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Mortgage and Real Estate Glossary ~ T

Take-out loan

A long-term loan taken out upon completion of a new building. Take-out loans work together with construction loans. Here is how it works: A land developer gets a construction loan to build a cluster of homes. Then when all the homes are ready to sell, a lender offers a buyer a take-out loan to purchase one of the new homes. The builder, now taking on the role as seller, will then use part or all of the money from the sale towards paying off the construction loan. If you plan to build your own home, you can also pay off the construction loan using a take-out loan. Take-out loans are also called permanent loans.

Example: How does a builder pay off a construction loan?

The builder gets a $1 million construction loan to put up ten homes. The builder then puts up each home for sale at $300,000. The buyer gets a take-out loan for $300,000 to buy one of these brand new homes. For every home that the builder sells, the builder pays $100,000 towards the construction loan and pockets $200,000 as profit.
See: Blanket mortgage, Construction loan

Teaser rate

The initial interest rate on an adjustable rate mortgage (ARM).
See: Initial interest rate

Tenancy in common

A type of ownership where two or more people share ownership of a property, but not necessarily equally. Even though the owners of a tenancy in common property can have unequal shares of the property, they all have the right to use the entire property. Unlike joint tenancy, tenancy in common doesn't have right of survivorship. So, if one of the co-owners dies, his/her interest passes to an heir(s), not the surviving co-owners. When this happens, probate court is required.
See: Joint tenancy, Community property

Title

Ownership of a property. If you have title to a property, that means you have the right to own it. Sometimes title can refer to the documents, such as a deed, which proves you own a property. Title documents are on public record at the county courthouse.
See: Deed

Title insurance

An insurance policy that protects a lender and/or home owner against any loss resulting from a title error or dispute. Most lenders require that you buy title insurance for them to protect against future problems that might arise with the title (ownership). For example, a long lost relative may show up out of the blue to refute your right to a property, claiming that the property's deed is a forgery.

Depending on where you live, you may have to pay for both your policy and the lender's policy. The cost of the owner's policy is based on the property's purchase price, about $3 to $5 per $1,000. The cost for the lender's policy is based on the loan amount, about $2 to $3 per $1,000. You pay this one-time fee on your home's closing date. Title insurance may also cover the charge to oversee closing, conduct the title search and the premium. If you refinance your mortgage, you only have to buy the lender's title insurance. The owner's policy protects you and your heirs until you sell your property.
See: Title company, Title search

Title (insurance) company

A company that confirms the legal owner of a property, as well as insures a home owner and lender against a loss that could result from a title dispute. Before the closing date of your home's purchase or sale, a title company will search and collect all the public records of a property's ownership. The title company checks these records to find out who the legal owner is and to see if there any claims against the property, such as mortgages, liens for unpaid property taxes, judgments and wills, anything that can effect the title (ownership). The title company will then give you a report outlining what it finds.

If there are not any problems (clouds) that need to be cleared up, the title company will provide the buyer and/or lender with title insurance. This is a one-time fee paid on the closing date to protect you against any loss that you might face if someone challenges your right to a property.

Title report

The results from a title search. In some states, the title insurance company conducts a second title search a couple of days before closing and gives you a title report. This report makes sure that there are no claims on the property and that the seller is the legal owner of the property. If there are any claims, they must be cleared before you can buy it.
See: Preliminary title report, Cloud on title

Trailing spouse income

You or your spouse's expected income when changing jobs or relocating to a new location. You can put the trailing spouse income on your loan application when looking to buy a home in your new location. You will, though, have to prove to the lender that your spouse had been working in a steady job previously.
See: Appraisal

Transfer of ownership

When a property is handed over from the seller to a buyer.
See: Real property, Deed

Transfer tax

A state or local tax that a buyer or seller has to pay when property changes ownership. The seller usually has to pay the transfer tax, which is paid on the closing date. The rules on how it is calculated vary from state to state, but usually it is based on the property's purchase price. Some cities will also add a tax on top of the transfer tax.

Trustee's sale

When a lender sells your property to pay for a mortgage in default. Most deed of trusts have a "power of sale" clause, giving the trustee, a neutral party who acts on behalf of the lender, the right to a trustee's sale. A trustee's sale varies from state to state, but in general the trustee, typically a title insurance company, advertises the property's sale in a local/count newspaper and then auctions off the property to the highest bidder. All is not lost, you have up to five days before the sale to pay everything you owe, plus the legal fees incurred by the trustee, to get back your property. Note that some mortgages contain a power of sale clause, giving the lender the right to foreclose without taking you to court first.
See: Foreclosure, Deed of trust

Truth-in-lending act

A federal law that requires a lender to give borrowers the annual percentage rate (APR). The APR helps borrowers compare one loan to another since it factors in not only the interest rate but also all the fees and closing costs that you need to pay. APR, though, is not always the best measure of comparison since not all the lenders include the same fees and closing costs. The Truth-in-Lending act is also called Regulation Z.
See: APR

Two-step mortgage

A type of loan that has a low interest rate for the first 5 or 7 years, then adjusts to a higher interest rate for the remaining 25 or 23 years. Two-step mortgages are ideal for first-time buyers and if you have a job that demands that you relocate often. Your monthly loan payments are lower for those first years than a regular 30-year fixed loan, and when it is time to adjust to the higher rate, you can do so at no cost. The new rate that you get after 5 or 7 years though can be high, which is when most people decide to move. Two-step mortgages are also called resets.
See: Adjustable rate mortgage

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