Anytime Adviser—Home Buying Coach

 

Glossary of Home-Buying Terms

 

Adjustable-rate-mortgage (ARM): A mortgage having an interest rate that can change at designated intervals, based on a financial index.

Annual percentage rate (APR): A rate that reflects the actual annual cost of a loan, incorporating the loan interest rate, private mortgage insurance, points, and fees.

Appraisal: A professional assessment of the market value of a property.

Cap: A limit set on an ARM as to how much the interest rate or monthly payments may increase.

Closing: The legal procedure in which the transfer of property becomes final. Also called settlement.

Closing costs: Costs incurred by the buyer and seller in transferring ownership of a property.

Contingency: A condition that must be met before a contract is legally binding.

Convertible ARM:  An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Down payment: The part of the purchase price of a home that the buyer pays in cash up front; not included in the loan.

Earnest money: A deposit given to the seller by the buyer when submitting an offer to show serious intent about buying a property.

Escrow: The holding of documents and money (such as a deposit) by a neutral third party prior to closing. Also an account held by the lender into which a homeowner pays money for taxes and insurance.

Equity: The difference between the market value of a property and the owner's outstanding mortgage balance; measures the degree of ownership.

Fixed-rate mortgage: A mortgage in which the interest rate does not change during the entire life of the loan.

Flood insurance: Insurance that will be required if a property is in a federally designated flood hazard area.

Homeowner's insurance: An insurance policy offers liability coverage and protects the homeowner against physical damage to the property.

Interest rate cap: A provision of an ARM that limits how much the interest rate can increase per adjustment period.

Lifetime cap: A provision of an ARM limiting the total increase in the interest rate over the life of the loan.

Lock-in rate: An interest rate the lender guarantees to the borrower provided the mortgage is closed within a certain time period. The borrower pays a fee for this guarantee.

Margin: The set percentage rate the lender adds to the index rate to determine the interest rate on an ARM.

Mortgage: A legal document that pledges a property to the lender as security for the payment of a debt.

Offer to purchase: A formal document in which a buyer proposes to buy a property for a specified amount and under certain conditions. Acceptance by the seller creates a contract binding on both parties, subject to any contingencies.

PITI: Stands for principal, interest, taxes, and insurance—the components of a monthly mortgage payment.

Points: A one-time charge by the lender to increase the yield of a loan. Equal to one percent of the loan amount and paid at closing.

Prequalification: The process of determining how large a loan a prospective home buyer can qualify for; this procedure is done before actually applying for the loan.

Principal: The amount originally borrowed. Also that amount of the monthly mortgage payment that reduces the outstanding balance of a mortgage.

Private mortgage insurance (PMI): Insurance provided by a nongovernment insurer to protect a lender against loss if a borrower defaults. Usually required if down payment is less than 20 percent of the purchase price.

Real estate agent: A person licensed to negotiate and transact the sale of real estate; works on behalf of the seller, unless designated as a buyer's broker.

Title: A legal document establishing the right of ownership.

Title insurance: Insurance to protect the lender (lender's policy) or the buyer (buyer's policy) against loss arising from disputes over property ownership.

Title search: A detailed examination of the title records to ensure that the seller of a property is the legal owner and that there are no liens or other claims outstanding.

 

 

Anytime Adviser—Home Buying Coach

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