Glossary of Terms for Homebuyers

The following terms are frequently used during the process of purchasing a home. Visit the Government National Mortgage Association Homeownership Information Center at www.ginniemae.gov 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.

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.

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.

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.