AN EASY GUIDE TO HOMEBUYING TERMS

Abstract of Title
A written history of the property title from its origin to the present.

Accrued Interest
The amount of interest due since the last payment.

Adjustable-Rate Mortgage Loan (ARM)
A mortgage in which the interest rate changes periodically according to a predetermined index.

Agreement of Sale (Purchase Contract, Purchase Agreement, Sales Agreement)
A written document by which a Buyer agrees to buy and a Seller agrees to sell a property.

Amortization
The payment of a debt in equal installments that results in the retirement of the debt.

Amortization Schedule
A list of each payment due on a mortgage loan, which shows the amount applied to the principal,
the amount applied to interest, and the remaining principal balance.

Annual Percentage Rate (APR)
A percentage of the amount of the home loan that represents the total annual cost of the loan,
including finance charges.

Application
The forms used and the process of asking for a home loan.

Appraisal
The report made by a qualified person, in which he gives his opinion as to the value of a property.

Appreciation
An increase in the value of real estate (property).

Balance Sheet
A statement of assets, liabilities and net worth.

Balloon Mortgage
A mortgage with monthly payments that are made for a certain period of time, at the end of which,
the remaining balance is due.

Cap
A limit on the maximum that interest rates can rise on a variable-rate mortgage (ARM) during a
specified period and over the life of the loan.

Closing/Settlement
The conclusion of the transfer of ownership on a property.

Closing Costs
Costs associated with the transfer of ownership of a property.

Credit Report
A report carried out by a credit reporting agency and used by the lender to determine whether an
applicant is eligible for credit.

Deed Of Trust
In some states, the instrument used in place of a mortgage.

Depreciation
The loss of value in real estate (property).

Discount or Discount Points or Points
A single charge imposed by the lender to adjust the interest rate of the loan to the required yield.

Down Payment
The portion of the amount for the purchase of real estate that is given in cash and in advance by
the borrower.

Earnest Money or Good Faith Deposit
The deposit made by the person buying a property to a third agency, which is held in escrow until
the transaction is completed.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the
fulfillment of a condition; i.e., the deposit of funds or documents with an attorney or escrow agent
to be disbursed upon the closing of a sale of real estate.

First Mortgage
A mortgage having priority over all other liens.
Homeowner’s (or Hazard) Insurance
An insurance policy whereby, for a premium, an insurer agrees to insure a property in case of a
loss.

HUD-1 Settlement Statement
Itemizes the charges to the buyer and the seller, and shows how the money gets paid out.

Interest Rate
The percentage of an amount of money that is paid for the use of that money over a period of
time.

Judgment Lien
A judgment by the court and placed as a lien against a property.

Loan-To-Value Ratio
The relationship between the value of property and the loan amount.

Margin
The percentage a lender adds to the index rate to determine the new interest rate.

Mortgage Insurance
Insures the lender against loss caused by the borrower´s failure to make the payments.

Origination Fee
A fee charged by a lender to cover the cost of the process of making a mortgage loan.

Points
A point is equal to 1 percent of the amount of the loan.

Principal
The amount of a debt.

Release Of Lien
An instrument that discharges a lien.

Refinance
Process of paying off one loan with the proceeds from a new loan using the same property
as security

RESPA
Real Estate Settlement and Procedures Act. A law that requires the lender to disclose information
to the borrower, including a Good Faith Estimate (GFE) of the borrower’s closing costs.

Tax Lien
A lien against a property for unpaid taxes.

Term
The period of time over which a loan is paid.

Title
Evidence that establishes ownership of a property.

Title Insurance Policy
A policy which protects the lender in the event of a loss due to a defect in the Title. The owner´s
policy protects the owner in this same way.

Truth-in-Lending (TIL) Disclosure
Outlines the costs of a loan and discloses the APR and other terms of the loan, including the
finance charge, the amount financed, the payment amount, and the total payments required. The
lender is required to present the final version of a TIL disclosure at or prior to the closing meeting.

Trust Deed
An instrument given by the borrower to a third person (the trustee) vesting title to the property in
the trustee’s name as security for the borrower´s payment of the mortgage loan.

Underwriting
The risk analysis of a borrower´s loan application.

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