ADJUSTABLE-RATE MORTGAGE (ARM): A loan with an interest rate that changes periodically in keeping with a current index, like one-year treasury bills. Typically, however, ARMs can't jump more than two percentage points per year or six points above the starting rate.
AMORTIZATION: A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.
APPRAISAL: An expert judgment or estimate of the quality or value of real estate as of a given date.
CONVENTIONAL MORTGAGE: A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and state statutes. The mortgage rates may vary with different institutions and between states (states have various interest limits).
CREDIT REPORT: A report on the past ability of a loan applicant to pay installment payments in a timely manner.
DOCUMENT PREPARATION FEE: A charge by an attorney for preparing legal documents for a transaction.
EARNEST MONEY: The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.
ESCROW: Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual.
FIXED-RATE MORTGAGE: A loan that carries an unchangeable interest rate over its entire term -- typically a period of 15-30 years.
HOMEOWNERS INSURANCE: Protects the property and contents in case of damage or loss; must be for at least the loan amount or for 80% of the value of the improvements, whichever is greater.
INTEREST: A charge paid for borrowing money.
INSPECTIONS: An examination of property for various reasons such as termite inspections, inspection to see if required repairs were made
LIEN: A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials or labor.
LOAN APPLICATION FEE: Paid to the lender at time of application; check with lender for amount.
LOAN DISCOUNT: The points a lender charges; may be paid by either buyer or seller on conventional loans; number of points fluctuates with mortgage money market.
MAINTENANCE FEE: Charged by the homeowner's association as set out in subdivision restrictions.
MORTGAGEE'S TITLE POLICY: Required by the lender to insure that the lender has a valid lien; does not protect the buyer.
ORIGINATION FEE: A fee the buyer pays the lender to originate a new loan.
OWNER'S TITLE POLICY: Insures that the buyer has title to the property.
PITI: Abbreviation for principal, interest, taxes and insurance, all of which are lumped together in your monthly mortgage payment.
POINTS: A one-time fee you pay up front to your lender, sometimes in exchange for a slightly lower mortgage rate. One point equals one percent of the total amount you plan to borrow.
PRIVATE MORTGAGE INSURANCE (PMI): Insurance against a loss by a lender (mortgagee) in the event of default by a borrower (mortgagor).
REALTOR FEES: An amount paid to the Realtor as compensation for his services.
RECORDING FEES: Charged by the County Clerk to record documents in the public records.
RESTRICTIONS: Certified copy of deed restrictions required by lender.
SURVEY: Confirms lot size and identifies any encroachments or restriction violations.
TAX PRORATION: Seller pays his portion of taxes from January 1 to closing date.
TITLE INSURANCE: Protects lenders and/or homeowners against loss of their interest in property due to legal defects in title.