MORTGAGE AND FINANCING TERMS:
Adjustable-Rate Mortgage (ARM):
A mortgage in which the interest rate (and therefore the monthly payment) can fluctuate up (or down) during the life of the loan. Depending on the specific loan terms, your interest rate may change every six or twelve months. Because the initial interest rate is often lower for an adjustable-rate loan, the monthly payments during the first few years may be lower than a fixed rate loan. Some homebuyers prefer the adjustable mortgage if they do not expect to stay in the home for more than a few years, or if they think interest rates are heading down.
A mortgage in which the interest rate (and therefore the monthly payment) remains the same for the entire life of the loan. 30-year and 15-year fixed rate mortgages are industry standards. Many homebuyers prefer a fixed-rate loan because the payment amount never changes.
APR (Annual Percentage Rate):
The total cost of the mortgage, expressed as a percentage of the loan amount. Unlike the base interest rate (which only includes interest), the APR includes all costs associated with your loan, including points, origination fees, PMI, etc. Because different lenders charge different fees, the APR is a good way to compare the total cost of a loan from various lenders.
Close of Escrow:
The end of the Escrow Period, or the date that a homebuyer takes possession of their new home. At the close of escrow, the Escrow Company prepares several documents which are signed by the builder and the buyer. The Escrow Company then makes all final payments to the builder, and the homebuyer receives the keys to their new home.
All upfront fees and charges related to the home purchase, excluding the down payment. Closing costs may include points or other origination fees, any pre-paid interest, pro-rated property taxes (if any), etc. For most loans, the closing costs are paid by the buyer at the close of escrow.
A report from an independent credit rating service (such as TRW or Equifax) listing all of your current obligations to various creditors, including credit card companies, car payments, student loans, etc. The report shows how much is owed, as well as whether your payments are generally on time. A credit report is a required document when applying for a home loan.
Money paid by the buyer in "good faith" to assure performance of contract.
The portion of the purchase price which a buyer pays before moving in. Often, the down payment is expressed as a percentage of the total purchase price, typically between 3% and 20%. If you have never owned a home before, your down payment often comes from personal savings, an employer-sponsored 401K program, or other source. If you are selling one home in order to buy another, then your down payment usually comes from the equity in your current home. In addition to the down payment, there are usually other costs and fees called closing costs which a buyer needs to pay before moving in.
The portion of a home's total current value that is "owned" by the homeowner. To calculate the amount of equity you have in your home, take the current value and subtract the amount still outstanding on your mortgage loan.
The period between the time you sign a purchase contract and you actually take possession of the home. During this period, a buyer deposits a series of payments to a neutral third party (called the Escrow Company), covering the down payment and closing costs. At the end of the process, the Escrow Company gives the payments to the builder, and the buyer gets possession of the house. Depending on circumstances, this process typically takes from one week to 45 days.
A line item estimate from a lender of total closing costs.
Insurance including hazard coverage that insures for damages that may affect the value of a house, in addition to personal liability and theft coverage.
Depending on the type of the loan, some lenders increase the size of the monthly payment to cover important bills such as property taxes and insurance. This extra amount is deposited into an interest-earning Impound Account. At the end of the year, when the taxes or insurance premiums are due, the lender automatically pays the bill from the buyer's account.
The cost of borrowing, expressed as an annual percentage of the principal. Many factors influence the interest rate you will be charged, including the overall state of the economy, the cost the lender is charged to borrow the funds, etc.
Loan-to-Value (LTV) Ratio:
The ratio of the amount of money owe on a home to the home's value. The difference between these two figures initially is the down payment.
A loan used for the purchase of a new home. Mortgages are available from banks, savings & loans, credit unions, mortgage companies, etc.
PITI (Principal, Interest, Taxes and Insurance):
The total amount of your monthly payment. Principal and interest (P&I) are due on every loan. Taxes and insurance (T&I) are also included if the lender requires an impound account.
PMI (Private Mortgage Insurance):
Insurance purchased by the lender to protect them in case a buyer cannot make their loan payments. PMI typically costs between $50 and $200 per month, depending on the size of the mortgage. This monthly amount is paid by the homebuyer, as part of their monthly mortgage payment. Buyers can avoid a PMI payment if their down payment is large enough (typically 20% of the home price).
An upfront fee charged by a lender to process a mortgage. Each point represents 1% of the loan amount. So a $120,000 loan "with one point" means a fee of $1200. For most (but not all) loans, the points must be paid at the close of escrow, and cannot be added to the amount of the loan.
The amount of your loan (in dollars), excluding interest. The "principal payment" is the portion of your monthly payment that is applied against the principal. In the first several years of your loan, only a small amount of the payment is applied to the principal. As time goes on, more and more of the payment is used to reduce the amount of principal owed.
Firm that ensures that the title or actual legal document of ownership, on a property is clear and provides title insurance.
A right given to a third party to use a portion of property for certain purposes, such as power lines or water mains.
The exterior face of a home, including the materials (like brick or stone) used on that face.
A drawing showing the overall layout of a home.
HOA (Homeowners Association):
In many new communities, an association of all the homeowners is formed. This Homeowners Association is responsible for enforcing the rules and regulations of the community and also for the maintenance and upkeep of any common areas, including community centers, swimming pools, health club facilities, and landscaping. A monthly fee is paid by all homeowners in the community to pay for the activities of the HOA. This fee varies from community to community, and can be from $30 to over $200 per month, depending on the extent of the community's common areas.
LID (Local Improvement District):
A Local Improvement District (LID) is an arrangement between property owners in a specified neighborhood (district) that provides for the funding of improvements to that district. Improvements can be to the roadway and drainage (i.e. paving, adding curbs/gutters, or simply chip-sealing). Or it can be for public utilities such as installing a city sewer system. The LID fee is added to your monthly mortgage payment.
A charge paid by the buyer of a special lot that is either larger or in a more desirable location than the other home sites in the community.
Each new community is divided into individual lots, or home sites.
Master Planned Community:
A large community, with homes built by several different builders, at a wide variety of price ranges. Master planned communities usually include community centers, pools, and other recreational facilities. Often, there are commercial districts with shopping and entertainment within the master plan.