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As you start shopping
for a new home, you may encounter some unfamiliar words and terms.
The following glossary will help get you through the maze of buying
a home.
Adjustable-Rate Mortgage (ARM) - Loan with an interest rate adjusted
according
to movements in the financial market. Many offer lower-than-market
initial interest
rates that rise only gradually for the first few years.
Annual Percentage Rate (APR) - Annual cost of credit over the life
of a loan
including interest, service charges, points, loan fees, mortgage
insurance and other items.
Appraisal - Unbiased, professional opinion of a property's value
based on its style
and appearance, construction quality, usefulness and the value
of comparable properties.
Assessment - Tax levied on a property or a value placed on the
worth of a property
by a taxing authority.
Assumption - Transaction allowing a buyer to assume responsibility
for an existing
loan instead of getting a new loan.
Broker (Real Estate) - Person who receives a commission or fee
for bringing buyer
and seller together and assisting in the negotiation of contracts
between them. A license
is required in most states.
Building Code - Local regulations controlling design, construction
and materials
used in construction. Building Codes are based on safety and health
standards.
Buydown - Subsidy, usually paid by a builder or developer, to reduce
the monthly
payments on a mortgage loan.
Buyer's Agent - A real estate agent who represents only the buyer
in a real estate
transaction.
Cap - Limit to the amount an interest rate or monthly payment can
increase for an adjustable-rate loan either during an adjustment
period or over the life of the loan.
Certificate of Occupancy - Document from an official agency stating
the property
meets the requirements of local codes, ordinances and regulations.
Chain of Title - History of all documents transferring title to
a parcel of real property,
starting with the earliest existing document and ending with the
most recent.
Change Order - Homebuyer's written authorization to add, delete
or change an
item specified in a contract.
Closing - Meeting to sign documents that transfer from a seller
to a buyer. (Also
referred to as settlement.)
Closing Costs - Charges paid at settlement for obtaining a mortgage
loan and transferring a real estate title.
Commission - Agent's fee for negotiating a real estate or loan
transaction, often
expressed as the percentage of the sales price or mortgage amount.
Conditions, Covenants and Restrictions (CC
and Rs) - Standards
that define how
a property may be used and the protections the developer makes
for the benefit of all
owners in a subdivision.
Contingency - Condition that must be met before a contract is binding.
Convertibility - Ability to change a loan from an adjustable rate
schedule to a
fixed-rate schedule.
Covenant - Agreement between seller and buyer on a piece of property,
restricting
the use of that property. Also called deed restriction.
Density - The number of homes built on a particular acre of land.
Allowable densities
are determined by local jurisdictions.
Debt-To-Income Ratio - Long-term debt expenses as a percentage
of monthly
income; used by lenders to qualify borrowers for mortgage loans.
Due-on-Sale - Clause in a mortgage contract requiring the borrower
to pay the
entire outstanding balance upon sale or transfer of the property.
Earnest Money - 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 granted easement
to install pipes
or wires. An owner may voluntarily grant an easement or can be
ordered to grant one by
a local jurisdiction.
Equity - Difference between the value of a home and what is owed
on it.
Escrow - Handling of funds or documents by a third party on behalf
of the buyer
and/or seller.
Escrow Amount - Amount set up by a lender into which periodic,
usually monthly,
payments for taxes, hazard insurance, assessments and mortgage
insurance premiums are made. Funds are held in trust by the lender
who pays the sums as they become due.
Fair Market Value - Price at which property is transferred between
willing buyer
and willing seller, each of whom has reasonable knowledge of all
pertinent facts and neither being under compulsion to buy or sell.
Federal Housing Administration (FHA) - Federal agency that insures
mortgages
with lower down payment requirements than conventional loans.
Fixed-Rate Mortgage - Mortgage with an interest rate that remains
constant over
the life of the loan.
Hazard Insurance - Protection against damage caused by fire, wind
storms or other
common hazards. Many lenders require borrowers to carry it in an
amount at least to
the mortgage.
Index - Interest rate or adjustment standard that determines the
changes in monthly
payments for an adjustable - rate loan.
Inspection - Examination of work completed on a structure to determine
compliance
with building code and other code requirements.
Loan Origination Fee - Lender will charge a fee for the cost of
processing the loan,
usually calculated as a percentage of the loan amount.
Loan-To-Value-Ratio - Relationship between the amount of a home
loan and the
total value of a property.
Lock-In Rate - Commitment from a lender to make a loan at a pre-set
interest rate
at some future date, usually for not more than 90 days.
Mortgage Commitment - 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 Origination Fee - Charge for the work involved in preparing
and servicing
a mortgage application.
Permit - Document issued by a local government agency allowing
construction
work to be performed in conformance with local codes. Work may
not commence until
permits have been obtained, and each permit issuing agency must
inspect the work at
certain specified points during construction.
PITI - Principal, interest, taxes and insurance: the four major
components of
monthly housing payments.
Point - One-time charge
assessed by the lender at closing to increase the interest
yield on a mortgage loan.
Presettlement Walk-Through - Final inspection of house prior to
closing, conducted
by builder and buyer.
Principal - Amount borrowed, excluding interest and other charges.
Property Survey - Survey to determine the boundaries of a piece
of property. Cost
depends on the complexity of the survey.
Recording Fee - Charge for recording the transfer of a property,
paid to a city, county
or other appropriate branch of government.
Specifications - Contractual document describing in detail the
work to be performed;
method of construction; standards of workmanship; quality, type
and manufacturer
of materials and equipment for a particular project.
Title - Evidence, usually in the form of a certificate or deed,
of a person s legal right
to ownership of a property.
Title Insurance - Insurance against any title defects that may
exist prior to the time
the title is passed from one owner to the next, and which may come
to light in a future
transaction.
Veterans Administration (VA) - Federal agency that insures mortgage
loans with
very liberal down payment requirements for honorably discharged
veterans and their
surviving spouses.
Warranty - Promise, whether written or implied, that the material
and workmanship
of a product is free of defects or will meet the 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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