Addendum
A written addition to a Purchase and Sale Agreement, or “contract,” to change or clarify terms.

Adjustable-Rate Mortgage (ARM)
A mortgage in which the interest rate (and therefore the monthly payment) can fluctuate up (or down) during the life of the loan. Depending on the specific loan terms, your interest rate may change every 6 or 12 months. Because the initial interest rate is often lower for an adjustable-rate loan, the monthly payments during the first few years may be lower than a fixed rate loan. Some homebuyers prefer the adjustable mortgage if they do not expect to stay in the home for more than a few years, or if they think interest rates are heading down.

Appraisal
An opinion of the market value of a home expressed by a real estate appraiser.

APR (Annual Percentage Rate)
The total cost of the mortgage, expressed as a percentage of the loan amount. Unlike the base interest rate (which only includes interest), the APR includes all costs associated with your loan, including points, origination fees, Private Mortgage Insurance, etc. Because different lenders charge different fees, the APR is a good way to compare the total cost of a loan from various lenders.

Buy-Down
A payment to the lender from the seller, buyer, third party, or some combination of these, causing the lender to reduce the interest rate during the early years of a loan. This results in lower mortgage payments during the buy-down period. The buy-down is usually for the first 1 to 5 years of the loan.

Close of Escrow
The date that the deed to the property is transferred to the buyer and the buyer takes possession of the new home.

Closing Costs
Expenses in addition to the price of the home incurred by buyers and sellers when a home is sold excluding the down payment. Common closing costs include points, prepaid interest, pro-rated property taxes (if any), escrow fees, title insurance fees, document recording fees and real estate commissions.

Closing Statement
The financial disclosure statement that accounts for all of the funds received and expended at the closing.

Contract
See Purchase and Sale Agreement.

Covenants, Conditions & Restrictions (“CC&R’S”)
Simply stated, CC&R’s are the rules of living in a given neighborhood. They are recorded at the County courthouse against the property and apply to all homeowners within that neighborhood. Some examples might be restrictions on exterior paint colors or improvements, requirements to keep landscaping maintained and the like. CC&R’s, when enforced by the Homeowners Association help protect the property values in a neighborhood.

Credit Report
A report from an independent credit rating service (such as TRW, Experian or Equifax) listing all of your current obligations to various creditors, including credit card companies, car payments, student loans, etc. The report shows how much is owed, as well as whether your payments are generally on time. A credit report is a required document when applying for a home loan.

Debt-to-Income-Ratio
The ratio of monthly debt payments to monthly gross income, which is used to qualify a buyer for a mortgage.

Declaration of Condominium
The legal document that creates a condominium Homeowners Association. This document contains most of the important information about how the association will operate such as what Covenants, Conditions and Restrictions there are, how dues will be collected, what authority the association has, etc.

Deed
A legal document conveying ownership of real property.

Deed of Trust
The document that pledges the subject property as collateral for the repayment of the loan.

Down Payment
The portion of a home’s purchase price the buyer pays at close of escrow. Often, the down payment is expressed as a percentage of the total purchase price, typically between 3% and 20%.

Earnest Money (Deposit)
The money paid by the buyer in “good faith” to assure performance of a contract.

Easement
A right given to a third party to use a portion of property for certain purposes, such as electrical lines or water mains.

Elevations
The exterior face of a home or a drawing depicting the exterior view. Typical plans show front, rear and side elevations of a home.

Equity
The difference between a home’s value and the mortgage amount owed on the home.

Escrow
The period between the time you sign a purchase and sale agreement and the close of escrow. A neutral third party (called the Escrow Company) collects the purchase price from the buyer, buyer’s down payment, closing costs & loan proceeds and also collects a deed to the property from the seller. At the close of escrow, the Escrow Company will give the sale proceeds to the seller, and the buyer gets ownership and possession of the home.

FHA Loan
A mortgage that is insured by the Federal Housing Administration which offers low down payment mortgages to buyers (terms vary county by county).

Fixed-Rate Mortgage
A mortgage in which the interest rate (and therefore the monthly payment) remains the same for the entire life of the loan. 30-year and 15-year fixed rate mortgages are industry standards. Many homebuyers prefer a fixed-rate loan because the principal & interest payment amount never changes.

Floorplan
An architectural drawing showing the overall layout of a home.

Framing
The construction of the skeleton structure, or framework, of a house.

Good-Faith Estimate
A line item estimate from a lender of total closing costs.

Hazard Insurance
An insurance policy that protects the property against damage caused by fire, wind or some other hazards. In the case of an attached condominium, the Homeowners Association will include hazard insurance on the structure and the homeowner should obtain separate insurance coverage for the contents of their home. In the case of a detached (i.e. single family) home, the buyer will be required to show proof of hazard insurance prior to the close of escrow.

Homeowners Association (HOA)
The Homeowners Association is responsible for enforcing the Covenants, Conditions and Restrictions and rules of the community, and also for the maintenance and upkeep of any common areas such as parks and landscaping. A fee is paid by all homeowners in the community to pay for the activities of the HOA. This fee varies from community to community, depending on whether the community consists of single family homes or attached condominiums and the extent of the community's common areas.

Homesite
See LOT

Impound Account
Depending on the type of the loan, some lenders increase the size of the monthly payment to cover important bills such as property taxes and insurance. This extra amount is deposited into an interest earning Impound Account. When the taxes or insurance premiums are due, the lender automatically pays the bill from the buyer’s account.

Interest
The amount that is added onto your loan (in dollars) to cover the cost of borrowing money to finance your home. The “interest payment” is the portion of your monthly payment that is applied against the interest owed. At the beginning of your loan period, the majority of your monthly payment is applied against the interest. But over time, more and more of the payment is used to reduce the amount of principal owed. (For most people, a portion of their annual mortgage interest payment is tax-deductible. Consult your tax advisor for details.)

Interest Rate
The cost of borrowing, expressed as an annual percentage of the principal. Many factors influence the interest rate you will be charged, including the overall state of the economy, the cost the lender is charged to borrow the funds, etc.

Lid
A Local Improvement District (LID) is an arrangement between property owners in a specified neighborhood (district) that provides for the funding of improvements to that district. Improvements can be to the roadway and drainage (i.e. paving, adding curbs/gutters, or simply chip-sealing). Or it can be for public utilities such as installing a city sewer system. The LID fee is added to your monthly mortgage payment.

Loan-to-Value (LTV) Ratio
The ratio of the amount of money owed on a home to the home’s value. The difference between these two figures initially is the down payment.

Lot
Each new single family community is divided into individual lots, or homesites. Lots are defined physically by white property corner stakes and/or a piece of rebar with a yellow cap and/or a metal pin in the curb or sidewalk.

Master Planned Community:
A large community, with homes built by several different builders, at a wide variety of price ranges. Master planned communities usually include community centers, pools, and other recreational facilities. Often, there are commercial districts with shopping and entertainment within the master plan.

Mortgage
A loan for the purchase of a home. Mortgages are available from banks, savings & loans, credit unions, mortgage companies, etc.

Mortgage Interest Deduction
The ability of mortgage borrowers to deduct interest paid on a home loan for purposes of income taxes. Consult your tax advisor for details.

Mortgage Payment
The total amount of your monthly mortgage payment. Principal and Interest (P&I) are due on every loan. Taxes and insurance (T&I) are also included if the lender requires an impound account.

New Home Orientation Tour or "Buyers Walk-Thru"
A pre-planned meeting, lasting approximately 2 to 4 hours, scheduled to take place upon construction completion where the purchaser(s) meet their warranty service representative and walk through their new home. The purpose is to orient the buyer to his or her new home, show how to operate all appliances and provide information about the home warranty.

Option
An item in a home that is not a standard feature.

Origination Fee
The fee that the lender charges to originate the loan. This fee is typically 1% of the loan amount.

Phase
A group of lots or units within a community. Homebuilders typically build and sell all the homes within a particular phase before moving on to the next phase of the community. The benefit to the homebuyer is that construction activity is focused in one area at a time.

PITI (Principal, Interest, Taxes and Insurance)
PITI (PRINCIPAL, INTEREST, TAXES AND INSURANCE):The total amount of your monthly mortgage payment. Principal and Interest (P&I) are due on every loan. Taxes and Insurance (T&I) may also be included if the lender requires an impound account.

Points
Also known as discount points, a fee charged by the lender to fund a loan, in addition to and separate from other fees charged. One Point equals one percent of the amount of the loan. Discount points are charged or are received based on the note rate the borrower selects. Additionally, a one-point origination fee is typically charged by a lender to underwrite a residential loan.

Pre-Qualification
The process of reviewing a prospective borrower’s credit and payment capacity prior to approving a loan.

Principal
The amount of your loan (in dollars), excluding interest. The “principal payment” is the portion of your monthly payment that is applied against the principal. In the first several years of your loan, only a small amount of the payment is applied to the principal due to interest charged. As time goes on, more and more of the payment is used to reduce the amount of principal owed.

Private Mortgage Insurance (PMI)
A type of insurance that protects the lender in case the borrower defaults on the home loan. This is paid monthly by the homebuyer, as a part of the monthly mortgage payment. PMI is usually required by lenders if the borrower makes less than a 20% down payment.

Public Offering Statement ("POS")
Upon signing a Purchase and Sale Agreement to purchase a condominium, a book of information about the condominium and the Homeowners Association is provided to the purchaser. It contains information about future construction within the condominium, a copy of the Declaration of Condominium, the Homeowners Association Budget and other valuable information.

Punch List
A written list of items, created during the new home orientation tour, that do not meet the Limited Warranty Performance Standards, described in the Customer Service Orientation Manual.

Purchase and Sale Agreement
A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money agreement or agreement for sale.

Reservation:
A non-binding agreement to purchase a home at a future date. Often, a reservation is taken for a specific lot in an upcoming phase, giving the buyer the first opportunity to purchase that lot when the phase is released. A reservation usually requires a deposit.

RWC Warranty
A 10-year major structural limited warranty. If included in the purchase, a copy of the RWC is given to the purchaser at the time the Purchase and Sale Agreement is signed.

Standard Features
Items that are automatically included when you purchase your new home.

Title
A legal document establishing the right of ownership of property.

Title Company
Firm that ensures that the title, or actual legal document of ownership, on a property is clear and provides title insurance.

Title Insurance
Insurance to protect the buyer and lender against losses arising from disputes over the ownership of a property.

Underwriting
The process of evaluating a loan application to determine if it meets the lender’s standards.

Upgrade
An option for a buyer to select, at an additional cost, features other than the standard features available. May include such items as hardwood flooring, carpet, carpet pad or vinyl.

Walk-through
A buyer's final inspection of a newly-built home prior to move-in.

Warranty
A contract to fix or repair any damage to specific items of your home.

VA Loan
VA loans are available to active members of the armed forces, as well as to veterans and widows of veterans. VA loans that are backed by the Veterans Administration offer several benefits to buyers.

Variable Interest Rate Loan
See Adjustable Rate Mortgage