This figure is used to calculate your APR. It represents your loan amount minus any prepaid finance charges (i.e., the sum of “Amount Financed” and “Finance Charge”) assuming you kept the loan to maturity and made only the required monthly payments.
Annual Percentage Rate (APR)
There are two interest rates applicable to your loan: (i) your Actual Interest Rate and (ii) your Annual Percentage Rate. Your Actual Rate is the annual interest rate of your loan (sometimes referred to as the “note rate”), and is the rate used to calculate your monthly payments. The amount of interest you pay, as determined by your Actual Rate, is only one of the costs associated with your loan… there may be others. The Annual Percentage Rate (referred to as the “APR”) encompasses both your interest and any additional costs or prepaid finance charges you may pay such as prepaid interest (necessary to adjust your first payment if you close mid-month), private mortgage insurance, closing fees, points, etc. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It will usually be slightly higher than your Actual Rate because it includes these additional items and assumes you will keep the loan to maturity.
Some lenders charge an “Application Fee” fee for accepting and reviewing your loan application.
An appraisal is a written analysis of the estimated value of your property. A qualified appraiser who has knowledge, experience and insight into the marketplace prepares the document. It ensures you’re paying fair market value for your home and is required to close on your new home or property.
This fee is paid to the outside appraisal company engaged to objectively determine the fair market value of your property. This fee varies based on the location and type of your property.
Assignment Recording Fee
In many instances, after closing your loan is transferred to a specialized loan “servicer” who handles the collection of your monthly payments. The Assignment Fee covers the cost of recording this transfer at the local recording office.
A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
Adjustable-Rate Mortgages (ARM’s) are mortgages in which the interest rate and monthly payment will change periodically. The main difference among ARM programs is the length of the initial fixed interest rate period.
The date the interest rate changes on an adjustable-rate mortgage (ARM).
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.
A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
An individual qualified by education, training, and experience to estimate the value of real and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
The increase in the value of a property due to changes in market conditions, inflation, or other causes.
The valuation placed on property by a public tax assessor for purposes of taxation.
The placing of a value on property for the purpose of taxation.
A public official who establishes the value of a property for taxation purposes.
Items of value owned by an individual. Assets that can be quickly converted into cash are considered “liquid assets.” These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.
The term applied when a buyer assumes the seller’s mortgage.
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
The final lump sum payment that is due at the termination of a balloon mortgage.
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seems to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
Bill of Sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.
A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make twenty-six. The extra payments reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principal. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and, in a volatile market, can and do change during the day as well.
Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working for themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
A real estate project in which each unit owner holds title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. The condominium may be attached or detached. The homeowners association dues are included in the total monthly mortgage payment for qualifying purposes.
On every loan transaction order a credit report is ordered to determine your past credit history and your outstanding liabilities. This fee covers the cost of such report.
Similar to the acceleration clause.
Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
In order to sell his home, a seller may be willing to “carry back” a second trust deed/mortgage. This would mean that the buyer of the home would obtain a first trust deed from a traditional lender for perhaps 75% or 80% of the purchase price, and obtain a second mortgage directly rom the seller of the home for an additional five or ten percent of the purchase price. The “loan-to-value of these mortgages can vary, as well as the terms. It is common for the second trust deed to require “interest only payments (which do not pay towards any of the principal) and for the loan to be totally “due and payable” after a term of five years. Then the buyer may have to refinance in order to pay off the loan, obtain a new second trust deed elsewhere, or pay off the loan from savings. The major reason for obtaining a “seller carry back” is that the lower loan-to-value ratio on the first mortgage will make it easier to qualify for the loan, and there will be no need for mortgage insurance.
When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a “cash out refinance.”
Certificate of Deposit
A time deposit held in a bank which pays a certain amount of interest to the depositor.
Certificate of Deposit Index
One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.
Certificate of Eligibility
A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.
Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
Chain of Title
An analysis of the transfers of title to a piece of property over the years.
A title that is free of liens or legal questions as to ownership of the property.
This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
See Settlement Statement.
Cloud on Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
An additional individual who is both obligated on the loan and is on the title to the property.
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
Common Area Assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
An unwritten body of law based on general custom in England and used to an extent in some states.
In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.
Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as “comps.”
A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
An oral or written agreement to do or not to do a certain thing.
Refers to home loans other than government loans (VA and FHA).
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.
A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Cost of Funds Index (COFI)
One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
A record of an individual’s repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.
A person to whom money is owed.
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s credit worthiness.
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
Document Preparation Fee
The use of outside companies to prepare the loan closing documents. This fee covers the cost of this service.
Owner occupied property for more than one family.
An amount owed to another.
The legal document conveying title to a property.
Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
Deed of Trust
Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
In the mortgage industry, this term is usually used only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
A right of way giving persons other than the owner access to or over a property.
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
An improvement that intrudes illegally on another’s property.
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
Once each year your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
The lawful expulsion of an occupant from real property.
Examination of Title
The report on the title of a property from the public records or an abstract of the title.
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.
Lenders often set up an account, called an escrow or impound account, to hold the tax and insurance portions of your monthly mortgage payment. At closing, the lender collects sufficient money to establish the necessary reserves in this account. The reserves plus the monthly deposits are then held until such time they are used by the lender to pay the tax and insurance bills.
Estimated Closing Fees
An estimate of the fees that must be paid on or before the closing date by the buyer and/or seller for services, taxes and items necessary to obtain mortgage. These fees will average between 2% and 5% of the loan amount and vary by lender, property location, and type of mortgage.
On refinance transactions, an overnight courier is typically used to expedite the payoff of your existing loan. This fee covers the cost of the courier.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.
Fannie Mae’s Community Home Buyer’s Program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
The greatest possible interest a person can have in real estate.
Fee Simple Estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
A lender’s agreement to make a loan to a specific borrower on a specific property.
The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.
A mortgage in which the interest rate does not change during the entire term of the loan.
Personal property that becomes real property when attached in a permanent manner to real estate.
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.
The amount charged by public officials in your area for recording your mortgage and other documents.
Your finance charge is the total of all the interest you would pay over the entire life of the loan, assuming you kept the loan to maturity, as well as all prepaid finance charges. If you pre-pay any principal during your loan, your monthly payments remain the same, but your total finance charge will be reduced.
Fixed Rate Mortgages
Fixed Rate Mortgages are mortgages on which the same rate of interest is charged for the life of the loan.
Until you request to secure a lender’s quoted interest rate, the interest rate will continue to change, or float, due to market fluctuations. Locking or securing a rate protects you from these potential fluctuations from the time your lock is confirmed to the day your lock period expires. You may choose to float your rate up until the time your lender contacts you to schedule your closing. At this time, an interest rate must be secured in order to prepare your closing documents.
Flood Certification Fee
Federal law requires that you obtain flood hazard insurance if your property lies in a flood zone. As part of our evaluation of your property, we engage a flood determination company to tell us whether or not your house lies in a flood zone. The flood certification fee covers the cost. If your house is located in a flood zone, you will be required to purchase Flood Insurance.
Flood Life of Loan Coverage
Flood zone determinations may change from time to time. The “Life of Loan Coverage” fee allows us to track any changes in your property’s flood zone status over the life of your loan.
Government Recording Fee
We pay this fee to your local county recording office for recording our mortgage lien, and in the event of a purchase transaction, the deed which transfers title. Fees for recording vary by county and are set by state and local governments.
There are two guideline ratios used to qualify you for a mortgage. The first is called the front-end ratio, or top ratio, and is calculated by dividing your new total monthly mortgage payment by your gross monthly income. Typically, this ratio should not exceed 28%. The second is called the back-end, or bottom ratio, and is equal to your new total monthly mortgage payment plus your total monthly debt divided by your gross monthly income. Typically, this ratio should not exceed 36%.
Government Loan (Mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA).
Insurance coverage in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.
Home Equity Line of Credit
A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
HUD Median Income
Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).
HUD-1 Settlement Statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD-1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the “closing statement” or “settlement sheet.”
Home Equity Line of Credit
A home equity line of credit is a credit line that is kept open and restored as you pay off what is owed. An equity line of credit also has a high credit limit similar to a credit card that you are allowed to draw upon as needed.
Just like you insure your automobile to protect against theft and damage, you insure your home. Homeowners insurance is required by all lenders to protect their investment, and must be obtained before closing. In most cases, coverage must be equal to the loan balance, or the value of the home.
Interest Rate Disclosure
A description of the conditions applicable to the processing of your loan as well as the terms of your interest rate agreement with the lender.
Lender Fees are fees paid to the lender.
Lender Processing Fee
The lender processing fee covers the cost of analyzing your loan application and compiling and packaging the necessary supporting documentation to close your loan.
A factory assembled residence built in units or sections that are transported to a permanent site and erected on a foundation.
Maximum Cash Out
The maximum amount of money you are allowed to get back from your mortgage transaction based on the loan information provided and the amount of equity you have in your home.
Maximum Monthly Payment
As part of your loan approval, you are given a maximum monthly payment for which you qualify based on the information you provided. This maximum payment is inclusive of the three major components of a typical mortgage payment: loan principal and interest, taxes, and insurance.
Monthly Mortgage Payment
A monthly mortgage payment typically contains three parts called the PITI (principal & interest, taxes, and insurance). If you pay your taxes and insurance on your own, you pay only principal and interest to your lender.
Monthly Principal and Interest (P&I) Payment
Principal and interest is the dollar portion to repay the loan. All interest which occurs is calculated on the current balance owing. The principal reduces the remaining balance of a mortgage.
The length of time given to repay the loan.
A fee that is charged by the lender to originate your loan. The fee is typically set up as a percentage of the loan amount (i.e. a 1 point origination fee is equal to 1% of the loan amount).
The method for disclosing your payment schedule varies by loan type. For fixed rate loans, this section indicates what your required monthly payment will be throughout the life of your loan. The payment schedule for VA, FHA, one-time MIP and uninsured conventional loans should also indicate a fixed monthly payment. The payment schedule for fixed-rate insured loans may gradually decrease over time due to a declining insurance premium. For adjustable rate loans, the payment schedules will vary by loan type and are based on conservative assumptions of future interest rates.
Planned Unit Development (PUD)
A planned unit development (PUD) is a project or subdivision that consists of common property and improvements that are owned and maintained by an owner’s association for the benefit and use of the individual units within the project. For a project to qualify as a PUD, the owners’ association must require automatic, non-severable membership for each individual unit owner, and provide for mandatory assessments.
Points (Discount Points)
The term “point” refers to one percent of the loan amount. For example, one “point” on a $100,000 loan would equal $1,000. On most programs (and with certain limitations), you may pay “points” at the closing to lower the interest rate on your loan. The more points you pay, the lower your rate.
A prepayment penalty is a fee that is charged if the loan is paid off earlier than the specified term of the loan. Depending on your loan program and applicable state law, you may or may not incur a prepayment penalty. Contact your loan officer for specific information.
Prepaid Interest is interest on your new mortgage that is paid at closing. The amount of interest will vary from 0 to 30 days, as it is calculated from the date of closing to month end. For example, if the loan closed on March 20th, prepaid interest would be owed from March 20th through March 31st. A normal monthly principal and interest payment would cover interest due for the previous month. If the loan closed on March 20th, the first payment would be due May 1st. The May 1st payment would cover interest due for the month of April.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is the insurance a borrower is required to pay if they have less than 20% (in some cases 25%) equity in their home. Lenders use several insurance companies to obtain PMI coverage. If you are required to pay PMI, the monthly amount must be calculated and included in the proposed mortgage payment and also included when estimating the amount needed to establish your escrow account. In order to calculate PMI, four pieces of information are needed: loan amount, loan term, loan-to-value (LTV) and the PMI factor which is based off of the required coverage amount and whether the mortgage is fixed or adjustable.
The taxes assessed on the property by the local government (e.g. city, county, village or township) for the various services provided to the property owner. Such services may include police and fire department services, garbage pick up and snow removal.
If you are living with a relative or friend without paying rent, this is considered “rent- free”.
Requested Cash Out
The amount of money you requested to get back from your mortgage transaction. Remember, your closing costs and escrows will be subtracted from this amount.
A second mortgage is a lien in which you are given a lump sum amount which you pay off in installments over a specified period of time. When the second mortgage is paid off, the obligation is considered closed. Home improvement and debt consolidation loans are considered second mortgages.
This refers to the address of the property being pledged as security for your loan.
Single Family Residence
A residence that houses one family.
A single family residence that is a detached dwelling which is characterized as a site condominium by the way it is platted by the builder.
The home that you intend to obtain the mortgage on is called the subject property. If you are doing a refinance, the subject property is typically the address of the home you are living in now. If you want to refinance your second home, list the address of that home as the subject property. If you are purchasing a home, the subject property is the address of the home you are buying.
A survey is a bird’s eye sketch of your property which shows the boundary lines of your lot, and details any encroachments between you and your neighbors. The survey fee covers the cost of the survey.
Tax Service Fee
In some cases, we engage a third party to monitor and/or handle the payment of your property tax bills. The Tax Service Fee covers the cost of this service.
Third Party Fees
Fees paid to a third party for services requested by the lender on your behalf.
Individuals who will have legal ownership in the property are considered “on title” and will sign the mortgage and other documentation. Note: if you are married, your spouse will need to be “on title” even if you are not using his/her income for qualifying purposes.
Title Company Closing Fee
This fee is paid to the title insurance company which conducts your closing and handles the transfer of funds among the parties.
Title insurance protects a lender and owner against any title dispute that may arise over a particular property. It is required by lenders to close on your home.
Title Insurance Premium
Premium required by lenders in order to determine that the property is properly owned and not subject to any unacceptable liens, a search is required of the local real estate records, and a title insurance policy insuring the lender that there are no defects in title. The Title Insurance Premium covers the cost of the search and the insurance. The cost of title insurance varies both by state and by county.
This is the total amount you will have paid over the life of the loan for principal, interest and prepaid finance charges, assuming you keep the loan to maturity and make only the required monthly payments.
The underwriting fee covers the cost of evaluating your entire loan package, including your credit report and appraisal, to determine whether the lender can approve your loan request.
Wire Transfer Fee
On occasion, funds will be transferred to you, your prior lender, and/or the title insurance company conducting your closing via the inter-bank wire transfer system. This fee covers the cost of such transfer.