Before you buy a home, know your lingo

Here’s a glossary of common terms that may come up in the home-buying process.

Appraisal:a document that gives an estimate of a property’s fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Adjustable rate mortgage (ARM):a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.

Balloon mortgage:a mortgage that typically offers low rates for an initial period of time (usually five, seven or 10 years); after that time period elapses, the balance is due or is refinanced by the borrower.

Closing: also known as settlement, this is the time that the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs and receives the title from the seller.

Conventional loan: a private-sector loan, one that is not guaranteed or insured by the U.S. government.

Deed: the document that transfers ownership of a property.

Earnest money:money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.

Escrow account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance and mortgage insurance.

FHA:Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Mortgage: a lien on the property that secures the promise to repay a loan.

Source: Indianaloaninfo.com/glossary.aspx

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