Acceptance - written approval of the buyer's offer by the seller. The acceptance of your purchase offer means the seller agrees to the price and terms you have outlined.
Abstract of Title - documents recording the ownership of property throughout time.
Addendum - an addition or change to a contract; often used to outline changes to the contract during the contingency phase. Addendums must be approved by both buyer and seller.
Additional Principal Payment - money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.
Adjustable Rate Mortgage (ARM) – a mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on an index rate. The monthly payment may be subject to a cap. Also referred to as variable-rate mortgages (VRMs).
Amortization - the reduction of a debt through regular payments of both interest and principal, or sometimes interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.
Annual Percentage Rate (APR) - a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges such as mortgage insurance and loan origination fees. All lenders, by federal law, follow the same rules to ensure the accuracy and cost-comparability of their loans. APR is a higher rate than the simple interest of the mortgage.
Appraisal - an estimate of a property's fair market value based on the sales of comparable homes in the area and key features such as age, size, location, quality, etc. Generally required by a lender before loan approval.
Assessed Value - the value that a public official has placed on a home (used to determine taxes).
Back End Ratio - the ratio of all fixed debt, including housing expenses, to gross income. Most lenders will require that your back-end ratio be at 45 percent or under.
Balloon Loan - a mortgage structure that typically offers low rates for an initial period of time (usually 5, 7, or 10 years), after which the remaining balance (the ‘balloon payment’) is due in full or is refinanced by the borrower.
Bridge Loan - a short-term loan paid back relatively fast. Normally used until a long-term loan can be processed.
Broker - a licensed individual or firm that charges a fee to serve as the mediator between buyer and seller. Mortgage brokers are in the business of arranging funding or negotiating terms for a client, but who do not lend the money. A real estate broker is someone who helps locate or sell a house.
Cap - a limit placed on an adjustable rate mortgage, establishing how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage.
Capital - an individual's savings, investments, or assets.
Cash-Out Refinance - refinancing of a mortgage at a higher principal amount to get additional money. May be an option when a property has a higher value than its outstanding mortgage balance due to appreciation or payments made.
Cash Reserves - a cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Certificate of Title - a document, usually provided by a title company, that shows the property legally belongs to its current owner. Before the title can be transferred at closing, it must be clear and free of liens or other claims.
Closing - the final step in a property purchase where all costs are paid, mortgage notes are signed, and the title is transferred from seller to buyer. Closing occurs at a meeting between that buyer, seller, and various settlement agents. Also known as settlement.
Closing Costs - fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. Both the Buyer and Seller typically have closing costs.
Co-Signer - a person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
Collateral - security in the form of money or property pledged for the payment of a loan. Typically, on a home loan, the home itself is the collateral and is encumbered until the loan is satisfied.
Commission - an amount paid to real estate broker(s) at the close of escrow. The amount is agreed upon before the transaction takes place and is usually a percentage of the purchase price. Typically the seller pays commission, even for the buyer’s agent.
Conforming Loan - a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits.
Contingency - a provision in a purchase contract outlining conditions that must be fulfilled before the contract is binding. Either buyer or seller may specify contingencies, but both parties must accept them. Financing, appraisal and inspection contingencies are most common.
Conventional Loan - a private sector loan; one that is not guaranteed or insured by a U.S. government program such as FHA or VA.
Covenants - legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as deed restrictions.
Credit Report - a report generated by an independent credit bureau; contains an individual's credit history for the past seven years. The credit bureau may also perform some investigative functions and research of public records.
Credit Score - a score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 300 – 850; the higher the score, the ‘better’ the person’s credit. Also known as a FICO score.
Debt-to-Income Ratio - a comparison or ratio of gross income to housing and non-housing expenses. Often used by banks and federal programs to help determine suitability for a prospective mortgage loan.
Deed - a document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as a title.
Deposit (Earnest Money) - money put down by a potential buyer to show they are serious about purchasing the home. Deposits generally become part of the down payment at closing time, but may be returned to the buyer if contingencies are not met to the buyer's satisfaction and the deal does not close. A deposit may also be forfeited if the buyer pulls out of the deal.
Disclosures - the release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. Some disclosures may be required by law, and will be part of the documents signed at closing time.
Down Payment - the portion of a home's purchase price that is prepaid in cash at time of closing, and is not part of the mortgage loan. This amount varies based on the loan type and other circumstances. Mortgage insurance may be required if a down payment is less than 20 percent of the purchase price.
Document Recording - after closing on a loan, certain documents are filed and made public record. Discharges for any prior mortgage holder are filed first, then the deed is filed with the new owner's and mortgage company's names.
Earnest Money - see Deposit.
Easements - the legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.
Equity - the portion of a property’s value in excess of outstanding liens and mortgage obligations. An owner’s equity in a property grows as the amount of their loan decreases. Equity is also subject to fluctuations in property values.
Escrow - funds held by a third party until contractual conditions are met, such as the deposit paid on a pending home purchase. Also, funds held in an account to be used by your mortgage lender to pay for home insurance and property taxes.
Escrow Account - a separate account into which lenders put a fixed portion of each monthly mortgage payment you pay. The escrow account provides the funds needed for timely payment of expenses such as property taxes, homeowners and/or special hazard insurances, and mortgage insurance. Also known as an Impound Account.
Executed Contract - contract which has been signed by all parties. There must be an executed contract before a home purchase transaction can be closed.
Fair Credit Reporting Act - federal legislation to ensure that credit bureaus are fair and accurate in protecting an individual's privacy rights. Enacted in 1971; amended in October 1997.
Fair Housing Act - a law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair Market Value - the amount a willing buyer would expect to pay a willing seller for a home. A home’s appraised value is an estimate of the current fair market value.
FHA – Federal Housing Administration; established 1934 to advance American homeownership by providing mortgage insurance to lenders to cover losses that might occur when a borrower defaults. Today, the FHA also sets standards for construction and underwriting.
FICO Score - FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history drawn from the three major credit bureaus. Lenders and other credit grantors use this score to decide if the person is likely to pay his or her bills. FICO scores usually range between 300 and 850. Higher is better.
Fixed-Rate Mortgage/Loan - a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change. Term length varies, but typical range is 10 to 30 years.
Float - the act of allowing an interest rate and discount points to fluctuate with changes in the market.
Floor Plans – a series of architectural drawings that show the overall layout of a home, floor by floor. Each room’s size and shape are shown, along with any optional configurations of those rooms.
Framing - the construction of the skeleton structure, or framework, of a house.
Front End Ratio - a percentage comparing a borrower's total monthly cost to buy a house (mortgage principal and interest, insurance, and real estate taxes) to monthly income before deductions. See also Back End Ratio.
Good Faith Estimate - an estimate of all closing fees including prepaid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
Graduated Payment Mortgages - mortgages that begin with lower monthly payments that get slowly larger over a period of years, eventually reaching a fixed level and remaining there for the life of the loan. Graduated payment loans may be good if you expect your annual income to increase.
Gross Income - money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.
Hazard Insurance - protection against a specific loss, such as fire, wind, etc., for a specified period of time and secured by the payment of a regularly scheduled premium.
Home Equity Line of Credit - a mortgage loan, usually in the form of a second mortgage, that allows a borrower to draw cash against their equity in a home, up to a predetermined amount.
Home Inspection - an examination of the structure and mechanical systems to determine a home's quality, soundness and safety.
Home Site - the location of your new home; the property it will sit on.
Homeowners Association (HOA) - the organized group of property owners in a community who maintain and manage common areas, collect dues, and establish and enforce property standards.
Homeowner's Insurance - also called hazard insurance; a policy that combines protection against damage to a dwelling and its contents from fire, storms or other damages with liability protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood coverage is generally not included, and must be purchased separately if required.
HUD1 Statement - also known as the ‘Settlement sheet’ or ‘closing statement, it itemizes all closing costs and must be given to the borrower at or before closing. Items that appear include real estate commissions, loan fees, points, and escrow prepays. HUD stands for U.S. Dept of Housing and Urban Development.
Index Rate - most lenders tie ARM interest-rate changes to changes in an ‘index rate.’ These indexes usually go up and down with the general movement of interest rates, and so cause linked ARM mortgage payments to go up and down correspondingly. Ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.
Inquiry - a credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries can sometimes make a credit score lower.
Interest Rate - the amount of interest charged on a monthly loan payment, expressed as a percentage. Interest rates available for a specific mortgage vary based on credit score, down payment and other market conditions.
Joint Tenancy (with Rights of Survivorship) - two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate.
Jumbo Loan (also non-conforming loan) - a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Liabilities - a person's financial obligations such as long-term & short-term debt, and other financial obligations to be paid.
Liability Insurance - insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person; normally included in homeowner's insurance policies.
Lien - a form of encumbrance that holds property as security for the payment of a debt.
Life Cap - a limit on the amount interest rates can increase or decrease over the life of a specific adjustable-rate mortgage (ARM).
Liquid Assets - a person’s cash and other assets easily converted into cash.
Loan Origination Fee - a charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent (‘points’) of the mortgage amount is common.
Loan-to-Value Ratio (LTV) - the ratio of the amount borrowed to the appraised value or sales price of a home. Most traditional loans require that that the loan to value ratio be at 80 percent to avoid mortgage insurance costs.
Lock-In - since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time (the ‘lock-in period’).
Market Value - the amount a willing buyer would expect to pay a willing seller for a home. A home’s appraised value is an estimate of its current market value.
Master-Planned Community – A designed suburban community with homes of varying types and prices, sometimes built by several different builders. Master-planned communities usually include clubhouses/resident centers, pools, golf and other recreational facilities. Commercial districts and retail areas are often within the plan, as well.
Maturity - the date when the principal balance of a loan becomes due and payable.
Mixed-Use Property - a property that may have more than one use. A home that doubles as a business is an example of a mixed-use property.
Mortgage Life and Disability Insurance - term life insurance bought by borrowers to make payments on a mortgage in the event of death or disability. There are many different forms of coverage determining amount of payments and when payments begin and end.
Mortgage Insurance - a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; generally required for borrowers making a down payment of less than 20 percent of the home's purchase price. The cost of mortgage insurance is usually added to your monthly payment.
Mortgage Interest Deduction - the interest cost of a mortgage, which is a tax - deductible expense under many circumstances.
Net Income - Your take-home pay; typically the amount of money you receive in your paycheck(s) after taxes and deductions.
No Cost Loan - Generally, a loan that does not charge for items such as title insurance, escrow fees, settlement fees, appraisal, recording fees or notary fees. It may also offer no points. This lessens the need for upfront cash during the buying process, however no cost loans usually have a higher interest rate.
Note - a loan document that is signed by the borrower and serves as formal evidence of a debt. When you sign your mortgage it becomes a note, which is a promise to pay the principal back, with applicable interest.
Offer – a potential buyer’s presentation or proposal of their willingness to purchase a home at a specific price; generally put forth in writing.
Options – discretionary features of a new home beyond those already included in the base price. Each home design usually has its own list of options, which might include upgrades to appliances, flooring or countertops, bath fixturing, cabinetry or window details.
Origination - the process of preparing, submitting and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination Fee – a lender’s charge for originating a loan; usually calculated in the form of ‘points’ and paid at closing. Each point is one percent of the loan amount.
Owner's Policy - an insurance policy that protects the Buyer from title defects.
PITI (Principal, Interest, Taxes, and Insurance) - the four elements of a monthly mortgage payment. Principal and Interest go directly towards repaying the loan, while the Taxes and Insurance portion goes into an escrow account to cover these expenses as they come due.
PMI - Private Mortgage Insurance – privately-owned companies that offer mortgage insurance for qualified borrowers with down payments of less than 20 percent of purchase price.
Points - a point is equal to one percent of the principal amount of a mortgage. Lenders frequently charge points to help cover loan closing costs. Points are usually collected at closing and may be paid by the borrower, seller, or perhaps split between them.
Pre-Approval - a lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Prepayment - any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, full or partial payoff of the loan, or a foreclosure.
Pre-Qualify - a lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.
Prime Rate - the interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate may be used as the index basis for adjustable rate mortgages (ARMs) or home equity lines of credit.
Principal - the initial amount of money borrowed to buy a house, or the amount of the loan remaining to be paid back to the lender. It is the original loan amount minus the total repayments of principal made to date.
Property - in a real estate contract, the property is the land within the legally described boundaries, along with all permanent structures and fixtures. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, which transfers with the property unless excepted.
Property Tax - a tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percentage per $1,000 of assessed value of the property.
Punch List - a list of any items that may still need some attention or completion after final walk-through of a newly constructed home. (At Avatar, our goal is to always keep this list a short one.)
Qualifying Ratios - guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.
RESPA – the Real Estate Settlement Procedures Act, which protects consumers from abuses during the residential real estate purchase and mortgage loan process by requiring lenders to disclose all settlement costs, practices, and relationships.
Rate Lock - a commitment by a lender to a borrower guaranteeing a specific interest rate over a period of time at a set cost.
Recording Fees - charges for recording a deed with the appropriate government agency.
Refinancing - paying off one loan by obtaining another; refinancing is generally done to secure better loan terms, such as a lower interest rate.
Remaining Balance - the amount of loan principal that has not yet been repaid.
Remaining Term - the amount of original loan amortization term remaining (in months/years).
Second Mortgage - an additional loan on a property already mortgaged. In case of a default, the first mortgage must be paid before the second mortgage. For this reason, second loans usually carry a higher interest rate.
Setback - the distance between a property line and the area where building can take place. Setbacks are used to assure space between buildings and from roads for many purposes including drainage, utilities and esthetic standards.
Settlement - another name for closing.
Settlement Statement - an itemized statement of services and charges relating to the closing of a property transfer. The buyer has the right to examine the settlement statement before the closing. Also known as the HUD 1 Statement.
Survey - a property diagram that indicates legal boundaries, easements, rights of way, encroachments, improvement locations, etc. Surveys are conducted by licensed surveyors and are normally required by lenders to confirm that property boundaries and features are correctly described in mortgage documents.
Terms - The period of time and the interest rate agreed upon by the lender and the borrower to repay a loan.
Title - a legal document establishing property ownership and recorded to make it part of the public record. Also known as a Deed.
Title Insurance - insurance that protects lenders against any claims that arise from arguments or errors affecting ownership of the property. Most lenders require this coverage, and the charge is included in the closing costs. A separate optional version is available to protect the home buyer/owner.
Title Search - a formal check of public records to confirm that the seller is the recognized owner of the real estate, and that there are no unsettled liens or other claims against the property.
Transfer tax - a state tax that may be imposed on the sale of real property, to be paid by the seller. Transfer tax is just one of the many taxes and fees associated with the sale of real property.
Truth-in-Lending - a federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with a loan.
Two Step Mortgage - an adjustable-rate mortgage (ARM) that has one interest rate for the first five to seven years, followed by a different interest rate for the remainder of the term.
Underwriting - the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.
VA Mortgage – a mortgage made to a U.S. military veteran and guaranteed against default by the Department of Veterans Affairs.
Walk-Through - the buyer’s final inspection of a property being sold, to confirm that all fixture and non-fixture property is in place and that electrical, mechanical, and plumbing systems are in working order. Any contingencies specified in the purchase agreement, such as repairs or enhancements, are also confirmed.
Warranty Deed - a legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property, and that there are no claims against the property.