Minnesota Attorney General's Office
1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101
(651) 296-3353
(800) 657-3787
M - F 8 am - 5 pm
TTY:(651) 297-7206
TTY:(800) 366-4812
Housing
Home Buyer's Handbook
Addenda (addendum, singular):
Supplemental documents added on to the purchase agreement that become part of the legally binding document.
Adjustable Rate Mortgage (ARM):
A loan in which the interest rate fluctuates during the term, based on an index to which the interest rate is tied.
Amortization Chart:
A chart that breaks out the principal and interest you pay on a loan each year, over the term of the loan.
Annual Percentage Rate (APR):
Expressed as an annual rate, this is really the cost of the loan. It includes the interest rate, points on a loan, the loan origination fee, and all other charges made by the lender.
Arbitration Agreement:
When a seller and buyer agree to settle all disputes about the property out of court. If both parties sign, they agree to have an independent arbitrator decide disputes.
Assessments:
City taxes homeowners must pay periodically when the city decides to make improvements to city property.
Association Dues:
The monthly payment condominium and townhouse owners must make for upkeep and management of shared property. The association is made up of condominium or townhouse owners.
Assumable:
Describes a loan that a buyer can arrange to take over from the seller.
Buyer's Broker:
An agent who works on behalf of a buyer.
Closing Costs:
Costs involved in transferring ownership of a home. (See Explanation Of Closing Costs in Appendix E.)
Commitment Letter:
The letter your lender may send you stating that your loan is approved and describing the terms of the loan.
Contingency:
A clause that is added to a purchase agreement stating that certain conditions must be met within a specified time period for the purchase agreement to be valid.
Contract for Deed:
Some owners may choose to offer you financing, consequently you make your monthly payments to the owner.
Conventional Loans:
Home loans not backed by the government.
Credit Score:
The rating a credit reporting agency gives you based on your credit report.
Default:
Failure to make loan payments when they are due.
Down Payment:
The amount of the purchase price you pay up front to the seller when you buy a home. The amount depends on the loan you are taking out, but is usually a minimum of 3 percent of the total loan amount.
Earnest money:
"Good faith" money usually given to the agent when you make a bid on a home.
Equity:
The portion of the home's value that you own, free and clear of any mortgage or lien.
Escrow:
Lenders often ask homeowners to keep up to two months of future tax and insurance payments in a bank account called an escrow account.
FHA Loans:
Home loans made by the Federal Housing Administration that have low down payments and allow you to borrow a larger amount than you would be allowed to borrow in a conventional loan.
Fair Credit Reporting Act:
A federal law that gives citizens the right to challenge the accuracy of incorrect information in their credit reports.
Fixed Rate Loan:
A loan with a constant interest rate over the term of the loan.
For Sale By Owner (“FSBO”):
FSBO, pronounced “fisbo” is a home that is offered for sale by the owner without the benefit of a real estate professional.
Good Faith Estimate:
The disclosure form on which your lender estimates all closing costs. A lender must give you this form within three days after you apply for a loan.
Gross Income:
Your income before you pay taxes.
HUD-1 Form:
A settlement statement listing all the closing costs. The U.S. Department of Housing and Urban Development requires that a closer make this statement available to a buyer one business day before the closing.
Homeowner's Insurance:
Also called hazard insurance. This is insurance home buyers must purchase to protect the investment they and their lender have in the home.
Homestead Taxes:
Property taxes paid by live-in property owners.
Interest:
A lender's charge for the loan.
Loan Origination Fee:
This is a fee you pay a lender for handling your loan application.
Loan Processing:
A lender’s analysis of your ability to qualify for a loan. The analysis involves weighing your income, credit report and financial records against the value of the home you want to buy.
Lock-In Agreement:
An agreement you can make with your lender to guarantee you the interest rate your lender quotes for your loan. You can lock in a rate when you apply for a loan or at any time before the closing.
Long-term debt:
Any debt you will continue to owe for six months or more.
Mortgage Discount Points:
Prepaid interest on a loan. One point equals 1 percent of your total loan.
Mortgage Insurance Premium (MIP):
An insurance premium the buyer is required to pay for an FHA loan. The cost is 2 or 21/4 percent of the loan, depending on the term. This can be paid as part of monthly loan payments.
Multiple Listing Service (MLS):
A service that real estate agents subscribe to that lists homes for sale and homes that have sold by neighborhood, price and features.
Non-homestead Taxes:
Taxes paid by landlords who rent their property, or by owners who do not use the property as their primary residence.
PITI:
The monthly loan payment which includes "principal, interest, taxes and insurance."
Prepayment Penalty:
The payment of a penalty due to the early payoff of the mortgage. Terms of prepayment penalties may vary.
Prime Mortgage:
A prime mortgage is the highest grade of mortgage you can qualify for — grade "A."
Principal:
The total amount you are borrowing to pay for a home. This is usually the purchase price minus the down payment.
Private Mortgage Insurance (PMI):
Insurance you pay when you take out a conventional loan. Most lenders charge this if you make less than a 20 percent down payment on a home. It protects the lender from losing money owed on a loan if a buyer defaults on the loan, and is cancelable under Minnesota state law after two years if certain requirements are met.
Property Tax Adjustment:
An adjustment made to reimburse the seller for taxes already paid for the year.
Purchase Agreement:
The legally-binding document that lists all the terms of a home sale including contingencies.
Real Estate Settlement Procedures Act (RESPA):
The federal law that regulates lenders' closing or settlement practices.
Re-issue Credit:
A savings on the cost of title insurance, when the buyer uses the same title company that the previous owner used. Because the company is “re-issuing” the insurance, it can offer a lower rate.
Sub-prime Mortgage:
A sub prime mortgage is a grade "B" or lower and has a higher rate of interest than a prime mortgage.
Subagent:
A seller's agent who may bring a potential buyer to a home, but owes his or her loyalty to the seller.
Title insurance:
The insurance you pay to protect your lender against claims on the title to your property. As a buyer, you also can take out title insurance to protect yourself against claims.
Truth-in-Housing Report:
A report the seller completes that discloses the condition of the house.
Truth-in-Lending Disclosure Statement:
A statement your lender must give you informing you of all the fees and costs of a loan using the annual percentage rate (APR).
Underwriting:
Risk analysis conducted by a lender to decide whether or not to approve you for a loan.
Veterans Administration loan (VA loan):
Low interest, no down payment loans available to those who have served in the U.S. military.