Glossary

Adjustable-Rate Mortgage (ARM). A mortgage that has an interest rate that can go up or down periodically, usually once or twice a year.

Annual Percentage Rate (APR). The total yearly cost of a mortgage stated as a percentage of the loan amount. This rate includes the interest rate plus points and mortgage insurance.

Asking Price. The advertised amount of money the seller wants for a home. Sometimes the seller will accept an offer that is less than the asking price.

Assets. Anything worth money that is owned by a person.

Buyer’s Agent. A licensed real estate agent who represents the buyer in the purchase of a home.

By Owner. A term used to describe a house that is for sale by an owner without the help of a real estate agent.

Classified Ads. Advertisements, usually short and in small text, printed in a newspaper or magazine under category headings such as “houses for sale,” “autos for sale,” and “employment.”

Closing Costs. The expenses, above and beyond the sales price, of transferring ownership of a property. Closing costs can include the loan application fee, title fee, points, and attorney fees.

Co-borrowers. Two or more persons who legally agree to take out and be responsible for paying off a loan together.

Commission. The percentage of the sales price that the real estate agent earns.

Commitment Letter. A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Sometimes it is also called a “loan commitment.”

Condominium. A type of property ownership in which the buyers own their own homes, usually single units in a multiunit building. All the buyers share ownership of the common areas and pay a monthly maintenance charge.

Contingency. A condition that must be met before a contract is “legally binding,” that is, before you must legally complete what was agreed to in the contract.

Cooperative. A type of property ownership in which the buyers purchase shares of the corporation that owns the building, giving the owners the right to occupy the apartments in which they live. The buyer pays a monthly maintenance charge and a portion of the mortgage payment for the whole building.

Credit History. A list of your debts and regular monthly expenses, including how much you owe and how timely you make your payments.

Credit Report. A report of your credit history. The mortgage lender orders this report from a credit reporting agency when you apply for a loan.

Debts. The money you owe on long-term loans, such as car loans, student loans, and mortgage loans. This may also include the payments you owe on credit cards.

Deductions. Money that may be subtracted from a total cost, such as some costs of homeownership that may be deducted from the amount of income on which you pay federal income taxes.

Deed. A legal document transferring the title of a property to a new owner.

Discrimination. The act of favoring one person or group over another in a way that is unfair or against the law.

Document. A written or printed paper that is the original, official, or legal form of something such as a deed, title, or birth certificate.

Down Payment. The part of the purchase price of the house that the buyer pays in cash.

Earnest Money. Money paid as a deposit by a home buyer to show that he or she is serious about buying the house.

Expenses. The amount of money you spend on a regular basis.

Familial Status. Refers to family status, such as whether one is the parent or legal guardian of children.

Fire Extinguisher. A piece of equipment that contains chemicals that can be sprayed to put out a fire.

Fixed-Rate Mortgage. A mortgage in which the interest rate does not change during the entire term of the loan.

Fixer-upper. An informal way to describe a house that needs repairs.

Floor Plan. The plan for a home showing the location and measurements of rooms, windows, doors, and major appliances.

Gender. One’s sex, male or female.

Gross Annual Income. Total yearly income from all sources before taxes are deducted.

Home Inspection. A thorough inspection that examines the structural and mechanical condition of a house.

Household Budget. A plan that lists all your monthly income and expenses and is used to plan your spending in the future.

Interest Rate. The charge for using a lender’s money.

Itemize. To list deductions (such as the amount of interest you pay on your mortgage) from taxable income on a tax return.

Job History. A list of the places you have worked, your job title, the dates of employment, and your salary.

Loan. A method for borrowing money, often from a bank or credit union. Loans are usually repaid with interest.

Loan Interview. An interview with a mortgage lender to determine if you are eligible for a loan.

Loan Processing. The steps a mortgage lender takes to decide if a buyer can qualify for a loan on a specific house.

Lock-in. A written agreement in which the lender guarantees a specific interest rate if a mortgage goes to closing within a set period of time.

Lot. A piece of land having specific boundaries, such as the piece of property on which a house is located.

Main Electrical Switch. A device used to break or turn off all the electrical circuits in your house at the same time.

Maintenance Costs. The expense of keeping your home in good condition.

Marital Status. Whether one is single, married, divorced, or widowed.

Market Value. The expected sales price of a home based on recent sale prices for similar homes in the same neighborhood.

Monthly Mortgage Payment. A monthly payment that repays a part of the principal and the interest on a mortgage loan.

Mortgage Insurance. Insurance that protects lenders against loss if the borrower does not repay the loan.

Mortgage Lender. The financial institution that makes the mortgage loan. Financial institutions include mortgage companies, banks, credit unions, and savings and loans.

Mortgage Loan. The type of loan you get to buy a home. You must repay the loan with interest in a specific amount of time.

Multiple Listing Service (MLS). A service that lists and describes houses for sale.

National Origin. The country where you were born, or where your parents, grandparents, or ancestors were born.

Net Income. Your total income after taxes are taken out.

Nontraditional Credit History. A credit history you can prepare if you do not have credit cards or have never had a loan. It can include receipts and canceled checks for your monthly payments for rent, utilities, and other bills.

Offer. The amount of money the buyer is willing to pay for a home. This may be lower or higher than the asking price.

Open House. A period of time during which a house for sale is open for anyone to view.

Personal Finances. Everything to do with your personal income, your assets, and your liabilities.

Points. A type of fee that lenders may charge at closing. Each point equals 1 percent of the loan amount. The more points you pay, the lower your interest rate will be.

Pre-qualify. To determine how much money a prospective home buyer will be able to borrow before a loan is actually applied for.

Principal. The amount of money that you actually borrow.

Property Appraisal. A written document telling the estimated value of a house, usually prepared by a specially trained appraiser.

Purchase and Sales Agreement. A written contract that the buyer and seller sign. It includes all of the terms and conditions of the sale.

Qualify. To determine how much money a person is able to borrow. The determination is made by a lender.

Real Estate Agent. A person who helps you find a home to buy. The real estate agent receives a commission from the sale of the home, usually paid by the seller.

Repayment Term. The amount of time you have to repay a mortgage loan, usually 15, 20, or 30 years.

Smoke Alarm. A small battery-run device that gives off a loud beep if it detects smoke. It is usually hung on the ceiling or wall.

Spouse. A legal partner, usually a wife or husband.

Square Foot. A unit used to measure an area one foot long and one foot wide.

Terms. The conditions of a loan, including the type of mortgage, size of down payment, amount you can borrow, interest rate, and length of time to repay.

Thermostat. A device used in a home heating system, refrigerator, or air conditioner to keep the temperature at a set level.

Townhouse. One of a row of houses connected by common side walls.

Utilities. Public services such as the supply of water, electricity, and gas. You usually pay for utilities on a monthly basis.

Verify. To determine the truth of something, such as checking the amount of a person’s income by calling his or her employer.

Walk-through Inspection. A final inspection of the home made by the buyer, usually a day or two before the final closing.

Warranty. A guarantee given to a buyer by a company saying that a product is reliable and free from problems and that the seller will, without charge, repair or replace parts that do not work within a given time limit.

Water Shut-off Valve. The main valve that will shut off the water in the entire house, sometimes located outside of the house.