- Acceleration clause
A provision statement in a mortgage or loan document that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.
- Adjustable-rate mortgage (ARM)
A type of mortgage that permits the lender to adjust the mortgage’s interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change.
The gradual repayment of a mortgage loan by installments.
- Annual percentage rate (APR)
The cost of a mortgage stated as a annual rate; which may include such items as interest, mortgage insurance and loan origination fee (points).
A written analysis of the estimated value of a property prepared by a qualified appraiser.
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called “settlement.” At this meeting, ownership of the property is transferred from the seller to the buyer.
- Closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney’s fee, taxes, an amount placed in escrow and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country. Lenders or REALTORS® often provide estimates of closing costs to prospective homebuyers.
The legal document conveying title to a property.
- Down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
- Earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
- Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
- Escrow payment
The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due. Known as “impounds” or “reserves” in some states.
- Fair market value
The highest price that a buyer, willing but not compelled to buy, would pay and the lowest a seller, willing but not compelled to sell, would accept.
- Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
- Fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.
- Home inspection
A thorough home inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.
- Homeowners’ association
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
- Initial interest rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as “start rate” or “teaser.”
20 Terms Buyers Need to Know January 28, 2011