HOME BUYING AND FINANCING TERMS:

Adjustable Rate Mortgage (ARM). A mortgage on which the interest rate may be adjusted up or down based upon a change in a readily verifiable index. Rate adjustments may be implemented through changes in the payment amount, in the outstanding loan balance or in the term of the loan. 

Agreement of Sale. Known by several names ("contract of purchase", "purchase and sale agreement", "purchase agreement", "sales agreement", "binder") according to area. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions, reduced to writing and signed by both parties. 

Amortization. Repayment of a loan through a predetermined schedule of payments of principal and interest. At the maturity of the loan, both principal and interest are completely paid. 

Appreciation. An increase in the value of a property due to a rise in its market price, appraised value, or other measure of current value. 

Appraisal. A written estimate of the value of real estate as of a given date always performed by an appraiser. 

Assessment. The value placed on property for purposes of taxation may also refer to a tax due for a specific purpose, such as a sewer assessment. 

Balloon Payment. The final payment on a loan, usually substantially larger than previous payments, because the payments were not large enough to fully amortize the loan. 

Bill of Sale. An instrument which transfers title to personal property. 

Bridge Loan. A short-term loan on one property that is applied toward the purchase of another property prior to the sale of the first property. Used when a buyer needs the proceeds of a sale before purchasing another property. 

Buydown. Funds paid or set aside at closing to supplement a buyer's monthly payment. Buydowns may be temporary (for a period of time) or permanent (for the life of the loan). 

Cap. The limitation on the amount by which either interest rates or payments can change at any single adjustment interval on an adjustable rate mortgage loan. 

Closing. The final step in the sale and purchase of a property when the title is transferred from the seller to the buyer and money due the seller is handed over. 

Closing Costs. (settlement costs) Costs in addition to the price of a house, usually including, but not limited to, mortgage origination fee, lender's title insurance, recording fees, intangible tax, tax service, underwriting fee and attorney's fee. Prepaid items such as taxes and insurance payments which are collected in advance of closing to be held in an escrow account are not considered "closing costs". 

Closing Statement. The computation of financial adjustments as of the day of closing to determine the net amount of money due to seller to complete purchase of the real estate. 

Conventional Loan. A mortgage loan not insured by FHA or guaranteed by VA. Credit Rating. A rating made by a company (such as a credit bureau) based on one's present financial condition and past credit history. 

Deed to Secure Debt. A security instrument whereby real property is given as security for a debt. 

Default. Failure to make loan payment on time as agreed to in the Note. If a payment is 30 days late, the loan is in default, and it may give the lender the right to start foreclosure proceedings. 

Depreciation. A loss or decrease in the value of a piece of property due to age, wear and tear, economic conditions or adverse neighborhood changes. 

Discount Points. See Point. 

Due-on-sale Clause. A form of acceleration clause that calls due, at the lender's option, the entire outstanding balance of a loan upon the sale or transfer of a property. Used by lenders primarily as a means of restricting either a loan assumption or sale of a property without the lender's approval. 

Earnest Money. The money deposited in escrow for the potential purchaser by the real estate broker upon the signing of the agreement of sale to show that the purchaser is serious about buying the house. 

Equity. The difference between a property's market value and the amount of all liens against the property. Refers to an owner's interest in a property. 

Escrow Payment. That part of a borrower's monthly payment held by the lender to pay for items such as taxes, private mortgage insurance, hazard insurance, mortgage insurance and other items when they become due. 

FHA. Federal Housing Administration (a division of the Department of Housing and Urban Development) insures home mortgage loans made by private lenders. Finance Charge. The total of all charges paid in order to obtain a loan. 

Fixed Rate Mortgage. A mortgage on which the interest rate remains the same for the life of the loan. Fixture. What was formerly personal property which is now permanently attached to real property and goes with the property when it is sold. 

Foreclosure. The legal process by which a lender forces payment of a loan by taking the property from the owner and selling it to pay off the debt. 

Hazard Insurance. Insurance which protects against damage caused to property by fire, windstorm or other common hazard. Required by many lenders to be carried in an amount at least equal to the mortgage. 

Homeowners Insurance Policy. Insurance that covers the house and its contents in the case of fire, wind damage or theft. It also covers the homeowner in case someone is injured on the property and brings suit. 

Index. An interest rate indicator used to determine changes in the mortgage interest rate of adjustable rate mortgages. Averaged rates on Treasury Bills or Treasury Securities over a specified period of time are often used. Lien. A hold or claim which someone has on the property of another as security for a debt or charge. If the debt is not repaid as agreed, the property may be sold to pay off the lien. 

Loan Disclosure Note. Document spelling out all the terms involved in obtaining and paying off a loan. 

Margin. A fixed percentage or amount added to the index at each adjustment interval to determine the new interest rate on an adjustable rate mortgage loan. Index + Margin = Interest Rate. 

Market Value. The highest price a buyer, ready, willing and able, but not compelled to buy, would pay, and the lowest price a seller, ready, willing and able, but not compelled to sell, would accept. 

Market Price. The actual amount for which a piece of property is sold. Also, "sales price" or "purchase price". 

Mortgagee. A lender who holds a mortgage (Deed to Secure Debt) as security for repayment of a debt. Mortgagor. A borrower of money who gives a mortgage (Deed to Secure Debt) as security. 

Negative Amortization. An increase in the unpaid balance of a loan that occurs if loan payments are insufficient to cover the interest on the loan. The unpaid interest is added to the loan balance. 

Origination Fee. The fee that the lender charges the borrower to cover the cost of issuing a loan. It pays for processing your loan which includes collecting information about your credit worthiness and the property you are buying. This information is analyzed to determine whether you will be able to pay the loan back as agreed; and, whether the property provides sufficient collateral in case you fail to repay the loan. It usually does not include fees for appraisals, credit report, inspections and loan document preparation. 

PITI. Abbreviation for the elements that commonly make up a borrower's payment on an amortized loan: principal, interest, taxes and insurance. 

Point. One percent of the principal of a loan. Points are loan fees charged by lenders to increase the yields on below-market interest rate loans to competitive levels, and are paid when the loan is closed. Also called discount point. 

Prepaid Items. An advance payment at the time of closing for taxes, hazard insurance, and mortgage insurance which is held in an escrow account by the lender. 

Prepayment Penalty. A charge made by the lender if a mortgage loan is paid off before the due date. FHA does not permit such a penalty on its FHA-insured loans. 

Principal. The amount of money borrowed which must be paid back, along with interest and other finance charges. 

Private Mortgage Insurance (PMI). Insurance provided by a private company (rather than the FHA) that protects the lender against loss caused by a borrower's default. The borrower, however, pays the premium for the insurance. This insurance usually is required on loans with high loan-to-value ratios. Purchase Money Mortgage. A mortgage loan that is given to a buyer by a seller as part of the purchase price; i.e., the seller helps finance the purchase. May be a first or second mortgage depending upon whether the property is subject to an existing mortgage. 

Recording Fees. The charge to put on public record the details of legal documents such as a deed or mortgage. 

Refinancing. The process of paying off one loan with the money (proceeds) from another loan. 

Sellers Property Disclosure Statement. Provided by the seller for all parties in a transaction. It states the seller's current actual knowledge of the condition of the property. 

Title. The rights of ownership of a particular property and the document which proves that ownership (commonly a deed). 

Title Insurance. Special insurance which usually protects lenders against loss of their interest in property due to legal defects in the title. An owner can protect his interest by purchasing separate coverage. 

Title Search. An examination of public records to uncover any past or current facts regarding the ownership of a piece of property. A title search is intended to make sure the title is marketable and free from defects. 

Veterans Administration (VA). A federal agency that allows eligible veterans to obtain residential mortgage loans with little or no down payment from private lending institutions. The VA guarantees the lender for a specified amount of the loan in the event of default by the borrower.