Home Buyer and House Plan Terms and Definitions
When you start shopping for a new home, you may encounter some
words and terms with which you are unfamiliar. The following
glossary will help you to be a better informed shopper.
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.
Annual Percentage Rate (APR) - The annual cost off credit
over the life of a loan, including interest, service charges,
points, loan fees, mortgage insurance, and other items.
Appraisal - An evaluation to determine what a piece of
property would sell for in the marketplace.
Appreciation - The increase in the value of a property.
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.
Balloon - A loan which has a series of monthly payments
(often for 5 years or less) with the remaining balance due in a
large lump sum payment at the end.
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.
Certificate of Occupancy - A document from an official
agency stating that the property meets the requirements of local
codes, ordinances, and regulations.
Closing - A meeting to sign documents which transfer
property from a seller to a buyer. (Also called settlement)
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 the developer has made for the benefit of all owners
in a subdivision.
Condominium - A home in a multi-unit complex; each
purchaser owns an individual unit, and all the purchasers
jointly own the common areas, such as the surrounding land,
hallways, etc.
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.
Credit Rating - A
report ordered by a lender from a credit bureau to determine if
the borrower is a good credit risk.
Default - A
breach of a mortgage contract (such as not making monthly
payments).
Density - The number of homes built
on a particular acre of land. Allowable densities are usually
determined by local jurisdictions.
Downpayment -
The difference between the sales price and the mortgage amount
on a home. The downpayment is usually paid at closing.
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