Definitions
Understanding these key terms will help you get the most out of this guide.
Purchase Agreement
The purchase agreement is the legal document that represents your decision to purchase a home and the builder's commitment to build it. It describes your home (both a legal description and the street address), financing information, homeowner association information where applicable, and additional legal provisions.
The purchase agreement becomes binding only when all parties have signed all forms and attachments. It also informs every part of your loan application, so you should bring the completed agreement when you first visit your lender.
Addenda
Addenda are documents attached to the purchase agreement in addition to the main contract. Each community has its own specific addenda and disclosures, so the exact set you receive varies by community.
Common addenda include an unsigned copy of the Limited Warranty (Exhibit C) for your review, Homeowner Association documents where applicable (Exhibit D), and other community-specific items such as metro district disclosures or mineral rights disclosures. Your New Home Specialist walks through any community-specific addenda during the purchase agreement meeting.
Legal Description
A legal description is the precise, legally recognized identification of a piece of real property, used in deeds and contracts. It differs from a street address by describing the parcel in terms recorded with the county (such as lot, block, and subdivision references).
The purchase agreement includes both the legal description of the property and the street address, ensuring there is no ambiguity about exactly which parcel is being bought and built upon.
Earnest Money
Earnest money is a deposit you make to demonstrate your good-faith commitment to purchasing the home. You are typically asked to make your earnest money deposit at the purchase agreement meeting.
Earnest money already deposited counts toward the funds you have available, and it is one of the categories factored into the Down Payment Worksheet when determining how much you have available for your down payment.
Initial Deposit
The initial deposit is the money you put down when entering the purchase agreement. It signals your commitment and is held pending the completion of your financing.
Under the terms of the purchase agreement, if you are not approved for a loan within 10 days of signing despite your best efforts, Classic Homes will refund your initial deposit upon your signing a release letter and returning the Homeowner Guide to the sales office.
Down Payment
The down payment is the amount of money you contribute toward the purchase price from your own resources, as opposed to the amount financed through your mortgage. The larger your down payment, the less you need to borrow.
The Down Payment Worksheet helps you determine how much you have available by walking through your liquid assets — cash in checking and savings, money market funds, investment accounts available for liquidation, documented gift funds, earnest money already deposited, and proceeds from the sale of a previous home — and arriving at a figure your lender can use.
Mortgage
A mortgage is a loan used to buy real estate, where the property serves as collateral. You repay it over a term (commonly many years) in monthly payments that include principal and interest, and typically taxes and insurance.
After signing the purchase agreement, your next step is selecting a lender and completing a mortgage application, ideally within seven business days. Your mortgage's terms — loan amount, rate, and term — determine your monthly payment for your new home.
Loan Officer
A loan officer is the lender's representative who works with you to understand your financial circumstances and shepherd your mortgage application through to approval. You review all information on the application at your meeting with the loan officer, and they advise you on costs such as the credit report and appraisal fees.
A situation rarely arises that an experienced loan officer has not encountered before, so you should not hesitate to discuss any questions about your assets, income, or credit. The loan officer can often provide insight on requests that may seem redundant and helps you obtain documentation needed for final approval.
Preferred Lender
A preferred lender is a mortgage lender with whom the builder has an established working relationship. Classic Homes offers buyers the advantage of working with one of its preferred lenders.
The benefits include established lines of communication, the loan officer's familiarity with the builder's processes and paperwork, and the lender's commitment to being ready to close on time. You are free to use a preferred lender or another mortgage company of your own choosing.
Prequalification
Prequalification is an initial step in which you and your lender establish your likely borrowing capacity early in the process. During your first meeting, you and your lender determine the timing to obtain prequalification.
Obtaining prequalification allows the builder to start the home even though final loan approval is still pending. It is distinct from final loan approval, which follows after underwriting and the return of all verification documents.
Loan Estimate
The Loan Estimate is a form your lender provides that lists the estimated costs you will incur at closing. Some figures are prorations subject to change based on the actual closing date, while others are set fees that should remain the same.
The Loan Estimate shows your estimated payment and estimated cash to close. It also includes a comparisons section showing how much you will have paid in five years, the Annual Percentage Rate (APR), and the Total Interest Percentage (TIP) over the loan term. Your loan officer provides an official Loan Estimate once your application is in process.
Cash to Close
Cash to close is the total sum of money you must provide at the closing of your loan. It combines your down payment and closing costs, reduced by amounts you have already paid such as earnest money.
The Loan Estimate shows your estimated cash to close so you can plan ahead. Because some components are prorations, the final amount may shift slightly based on the actual closing date.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) reflects the yearly cost of your loan expressed as a percentage, incorporating not just the interest rate but also certain fees and costs. It is designed to help you compare the true cost of different loan offers.
The APR appears in the comparisons section of the Loan Estimate, alongside the Total Interest Percentage, to give you a fuller picture of what the loan will cost over its term.
Total Interest Percentage (TIP)
The Total Interest Percentage (TIP) shows the total interest you will pay over the full term of the loan, expressed as a percentage of the original loan amount. It helps you understand the long-term cost of borrowing beyond the monthly payment.
The TIP is listed in the comparisons section of the Loan Estimate together with the Annual Percentage Rate, providing another way to evaluate and compare loan offers.
Verification of Employment (VOE)
Verification of Employment (VOE) is a process in which the lender sends forms to all of your employers for the last two years. The employers complete, sign, and return the forms to the lender.
The forms show the dates of your employment, the amount you earned last year, and how much you have earned so far this year. The VOE also documents bonuses and overtime you earned, helping the lender confirm the income you are using to qualify.
Verification of Deposit (VOD)
Verification of Deposit (VOD) forms go to each banking institution listed on your application. The institutions confirm the date you opened each account, the average balances for the last three months, and the amount of money in each account on the day they complete the form.
Any loans or overdraft accounts you hold with the bank are also shown. The VOD helps the lender confirm the assets you will use for your down payment and reserves.
Verification of Mortgage/Rent (VOM)
Verification of Mortgage/Rent Payment (VOM) forms are completed by mortgage companies and landlords. They show the lender how much you owe, the amount of your monthly payment, and whether you make your payments by the due date.
This verification establishes your housing payment history, which lenders use to evaluate how reliably you have handled prior housing obligations.
Credit Report
Your credit report shows the amounts of money you owe to each of your creditors, your minimum monthly payments, and your payment history. The lender orders it as part of processing your loan, and you are asked to pay for it upon signing the mortgage application.
The credit reporting agency may call you to verify that the information gathered is correct. If your closing occurs more than 30 days after the lender issues your loan approval, the lender may order an additional credit report just before closing — which is why new debts taken on before closing can jeopardize your approval.
Appraisal
An appraisal is an independent assessment of a property's value. The lender orders the appraisal, and it confirms the value of the home you are purchasing both for you and for your lender.
You are asked to pay for the appraisal upon signing the mortgage application; your loan officer advises you of the total cost when you set the appointment. The appraisal helps ensure the loan amount is supported by the value of the home securing it.
Underwriting
Underwriting is the stage where the loan processor submits your complete file to the underwriter for final approval. Several weeks typically pass as verification reports and forms are returned to the lender, and you may be asked to write letters describing your assets, income, or credit.
Few loans are finalized without requests for additional information just before the package is submitted to the underwriter. Before submission, the processor verifies the final sales price, so you should provide copies of all change requests to your lender so the exact loan amount can be determined.
Loan Approval
Loan approval is the lender's commitment to fund your mortgage. You should receive loan approval several weeks after your first meeting with the lender, though it may take longer if requested documents are not returned in a timely manner.
Approvals often carry conditions of approval, also called contingencies, that must be met before the final loan can be approved. Between approval and closing, significant changes to your financial circumstances could cause the lender to reconsider, especially since a second credit report may be ordered if closing is more than 30 days after approval.
Contingencies
Contingencies, also described as conditions of approval, are requirements that must be satisfied before your loan can be fully approved. Common examples include the sale of a previous home or proof of funds.
You should discuss any concerns about such conditions with your loan officer and obtain any requested documentation as soon as possible. Once all contingencies are met, the final loan can be approved.
Proof of Funds
Proof of funds is documentation demonstrating that you have the cash on hand needed to complete your purchase, such as down payment and closing costs. Lenders may require it to confirm you can meet your obligations.
Proof of funds is cited as one example of a contingency, or condition of approval, that may be attached to a loan. Providing the requested documentation promptly helps clear contingencies so the final loan can be approved.
Rate Lock
A rate lock (or loan lock) secures a specific interest rate for a defined lock period. Because interest rates are unpredictable, locking lets you guard against rate increases before closing — but locking prematurely can result in extra expense if your new home is not complete in time to close within the lock period.
Until construction reaches a point where outside factors can no longer affect the delivery date, the decision to lock is at best a gamble. You should lock your loan only after Classic Homes has provided a written delivery date confirmation.
Delivery Date
The delivery date is the date your new home is expected to be complete and ready for closing. The builder updates you on the target delivery date throughout construction.
The delivery date matters because locking your interest rate before the date is reliable can be costly if the home is not finished in time. Classic Homes provides a written delivery date confirmation, and you should not lock your loan until you have received it.
Closing Costs
Closing costs are the fees and charges you incur to finalize your loan and purchase at closing, separate from your down payment. The Loan Estimate lists these estimated costs.
Some closing costs are prorations subject to change based on the actual date of closing, while others are set fees that should remain the same. Together with your down payment, closing costs make up your total cash to close.
Proration
A proration is a cost split proportionally based on timing, most often the closing date. Some figures on the Loan Estimate are prorations and are therefore subject to change depending on when the closing actually occurs.
Property taxes, for example, are prorated monthly when estimating your monthly payment. Prorated amounts contrast with set fees, which should remain the same regardless of the closing date.
PITI
PITI stands for the four major components of a typical monthly mortgage payment: Principal and Interest, based on the loan amount, term, and interest rate; Taxes, meaning property taxes prorated monthly; and Insurance, meaning homeowner's insurance plus PMI if applicable.
The Monthly Payment Worksheet uses PITI to help you estimate your monthly payment. For a community with a homeowner association or metro district, you also add the monthly dues or mill levy to your estimate.
Property Taxes
Property taxes are taxes levied on your home by local taxing authorities. In a typical mortgage payment they are prorated monthly and collected as the "T" in PITI.
Because property taxes are part of your monthly housing cost, the Monthly Payment Worksheet includes them when helping you estimate your total monthly payment.
Homeowner's Insurance
Homeowner's insurance protects your property against covered losses and is generally required by lenders to safeguard the home securing the loan. It forms part of the "I" in PITI.
The Monthly Payment Worksheet includes homeowner's insurance, along with PMI if applicable, as a component of your estimated monthly payment.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is insurance that protects the lender against loss if a borrower defaults, and it is commonly required when the down payment is below a certain threshold. It is paid by the borrower.
PMI, when applicable, is included in the insurance portion of PITI. The Monthly Payment Worksheet accounts for PMI alongside homeowner's insurance when estimating your monthly payment.
Mill Levy
A mill levy is a tax rate applied to assessed property value, frequently associated with a metro district that funds community infrastructure. It produces a charge added to your housing costs.
For a community with a homeowner association or metro district, the Monthly Payment Worksheet directs you to add the monthly dues or mill levy to your monthly payment estimate.
Liquid Assets
Liquid assets are funds and holdings you can readily convert to cash, including cash in checking and savings accounts, money market funds, and investment accounts available for liquidation. They are central to determining how much you can put toward your purchase.
The Down Payment Worksheet walks through your liquid assets — along with documented gift funds, earnest money already deposited, and proceeds from a previous home sale — to arrive at a down payment figure your lender can use. Lenders also verify these accounts through Verification of Deposit.
Gift Funds
Gift funds are monies given to you, typically by family members, to help cover your down payment. Lenders allow gift funds but require documentation to confirm the source and that the money is genuinely a gift rather than a loan.
Gift funds (with documentation) are one of the categories considered in the Down Payment Worksheet when totaling the amount available for your down payment.
Installment Debt
Installment debt is debt you repay in regular, fixed payments over a set period, such as auto loans, home equity loans, and other term loans. Lenders count these obligations among your liabilities when qualifying you for a mortgage.
The preparation checklist asks for the names, addresses, phone numbers, account numbers, approximate balances, and monthly payments for all installment debt, so the lender can assess your overall debt load.
Liabilities
Liabilities are the debts and recurring financial obligations you owe, including credit card balances, installment debt such as mortgages and auto loans, and payments like alimony or child support. Lenders evaluate them to understand your overall financial picture.
The preparation checklist asks you to gather names, account numbers, balances, and monthly payment amounts for these liabilities. Taking on new liabilities — like a car purchase or higher credit card balances — between approval and closing can cause the lender to reconsider your approval.
Real Estate Owned
Real estate owned refers to property you already hold, including rental properties. Lenders need details about it to assess both its value as an asset and any associated mortgage obligations.
The preparation checklist asks for the names, addresses, phone numbers, and account numbers of all mortgage lenders for the last seven years, copies of leases and two years of tax returns for any rental property, and a market value estimate.
Notes Receivable
Notes receivable are written promises owed to you, representing money others are obligated to repay you. They can be considered an asset when evaluating your financial position.
The preparation checklist asks for copies of any notes receivable among your liquid assets documentation, so the lender can account for funds owed to you.
Change Request
A change request is a modification or addition you make to your home's specifications during construction, which can affect the total price. Because your loan amount depends on the final sales price, change requests are significant to your financing.
You should provide copies of all change requests to your lender so the exact loan amount can be determined. If change requests affect the total price after your file is with the underwriter, you may have to resubmit your loan application for the higher amount, or the lender may require you to pay for the additional items in cash.
Release Letter
A release letter is a document you sign to formally release the parties from the purchase agreement, typically in connection with cancellation and a refund.
If you are not approved for a loan within 10 days of signing your purchase agreement despite your best efforts, Classic Homes will refund your initial deposit upon your signing a release letter and returning the Homeowner Guide to the sales office.
Mineral Rights
Mineral rights are the legal rights to extract minerals (such as oil, gas, or coal) beneath a property. In many areas these rights may be owned separately from the surface land, which is why disclosure is important.
Mineral rights disclosures are cited as an example of a community-specific addendum that may accompany your purchase agreement, depending on local regulation.
Limited Warranty
The Limited Warranty is the builder's written warranty covering your new home. It is provided as an unsigned copy (Exhibit C) for your review along with the purchase agreement addenda, and the actual warranty is executed at closing.
The full warranty documentation describes coverage details, your responsibilities, and the repair process. It is one of the standard exhibits attached to the purchase agreement.
New Home Specialist
The New Home Specialist is the builder's sales representative who guides you through the purchase process. They set the purchase agreement appointment and attend the meeting along with the purchasers.
The New Home Specialist walks through any community-specific addenda during the purchase agreement meeting and can provide printable copies of the down payment and monthly payment worksheets.