Adjustable Rate Mortgage (ARM): is a mortgage that has a fixed rate for the first few years, then begins to adjust based upon the market’s current rates. Be aware of market conditions - if rates rise, so do your payments.
Amortization: is payments of regular installments to repay a debt over a period of time.
Appraisal: a report that provides an estimation of a property’s true market value based on location, amenities and present market value based on similar properties.
Arms-Length Transaction: is a transaction between independent and unrelated parties to ensure that both parties are acting in their own self-interest.
Back-End Ratio: a ratio that indicates what portions of total monthly income go towards paying debts including mortgage payments, child support, installment loans and revolving debt.
Balloon Mortgage: a payment plan that has consistent monthly payments over a stated term but then provides the total payment in a lump-sum at the end of a specified time.
Buydown: buyer pays the lender an up-front fee to obtain a lower interest rate for a temporary period, usually one to three years.
Cash-Out Refinance: is a refinance of an existing loan where the new mortgage is for a greater amount than the existing loan.
Closing Costs: money paid by borrowers and sellers at the closing of a loan, this could include origination fees, discount fees, title insurance, survey fees, attorney’s fees, appraisal fees, credit report fees, and prepaid items such as taxes and insurance.
Combined Loan-to-Value (CLTV): a ratio for more than one loan on a mortgage; used by lenders to determine the property’s worth and the risk of homebuyers. (1st mortgage balance + 2nd mortgage balance)/property value = CLTV
Construction Perm: is a long term loan that modifies or replaces a construction loan for a building project.
Debt-to-Income Ratio: is the percentage of a monthly gross income that goes towards paying monthly liabilities. It is used to determine the borrower’s capacity to repay the mortgage and all other debts.
Escrow Account: is also called an impound account. An account where borrower deposits funds for taxes and/or insurance payments.
or homeowners association – an association whose directors and officers are elected by the unit owners of a condominium or PUD project. Their primary responsibilities are to manage the common areas, expenses and services of the project.