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Some terms you will hear and see when buying your home
Amortization: a mortgage loan payment schedule comprised of equal periodic payments over a specified term. Annual Percentage Rate (APR): the cost of credit expressed as an annual rate. The APR is calculated by using a formula set by federal law and disclosed to the borrower to fully disclose all costs and aid in comparing loan programs. All loan costs and charges imposed by a lender are included in the calculation, and an APR is always higher than the simple interest rate. Appraisal: an estimate of the value of property made by a qualified professional called an "appraiser". Broker: a company that originates and processes mortgage loan applications. The loans are funded and payments are made to a Lender who purchases the loan from the broker for a fee. Closing Costs: usually includes origination fees, discount points, appraisal fee, title insurance and closing fees, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing are usually about 4% of the mortgage amount. Commitment: an agreement, often in writing, between the lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions. Construction Loan: a short-term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses. Conventional Loan: a mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FmHA). Credit Report: a report documenting the credit history and current status of the borrower's credit standing. Debt-To-Income Ratio: the ratio, expressed as a percentage, which results when the total of a borrower's monthly payment obligations (mortgage payment, car payment, credit cards, etc) is divided by his/her/joint gross monthly income. Down Payment: money paid to make up the difference between the purchase price and the mortgage amount. Down payments are usually 5% to 20% of the sale price on conventional loans. Equity: the difference between the fair market value and current indebtedness; also referred to as the owner's interest. Escrow: an account held by the investor into which the borrower pays money for taxes and/or homeowner's insurance on a monthly basis along with the mortgage payment. The taxes and homeowner's insurance are then paid annually by the investor as they come due. Federal Home Loan Mortgage Corporation (FHLMC): Also know as "Freddie Mac"; a tax-paying corporation created by Congress that purchases and sells conventional residential mortgages, as well as, those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money available and more affordable. Fixed-Rate Mortgage: a mortgage on which the interest rate is set for the term of the loan. Flood Certificate: a determination of whether or not the subject property is in a "Flood Zone". If so, the borrower must purchase flood insurance to insure against the loss of the property in the event of a flood. Good Faith Estimate: a form provided by the Broker at the start of the loan application process identifying all closing costs the borrower will have to pay at closing. Gross Monthly Income: the total amount the borrower(s) earns per month, before any expenses are deducted. Lender: also referred to as "Investor". The company that actually funds the loan at closing and to which the borrower makes the payments. Loan-To-Value Ratio: the relationship between the amount of the mortgage loan and one - the appraised value of the property or 2 - the purchase price, whichever is less, expressed as a percentage. Points (Loan Discount Points): prepaid interest assessed at closing by the Lender. Each point is equal to 1% of the loan amount (e.g., two points on a $100,000 mortgage would be $2000.) Prepayment: a privilege in a mortgage permitting the borrower to make payments in advance of their due dates. Prepayment Penalty: some loan programs impose an additional charge to the borrower if the loan is paid off during an early term of the loan, normally two to five years. Private Mortgage Insurance (PMI): may be required by your lender if the loan you apply for cannot be granted because the loan does not meet the normal standard for a lender. The most common reason for this requirement is a smaller down payment than the lender requires (usually 20%). This insurance protects the lender from loss if the borrower defaults. It does not protect the borrower, though it may allow the borrower to qualify for a loan he/she could not otherwise get. This insurance will require an annual premium of 0.25% to 0.78% of your mortgage amount. The annual premium is divided into twelve monthly payments and included in the monthly mortgage payment. Title: a document that gives evidence of an individual's ownership of property. Title Insurance: a policy, usually issued by a title insurance company, which insures the borrower against errors in the title search. The cost of the policy is usually a function of the value of the property and is often borne by the borrower and/or seller. Title Search: an examination of municipal or county records to determine the
legal ownership of property, usually performed by |
