ADJUSTABLE RATE MORTGAGE (ARM): A mortgage on which the interest rate is adjusted periodically based on a pre-selected index.
APPRAISAL: An estimate or opinion of the value of property, made by a qualified professional called an “Appraiser”.
ASSUMPTION: The act of acquiring title to property which has an existing mortgage, and agreeing to be personally liable for the terms and conditions of the mortgage including the payments. Assuming a loan can usually save the buyers money since this is an existing mortgage debt, unlike a new mortgage which closing costs and possibly higher market interest rate charges will apply.
CLOSING: The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands.
CLOSING COST: Usually includes an origination fee, discount point, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. Normally, the costs of closing will be 3 percent to 6 percent of the mortgage loan.
CONVENTIONAL LOAN: A mortgage not insured by FHA or guaranteed by VA or Farmers Home Administration.
CREDIT REPORT: A report documenting the credit history and credit status of a borrower’s credit standing.
DEED OF TRUST: In many states, this document is used in place of a mortgage to secure the payment of note.
DISCOUNT POINTS: See points.
EARNEST MONEY DEPOSIT: Understanding of the earnest money deposit is of the utmost importance. At the time a written offer is initiated, the seller will most likely request you provide earnest money. The amount of the earnest money varies. It may be provided in the form of a personal check, teller's check, or promissory note. The earnest money will be deposited into the closing entity or listing broker’s escrow account once the offer has been accepted. It will remain in escrow until the time of closing. This amount is credited to the you in settlement figures at the closing. If the offer is not accepted this amount is returned to you. Should you go under contract and the contract is terminated under a provision of the contract, this money will be returned to you.
EQUITY: The difference between the fair market value and current indebtedness which is also referred to as the owner’s interest.
ESCROW: Refers to neutral third party who carries out the instructions of both the buyer and seller to handle all of the paperwork of settlement or “Closing”. Escrow may also refer to an account held by the lender into which the homebuyers pay money for tax and insurance payments.
FHA LOAN: A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.
FHA MORTGAGE INSURANCE: Insurance, paid by the borrower that protects the lender against loss if the borrower should default on the mortgage payments and foreclosure should become necessary. This insurance is required on all FHA loans.
GENERAL HOME INSPECTION: A general home inspection deals with many aspects of a house including: appliances, water and plumbing, electrical, heating and ventilating, bath and kitchen fixtures, crawl spaces, basements, garages, roofs, attics etc. If requested, I will recommend knowledgeable professional home inspectors who you may choose to use. The inspector will provide you with a comprehensive report on the condition of the property. From this report we will decide whether (or not) to ask the seller to make any repairs. Keep in mind, the general home inspection focuses on items of safety, security and major expense (such as a roof replacement) not on decorative concerns. The cost of the inspection is paid by the buyer and is usually based on the size of the property. This cost is not refundable.
GOOD FAITH ESTIMATE: A written estimate of all loan charges made by a lender to proposed borrower. The estimate is a requirement of RESPA and must be provided to a borrower within three days of receipt of application.
HAZARD INSURANCE: A contact whereby an insurer, for premium, agrees to compensate the insured or loss of a specific property due to certain hazards, (I.e., fire, windstorm, etc.).
HUD: DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: A department of the Federal government under whose auspices the FHA is operated. The department provides control over government programs designed to provide housing and the improvement of housing standards.
MARKET VALUE: The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
MORTGAGE: A formal document executed by an owner or property, pledging that property as security for payment of a debt.
MORTGAGEE: The Lender.
MORTGAGOR: The borrower or homeowner.
NOTE: The instrument signed by the borrower promising to pay the debt and secured by the Deed of Trust.
ORIGINATION FEE: The fee charged by a lender to prepared loan documents, usually computed as a percentage of the face value of the loan.
OTHER TYPES OF INSPECTIONS: There are many other types of inspections you may want to have such as a Sewer line scope, or a structural inspection. These are not a part of the general home inspection. They are performed by knowledgeable professionals for an additional fee.
PITI: Principal, interest, taxes and insurance.
POINTS (LOAN DISCOUNT POINTS): Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount. (e.g., two points on a $100.000 mortgage would cost $2,000.).
PREPAIDS: Expenses necessary to create an escrow account or to adjust the seller’s existing escrow account. Prepaid can include taxes, hazard insurance, private mortgage insurance and special assessments.
PRIVATE MORTGAGE INSURANCE (PMI): Insurance written by a private mortgage insurer, (rather than by the FHA) that protects against loss caused by a borrower’s default. Normally required when the down payment transaction is less then 2o%.
RADON TESTING: Radon is a radioactive gas which occurs in nature. You cannot see, smell, or taste it. Exposure to radon increases the risk of developing lung cancer. Special equipment is needed to detect radon and generally may be included as a part of the general home inspection for an additional fee.
RECORDING FEES: Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records. (i.e., warranty deed, trust deed).
RESPA: Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs after application and again prior to or at settlement. The law requires this information to be furnished after application.
RECORDING FEES: Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records. (I.e., warranty deed, trust deed).
SURVEY: A map of description of land, showing the precise location of any improvements on the site, as well as the location of easement, right-of-way or encroachments.
TITLE: A document evidencing an individual’s right to/or ownership in property.
TITLE INSURANCE: When property is being sold (or refinanced), the lender and the buyer need to understand what liens and encumbrances currently encumber the title (ownership). The buyer will receive a title commitment (which is a commitment to issue a title policy at the closing) that will indicate exactly what recorded liens and encumbrances (such as an easement allowing access to the local cable company) currently exist on the property. The title commitment will also indicate the owner of record and any restrictions on the use of the subject property. Title insurance is required on all property in Colorado and is negotiable cost. The cost is based on the sales price of the property. The buyer is required to furnish the lender with a lender’s policy showing the lender as a lien holder on that property. These charges will be incurred at the time of settlement (closing) as a part of your closing costs. When the sale of the property is final, the title company records the necessary documents and then will issue a title insurance policy to you and the lender.
VA LOAN: A long-term low of no-down payment loan guaranteed by the Veteran’s Administration. Restricted to individuals qualified by military service or other entitlements.
VA FUNDING FEE: A fee charged by the VA to defray administrative costs. The fee is currently one percent of the loan amount and is required on all VA loans.
WARRANTIES: Home warranties are available to cover resale homes. The buyer or the seller may purchase a home warranty policy that will protect against repairs or replacement of certain appliances, heating, plumbing or electrical items. As with most insurance policies, the coverage will vary by company. You may consult with warranty services companies to determine exactly what is covered and the cost of the policy.