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Home Buyers Dictionary
ARM? GPM? PITI? You’d have to be a cryptologist to figure out some of the terms buyers encounter during the home buying process. Doing research on how to buy a house before beginning the process can greatly improve your experience and prepare you for the exciting course ahead. And with this glossary of home buying terms at your side, you can rest easy that your new home won’t get lost in translation.
Adjustable Rate Mortgage (ARM). A loan whose interest rate is adjusted according to movements in the financial market.
Amortization. A payment plan by which a borrower reduces a debt gradually through monthly payments of principal and interest.
Annual Percentage Rate (APR). The annual cost off credit over the life of a loan, including interest, service charges, points, loan fees, mortgage insurance, and other items. Appraisal. An evaluation to determine what a piece of property would sell for in the marketplace.
Appreciation. The increase in the value of a property.
Assessment. A tax levied on a property or a value placed on the worth of property by a taxing authority.
Assumption. A transaction allowing the buyer of a home to assume responsibility for an existing loan on the home instead of getting a new loan.
Balloon. A loan which has a series of monthly payments (often for 5 years or less) with the remaining balance due in a large lump sum payment at the end.
Binder. A receipt for a deposit paid to secure the right to purchase a home at terms agreed upon by the buyer and seller.
Buydown. A subsidy (usually paid by a builder or developer) to reduce the monthly payments on a mortgage loan.
Cap. A limit to the amount an interest rate or a monthly payment can increase for an adjustable rate loan either during an adjustment period or over the life of the loan.
Certificate of Occupancy. A document from an official agency stating that the property meets the requirements of local codes, ordinances, and regulations.
Closing. A meeting to sign documents which transfer property from a seller to a buyer. (Also called settlement) Closing Costs. Charges paid at settlement for obtaining a mortgage loan and transferring real estate title.
Conditions, Covenants, and Restrictions (CC and Rs). The standards that define how a property may be used and the protections the developer has made for the benefit of all owners in a subdivision.
Condominium. A home in a multi-unit complex; each purchaser owns an individual unit, and all the purchasers jointly own the common areas, such as the surrounding land, hallways, etc.
Conventional Loan. A mortgage loan not insured by a government agency (such as FHA or VA).
Convertibility. The ability to change a loan from an adjustable rate schedule to a fixed rate schedule.
Cooperative. A form of ownership in a multi-unit complex; the purchasers own shares of the entire complex rather than owning individual units.
Credit Rating. A report ordered by a lender from a credit bureau to determine if the borrower
is a good credit risk.
Default. A breach of a mortgage contract (such as not making monthly payments).
Density. The number of homes built on a particular acre of land. Allowable densities are usually determined by local jurisdictions.
Downpayment. The difference between the sales price and the mortgage amount on a home. The ownpayment is usually paid at closing.
Due-on-Sale. A clause in a mortgage contract requiring the borrower to pay the entire outstanding balance upon sale or transfer of the property. A mortgage with a due-on-sale clause is not assumable.
Earnest Money. A sum paid to the seller to show that a potential purchaser is serious about buying.
Easement. Right-of-way granted to a person or company authorizing access to the owner’s land; for example, a utility company may be grated an easement to install pipes or wires. An owner may voluntarily grant an easement, or in some cases, be compelled to grant one by a local jurisdiction.
Equity. The difference between the value of a home and what is owed on it. Escrow. The handling of funds or documents by a third party on behalf of the buyer and/or seller.
Federal Housing Administration (FHA). A federal agency which insures mortgages that have lower downpayment requirements than conventional loans.
Fixed Rate Mortgage. A mortgage whose interest rate remains constant over the life of the loan. The payments are not necessarily level. (See Graduated Payment Mortgage and Growing Equity Mortgage).
Fixed Schedule Mortgage. A mortgage whose payment schedule for the life of the loan is established at closing. The payments and interest rate are not necessarily level.
Graduated Payment Mortgage (GPM). A fixed-rate, fixed-schedule loan which starts with lower payments than a level payment loan; the payments rise annually over the first 5 to 10 years and then remain constant for the remainder of the loan. GPMs involve negative amortization.
Growing Equity Mortgage (Rapid Payoff Mortgage). A fixed-rate, fixed-schedule loan which starts with the same payments as a level payment loan; the payments rise annually, with the entire increase being used to reduce the outstanding balance. No negative amortization occurs, and the increase in payments may enable the borrower to pay off a 30-year loan in 15 to 20 years, or less.
Hazard Insurance. Protection against damage caused by fire, windstorm, or other common hazards. Many lenders require borrowers to carry it in an amount at least equal to the mortgage.
Housing Finance Agency. A state agency which offers a limited amount of below-market-rate home financing for low-and moderate-income households.
Index. The interest rate or adjustment standard which determines the changes in monthly payments for an adjustable rate loan.
Infrastructure. The public facilities and services needed to support residential development, including highways, bridges, schools, and sewer and water systems Interest. The cost paid to a lender for the use of borrowed money.
Joint Tenancy. A form of ownership by which the tenants own a property equally. If one dies, the other would automatically inherit the entire property.
Level Payment Mortgage. A mortgage whose payments are identical for each month over the life of the loan. Mortgage Broker. A broker who represents numerous lenders and helps consumers find affordable mortgages; the broker charges a fee only if the consumer fins a loan.
Mortgage Commitment. A formal written communication by a lender, agreeing to make a mortgage loan on a specific property, specifying the loan amount, length of time and conditions.
Mortgage Company (Mortgage Banker). A company that borrows money from a bank, lends it to consumers who want to buy homes, then sells the loans to investors.
Mortgagee. The lender who makes a mortgage loan.
Mortgage Loan. A contract in which the borrower’s property is pledged a s collateral and which can be repaid in installments over a long period. The mortgagor (buyer) promises to repay principal and interest, to keep the home insured, to pay all taxes, and to keep the property in good condition.
Mortgage Origination Fee. A charge by a lender for the work involved in preparing and servicing a ortgage application (usually 1 percent of the loan amount).
Negative Amortization. An increase in the outstanding balance of a loan when a monthly payment is not large enough to cover all of the interest due.
Note. A formal document showing the existence of a debt and stating the terms of repayment.
PITI. Principal, interest, taxes, and insurance (the 4 major components of monthly housing payments).
Point. A charge of 1 percent of the mortgage amount. Points are a one-time charge assessed by the lender at closing to increase the interest yield on a mortgage loan.
Prepayment. Payment of all or part of a debt prior to its maturity.
Principal. The amount borrowed in a loan, excluding interest and other charges.
Property Survey. A survey to determine the boundaries of your property. The cost will depend on the complexity of the survey.
Rapid Payoff Mortgage. (See Growing Equity Mortgage).
Recording Fee. A charge for recording the transfer of a property, paid to a city, county, or other appropriate branch of government.
Real Estate Settlement Procedures Act (RESPA). A federal law requiring lenders to provide home buyers with information about known or estimated settlement costs. The act also regulates other aspects of settlement procedures. R-Value. The resistance of insulation material (including windows) to heat passing through it. The higher the number, the greater the insulating value.
Sales Contract. A contract between a buyer and seller which should explain, in detail, exactly what the purchase includes, what guarantees there are, when the buyer can move in, what the closing costs are, and what recourse the parties have if the contract is not fulfilled or if the buyer cannot get a mortgage commitment at the agreed-upon terms.
Settlement. (See Closing).
Shared Appreciation Mortgage. A loan in which partners agree to share specified portions of the downpayment, monthly payment, and appreciation.
Tenancy in Common. A form of ownership in which the tenants own separate but equal parts. To inherit the property, a surviving tenant would either have to be mentioned in the will or, in the absence of a will, be eligible through state inheritance laws.
Title. Evidence (usually in the form of a certificate or deed) of a person’s legal right to ownership of a property.
Transfer Taxes. Taxes levied on the transfer of property or on real estate loans by state and/or local jurisdictions.
Veterans Administration (VA). A federal agency which insures mortgage loans with very liberal downpayment requirements for honorably discharged veterans and their surviving spouses.
Walk-Through. A final inspection of a home before settlement to search for problems that need to be corrected before ownership changes hands.
Warranty. A promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specified level of performance over a specified period of time. Written warranties on new homes are either backed by insurance companies or by the builders themselves.
Zoning. Regulations established by local governments regarding the location, height, and use for any given piece of property within a specific area.
Weigh Your Options Before a Do-it-Yourself Remodel
The desire among home owners to tackle repair and remodeling projects has risen with the popularity of Pinterest and design blogs and the prevalence of home improvement stores. Before attempting to recreate the gorgeous bathroom from your Pinterest board in your own home, consider the following before sinking your resources into the project.
Without the proper training and preparation, a DIYer can and has landed in the emergency room. Unfamiliarity with new tools and techniques can lead to life-threatening accidents. Follow product directions and safety procedures and always use proper safety equipment.
A good rule of thumb for any home owner is to avoid projects that require a license. Veteran remodelers advise against doing electrical or plumbing work on your own and avoid making structural changes to walls, roofs and floors. You run the risk of compromising the structural integrity of your home and having a large hole in your roof or floor. Leave this work in the hands of professionals with the proper training.
Even projects that appear simple like laying floor tile can result in you stubbing your toes every time you are in that room if improperly installed.
DIYers often tackle larger projects than they can handle before the holidays so that visiting family can enjoy the updates. But when something goes wrong, there is no one to hold to the deadline. Hiring a professional will ensure that you have a contract with a completion date and that the remodeler will bring in whatever help is necessary to get the job finished on time.
Even professional remodelers sometimes need extra time on projects when they find surprises behind walls. Troubleshooting these issues often takes more time and expertise than originally planned. If timing is a priority for your weekend warrior, call a professional remodeler to get your project completed.
Purchasing new tools is exciting but consider the price of all the specialty tools used for a one-time project when they are sitting untouched in your garage for a few years.
Additionally, many of the products purchased for the DIY market, although designated by a name brand, are not always the same quality available to contractors. It is also important to verify the terms of the product warranty. Many warranties become void by improper installation.
Does it really pay to do the job twice when you can pay a professional to do it once?
There are some home projects that professional remodelers believe can be tackled by determined DIYers such as hanging pictures, interior painting, caulking, changing door knobs and cabinet pulls, and some aesthetic work (depending on skill level) such as installing crown molding. Just consider the safety risks, time and cost involved in a DIY project of any size.
Still think you can tackle a big remodeling project? Just remember, DIY projects should be fun and suit your skill level. If they’re not, then consider hiring a professional.
For information about hiring a remodeler, search the Lincoln Trail Home Builders Association website for a Registered Builder/Remodelor.
Do Your Homework Before Hiring a Builder or Remodeler
Some important characteristics you should be looking for to ensure that you hire a professional builder or remodeler are:
Experience – Ask how long the builder/remodeler has been in business. Longevity suggests financial stability, which is necessary for the builder/remodeler to finish the job and still be available if problems crop up after the job is completed. Also, the more jobs the company has completed, the more expertise the builder/remodeler will bring to your project and the hidden surprises that remodeling typically entails.
Reputation – Look to the builder/remodelers’ former and current customers to gauge the company’s reputation. Obtain the names and phone numbers of customers you can call to get their impressions of the company’s work and customer service. Call them and make personal visits to see the work they had done. Even better, get references from customers whose projects were similar to the one your family is planning. Also, go visit one of the company’s jobs in progress to evaluate how they manage the construction process and how tidy they keep the job site. Ask whether these homeowners would hire the company again.
Business Credentials – A good place to start your search for a builder/remodeler is with your local home builders association. Groups like these help to keep their members informed about new products, construction techniques, business practices and industry issues. Participation demonstrates a builder/remodeler’s commitment to professionalism and to the home building/remodeling industry. Many trade groups also confer professional credentials, such as Certified Graduate Builder/remodeler (CGR), to those who meet their requirements, which is a positive indicator of the builder/remodeler’s reputation.
License and Insurance – Ask to see a copy of the builder/remodeler’s license, if your state has such requirements, and call the licensing agency to find out if there are any unresolved complaints against the company you might hire. It is also important to verify that the builder/remodeler carries workers’ compensation and liability insurance. Have the builder/remodeler show you copies of both insurance certificates to protect yourself from liability in situations involving job site injuries or property damage resulting from the work being done on your home.
THERE ARE NO LICENSING LAWS FOR BUILDERS IN THE STATE OF KENTUCKY.
HOW DO YOU PROTECT YOURSELF AND YOUR INVESTMENT?
CHOOSE A REGISTERED BUILDER OR REMODELER
Before You Build, Check With One of Our Registered Builders
BCC Enterprises and Properties, LLC
Brantingham Builders, Inc.
Butler Homes, Inc.
Carlos Matthews Construction, Inc.
Chuck Foushee Custom Homes, Inc.
Curtis Willoughby Construction Co.
David Nichols Construction
Michael J. Eades
E-Town Homes, Inc.
Ed Cecil Construction, Inc.
First Time, Inc.
Heartland Homes, Inc.
Holley Homes & Construction, LLC
Eddie & Jerry Howard
Howard’s Concrete & Construction
Joseph Samuel Brangers
Independent Home Repair, Inc.
Ireland Quality Homes
Jim Heavrin Construction Inc.
Jimmy Stinson Contracting
Leasor Construction Company
Mattingly General Contractors
Charles A. Corbett
Patriots Pointe Custom Homes
Phillips Brothers Construction, LLC
Phillips Homes, LLC
Phillips Homes, LLC
Michael C. Eades
Radcliff Homes, Inc.
Raymond George Construction
Rocky-K Construction, LLC
Ronnie Ellis Construction
Smith Family Homes Inc
Stephen’s Construction Co., Inc.
The Ferguson Company, LLC
The Home Place of Kentucky LLC
Whitehead Construction Co.
Will Harris Homes LLC