Home Buyer Dictionary

These are just some of the often mind-boggling phrases used when purchasing a new home. To help you out, we've put together an extensive glossary of real estate "speak".

ADJUSTABLE RATE MORTGAGE (ARM): Adjustable mortgage loan (AML), or a variable rate mortgage (VML). This is a mortgage whose interest rate fluctuates with the cost of money.

ADJUSTMENT PERIOD: This is the period of time between changes in the interest rate on an ARM. For example, an ARM that changes its rate once a year has a one-year adjustment.

AMORTIZATION: The process of repaying a loan in equal installments of principal and interest, instead of interest-only payments.

APPRAISAL: An estimate of the fair market value of land and improvements.

APR: Annual Percentage Rate. The sum of finance charges (interest, loan fees, points) expressed as a percentage of the loan amount.

ASSESSMENT: Special and local taxes set on a property in the immediate vicinity of an improvement, such as street lighting districts or flood control.

ASSIGNMENT: The written transfer of an asset, such as a deed or property, from one party to another.

BALLOON PAYMENT: At the end of a mortgage or other long-term loan, this is a final lump sum payment that is due on the principal.

BENEFICIARY: Whoever receives the benefit of the security. In a trust deed, the lender is the beneficiary.

BUY-DOWN: A mortgage subsidy that is sometimes offered by a homebuilder to help buyers afford the property. The builder pays a portion of the interest payment for a few months, thereby lowering the initial monthly payment for the buyer.

CAP: The limit on an interest rate for an adjustable mortgage (either on each adjustment or over the life of the mortgage).

CC & RS: Covenants, Conditions and Restrictions. This document is an agreement to control the requirements, restrictions and use of a property.

CLOSING COSTS: The closing costs of a mortgage loan depend on all the costs paid by borrowers and/or sellers. These usually include the origination fee, discount points, title insurance, escrow fees, loan document fees, appraisal and credit report fees, mortgage insurance and prepaid items like taxes and insurance impounds.

CLOSING STATEMENT: The settlement of escrow. For the buyer, it includes deposits made, the loan received or assumed and any credits by escrow instructions, less the sales price, loan costs, insurance, prorate items, etc. For the seller, it has an accounting of the sales price minus any charges assessed to the seller and any payoffs made on the seller's behalf.

CONFORMING LOANS: These are loans that conform to the maximum loan amounts set up by FHLMC (Federal Home Loan Mortgage Corporation) and FNMA (Federal National Mortgage Association), the agencies that purchase the loans.

CONTINGENCY: It is a condition that must be met before a contract becomes binding. (For example, a sales agreement that's contingent on the sale of the buyer's current home).

CONVERSION CLAUSE: This provision (available in some ARM's) allows the buyer to change the loan to a fixed rate. The new rate is normally set at the prevalent interest rate for fixed-rate mortgages. This feature may cost extra.

DEED: A written document that transfers ownership of real property from one party to another.

DEED OF TRUST: A document whereby the owner of real property uses that property as collateral for the payment of a note or other obligation.

DEFAULT: The failure to pay an obligation or perform a duty.

DEMAND: An order for funds. When the seller's loan is to be paid in full through escrow, escrow must request and receive a written demand for payment to use the necessary documents to release the loan.

DOWN PAYMENT: The cash difference between the sale price and the loan amount which is the portion of price which the buyer pays before moving in. Often, the down payment is expressed as a percentage of the total purchase price, typically between 3%-20%. If you have never owned a home before, the payment often comes from personal savings, 401K program, or other source. If you are selling one home in order to buy another, then your down payment usually comes from the equity in your current home. In addition to the down payment, there are usually other costs and fees called closing costs which the buyers needs to pay before moving in.

EARNEST MONEY: A monetary deposit given as part of the purchase price of a home which binds the agreement between buyer and seller.

EASEMENT: A right or interest regarding a property. For example, the right to pass through another's property to reach your own.

ELEVATION: The exterior face of a home including the materials (like brick or stone) used on that face. It�¢??s also considered an architectural style.

EQUITY: The value of property beyond the amount owed on it.

ESCROW: A neutral third party who acts as an agent for both buyer and seller to see that the agreed upon terms of the transaction are carried out.

FHA LOAN: A Federal Housing Administration Loan. This loan is issued by  Insuring Office of the Department of Housing and Urban Development. It is insured by the Federal Housing Administration which offers low rate, low down payment mortgage for buyers. Terms vary county to county.

FNMA: The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."

FIXED RATE MORTGAGE: A mortgage in which the interest rate (and therefore the monthly payment) remains the same for the entire life of the 15-30 year loan.

FLOOR PLAN: An architectural drawing showing the overall layout of the home as well as room configurations

FORECLOSURE: A proceeding to enforce a lien by the sale of real property to satisfy the debt.

FREDDIE MAC: Federal home Loan Mortgage Corporation

GOOD FAITH ESTIMATE: All lenders are required to give mortgage applicants an estimate based on their experience of what the closing costs will be.

GRADUATED PAYMENT MORTGAGE: Monthly payments on a mortgage that start out low and increase at a predetermined rate.

GRANTEE: The buyer of a deed.

GRANTOR: The seller of a deed.

HOMEOWNERS ASSOCIATION (HOA): An organization which governs regulations and expenditures of a particular community. Each home owner within the community is a member with voting privileges.

HOMESITE (ALSO CALLED LOT): Each new community is divided into lots, or homesites. In most cases the buyer chooses which homesite they want. Most of the time a specific home is already chosen to go on each homesite or lot due to restrictions.

IMPOUND ACCOUNT: A special savings account held by the lender, where the borrower deposits monthly amounts for taxes and insurance.

INTEREST RATE: The cost of borrowing expressed as an annual percentage of the principal. Many factors influence the interest rate including the overall state of the economy, the cost the lender is charged to borrow the funds, etc.

LEGAL DESCRIPTION: The description of real property as used in legal documents. Usually, legal descriptions refer to recorded maps, surveys or other public documents.

LIEN: A legal claim on another's property as security for the payment of a just debt.

LOAN COMMITMENT: A written promise to draw up a loan for a specified amount and term.

LOAN POLICY: A policy of title insurance insuring the interest of the lender.

LOAN-TO-VALUE RATIO: The relation between the mortgage amount and the appraised value of the property, expressed as a percentage of the appraised value.

LOT PREMIUM: A charge paid by the buyer of a special lot that is either larger or in a more desirable location.

MELLO-ROOS: A legislative act that allows for the creation of a Community Facilities District assessment. This assessment ensures that critical facilities like schools, roads, water and sewer facilities, etc. are available to serve the first homeowners. Assessments vary by district.

MORTGAGE: A loan used for the purchase of a new home. Mortgages are available from banks, savings and loans, credit unions, etc. Buyers usually get a buyer bonus when purchasing

NEGATIVE AMORTIZATION: This happens when monthly payments (held down by an interest cap) do not cover the interest cost. The interest that isn't covered is then added to the unpaid principal balance. Which may mean a higher principal amount than originally borrowed.

NOTE: Written evidence of a debt which includes a promise of repayment in accordance with specified terms. Most often secured by a deed of trust in real estate.

NOTICE OF DEFAULT: Written, recorded notice that there has been a default under a deed of trust and/or note.

OPTION (also called upgrade): An item in a home that is not a standard feature. Options can be purchased to fit your needs and lifestyle but can also be limited due to lot size constraints or the phase of construction that your home is in.

ORDINANCE: A legislative enactment of a city or county.

ORIGINATION FEE: This fee is charged by the lender to offset the costs of evaluating, preparing and submitting a proposed mortgage loan. It's normally one percent of the loan amount.

PHASE: A group of homesites or lots within a community. Most home builders sell all homes within a current phase before moving on to the next phase of release in the community. The benefit to the homebuyer is that construction activity is focused in one small area. When you move into your home most of the construction for neighboring homes will already be completed.

POINTS: A one-time charge assessed at closing by the lender for the cost of the loan. One point is equal to one percent of the loan amount.

POWER OF ATTORNEY: A written authorization allowing an agent to perform specified acts on behalf of his principal. This may be granted as a general or limited power.

PRELIMINARY TITLE REPORT: A report regarding the current condition of the title, made by the title company before issuing a title policy.

PREPAYMENT PENALTY: A specified penalty for paying off a note partially or in full before its maturity.

PRIVATE MORTGAGE INSURANCE (PMI): Insurance provided by a private company which protects the lender against loss by a mortgage insurance company.

PUNCH LIST: A written list of items which need to be fixed, repaired or replaced prior to final walk-through.

PURCHASE AGREEMENT: A sales contract in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms.

RESERVATION: A non-binding agreement to purchase a home at a future date. Often a reservation is taken for a specific lot in a future phase, giving the buyer the first opportunity to purchase that lot when the phase is released. A reservation usually requires a deposit.

STANDARD FEATURE: A specific item that is automatically included when you purchase a new home.

SWING LOAN: A short-term loan given on the basis of a seller's equity.

TITLE: Evidence of a person's right to ownership in real property.

TITLE INSURANCE POLICY: A contract by which the insurance company protects the purchaser, mortgage or other party against losses.

VARIABLE INTEREST RATE: A fluctuating interest rate that goes up and down depending on the current cost of money.

WALK-THROUGH: A buyer's final inspection of a newly-built home prior to move-in. At Bonterra Homes this also includes an orientation and instructions on how to maintain certain items in the new home as well as a review of our extended warranty.

ZONING: The regulation of uses and restrictions of real property by the local government.



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