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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 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 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)
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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.
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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.
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.
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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 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.
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.
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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
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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 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.
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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).
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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.
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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 down payment, 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.
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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 down payment 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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