Adjustable Rate Mortgage (ARM).
This is a mortgage that provides for rate changes over the life of the loan. The rate can change anywhere from every six months to every five years. There are limits on the amount that a rate can change during each period, and also a maximum and minimum over the life of the loan. Often time the ARM will provide for a lower initial rate than that which you can obtain on a fixed rate. The ARM may be appropriate if you are not planning on owning your home for a lengthy period. However, the ARM can be very dangerous in times of increasing interest rates.
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Closing.
This is the settlement or the act of sale where the property passes hands. Generally it will take place with a lawyer who will ensure that the process is completed correctly, and that all required documents are recorded with the Registry of Deeds.
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Conventional Mortgage.
This is the most common home loan and is not insured by the Federal Housing Administration (FHA) or the Department of Veteran’s Affairs.
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Escrow.
Typically your lender will collect additional amounts for the purpose of paying your property taxes and insurance. You should discuss with your lender if you would rather pay these amounts yourself.
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Fixed Rate Mortgage.
Unlike the ARM, the interest rate stays the same for the life of the loan, most commonly for periods of 15, 20 and 30 years (although some lenders are now offering longer terms). Your monthly payment will always remain the same. Over the long term the fixed rate mortgage is usually preferable to the ARM.
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Home Inspection.
Every potential buyer should retain an experienced home inspector to conduct a full examination of the property before finalizing the agreement to purchase. The inspection may reveal undisclosed issues that could change your mind as to the purchase itself or the purchase price. If possible you should try to attend the inspection with the inspector.
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Offer to Purchase.
This is usually the document that commences the sale process. It should always be in writing and address both the offered purchase price and other material details that are necessary to form a contract. If the seller agrees to the terms then a contract is formed. For this reason you should be very careful when making an offer to purchase and professional advice is recommended.
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PITI
This refers to the owner’s typical monthly payment, which includes principal, interest, property taxes and insurance.
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Points
Each point is one percent of the loan amount you are seeking. If your loan amount is $250,000.00, then one point is $2,500.00 and two points is $5,000.00. You can usually obtain slightly lower rates if you agree to pay points. You should carefully weigh the financial effects, both long and short term, when considering paying points.
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Purchase and Sale.
This is the contract that defines the terms of the sale. It will generally address all of the key provisions and be the document that you will refer to when issues arise. The execution of a Purchase & Sale Agreement creates substantial obligations on the part of both parties to a sale and should always be reviewed by an attorney before you sign.
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