Home Buyer And Home Design 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