Adjustable Rate Mortgage (ARM): A loan whose interest rate is adjusted according to the movements in the financial market and is usually aligned to a financial index.
Amortization: A payment plan by which a borrower reduces a debt gradually through monthly payments o principal and interest.
Annual Percentage Rate (APR): The annual cost of credit over the life of a loan, including interest, service charges, loan fees, mortgage insurance, and other items.
Appraisal: An appraisal is an estimate of the fair market value of your house and helps determine if the sales price is consistent with the actual value. An appraiser inspects the house and the neighborhood and makes an estimate based on the price of comparable houses and other factors. The appraiser provides no guarantee that the property if free of defects. They are typically required by your lender to ensure they are not lending more than a property is worth. The fee for this service is usually paid as a cost of your loan and is part of your closing costs.
Appreciation: The increase in the value of a property.
Assumption: A transaction allowing the buyer of a home to assume responsibility for an existing loan on the home instead of getting a new loan. Many types are loans are not assumable or have restrictions for an assumption so an assumption is a rarer option today.
Baloon Mortgage: A loan which has a series of monthly payments (often for 5 years or less) with the remaining balance due in a large lump sum payment at the end.
Clear to Close: When the mortgage underwriter is satisfied with the buyer’s financial information, the lender issues a “clear to close”, sends the mortgage documents to the title company and a closing is scheduled.
Closing: A meeting to sign documents which transfer property from seller to a buyer. (Also called a settlement). The closing typically takes place in the buyers agents office or at a Title Company office and usually runs about 60 to 90 minutes if everything goes smoothly and the mortgage company has wired the mortgage funds to the title company in advance.
Closing Costs: Charges paid at closing or settlement for obtaining a mortgage loan and transferring real estate title.
Closing Disclosure (CD) Statement: An itemized listing of the funds that were paid at closing or settlement. Items that appear on the statement include real estate fees, loan fees, points and initial escrow amounts. The CD defines the seller’s net proceeds and the buyer’s net payment at closing.
Conditions, Covenants, and Restrictions (CC and Rs): The standards that define how a property may be used and the protections the developer has made for the benefit of all owners in a subdivision.
Deed: The legal document conveying title to a property.
Down Payment: The difference between the sales price and the mortgage amount on a home.
Earnest Money: A sum delivered to the seller’s agent by the purchaser with a written offer as evidence of good faith. At the closing, the earnest money is applied to your down payment or closing costs. Be sure that you understand the conditions where you do and do not get your earnest money refunded.
Easement: Right-of-Way granted to a person or company authorizing access to the owner’s land, for example, a utility company may be granted an easement to install pipes or wires. An owner may voluntarily grant an easement or in some cases, be compelled to grant one by a local jurisdiction. You will see easements on your survey or deed.
Equity: The difference between the value of a home and what is owed on it.
Escrow: The handling of funds or documents by a third party on behalf of the seller or buyer.
Escrow Account: Depending on the circumstances of your loan, you might be asked to make monthly payments to an escrow account after you purchase your home. Money in the account may be used to pay taxes, insurance, and any other regular assessments as they fall due.
Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.
Homeowner’s Hazard Insurance: Protection against damage caused by fire, windstorm, or other common hazards. Mortgage lenders will require borrowers to carry insurance for an amount at least equal to the mortgage. The lender will also require that they are named as an additional insured on the policy.
Home Warranty: A service contract that, for a fee, covers the repair and/or replacement costs of home appliances, major systems such as heating and cooling and possibly other components of a home that fail due to normal wear and tear. Coverage can vary across home warranty companies and does not cover all home repairs. Certain restrictions and limitations may apply.
Inspection Contingency: The period of time the buyer has to do their due diligence by having the property inspected and negotiate any potential repairs.
Loan Commitment: A written promise to make a loan for a specified amount on specified terms.
Loan-To-Value Ratio: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.
Mortgagee: The lender who makes a mortgage loan.
PITI: Principal, Interest, Taxes, and Insurance. These are the four major components of a monthly housing payment.
PMI (Private Mortgage Insurance): Required by most lenders for loans with a down payment of less than 20% of the value of the property. This risk-management product protects lenders against loss if a borrower defaults. Borrowers are considered “higher risk” until they have at least 20% equity in the property. In most cases, once there is 20% equity in the home, the PMI payments end.
Principal: The amount borrowed in a loan, excluding interest and other charges.
R-Value: The resistance of insulation material, including windows, to heat passing through it. The higher the number, the greater the insulating value.
Recording Fee: A charge for recording the transfer of a property that is paid to a city or county.
Realtor: A real estate agent active in a local real estate board affiliated with the National Association of Realtors.
Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.
Sales Contract: A contract between a buyer and seller which should explain, in detail, exactly what the purchase includes, the purchase price, any contingencies in the contract, inspection contingencies, when the buyer can move in, who pays what closing costs, and what recourse the parties have if the contract is not fulfilled or if the buyer cannot get a mortgage commitment at the agreed-upon terms
Settlement: See Closing
Survey: A property survey shows the boundaries of your property. The cost will depend on the complexity of the survey.
Title: Evidence (usually in the form of a certificate or deed) of a person’s legal right to ownership of a property.
Title Company: A company that insures title to a property by searching public records looking for any liens and judgments against the property so they can be satisfied before ownership is passed to the new buyer. A title company agent also handles the closing process at the closing or settlement.
Walk Through (Final Walk Through): A final inspection of a home before settlement to search for new problems that have occurred after the home inspection was completed that may need to be corrected before ownership changes hands.
Warranty: A promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specified level of performance over a specified period of time.
Zoning: Regulations established by local governments regarding the location, height and use for any given piece of property within a specific area.