From ARMs to PMI, 10 Terms You Should Know
Get ready homebuyers: In just a short time, you'll notice For Sale signs sprinkled throughout your neighborhood. Are you ready to talk the talk, incorporating what may be new words and odd acronyms into your daily vocabulary?
If you're in the market to buy a home for the first time, one of the best things you can do is get your real estate vocabulary in gear. Why? Because words matter, and soon you'll need to know your real estate lingo to talk wisely, and with confidence, about one of the most important investments you'll ever make.
No need to panic. We're here to get you started with some of the more important terms.
Ready, Set, Go:
- Adjustable-Rate Mortgage (ARM) – A type of mortgage with an interest rate that adjusts after an initial period of time – typically 3, 5, or 7 years – and resets periodically. ARMs usually give you lower monthly payments at the outset, but over time your payments will rise with interest rates. Learn more about what mortgage is right for you.
- Annual Percentage Rate (APR) – The annual rate it costs you to borrow over the term of the loan, including the interest rate, points, fees and certain other credit charges you are required to pay. The APR is the bottom-line number you can use to shop and compare rates among lenders.
- Appraisal – An analysis performed by a qualified appraisal professional who estimates the value of a property by taking current market values of similar homes and the quality of the home into account.
- Closing – The last step of the real estate transaction when you sign the final mortgage documents, receive title to the house, and pay all closing costs. After a successful closing, you have a new house to call home.
- Credit Score – A three-digit number – ranging from 350 to 850 – that represents and summarizes information from your credit report, indicating your likeliness to repay your debt. Your credit score plays a significant role in getting approved for a loan and the interest rate you are charged – the higher your score the better. Learn more about how you can improve your credit score.
- Equity – The difference between how much your home is worth and how much you owe on your home. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 of equity.
- Fixed-Rate Mortgage – A mortgage with an interest rate that does not change during the entire term of your loan. This is the most common type of mortgage, giving you certainty and stability over the life of the loan. Learn more about what mortgage is right for you.
- HUD-1 – A standard form used by your settlement agent, or closing agent, that itemizes all services and fees charged to you by the lender when purchasing or refinancing your home. Later this year, the Consumer Financial Protection Bureau's new Closing Disclosure form will replace the HUD-1 for most loans.
- Points – Sometimes called discount points, these are up-front payments typically used to reduce your mortgage interest rate on the loan and obtain a lower monthly payment. A point is 1% of your loan amount, or $1,000 on a $100,000 loan. Is there a "point" in paying points? Find out here.
- Private Mortgage Insurance (PMI) – A monthly premium required by your lender if your down payment is less than 20%, protecting the lender if you are unable to pay your mortgage. Get the low down on PMI.
This list just scratches the surface of housing market terminology. For a complete list of important terms from A-Z, visit our Glossary where you'll find it all. As for the people you'll meet in the homebuying process, we can help you with that, too.
Read other posts in our Spring Homebuying series.
Want to receive our weekly blog round up? Subscribe at the right – and each Friday we'll send you our latest blog posts.