Adjustable Rate Mortgage (ARM)
An adjustable rate mortgage is a mortgage than can vary (up or down) over the life of the loan in relationship to changes in the index (ARMs are sometimes called variable rate mortgages). Typically, the
initial mortgage interest rate on ARMs are lower than those for fixed rate mortgages; however, over time, since rates on ARMs can vary over the life of the mortgage, a fixed rate loan may eventually have a lower interest rate.
Your lender can provide you with details regarding the mortgage programs that are available. Additional information on mortgage rates, financial calculators, etc. can be found at HSH Associates and at the Home Buyer’s
Fair web sites.
ARMs are available with different adjustment periods, typically one, three, five, or seven years; the
interest rate on the loan can change at the end of the adjustment period.
Features of a residence that supplement the residence and
increase the value or desirability of the residence. Amenities include tennis courts, a swimming pool, a clubhouse, a golf course, location, and proximity to a lake, beach, ski resort, etc.
Mortgage loans are amortized when they are repaid in equal payments consisting of principal and interest. Over time, as the mortgage is repaid, the
outstanding portion of the debt is reduced and the equity increases. In the early years of the mortgage, the largest portion of the mortgage payment pays the interest on the loan and the smallest portion pays back the loan
principal; in the later years of the loan, the reverse is true.
Annual Percentage Rate (APR)
The interest, points, and loan fees, when expressed as
a percentage of the amount loaned.
AO (Accepted Offer)
AO is a terminology often used by real estate agents to indicate that a buyers offer to
purchase has been accepted by the seller.
A person who estimates the value of a residence, typically for a mortgage lender; mortgage
lenders want to be sure that the size of the mortgage will not place them at financial risk in case of a borrowers default.
A buyers agent is an agent who represents the buyer and owes fiduciary duties to the buyer.
A cap refers to the
limit on how much an interest rate can change at an adjustment period, or over the life of the loan.
Certified Home Inspector (A Questionable Credential?)
Certification for home inspectors is provided by home inspection trade groups, or by home inspection companies themselves, or can be purchased for as little as $35; a high school diploma is not a requirement to become a
certified home inspector; the significance of certification may be questionable.
Closing costs include all of the fees, such as
attorneys fees, appraisal fees, inspections, insurance, title search, points, taxes, bank fees, escrow deposits, etc. that a borrower is required to pay to obtain a mortgage.
Comps (Comparable Sales)
When a real estate agent performs a comparative market analysis to determine how to price a home to be listed for sale, one of the criteria utilized is a list of
comparable homes that have recently sold and those that are presently listed for sale.
Some States require home sellers to provide home buyers with a disclosure of known defects.
The down payment is a percentage of the agreed upon selling price that the buyer is required to pay in cash and may not be borrowed from the lender. The down payment, when
added to the mortgage, equals the price of the residence.
Equity is the net value of a residence minus the unpaid portion of the mortgage and less any other outstanding amounts (such as a second mortgage, a lien, etc).
If your lender is scheduled to pay property taxes, insurance, etc. on your behalf, the borrower must place funds in an escrow account to pay the
required amounts. Typically, the borrower places funds in this account as part of the monthly mortgage payment.
Loans, with special terms, insured by HUD and FHA may be available to a borrower.
Fixed Rate Mortgage
A fixed rate mortgage is a mortgage that has a fixed interest rate for a specified period of time, usually 15, 25 or 30 years (typically, the
life of the loan). Fixed mortgages with shorter terms typically have lower interest rates than loans with longer terms. In addition, fixed rate mortgages with shorter terms accumulate equity faster than those with longer
Federal National Mortgage Association (FNMA)
Fannie Mae, as it is better known, is a privately owned corporation created by Congress to
operate in the secondary mortgage market. Fannie Mae buys and sells residential conventional mortgages and mortgages insured by the FHA or guaranteed by the VA.
A home inspection is an objective evaluation of a home that
is conducted in accordance with accepted standards of practice in the industry. Typical standards of care can be obtained from sources such as NABIE which outline standards for visually inspecting the structural components,
exterior and interior physical components, electrical and mechanical components, etc. of the home. NABIE also has a code of ethics for members to follow.
Inspection Trade Society
There are one or two dozen home inspection trade societies. Typically, these societies accept as members persons with varying backgrounds, typically, a high school diploma is not a
requirement; members need not be engineers.
A home inspector is a person who inspects homes in accordance with standards of care
that are accepted practice in the industry such as those available from NABIE.
Losses or damage to the home or personal
property and from damages to other people or property are risks typically covered by homeowners insurance and is typically required by the mortgage lender and is often included in the borrowers monthly mortgage payment.
HUD (Department of Housing Urban Development)
The U.S. Department of Housing and Urban Development is a government agency which has programs involving
home ownership assistance for low and moderate income families, fair housing and equal opportunity, as well as home improvement loans, etc.
ARM interest rates vary in accordance with an index prescribed by the lender.
Lenders typically require a survey of the purchased property as a contingency for granting the mortgage; a survey is a drawing showing the boundaries of a
property. A recent survey typically will satisfy this requirement, if not, a Licensed Land Surveyor should be retained to provide an updated survey.
A lender is an individual or company that lends money for mortgages. Some mortgages are arranged for by mortgage brokers.
A Licensed Professional Engineer is an individual that has qualified by education, experience and examination to practice engineering and has been issued a professional engineering license by the
State. Further information regarding the licensing of engineers can be obtained on the Internet (this link is for the State Of New York which provides information which is typical for all States but specific information on
other States can be obtained by searching the Internet).
A lien is a claim placed on property to satisfy an unpaid debt (such as a
A commitment letter is issued by the lender; the lender agrees to make the loan to the borrower and sets
sets forth the terms upon which the loan will be granted.
The ratio of the mortgage divided by the appraised value of the home;
lenders use this ratio to help determine the maximum amount of a mortgage loan that will be granted.
A mortgage is a lien on a residence to secure repayment of money borrowed to purchase the residence.
The National Academy Of Building Engineers is a professional society of
Licensed Professional Engineers who specialize in home inspection. Consumers who choose a member of NABIE are choosing a home inspector who has passed rigorous entrance requirements and who adheres to tough inspection
standards. Additional information on NABIE can be obtained on the Internet or by calling (207) 828-1977 or by writing to NABIE at 650 Brighton Avenue, Portland, ME 04102.
The National Society Of Professional Engineers is a society of 70,000 Licensed Professional Engineers (NABIE members are also members of NSPE). Additional information on NSPE, can be
obtained on the Internet.
The origination fee is a fee charged by the lender to initiate a proposal for a mortgage.
A terminology commonly used to represent principal, interest, taxes and insurance. The combination of these items is used by lenders to determine the borrowers
projected housing costs.
Points are charges the borrower pays to the lender; each point is equal to 1% of the mortgage amount. Points
are charged to increase the yield on the mortgage. Therefore, a mortgage with no points may have a higher annual percentage rate than a similar mortgage at a lower mortgage rate and a specified number of points. Some lenders
will allow the borrower to amortize the points over the life of the loan.
PMI, or Private Mortgage Insurance, is typically provided by a
private company and paid for by the borrower; PMI is intended to protect the lender against loss if the borrower defaults on the loan. PMI is only required for some mortgage loans.
Radon is a colorless, odorless gas produced by radioactive material in the ground; a
residence can be tested for elevated levels of radon gas. Typically, radon gas measurement tests are conducted during the home inspection process period. Exposure to elevated levels of radon gas for too long a period of time is
reportedly a health hazard.
Real Estate Agent (Buyer's Agent)
An agent who represents the buyer and is authorized by the buyer to find a
residence for the buyer.
Real Estate Agent (Dual Agency)
Real estate agents who represent both a buyer and seller in a transaction acts as a
dual agent; typically, dual agency requires the written consent of both buyer and seller.
Real Estate Agent (Seller's Agent)
An agent who
represents the seller and is typically referred to as the listing agent, this agent is authorized by a seller to find a buyer for the residence.
A Realtor is a member of the National Association Of Realtors (Realtor is a registered trademark). A Realtor can guide you through a property transaction, either as a buyer or seller. Additional information can be
obtained on the Internet.
When the ownership of a residence is transferred from the seller to the buyer, Title is transferred via a document called a deed.
Lenders and borrowers are protected against financial loss which may result from legal defects in the Title, or other claims against the Title by insurance known as Title Insurance.
USTs ( Underground Storage Tanks)
home inspection, the home inspector should identify the existence of underground storage tanks.
VA Loans are available to some borrowers and are partially guaranteed by the VA (Veterans Administration), and are privately granted.
Wood Destroying Insect Report
An inspection of a residence for wood destroying insects (such as termites, carpenter ants, etc.) is typically required by the mortgage lender as a condition of the mortgage and is typically conducted by the home inspector during the home inspection