Can you give me some help with understanding financing terms?
Sure! Here are some basic financing terms all home buyers should know.
- Adjustable Rate Mortgage (ARM):
Financing with, typically, a lower initial interest rate for a preset time. The rate and payments adjust at predetermined periods according to an agreed-upon index.
A condition on the sale put into the contract by either the buyer or seller to protect against specific eventualities. Common contingencies are that the buyer obtain financing or sell the current home, or that the seller has a home inspection done or repair certain items. Contingencies can be removed by an addendum to the contract, or they can expire if a time limit is specified in the contract.
- Fixed-Rate Mortgage:
Financing with a stable interest rate for the life of the loan, typically a 15-year or 30-year term.
The Department of Veteran Affairs, which guarantees loans, available exclusively to veterans, for approved lenders to limit losses.
- Earnest Money:
A cash deposit buyers make when they sign a contract to buy a house. It makes the contract binding and signifies the intention of the buyer to complete the purchase. At closing, the earnest money becomes part of the down payment. If the buyer defaults without a good reason, as spelled out in the contract, the earnest money becomes payment for damages suffered by sellers and their agents. The deposit is typically several thousand dollars, but usually less than 10% of the purchase price. If the buyer's contract is not accepted by the seller, the money is returned to the buyer.
The Federal Housing Administration, which insures home mortgage loans made by private lenders.
An abbreviation of Principal, Interest, Taxes and Insurance the typical components of a buyer's monthly payment. Condominium or homeowner association fees are not included.
- Points (also called Discount Points):
Part of the cost of a mortgage loan and a portion of the loan interest paid up front in exchange for a lower interest rate. One point is equal to 1% of the loan. Often, the origination fee is 1% of the loan and is counted as one point.
- Two-Step Mortgage:
A fixed-payment loan with a guaranteed low interest rate for a period shorter than 30 years, typically 3 to 10 years, and a conditional right to refinance at a higher rate for the remainder of the term.
For more answers to questions about real estate terms and procedures, call or e-mail us. We can help you get through the home buying experience with a clear head.