A Guide for Home Buyers

Abstract of Title
A complete historical summary of the records relating to the public ownership of a particular piece of land.

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate changes over time, based on an index.

Affidavit
A statement the buyer or seller may be asked to sign at the closing, attesting to certain information.

Annual Percentage Rate (APR)
The cost credit as an annual rate of a mortgage. It must be calculated by using a formula set by federal law and disclosed to the borrower to aid in comparing different credit plans.

Appraisal
A professional’s estimate and opinion of the market value of a property.

Appreciation
An increase in the value of a property due to changes in market conditions, home improvements, or other factors.

Assessed Value
The value placed on a home by municipal assessors for the purposes of determining property taxes.

Balloon Loans
Loans in which regular monthly payments are followed by a lump sum payment of the total outstanding balance.

Bridge Loan
A short-term mortgage made until a longer-term loan can be made; it’s sometimes used when a person needs money to build or purchase a home before the present one has been sold.

Cash Reserve
A requirement of some lenders that buyers have a certain amount of cash remaining after closing.

Closing
The final steps in the transfer of property ownership. Closing typically occurs at a formal meeting between the buyer, seller, settlement agent, and the buyer’s and seller’s agents. At the closing, the buyer signs the mortgage and mortgage note, the seller receives payment for the property, and the buyer and/or seller pay closing costs. Once accomplished, title is transferred from the seller to the buyer. Also referred to as Settlement.

Closing Costs
The total costs of completing the transfer of ownership of the property, other than the purchase price.

Contingency
A clause in the purchase contract that describes certain conditions that must be met before the contract is binding.

Conventional Mortgage
Any mortgage that is not insured or guaranteed by the federal government.

Debt-to-Income Ratio
A ratio that measures total debt burden. It is calculate by dividing gross monthly debt repayments, including mortgages, by gross monthly income.

Disclosures
Usually refers to providing information about a property for sale, especially as it represents actual or potential defects or problems. “Full disclosure” usually refers to the responsibility of the seller to voluntarily provide all known information about the property.

Earnest Money
A deposit of money given by the buyer to bind a purchase offer and which is held in escrow until the sale is closed.

Engineer Inspection
A physical inspection of the major systems of a house by a licensed professional as a contingency of the sale. The fee is paid by the buyer. An engineer’s inspection is recommended but not required.

Equity
The value of the property, less the loan balance and any outstanding liens or other debts against the property.

Escrow
Funds held by a neutral third party (the escrow agent) until certain conditions of a contract are met and the funds can be paid out.

Fannie Mae
The Federal National Mortgage Association, a major national investor in home loans. A private corporation created by Congress to support the market and increase the availability and affordability of home loans for low-, moderate-, and middle-income Americans.

FHA/HUD Insured Mortgages
A mortgage insured by the Federal Housing Administration of the US Department of Housing and Urban Development and made by an approved lender or servicer in accordance with the FHA/HUD regulations.

First Mortgage
The mortgage that has first claim in the event of default.

Fixed-Rate Mortgage
A type of mortgage loan in which the interest rate does not change during the entire term of the loan.

Freddie Mac
The Federal Home Loan Mortgage Corporation, a major national investor in home loans. A private corporation created by Congress to support the secondary mortgage market and increase the availability and affordability of home loans for low-, moderate-, and middle-income Americans.

Lein
A legal claim against a property the must be paid when the property is sold.

Loan-To-Value-Ratio (LTV)
The percent of the appraised value of a property (or the sales price of that property, if it is lower) that may be loaned.

Lock-In
A written guarantee that the buyer will receive a specified interest rate, provided that the loan “closes” within a set period of time.

Market Value
The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.

Mortgage Broker
A company or individual that matches borrowers with lenders for a fee.

Mortgage Insurance
Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment.

Points
A dollar amount paid to a lender if it is necessary to reduce the interest rate (not commonly done).

Radon
A colorless, odorless radioactive gas that results from the natural decay of uranium in the earth.

Savings and Loan Association (S&L)
Depository institutions that specialize in originating, servicing, and holding mortgage loans.

Savings Bank
A financial institution organized to hold individual depositors funds in interest-bearing accounts—and to make long-term investments such as home mortgage loans.

Survey of Property
Surveys are conducted by a licensed surveyor and are usually required by the lender in order to confirm that the property boundaries and features such as buildings, improvements, and easements are as detailed in the legal description of the property in the deed.

Title
A legal document establishing the right of ownership. Also known as the Deed.

Title Insurance
An insurance policy that guarantees the accuracy of the title search and protects against potential errors. Most lenders require the buyer to purchase a title insurance policy protecting the lender against loss in the event of a title defect.

Zoning
Zoning laws are local laws that are established to control and guide the uses of land within a particular zone. An important use of zoning law is to separate residential land use from areas of non-residential use that would affect the quality of life in a community. Zoning ordinances may dictate a variety of factors, such as type of structure, setbacks, lot sizes, and uses of buildings.