Home Buyers Dictionary
Adjustable Rate Mortgage (ARM): A loan whose interest rate is adjusted according to movements in the financial market.
Amortization: A payment plan by which a borrower reduces a debt gradually through monthly payments of principal and interest.
Annual Percentage Rate (APR): The annual cost off credit over the life of a loan, including interest, service charges, points, loan fees, mortgage insurance, and other items.
Appraisal: An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and recent comparable sales.
Appreciation: The increase in the value of a property.
Assessment: A tax levied on a property or a value placed on the worth of property by a taxing authority.
Balloon: A loan which has a series of monthly payments (often for 5 or 10 years or less) with the remaining balance due in a large lump sum payment at the end.
Buydown: A subsidy (usually paid by a builder or sometimes sellers) to reduce the monthly payments on a mortgage loan.
Closing: In California, closing is when all the funds have been received from the buyer and their lender and the title recording has taken place.
Closing Costs: Charges paid at settlement for obtaining a mortgage loan and transferring real estate title.
Conditions, Covenants, and Restrictions (CC and R's): 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.
Credit Rating: A report ordered by a lender from a credit bureau to determine if the borrower is a good credit risk.
Default: A breach of a mortgage contract (such as not making monthly payments).
Downpayment: The difference between the sales price and the mortgage amount on a home.
Earnest Money: A sum paid into escrow to show that a potential purchaser is serious about buying. A copy of the earnest money check must go with all offers to purchase but is not actually deposited with escrow until an offer has been accepted and escrow is opened.
Equity: The difference between the value of a home and what is owed on it.
Escrow: The handling of funds and/or documents by a third party on behalf of the buyer and seller throughout the purchase/sale transaction.
Federal Housing Administration (FHA): A federal agency which insures mortgages that have lower downpayment requirements than conventional loans.
Fixed Rate Mortgage: A mortgage whose interest rate remains constant over the life of the loan. The payments are not necessarily level.
Hazard Insurance or Homeowners Insurance: Protection against damage caused by fire, windstorm, or other common hazards. Most lenders require borrowers to carry it in an amount at least equal to the mortgage.
HOA Fees: Charged by the homeowner’s association.
Inspections: An examination of property for various reasons such as termite inspections, home inspection. Inpsections determine if repairs are required.
Interest. The cost paid to a lender for the use of borrowed money.
Loan Application Fee: Paid to the lender sometimes at the time of application; varies by lender.
Mortgage Broker: A broker who represents numerous lenders and helps consumers find affordable mortgages; the broker charges a fee only if the consumer finds a loan.
Mortgagee: The lender who makes a mortgage loan.
Mortgagee Title Policy: Required by the lender to insure that the lender has a valid lien; does not protect the buyer.
Mortgage Loan: A contract in which the borrower’s property is pledged a s collateral and which can be repaid in installments over a long period. The mortgagor (buyer) promises to repay principal and interest, to keep the home insured, to pay all taxes, and to keep the property in good condition.
Loan Origination Fee: A charge by a lender for the work involved in preparing and servicing a mortgage application (usually 1 or 1.5 percent of the loan amount).
Owner’s Title Policy: Insurance that the buyer has title to the property.
PITI: Principal, interest, taxes, and insurance (the 4 major components of monthly housing payments).
Private Mortgage Insurance: (PMI) Insurance against a loss by a lender (mortgagee) in the event of default by a borrower (mortgagor). Required on FHA loans or conventional loans with less than 20% down payment.
Point: A charge of 1 percent of the mortgage amount. Points are a one-time charge assessed by the lender.
Prepayment Penalty: Charged by the lender on some loans for premature payment of a loan balance.
Principal: The amount borrowed in a loan, not including interest and other charges.
Recording Fee: A charge for recording the transfer of a property, paid to a city, county, or other appropriate branch of government.
Real Estate Settlement Procedures Act (RESPA): A federal law requiring lenders to provide home buyers with information about known or estimated settlement costs. The act also regulates other aspects of settlement procedures.
R-Value: The resistance of insulation material (including windows) to heat passing through it. The higher the number, the greater the insulating value.
Sales Contract: Also called purchase agreement - A contract between a buyer and seller which should explain, in detail, exactly what the purchase includes, what guarantees there are, when the buyer can move in, what the closing costs are, 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.
Title: Evidence (usually in the form of a certificate or deed) of a person’s legal right to ownership of a property.
Walk-Through: A final inspection of a home before closing to search for problems that need to be corrected before ownership changes hands.
