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ARM? GPM? PITI? You’d have to be a cryptologist to figure out some of the terms buyers encounter
during the home buying process. With this glossary of home buying terms at your
side, you can rest easy that your new home won’t get lost in translation.
Adjustable Rate Mortgage (ARM). A loan whose interest rate is adjusted according to movements in the financial
market.
Amortization. A payment plan by which a borrower reduces a debt gradually through monthly
payments of principal and interest.
Assessment. A tax levied on a property or a value placed on the worth of property by a
taxing authority.
Assumption. A transaction allowing the buyer of a home to assume responsibility for an
existing loan on the home instead of getting a new loan.
Binder. A receipt for a deposit paid to secure the right to purchase a home at terms
agreed upon by the buyer and seller.
Buydown. A subsidy (usually paid by a builder or developer) to reduce the monthly
payments on a mortgage loan.
Cap. A limit to the amount an interest rate or a monthly payment can increase for
an adjustable rate loan either during an adjustment period or over the life of
the loan.
Closing Costs. Charges paid at settlement for obtaining a mortgage loan and transferring real
estate title.
Conditions, Covenants and Restrictions (CC and Rs). The standards that define how a property may be used and the protections
developer has made for the benefit of all owners in a sub-division.
Conventional Loan. A mortgage loan not insured by a government agency (such as FHA or VA).
Convertibility. The ability to change a loan from an adjustable rate schedule to a fixed rate
schedule.
Cooperative. A form of ownership in a multi-unit complex; the purchasers own shares of the
entire complex rather than owning individual units.
Due-on-Sale. A clause in a mortgage contract requiring the borrower to pay the entire
outstanding balance upon sale or transfer of the property. A mortgage with a
due-on-sale clause is not assumable.
Earnest Money. A 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 grated an easement to install
pipes or wires. An owner may voluntarily grant an easement, or in some cases,
be compelled to grant one by a local jurisdiction.
Escrow. The handling of funds or documents by a third party on behalf of the buyer
and/or seller.
Federal Housing Administration (FHA). A federal agency which insures mortgages that have lower downpayment
requirements than conventional loans.
Fixed Schedule Mortgage. A mortgage whose payment schedule for the life of the loan is established at
closing. The payments and interest rate are not necessarily level.
Graduated Payment Mortgage (GPM). A fixed-rate, fixed-schedule loan that starts with lower payments than a level
payment loan; the payments rise annually over the first 5 to 10 years and then
remain constant for the remainder of the loan. GPMs involve negative
amortization.
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Hazard Insurance. Protection against damage caused by fire, windstorm, or other common hazards.
Many lenders require borrowers to carry it in an amount at least equal to the
mortgage.
Housing Finance Agency. A state agency that offers a limited amount of below-market-rate home
financing for low-and moderate- income households.
Level Payment Mortgage. A mortgage whose payments are identical for each month over the life of the
loan.
Mortgage Commitment. A 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.
Mortgagee. The lender who makes a mortgage loan.
Mortgage Origination Fee. A charge by a lender for the work involved in preparing and servicing a
mortgage application (usually 1 percent of the loan amount).
Note. A formal document showing the existence of a debt and stating the terms of
repayment.
PITI. Principal, interest, taxes and insurance (the four major components of monthly
housing payments).
Point. A charge of 1 percent of the mortgage amount. Points are a one-time charge
assessed by the lender at closing to increase the interest yield on a mortgage
loan.
Principal. The amount borrowed in a loan, excluding interest and other charges.
Property Survey. A survey to determine the boundaries of your property. The cost will depend on
the complexity of the survey.
Rapid Payoff Mortgage. (See Growing Equity Mortgage).
Real Estate Settlement Procedures Act (RESPA). A federal law requiring lenders to provide home buyers with information about
known or estimated settlement costs. The act also regulates other aspects of
settlement procedures.
R-Value. The resistance of insulation material (including windows) to heat passing
through it. The higher the number, the greater the insulating value.
Shared Appreciation Mortgage. A loan in which partners agree to share specified portions of the downpayment,
monthly payment and appreciation.
Transfer Taxes. Taxes levied on the transfer of property or on real estate loans by state
and/or local jurisdictions.
Walk-Through. A final inspection of a home before settlement to search for problems that
need to be corrected before ownership changes hands.
Warranty. A promise, either written or implied, that a product is defect-free or will meet a 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.
Courtesy of NAHB.org
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