Key Terms Defined for Your New Home Purchase

Key Terms Defined for Your New Home Purchase

Looking to finance your newly built home? If you run across a mortgage term you don’t know, refer to our mortgage glossary below:

ABA Routing Number

A series of numbers located at the bottom of an account holder’s checks or deposit slips. These numbers identify a particular account at a financial institution.

Adjustable-Rate Mortgage (ARM)

A mortgage whose interest rate changes periodically based on changes in a specified index.

Adjustment Date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period

The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Amortization

The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.

Amortization Term

The amount of time required to amortize the mortgage loan, expressed as a number of months. For example, a 30-year fixed-rate mortgage has an amortization term of 360 months.

Annual Percentage Rate (APR)

The cost of a mortgage stated as a yearly rate, including interest, mortgage insurance, and loan origination fees (points).

Annual Percentage Yield (APY)

The rate of interest earned by an account owner in a year, assuming no withdrawals. All financial institutions calculate APY uniformly.

Application

A form (commonly a 1003 form) used to apply for a mortgage and provide information about a prospective borrower and the proposed security.

Appraisal

A written analysis of a property’s estimated value prepared by a qualified appraiser.

Appraiser

A person qualified by education, training, and experience to estimate the value of real or personal property.

Appreciation

An increase in a property’s value due to market conditions or other causes. The opposite of depreciation.

Asset

Anything of monetary value owned by a person, including real property, personal property, bank accounts, stocks, and mutual funds.

Assignment

The transfer of a mortgage from one person to another.

Assumable Mortgage

A mortgage that can be transferred (“assumed”) by the buyer when a home is sold.

Assumption

The transfer of the seller’s existing mortgage to the buyer.

Assumption Clause

A provision in an assumable mortgage allowing a buyer to assume responsibility for the mortgage without the original borrower paying it in full upon sale.

Assumption Fee

The fee paid to a lender (usually by the buyer) for assuming an existing mortgage.

Automated Clearing House (ACH)

A system that securely transfers funds electronically through participating financial institutions.

Balance Sheet

A financial statement showing assets, liabilities, and net worth as of a specific date.

Balloon Mortgage

A mortgage with level monthly payments amortized over a stated term but requiring a lump sum payment at the end of an earlier specified term.

Balloon Payment

The final lump sum payment due at the maturity date of a balloon mortgage.

Bankrupt

A person, firm, or corporation relieved from debt payments through a court proceeding after surrendering assets to a trustee.

Bankruptcy

A federal court proceeding where a debtor transfers assets to a trustee to relieve debts exceeding their assets.

Basis Point

1/100th of a percentage point. For example, 50 basis points on $100,000 equals 0.50% ($500).

Before-Tax Income

Income before taxes are deducted.

Beneficiary

The person designated to receive income from a trust, estate, or deed of trust.

Binder

A preliminary agreement secured by an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly Payment Mortgage

A mortgage requiring payments every two weeks instead of monthly. Payments equal half the monthly amount, resulting in interest savings.

Blanket Mortgage

A mortgage secured by a cooperative project, as opposed to individual unit share loans.

Bond

An interest-bearing debt certificate with a maturity date, often secured by a mortgage or deed of trust.

Breach

A violation of a legal obligation.

Bridge Loan

A short-term loan collateralized by the borrower’s current home (often for sale) to fund a new home purchase before the old one sells. Also called a “swing loan.”

Broker

A person who, for a commission or fee, facilitates contracts between parties.

Buydown Mortgage

A mortgage where an initial lump sum reduces monthly payments temporarily (temporary buydown) or the interest rate permanently (permanent buydown).