Feeling overwhelmed by the jargon surrounding mortgages during your home buying journey? Take a look at our convenient Home Loan Glossary to clear up any confusion.
The cash you pay toward the purchase of your home is the down payment. The down payment amount can vary and may affect the interest rate available on a home loan.
Expressed as an Annual Percentage Rate (APR), the interest rate is the basic cost of borrowing money.
The length of time you have to repay the loan. In general, the longer the term of the loan, the lower your monthly payments will be. Yet, with a longer term it will take longer to build equity and may cost you more in interest than a shorter-term loan.
Fees for transferring ownership from the seller to you are referred to as closing costs. You are paying for the services of the lender and others involved with the sale or refinance of the home. Closing costs may include:
- Origination Fee
- Application Fee
- Title Binder
- Recording Fee
- Title Examination Fee
- Flood Certification Fee
A trust account held in the borrower's name that is used to pay obligations such as property taxes and insurance premiums.
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
Annual Percentage Rate (APR)
To make it easier for consumers to compare mortgage loan interest rates, the federal government developed a standard format called an "Annual Percentage Rate", or APR, to provide an effective interest rate for comparison shopping purposes. Some of the costs that you pay at closing are factored into the APR for ease of comparison. Your actual monthly payments are based on the periodic interest rate, not the APR.
Bill of Sale
A written instrument that transfers title to personal property.
A meeting of the parties involved in a real estate transaction to finalize the process. In the case of a purchase, a closing usually involves the seller, the buyer, the real estate broker, and the lender. In the case of a refinance, the closing involves the borrower and the lender. A closing is sometimes also referred to as the settlement or the close of escrow.
Deed of Trust
This document, referred to as a mortgage in some states, pledges a property to a lender or trustee as security for the repayment of a debt.
An owner's financial position in a property. Equity is the difference between the property's value and the amount that is owed on mortgages.
Fixed Rate Mortgage
A mortgage in which the monthly principal and interest payments remain the same throughout the life of the loan.
Insurance that protects a homeowner from the cost of damages to a property due to flooding or high water. It is required by law that properties located in areas prone to flooding have flood insurance. The federal government determines whether an area is prone to flooding and considered to be in a flood plain.
Home Equity Loan
A loan secured by a subordinate mortgage on one's principal residence, generally to be used for some non-housing expenditure. A traditional home equity loan provides lump-sum proceeds at the time the loan is closed.
A complete and detailed inspection that examines and evaluates the mechanical and structural condition of a property. A complete and satisfactory home inspection is often required by the homebuyer. Compare with appraisal.
Insurance that protects a homeowner against the cost of damages to property caused by fire, windstorms, and other common hazards. Also referred to as hazard insurance.
A person's financial obligations including both long-term and short-term debt, as well as any other amounts that are owed to others.
Loan to Value Ratio (LTV)
A ratio used by lenders to calculate the loan amount requested as a percentage of the value of a home. To determine the loan to value ratio, divide the loan amount by the home's value. The LTV ratio is used to determine what loan type the borrower qualifies for as well as the cost and fees associated with obtaining the loan.
Private Mortgage Insurance
Insurance provided by a private company to protect the mortgage lender against losses that might be incurred if a loan defaults. The cost of the insurance is usually paid by the borrower and is most often required if the loan amount is more than 80% of the home's value. Sometimes referred to as mortgage insurance.
The process of paying off any existing mortgages on a home with a new mortgage loan.
Detailed process of evaluating a borrower's loan application to determine the risk involved for the lender. Underwriting usually involves an in-depth analysis of the borrower's credit history, as well as an examination of the value and quality of the subject property.