Homebuying Glossary of Terms
Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically based on market conditions after an initial fixed-rate period. Fixed Rate Mortgage vs. Adjustable Rate Mortgage
Amortization: The gradual repayment of a mortgage loan through regular installments over a specified period.
Annual Percentage Rate (APR): The total cost of a loan expressed as an annual percentage, including interest rates and certain fees.
Appraisal: An estimate of the value of a property, conducted by a licensed appraiser.
Arms-Length Transaction: A transaction where buyers and sellers act independently, without any undue influence, ensuring fair market value.
Assumable Mortgage: A mortgage that a buyer can take over from the seller, often with lender approval, assuming the existing terms.
Balloon Mortgage: A short-term mortgage with lower monthly payments for a set period, followed by a larger lump-sum payment at the end.
Basis Points: One-hundredth of a percentage point, commonly used to express changes in interest rates or bond yields.
Buyer’s Agent: A real estate agent or broker who represents the buyer’s interests in a real estate transaction.
Cleared to Close: The final approval from the lender, indicating that all conditions for the loan have been satisfied, and the closing process can proceed.
Closing: The final step in a real estate transaction where legal documents are signed, and ownership of the property is transferred.
Closing Costs: Fees and expenses incurred by buyers and sellers during the real estate transaction, typically paid at the closing.
Closing Disclosure: A document provided to homebuyers by lenders before closing, detailing the final terms and costs of the mortgage loan. The Closing Disclosure Explained
Co-signer: A person who agrees to be responsible for a loan if the primary borrower fails to make payments.
Condominium: A type of housing where individuals own their units and share ownership of common areas with other unit owners.
Condominium Master Insurance Policy: An insurance policy covering common elements and shared areas in a condominium complex.
Contingency: A condition that must be met for a real estate contract to be binding. Common contingencies include home inspection and financing.
Conforming Loan Limit: The maximum loan amount that meets the criteria for purchase by government-sponsored enterprises like Fannie Mae and Freddie Mac.
Conventional Mortgage: A mortgage not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).
Counter Offer: A response to an initial offer in a negotiation, proposing different terms than those initially offered.
Credit Bureau: An agency that collects and maintains credit information on individuals for use by lenders and other businesses. You and Your Credit Report
Credit Score: A numerical representation of a person’s creditworthiness, based on credit history and other financial behaviors. Boost Your Credit Score
Days on Market: The number of days a property has been listed for sale on the real estate market.
Debt-to-Income Ratio (DTI): A financial metric representing the percentage of a borrower’s gross monthly income that goes toward paying debts.
Deed: A legal document that conveys ownership of real property from one party to another.
Default: The failure to fulfill a financial obligation, such as missing mortgage payments, which may lead to foreclosure.
Delayed Financing: A financing strategy where a buyer purchases a property with cash and then obtains a mortgage shortly afterward.
Discount Points: Upfront fees paid to lenders at the time of closing to lower the interest rate on a mortgage.
Down Payment: The initial payment made by the buyer towards the purchase of a home, usually a percentage of the total purchase price. The Importance of Saving for a Down Payment
Down Payment Assistance: Financial aid provided to homebuyers to help cover a portion of their down payment and closing costs.
Dual Agency: A real estate agency relationship where the agent represents both the buyer and the seller in the same transaction.
Due on Sale: A clause in a mortgage agreement allowing the lender to demand full repayment if the property is sold or transferred to another party.
Equity: The difference between the market value of a property and the outstanding mortgage balance.
Earnest Money: A deposit made by a buyer to demonstrate their serious intent to purchase a property, typically held in escrow until the closing of the real estate transaction.
Escrow: A neutral third-party account where funds, documents, or other assets are held during a real estate transaction until all conditions are met and the deal is finalized.
Escrow account: A financial account managed by a lender to collect and hold funds from a borrower for property-related expenses such as property taxes and insurance, ensuring timely payments.
Fannie Mae: A government-sponsored enterprise that facilitates the secondary mortgage market by purchasing and guaranteeing mortgages.
Federal Housing Administration (FHA): A government agency that insures mortgages, providing lenders with protection against losses, and making homeownership more accessible.
Federal Reserve: The central banking system of the United States, responsible for monetary policy, including interest rates and money supply. Federal Reserve and the Housing Market
FHA Mortgage: A mortgage insured by the Federal Housing Administration, typically requiring lower down payments and more lenient credit qualifications.
FHA Mortgage Insurance: Insurance provided by the FHA to protect lenders against losses on FHA-insured loans, allowing for more favorable terms to borrowers.
FICO Score: A credit score developed by Fair Isaac Corporation, commonly used by lenders to assess a borrower’s creditworthiness.
Fixed-Rate Mortgage: A mortgage with a constant interest rate and monthly payments that remain unchanged throughout the loan term. Fixed Rate Mortgage vs. Adjustable Rate Mortgage
Flipped Home: A property purchased, renovated, and quickly resold for profit, often done by real estate investors.
Foreclosure: The legal process by which a lender repossesses and sells a property due to the borrower’s failure to make mortgage payments. The Foreclosure Process
Freddie Mac: A government-sponsored enterprise that works in the secondary mortgage market, purchasing and securitizing mortgages.
Free and Clear: Owning a property outright without any mortgage or liens.
For Sale by Owner (FSBO): A property listed for sale by the owner without the involvement of a real estate agent.
High-Cost Area: A geographic region where property values and living costs are notably higher than the national average.
Home Equity Line of Credit (HELOC): A revolving line of credit secured by the equity in a home, allowing homeowners to borrow against the value of their property. The Power of Home Equity Line of Credit
Home Equity Loan: A fixed-rate loan that enables homeowners to borrow against the equity in their home, with funds received as a lump sum.
Home Inspection: A thorough examination of a property’s condition, conducted by a professional inspector, to identify potential issues.
Home Inspection Clause: A provision in a real estate contract that allows the buyer to conduct a professional inspection of the property before finalizing the purchase.
Homeowners Association (HOA): An organization in a planned community or condominium complex that establishes and enforces rules and regulations for property owners.
Homeowners Insurance: A type of insurance that provides coverage for damage to a home and its contents, as well as liability protection.
Housing Market Index (HMI): An economic indicator measuring the confidence of homebuilders in the residential construction market, assessing current and future market conditions.
Interest Rate: The cost of borrowing money, expressed as a percentage, paid by the borrower to the lender.
Investment Property: Real estate purchased with the goal of generating income through rental or capital appreciation.
Lease: A legal agreement between a landlord and tenant outlining the terms and conditions for renting a property.
Lease-Purchase: A hybrid arrangement where a tenant leases a property with an option to purchase it at a later date.
Lender Overlay: Additional requirements imposed by a lender that go beyond the standard underwriting guidelines set by government-backed mortgage programs.
Lien: A legal claim against a property, often as security for a debt or obligation.
List Price: The advertised or asking price of a property set by the seller.
Loan Estimate: A document provided by a lender to a borrower, outlining the estimated terms and costs associated with a mortgage loan.
Loan Term: The specified duration over which a loan is scheduled to be repaid.
Loan-to-Value (LTV): The ratio of the loan amount to the appraised value of the property, expressed as a percentage.
Low Downpayment Mortgage: A mortgage that requires a relatively small down
Mortgage: A loan used to finance the purchase of a home, with the property serving as collateral.
Mortgage Broker: A financial intermediary that connects borrowers with mortgage lenders and helps facilitate the loan application process. The Mortgage Broker Advantage
Mortgage Guidelines: Specific criteria and requirements set by lenders to assess a borrower’s eligibility for a mortgage loan.
Mortgage Lender: A financial institution or individual that provides funds to borrowers for the purpose of purchasing or refinancing real estate.
Mortgage Rate: The interest rate charged by a lender on a mortgage loan, determining the borrower’s cost of borrowing. Understanding Mortgage Rates
Mortgage Rate Lock: An agreement between a borrower and lender to secure a specific interest rate for a specified period, protecting against rate fluctuations.
Mortgage-Backed Securities (MBS): Financial instruments representing an ownership interest in a pool of mortgage loans, often traded in the secondary market.
Multiple Listing Service (MLS): A database used by real estate professionals to share information about properties for sale, enhancing collaboration and exposure.
Multi-Unit Home: A residential property designed to accommodate more than one household, such as a duplex, triplex, or apartment building.
National Association of REALTORS® (NAR): A professional organization for real estate agents and brokers that promotes ethical standards and provides advocacy and resources for its members.
Net Tangible Benefit: The positive financial outcome or advantage gained by a borrower through refinancing or modifying their mortgage.
Non-Conforming Loan: A mortgage that exceeds the loan limits set by government-sponsored enterprises, such as Fannie Mae and Freddie Mac.
Non-Occupant Co-Borrower: A person who is jointly responsible for a mortgage but does not reside in the property securing the loan.
Non-Warrantable Condo: A condominium unit that does not meet the criteria for financing approval set by Fannie Mae, Freddie Mac, or other government agencies.
Origination Fee: A fee charged by a lender for processing a mortgage application, typically expressed as a percentage of the loan amount. Origination Fee Reduction Program Understanding Loan Origination Fee
Payment Shock: A significant increase in the borrower’s monthly mortgage payment, often experienced when adjustable-rate mortgages adjust to higher interest rates.
Personal Liability Insurance: Insurance coverage that protects individuals against claims of personal injury or property damage for which they may be legally responsible.
PITI: An acronym representing the four components of a mortgage payment: Principal, Interest, Taxes, and Insurance.
Portfolio Loan: A mortgage loan that is originated and held by the lender rather than being sold on the secondary market.
Pre-approval: A preliminary determination by a lender of the amount a buyer can borrow, based on income, credit, and other factors.
Prepaid Costs: Upfront expenses paid by a borrower at the time of closing, including property taxes, homeowners insurance, and prepaid interest.
Pre-Qualification: An informal process where a lender assesses a borrower’s financial situation to provide an estimate of the amount they may be qualified to borrow. The Power of Pre-Qualification
Private Mortgage Insurance (PMI): Insurance coverage that lenders may require from borrowers who make a down payment of less than 20% to protect against potential default.
Planned Urban Development (PUD): A type of community or neighborhood planning that combines residential, commercial, and recreational spaces in an integrated manner.
Principal: The amount of money borrowed in a loan, excluding interest.
Real Estate Agent: A licensed professional who represents buyers or sellers in real estate transactions.
Real Estate Taxes: Taxes imposed by local governments on the value of real property, typically used to fund public services and infrastructure.
Refinance: The process of obtaining a new mortgage to replace an existing one, often to secure a lower interest rate or change the loan terms.
Rent-to-Own: A contractual arrangement allowing tenants to rent a property with the option to purchase it at a later date.
Seasoning: The amount of time a borrower has held a particular type of debt or the age of funds in a bank account, often considered by lenders during mortgage underwriting.
Second Home: A property that is not a primary residence but is used for personal enjoyment, such as a vacation home.
Seller’s Agent: A real estate agent or broker who represents the seller’s interests in a real estate transaction.
Seller’s Concessions: Agreements made by a home seller to contribute towards the buyer’s closing costs or other expenses as part of the real estate transaction.
Seller’s Market: A market condition where demand for homes exceeds the supply, giving sellers an advantage.
Single Entity Coverage: An insurance policy that provides coverage for a single identified entity, often used in commercial real estate to insure a specific property or project.
Soft Credit Pull: A credit inquiry that doesn’t impact an individual’s credit score, often done for informational or pre-qualification purposes.
Tax Deduction: A reduction in taxable income that results in a lower amount of income subject to taxation, often associated with expenses like mortgage interest or property taxes.
Teaser Rate: An initial, lower interest rate offered by lenders at the beginning of an adjustable-rate mortgage to attract borrowers, typically followed by rate adjustments.
Title: Legal ownership and right to possession of a property, represented by a document known as a title deed.
Townhome: A residential dwelling that shares walls with adjacent units, often forming a row of similar structures.
Trust: A legal arrangement where a trustee holds and manages assets for the benefit of specified individuals or entities, known as beneficiaries.
Underwriting: The process by which a lender evaluates a borrower’s creditworthiness and approves or denies a mortgage application.
USDA Mortgage: A mortgage program offered by the U.S. Department of Agriculture to assist eligible rural and suburban homebuyers with low to moderate incomes.
VA Loan: A mortgage loan guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans and military personnel. Benefits of a VA Mortgage Loan
Variable Interest Rate Loan: A loan with an interest rate that can change over time based on fluctuations in a specified financial index.
Warrantable Condominium: A condominium unit that meets the criteria for financing approval set by government-sponsored entities like Fannie Mae or Freddie Mac.
Walk-through: A final inspection of the property by the buyer before closing to ensure that agreed-upon repairs have been made.
Zoning: Regulations that control the use of land and structures within a specific area, established by local authorities.
This glossary provides a starting point for understanding key terms in the homebuying process. If you have specific questions about any term or need more information, feel free to ask!
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