When a seller agrees to a home buyer's offer.
Acceptance is the first stage in negotiating to buy a home. It can be either (1) a written or verbal "yes" or (2) a conditional answer that needs further negotiation, such as "I’ll accept if you pay $2,000 more." Since a verbal acceptance is difficult to enforce, make sure to also ask for it in writing. Once acceptance is final, the buyer moves on to stage two, selecting a mortgage.
A unit of measure for land, equivalent to 43,560 sq. feet or 4,840 sq. yards or approximately 76% of a football field.
A loan that has a fluctuating interest rate and monthly payment. The interest rate for an ARM loan is based upon an index rate (such as the conventional mortgage rate published by the Federal Reserve Board or another index). On the loan adjustment date the loan’s current rate is compared to the current index rate, if the rates are different the loan’s rate is adjusted to meet the index rate plus any margin (extra rate charges) that the lender may impose. The remaining balance on the mortgage loan is then recalculated based upon the new interest rate and margin for the remaining term of the loan, the monthly payment is adjusted so the loan will be paid in full with the adjusted payment as of the original loan maturity date. The ARM rate and payment adjustments can go up or down. Adjustments to the interest rate is restricted to a maximum amount of change per adjustment period and an overall adjustment limit over the life of the loan.
Amortization is the application of periodic principal and interest payments against the loan balance so that the loan is paid in full on its scheduled maturity date. Negative amortization loans are loans where the periodic payment is insufficient to cover the amount of interest due on the loan, so that the unpaid interest amount is added to the loan balance. An amortization schedule breaks down the monthly periodic mortgage payments over the scheduled life of a loan and shows how much is applied to the principal and the interest. You can use an amortization schedule to see how much you have paid down your principal balance on your loan.
A measurement based upon a legally prescribed calculation method and disclosed as a percentage that is used to compare similar loan products from different lenders which takes into account both the interest rate and closing fees. Unlike an interest rate, an APR gives you a better picture when shopping for the best deal on a loan. An APR lets you see the total cost of a mortgage, including closing fees and lender points over the life of a loan — not just the interest rate.
The estimated date to close the mortgage loan.
An increase in a property’s value. A home may increase in value over time. For example if you buy a house for $100,000 and sell it one year later for $110,000, the house has appreciated by $10,000. Appreciation increases your net worth, as well as, your equity, which is the difference between your home’s market value and the amount of money you owe on your mortgage.
The taxing authority of the government's estimate of a property’s value, which is used to calculate property taxes. Each county and state has its own formula to calculate property taxes, but for the most part, the assessed value is multiplied by the local tax rate. You’ll notice that the assessed value isn't always equal to the actual value of a property this is due in part to citizen's right to contest the assessed value of their home for tax purposes.
A loan that allows a homebuyer to take over a seller’s mortgage when purchasing a home. When you assume a mortgage you inherit both its interest rate and monthly payment schedule. It can mean big savings if the interest rate on the existing mortgage is lower than the current rate on new loans.
Individual(s) responsible for repayment of the loan.
A loan for buyers who need money to close on a new home before they can sell their present home. Bridge loans are short-term, usually up to 1 year. Once the sale on the old home is finished, you can pay off the loan. Bridge loans are also called interim financing, swing loans or turnarounds.
A type of financing where the buyer or seller pays points (often called discount points) in return for a lower interest rate.
The limit on how much the interest rate or monthly payment on an adjustable rate mortgage (ARM) can go up or down. Most ARMs have several types of interest rate caps: (1) lifetime caps, which are required by law, that limit the amount the interest rate can increase and decrease over the full course of a loan; (2) the first adjustment cap, which limits how much the rate can change on the ARM loan's first adjustment; and (3) the subsequent adjustment caps (also called periodic caps), which limit the amount the rate can change on the following adjustment periods.
When homeowners apply for a refinance mortgage loan for an amount that exceeds the current mortgage loan balance plus costs and fees with the purpose of paying off their present loan and obtaining the difference in cash or using it to payoff other debts or expenses. Cash-out refinancing lets you take advantage of the equity that you’ve built over the years.
Money put aside in case of a financial emergency. Most lenders want to know that you have enough savings and/or investments to provide a cushion for unexpected expenses in the future. Lenders typically require an amount that’s twice your monthly mortgage payment.
The transaction in which loan and mortgage documents are signed and in a sale transaction the property is transferred from the seller to the buyer.
A third party who presents the loan documents in a closing package for signature, records the mortgage and disburses the loan proceeds according to the instructions of the parties, the seller, buyer and lender. In some states this can be an attorney or an escrow or title company.
Fees that must be paid on the closing date by the buyer and/or seller which are in addition to the down payment.
A document that gives an itemized breakdown of the buyer’s and seller’s closing costs. A closing statement gives you the final record of the fees paid at closing. A closing statement is also called a settlement statement, a HUD-1 or in a refinance transaction sometimes a HUD1-A.
LTV stands for loan-to-value. This is a percentage of all the mortgage balances that will exist against your property after the completion of the mortgage loan transaction divided by the property’s appraised value.
A formal written offer from a lender stating the amount and terms under which it agrees to lend money to a homebuyer. Also known as a "loan commitment."
A recently completed sale of a property in your neighborhood that is similar to yours and is used by an appraiser or realtor to estimate the value of your property.
Conforming loans are loans that are considered eligible for sale as an investment to Fannie Mae or Freddie Mac. They have a set standard for the maximum loan amount you can borrow, how much you need to put towards a down payment and creditworthiness to qualify.
A loan used to pay for land and for the construction of buildings and/or detached homes.
Any loan granted by a non-governmental lender. Most loans are conventional, except for those insured by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
This is an approval based on your credit history, income and assets. An appraisal of the property is required to obtain a full approval.
A legal document that transfers ownership (title) of a property.
A mortgage document that you give to a lender to secure the mortgage loan. A deed of trust is similar to a mortgage except that a deed of trust is held by a third party called a trustee, who acts on behalf and at the request of the lender.
A percentage of your loan amount paid at closing costs in exchange for a lower interest rate on a loan. The basic idea of discount points is to pay the interest equivalent up-front in order to save on finance charges over the life of the loan. One discount point equals one percent of the loan amount.
The portion of a property’s purchase price that buyers must pay up-front with their own money.
A sum of money that a buyer gives to the seller when contracting to buy a home that is part of the purchase price of the home.
The difference between a home’s market value and the amount the owner owes on the mortgages on the property. Equity is the amount of money you’d make if you sold your home today and paid off your mortgage. As the market value of your home increases, so does your equity. Similarly, if your home’s value decreases, your equity does too.
Your lender or mortgage loan servicer may establish an escrow account, called an impound account in some states, to pay certain recurring costs including your property taxes, hazard insurance and mortgage insurance, if necessary. The amount needed to fund the escrow account is calculated into your monthly payments to cover these costs. At least annually, your lender or mortgage loan servicer will disburse funds from the account to pay your property taxes and insurance premiums.
The price for a property in a fair and competitive market.
A federal agency that insures loans offered by certain lenders. FHA was created by the Department of Housing and Urban Development (HUD) and offers a variety of financing options to help families qualify for a mortgage.
A loan with certain restrictions that is guaranteed by the Federal Housing Administration. FHA mortgages may be easier to qualify for since they require a low down payment, usually about 3% of the loan amount, and may offer low interest rates. The catch is you can only borrow up to a certain amount, and you have to pay both an up-front and monthly premium for insurance. The up-front cost, usually 1.5-2% of the loan amount, can be lumped onto the loan and paid off over time. To be eligible you must plan to live in the home that you purchase.
A loan with an interest rate that does not change over the life of the loan. The main benefit is that you always know what your mortgage principal and interest costs are each month, which takes out the guesswork when planning ahead.
A sum of money given to a homebuyer as a present. If relatives or a friend give you a helping hand towards your down payment, you may be required to complete and sign a form, called a gift letter, proving that the money doesn’t have to be repaid. When the funds are transferred into your banking account, you also need to give the lender a receipt of the transaction.
An estimate of the settlement or closing costs you can expect to pay to get a loan when buying or refinancing a home. After you apply for a loan, your loan officer will send you a Good Faith Estimate within three (3) days. Costs shown in the GFE may include lender fees, loan-related fees, and third-party fees, such as the title insurance and appraisal. Most of these fees must be paid on the closing date, the day when the sale or purchase of a home is completed.
An insurance policy to protect homeowners against property damage. Most lender will require that you get hazard insurance policy before you buy or refinance a home. Hazard insurance shields you against property damages caused by a fire or a severe storm. If you live in an area that’s prone to natural disasters, like earthquakes and floods, you might need a separate policy. If a catastrophe does happen, hazard insurance should cover the costs to rebuild your home.
A loan of money in the form of a line of credit, that is secured by your property, that allows you to tap into your home’s equity. You may be able to get a line of credit that works like your checking account or credit card. Equity is the difference between the value of your home and the amount you owe on your mortgage. It’s flexible, so, if your equity is $20,000, you can withdraw up to that amount sometime by simply by writing a check. Your payment will be based upon the amount you have withdrawn and your credit limit is restored as you pay back what you owe.
A loan that allows homeowners to borrow against the equity in their property. A home equity loan lets you use your equity, the value of your home minus what you owe, to payoff bills, remodel or pay for other expenses.
An examination of a property by a trained home inspector. When you make an offer on a home, be sure to ask for an inspection contingency clause in the real estate purchase agreement. It’s always a good idea to cover all your bases and get a property inspection. Make sure that you hire an experienced inspector who has nothing to gain from finding a problem with a property. You might also want to attend the inspection to fully understand the property’s condition and to find out what, if any, repairs need to be made. If the property doesn’t pass the inspection with flying colors, you can either ask the seller to make the needed improvements or you can withdraw your offer -- that is, if you included a contingency clause in the purchase agreement.
A Home Owners' Association oversees how the common areas of a building or neighborhood are maintained and regulated, including everything from paying hazard insurance to cleaning the pool to collecting the garbage. The association with the owners' input also decides how to spend your monthly Home Owners’ Association dues.
A document that gives a breakdown of the costs that the buyer and seller pay at closing. A HUD-1, also referred to as a closing or settlement statement, gives you the final record of the fees paid at closing.
An account used to pay your hazard insurance, mortgage insurance and property taxes. An impound account is set up by the lender for you to prepay certain recurring costs at closing, such as property taxes, hazard insurance, and mortgage insurance, if required. An impound account is also called an escrow account.
A cost of funds economic indicator that lenders use to set an adjustable rate mortgage’s (ARM) interest rate. Each ARM is tied to a specific index. Since some indices move up and down faster than others, pay attention to which index is connected to your ARM.
The starting interest rate of an adjustable rate mortgage (ARM). On some ARM products, the initial interest rate fixed for a certain period then adjusts to reflect overall market rates. Fixed rate loans, on the other hand always have the same interest rate for the life of a loan.
The cost you pay for borrowing money. The original amount borrowed is called the principal, and the cost of borrowing the principal expressed as an annual percentage is called the interest rate.
The limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down. Most ARMs have two types of interest rate caps: (1) lifetime caps, which are required by law, limit the increase and decrease of a rate over the full course of a loan. A 6% lifetime cap, for example, means the rate cannot go beyond 6 percentage points over or under the initial rate and (2) periodic caps, which limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. A lifetime cap is also referred to as a ceiling or floor.
An adjustable rate mortgage’s (ARM) starting interest rate, which stays fixed for a certain time then adjusts to reflect overall market interest rates.
Any property that you buy that you do not intend to live in as your principal residence, for example a lake house, or a rent house.
Any loan that allows you to borrow more than an amount set by Fannie Mae and Freddie Mac.
An interest placed on a property to secure a mortgage or a debt. The mortgage on your home is a voluntary lien — you agree to put up your home as security that you’ll repay the loan. Creditors, like the IRS or someone who has won a civil court suit against you, can also have a lien put on your home, but without your permission. All liens must be paid off before you can refinance or transfer your property to someone.
A limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down over the life of a loan. For example, if your initial interest rate is 6 percent and the lifetime rate cap is +5 percent , your rate can’t go above 11 percent or below 1 percent over the loan’s term. The maximum lifetime rate cap is often called the ceiling; similarly, the minimum lifetime rate cap is called the floor.
The total amount of money borrowed also referred to as the note amount or the principal balance.
LTV stands for loan-to-value. This is a percentage of all the mortgage balances that will exist against your property after the completion of the mortgage loan transaction divided by the property’s appraised value. For example, a 90% LTV loan that means you want to borrow 90% of the home’s price and will have a 10% down payment (or equity if you're refinancing). This gives you 10% equity in your property.
The amount of time your loan officer guarantees a loan's interest rate.
A margin is added to an adjustable rate mortgage's (ARM) interest rate. Unlike the index, the margin on a loan never changes. If you are comparing two loans with the same index, choose the loan with the lower margin. The combined margin and interest rate are used to calculate the monthly mortgage payment.
The date when a loan completes its term. A 30-year loan reaches maturity in 30 years; similarly, a 15-year loan matures in 15 years.
A document that pledges your property as security for a loan’s repayment. It contains the promises you make to the lender regarding the use and preservation of the property. If you don’t keep your promises or can’t repay the loan on your home, a mortgage gives the lender the right to foreclose on the property and sell it to get back their money. A deed of trust serves the same purpose as a mortgage, however some states traditionally use one or the other — in some cases both, depending on the custom in each county.
An insurance contract that protects the lender against loss if a borrower can’t repay a loan. If your down payment (or equity) is less than 20%, lenders may require you to buy MI. Also known as Private Mortgage Insurance or PMI.
Notice of Incomplete Application Letter that indicates something is missing from your mortgage loan application package. This might include pay stubs, W-2s, bank statements or other verification documentation. A lender will not continue to look at your application until the items indicated as missing in NOIA are submitted to the lender.
Any loan that allows you to borrow over a certain amount set by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
A written promise to pay back money at a specific time.
The rate of interest indicated on the mortgage note.
A limit on how much monthly payments can fluctuate on an adjustable rate mortgage (ARM).
A second loan on a home, usually up to 15% of the property’s purchase price. If you can make a 10% down payment on a home, one way to avoid paying for Mortgage Insurance (MI) is to get two loans. Here’s how it works: you get a first mortgage loan for 80% of a property’s purchase price at a standard interest rate and then get a second mortgage, or "piggy back" loan at 10% of the purchase price. This type of financing is commonly called 80-10-10. To figure out if getting a second loan makes sense for you, compare your monthly costs of a first mortgage with a piggy back loan versus a first mortgage with Mortgage Insurance.
One percent of the loan amount. The discount points you choose to pay up-front, the lower your interest rate may be. Usually, for every point you pay, your interest rate will go down by about .25%. On the other hand, you can opt for a loan with a higher interest rate and not pay any points.
An written authorization in which one person (principal) grants another person (attorney in fact) to perform certain specified acts for him/her. For example some lenders will permit borrowers to close a loan using a power of attorney. This may occur if one of the borrowing parties is out of town on the closing date, then the attorney in fact could appear at the closing on behalf of the absent borrower and sign the closing documents. Expect the lender and the lender’s title insurer to want to inspect the Power of Attorney prior to it being used.
The amount borrowed on a loan. If you take out a loan for $100,000, the principal on the loan may be more than $100,000 due to closing costs such as title insurance, recording fees, settlement costs that are financed as part of the loan amount.
How much the borrower has left to pay on the loan principal.
An insurance contract that protects the lender against loss if a borrower can’t repay a loan. If your down payment (or equity) is less than 20%, the lender may require you to buy MI. Also known as Mortgage Insurance or MI.
Address of the property for which the mortgage is being sought.
The time period and the option to float or lock the interest rate of your loan. An example of a RCO is a 60-day lock, in which the interest rate is secured for 60 days.
The date the RCO expires. If the mortgage loan has not settled or closed, this could mean additional charges in order to extend the option.
Your loan officer's guarantee of a specific interest rate on your loan. Until you lock in your rate, the rate may fluctuate based on market conditions. If needed, your loan officer can extend your rate lock.
A tax levied by local governments, based on the value of property you own. Property tax on real estate is the main source of financing for local governments and school districts.
When a homeowner replaces their current mortgage with a new one. Borrowers refinance to a lower rate, to reduce the term of their mortgage, to change the mortgage product or to borrow against the equity in their home.
The total amount that a borrower owes on a loan at any given time.
The amount of time until a loan is completely paid off. If you are in your fifth year of paying off a 30-year loan, the remaining term is 25 years.
A loan that is taken out and recorded behind a first mortgage. You can have one or more mortgages on your property.
A document that gives an itemized breakdown of the costs that the buyer and seller are responsible for on the closing date. The settlement statement, unlike the Good Faith Estimate, shows the final paid closing costs. The settlement statement is also called HUD-1 or closing statement.
Ownership interest in property. If you have title to a property, that means you have the right to own it. Sometimes title can refer to the documents, such as a deed, which proves you own a property. Title documents are on public record at the county courthouse.
An insurance policy that protects the insured, either the homeowner or the lender against any loss resulting from a title error or dispute.
An insurance company that confirms the legal ownership of a property, and issues an insurance policy for either the home owner or lender or both against a loss that could result from a title dispute. Before the closing date of your home’s purchase or sale, a title company will search and collect all the public records of a property’s ownership. The title company checks these records to find out who the legal owner is and to see if there any claims against the property, such as mortgages, liens for unpaid property taxes, judgments and wills — anything that can affect the title (ownership).
A low-cost loan for U.S. veterans that is partially guaranteed by the Department of Veterans Affairs (VA). If you’re a veteran, you can get some VA loans without a down payment. The loan amount cannot be more than the VA’s appraisal. If it is, you have to pay the difference in cash. You still need to pay closing costs, including appraisal and title insurance fees, as well as one-time funding fee for about 2% of the loan amount.
Usually, to be eligible for VA loan, you must have served at least 181 days of active duty or at least 6 years in the National Guard. If you need information contact your regional VA office or call 1-800-827-1000.