 When you start shopping for a new home,
you may encounter some words and terms with which you are unfamiliar.
The following glossary will help you to be a better informed shopper.
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.
Balloon. 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.
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.
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.
Condominium. A home in
a multi-unit complex; each purchaser owns an individual unit, and all
the purchasers jointly own the common areas, such as the surrounding
land, hallways, etc.
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.
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.
Downpayment. The
difference between the sales price and the mortgage amount on a home.
The downpayment 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.
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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