|GLOSSARY OF TERMS|
Adjusted Interest Rate Mortgage (ARMs)
An adjusted interest rate mortgage is a type of loan that offers a low introductory interest rate that adjusts or changes every year according to market conditions, for the life of the loan.
Amortization is the paying off of a debt with a fixed repayment schedule in regular installments over a period of time.
Annual Percentage Rate (APR)
The Annual Percentage Rate, or APR, is the average annual finance charge (including fees and other costs) divided by the amount borrowed.
A borrower’s agent represents the interest of the homebuyer. The agent will research and show the homebuyer potential homes, while providing guidance and insight during the homebuying process.
Closing (or settlement) is the legal process of transferring ownership of a home from one person to another.
Cooperative Housing Development (Co-Op)
A co-op is a housing development where buyers own shares in the corporation the runs the housing development. Shareholders pay a monthly fee that covers their proportionate share of the expense of operating the entire cooperative. This includes the underlying mortgage, taxes, management, maintenance, insurance, utilities and contributions to reserve funds.
A condominium or condo is a housing development where a homeowner owns a specified piece of real estate, usually an apartment, in a housing development.
A line of credit is any credit source extended to a person. This includes a car loan, personal loan, credit cards or any situation where you have borrowed money for the purchase of an item.
A credit report is a record of an individual’s history of borrowing and repaying debts. A credit report is used to assess how much of a risk a potential borrower is when applying for a loan.
A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.
A down payment is percentage of the total purchase of a home paid at the beginning of a mortgage loan. A down payment is typically between 5 percent and 25 percent of the total value of a home.
Equity is essentially stock or ownership in a property. In terms of a home, the borrower gains equity in their home as they pay off their mortgage.
Earnest Money is a showing of commitment from the buyer to the seller. The buyer will entrust a dollar amount, usually 5% of the asking price to a neutral party. If the seller rejects the buyer’s offer, the buyer will get their money back. If the seller accepts the offer and the buyer backs out for any reason, the buyer loses that money.
Escrow is essentially an account where funds / assets in the purchase of a home are held until all the specified conditions of the purchase are met. Usually property taxes and insurance funds are held in escrow. Lawyers commonly act as escrow agents in mortgage transactions, securing the property and examining documents to ensure the terms of the sale are met on both ends.
Fixed interest mortgage
A fixed-interest mortgage is a type of loan that has a fixed interest rate that borrowers will pay over the term or length of the loan
A foreclosure is a home that has been reclaimed by the lender because the homeowner failed to pay back their loan. These homes are advertised at a discounted price, but come in “as-is” condition.
Home Owners Association Fees
Home Owner’s Association (HOA) fees, are fees associated with living in a housing development, usually a condo. These fees cover the cost of maintenance and other amenities.
A home appraisal is a survey used to determine the market value of a home.
A home inspection is a survey of a home to assess any damages, including water damage, foundation damage, faulty heating or wiring and any other damages.
Homeowner’s insurance protects property against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. The lender will expect the borrower to have a home insurance policy in effect by the closing.
House poor is a situation where a homeowner is spending a large portion of their total income on maintaining their home including mortgage payments, property taxes, maintenance, utilities and other associated expenses, and are short on cash for covering other financial obligations.
HUD is the Department of Housing and Urban Development.
A loan is pre-approved when a borrower has shared their credit status, income, assets and existing debts with a lender, and the lender has verified the information in order to provide the borrower with a estimated loan amount.
A loan is pre-qualified when a borrower shares their credit stats, income, assets and existing debts with a lender, and based on the borrower’s word, the lender provides an estimated loan amount.
Private Mortgage Insurance
Private Mortgage Insurance protects the lender in case the borrower defaults on the loan. PMI is required when the down payment is less than 20 percent. PMI must be paid until the borrower the borrower has at least 20 percent equity in the home. The Homeowner’s Protection Act established rules that mortgages automatically terminate PMI after a borrower has reached 22 percent equity in the home, based on the original property value.
A realtor is a real estate professional who acts as an agent for the sale and purchase of property. A realtor is a member of the National Association of Realtors and is required to be a member of a local association or board and a state association.
A rent-to-own home is a situation where a buyer will agree to rent a home for a designated term, generally three years, with an option to purchase the home in the future. Each month of rent the buyer pays is income for the seller, while a portion of it goes toward a down payment to eventually buy the home.
A short sale is a situation where the lender agrees to let a homeowner sell their house for less than the amount owed on the mortgage.
A seller’s agent, or listing agent, represents the interests of the person selling their home. It is their duty to share information about the property with potential buyers, and provide guidance to the seller during the process of selling their home.
Title insurance protects the lender or owner against loss in the event of a property dispute. Lenders often require title insurance. In fact, most title insurance only covers the lender, while paid for by the borrower. The borrower must purchase a separate policy.