SPECIAL REPORT:

Twenty Terms Regarding Real Estate

The following are everyday, common terms used in real estate transactions. Although most of them are more commonly used when purchasing a home, it is still useful to have a good understanding of these terms.

Adjustable Rate Mortgage (ARM)
Also referred to as a Variable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.

Annual Percentage Rate (APR)
An interest rate that reflects the cost of a mortgage as a yearly rate. This rate takes into account any points and fees and is based on the loan going to it's full-term.

Assumption
An agreement between buyer and seller in which the buyer assumes responsibility for the seller's existing mortgage. This agreement usually saves the buyer money because closing costs and the current interest rate, possibly higher, do not apply.

Buy-down
A method of lowering the buyer's monthly payment for a short period of time. The lender or homebuilder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.

Caps
A limit in the amount the interest rate or monthly payments for an adjustable rate mortgage that may change.

Closing
Also referred to as settlement. The meeting at the conclusion of a real estate sale in which the property and funds are exchanged between the two parties involved.

Debt-to-Income Ratio
The ratio, expressed as a percentage, which results from dividing a borrower's monthly payment obligation on long-term debts by the borrower's gross monthly income.

Discount Points
Prepaid interest assessed at closing by the lender. A point is equal to 1 percent of the loan amount.

Down Payment
Cash paid by the buyer at closing that makes up the difference between purchase price and the mortgage amount.

Earnest Money
Money given by a buyer to a seller as a deposit to commit the buyer to the future transaction. Earnest money is subtracted from closing costs.

Equity
The value an owner has in real estate over and above the obligation against the property. Equity is fair market value minus the current indebtedness.

Escrow
Funds given to a third party which will be held to cover payments such as tax or insurance payments and earnest money deposits.

Fixed Rate Mortgage
A mortgage in which the interest rate remains constant throughout the life of the loan.

Loan-to-Value Ratio
The ratio between the amount of the mortgage loan and the appraised value of the property.

Market Value
The price that a property could possibly bring in the marketplace.

Mortgage Insurance
Insurance that protects lenders against loss if a borrower defaults. This is required when the loan-to-value ratio is greater than 80 percent.

Origination Fee
A fee charged by a lender for processing a loan application; usually computed as a percentage of the loan.

PITI
Refers to Principal, Interest, Taxes, and Insurance.

Underwriting
The decision-making process of granting a loan to a potential homebuyer.

Variable Rate Mortgage
Also referred to as Adjustable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.

We sincerely hope this information will help you in gaining a better understanding of the mortgage process. If we may be of any further service please contact our office. We will consider it a privilege to be of service to you! If you would like a free consultation, call our office at: 623-555-5555.