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GLOSSARY
ANNUAL HOUSEHOLD INCOME
Collective income from everyone in your
household before taxes or other deductions
are taken, investment income or dividends,
Social Security benefits, alimony, and
retirement fund withdrawals.
APPRAISAL
A written justification of the price paid for a
property, primarily based on an analysis of
comparable sales of similar homes nearby.
CLOSING COSTS
Generally 2 to 5 percent of the purchase
price include lender fees, recording fees,
transfer taxes, third-party fees such as title
insurance, and prepaids and escrows such as
homeowner's insurance, property taxes, and
HOA fees.
DEED
The legal document conveying title to a
property.
EARNEST MONEY DEPOSIT
Also known as an escrow deposit,
earnest money is a dollar amount buyers
put into an escrow account after a seller
accepts their offer. Buyers do this to
show the seller that they're entering a
real estate transaction in good faith.
EQUITY
A homeowner's financial interest in
a property. Equity is the difference
between the fair market value of the
property and the amount still owed on its
mortgage and other liens.
APR
APR refers to the annual percentage rate,
which is the interest rate you'll pay expressed
as a yearly rate averaged over the full term
of the loan. APR includes lender fees in the
rate, so it's usually higher than your mortgage
interest rate.
APPRAISED VALUE
An opinion of a property's fair market value,
based on an appraiser's knowledge,
experience, and analysis of the property.
Since an appraisal is based primarily on
comparable sales, and the most recent sale
is the one on the property in question, the
appraisal usually comes out at the
purchase price.
CLOSING DISCLOSURE
A document that provides an itemized
listing of the funds that were paid or
disbursed at closing.
DOWN PAYMENT
A cash payment of a percentage of the
sales price of the home that buyers pay
at closing. Different lenders and loan
programs require various down payment
amounts such as 3 percent, 5 percent,
or 20 percent of the purchase price.
ENCUMBRANCE
Anything that affects or limits the fee
simple title to a property, such as
mortgages, leases, easements, or
restrictions.
ESCROW
Putting something of value, like a deed
or money, in the custody of a neutral
third party until certain conditions
are met.
HOMEOWNERS INSURANCE
Insurance that provides you with property
and liability protection for your property
and family from damages from a natural
disaster or accident. Lenders usually
require borrowers to buy homeowner's insurance.
LENDER FEES
Part of the closing costs of a home
purchase and may include an application
fee, attorney fees, and recording fees. The
lender's underwriting or origination fee is
usually 1 percent of the loan amount.
HOA FEE
A fee required when you buy a home
located within a community with an HOA
that typically pays for maintenance and
improvements of common areas and may
include the use of amenities.
HOME WARRANTY
A contract between a homeowner and a
home warranty company that provides for
discounted repair and replacement service
on a home's major components, such as
the furnace, air conditioning, plumbing,
and electrical systems.
LOAN TYPES
Mortgages have different terms ranging
from 10 to 30 years and are available
with fixed or adjustable interest rates.
Your lender can discuss down payment,
insurance, credit requirements, and other
specifics of various loan types.
MONTHLY DEBT
The minimum payment on credit card
debt; auto, student, and personal loan payments; and alimony or child support. Rent or mortgage for a property that you will pay after your home purchase must also be included.
MORTGAGE
A loan from a bank, credit union, or
other financial institution that relies
on real estate for collateral. The bank
provides money to buy the property,
and the borrower agrees to monthly
payments until the loan is fully repaid.
PROPERTY TAXES
Typically imposed by local
governments on real property
including residential real estate. The
tax rate can change annually, and
the assessed value of your property is usually recalculated annually.
MORTGAGE INSURANCE
Insurance that protects the lender
and repays part of the loan if the
borrower defaults and the loan can't
be fully repaid by a foreclosure sale.
Usually required on loans with less
than a 20 percent down payment.
PREPAIDS
Prepaids are expenses paid at
the closing for bills that are not
technically due yet, such as property
taxes, homeowner's insurance,
mortgage insurance, and HOA fees.
THIRD PARTY FEES
Any closing costs charged by
someone other than your lender,
typically including fees for an
appraisal, a property survey, a title
search, owner's and lender's title
insurance, and sometimes
an attorney.