Reading ads and visiting new homes means that you will be inundated with a “new” language — the names and definitions that make up the real estate and financing processes. Here’s a chance to learn what some of those terms mean.
The Homebuyer’s Glossary has been divided into two sections. The first section focuses on terms related to mortgages and the financing of a new home purchase. The second section covers the real estate and homebuilding terms you may encounter when shopping for a new home.
Mortage and Financing
- Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate and, ultimately, your monthly payment can go up or down over the life of the loan. Loan payment adjustments are usually made on an annual or semiannual basis, depending on the type of loan. Generally, the initial interest rate for an adjustable rate mortgage is lower than a regular fixed rate mortgage during the first few years of the loan. This translates to lower mortgage payments for the early period of the loan. Adjustable rate mortgages can be advantageous for people who do not expect to own the home for more than a few years, anticipate their income to increase during this time, or anticipate loan rates to fall in the near future.
- Annual Percentage Rate (APR)
The annual percentage rate is the total cost of the mortgage as represented by a percentage of the overall loan amount. The base interest of a mortgage loan includes only the loan rate or interest paid for the loan. The annual percentage rate includes all loan costs including interest and other factors like points paid and various origination fees. The annual percentage rate is a good test to measure the cost of a loan because lenders charge different fees that affect the total.
A buy-down is a mortgage subsidy offered by some developers under certain circumstances or during specific economic periods to help buyers purchase a home. This literally means that a developer may pay a portion of the interest payments for a limited prior of time, effectively lowering the monthly payment for the buyer.
- Close of Escrow
Close of escrow is the end of the escrow period (the time during which all transaction paperwork is completed and processed) and becomes the actual date that a new homebuyer takes actual possession of the home. At this time, both the buyer and developer sign papers completing the transaction. The mortgage company makes all final payments to the builder and the keys are yours!
- Closing Costs
Closing costs include all the fees and charges for the home purchase, less the down payment made to hold the property. Closing costs generally include things like points and origination fees, any pre-paid interest payments and pro-rated property taxes. Closing costs are normally paid by the buyer at the close of escrow.
- Credit Report
A credit report is required when applying for a loan. An independent credit rating service researches and lists all your current obligations to various creditors including credit card companies, gasoline companies, retailers, car payments, student loans, other mortgages, etc. It shows how much you owe and if your payments are normally prompt and complete. This information is used to determine how much additional debt (new mortgage) you can assume and the overall price of the home that you can afford.
- Deed of Trust
The document that binds the new property as collateral for the mortgage loan you are assuming. Pay off the loan and the deed and property is yours, free and clear of claims.
The money paid by every buyer to hold the property and show that they are earnest in completing the homebuying process and contract.
- Down Payment
This is amount of money that a new buyer is required to pay before being able to move in. The down payment is a percentage of the total purchase price for the home and usually ranges from 3% to 20%. For most new homebuyers, the down payment comes from savings, your 401K program at work, or perhaps a family gift or personal loan. If you’re selling a home you already own, the down payment can come from the equity or value you have built up in it. The down payment is always in addition to closing costs.
Equity is the amount of real ownership you have in your home. To find out what your current equity is, take the current value of your home on the real estate market and subtract the amount of the mortgage loan that you still own. The difference is your equity.
This is the time it takes after you have signed the contract to purchase a home to the time you can actually take possession. During this time, you as the buyer pay a series of payments to an escrow company to cover such things as the down payment and closing costs. At the end of the escrow period (or the time it takes to complete all phases of the transaction) the escrow company gives payments to the builder and the builder gives you access to the home. The escrow period varies based on the process time but normally takes a few weeks to two months.
- Loan to Value Ratio
This is the amount of money owed on a home as it relates to the overall home value. The difference is the amount of down payment required.
A mortgage is the name of the loan used to purchase a home. Castle & Cooke Mortgage can assist you with the loan process. A number of other local financial firms including banks, savings and loans and credit unions also provide new home loans.
- Mortgage Analysis
This is a calculation of the value of a home that you can afford to buy based on your income and current outstanding debts. Contact Castle & Cooke Mortgage to help you determine the value of a home that you can “pre-qualify” for.
- Mortgage Insurance
Some lenders purchase mortgage insurance to protect themselves in case the buyer defaults on the mortgage loan. This is paid for by the borrower and is part of their mortgage payment. Mortgage insurance can be avoided by making a large enough down payment (usually in the range of 20%).
- Principal, Interest, Taxes and Insurance
Together, these make up the value of your monthly loan payment. The payment on the principal loan amount you owe plus the loan interest is due each month on every loan. Taxes and insurance are also included if your mortgage company requires impound balances. That means the mortgage company pays your taxes and insurance from a balance that you add to your regular loan payment each month. If impound accounts are not required, it’s up to you to make those payments separately.
The principal is the amount of the mortgage loan less the interest. The bulk of your monthly mortgage payment during the first years of a loan goes toward the interest due, or the cost to you of borrowing the loan. Over time, more and more of the payment goes to reduce the loan amount.
These are up front costs or fees charged by a lender to process a mortgage loan. Each point paid represents 1% of the total loan cost (for example, one point on a $100,000 loan is $1,000). Points are generally due and payable at the close of escrow.
- Title Company
A title company is a firm that ensures that the title, or the legal document of property ownership, is free and clear of previous encumbrances.
An easement is the right of a third person or party to use a portion of your land for certain purposes. These are usually for the placement of power lines or water mains. However, in some cases, they can be for travel across your property. Always check with your realtor for the existence of easements.
That’s what the outside of your house looks like structurally, including the materials used. Castle & Cooke Homes Hawai‘i usually provides various options that prevent your house from looking like the one owned by your next-door neighbor. Not only does that personalize your choice, it makes for a more interesting neighborhood also.
Framing is the kind of materials that make up the framework or skeleton of your home. All Castle & Cooke Homes Hawai‘i homes are framed in steel for durability, strength and termite resistance.
- Floor Plan
The floorplan is an architectural drawing that shows the room-by-room layout of a home. This includes the placement of windows and doors, all room sizes and any options that might be available to you.
- Homeowners Association
The administration of Castle & Cooke’s master-planned communities includes associations made up of all homeowners. They are responsible for enforcing the rules and regulations of each community as well as maintaining all “common” areas that benefit all homeowners, including recreation centers and general landscaping. A reasonable monthly fee is charged to all homeowners who automatically become members when they purchase their home.
Lots are the individual parcels of land that make up a community. Depending on their location (views, placement within a neighborhood, size, etc.), certain lots are priced higher than others.
- Master-Planned Community
A community that is built on a master development plan that allows for smooth flowing traffic, recreation centers, parks and greenbelts, shopping centers, public services, churches and conveniently located schools. Homes are built for a wide range of prices to meet individual family needs. Castle & Cooke Homes Hawai‘i is acknowledged as one of Hawai‘i’s finest builders and developers of master-planned communities, a concept it started more than 40 years ago.
Options are features or structural alterations that are not part of the standard features found in each home. Options are special opportunities to customize or personalize a new home.
Phases comprise groups of homes that are developed within a community. These neighborhoods generally include the same model series of homes and are often set apart from other neighborhoods by names, signage or entrance features.
- Punch List
A series of items in a new home that need to be fixed, repaired or replaced prior to the buyer’s final walk-through.
A reservation is a non-binding agreement between a prospective buyer and the developer to purchase a home at a future date. Reservations often are made on upcoming developments or phases prior to construction and give an interested buyer the chance for the first opportunity to buy a predetermined lot and home. Reservations often require a deposit to be held by the developer.
- Standard Feature
Standard features are items that are automatically included in a home upon purchase. These generally include, but aren’t limited to, specific styles, types and grades of cabinets, fixtures, carpets, window coverings, appliances and countertops.
Castle & Cooke Homes Hawai‘i homes come with a number of upgrades for standard features. These mainly include upgrades of quality, color, design or added features that change your new home from the basic model. Upgrades, like options, are added to the overall price of the home and paid off over the life of the mortgage loan.
This is the buyer’s last chance to inspect a new home prior to actual move-in. At Castle & Cooke Homes Hawai‘i, the walk-through also includes information about how to maintain and care for the new home as well as an in-depth review of the Homeowners’ Warranty.
Castle & Cooke Homes Hawai‘i provides one of the most comprehensive new home warranty programs available in the state today. In addition to a one-year commitment to fix or repair certain items in the home, the Homeowners’ Warranty includes extended manufacturers’ warranties that come with appliances and other features.