| 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 evaluation to determine what a piece of property would sell
for in the marketplace.
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.
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.
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Balloon
A loan that 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.
Binder
A receipt for a deposit paid to secure the right to purchase
a home at terms agreed upon by the buyer and seller.
Buydown
A subsidy (usually paid by a builder or developer) to reduce the monthly
payments on a mortgage loan.
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Cap
A limit to the amount an interest rate or a monthly payment can increase
for an adjustable rate loan either during an adjustment period or over
the life of the loan.
Certificate of Occupancy
A document from an official agency stating that the property meets the
requirements of local codes, ordinances, and regulations.
Closing
A meeting to sign documents which transfer property from a seller to a
buyer. (Also called settlement)
Closing Costs
Charges paid at settlement for obtaining a mortgage loan and transferring
real estate title.
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.
Conventional Loan
A mortgage loan not insured by a government agency (such as FHA or VA).
Convertibility
The ability to change a loan from an adjustable rate schedule to a fixed
rate schedule.
Cooperative
A form of ownership in a multi-unit complex; the purchasers own shares
of the entire complex rather than owning individual units.
Credit Rating
A report ordered by a lender from a credit bureau to determine if the
borrower is a good credit risk.
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Default
A breach of a mortgage contract (such as not making monthly payments).
Density
The number of homes built on a particular acre of land. Allowable densities
are usually determined by local jurisdictions.
Down payment
The difference between the sales price and the mortgage amount on a home.
The down payment is usually paid at closing.
Due-on-Sale
A clause in a mortgage contract requiring the borrower to pay the entire
outstanding balance upon sale or transfer of the property. A mortgage
with a due-on-sale clause is not assumable.
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Earnest Money
A sum paid to the seller to show that a potential purchaser is serious
about buying.
Easement
Right-of-way granted to a person or company authorizing access to the
owner’s land; for example, a utility company may be grated 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.
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 buyer
and/or seller.
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Federal Housing Administration (FHA)
A federal agency insuring mortgages that have lower down payment 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. (See Graduated Payment Mortgage
and Growing Equity Mortgage).
Fixed Schedule Mortgage
A mortgage whose payment schedule for the life of the loan is established
at closing. The payments and interest rate are not necessarily level.
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Graduated Payment Mortgage (GPM)
A fixed-rate, fixed-schedule loan which starts with lower payments than
a level payment loan; the payments rise annually over the first 5 to 10
years and then remain constant for the remainder of the loan. GPMs involve
negative amortization.
Growing Equity Mortgage (Rapid Payoff Mortgage)
A fixed-rate, fixed-schedule loan which starts with the same payments
as a level payment loan; the payments rise annually, with the entire increase
being used to reduce the outstanding balance. No negative amortization
occurs, and the increase in payments may enable the borrower to pay off
a 30-year loan in 15 to 20 years, or less.
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Hazard Insurance
Protection against damage caused by fire, windstorm, or other common hazards.
Many lenders require borrowers to carry it in an amount at least equal
to the mortgage.
Housing Finance Agency
A state agency that offers a limited amount of below-market-rate home
financing for low-and moderate-income households.
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Index
The interest rate or adjustment standard that determines the changes in
monthly payments for an adjustable rate loan.
Infrastructure
The public facilities and services needed to support residential development,
including highways, bridges, schools, and sewer and water systems
Interest
The cost paid to a lender for the use of borrowed money.
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Joint Tenancy
A form of ownership by which the tenants own a property equally. If one
dies, the other would automatically inherit the entire property.
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Level Payment Mortgage
A mortgage whose payments are identical for each month over the life of
the loan.
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Mortgage Broker
A broker who represents numerous lenders and helps consumers find affordable
mortgages; the broker charges a fee only if the consumer fins a loan.
Mortgage Commitment
A formal written communication by a lender, agreeing to make a mortgage
loan on a specific property, specifying the loan amount, length of time
and conditions.
Mortgage Company (Mortgage Banker)
A company that borrows money from a bank, lends it to consumers who want
to buy homes, then sells the loans to investors.
Mortgagee
The lender who makes a mortgage loan.
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.
Mortgage Origination Fee
A charge by a lender for the work involved in preparing and servicing
a mortgage application (usually 1 percent of the loan amount).
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Negative Amortization
An increase in the outstanding balance of a loan when a monthly payment
is not large enough to cover all of the interest due.
Note
A formal document showing the existence of a debt and stating the terms
of repayment.
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PITI
Principal, interest, taxes, and insurance (the 4 major components of monthly
housing payments).
Point
A charge of 1 percent of the mortgage amount. Points are a one-time charge
assessed by the lender at closing to increase the interest yield on a
mortgage loan.
Prepayment
Payment of all or part of a debt prior to its maturity.
Principal
The amount borrowed in a loan, excluding interest and other charges.
Property Survey
A survey to determine the boundaries of your property. The cost will depend
on the complexity of the survey.
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Rapid Payoff Mortgage
(See Growing Equity Mortgage).
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 homebuyers 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.
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Sales Contract
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.
Settlement
(See Closing).
Shared Appreciation Mortgage
A loan in which partners agree to share specified portions of the down
payment, monthly payment, and appreciation.
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Tenancy in Common
A form of ownership in which the tenants own separate but equal parts.
To inherit the property, a surviving tenant would either have to be mentioned
in the will or, in the absence of a will, be eligible through state inheritance
laws.
Title
Evidence (usually in the form of a certificate or deed) of a person’s
legal right to ownership of a property.
Transfer Taxes
Taxes levied on the transfer of property or on real estate loans by state
and/or local jurisdictions.
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Veterans Administration (VA)
A federal agency that insures mortgage loans with very liberal down payment
requirements for honorably discharged veterans and their surviving spouses.
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Walk-Through
A final inspection of a home before settlement to search for problems
that 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. Written warranties on new homes are either
backed by insurance companies or by the builders themselves.
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Zoning
Regulations established by local governments regarding the location, height,
and use for any given piece of property within a specific area.
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