Home-Buying Basics: Understanding the language

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Jargon

Technical terminology of a particular profession or group

VA Loan

Veterans Affairs loan; loan guaranteed to eligible veterans, active duty personnel and surviving spouses

Inspection

visual examination of the structure and components of a home to find problems or dangers

FHA Loan

Federal Housing Administration loan; mortgage designed to help individuals who may not qualify for other mortgage loans due to poor credit or lack of down payment

Freddie Mac

GSE formally called the Federal Home Loan Mortgage Corporation; created in 1970; standardize how home loans are approved; securitize conforming loans

Fannie Mae

GSE formally called the Federal National Mortgage Association; established by the U.S. government in 1938; standardize how home loans are approved; securitize conforming loans

Escrow

account held by a third party to be turned over to another at a specified time

Principal

amount borrowed

Depreciation

decrease in value over time

Interest

fee charged by a lender for the use of borrowed money; expressed as a percentage of the amount borrowed

Real Property

fixed property such as land, buildings and items attached to them

Seller's Disclosure

form intended to provide a potential buyer with all information the seller knows about the property and its potential issues

Mortgage Point

form of prepaid interest; one point costs one percent of the loan amount and reduces the interest rate by one-eighth of a percent; also known as discount point

Earnest Money

form of security deposit accompanying an offer to purchase; intended to show the buyer is serious about the home purchase

Inflation

increase in price levels and reduction in the value of money

Appreciation

increase in value over time

Real Estate Purchase Agreement

legal document detailing the sale of a real estate property

Mortgage

loan to finance the purchase of real estate

Balloon Mortgage

mortgage which is unamortized or only partially amortized, meaning not all of the principal is paid by the end of the loan term through regular payments

Adjustable-rate Mortgage

mortgage with a fluctuating interest rate; also known as ARM or variable-rate mortgage

Fixed-rate Mortgage

mortgage with fixed interest rate for the life of the loan

Personal Property

movable property not affixed to or associated with land

Recession

period of temporary economic decline during which spending and trade are reduced

Private Mortgage Insurance

policy protecting a mortgage lender in the event the borrower defaults on payments; typically required when borrowers have less than 20 percent equity

Government Sponsored Enterprise (GSE)

privately owned company authorized by Congress to increase the availability of credit in a particular sector of the economy

Closing

process during which the title to the property is transferred to the buyer

Appraisal

process of a certified professional assessing the value of a property

Amortization

process of paying off a loan through specifically structured payments

Reverse Mortgage

program of the Federal Housing Administration which allows senior citizens to convert home equity into cash without selling the home

Contingency

provision stating fulfillment of a contract depends on certain conditions

Upside-down Mortgage

term used to describe when a borrower has negative equity in a property; the value of a property is less than the amount owed on the property; also known as underwater mortgage

Securitize

to convert an asset, such as a loan, into a marketable investment instrument

Security Product

type of investment instrument, comparable to a stock or bond

Equity

value of an owner's share in a property; value minus debt


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