Glossary of Mortgage Terms
The mortgage industry is full of terms that are foreign to many people. The following glossary of terms should help you translate the mortgage language into English and help you make sense of the mortgage process.
An expert opinion on the value of a property
Annual Percentage Rate
This is not the note rate applied for,
but rather is a government mandated formula that shows the cost of the
loan in a yearly rate by using the note rate plus certain other upfront
Adjustable Rate Mortgage. Mortgage characterized
by an interest rate that can adjust up or down at certain intervals
based on a current index (commonly the 1 year T-Bill) plus a preset
Mortgage characterized by level fixed
payments for a predetermined time frame followed by either a refinance
or adjustment in interest rate.
The tax paid upon certain types of real
estate transactions. Contact accountant for specifics.
Cash to Close
The amount needed from the borrower at
closing. Consists of down payment, closing costs and prepaid items.
This amount needs to be in the form of a cashier check made payable
to the buyer.
Date stated on the purchase agreement
that buyer and seller agree to finalize or close the transaction.
Various costs of setting up and funding
the transaction - including closing fee, title insurance, appraisal
fees, underwriting fee, mortgage registration tax etc.
Property types that usually have the
following characteristics: they are attached, have a homeowners association
and dues, the outside maintenance is taken care of by the association,
and common areas and amenities available to all owners in the association.
Standard, non-government financing.
Agencies that provide compilations of
your credit history. The three main credit bureaus are Experian, Trans
Union, and Equifax.
Report provided by the credit bureaus
which shows the history, current status, and profile of an individual.
The number generated by the credit bureaus
which is a numerical representation of the subjects credit profile,
range is from 450 on the low side to 900 being the highest score possible.
Ratio of debt to pretax income, often
expressed as a front (housing payment only) or back (all debt) ratios.
Ex- $5000 monthly income, $1400 housing payment, $1700 total debt would
equal ratios of 28%/34%.
One point equals one percent of the loan
amount. Points are used to lower the interest rate. One point does not
equate into lowering the interest rate one percent. Generally lowering
the interest rate 1/8 will cost about 1/2 point, although this can vary
based on daily pricing. Typically is tax deductible.
Difference between loan amount and purchase
Deposit toward down payment submitted
with a purchase agreement as evidence of the buyers commitment.
Equifax Information Services
PO Box 740243
Atlanta, GA 30374
The portion of the monthly payment that
is not applied to principal or interest, but rather is used to pay mortgage
insurance, homeowners insurance and property taxes.
Experian Information Services
PO Box 2002,
Allen, TX 75013-3742
Short name for the Federal National Mortgage
Association. One of the main Government Sponsored Agencies which are
the companies who sell mortgage backed bonds to investors. They are
the ultimate source of the money that we lend. Fannie Mae protects its
investors by issuing underwriting guidelines that are to be followed
to ensure quality lending.
Short name for Federal Home Loan Mortgage
Corporation - see above.
Government backed minimum down financing
program which has a lower mortgage insurance premium and greater credit
leeway as compared to conventional minimum down programs.
Most common type of financing. Terms
ranging from 10 to 30 years. Interest rate and P&I payment remains
constant throughout life of loan.
Not locking in a rate, but rather choosing
to float the interest rate as the market moves up or down.
Required document on all loans. Confirms
if the property is in or out of a FEMA designated flood zone.
Funds held in Escrow
Generally only applies to new construction.
Monies held from the seller to provide payment for repairs or non completed
Good Faith Estimate
Document prepared by lender which estimates
and delineates the various fees and closing costs associated with the
Financing provided from government agencies
such as FHA, VA etc.
Home Equity Line of Credit. Second mortgage
product, generally characterized by interest only payments and the ability
to draw, pay back, and redraw.
Not required by lender. This is a private
inspection done by the buyers choice to confirm that the property is
in acceptable condition.
Homeowners Association Dues
Amount paid by owner of a townhome or
condo to cover various amenities or services provided by the homeowners
association (examples -- common areas, hazard insurance, garbage, mowing,
Insurance which covers damage or loss
to the property. The premium is usually paid into an escrow account
held by the mortgage company, which then pays the insurance company
once a year.
HUD-I (Settlement statement)
Document prepared by title company at
closing which shows where all of the money in the transaction was coming
from and going to.
Loan with an initial balance greater