Real estate terminology

Knowing what’s what and who’s who can help you along the path to buying a new home.
Adjustable rate mortgage (ARM)
A loan in which the interest rate you are charged changes in conjunction with an index that reflects the cost to the lender, such as the 1-year constant maturity Treasury securities index or the London Interbank Offered Rate (LIBOR).

Annual percentage rate (APR)A calculated yearly interest rate that includes any fees and costs you may have to pay in order to get the loan.
 
Appraiser
A professional who assesses the value of a home based on a variety of factors, from condition to neighborhood. If you’re purchasing through a mortgage lender, chances are they’ll require an appraisal.

Closing costs
Fees related to completing the real estate transaction—these can include attorney fees, document preparation fees and transfer fees.

Credit score
Calculation that may be used to establish the interest rate on your loan. Your credit score is impacted by a number of factors, including your debt-to-income ratio and any late or missed payments.

Earnest money
A payment made by the potential buyer to show their commitment to their intent to purchase a home. This money is typically nonrefundable if the buyer changes their mind about buying the house.

Escrow
The holding of funds by a third party. Before closing, an attorney may hold any deposits or payments in escrow until the deal is complete. Once you have a mortgage, your lender may hold a portion of your monthly payment in escrow to help pay property taxes or homeowners insurance costs.

Fixed-rate mortgage
A loan in which the interest rate stays the same throughout the length of the loan, typically 15 or 30 years.

Home inspector
A professional who examines a home in order to find any structural issues, wiring problems or other things that could mean costly repairs early on in your homeownership. You can use the inspector’s report to further negotiate with the seller on who will pay for and oversee any repairs.

Mortgage broker
Someone who may be able to help you shop for the best rate if you’re not sure where to start. Your bank may also offer mortgages.

Mortgage insurance (PMI)
Typically required in order to protect the mortgage lender if your down payment is less than 20% of the purchase price of the home.

Mortgage servicer
Once you have a mortgage, you may receive bills for it from a different company. That’s because some companies only issue the mortgage, while a different firm services it. This should not change the terms of your mortgage at all.

PITI
An acronym that represents the typical components of your mortgage payment—principal, interest, taxes and insurance.

Prequalification/preapproval
A prequalification report offers the buyer an estimate of the amount the buyer might be able to borrow for a mortgage. A preapproval is a written guarantee by the lender for a loan up to a specific amount, pending full documentation.

Real estate agent
Real estate agents can help you find homes in your price range, and they may have suggestions for other professionals you can use, such as an attorney or a home inspector. They’ll negotiate on your behalf as you make an offer on a home, and they can help you make adjustments to your offer if the home inspection uncovers needed repairs.

 
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