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Terms to Know Before Renting or Buying


Whether you are preparing to rent an apartment or purchase a home, Bank of New Hampshire encourages you to be familiar with the following housing terms:

Before Renting

Lease: A legal document detailing the terms under which the lessee (the renter) agrees to rent property from the lessor (the property owner). A lease guarantees use of an asset and regular payments from the lessee for a specified number of mutually agreed upon months or years.

Notice to vacate: Notification from the landlord to the tenant ordering the tenant to move out of the property. In most cases, the notification is given because the tenant either broke one of the terms of the lease or is not paying rent. The tenant is typically given 30 days to vacate the premises. Similarly, a notice to intend to vacate may be required under the lease for the tenant to notify the landlord before vacating the property.

Rental application: Filled out by a prospective tenant, which typically authorizes the landlord to conduct a credit check, to determine the suitably of the individual. Often, there is a non-refundable fee associated with the rental application.

Security deposit: Funds, in addition to rent, that a landlord requires a tenant to pay to be kept separately in a fund for use should the tenant damage the premises or otherwise violate terms of the lease.

Before Buying     

APR: Short for Annual Percentage Rate, APR is how much your loan will cost over the course of a year. This figure is almost always higher than the interest rate, because it takes into account the interest charged as well as fees or additional costs associated with the loan. Since all lenders use the same formula, it can be a more effective way of comparing mortgages rather than just the interest rate.

Closing costs/settlement fees: The costs, in addition to the price of the property, that buyers and sellers are charged to complete a real estate transaction. Costs include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.

Escrow: An account held by a neutral third party (called an escrow agent) who works for both the lender and the borrower. There are two main types that are used for real estate purposes – purchase and mortgage escrow accounts. Purchase escrow accounts are used to safely hold money when a homebuyer successfully bids on a home and provides a deposit to assure the seller that the buyer is serious about purchasing the home. Mortgage escrow accounts may be required by lenders to cover costs such as property taxes and homeowner’s insurance. After an initial deposit, borrowers pay into the escrow monthly – usually as part of the mortgage payment and the account is maintained by the mortgage servicer.

Loan Estimate (LE): The Loan Estimate is a three page document homebuyers receive once they apply for a mortgage. It provides potential homebuyers with important information about the loan request, such as the estimated interest rate, monthly payment and projected closing costs for the loan. It also provides information on estimated taxes and insurance. Potential homebuyers may use the form to compare offers from other lenders to ensure the homebuyers receive the best deal.

Mortgage broker: An individual or company who connects borrowers and lenders for the purpose of facilitating a mortgage loan. Unlike a mortgage lender, a broker does not make the loan or service the mortgage. A mortgage broker may represent various lenders or may offer loans from one single source.

Points: Borrowers can pay a lender “points” to reduce the interest rate on the loan, resulting in a lower monthly payment. The cost of one point is equal to 1 percent of the loan amount. Depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of a percent.

Bank of New Hampshire’s residential lending officers provide local decision making that’s simple and convenient. Ready to take the next steps towards purchasing your dream home? Connect with a lender today!

Credit: American Bankers Association