Home-Buying Basics: Understanding the language
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
