Are you homeward bound? Are you leaning towards buying a home? Is this your first home? Do you understand all the jargon that’s being fired at you as you seek a mortgage? Well, not to worry. We’ve assembled a brief glossary of home mortgage terms and definitions to ease your path to home ownership. Read on, and gain the knowledge you need to make a wise decision.
Adjustable-rate mortgage (ARM) An ARM is a mortgage whose interest rate changes periodically, based on the changes in a specified index.
Adjustment date The adjustment date is the date in an ARM on which the interest rate changes.
Amortization Amortization refers to the repayment of a mortgage loan with regular payments to cover the principle and interest.
Amortization term The amortization term is the amount of time required to amortize the mortgage loan, expressed as a number of months.
Annual percentage rate (APR) The APR is the cost of a mortgage, stated as a yearly rate, and includes interest, mortgage insurance and loan origination fee.
Appraisal An appraisal, prepared by a qualified appraiser, is a written analysis of the estimated value of a property.
Appraiser An appraiser is qualified by education, training and experience to estimate the value of property.
Appreciation Appreciation is an increase in a property’s value due to changes in market conditions, or to property improvements.
Asset An asset is anything of monetary value that’s owned by a person, including real and personal property, and enforceable claims against others.
Assignment Assignment is a transfer of a mortgage from one person to another.
Assumable mortgage An assumable mortgage is one that can be taken over, or assumed, by the buyer when a home is sold. The loan doesn’t need to be paid in full by the original borrower upon sale or transfer of the property.
Balloon mortgage A balloon mortgage is one that has level monthly payments that’ll amortize it over a stated term, but with a lump sum payment due at the end of an earlier specified term.
Blanket mortgage A blanket mortgage is one that’s secured by a cooperative project, as opposed to the share loans on individual units with the project.
Broker A broker is a person who, for a fee, brings parties together and helps them negotiate contracts between them.
Buydown mortgage There are two kinds of buydown mortgages. A temporary buydown is one in which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years. A permanent buydown reduces the interest rate over the entire life of the mortgage.
Capital improvement When a structure or component is built as a permanent improvement to a property, and it adds to the property’s value, it’s said to be a capital improvement.
Cash-out refinance A cash-out refinance is a re-finance transaction in which the borrower receives additional cash from the new loan, over and above the amount needed to repay the first loan, which he can use for any purpose.
Certificate of title The certificate of title is a statement provided by an abstract company, title company or attorney stating that the title to real estate is legally held by the current owner.
Clear title A clear title is free of liens or legal questions as to the ownership of the property.
Closing A closing is a meeting where the sale of a property is finalized, where the buyer signs the mortgage documents and pays the closing costs.
Closing cost item A closing cost item is a fee a home buyer has to pay at closing for a single service, tax, or product. Closing costs consist of such items as origination fees and attorney’s fees.
Cloud on title A cloud on title refers to any conditions revealed by a title search that adversely affect the title to real estate.
Collateral Collateral is an asset that guarantees the repayment of a loan, and can be seized in the case of default.
Combination loan With a combination loan, the buyer receives a first mortgage for 80% of the loan amount, and a
second mortgage, at the same time, for the remainder of the balance.
Co-maker A co-maker is a person who signs a promissory note along with the borrower, guaranteeing that the loan will be repaid. The co-maker and the buyer are equally responsible for the repayment.
Commission A commission is a fee charged by a broker or agent for negotiating a real estate transaction. It’s usually a percentage of the price of the property.
Commitment letter A commitment letter is a formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.
Condominium A condominium is a real estate project in which each unit owner has title to a unit in the building, as well as access to the common areas of the building.
Contingency Contingency is a condition that must be met before a contract is legally binding. For example, a home buyer may specify that the contract isn’t binding until he obtains a satisfactory home inspection report from a qualified home inspector.
Conventional mortgage A conventional mortgage is one that isn’t insured or guaranteed by the federal government.
Convertible ARM A convertible ARM can be converted to a fixed-rate mortgage under specified conditions.
Cooperative (co-op) A co-op is a type of multiple ownership in which the residents of a multiunit housing complex own shares in the co-op corporation that owns the property, giving each resident the right to occupy a specific unit.
Covenant A covenant is a clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
Credit Credit is an agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit Report Your
credit report is a record or file given to a prospective lender or employer showing your credit standing. It’s used to help determine your creditworthiness.
Deed A deed is the legal document giving title to a property.
Default Default occurs when mortgage payments aren’t made on a timely basis, or other conditions in the mortgage aren’t met.
Due-on-sale provision A due-on-sale provision in a mortgage allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
Earnest money deposit An earnest money deposit is made by the potential home buyer to show that he’s serious about buying the house.
Effective age The effective age is an appraiser’s estimate of the physical condition of a building; it doesn’t necessarily mean the actual age.
Equity Equity is a homeowner’s financial interest in a property. It’s calculated by taking the difference between the fair market value of the property and the amount still owed on its mortgage.
Escrow Escrow refers to an item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition.
Estate An estate is the sum total of all the real property and personal property owned by an individual at the time of death.
Fair market value Fair market value refers to the highest price that a buyer would pay, and lowest price a seller would accept, providing both parties were willing, but not compelled to buy.
Fee simple The greatest possible interest a person can have in real estate is referred to as the fee simple.
Finder’s fee A finder’s fee is paid to a mortgage broker for finding a mortgage loan for a prospective borrower.
First mortgage The first mortgage is the one that’s the primary lien against a property.
Fixed-rate mortgage (FRM) A fixed-rate mortgage is one in which the interest rate doesn’t change during the entire term of the loan.
Foreclosure Foreclosure is the legal process by which a borrower in default of a mortgage is deprived of his interest in the property. Usually, the property is sold at a public auction and the proceeds of the sale are applied to the mortgage debt.
Index The index is a published interest rate that’s tied to an ARM’s interest rate.
Interest-only loan option An interest-only loan has no principal component for a specified period of time. The borrower pays only the interest, which increases his cash flow.
Loan to value ratio (LTV) The LTV is the unpaid principal balance of the mortgage, divided by the property’s appraised value. The lower the LTV, the more favorable the terms of the programs offered by lenders.
Lock period The lock period is the amount of time that a lender will guarantee a loan’s interest rate, usually 30, 45 or 60 days.
Margin The margin is the number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.
Mortgage A
mortgage is a legal document that pledges a property to the lender as security for payment of a debt.
Mortgage insurance (MI) MI is written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a default.
Note A note is a written agreement containing a promise of the signer to pay to a named person or bearer, a definite sum of money, at a specified date or on demand.
Origination fee An origination fee is charged by a lender to cover certain processing expenses in connection with making a real estate loan. It’s usually a percentage of the amount loaned.
PITI PITI stands for principal, interest, taxes and insurance – the components of a monthly mortgage payment.
Points Points are charges levied by the mortgage lender and are usually payable at closing. One point represents 1% of the face value of the mortgage loan.
Prepaids Prepaids are the property expenses, such as taxes, insurance, rent, etc., which are paid in advance of their due date and will usually be prorated at the time of the sale.
Prepayment penalty A prepayment penalty is charged by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan before the scheduled payment date.
Principal The principal, or face value, is the amount of debt, not including the interest.
Private mortgage insurance (PMI) PMI is provided by nongovernment insurers that protect lenders against loss in the case of default.
Qualifying ratios Qualifying ratios, the ratio of your fixed monthly expenses to your gross monthly income, are used to determine how much you can afford to borrow.
Rate cap A rate cap is a limit to how much the interest rate can change, either at each adjustment period or over the life of the loan.
Rate lock-in A rate lock-in is a written agreement which guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
Residential mortgage credit report (RMCR) An RMCR, requested by a lender, uses information from at least two of the three national credit bureaus, along with information on your loan application.
Seller carry back In a seller carry back agreement, the owner of a property provides financing, often in combination with an assumed mortgage.
Survey A survey is a blueprint of the boundaries of a property, together with the location of all improvements on the land.
Title search A title search is made on a property to investigate it’s history of ownership, including liens, unpaid claims, restrictions or problems that could prevent the seller from transferring free and clear ownership.
So there you have the basics. You can probably tell from this glossary of home mortgage terms and definitions that you really need to know your stuff before buying property. And we hope we’ve given you the knowledge you need. With all that information under your belt – in simple terms – you’re ready to set your own terms as you buy your new home. Good luck!
About The Author
Gareth Marples is a successful freelance writer providing valuable tips and advice for consumers purchasing
payday loans,
student credit cards and
long term care insurance. His numerous articles offer moneysaving tips and valuable insight on typically confusing topics.
This
"Glossary of Home Mortgage Terms & Definitions" reprinted with permission.
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Reprinted from
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