20 Terms to
Know & Understand...
BEFORE Signing Off On Your
Buying a home is a major achievement in most
everyone’s life. Pride of ownership, tax breaks
and equity are just a few of the many benefits
you’ll enjoy with your new home. Your home
purchase may also be one of the largest you will
During the emotional excitement of buying a
home, you may encounter terms with which you are
unfamiliar. For some, it can be bit embarrassing
to ask what they consider too many questions.
Others may make a note of their questions but
simply forget to revisit those points. To ensure
that you have complete confidence during your
home loan process, invest a moment to read this
report and become familiar with the concepts and
terms you’ll encounter. Knowledge is power and
the more you know the more successful will be
your decisions and the more soundly will you
sleep at night having made them.
Adjustable Rate Mortgage (ARM)
Also referred to as a Variable Rate Mortgage. A
mortgage in which the interest rate is adjusted
periodically based on a pre-selected index.
Annual Percentage Rate (APR)
An interest rate that reflects the cost of a
mortgage as a yearly rate. This rate takes into
account any points and fees and is based on the
loan going to it’s full-term.
An agreement between buyer and seller in which
the buyer assumes responsibility for the
seller’s existing mortgage. This agreement
usually saves the buyer money because closing
costs and the current interest rate, possibly
higher, do not apply.
A method of lowering the buyer’s monthly payment
for a short period of time. The lender or
homebuilder subsidizes the mortgage by lowering
the interest rate for the first few years of a
A limit in the amount the interest rate or
monthly payments for an adjustable rate mortgage
that may change.
Also referred to as settlement. The meeting at
the conclusion of a real estate sale in which
the property and funds are exchanged between the
two parties involved.
The ratio, expressed as a percentage, which
results from dividing a borrower’s monthly
payment obligation on long-term debts by the
borrower’s gross monthly income.
Prepaid interest assessed at closing by the
lender. A point is equal to 1 percent of the
Cash paid by the buyer at closing that makes up
the difference between purchase price and the
Money given by a buyer to a seller as a deposit
to commit the buyer to the future transaction.
Earnest money is subtracted from closing costs.
The value an owner has in real estate over and
above the obligation against the property.
Equity is fair market value minus the current
Funds given to a third party which will be held
to cover payments such as tax or insurance
payments and earnest money deposits.
Fixed Rate Mortgage
A mortgage in which the interest rate remains
constant throughout the life of the loan.
The ratio between the amount of the mortgage
loan and the appraised value of the property.
The price that a property could possibly bring
in the marketplace.
Insurance that protects lenders against loss if
a borrower defaults. This is required when the
loan-to-value ratio is greater than 80 percent.
A fee charged by a lender for processing a loan
application; usually computed as a percentage of
Refers to Principal, Interest, Taxes, and
A short sale is a sale of real estate in which the proceeds
from selling the property fall short of the value of debts
secured by liens against the property
The decision-making process of granting a loan
to a potential homebuyer.
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