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
©
2003 Credit Union National Association Inc.
