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Adjustable Rate Mortgage (ARM) -
A
loan whose interest rate is adjusted according to movements
in the financial market.
Amortization - A payment by which a loan
is reduced through monthly payments of principal and
interest.
Annual Percentage Rate (APR) -
The
annual cost of credit over the life of the 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 current
marketplace.
Appreciation - The increase in the value
of a property.
Assessment - A tax levied on a
property or value placed on the worth of a property by a
taxing authority.
Assumption - A transaction allowing the
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 lump
sum payment at the end.
Building Code -
A comprehensive set
of laws which control the construction of buildings,
including design, materials used, construction, use, repair,
remodeling, and other similar factors.
Building Contract -
A contract
setting forth the terms under which construction is to be
undertaken. Price may be set or based on the builder’s
cost plus a profit.
Buydown - A subsidy (usually paid by
a builder or developer) to reduce the monthly payments on a
mortgage loan.
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 (also
referred to as a settlement).
Closing Costs -
Charges paid at
settlement for obtaining a mortgage loan and transferring a
real estate title.
Conditions, Covenant, and Restrictions (CC and Rs) -
The
standards that define how a property may be used and the
protection the developer makes for the benefit of all owners
in a subdivision.
Contingency -
Commonly, the dependence
upon a stated event which must occur before a contract is
binding. For example: The sale of a house, contingent upon
the buyer obtaining financing.
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.
Counter Offer -
An offer (instead of
acceptance) in response to an offer.
Credit Rating -
A report ordered by a
lender from a credit bureau to determine if the borrower is
a good credit risk.
Default - Breach of a mortgage
contract (i.e., not making the required payments).
Disbursements -
Payments made during
the course of an escrow or at closing.
Down Payment -
Cash portion paid by a
buyer from his own funds, as opposed to that portion of the
purchase price which is financed.
Draw - Portions of a construction
loan, given after certain stages of construction.
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.
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 granted an
easement to install pipes or wires. An owner may voluntarily
grant an easement or can be ordered to grant one by local
jurisdiction.
Equity - The difference between the
value of a home and what is owed on it.
Equity Loan -
A loan based upon the
equity in a property.
Escrow - The handling of funds or
documents by a third party on behalf of the buyer and/or
seller.
Federal Housing Administration (FHA) -
A
federal agency that insures mortgages with lower down
payment requirements than conventional loans.
Financing Costs -
The cost of
interest and other charges involved in borrowing money to
build or purchase real estate.
First Mortgage -
A mortgage having
priority over all other voluntary liens against certain
property.
Fixed Rate Mortgage -
A mortgage with
an interest rate that remains constant over the life of the
loan.
Graduated Payment Mortgage (GPM) -
A
fixed-rate, fixed-schedule loan that starts with lower
payments than a level payment loan; the payments rise
annually over the first 5-10 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 that starts with the same
payments as a level payment loan; the payments rise
annually, with the entire increase being 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 15-20 years, or less.
Hazard Insurance -
Protection
against damage caused by fire, wind, storm or other hazards.
Many lenders require borrowers to carry it in an amount at
least equal to the mortgage.
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 - Money charged for the use
of money (principal).
Interest Rate -
The percentage of an
amount of money which is paid for its use for a specified
time. Usually expressed as an annual percentage.
Joint Tenancy -
A
form of ownership in which the tenants own a property
equally. If one dies, the other automatically inherits the
entire property.
Level Payment Mortgage -
A
mortgage with identical monthly payments over the life of
the loan.
Lien - An encumbrance against
property for money, either voluntary or involuntary.
Loan - A lending of a principal sum
of money to one who promises to repay said sum, plus
interest.
Mortgage Commitment -
A
formal written communication by a lender agreeing to make a
mortgage loan on a specific property that specifies the loan
amount, length and conditions.
Mortgage Company -
A company that
borrows money from a bank, lends it to consumers to buy
homes, then sells the loans to investors.
Mortgagee - The lender who makes a
mortgage loan.
Mortgage Loan -
A contract in which
the borrow’s property is pledged as collateral. It is
repaid in installments. The mortgage or (buyer) promises to
repay principal and interest, keep the home insured, pay all
taxes and keep the property in good condition.
Mortgage Origination Fee -
A charge
for the 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 - A formal document showing the existence
of a debt and stating the terms of repayment.
Offer - A
presentation or proposal for acceptance, in order to form a
contract. To be legally binding, an offer must be definite
as to price and terms.
PITI - The
four major components of monthly housing payments -
principal, interest, taxes, and insurance.
Point - A one-time charge assessed by
the lender at closing to increase the interest yield on a
mortgage loan. Generally, it is one percent of the mortgage.
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.
Property Tax -
Generally, a tax
levied on both real and personal property; the amount of the
tax is dependent on the value of the property.
Pro Rate - To divide in proportionate
shares, such as taxes, insurance, rent, or other items which
buyer and seller share as of the time of closing, or other
agreed upon time.
Recording Fee -
A charge paid to a
city, county, or other appropriate branch of government for
recording the transfer of a property.
Real Estate Settlement Procedures Act (RESPA)
- A federal law requiring lenders to provide home buyers
with information about known or estimated 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.
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.
Veterans Administration (VA) -
A
federal agency that insures mortgage loans with very liberal
down payment requirements for honorable discharged veterans
and their spouses.
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.
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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