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 Addenda (addendum, singular):
Supplemental documents added on to the purchase agreement that
become part of the legally binding document.
Adjustable rate mortgage (ARM):
A loan in which the interest rate fluctuates during the term,
based on an index to which the interest rate is tied.
Amortization chart:
A chart that breaks out the principal and interest you pay on a
loan each year, over the term of the loan.
Annual percentage rate (APR):
Expressed as an annual rate, this is really the cost of the loan.
It includes the interest rate, points on a loan, the loan
origination fee, and all other charges made by the lender.
Arbitration agreement:
When a seller and buyer agree to settle all disputes about the
property out of court. If both parties sign, they agree to have an
independent arbitrator decide disputes.
Assessments:
City taxes homeowners must pay periodically when the city decides
to make improvements to city property.
Association dues:
The monthly payment condominium and townhouse owners must make
for upkeep and management of shared property. The association is
made up of condominium or townhouse owners.
Assumable:
Describes a loan that a buyer can arrange to take over from the
seller.
Buyer's Broker:
An agent who works on behalf of a buyer.
Closing costs:
Costs involved in transferring ownership of a home. (See
Explanation Of Closing Costs in Appendix E.)
Commitment letter:
The letter your lender may send you stating that your loan is
approved and describing the terms of the loan.
Contingency:
A clause that is added to a purchase agreement stating that
certain conditions must be met within a specified time period for
the purchase agreement to be valid.
Contract for deed:
Some owners may choose to offer you financing, consequently you
make your monthly payments to the owner.
Conventional loans:
Home loans not backed by the government.
Credit Score:
The rating a credit reporting agency gives you based on your
credit report.
Default:
Failure to make loan payments when they are due.
Down payment:
The amount of the purchase price you pay up front to the seller
when you buy a home. The amount depends on the loan you are taking
out, but is usually a minimum of 3 percent of the total loan amount.
Earnest money:
"Good faith" money usually given to the agent when you make a bid
on a home.
Equity:
The portion of the home's value that you own, free and clear of
any mortgage or lien.
Escrow:
Lenders often ask homeowners to keep up to two months of future
tax and insurance payments in a bank account called an escrow
account.
FHA loans:
Home loans made by the Federal Housing Administration that have
low down payments and allow you to borrow a larger amount than you
would be allowed to borrow in a conventional loan.
Fair Credit Reporting Act:
A federal law that gives citizens the right to challenge the
accuracy of incorrect information in their credit reports.
Fixed rate loan:
A loan with a constant interest rate over the term of the loan.
Good faith estimate:
The disclosure form on which your lender estimates all closing
costs. A lender must give you this form within three days after you
apply for a loan.
Gross income:
Your income before you pay taxes.
HUD-1 form:
A settlement statement listing all the closing costs. The U.S.
Department of Housing and Urban Development requires that a closer
make this statement available to a buyer one business day before the
closing.
Homeowner's insurance:
Also called hazard insurance. This is insurance home buyers must
purchase to protect the investment they and their lender have in the
home.
Homestead taxes:
Property taxes paid by live-in property owners.
Interest:
A lender's charge for the loan.
Loan origination fee:
This is a fee you pay a lender for handling your loan
application.
Loan processing:
A lender's analysis of your ability to qualify for a loan. The
analysis involves weighing your income, credit report and financial
records against the value of the home you want to buy.
Lock-In Agreement:
An agreement you can make with your lender to guarantee you the
interest rate your lender quotes for your loan. You can lock in a
rate when you apply for a loan or at any time before the closing.
Long-term debt:
Any debt you will continue to owe for six months or more.
Mortgage discount points:
Prepaid interest on a loan. One point equals 1 percent of your
total loan.
Mortgage Insurance Premium (MIP):
An insurance premium the buyer is required to pay for an FHA
loan. The cost is 2 or 21/4 percent of the loan, depending on the
term. This can be paid as part of monthly loan payments.
Multiple Listing Service (MLS):
A service that real estate agents subscribe to that lists homes
for sale and homes that have sold by neighborhood, price and
features.
Non-homestead taxes:
Taxes paid by landlords who rent their property, or by owners who
do not use the property as their primary residence.
PITI:
The monthly loan payment which includes "principal, interest,
taxes and insurance."
Prepayment Penalty:
The payment of a penalty due to the early payoff of the mortgage.
Terms of prepayment penalties may vary.
Prime Mortgage:
A prime mortgage is the highest grade of mortgage you can qualify
for — grade "A."
Principal:
The total amount you are borrowing to pay for a home. This is
usually the purchase price minus the down payment.
Private Mortgage Insurance (PMI):
Insurance you pay when you take out a conventional loan. Most
lenders charge this if you make less than a 20 percent down payment
on a home. It protects the lender from losing money owed on a loan
if a buyer defaults on the loan, and is cancellable under Minnesota
state law after two years if certain requirements are met.
Property tax adjustment:
An adjustment made to reimburse the seller for taxes already paid
for the year.
Purchase Agreement:
The legally-binding document that lists all the terms of a home
sale including contingencies.
Real Estate Settlement Procedures Act
(RESPA):
The federal law that regulates lenders' closing or settlement
practices.
Re-issue credit:
A savings on the cost of title insurance, when the buyer uses the
same title company that the previous owner used. Because the company
is "re-issuing" the insurance, it can offer a lower rate.
Sub-prime Mortgage:
A sub prime mortgage is a grade "B" or lower and has a higher
rate of interest than a prime mortgage.
Subagent:
A seller's agent who may bring a potential buyer to a home, but
owes his or her loyalty to the seller.
Title insurance:
The insurance you pay to protect your lender against claims on
the title to your property. As a buyer, you also can take out title
insurance to protect yourself against claims.
Truth-in-Housing Inspection Report:
A report the seller completes that discloses the condition of the
house.
Truth-in-Lending Disclosure Statement:
A statement your lender must give you informing you of all the
fees and costs of a loan using the annual percentage rate (APR).
Underwriting:
Risk analysis conducted by a lender to decide whether or not to
approve you for a loan.
Veterans Administration loan (VA loan):
Low interest, no down payment loans available to those who have
served in the U.S. military.
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