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Encroachments. If something on one neighbor’s land hangs over onto the other neighbor’s property , such as a garage that sits partially on the neighboring property or a fence that was placed too far into the neighbor’s yard, it is called an encroachment . Easements. An easement is when someone has the right to use or cross over someone else’s land . The most common real property easements are utility easements which give the utility companies, such as the water, power or cable company the right to run their pipes and lines over or under the land, and access them for maintenance and repair. All properties are subject to utility easements. Another common easement is a driveway easement where one homeowner must drive over a portion of a neighbor’s driveway to reach their own. Closing. When all of the paperwork is ready, inspections and reports completed, the buyer and seller go to the escrow company or to a lawyer’s office for a meeting called the closing . The buyer signs a promissory note agreeing to repay the bank the principal and interest and other documents evidencing the home loan (discussed below). The seller signs a grant deed transferring ownership of the property (title) to the buyer . The grant deed and other documents are sent to the county recorder which is the local government office responsible for maintaining property records and maps. They are recorded , which simply means that they are put into the public record . Once a document is in the public record, the law says that everyone in the world is deemed to know of its existence. That way, the new owner is safe from claims by any others to a right in the property. II. The Home Loan Home Loan. Buying a home is an exciting but nerve-wracking venture. After all it’s one of the biggest, if not the biggest investment a person makes in their lifetime. It takes guts. It also takes money. There are three steps to paying for a house: First, the buyer pays a small earnest deposit, discussed above. A few weeks later, usually about 20 to 30 days after the signing of the contract of sale, the buyer makes a down payment . This is a portion of the cost of a home paid up front , usually from savings. Typically it’s about 20% to 30% of the purchase price . The remaining balance — usually about 70 to 80% of the purchase price — is paid through a home loan . Banks and other non-bank lenders provide loans for buying homes. They are referred to as mortgages . There are many different types of mortgages, but two typical ones are: Fixed-rate Mortgages. A fixed rate mortgage is exactly as its name indicates. It is a home loan that has an interest rate that stays the same for its entire term, which is normally 30 years . If the interest rate is 3.8% in year one of the mortgage, it'll be 3.8% in year 30. Adjustable Rate Mortgages (ARM). These loans have an interest rate that starts out as a low fixed rate. Thereafter, (usually in three, five, or seven years) the loan converts to have an interest rate that adjusts once a year . These mortgages are expressed as a 3/1, 5/1, or 7/1 mortgage . The 3, 5 or 7 represents the period of time the rate is fixed. The 1 indicates that when the fixed rate period expires, the Death Pledge The word “mortgage” comes from medieval English and French meaning “death pledge” – a pledge that only “dies” when it is repaid or the property is seized. Fin Lit Trivia Fin Lit Trivia Fin Lit Trivia PRODUCT PREVIEW
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 155
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