Adjustable Rate Mortgage (ARM)
Mortgage loan that offers mortgage interest rates typically lower than you'd get with a fixed-rate mortgage for a period of time—such as five or 10 years, rather than the life of a loan. After that, your interest rates (and monthly payments) will adjust, typically once a year, roughly corresponding to current interest rates. So if interest rates shoot up, so do your monthly payments; if they plummet, you'll pay less on mortgage payments.
Amortization
This is the process of combining both interest and principal in payments, rather than simply paying off interest at the start. This allows you to build more equity in the home early on.“Killing off” of existing debt by regular partial payments.
Appraisal
An estimate of value of property from analysis of facts about the property; an opinion of value. In order to get a loan from a bank to buy a home, you first need to get the home appraised so the bank can be sure they are lending the correct amount of money. The appraiser will determine the value of the home based on an examination of the property itself, as well as the sale price of comparable homes in the area.
Appreciation
The increase in a home's value over time. How much a home appreciates each year depends on the local real estate market and any improvements to the home. A home's appreciation is calculated based on the fair market value of comparable homes for sale in the neighborhood.
Assessed value
This is how much a home is worth according to a public tax assessor who makes that determination in order to figure out how much city or state tax the owner owes.
Bridge Loan
Also known as a gap loan or “repeat financing," a bridge loan is an excellent option if you're purchasing a home before selling your previous residence. Lenders will wrap your current and new mortgage payments into one; once your home is sold, you pay off that mortgage and refinance.
Broker
One who acts as an agent for another in negotiating sales or purchases in return for a fee or commission.
Buyer’s agent
This is the agent who represents the buyer in the home-buying process. On the other side is the listing agent, who represents the seller.
Closing
The closing refers to the meeting that takes place where the sale of the property is finalized. At the closing, buyers and sellers sign the final documents, and the buyer makes the down payment and pays closing costs.
Closing costs
In addition to the final price of a home, there are also closing costs, which will typically make up about two to five percent of the purchase price, not including the down payment. Examples of closings costs include loan processing costs, title insurance, excise tax, etc.
Commission
The amount due a real estate broker, mortgage loan broker or real estate professional for services performed in such capacity.
Comparative market analysis
Comparative market analysis (CMA) is a report on comparable homes in the area that is used to derive an accurate value for the home in question.
For more about CMAs, check out this episode of The Living in Grand Rapids Podcast.
Contingencies
This term refers to conditions that have to be met in order for the purchase of a home to be finalized. For example, there may be contingencies that the loan must be approved or the appraised value must be near the final sale price.
For more about contingencies, check out this episode of The Living in Grand Rapids Podcast.
Deed
A written document in which title to real estate is conveyed from one party to another.
Dual agency
Dual agency is when one agent represents both sides, rather than having both a buyer’s agent and a listing agent.
Earnest money deposit (EMD)
A specific form of security deposit made to demonstrate that the applicant is serious and willing to demonstrate an earnest of good faith about wanting to complete the transaction. This is typically 1-3% of the purchase price of the home.
Easement
A portion of a property owner's property that is granting access for passage to another land owner.
We break down the definition and where you may see this come up on this episode of The Living in Grand Rapids podcast.
Equity
Ownership. In homeownership, equity refers to how much of your home you actually own—meaning how much of the principal you’ve paid off. The more equity you have, the more financial flexibility you have, as you can refinance against whatever equity you’ve built.
Escrow
Escrow is an account that the lender sets up that receives monthly payments from the buyer. In the title industry, depositing with an impartial third party (typically an escrow agent or title company) of anything pertaining to a real estate transaction including money and documents of all kinds. The money and documents are to be disbursed and delivered to the rightful parties by the escrow agent or title company when all conditions of the transaction have been met.
Federal Housing Administration (FHA) Loan
A US Federal Housing Administration mortgage insurance backed mortgage loan which is provided by an FHA-approved lender. Because these loans are government backed, you could put down as low as 3.5%. FHA has several requirements for mortgage loans. First, most loan amounts are limited to $417,000 and don't provide much flexibility. FHA loans are fixed-rate mortgages, with either 15- or 30-year terms. Buyers of FHA-approved loans are also required to pay mortgage insurance—either upfront or over the life of the loan—which hovers at around 1% of the cost of your loan amount.
Fixed-Rate Loan (Conventional Loan)
The most common type of conventional loan, a fixed-rate loan prescribes a single interest rate—and monthly payment—for the life of the loan, which is typically 15 or 30 years. A fixed-rate loan will require a down payment (typically 20%). The rise and fall of interest rates won't change the terms of your home loan, so you'll always know what to expect with your monthly payment.
Good faith deposit
Also known as earnest money, is the money that a buyer provides along with the offer to show the seller that the buyer is making a serious offer. The good faith deposit does not go directly to the seller.
Home warranty
This warranty protects from future problems to things such as plumbing and heating, which can be extremely expensive to fix. A home warranty is a contract that agrees to provide you with discounted repair and replacement services.
Inspection
A home inspection is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. Home inspections are usually conducted by a home inspector who has the training and certifications to perform such inspections. Issues that may turn up during an inspection may factor into the negotiation on a final price. Failing to do an inspection may result in surprise costly repairs down the road for the home buyer.
Listing
A listing is essentially a home that is for sale. The term gets its name from the fact that these homes are often “listed” on a website or in a publication. An agreement that represents the right of a real estate agent or Broker to handle the sale of real property and to receive a fee or commission for services. There are various types of real estate listings.
Listing agent
This is the agent who represents the seller in the home-buying process. On the other side is the buyer’s agent, who represents the buyer. A listing agent is the real estate agent that represents the seller. Listing agents list homes for sale on the regional Multiple Listing Service (MLS) and negotiate the best possible price and terms for their client.
Offer
This is the initial price offered by a prospective buyer to the seller. A seller may accept the offer, reject it, or counter with a different offer. Here’s how making an offer works: you make a written offer. The seller accepts, counters or declines the offer. If it’s accepted, you move on to the next step. If the seller makes a counteroffer, you either accept it or make a new offer — and go back to step 2. If the offer is refused, you can make a new offer or begin a new round of house hunting.
Pre-approval letter
Before buying a home, a buyer can obtain a pre-approval letter from a bank, which provides an estimate on how much the bank will lend that person. This letter will help determine what the buyer can afford.
Prepaid expenses
Paid by a homebuyer at closing and put into an escrow account to cover the initial costs of expenses, such as private mortgage insurance, hazard insurance, taxes and special assessments. Prepaids are expenses or items that the homebuyer pays at closing, before they are technically due.
Refinancing
When you restructure your home loan, replacing your old loan with an entirely new loan that has different rates and payment structures. The main reason people refinance their home loans is to get a lower interest rate on their mortgage, and therefore lower not only the monthly payment but also the overall debt owed.
Seller’s disclosure
A set of documents completed by the seller of a home, listing any known issues with the property and any remodel projects completed during the time they owned the home. This information is useful but is no substitute for an inspection by a licensed inspector.
Setback
A setback in real estate terminology is how far a house or structure needs to be from property lines.
Learn more about setbacks on this episode of The Living in Grand Rapids podcast.
Title
(1) A combination of all the elements that constitute the highest legal right to own, possess, use, control, enjoy, and dispose of real estate or an inheritable right or interest therein. (2) The rights of ownership recognized and protected by the law.
For more about title, check out this episode of The Living in Grand Rapids Podcast with Susan Pastoor from First American Title.
Title commitment
An offer to issue a title insurance policy. The title commitment will describe the various conditions, exclusions and exceptions that will apply to that particular policy.
Title insurance
Title insurance is often required as part of the closing costs. It covers research into public records to ensure that the title is free and clear, and ready for sale. If you purchase a home and find out later that there are liens on the home, you’ll be glad you had title insurance.
United State Department of Agriculture (USDA) Loan
This loan is designed for families in rural areas. The government finances 100% of the home price for USDA-eligible homes—in other words, no down payment necessary—and offers discounted mortgage interest rates to boot. Borrowers in rural areas who are struggling financially can access USDA-eligible home loans. The requirements of this loan are that your debt load cannot exceed your income by more than 41%, and, as with the FHA, you will be required to purchase mortgage insurance.
Veterans Affairs (VA) Loan
This type of loan is available for individuals who have served in the United States Army. This loan allows you to make a purchase without a downpayment or mortgage insurance. VA loans are for veterans who've served 90 days consecutively during wartime, 180 during peacetime, or six years in the reserves. Because the home loans are government-backed, the VA has strict requirements on the type of home buyers can purchase with a VA loan: It must be your primary residence, and it must meet “minimum property requirements"