Here are some common terms you may encounter in your home buying process.

AGREEMENT OF PURCHASE AND SALE: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions.

AMORTIZATION: Repayment of loan in equal instalments of principal and interest, rather than interest-only payments.

ASSUMPTION OF MORTGAGE: A buyer’s agreement to assume liability under an existing note that is secured by a mortgage. The lender usually must approve the buyer in order to release the original borrower (usually the seller) from liability.

CAP: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

CLOSING STATEMENT: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes and mortgage life insurance.

CONDITION/CONTINGENCY: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

CONDOMINIUM: A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors, and ceilings) serve as its boundaries.

COOPERATIVE: A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

CMHC: Canada Mortgage and Housing Corporation. CMHC administers the National Housing Act of Canada and also provides default insurance on mortgages where the down payment is less than 25%.

DEPOSIT: Payment of money or other valuable consideration ad pledge for fulfillment of contract.

FEE SIMPLE: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

GROSS DEBT SERVICE RATIO (GDS): The percentage of a borrower’s gross income that can be used for housing costs, including mortgage payments and taxes (condominium fees when applicable).

HOME INSPECTION REPORT: A qualified inspector’s report on a property’s overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

HOME WARRANTY PLAN: Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.

JOINT TENANCY: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent’s interest in the property.

LIEN: A legal hold or claim on property as security for a debt or charge.

LOAN-TO-VALUE RATIO: The relationship between the amount of the mortgage and the appraisal value of the property, expressed as a percentage of the appraised value.

MORTGAGE COMMITMENT: A written promise to make a loan for a specified amount on specified terms.

MORTGAGE LIFE INSURANCE: A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.

PIT: Principal, interest and taxes.

REALTOR: A real estate broker or salesperson who is an active member of the Canadian Real Estate Association and the local real estate board.

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