Glossary of Financing Terms

Reyna Homes wants you to be informed with terms that may be used during the home building process. We have compiled a list that will assist you in becoming knowledgeable of common verbiage in our industry.

  • Adjustable Rate Mortgage (ARM)

    A loan whose interest rate is adjusted according to movements in the financial market.

  • Amortization

    A payment plan by which a borrower reduces a debt gradually through monthly payments of principal and interest.

  • Annual Percentage Rate (APR)

    The annual cost off credit over the life of a loan, including interest, service charges, points, loan fees, mortgage insurance, and other items.

  • Appraisal

    An evaluation to determine what a piece of property would sell for in the marketplace.

  • Appreciation

    The increase in the value of a property.

  • Assessment

    A tax levied on a property or a value placed on the worth of property by a taxing authority

  • Assumption

    A transaction allowing the buyer of a home to assume responsibility for an existing loan on the home instead of getting a new loan.

  • Balloon

    A loan which has a series of monthly payments (often for 5 years or less) with the remaining balance due in a large lump sum payment at the end.

  • Binder

    A receipt for a deposit paid to secure the right to purchase a home at terms agreed upon by the buyer and seller.

  • Cap

    A limit to the amount an interest rate or a monthly payment can increase for an adjustable rate loan either during an adjustment period or over the life of the loan.

  • Certificate of Occupancy

    A document from an official agency stating that the property meets the requirements of local codes, ordinances, and regulations.

  • Closing

    A meeting to sign documents which transfer property from a seller to a buyer. (Also called settlement).

  • Closing Costs

    Charges paid at settlement for obtaining a mortgage loan and transferring real estate title.

  • Conditions, Covenants, and Restrictions (CC and Rs)

    The standards that define how a property may be used and the protections the developer has made for the benefit of all owners in a subdivision.

  • Conventional Loan

    A mortgage loan not insured by a government agency (such as FHA or VA).

  • Convertibility

    The ability to change a loan from an adjustable rate schedule to a fixed rate schedule.

  • Credit Rating

    A report ordered by a lender from a credit bureau to determine if the borrower is a good credit risk.

  • Default

    A breach of a mortgage contract (such as not making monthly payments).

  • Down payment

    The difference between the sales price and the mortgage amount on a home. The downpayment is usually paid at closing.

  • Due-on-Sale

    A clause in a mortgage contract requiring the borrower to pay the entire outstanding balance upon sale or transfer of the property. A mortgage with a due-on-sale clause is not assumable.

  • Earnest Money

    A sum paid to the seller to show that a potential purchaser is serious about buying.

  • Easement

    Right-of-way granted to a person or company authorizing access to the owner’s land; for example, a utility company may be grated an easement to install pipes or wires. An owner may voluntarily grant an easement, or in some cases, be compelled to grant one by a local jurisdiction

  • Certificate of Occupancy

    A document from an official agency stating that the property meets the requirements of local codes, ordinances, and regulations.

  • Equity

    The difference between the value of a home and what is owed on it.

  • Escrow

    The handling of funds or documents by a third party on behalf of the buyer and/or seller.

  • Federal Housing Administration (FHA)

    A mortgage whose interest rate remains constant over the life of the loan. The payments are not necessarily level. (See Graduated Payment Mortgage and Growing Equity Mortgage).

  • Fixed Schedule Mortgage

    A mortgage whose payment schedule for the life of the loan is established at closing. The payments and interest rate are not necessarily level.

  • Graduated Payment Mortgage (GPM)

    A fixed-rate, fixed-schedule loan which starts with lower payments than a level payment loan; the payments rise annually over the first 5 to 10 years and then remain constant for the remainder of the loan. GPMs involve negative amortization.

  • Growing Equity Mortgage (Rapid Payoff Mortgage)

    A fixed-rate, fixed-schedule loan which starts with the same payments as a level payment loan; the payments rise annually, with the entire increase being used to reduce the outstanding balance. No negative amortization occurs, and the increase in payments may enable the borrower to pay off a 30-year loan in 15 to 20 years, or less. (aka: Rapid Payoff Mortgage).

  • Housing Finance Agency

    A state agency which offers a limited amount of below-market-rate home financing for low-and moderate-income households.

  • Infrastructure

    The public facilities and services needed to support residential development, including highways, bridges, schools, and sewer and water systems.

  • Interest

    The cost paid to a lender for the use of borrowed money.

  • Joint Tenancy

    A form of ownership by which the tenants own a property equally. If one dies, the other would automatically inherit the entire property.

  • Level Payment Mortgage

    A mortgage whose payments are identical for each month over the life of the loan.

  • Mortgage Broker

    A broker who represents numerous lenders and helps consumers find affordable mortgages; the broker charges a fee only if the consumer fins a loan.

  • Mortgage Commitment

    A formal written communication by a lender, agreeing to make a mortgage loan on a specific property, specifying the loan amount, length of time and conditions.

  • Mortgage Company (Mortgage Banker)

    A company that borrows money from a bank, lends it to consumers who want to buy homes, then sells the loans to investors.

  • Mortgagee

    The lender who makes a mortgage loan.

  • Mortgage Loan

    A contract in which the borrower’s property is pledged a s collateral and which can be repaid in installments over a long period. The mortgagor (buyer) promises to repay principal and interest, to keep the home insured, to pay all taxes, and to keep the property in good condition

  • Mortgage Origination Fee

    A charge by a lender for the work involved in preparing and servicing a mortgage application (usually 1 percent of the loan amount).

  • Negative Amortization

    An increase in the outstanding balance of a loan when a monthly payment is not large enough to cover all of the interest due.

  • Note

    A formal document showing the existence of a debt and stating the terms of repayment.

  • PITI

    Principal, interest, taxes, and insurance (the 4 major components of monthly housing payments).

  • Point

    A charge of 1 percent of the mortgage amount. Points are a one-time charge assessed by the lender at closing to increase the interest yield on a mortgage loan.

  • Prepayment

    ayment of all or part of a debt prior to its maturity.

  • Principal

    The amount borrowed in a loan, excluding interest and other charges.

  • Property Survey

    A survey to determine the boundaries of your property. The cost will depend on the complexity of the survey.

  • Rapid Payoff Mortgage

    (See Growing Equity Mortgage).

  • Recording Fee

    A charge for recording the transfer of a property, paid to a city, county, or other appropriate branch of government.

  • Real Estate Settlement Procedures Act (RESPA)

    A federal law requiring lenders to provide home buyers with information about known or estimated settlement costs. The act also regulates other aspects of settlement procedures.

  • Sales Contract

    A contract between a buyer and seller which should explain, in detail, exactly what the purchase includes, what guarantees there are, when the buyer can move in, what the closing costs are, and what recourse the parties have if the contract is not fulfilled or if the buyer cannot get a mortgage commitment at the agreed-upon terms.

  • Shared Appreciation Mortgage

    A loan in which partners agree to share specified portions of the downpayment, monthly payment, and appreciation.

  • Tenancy in Common

    A form of ownership in which the tenants own separate but equal parts. To inherit the property, a surviving tenant would either have to be mentioned in the will or, in the absence of a will, be eligible through state inheritance laws.

  • Title

    Evidence (usually in the form of a certificate or deed) of a person’s legal right to ownership of a property.

  • Transfer Taxes

    Taxes levied on the transfer of property or on real estate loans by state and/or local jurisdictions.

  • Veterans Administration (VA)

    A federal agency which insures mortgage loans with very liberal downpayment requirements for honorably discharged veterans and their surviving

  • Walk-Through

    A final inspection of a home before settlement to search for problems that need to be corrected before ownership changes hands.

  • Warranty

    A promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specified level of performance over a specified period of time. Written warranties on new homes are either backed by insurance companies or by the builders themselves.

  • Zoning

    Regulations established by local governments regarding the location, height, and use for any given piece of property within a specific area.