Glossary of Terms for Homebuyers

The following terms are frequently used during the home purchasing process. The definitions provided were obtained from the Government National Mortgage Association Homeownership Information Center at www.ginniemae.gov. You may also use this resource to find additional terms and definitions.

Acceptance: The written approval of the buyer’s offer by the seller.

Adjustable Rate Mortgage (ARM): A mortgage loan subject to changes in interest rates. As rates change, monthly payments increase or decrease at intervals determined by the lender.

Amortization: To pay off debt by regular, usually monthly, payments. An amortization schedule is a table showing the payment amount, interest, principal, and unpaid amount for the entire term of the loan.

Appraisal: A document frrom a professional that gives an estimate of the property’s fair market value based on the sales of comparable homes in the area and the features of a property. Generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Area Median Income (AMI): The average family income in an area. These income levels are used in connection with programs for low- and moderate-income families.

Asset Control Area (ACA): A government initiative whereby the Federal Housing Administration sells its foreclosed homes in designated areas at a discount.

Closing Costs: Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually include, but are not limited to, the following:

• Appraisal fee
• Credit report fee
• Inspection and survey fees
• Interest from the closing date to the beginning
of the first payment
• Processing and document preparation fees
• Title search and title insurance

Collateral: Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan.

Contingency: A clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both buyer and seller may include contingencies in a contract, but both parties must accept the contingency.

Conventional Loan: A private sector loan, which is not guaranteed or insured by the U.S. government.

Credit Score: A score calculated by using a person’s credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360-840. Lower scores mean a person is a higher risk, while a higher score means there is less risk.

Deed of Trust: A document that embodies the agreement between a lender and a borrower to transfer an interest in the borrower’s land to a neutral third party, a trustee, to secure the payment of a debt by the borrower.

Default: The inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60-90 days. Once in default, the lender can exercise legal rights defined in the contract to begin foreclosure proceedings.

Down Payment: The difference between the purchase price and the mortgage amount. The down payment becomes the property equity. Typically it comes from cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.

Earnest Money: The deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house.

Escrow: Maoney placed with a third party for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year.

Fair Housing Act: A law that prohibits discrimination in all facets of the home buying process an the basis of race, color, national origin, religion, sex, familial status, or disability.

Home Equity Loan: A mortgage on the borrower’s main residence, usually done for home improvements or debt consolidation.

Lien: A claim against a property for payment of a debt, such as a mortgage.

Market Value: The price a property can realistically sell for, based upon comparable selling prices of other homes in the same geographical area.

Mortgage Insurance: Money paid to insure the mortgage lender against loss due to foreclosure or loan default. Required on conventional loans with less than 20% down payment.

Mortgagee: The lender.

Mortgage Promissory Note: A promissory note, referred to as a note payable in accounting, or commonly as just a “note”, is a negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms.

Mortgagor: The borrower/buyer.

Origination Fee: The amount charged by a lender to set up and close a mortgage loan. Origination fees are usually expressed in points.

Prepayment Penalty Rider: The Prepayment Penalty Rider defines the first day, month and year that a mortgage can be paid off. Lenders penalize the home owner if the mortgage is paid off before the prepayment penalty ends.

Points: Charges levied by the lender based on the loan amount. Each point equals 1% of the loan amount. Discount points can be used to buy down the interest rate.

Sweat Equity: Using labor to build or improve a property as part of the down payment.

Title: Formal document establishing ownership of a property or home.

Title Insurance: Title insurance is protection against loss arising from problems connected to the title to your property.

Truth in Lending Disclosure Statement: A document that federal law requires lenders to provide to loan applicants which discloses all the costs associated with making and closing the loan.