Home Buyer's Dictionary
When you start shopping for a new home, you may encounter some words and terms with which you are unfamiliar. The following glossary will help you to be a better informed shopper.
Assessment. A tax levied on a property or a value placed on the worth of property by a taxing authority.
Binder. A receipt for a deposit paid to secure the right to purchase a home at terms agreed upon by the buyer and seller.
Certificate of Occupancy. A document from an official agency stating that the property meets the requirements of local codes, ordinances, and regulations.
Conditions, Covenants, and Restrictions (CC and Rs). The standards that define how a property may be used and the protections the developer has made for the benefit of all owners in a subdivision.
Condominium. A home in a multi-unit complex; each purchaser owns an individual unit, and all the purchasers jointly own the common areas, such as the surrounding land, hallways, etc.
Credit Rating. A report ordered by a lender from a credit bureau to determine if the borrower is a good credit risk.
Default. A breach of a mortgage contract (such as not making monthly payments).
Density. The number of homes built on a particular acre of land. Allowable densities are usually determined by local jurisdictions.
Due-on-Sale. A clause in a mortgage contract requiring the borrower to pay the entire outstanding balance upon sale or transfer of the property. A mortgage with a due-on-sale clause is not assumable.
Equity. The difference between the value of a home and what is owed on it.
Graduated Payment Mortgage (GPM). A fixed rate, fixed-schedule loan which starts with lower payments than a level payment loan; the payments rise annually over the first 5 to 10 years and then remain constant for the remainder of the loan. GPMs involve negative amortization.
Growing Equity Mortgage (Rapid Payoff Mortgage). A fixed-rate, fixed-schedule loan which starts with the same payments as a level payment loan; the payments rise annually, with the entire increase being used to reduce the outstanding balance. No negative amortization occurs, and the increase in payments may enable the borrower to pay off a 30-year loan in 15 to 20 years, or less.
Hazard Insurance. Protection against damage caused by fire, windstorm, or other common hazards. Many lenders require borrowers to carry it in an amount at least equal to the mortgage.
Housing Finance Agency. A state agency which offers a limited amount of below-market-rate home financing for low-and moderate-income households.
Index. The interest rate or adjustment standard which determines the changes in monthly payments for an adjustable rate loan.
Infrastructure. The public facilities and services needed to support residential development, including highways, bridges, schools, and sewer and water systems
Interest. The cost paid to a lender for the use of borrowed money.
Level Payment Mortgage. A mortgage whose payments are identical for each month over the life of the loan.
Mortgage Commitment. A formal written communication by a lender, agreeing to make a mortgage loan on a specific property, specifying the loan amount, length of time and conditions.
Mortgage Loan. A contract in which the borrower’s property is pledged as collateral and which can be repaid in installments over a long period. The mortgagor (buyer)promises to repay principal and interest, to keep the home insured, to pay all taxes, and to keep the property in good condition.
Negative Amortization. An increase in the outstanding balance of a loan when a monthly payment is not large enough to cover all of the interest due.
Note. A formal document showing the existence of a debt and stating the terms of repayment.
Property Survey. A survey to determine the boundaries of your property. The cost will depend on the complexity of the survey.
Recording Fee. A charge for recording the transfer of a property, paid to a city, county, or other appropriate branch of government.
Real Estate Settlement Procedures Act (RESPA). A federal law requiring lenders to provide home buyers with information about known or etimated settlement costs. The act also regulates other aspects of settlement procedures.
R-Value. The resistance of insulation material (including windows) to heat passing through it. The higher the number, the greater the insulating value.
Sales Contract. A contract between a buyer and seller which should explain, in detail, exactly what the purchase includes, what guarantees there are, when the buyer can move in, what the closing costs are, and what recourse the parties have if the contract is not fulfilled or if the buyer cannot get a mortgage commitment at the agreed-upon terms.
Settlement. (See Closing).
Transfer Taxes. Taxes levied on the transfer of property or on real estate loans by state and/or local jurisdictions.
Walk-Through. A final inspection of a home before settlement to search for problems that need to be corrected before ownership changes hands.
Warranty. A promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specified level of performance over a specified period of time. Written warranties on new homes are either backed by insurance companies or by the builders themselves.
Zoning. Regulations established by local governments regarding the location, height, and use for any given piece of property within a specific area.
Source: National Association of Home Builders