Financing Your Home
2-1
Buydown
The buyer or seller pre-pays interest to make the mortgage payments
lower for the first two years. The first year the interest rate
would be two percent below, note rate, the second year one percent
below and the third through the end of the mortgage would be fixed
at the note rate.
Adjustable
Rate Mortgage (ARM)
A loan in which the interest rate adjusts periodically (usually
once a year for a given period of time). The interest rate adjusts
based on a standard rate index.
Annual Percentage
Rate (APR)
A method of calculating the cost of a mortgage, expressed as a yearly
percentage rate. Items include loan fees, interest, mortgage insurance
and credit costs.
Assumable
Mortgage
A mortgage that a buyer can assume (take over) from a seller.
Balloon Mortgage
A mortgage that is amortized over a specified term and calls for
a lump sum payment at the end of the term.
Bridge Loan
A loan that "bridges" the gap between the purchase of
a new home and the sale of the borrower's current home.
Closing Costs
Expenses both buyers and sellers pay at the time of closing or the
transfer of real estate. Expenses may include, but are not limited
to, escrow payments, origination fee, homeowner's insurance, REALTOR® fees, and taxes.
Closing Statement
Also known as a HUD-1 Statement. It is a final disclosure of all
expenses and credits for both the buyers and the sellers at the
time of closing.
Commitment
Letter
A formal letter from a mortgage lender stating that the borrower
meets all specified conditions to receive a mortgage.
Conventional
Mortgage
A loan that is not backed by the federal government. Usually refers
to a 30-year fixed-rate loan.
Credit Report
A report that is prepared by a credit bureau that states a borrower's
past credit history.
Debt-to-Income
Ratio
The percentage of a person's monthly income used to pay off revolving
monthly debt obligations.
Discount
Points
A point paid by either the borrower or the seller to reduce the
interest rate on a borrower's loan.
Down Payment
The amount or percentage of the purchase price of the home that
the buyer does not finance with a mortgage, but pays in cash at
the time of closing.
Fannie Mae
Federal National Mortgage Association. One of the nation's largest
sources of financing for home mortgages.
FHA Mortgage
A mortgage insured by the Federal Housing Administration.
Fixed Rate
Mortgage
A mortgage in which the interest rate is fixed at a particular rate
during the entire term of the loan.
Freddie Mac
Federal Home Loan Mortgage Corp. A financial corporation chartered
by the federal government to buy pools of mortgages from lenders
and sell back securities backed by these.
Good Faith
Estimate
A written estimate of closing costs that is prepared by a mortgage
lender and given to the buyer/borrower within three days of the
completion of a loan application.
HUD-1 Statement
An itemized list of the closing costs for both the buyer and the
seller of a transaction.
Jumbo Mortgage
Mortgages with loan amounts that are higher than the limits set
by Freddie Mac and Fannie Mae.
Loan Origination
The process by which a mortgage lender obtains a mortgage secured
by real property.
Loan-to-Value
(LTV)
The ratio of the loan amount to the property's selling price.
Lock
The lender's guarantee that a quoted interest rate will be good
for a specified amount of time.
Mortgage
A legal document that uses property as collateral to secure payment
of a debt.
PITI
Acronym that stands for the usual components of a mortgage payment (Principal,
Interest, Taxes and Insurance).
Point
Equal to one percent of a borrower's loan amount. A lender may charge
points as a way to make a profit.
Pre-Approval
The mortgage lender verifies employment, bank records, assets and
other information as provided on the loan application. In turn,
the borrower receives a letter stating the loan qualification specifics.
Private Mortgage
Insurance (PMI)
Insurance that protects the mortgage lender against default by a
borrower. This insurance is usually required if the down payment
is less than 20 percent and until the borrower has 20 percent
equity in the home.
Title
A legal document stating an owner's right to claim entitlement to
a property.
Title Search
A check of the title records for the buyer and the seller to assure
there are no liens or outstanding judgments against any party
involved with the sale of the home.
Transfer
Tax
State or local tax that is paid when a property is transferred between
owners.
Underwriter
A person given the responsibility of issuing a mortgage by analyzing
a borrower's credit worthiness. The underwriter also sets the loan
amount limits for the borrower.
VA Mortgage
A mortgage backed by the Veteran's Administration. It usually requires
little or no down payment for the loan. Certain members of the U.S. armed forces are eligible for this type of a mortgage.
Warranty
Deed
A legal document that claims the property is being conveyed
with clear title, free of liens or encumbrances.
