Purchase Terminology

Abstract
A document detailing the financial history of the property, including ownership changes, title changes, mortgages, liens, forfeitures, etc.

Addendum
A document detailing changes to a contract.

Adjustable Rate Mortgage (ARM)
A mortgage with a rate that varies according to an established benchmark, such as the prime lending rate. Many have a cap and may include a one-time option to lock the rate at a set amount.

Annual Percentage Rate (APR)
The yearly interest cost of a loan. Monthly mortgage payments include an interest rate equal to 1/12 the APR.

CC&Rs
Codes, Covenants, and Restrictions are the rules stating your rights and duties regarding your property when you purchase property that includes property held in common with other owners in the subdivision or building.

Closing 
The meeting at which the money and property title change hands. Closing costs include fees for the title search, appraisal, survey, loan origination, points, deed recording, credit report, notary, and possible other charges as well. Also called settlement.    
           
Construction Loan
A short-term loan to finance the construction of a home. The lender makes periodic payments directly to the builder as work progresses. These loans are more expensive than mortgages, and are converted to mortgages as soon as the building is completed.

Contingency
A condition(s) that must be met for the contract to be valid. Common contingencies attached to purchase offers include sale of buyer's existing home and outcome of a home inspection.        
      
Conventional Mortgage
A loan based on the applicant's credit and collateral (usually the property being purchased). Not insured through the FHA or VA.

Covenant
A written restriction on the use of the property. Homeowners' Associations often enforce covenants governing architecture and maintenance of houses in a subdivision.

Disclosure Statement
A document listing known defects, such as water problems, roof damage, and the like. Required by law in some areas.

Earnest Money
A good faith down payment made when the purchase agreement is signed by both parties

Escrow
Money held by a disinterested third party until the terms of an agreement are met.

Fixture
Any item attached to the house, lights, sinks, woodwork, etc., is considered to be part of the property and included in the sale of the property.

Good Faith Estimate (GFE)
An estimate of closing costs provided by the lender to the buyer.          
     
Joint Tenants
Two unrelated people who jointly own a property that will pass to the survivor when the other dies, even if this is not stated in a will. See also Tenants in common.

Lien
A financial claim made against a property that must be settled before the title can change hands.

Loan-To-Value Ratio (LTV)
The amount of the loan in ratio to the assessed value of the property. If the LTV is more than 80% mortgage insurance will likely be required by the lender.

Lock, or Lock In
The point prior to closing at which you commit to a mortgage interest rate so long as the mortgage closes within a specified time period. If the lock period expires prior to closing, lender and would-be mortgagee must negotiate a new deal.

Maintenance Fee
The monthly amount paid by owners of condos, townhouses, and other commonly owned properties to cover the repair and maintenance of common areas including lobbies, grounds, and exterior surfaces.           
    
PITI
Principle, interest, tax, and insurance. The elements that comprise a monthly mortgage payment. (Lenders frequently collect and escrow money to pay the insurance and property taxes when the LTV is over 80 percent.)

Point
The amount paid to the lender to secure a lower interest rate. A point is equal to 1 percent of the loan amount.

Special Assessment
Charges for projects such as street lighting, paving, and sewer work that must be settled at closing.

Tenants in Common
Two unrelated people jointly own a property without right of succession. In other words, if one owner dies, his/her share of the property passes to heirs, not necessarily the co-owner.

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