ADJUSTABLE-RATE MORTGAGE (ARM) A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

APPRAISALA written justification, most often for the benefit of the lender, of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.

ASSESSED VALUEThe valuation placed on property by a public tax assessor for purposes of taxation.

CLOSINGThe process of completing a real estate transaction during which deeds, mortgages, leases and other required instruments are signed and/or delivered, an accounting between the parties is made, the money is disbursed, the papers are recorded, and all other details such as payment of outstanding liens and transfer of hazard insurance policies are attended to. This usually happens at the title company.

CLOSING COSTSIn addition to the final price of a home, closings costs can include loan application fees, prepaid homeowner’s insurance, an appraisal fee, inspection fees, transfer taxes, escrow fees, attorney fees, recording fees and prepaid interest.

CLOSING DISCLOSURE (“CD”)A five page form that provides final details about the selected mortgage. The CD includes the loan terms, projected monthly payments and the amount of fees and other costs that will be paid.

CLOSING STATEMENT – HUD 1 – SETTLEMENT STATEMENTA summation, in the form of a balance sheet, made at a closing, showing the amounts of debits and credits to which each party to a real estate transaction is entitled. This statement is used for cash transactions only.

HOME BUYING PROCESS - GLOSSARY TERMS

EARNEST MONEY A deposit made by the potential home-buyer that represents liquidated damages in the event of a breach

EASEMENTA right to cross or otherwise use someone else’s land for a specified purpose

ESCROW ACCOUNT (MORTGAGE)An escrow account acts as a savings account that is managed by a mortgage servicer. The mortgage servicer will deposit a portion of each mortgage payment into an escrow account in order to cover the estimated real estate taxes and insurance premiums.

ESCROW ACCOUNT (TITLE)An escrow account is an account held by the title company for the benefit of all parties involved in a real estate transaction. The title company is a neutral third party that holds funds in a secure account while the parties work through the details of the real estate transaction.

HOME WARRANTYA type of insurance often purchased by home-buyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

HOMEOWNER’S INSURANCEAn insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

INSPECTIONHome inspections are strongly encouraged once a potential buyer makes an offer. The purpose is to check that the house’s plumbing, foundation, appliances, and other features are in working order. Issues that may turn up during an inspection may factor into the negotiation on a final price. Failing to do an inspection may result in unexpected costly repairs down the road for the home-buyer.

LIENA legal claim against a property that must be paid off when the property is sold. A mortgage or deed of trust is considered a lien.

LOAN-TO-VALUE (LTV)The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

LOCK-IN AGREEMENTAn agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

MORTGAGE INSURANCE (MI)Insurance that covers the lender against some of the losses incurred in the case of a default on a home loan.

OPTION PERIOD AND OPTION FEEThe buyer pays the seller an Option Fee for the unrestricted right to terminate a contract within the Option Period (the time frame that is designated within the contract). This timeline is intended to be used for the buyer’s due diligence. The Buyer can terminate the contract for any reason during the Option Period.

ORIGINATION FEEFee charged by a lender for processing a new loan application.

PRINCIPAL, INTEREST, TAXES, AND INSURANCE (PITI)The four components of a monthly mortgage payment on impounded loans. This letter will help determine what the buyer can afford and will be required in order for the buyer to submit an offer on a home. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

PRE-APPROVAL LETTERBefore buying a home, a buyer should obtain a pre-approval letter from a lender, which provides an estimate on how much the lender will lend that person. This letter will help determine what the buyer can afford.

SURVEYA drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features. To be approved for closing, it must be signed and sealed by the Texas Board of Professional Engineers and Land Surveyors.

TITLE INSURANCEInsurance that protects the lender (lender’s policy) and/or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

TRUTH-IN-LENDINGA federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

VA MORTGAGEA mortgage that is guaranteed by the Department of Veterans Affairs (VA).

WIRE TRANSFERA wire transfer is an electronic transfer of funds via a network of banks and transfer service agencies around the world. A wire transfer is most often used to transfer funds from one bank or financial institution to another. Prior to wiring funds, please call your title company to verify the wiring instructions. Never rely solely on email communication. If you receive a change in wiring instructions supposedly from your Escrow Officer, be suspicious as wiring instructions are rarely changed. It is best to initiate your wire in person at your financial institution. *An ACH payment is an electronic money transfer made through the Automated Clearing House and is NOT accepted at most title companies. Often, an online ‘wire transfer’ will, in fact be an ACH.

BE AWARE OF WIRE FRAUDEvery day, hackers in this industry attempt to steal money by emailing fake wiring instructions to unsuspecting people. Criminals will use a similar looking (but fake) email address, stolen logos and other information to trick buyers into thinking that the email has actually come from the real estate agent or from the title company. If ever in doubt, please call the title company at the phone number that was originally provided to verify wiring instructions.

YOU CAN PROTECT YOURSELF AND YOUR MONEY BY FOLLOWING THESE STEPS:

BE VIGILANT• Call, don’t click: Verify all wiring instructions before transferring your funds. Call the title company using

an independently obtained and known phone number. Don’t use phone numbers or links from an email.

• Be aware: It’s extremely rare that wiring instructions will change at the last minute, or that this information will be provided by email.