Adjustable-rate mortgage (ARM)
A mortgage or home equity loan in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period, and over the life of the loan. Also called a variable-rate mortgage.
Annual Percentage Rate (APR)
Total yearly cost of the loan which includes the interest rate and other prepaid finance charges.
An informed estimate of the value of a property.
The value used to determine property taxes, based on a public tax assessor’s opinion.
A real estate agent who represents the interests of the buyer and has fiduciary and/or statutory duties to the buyer.
The meeting between the buyer, seller, and lender where the property and funds legally change hands. Closing is also called a settlement.
The fees incurred when purchasing a home or refinancing the mortgage on a property. Costs vary by transaction, and may include lender or third-party fees or prepaid expenses, like taxes, insurance and interest.
A specified condition in a sales contract that must be satisfied before the home sale can occur. When buying a home, the two most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.
Debt-to-income ratio is the percentage of your gross monthly income (before taxes are taken out) that you pay toward debt (loans, credit cards, court-ordered payments), as well as your projected total monthly home payment. It also will include HOA dues and private mortgage insurance, if applicable.
This is the up-front money you need for a home purchase that is not financed by the mortgage. Getting financial help with a down payment—or using gift monies toward it—may be possible depending on the loan program. Ask your loan officer for more information.
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
The difference between the fair market value (appraised value) of your home and your outstanding mortgage balances and other liens.
Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or closing. Escrow may also refer to an account held by the lender into which the homebuyer deposits money for tax or insurance payments.
A legal procedure in which property securing a defaulted loan is sold by the lender in order to repay a borrower’s loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.
Insurance to protect your home against damage from fire, hurricanes and other catastrophes. Usually, hazard insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim. Also called homeowners insurance.
An inspection of the condition of a property. A third party conducts the inspection, which includes all major appliances and structural elements. If an inspector finds something wrong, and your sales contract allows you to, you can request that the seller pay for the repairs. If the seller refuses, and your sales contract allows you to, you may not have to proceed with the purchase of the home.
The charge for borrowing money, paid over a specific period of time.
Mortgage Insurance (MI/PMI)
Protects the lender against loss and is generally required with a down payment of less than 20%. Different types of MI include FHA/MIP, Private Mortgage Insurance (PMI) and VA Guarantee Fee.
A percentage of the loan amount, paid at closing, to reduce the interest rate on the loan. One point equals 1% of the loan amount.
The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in order for the lender to preliminarily estimate how much loan the borrower may obtain for the purchase of a home. A prequalification is not a commitment to lend.
A fixed percentage based on the appraised value of your home that you pay to the county in which the home is located. The specific percent varies dramatically from county to county in every part of the country. You pay this tax annually, semiannually or as part of your monthly mortgage payments. Depending on when you actually close your loan, some of this property tax may be due at the time of closing. The local county assessor’s office can give you the rate for your county.
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Protects your home against loss arising from problems connected to the title to your property.
The process of examining all the data about a borrower's property and transaction to determine whether the mortgage applied for by the borrower should be issued. The person who does this is called an underwriter.