Part of an agreement that gives a lender permission, under certain conditions, to demand all the money owed on a loan.
Most loans have an acceleration clause and it usually takes effect when a buyer assumes a seller's mortgage and monthly
payment schedule. Less often, the clause is used when a homeowner misses payments or breaks a term that was agreed to in
the contract.
Acceptable debt
How much debt a lender thinks borrower can handle before agreeing to give them a loan.
Mortgage lenders prefer when less than 5% of your salary goes to paying off debt, such as credit cards, car or student loans.
They need to know that you will be able to comfortably pay your monthly mortgage payments without other overwhelming bills.
Acceptance
When a seller agrees to a home buyer's offer
Acceptance is the first stage in negotiating to buy a home. It can be either:
(1) a written or verbal "yes" or
(2) a conditional answer that needs further negotiation, such as "I'll accept if you pay $2,000 more."
Since a verbal acceptance is difficult to enforce, make sure to also ask for it in writing. Once acceptance is final,
the buyer moves on to stage two, selecting a mortgage.
Acre
A unit of measure for land, equivalent to 43,560 sq. feet (or 4,840 sq. yards)
The average property with a 3-bedroom house spans .25 acres.
Adjustable rate mortgage (ARM)
A loan that has a fluctuating interest rate and monthly payment.
ARMs start off with a fixed interest rate and monthly payment, but then adjust to reflect changes in the market interest.
rate. A 1-year ARM, for example, will have a fixed interest rate for one year and then will adjust on the second year, and
continue to adjust annually over the life of the loan. You can also find ARMs that adjust semi-annually and monthly.
You get a low starting interest rate in exchange for taking a risk that rates may rise in the future.
There is also a cap on how much the interest rate can go up or down. Figure out if you can afford the highest payment at
the maximum interest rate before you choose this type of mortgage. Other common ARMs are: 3/1, 5/1, 7/1 and 10/1.
Adjusted cost basis
A figure, used for taxes, that shows if you make a profit when you sell your house.
You can calculate the adjusted cost basis by adding the amount you paid for the house to how much you spent on capital
improvements and subtracting any losses or depreciation. Capital improvements are any major renovation that increases a
home's value, like enlarging a kitchen, installing a pool, or adding an extra bedroom.
Example: How do you calculate your adjusted cost basis? Purchase price$200,000
Kitchen expansion+10,000
Flood damage repair-6,000
Adjusted cost basis=$204,000
Adjusted gross income
Your total income including your salary and bonuses, as well as any rental or seasonal income.
Your lender or broker will look at your adjusted gross income to find out if you make enough money to qualify for a loan.
You can find your adjusted gross income on line 32 of your 1040 income tax statement.
Adjustment date
The day when the interest rate changes on an adjustable rate mortgage (ARM).
After an initial period where an ARM's interest rate remains the same, the rate changes on the adjustment date to reflect
the current market rate. It will continue to adjust either monthly, semi-annually or annually over the life of the loan.
For example, the first adjustment date for a 10/1 ARM is after 10 years. See:Adjustable rate mortgage
Adjustment period
How often an adjustable rate mortgage's interest rate changes.
While most adjustment rate mortgages (ARMs) change annually, others fluctuate monthly or semi-annually. Usually, the
longer the adjustment period, the higher the initial fixed interest rate (called a teaser rate) will be. See:Adjustable rate mortgage
Administrator(trix)
The person who is responsible for settling the estate of someone who died without a will.
By law, if a home owner dies, an administrator takes over of the property until the courts decide who the next rightful
owner will be. A female administrator is called an administratrix.
Amortization
When you reduce the size of your loan through regular, periodic payments.
When you make monthly payments that cover both the principal and interest, you are amortizing the loan. On the other hand,
interest-only payments delay amortization since you never fully pay off the mortgage. Example: How a loan amortizes over 20 years
($150,000 fixed rate loan at 7%) Year
Monthly Payment
Principal
Interest
Balance
1$1,039.69
$191.57
$848.12
$149,808.43
5$1,039.69
$251.11
$788.58
$139,218.76
20$1,039.69
$692.81
$346.88
$60,656.48
The longer you hold onto your mortgage, the more of your monthly payment goes towards the loan's principal.
See:Amortization schedule Compare:Negative amortization
Amortization schedule
A time table of mortgage payments over the course of a loan
that shows how much is applied to both the principal and
interest.
An amortization schedule gives a breakdown of your monthly
payments in principal and interest. During the early years of
your mortgage, the bulk of your payments go to interest. So,
even after 10 years of fixed payments on a 30-year loan, you've
only made a small dent on the debt.
You can use an amortization schedule to figure out the
equity you gain during your mortgage term. The longer you own a
house, the more equity you gain. But, if you do not plan on
keeping your home for very long, the equity can still increase
due to other factors, such as appreciation and capital
improvements.
Amortization term
The amount of time you need to completely pay off a mortgage
The amortization term on a 30-year fixed or a 30-year adjustable rate mortgage is 30 years. Similarly, for a 15-year
fixed rate mortgage, the amortization term is 15 years. Balloon mortgages are amortized over 30 years, but are usually
due in full in 5 to 7 years. See:Balloon mortgageAmortization schedule
Annual Percentage Rate (APR)
A measurement used to compare different loans offered by competing lenders, which takes into account both the
interest rate and closing fees.
Unlike an interest rate, an APR gives you a bigger picture when shopping for the best deal on a loan. An APR lets you
see the total cost of a mortgage, including closing fees and lender points over the life of a loan - not just the interest
due. Even though lenders are required by law to show a loan's APR, they do not all use the same fees in their
calculation, skewing the comparison. So always check to make sure that the APRs you are comparing include similar fees.
Application
A paper or online form used to apply for a loan.
When you fill out an application and submit it to a broker or lender, you have taken the first step in applying for a loan.
Even if you do not have a property in mind, you can still apply and get a preapproval on a loan. The application, also
referred to as a 1003, asks for personal and financial information, such as your current bills, present salary and bank
account balances.
Appraisal/Appraiser
When a certified professional estimates the value of a property.
Before your loan can be completely approved, the property that you want to buy or refinance must be appraised.
To make an accurate estimate, an appraiser collects data about the property, such as the number and size of the bedrooms
and bathrooms and improvements. Then the appraiser compares it to similar properties recently sold in the area and adjusts
the price to account for any differences. An appraisal generally costs between $200 and $400. See:Comparable sale (comp)
Appreciation
An increase in a property's value.
A home generally increases in value over time. If you buy a house for $100,000 and sell it one year later for $110,000,
the house has appreciated by $10,000. Appreciation increases your net worth, as well as your equity - the difference
between your home's market value and the amount of money you owe on your mortgage. The three main factors that affect
the future value of your home are its location and condition, and the selling price of similar properties in the area. See:Comparable sale (comp) Compare:Depreciation
Assessed value
The government's estimate of a property's value, which is used to calculate property taxes.
Each county and state has its own formula to calculate property taxes, but for the most part, the assessed value is
multiplied by the local tax rate. You will notice that the assessed value is not always equal to the actual value of
a property. If you feel that your property taxes are too high, petition your local tax assessor to reconsider the assessed
value.
Assessment
A tax to pay for repairs and improvements in the neighborhood.
Some counties charge home owners an assessment tax for fixing the sewer, street lighting and sidewalks. In many cases,
the assessment tax only applies to properties on certain streets or areas within a county. Condominium owners also pay a
special assessment for major improvements like repainting the exterior or replacing the roof, which is calculated as part
of their Home Owners' Association dues. See:Homeowners' Association dues
Asset
Anything of value that can be converted into cash.
Assets come in all sorts of shapes and sizes, including, land, investments and personal property. Even an antique ring or
string of pearls is an asset it is anything that can be turned into cash. If an asset can easily convert into cash, like
stocks, it is called a liquid asset. A home is not liquid since it can take a while to sell.
Assumable mortgage
A loan that allows a home buyer to take over a seller's mortgage when purchasing a home.
Assumable mortgages require the lender' s approval. When you assume a mortgage you inherit both its interest rate and
monthly payment schedule. It can mean big savings if the interest rate on the existing mortgage is lower than the current
rate on new loans - the lender, though, can change the loan' s terms. You will still need to qualify for the loan and you
have to pay closing fees, including the costs of the appraisal and title insurance.
The lender also holds the seller liable for the loan. For example, if you default and the lender forecloses, but the
property sells for less than the loan' s balance, the lender can sue the seller for the difference. Scenario #1: Smith wants to sell his home for $95,000 and has an assumable $90,000 loan at 7% interest. Brown wants to buy Smith's
house. Brown only has to put down $5,000 (plus closing fees) to take over Smith' s house and mortgage.
Scenario #2: Jones got an assumable loan 15 years ago for $80,000 at 6.5% interest. The loan balance today is $70,000. White wants to
assume the property, which is now worth $160,000. White must raise $90,000 (plus money for closing costs) to close the deal.
See:Acceleration clause
Assumption
When a buyer takes over the seller' s mortgage upon purchasing a home.
Assumptions happen with an assumable mortgage, which allow a buyer to take over an existing mortgage. The seller no longer
has to pay off the rest of the loan and the buyer can strike gold if the assumable mortgage has a lower interest rate than
rates on new loans. Note that in case of foreclosure, the seller, not the buyer, can be held liable if the property sells
for less than the loan' s balance.
See:Assumable mortgage
Assumption Clause
The part of a loan contract that says a buyer can take over an existing mortgage See:Assumable mortgage
Assumption fee
A lender's fee for processing an assumption request
The fee, normally about $500, covers the processing and administrative costs for a buyer to assume an existing loan. See:Assumable mortgage
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$200,000
