GLOSSARY

Adjustable Rate Mortgage (ARM)

After an introductory period of three, five, seven, or 10 years, the interest rate on an adjustable-rate mortgage will be adjusted by the lender in accordance with current interest rates. While the initial interest rate is typically lower than that of a fixed-rate mortgage, the rate could climb sharply once that period is over.

Closing Costs

On closing day, when you finalize the purchase of your home, you’ll have to pay for various fees associated with the home-buying process, such as the brokerage commission and title insurance. Most are paid by the buyer, but the seller covers some. The buyer should get an estimate of these fees shortly after applying for a loan. While you can’t avoid closing costs, there are ways to reduce them.

Contingency

A provision of an agreement that keeps the agreement from being fully legally binding until a certain condition is met. One example is a buyer’s contractual right to obtain a professional home inspection before purchasing the home.

Down Payment

The lump sum in cash you can afford to pay at the time of purchase. Traditionally, down payments are 20% of the purchase price, so if you buy a home for $500,000, your typical down payment would be $100,000. It is possible to put less than 20% down, but mortgage insurance would be required. No down-payment loans exist for veterans and others, and there are also down-payment assistance programs for first-time buyers.

Real Estate Broker

A person who has taken education beyond the agent level as required by state laws and has passed a broker’s license exam. Brokers can work alone or they can hire agents to work for them.