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By Mark Mathis
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.
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. (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.
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.
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 which offers a limited amount of below-
market-rate home financing for low-and moderate-income households.
Index - The interest rate or adjustment standard which 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.
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.
Level Payment Mortgage - A mortgage whose payments are identical for each
month over the life of the loan.
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.
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).
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.
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.
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 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 - 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 downpayment, monthly payment, 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
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 which insures mortgage loans
with very liberal downpayment requirements for honorably discharged veterans
and their surviving 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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Visit us online at:
http://www.houseplancentral.com (http://www.houseplancentral.com)
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Mark Mathis is a building designer and publisher of several stock house plan
websites and informational resources including http://www.HousePlanCentral.
com (http://www.HousePlanCentral.com),
http://www.HousePlanGallery.com (http://www.HousePlanGallery.com), and http://
www.moneytalks-bswalks.com (http://www.moneytalks-bswalks.com). Join each
site’s mailing list to receive special subscriber-only content.
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