House buying 101 -- simple house-buying terms defined
Escrow? Jumbo loan? PMI?
Before your head is swimming with these house-buying terms, get a quick vocabulary
lesson in some real estate and mortgage terms. This list consists of just a few
of the real estate and mortgage terms you may encounter in the process of buying
a home. For a fuller list of terms, see Bankrate's definitions
A method of paying off the mortgage which pays part of the principal along with
interest, rather than just paying off the interest first.
A written report by a qualified appraiser estimating the value of a property.
The dollar value of an asset assigned by a
public tax assessor for the purposes of taxation.
An offer to purchase or earnest money receipt, acknowledging a deposit along with
agreement to enter into a contract for the sale of real estate.
The money the buyer has left over after
the down payment and all those closing costs.
Concrete block and stucco.
Covenants, conditions and restrictions, which control the use of the property.
The meeting at
which the sale of a property is finalized. The buyer signs the lender agreement
for the mortgage and pays closing costs and escrow amounts. The buyer and seller
sign documents to transfer ownership of the property. Also known as the settlement.
One of a group of homes in a two-story building,
with own garage and entrance.
A condition that must be satisfied before a contract is binding.
Inspection and obtaining financing are the two most common.
A home with a courtyard as its main entrance.
debt-to-income ratio. It is the percentage of a person's monthly earnings used
to pay off debt obligations. Lenders consider two ratios, constructed in slightly
different ways. The first, called the front-end ratio, is the ratio of the monthly
housing expenses -- including principal, interest, property taxes and insurance
(PITI) is compared to the borrower's gross pretax monthly income. In the back-end
ratio, a borrower's other debts, such as auto loans and credit cards, are also
figured in. Lenders usually take both into account and set an acceptable ratio,
which might be expressed as 33/39. Some lenders, and some lending qualifying agencies
such as FHA, take only the back-end ratio into account.
The value of a homeowner's unencumbered interest in real estate.
Equity is the difference between the home's fair market value and the unpaid balance
of the mortgage and any outstanding liens. Equity increases as the mortgage is
paid down or as the property appreciates.
A deposit made by potential home buyers during
negotiations with the seller. The sum shows a seller that a buyer is serious about
purchasing the property. The money usually is counted toward the down payment.
set up this account that receives monthly payments from home buyers to pay for
obligations such as insurance, taxes and assessments.
Like any other warranty, this guarantees
the property against failure of mechanical systems, such as plumbing, electrical,
heating and installed appliances.
A loan that exceeds the amount acceptable for sale in secondary
use of financing to buy a large investment, such as a house, with a small amount
legal claim on the property as security for a debt or charge.
Fixing of an interest rate or points at a certain level.
An independent individual (or company)
who brings together borrowers and lenders together. Unlike a mortgage banker,
a mortgage broker does not fund the loan. Instead, the broker originates and processes
the loan, and places it with a funding source, such as a bank or thrift. Brokers
typically require a fee or a commission for their services.
A fee paid to a lender for processing a loan
application, usually computed as a percentage of face value of the loan.
home with a patio.
interest, taxes, insurance -- the things that generally make up a monthly mortgage
point equals 1 percent of a mortgage loan. Lenders charge points as a way to make
Private Mortgage Insurance (PMI)
Insurance that protects mortgage lenders against default on
loans by providing a way for mortgage companies to recoup the costs of foreclosure.
PMI is usually required if the down payment is less than 20 percent of the sale
price. Home buyers pay for the coverage in monthly installments. PMI should be
terminated when the home buyer has built up 20 percent equity in the property.
from the city or county for recording the transfer of the property.
A detached house.
Insurance that protects against loss from
disputes over ownership of a property. A policy may protect the mortgage lender,
the home buyer, or both.
One of a row of houses connected with common side walls.
A flat ceiling
with a raised center portion.
An arched ceiling.
Long covered porch.
Smaller home on a small lot, may share side wall with another