Home Buying Guide Financing Terminology Adjustable Rate Mortgage (ARM) Debt-to-Income Ratio A mortgage where the interest rate is The ratio of a borrower’s monthly subject to change over the term of the payment obligation on long-term debt loan as determined by market influences divided by the monthly income. (e.g., interest rates on treasury securities). Amortization The process of paying debt by installments of principal and earned interest over a fixed period of time. Annual Percentage Rate (APR) The amount of interest on a total loan amount that will be paid annually. Discount Points Lien Legal document used to create a security interest in another’s property. A lien is often given as a security for the payment of a debt; a lien can also be placed against a consumer for failure to pay what is owed. A lump sum paid to the buyer’s creditor to reduce the cost of the loan. This can either be required by the creditor or Loan Origination Fee volunteered by the seller in a loan to buy. The fee lenders charge for making a loan (e.g., 1% for a $100,000 mortgage equals a $1,000 loan origination fee). Down Payment Amount paid up front when arranging credit, sometimes known as cash down. Market Value The worth of something determined by a willing buyer & seller in an open market; market value can fluctuate depending Appraisal Equity An expert judgment or estimate of the The financial difference between current on supply/demand and other forces. value of real estate, made by an appraiser, market value and the amount owed. generally for the purpose of obtaining a real estate loan. Mortgage A written agreement to repay a loan; Escrow Property/money held by a 3 rd party until the mortgage serves as proof of an Balloon Loan the agreed contract obligations are met. indebtedness and states the manner in which it shall be paid. An amortized loan with 1 large payment for the remaining amount due at a time during the amortized period. Escrow Account Principal, Interest, Taxes, Money collected from the borrower’s installment payments for the purpose and Insurance (PITI) Closing Costs of paying property taxes and insurance; The combined monthly amount of these All fees and charges paid at closing for an escrow account is typically required paid in the financing of real estate. services including lender or mortgage when the loan is more than 80% of the broker and certain other fees paid to property value. 3 rd parties for services that the lender Principal requires the borrower to purchase. Original balance of money loaned; as Fixed Rate the loan is paid over time, the principal Rate of interest charged for credit that is the remaining loan balance. Credit Application does not change over the life of the loan. A form used by a lender to obtain credit, personal, and financial information to Private Mortgage Insurance (PMI) appraise an applicant’s credit worthiness. Foreclosure Loans with smaller down payments Legal action of the lender to take back involve greater risk for the lender, who possession of any property used to secure requires protection in case the loan goes Credit Report repayment for the loan when a debtor in foreclosure. Anything less than a 20% Also called consumer credit information, fails to meet the payment obligations. down payment usually requires PMI. the report contains information about a consumer’s identity, credit relationships, any court actions, consumer statements, Installment Loan Property Taxes and previous inquiries into that file. Debt borrowed for a specific purpose The annual real estate taxes charged to such as automobiles and real estate. property owners based on the assessed The debt is paid in regularly scheduled value of the property. Credit Score installments over a specified period of A number typically between 330 — 830 time, and the account is closed when letting lenders determine how likely the debt is paid. Revolving Debt someone is to pay their loan. Debt on an account that the borrower can repeatedly use and pay back without Interest having to reapply every time credit is Debt The charge for the use or loan of money used (e.g., credit cards). A specified sum of money that is legally typically expressed as a percentage; owed from one to another. the interest rate remains constant in a Fixed Rate Mortgage. ©2019 BHH Affiliates, LLC. An independently operated subsidiary of HomeServices of America, Inc., a Berkshire Hathaway affiliate, and a franchisee of BHH Affiliates, LLC. Berkshire Hathaway HomeServices and the Berkshire Hathaway HomeServices symbol are registered service marks of HomeServices of America, Inc. ® Equal Housing Opportunity.