Glossary
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Annual Percentage Rate (APR). Total yearly cost of a mortgage,
expressed by the actual rate of interest paid. APR includes the
base interest rate, points, and other add-on loan costs. Because
it includes other costs, the APR is always higher than the mortgage's
interest rate.
Appraisal. Conducted by an appraiser to give you the market
value of the house you want to buy. The appraisal protects the lender
from lending you money for a house that worth less that what you've
agreed to pay for it. You pay the appraisal cost, which is usually
between $200-300.
Earnest money. Deposit that lets
the seller know you're a serious buyer. Include your earnest money
in the form of cash, a cashier's check, or personal check with your
written offer. Generally earnest money is 1 percent of the home's
purchase price, but requirements vary in different parts of the
country. Your agent can advise you about specific requirements.
Your money will be held in escrow and will be applied to your down
payment at closing.
Interest rate. The amount lenders charge you to borrow their
money. For fixed-rate mortgages, when you have a higher interest
rate, you have a lower number of points and vice versa. For ARMs,
your lender will explain the formula used to calculate your interest
rate.
Private Mortgage Insurance (PMI). This
insurance protects the lender if you default on your loan, and is
required if your down payment is less than 20 percent. This cost
can be eliminated once you build equity in your home (in other words,
make repayments and reduce your principal by 20 percent).
Points. Interest charges that you pay
up-front. Also called a loan origination fee. Every point is 1 percent
of your loan amount. With a $100,000 loan, for example, one point
equals $1,000. Generally, the more points the loan has, the lower
the interest rate will be. Points are only deductible the year that
you pay them (the year you purchase your home).
Real estate agent. A salesperson with a high level of knowledge
about the housing market and your community.
Real estate broker. A real estate broker basically supervises
a team of real estate agents.
REALTOR® . A member
of the National Association of REALTORS® that abides
by a stringent Code of Ethics.
Realtor® is a registered collective membership
mark that identifies a real estate professional who is a member
of the National
Association of REALTORS® and subscribes to its
strict Code of Ethics.
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