Adjustable Rate Mortgage (ARM): A loan whose interest rate is adjusted to financial market movements.
Amortization: A payment plan by which a loan is reduced through a monthly payment of principal and interest.
Annual Percentage Rate (APR): Annual cost of credit over the life of a loan, including interest, service charges, points, loans fees, mortgage insurance, and other items.
Assessment: A tax levied on a property, or a value placed on the worth of a property by a taxing authority.
Assumption: Allows a buyer to assume responsibility for an existing loan instead of getting a new loan.
Balloon: A loan that has a series of monthly payments with the remaining balance due in a large lump sum at the end.
Binder: A receipt for a deposit to secure the right to purchase a home at agreed terms by a buyer and seller.
Buydown: A subsidy. Usually paid by a builder or developer to reduce monthly payments on a mortgage.
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 that transfer property from a seller to a buyer. (Can also be called a settlement)
Closing Costs: Charges paid at closing for obtaining a mortgage loan and transferring a real estate title.
Conditions, Covenants and Restrictions: The standards that define how a property may be used and the protections the developer makes for the benefit of all owners in a division.
Conventional Loan: A mortgage loan not insured by a government agency (such as FHA or VA).
Convertibility: The ability to change a loan from ad adjustable rate schedule to a fixed rate schedule.
Credit Rating: A report ordered by a lender from a credit agency to determine a borrower’s credit habits.
Default: Breach of a mortgage contract. This is not making the required payments.
Density: The number of homes built on a particular acre of land. Allowable densities are determined by local jurisdictions.
Down Payment: The difference between the sales price and the mortgage amount. ( A 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.
Earnest Money: A sum paid to the seller to show that a potential purchaser is serious about buying. (We would know it is a deposit).
Easement: The right-of-way granted to a person or company authorizing access to the owner’s land; for example: a utility company may be ordered to grant one by a local jurisdiction.
Equity: The difference between the value of a home and what is owed on it. (Capital in the property)
Escrow: The handling of funds or documents by a third party on behalf of the buyer and/or seller.
Federal Housing Administration: A federal agency that insures mortgages with lower down payment requirements than conventional loans.
Fixed Rate Mortgage: A mortgage with an interest rate that remains constant over the life of the loan.
Fixed Schedule Mortgage: Mortgage with a payment schedule established at closing for the life of the loan. The payment and interest rate are not necessarily level.
Graduated Payment Mortgage: A fixed-rate, fixed-scheduled loan. It starts with lower payments than a level payment loan; 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: A fixed-rate, fixed-schedule loan that 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.
Hazard Insurance: Protection against damage caused by fire, windstorm, or the 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 below-market-rate home financing for low and moderate income households.
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 borrowed money.
Joint Tenancy: A form of ownership in which the tenants own a property equally. If one dies, the other automatically inherits the entire property.
Mortgage Broker: A broker who represents numerous lenders and helps consumers to buy homes, then sells the loans to investors.
Mortgage Commitment: A formal written communication by a lender, agreeing to make a mortgage loan on a specific property, detailing the loan amount, length of time and conditions.
Mortgagee: The lender who makes a mortgage loan.
Mortgage Loan: A contract in which the borrower’s property is pledged as collateral. It is rapid in installments. The mortgagor (buyer) promises to repay principal and interest, keep the home insured, pay all taxes, and keep the property in good conditions.
Mortgage Origination Fee: A charge for work involved in preparing and servicing a mortgage application (usually one percent of the loan amount)
Negative Amortization: An increase in the outstanding amount when a monthly payment does not cover the monthly interest due.
Note: Principal, Interest, Taxes and Insurance. The four major components of monthly housing payments.
Point: A one-time charge assessed by the lender at closing to increase yield on a mortgage loan. Generally, it is one percent of the mortgage amount.
Prepayment: Payment of a debt prior to maturity.
Principal: The amount borrowed, excluding interest and other charges.
Property Survey: A survey to determine the boundaries of your property. The cost depends on the complexity of the survey.
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 Procedure Act: A federal law requiring lenders to provide home buyers with information about settlement costs.
R-Value: The resistance of insulation materials (including windows) to heat passing through it. The higher the number, the greater the insulating value.
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.
Shared Appreciation Mortgage: A loan in which partners agree to share specified portions of the down payment, monthly payments and appreciation.
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 mentioned in the will or, in the absence of a will, be eligible through state inheritance laws.
Title: Is usually in the form of a certificate or a 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.
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 in 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 warranty companies or by the builder themselves.
Zoning: Regulations established by local governments regarding the location, height and use for any given piece of property within a specific area.