New Home Dictionary

Learn the ins and outs of the homebuying process with our new-home dictionary.

A
Adjustable Rate Mortgage (ARM)

A mortgage based on an interest rate that can fluctuate (and as a result the monthly payment) periodically up or down during the life of the loan.

Amenities
Features that contribute to the value and desirability of a piece of property.

Annual Percentage Rate (APR)
A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing.

Appraisal
The estimation of the value of your home. This should be conducted by a certified appariser. Used to approximate the selling price of a specific property in a given market.

Assessed Value
Rarely deemed the real value of a property, assessed values are those used by your local property tax assessor to determine property taxes.

B
Balloon Loan

A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date in the future (usually at the end of the term).

Basis Point
A unit of measure: 1/100th of one percent. For example, the difference between a 9.0% loan and a 9.5% loan is 50 basis points

C
Cap

A limit on the increase of an adjustment rate or the mortgage payment for an adjustable rate mortgage (ARM).

Closing
The end of the transaction concluding with the transfer of property (the deed) from the seller to the buyer.

Closing Costs
The miscellaneous expenses involved in closing a real estate transaction that are over and above the purchase price. Some of the closing costs include title insurance, appraisal fee, and credit report.

Conforming Loan
Any loan granted by a nongovernmental lender that follows Freddie Mac and/or Fannie Mae in their guidelines.

Conventional Loan
A mortgage that is not insured by the government that has a fixed rate and is set for a fixed term.

D
Deed

The legal document conveying title to a property.

Deed of Trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.

Down Payment
The portion of the purchase price a buyer pays, in cash, at the time the loan originates.

Dual Agent
A real estate agent that represents both the seller and buyer in the same transaction.

E
Earnest Money Deposit

A deposit made by the potential homebuyer to show that he or she is serious about buying the house.

Equity
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.

Escrow
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 account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.

Escrow analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

F
Fannie Mae

A New York Stock Exchange company and the largest nonbank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages.

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.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

Fixed Rate Mortgage (FRM)
This mortgage loan offers a fixed interest rate with monthly principal and interest payments that remain the same for the life of the loan. Payments can be amortized for either a 15-year or 30-year term.

Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

G
Good Faith Estimate

A disclosure that must be given to all mortgage loan applicants within three business days of an application. It is an estimate of all settlement charges likely to be incurred at closing.

Government Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Growing-Equity Mortgage (GEM) A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

H
HUD

The U.S. Department of Housing and Urban Development.

Home Equity Loan
A loan secured by a second deed of trust on a house, typically used as a home improvement loan.

Homeowner's Insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Homeowner's Warranty (HOW)
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.

I
Impound Account

An account held by the lender/servicer, into which a borrower makes monthly installment payments for property taxes, insurance and special assessments. Also know as an Escrow Account.

Index
A number used to compute the interest rate for an adjustable rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage.

Interest
Money paid for the use of money borrowed, usually expressed as an annual percentage.

Interest Rate Cap
The limit on how much an interest rate on an adjustable rate mortgage (ARM) can go up or down.

J
Joint Tenancy

A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Jumbo Loan
A loan that exceeds Fannie Mae's mortgage amount limits. Also called a nonconforming loan.

K

L
Lien
A legal claim against a property that must be paid off when the property is sold.

Loan Origination Fee
A fee charged by the lender for evaluating, preparing and submitting a proposed mortgage loan.

Loan-to-value (LTV) Ratio
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.

Lock-in Rate
The time at which an interest rate is set and the length of time the rate will be held prior to the closing of a loan.

M
Market Value

Also known as Fair Market Value. The estimated value of a property which a seller could expect to receive under normal conditions.

Mortgage
A lien or claim against real property given by the buyer to the lender as security for money borrowed.

Mortgage Insurance (MI)
Also known as Private Mortgage Insurance (PMI). Insurance that protects mortgage lenders against loss in the event of default by the borrower.

N
Negative Amortization

Negative amortization occurs with some adjustable rate mortgage (ARM) loans when the payment amount is insufficient to cover the interest due on the loan. Any interest not covered by payment is deferred and added to the principal balance.

Nonconforming Mortgage Loan
A mortgage loan in which the loan amount, the loan-to-value ratio, the term, or some other aspect of the loan exceeds permissible limits as specified in agency regulations.

O
Offer

A proposal to purchase real estate at a particular price and subject to other specified terms and conditions. Acceptance of the offer by the seller creates a purchase contract.

Origination Fee
A fee imposed by a lender to cover the administrative costs of setting up a mortgage. This will include the preparation of documents and certain processing expenses in connection with making a real estate loan. It is usually charged as a percentage of the amount loaned, such as one point or one percent.

P
Payment Cap

A limit on how much the payments on an adjustable rate mortgage (ARM) can go up or down.

Payoff
The complete repayment of loan principal, interest, and any other sums due; payoffs occur either over the full term of the loan through monthly amortization or through prepayments.

PITI
Principal, interest, taxes, insurance. The components that make up your monthly mortgage payments.

Points
An upfront fee that is collected in addition to the interest on a loan. Each point charged is equal to 1% of the loan amount. Points may also be referred to as an origination fee or discount points depending on the purpose.

Prime Rate
The interest rate that a financial institution charges its largest and best corporate customers, often used as a basis to price other loans.

Principal
The original balance of money lent on an outstanding loan and fees, excluding interest. Also the remaining balance of a loan, excluding interest.

Purchase Agreement
A written promise to pay a specific amount for a property at a specified time. The purchase agreement is a written statement of the offer, which both the borrower and the seller will sign if the offer is accepted.

Q
Qualifying Rate

The rate used to underwrite a loan. This rate may or may not be equal to the initial or note rate.

R
Real Estate Settlement Procedures Act (RESPA)

Federal law which regulates the settlement practices within the real estate industry. This law requires the provision of Good Faith Estimates of Closing Costs, prohibits kickbacks for referrals of related services, and standardizes the closing with a required form and format.

Realtor®
A real estate broker or an associate holding active membership in a real estate board affiliated with the National Association of Realtors.

Recording
The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Refinancing
Taking out a new loan to pay off an existing mortgage. This is done to obtain a lower interest rate or to borrow cash on the equity in a property that has built up on a loan.

S
Second Mortgage

A mortgage that ranks after a first mortgage in priority. If the loan is not repaid, the first mortgage holder has first right to the property; the second mortgage holder receives anything remaining. Settlement Statement A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale. A separate statement is prepared for the seller and buyer.

Survey
A map executed by a licensed surveyor, which sets down precisely the boundaries of a given property as well as improvements, references to known landmarks, and the property's notable features.

T
Term

The period of time which covers the life of the loan. For example, a 15-year fixed loan has a term of 15 years.

Title
The documents that establish legal ownership of a piece of property. A title search will be performed prior to closing to insure that there are no outstanding liens or claims on the property. May be acquired through purchase, inheritance, devise, gift, or through foreclosure on a mortgage.

Title Insurance Policy
A required insurance policy ensuring that the title will be held free of any liens other than those incurred by the buyer.

Title Report
A report that discloses whether there are any competing claims, liens or other problems relating to a property. This must be done before title insurance is issued. Also known as a Preliminary Title Report or Prelim.

Truth in Lending Act
A key federal statute that provides for important disclosures of terms and ensures various consumer rights in lending transactions. Typically the APR is used to compare competing credit institutions.

U
Underwriting

A process during which a loan application is evaluated to determine the risk involved to the lender and a decision made on whether to grant the loan.

V
VA Loan

A loan that is partially guaranteed by the Department of Veterans Affairs and made by a private lender.

W

X

Y

Z