Whether you’re beginning to explore the American Dream of homeownership for the first time, or if you’re preparing to move up to a new San Bernardino County new home, you’ll want to make the best decision you can make, and that means being the most informed homebuyer you can be.

Here is a list of the most common important terms you will encounter as you embark upon your adventure of the American Dream of homeownership courtesy of the National Association of Home Builders (NAHB). Keep them with you for further reference.

Adjustable Rate Mortgage (ARM)- A loan whose interest rate is adjusted according to movements in the financial market.

Amortization - A payment plan by which a borrower reduces a debt gradually through monthly payments of principal and interest.

Annual Percentage Rate (APR) - The annual cost of credit over the life of a loan, including interest, service charges, points, loan fees, mortgage insurance, and other items.

Appraisal - An evaluation to determine what a piece of property would sell for in the marketplace.

Assessment - A tax levied on a property or a value placed on the worth of property by a taxing authority.

Cap - A limit to the amount an interest rate or a monthly payment can increase for an adjustable rate loan either during an adjustment period or over the life of the loan.

Closing or Settlement - A meeting to sign documents which transfer property from a seller to a buyer.

Closing Costs - Charges paid at settlement for obtaining a mortgage loan and transferring real estate title.

Conditions, Covenants, and Restrictions (CC and Rs) - The standards that define how a property may be used and the protections the developer has made for the benefit of all owners in a subdivision.

Conventional Loan - A mortgage loan not insured by a government agency (such as FHA or VA).

Convertibility - The ability to change a loan from an adjustable rate schedule to a fixed rate schedule.

Equity - The difference between the value of a home and what is owed on it.

Escrow - The handling of funds or documents by a third party on behalf of the buyer and/or seller.

Federal Housing Administration (FHA) - A federal agency which insures mortgages that have lower down payment requirements than conventional loans.

Fixed Rate Mortgage (FRM) - A mortgage in which the interest rate remains constant over the life of the loan.

Housing Finance Agency or HFA - A state agency which offers a limited amount of below-market-rate home financing for low-and moderate-income households.

Index - The interest rate or adjustment standard which determines the changes in monthly payments for an adjustable rate loan.

Level Payment Mortgage - A mortgage where payments are identical for each month over the life of the loan.

Mortgage Broker - A broker who represents numerous lenders and helps consumers find affordable mortgages; the broker charges a fee only if the consumer fins a loan.

Mortgage Company or Mortgage Banker - A company that borrows money from a bank, lends it to consumers who want to buy homes, then sells the loans to investors.

Mortgage Loan - A contract in which the borrower’s property is pledged a s collateral and which can be repaid in installments over a long period. The mortgagor (buyer) promises to repay principal and interest, to keep the home insured, to pay all taxes, and to keep the property in good condition.

Mortgage Origination Fee - A charge by a lender for the work involved in preparing and servicing a mortgage application (usually one percent of the loan amount).

Negative Amortization - An increase in the outstanding balance of a loan when a monthly payment is not large enough to cover all of the interest due.

PITI - Stands for Principal, Interest, Taxes, and Insurance; the major components of monthly housing payments.

Point - A charge of one percent of the mortgage amount. Points are a one-time charge assessed by the lender at closing to increase the interest yield on a mortgage loan.

Principal - The amount borrowed in a loan, excluding interest and other charges.

Real Estate Settlement Procedures Act (RESPA)- A federal law requiring lenders to provide home buyers with information about known or estimated settlement costs and other aspects of settlement procedures.

Title - Evidence usually in the form of a certificate or deed of a person’s legal right to ownership of a property.

Transfer Taxes - Taxes levied on the transfer of property or on real estate loans by state and/or local jurisdictions.

Veterans Administration (VA) - A federal agency which insures mortgage loans with very liberal down payment requirements for honorably discharged veterans and their surviving spouses.

Walk-Through - A final inspection of a home before settlement to search for problems that need to be corrected before ownership changes hands.

Warranty - A promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specified level of performance over a specified period of time.

Keep these terms handy whether you’re shopping for a new San Bernardino County new home or an existing home. It will save you a lot of time and worries.

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