It’s easy to be confused by all the different finance and money terms out there. Here are a few terms common to real estate:
Escrow is a safe, intermediary account for money when it’s moving between a buyer and seller. Placing funds there tells the seller: “I’m serious about this deal and I can pay.” During the time the down-payment is in escrow, a homebuyer can take care of due diligence, including a home inspection. If it turns out something is off about the house — like structural damage — the buyer can pull out.
You can also escrow money (yes, it’s a noun or verb) for fees beyond your mortgage, like property tax and mortgage and homeowners insurance. Federal Housing Administration-insured mortgages, for example, require escrow accounts. (“Money terms you’re too embarrassed to ask about.”
Even if you already know that APR means “annual percentage rate,” you might not understand what it is. Lenders are required to disclose the APR when lending, which is great for transparency…
The APR is the rate charged annually for borrowing money. But unlike an interest rate, it includes fees and other costs the transaction may include. So the APR is usually higher than the nominal interest rate. Also, unlike annual percentage yield (APY), the APR doesn’t take into account compounding interest. (“Money terms you’re too embarrassed to ask about.”
Read up on more financial and money terms here, on Money.CNN.com: “Money terms you’re too embarrassed to ask about.”