called an impound account, for you to prepay certain recurring costs: your first 6 months of property taxes, your first 2 months of hazard insurance and your first 2 months of mortgage insurance, if required. You then pay these bills monthly through this account. Some lenders let you waive the account, but may tack on additional points to your closing costs if you choose to not have one.
See: Impound account

Escrow agent/officer

An escrow agent oversees escrow, the process that some states use to complete a home's sale or purchase. The buyer and seller sign an agreement that gives the escrow agent a detailed list of instructions on how escrow should be carried out, which includes how much money to collect, what documents to prepare and when to order a title search. The escrow agent is a neutral party who fairly represents both the seller and buyer. The escrow agent can be a lender, title company or real estate attorney.
See: Escrow

Executor

A person named in a will to handle the affairs of the person who has died. The executor carries out the terms of the deceased's will and temporarily takes over all of the deceased's property until the probate court decides who the legal owner is. A female executor is called an executrix.
See: Administrator(trix)

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