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Know your mortgage buzz words

Know your mortgage buzz words

Know your mortgage buzz words

Know your mortgage buzz words

A

Amortization: The gradual repayment of a mortgage loan by installments.

Annual Percentage Rate (APR): The actual cost of a mortgage stated as a yearly rate including such items as interest, mortgage insurance, and closing costs required by the lender and title company.

Appraised Value: An opinion of a property’s fair market value based on an appraiser’s knowledge, experience, and analysis of the property.

Appreciation: An increase in the value of a property due to changes in market conditions or other causes. The opposite of “depreciation.”

Assessments: These fees are charged for the general upkeep of common areas, along with amenities, in condominiums and townhomes. They are not bundled into the mortgage and must be paid to the homeowner’s association directly.

C

Closing Costs: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Buyer’s closing costs typically include fees for application, processing, underwriting, flood certification, transfer taxes (where applicable), title company, interest, tax & insurance escrows, and attorney.

Closing Disclosure (CD): Explains the costs of the transaction. This document must be given to the consumer three days prior to closing which ensures no surprises at the closing table.

Conventional Loan: These are loans that are sold to government sponsored enterprises like Fannie Mae and Freddie Mac. Conventional loans are not insured by any government program such as FHA, VA, or USDA. Conventional loans are the most common type of mortgage.

D

Department of Veterans Affairs (VA): VA loans are guaranteed by the U.S. Department of Veterans Affairs. VA loans are offered to eligible American veterans or their surviving spouses.

E

Escrow Account: An account into which deposits for real estate taxes and insurance (mortgage insurance, hazard insurance, and flood insurance as applicable) are made as part of the monthly mortgage payment. The mortgage servicer pays the taxes and insurance out of the account when due. The consumer receives an annual escrow analysis stating all funds paid into and out of the account.

F

Federal Housing Administration (FHA): FHA loans are designed for borrowers who are unable to make a large down payment. These loans are insured by the Federal Housing Administration.

H

Hazard Insurance: Also known as Homeowner’s Insurance, this protects you (the borrower) against any financial losses that might result due to a fire, flood or other “hazards.” This policy must be paid in full for one year at the time of closing.

I

Interest: The cost of borrowing the principal.

Interest Rate Lock: A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time.

L

Liabilities: A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Loan Application: The loan application is a detailed form designed to provide information to originate your loan. Lenders use the application to evaluate whether or not they can give you a loan and if so, the amount of money they can lend you. The loan application form requests information such as bank account balances, employment and income information and liabilities.

Loan Estimate (LE): This document explains the costs and risks of a mortgage in a single document. This document is provided to consumers within three business days after application for a mortgage.

Loan-to-value (LTV) Ratio: The relationship between the principal balance of the mortgage and the appraised value of the property. For example, an $80,000 mortgage on a home valued at $100,000 has a LTV of 80% ($80,000/$100,000). The remaining $20,000 is your downpayment.

M

Mortgage Banker: An institution involved in the origination, processing, underwriting and funding of mortgage loans. A mortgage banker may or may not service the loans it originates and funds.

Mortgage Insurance: A policy that insures the lender against loss caused by a mortgagor’s default. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA).

P

Portfolio Loan: A loan which is serviced by the lender that issued the money.

Pre-Qualification: The process of estimating how much money a prospective home buyer will be able to borrow before they apply for a loan.

Principal: The amount of money borrowed. Each month when paying your mortgage, a small portion of the principal is being paid back. Over the life of the loan, the portion going to principal will increase while the portion going toward interest will decrease.

Property Taxes: We owe taxes to our local governments, so lenders in turn collect taxes through monthly payments that they then use to pay property taxes when they’re due.

T

Title: A legal document evidencing a person’s right to, or ownership of a property.

Title Insurance: Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property. Your lender will require that you purchase a lender’s policy. The seller typically purchases an “Owner’s Policy” for the buyer.

Transfer Tax: State or local tax payable when title passes from one owner to another.

U

Underwriting: The process of final evaluation of a loan application to determine whether or not the application meets the lender’s guidelines.