Terms To Know for Buyers
Adjustable-Rate Mortgage (ARM)
An ARM is an Adjustable Rate Mortgage. Unlike fixed-rate mortgages that have an interest rate that remains the same for the life of the loan, the interest rate on an ARM will change periodically. The initial interest rate of an ARM is lower than that of a fixed rate mortgage, so an ARM may be a good option to consider if you plan to own your home for only a few years, you expect an increase in future earnings or the prevailing interest rate for a fixed rate mortgage is too high.
Annual Percentage Rate (APR)
1. The rate of annual interest charged on a loan. 2. The cost of the loan expressed as a yearly rate on the balance of the loan.
Appraisal - 1. A “defensible’’ and carefully documented opinion of value most commonly derived using recent sales of comparable properties by a licensed professional appraiser. 2. A statement of value or estimation of the value of a property as of a certain date conducted by a disinterested person with suitable qualifications.
Appraised Value - The estimated fair market value of a property as developed by a licensed certified appraiser following accepted appraisal principles.
Appraiser - An educated certified professional with extensive knowledge of real estate markets values and practices. The appraiser is often the only independent voice in any real estate transaction with no vested interest in the ultimate value or sales price of the Home.
A real estate broker is a person who acts as an intermediary between sellers and buyers of real estate and attempts to find sellers who wish to sell and buyers who wish to buy.
A buyer agency is the practice of real estate brokers and their agents representing a buyer in a real estate transaction rather than, by default, representing the seller either directly or as a sub-agent
Closing - In some states, a real estate transaction is not considered “closed” until the documents are recorded at the local records office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.
Closing Costs - Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and pre-paid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
Most salespeople earn commissions for the work that they do and, in real estate, there are many sales professionals involved in each transaction. Real estate agents and brokers, loan officers, title representatives, attorneys, escrow representatives, representatives for pest companies, home warranty companies, home inspection companies, and insurance agents are just some of the people involved in the sale of a home who can earn a commission. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
Comparable sales are the recent sales of similar properties in nearby areas and are used to help determine the market value of a property. They’re also referred to as “comps.”
This is a type of mortgage loan that is customarily made by a bank, savings and loan association, or other financial institution that is without governmental underwriting (such as FHA insurance or a VA guarantee) and conforms to the lender’s own standards.
Credit/Credit History/Creditor/Credit Report/Fair Credit Reporting Act
Credit - an agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit History - a record of an individual’s repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.
Creditor - a person to whom money is owed.
Credit Report - a report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
Fair Credit Reporting Act - a consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
Deposit/Earnest Money Deposit
Deposit - a sum of money given in advance of a larger amount being expected in the future. Often referred to in real estate as an “earnest money deposit.”
Earnest Money Deposit - a deposit made to a seller showing the buyer’s good faith in a transaction. Often used in real estate transactions, earnest money allows the buyer additional time when seeking financing. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account. An earnest money deposit shows the seller that a buyer is serious about purchasing a property. When the transaction is finalized, the funds are put toward the buyer’s down payment. If the deal falls through, the buyer may not be able to reclaim the deposit. Typically, if the seller terminates the deal, the earnest money will be returned to the buyer. When the buyer is responsible for retracting the offer, the seller will usually be awarded the money.
Discount points are an amount of money called “points” where one point equals one percent of the original principal loan amount which a borrower or a seller must pay to a lender in order to get a loan at a stated lower interest rate.
The down payment is the part of the purchase price of a property that the buyer pays
in cash and does not finance with a mortgage.
A mortgage that has a fixed interest rate for the entire term of the loan is called a fixed-rate mortgage. The distinguishing factor of a fixed-rate mortgage is that the interest rate over every time period of the mortgage is known at the time the mortgage is originated. The benefit of a fixed-rate mortgage is that the homeowner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements.
This is an item of personal property which, through its attachment to, or association with, real estate, loses its identity as personal property and becomes real property. An example might be a ceiling fan, fence gate, or pool pump.
A foreclosure happens when a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.