Home Buyer Glossary of Terms
Adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.
Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application
Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."
A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Deed of trust
Some states do not record mortgages. Instead, they record a deed of trust which is essentially the same thing
Earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house
An association with annual dues collected from residents to insure enforcement of any covenants or restrictions that apply to the properties covered. For example, the Homeowner’s Association could legally cause a homeowner to take care of their yard as required by a legal covenant signed as a part of closing. Homeowner’s Association fees also cover maintaining common areas, and in some cases may be either voluntary or mandatory.
The same as hazard insurance. It covers the property mortgaged against loss due to fire, hail, theft, etc. The borrower selects the insurance, and pays the annual premiums, often through an escrow account
Private Mortgage Insurance
Insurance paid to a private firm to insure the top 20% to 25% of a loan against default. It is rarely required when the owners’ equity exceeds 20% of the fair market value of the property
The form showing all fees, charges and monetary transfers involving the buyer, seller, and all parties involved in the transaction. Closing Statement.
The measurement of a parcel of real estate by a licensed surveyor. It shows the specific details about the measurement, shape, size and location of the property.
An insurance policy that may be purchased to protect the new owner from any liens or clouds against the title. In order to issue title insurance, the issuer will perform a title search in the county records. Since title is searched at the time of closing, title insurance is usually less expensive at the time of closing, rather than if a buyer called the title company at a later time, as an additional title search would have to be performed prior to issuing the insurance.
Truth in Lending Act
Federal law that makes lenders disclose, in writing, all terms, charges and APR to borrowers upon loan application and again at the closing of the mortgage loan.
Local requirements for the use of real estate in a particular area.