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Acceptance When the seller accepts a buyer's offer either verbally or in a written statement. Additional principal payment Also known as an extra payment, is a payment made by a borrower on top of the monthly mortgage payments to reduce the outstanding mortgage balance. Additional principal payments allow borrowers to pay off their mortgages faster and save money on interest payments. Adjustable-rate mortgage (ARM) Also known as a variable-rate mortgage is a type of mortgage where the interest rate changes over time, it could go up or down depending on the market conditions. ARM has a lower interest rate during an initial period and then the interest rate will rise. There is usually a rate cap on how high the interest rate can go up. Adjustment date and period will determine when and how often the interest rate changes. As-Is Property is for sale in as-is condition means what you see is what you get. The seller will not fix or repair any issues. Buyers will have to deal with everything themselves should they choose to buy the house. Amortization A process that divides your repayment into equal installments so that borrowers make the same mortgage payment every month. The principal and interest payments shift slowly from mostly interest payments to principal reductions as time goes by. With a fixed-interest mortgage, the monthly payments stay the same throughout the loan. With an adjustable-interest mortgage, the monthly payments change whenever the interest rate changes. An amortization schedule shows the borrower a detailed breakdown of principal and interest payments for each mortgage payment. Annual percentage rate (APR) Annual percentage rate or APR is the annual cost for the mortgage that includes interest rates and other fees that the lender charges. APR is the number a homebuyer should look at when comparing lenders for mortgage offers.

Application fees Non-refundable application fees that lenders charge when you apply for a mortgage. Appraisal An appraisal is an estimated value for a property. An appraisal is done by a professional appraiser sent by the lender and paid by the borrower. The appraisal fee is part of the closing costs. Appreciation An increase in value over time for a property. In the long term, most properties appreciate which makes real estate an excellent investment. Assumable mortgage A type of mortgage that can be transferred from seller to buyer where the term, interest rate, and mortgage amount remain unchanged. Attorney fees Most real estate transactions involve an attorney for both the buyer and the seller. Attorney fees are the fees you pay for your attorney. Balloon Mortgage A type of mortgage where the borrower makes low or interest-only monthly payments for a period, and then a large balloon payment to pay off the outstanding balance at the end. A balloon mortgage is a risky mortgage and homebuyers build equity in their homes slowly. Borrowers may face default if they can't make the large balloon payment and it is harder to refinance since there is little or no equity being built. Basis points A measurement for interest rate where the amount equals 1/100 of a percentage point. Bridge loan A short-term loan helps borrowers buy a house before they can raise funds by selling their own house. A bridge loan gives current homeowners the ability to buy a house before they can sell their own homes. Broker A mortgage broker is a middleman who arranges for lenders and borrowers but does not provide money themselves. A real estate broker is the middleman between sellers and buyers. Buyer's agent A real estate agent that works on behave of the buyer Buy-down A lump-sum payment is made by the lender or seller to cover some of the interest payment in the initial period for the buyer to make the home sale more attractive. Cap A cap puts a limit on how much interest rate can rise in a variable-interest mortgage and puts a maximum on the borrower's monthly mortgage payment. Capital gain tax A tax that the homeowners pay upon the sale of their properties. Cash-out refinance A cash-out refinance is a new mortgage that is larger than the homeowner's current home mortgage, allowing the homeowner to pay off the current mortgage and pocket the remaining. The cash-out amount depends on the equity the homeowner has in his home. The money from a cash-out refinance can be used for any purpose. Closing Closing is where all documents are signed and the house is transferred from seller to buyer. Closing costs Closing costs are usually around 3% - 6% of your mortgage. The closing costs include fees for attorneys, application fees, title searching, loan origination fees, appraisal fees, discount points, credit reports, etc. The buyer will pay the closing fees on the closing date.

Closing date A scheduled date where closing is taking place. Closing statements Documents that show the details of the home transaction and a list of closing costs. Co-borrower You may have a co-borrower with whom you share the responsibilities in repaying the mortgage, such as your wife or husband. Collateral An asset used to secure repayment for your home mortgage. In real estate, the home you are buying is used as collateral. If you default, your lender will seize your home. Closing disclosure (CD) Documents that show information about the mortgage, such as interest rate, APR, monthly payments, terms, lender fees, and closing costs. Combination mortgage A type of loan mortgage that combines two separate loans from the same lender. Commitment letter A letter that layouts the term of the mortgage issued by your lender. Confirmation loan A loan or mortgage that meets the guidelines set by Fannie Mae and Freddie Mac. Construction loan A short-term loan to assist borrowers in covering the labor and material costs of home construction. Once the house is built, the borrower needs to pay off the construction loan and apply for a conventional mortgage. Contingency A condition or clause in a sales contract must be met before the sale can take place. In real estate, two popular contingencies are the home must pass inspection and the homebuyer must be approved for a mortgage. Conventional mortgage Also known as a traditional mortgage is a home loan that is not guaranteed by the government. Conventional mortgages can be conforming or non-conforming. Credit limit The maximum amount of money you can borrow from a lender with a line of credit. Credit score/Credit report A credit score is one of the variables lenders look at to determine your interest rate. A credit score is used to evaluate the risk level of a homebuyer. The higher your credit score, the lower your interest rate. Deed An official document that shows the ownership of a property. Deed of trust A document used in some states instead of a mortgage. Default When the borrower does not make consistent and on-time mortgage payments or stops making payments altogether it would lead to foreclosure. Debt-to income (DTI) ratio DTI is a measure of your monthly debt relative to your monthly income before taxes. The bigger the number, the more debt the borrower has. Many conventional lenders require borrowers to have a DTI of 43% or lower. Depreciation The loss of home value on a property. A home depreciates when the general market is down or due to damages to the property. Discount points Discount mortgage points give buyers the opportunity to lower their interest rates by paying for discount points upfront. 1 point equals 1% of the mortgage. There are limits on how many points the borrower can buy. Down payment The amount the homebuyer pays upfront to buy a house and the rest goes to a mortgage. The more money you have for a down payment, the less money you need for a mortgage. Earnest money A deposit is made by the homebuyer when an offer is accepted by the seller. The earnest money is taken as a sign of good faith and deposited in an escrow account. Equity The difference between the home value of a property and the mortgage is the homeowner's equity. Escrow account A third-party account that holds the money deposited by the homebuyer. The funds will be released to the seller on the closing date. Another type of escrow account is established by the lender to collect and pay for your property taxes and home insurance after you buy a house. Extra payment When a borrower makes payments that are more than the regular monthly mortgage payments to reduce principal, the additional payment is called an extra payment. Extra payments allowed homebuyers to pay off their mortgages earlier and save money on interest payments. Fair market value The selling price for a property determined by an appraisal or an agent. Fannie Mae The Federal National Mortgage Association (FNMA) or Fannie Mae is a US government-sponsored enterprise that participates in the secondary mortgage market to buy and resale loans to mortgage lenders. Federal Housing Administration (FHA) FHA is an agency of the Department of Housing and Urban Development. They provide mortgage insurance on mortgages made by FHA-approved lenders and protect lenders against mortgage losses.

FHA home loan A mortgage insured by FHA and backed by the government. FHA home loans help homebuyers who may not qualify for a conventional mortgage to buy a house. First-time buyer Homebuyers who have never taken out a mortgage in the past. As first-time buyers, they may qualify for various discounts and reduced interest rates. Fixed-rate mortgage A mortgage whose interest rate remains the same throughout the course of the mortgage. The homebuyer pays the same monthly payments until the mortgage is paid off. Floating rate A floating rate, also known as a variable or adjustable rate is a mortgage that does not have a fixed interest rate throughout the term. The interest rate may go up or down depending on the market benchmark and other factors. Therefore, the monthly mortgage payments change periodically. Flood certification Documentation that shows whether a house is in a flood zone. Mortgage lenders will not approve an application if a property is in a flood zone until the homebuyer buys home insurance that covers flooding. Flood insurance Home insurance protects against flooding damages and losses. You will need to buy flood insurance if your home is located in a flood zone. Foreclosure A legal process that gives lenders ownership of the house when the borrower stops making payments on his mortgage. When a borrower defaults on his mortgage, a foreclosure takes place. Freddie Mac Similar to Fannie Mae, Freddie Mac is a government-sponsored enterprise that does business in the secondary mortgage market. They lend to mortgage lenders that in turn lend to homebuyers. Good faith estimate An itemized list of loan and closing costs the lender needs to provide to potential borrowers within three days of application for a mortgage. Government mortgage mortgages that are sponsored and backed by the government such as FHA & VA home loans. These home loans offer benefits that are not available for conventional mortgages. Hazard insurance Also known as home insurance. Homeowners getting a mortgage are required to buy hazard insurance to protect their homes against damages. Home equity line of credit (HELOC) A line of credit secured by the borrower's home equity. HELOC acts like a credit card where the borrower is given a credit limit that he can draw money and he is only required to pay interest on the amount he uses. Home inspection A comprehensive examination of the property that you are buying. A home inspection is done by a professional home inspector and it is highly recommended that you hire one. Homeowner's insurance Insurance that protects your home against damages from fire, hurricanes, and other disasters. Every home should have home insurance and it is required by your lender that you buy home insurance.

Homeowners Association Fee (HOA) Homeowners of many condominiums, coops, and some neighborhoods are required to pay HOA fees. The HOA fees cover the costs of maintenance for common areas such as hallways, elevators, parking lots, lobbies, and so on. Home price index A figure that measures the average price changes for home prices in different states and cities. House flipping Real estate investors buy houses that are out of shape or undervalued, make a home improvement, and sell the house for a profit. The strategy is called house flipping. HUD The U.S. Department of Housing and Urban Development is a government agency established to help with housing development in urban areas. Impound account An Impound account is also known as an escrow account. Initial rate The starting interest rate set by the lender for a mortgage or loan. The interest rate will rise after the initial period is over which means higher monthly payments down the road. ARM often has a low initial interest rate and then the rate adjusts after a number of years. Interest rate The costs of borrowing money are expressed as a percentage. When the lender lends money to a borrower, the borrower pays back the principal plus interest. The interest rate determines how much interest payment the borrower will make. The interest rate does not include the fees charged for the mortgage. APR does. The interest rates can be fixed or adjustable. Interest rate cap A limit on how much an interest rate can rise on a mortgage with adjustable interest. Investment property A property that is used for investment purposes rather than as a primary residence. Real estate investors often use investment properties to generate rental incomes. Jumbo mortgage A non-conforming mortgage where the loan amount exceeds the standards on a conventional conforming mortgage that is saleable to Fannie Mae and Freddie Mac. Mortgage lender A mortgage lender is where you go for a mortgage to finance the purchase of a house. Traditional lenders include banks, credit unions, and other financial institutions. Lien A legal claim on your property. The mortgage lender has a lien on your home until you pay off your mortgage. Mortgage A legal document gives the lender a lien on your property to secure repayment of the home loan. Mortgage loans are usually from 15 to 30 years. Mortgage broker A licensed mortgage professional who acts as a middleman between a lender and a borrower. Mortgage brokers charge a fee based on the mortgage amount. Borrowers can go to mortgage lenders directly to avoid broker fees. Mortgage insurance Mortgage insurance or PMI is used to protect the lender if you default on the mortgage. Conventional lenders require borrowers to pay for PMI if their down payment is less than 20%. Mortgage insurance premium (MIP) For FHA home loans, borrowers need to pay a mortgage insurance premium. Mortgage type There are different types of mortgages depending on your needs and qualifications. Conventional mortgages are offered by private lenders and available for all qualifying homebuyers. FHA and VA home loans are backed by the government and are only available to certain groups of borrowers. Nonconforming loan Loans that follow the guidelines set by Fannie Mae and Freddie Mac whereas nonconforming loans do not. A Jumbo loan is a nonconforming loan. Offer Verbal or written documents are made by the homebuyer to show the seller the dollar amount in which the buyer wants to buy the property. Origination fee A fee is charged by the lender for processing a mortgage application. The origination fee is usually a percentage of the mortgage amount. Payment cap A limit on how much the monthly mortgage payment can increase on a variable interest mortgage or ARM. Payoff When the mortgage balance is paid in full by the borrower, the mortgage is said to be a payoff. Piggyback loan A second mortgage was made in addition to the first mortgage. A piggyback loan allows the borrower to borrow more money so that they can avoid paying for private mortgage insurance or PMI. However, a piggyback loan comes with extra costs. PITI Stands for principal, interest, taxes and insurance which are the four parts that make up your monthly mortgage payments. Points Mortgage points or discount points give homebuyers the option to reduce their interest rate by paying for mortgage points.

Pre-Approval A letter that shows the lender's conditional agreement to lend a specific amount of money to a homebuyer. To get a preapproval letter from the lender, the homebuyer must provide financial and tax documents to show that he is qualified. A hard credit inquiry is required which may affect the buyer's credit score. Prequalification The process shows how much the buyer can borrow based on what the borrower tells the lender. No credit checks or financial statements are required. A prequalification letter is not nearly as strong as a preapproval letter. Principal The amount the homebuyer borrowers on a home loan. Principal balance The amount owed on a home mortgage. The principal balance does not include interest or other fees. Principal payment A portion of your monthly mortgage payments goes toward reducing your principal balance. Private mortgage insurance (PMI) The insurance that buyers pay protects lenders in case the buyer defaults on his mortgage. The PMI is only required on conventional mortgages where the buyer makes a down payment lower than 20%. Processing fee A fee that covers the administration costs to process a mortgage application. Property appraisal See appraisal Property taxes A local tax is required by all homeowners. Property taxes vary from state to state, city to city, and neighborhood to neighborhood. Purchase agreement A contract is signed by the buyer and seller to sell the property under certain conditions and terms. Rate See interest rate Rate cap See interest rate cap Rate lock A short-term agreement in which the lender agrees to guarantee a specific interest rate for a certain period. When the rate lock expires, the buyer usually has the option to extend the rate lock for a fee. Rate lock expiration The date when a rate lock agreement expires. Refinance A process where the homeowner gets a new loan to pay off the existing mortgage. Homeowners usually refinance when interest rates drop to take advantage of savings for interest payments using the same house as collateral. Remaining balance The outstanding amount owed on a mortgage. Remaining terms The amount of time remains before the mortgage is paid off. Repayment period The time that it takes you to pay off your mortgage is based on the terms. Reverse mortgage A type of mortgage designed for homeowners over 62 years old who are house rich and cash poor to borrow money against their home equities. Second mortgage A second mortgage allows homeowners to borrow additional money using their home equities. A second mortgage can be used for home improvement, college funds, or other expenses. Seller's agent A real estate agent works on behalf of the seller. Short sale A short sale is an alternative to foreclosure where the home is listed for sale for less than the mortgage owed. A short sale allows the borrower to use the proceeds to pay off the mortgage with foreclosure. Single-family A detached house that does not share grounds or walls with any neighbor. Term The number of years it would take a borrower to pay off his mortgage. The most common mortgage terms are 15-year and 30-year terms. Third-party fees Fees charged by parties other than the lender, such as title searching, home appraisal, and credit report, are part of the closing costs.

Title A document that shows ownership of a property. Title company A company that does a title search to check that there are no liens on a property. It also provides title insurance after verifying the property has a clean title. Title insurance Insurance protects the lender and the homeowner against issues with the legal ownership of a property. Title search An investigation is performed by a title company to determine the legal ownership of a property. Underwriter The person who approves or denies a mortgage application based on the buyer's financial statements. Underwriting A process from the lender to determine the homebuyer's qualification for a mortgage based on all submitted documents. Up-front costs All the costs that buyers have to pay when applying for a mortgage. VA loans Government-sponsored home loans for qualified borrowers with military backgrounds. Variable rate Interest rates change periodically based on the market bench market and other factors. ARM mortgages have a variable rate.

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