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TERMS YOU NEED TO KNOW.

Adjustable Rate Mortgage (ARM). A type of mortgage rate loan whose interest rate changes periodically up or down, usually once or twice a year.

Annual Percentage Rate (APR). Everything financed in your mortgage loan package (interest, loan fees, points or other charges) expressed as a percentage of the loan amount (usually slightly above the actual interest rate alone).

Assumable Loan. A loan in which the lender is willing to "transfer" from the previous owner of the home to the new owner, sometimes at the same interest rate, sometimes at a new rate. An assumable loan can make your home more attractive to buyers when you want to sell.

Closing Costs. Costs the buyer must pay at the time of closing in addition to the down payment: including points, mortgage insurance premium, homeowners insurance, prepayments for property taxes, etc. Closing costs average 3 percent -4 percent of the loan amount. If you're buying a HUD Home, you can request they be paid by HUD, if the sales incentive is offered.

Contingency. A condition put on an offer to buy a home; such as the prospective buyer making an offer contingent on his or her sale of a present home.

Conventional Mortgage. A type of mortgage not insured by either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), and thus usually requiring a 10 percent - 20 percent down payment. (HUD Homes may be purchased with a conventional mortgage.)

Earnest Money. Funds submitted with an offer to show "good faith" to follow through with the purchase. Earnest money is placed by the broker in an escrow/trust account until closing, when it becomes part of the down payment or closing costs. (HUD generally requires an earnest money deposit of $500-$2,000.)

Escrow. A procedure in which documents or transfers of cash and property are put in the care of a third party, other than the buyer or seller.

FHA Financing. Financing for a loan which will be insured against loss by the Federal Housing Administration-a part of the U.S. Department of Housing and Urban Development (HUD). Such financing allows for a lower down payment than required by most lenders.

Homeowners Insurance. Insurance that protects the homeowner from "casualty" (losses or damage to the home or personal property) and from "liability" (damages to other people or property). Required by the lender and usually included in the monthly mortgage payment.

Loan Origination Fee. A fee charged by the lender for evaluating, preparing, and submitting a proposed mortgage loan.

Mortgage Insurance Premium (MIP). A charge paid by the borrower (usually as part of the closing costs) to obtain financing, especially when making a down payment of less than 20 percent of the purchase price, for example on an FHA-insured loan.

Point. An amount equal to one percent of the principal amount being borrowed. The lender may charge the borrower several "points" in order to provide the loan.

Property Taxes. Taxes (based on the assessed value of the home) paid by the homeowner for community services such as schools, public works, and other costs of local government. Paid as a part of the monthly mortgage payment.

Title Insurance. Protects lenders and homeowners against loss of their interest in property due to legal defects in the title.

VA Loan. A loan guaranteed by the Department of Veterans Affairs against loss to the lender, and made through a private lender. (HUD Homes may be purchased with a VA loan.)

U.S. Department of Housing and Urban Development

Office of Single Family Housing 451 Seventh Street, SW Washington DC 20410-3000 August 2004