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Whether you're a first-time homebuyer or purchasing your 5th home,
there are many lending terms that can sound like a foreign language.
We're pleased to help educate and empower you with information so that
you may understand some of the terms your likely to encounter. Not only
will this knowledge enhance your home buying experience, you will also
impress your friends and family!
Appraisal A professional opinion of the value of a
property.
Annual Percentage Rate This is not the rate on your loan.
This rate also includes some of the costs associated with doing the loan
and is then calculated as a yearly rate.
ARM Loan Adjustable Rate Mortgage. This type of loan offers
a variety of different terms in which the rate can be fixed for a
certain length of time. However, once that fixed term expires, the rate
is then adjustable. The rate can adjust either up or down, based on the
current market index, plus a fixed margin to determine your newly
adjusted rate.
Balloon
Can offer a lower interest rate, however, the loan either becomes due or
will need to be refinanced at the end of the balloon term.
Conventional Financing Non-government financing, most common.
Credit Bureaus Agencies that provide lenders with a history
of your credit. The three bureaus are Experian, Trans Union and Equifax.
Credit Report This report is provided by the three bureaus
and reflects the status of current accounts, account history and
applicant’s personal profile.
Credit Scores Numbers formulated by the credit bureaus to
reflect the applicant’s account history and creditworthiness on a scale
of 450-900.
DTI (Debt to Income Ratios) A percentage to reflect the
borrower’s ability to repay a mortgage. It is calculated by dividing the
monthly debt by the gross income (front ratio) and the monthly debt,
plus mortgage payment divided by the gross income (back ratio).
Discount Points Points are paid to lower the interest rate.
One point equals one percent of the loan amount. Interest rates have
point values associated to them, so the points will vary based on how low
of a rate the borrower wants and can adjust as the market changes.
Earnest Money Cash deposit
that accompanies a real estate purchase contract as buyer’s commitment
to purchase the property.
Escrows This portion of the monthly mortgage payment will
pay homeowner's insurance, taxes and mortgage insurance, if required.
FHA Financing Financing backed by the government to offer
financing with more flexible credit qualifying guidelines and lower
mortgage insurance premiums in comparison to conventional financing.
Fixed Loan Financing with terms of 10-30 years. The
interest rate and principal and interest payment are fixed for the life
of the loan.
Floating Not locking into an interest rate, but instead
watching the market to see if rates go up or down.
Flood Certification Document that is required on all loans
certifying if the property is or is not in a FEMA designated flood zone.
Good Faith Estimate Prepared by the lender to offer a line
by line breakdown of the closing costs, prepaids and fees associated
with the loan transaction.
Government Financing Financing insured by FHA (Federal
Housing Administration) or VA (Department of Veteran’s Affairs)
HELOC Home Equity Line of Credit. Generally a 2nd mortgage
characterized by a variable rate with interest only payments. Offers the
ability to draw on any unused portion until the repayment period starts.
Home Inspection An inspection that is not required by
lender, but is done at the buyer’s request to evaluate the property’s
condition.
Homeowner's Association Dues A monthly fee typically
associated with condos, townhouses or patio homes. This fee is paid by
the owner to cover lawn maintenance, snow removal, homeowner’s
insurance, etc. provided by the Homeowner’s Association.
Homeowner's/hazard Insurance
Insurance to protect your property against damage or loss. This premium
is typically collected with your monthly payment to pay the insurance
company annually when the premium is due.
HUD-I (Settlement statement) A document prepared by the
title company prior to closing to show how the funds in he transaction
have been applied via loan proceeds, seller credits, buyer credits, fees
and pre-paids.
Jumbo Loan Loan with a beginning balance higher than
$359,650, although some lenders now consider a jumbo loan to be above
$400,000.
Loan-to-Value (LTV) Percentage of the loan amount divided
by the property value or sales price.
Locking Choosing to have the lender guarantee a particular
interest rate for a specific time period.
Mortgage Insurance (MI) Insurance that is required on
conventional loans with less than 20% down or FHA loans. This insurance
protects the lender if the loan defaults.
Note Document signed at closing stating that the borrower's
promise to repay the loan.
Origination Fee 1% of the loan amount. Can be absorbed by
paying a higher interest rate.
Odd Days Interest/Per Diem Interest Interest collected at closing
to cover daily interest until the end of the month in which the loan
funds.
Piggy Back A second mortgage
closed at the same time as a first mortgage -typically to avoid mortgage
insurance, jumbo pricing or reserved for future access.
PITI Total monthly payment, includes principal, interest,
tax, and insurance (both hazard and mortgage insurance).
Pre-Approval Based on income and assets that have been
verified by the lender.
Pre-Paids
Collected at closing to set up an escrow account to pay tax and
insurance and also to pay odd days interest.
Pre-Qualification Based on income assets and debt -
information not verified by the lender.
Pre-Payment Penalty An option available on some loans to
offer a lower interest rate. The penalty fee is assessed if the loan is
paid off before the pre-payment penalty term has expired (typically 6
months interest).
Property Taxes Annual tax due on the property on November 1
- typically collected with the monthly payment. Amount of tax due on a
property.
Purchase Agreement Contract between buyer and seller
defining the terms of the sale.
Single Family Residence Typical, detached, one unit home.
Title Company Generates the title commitment, prepares the
loan documents for closing and conducts the closing at their office.
Title Insurance Provided by the title company ensuring
accuracy and completion. Owner's policy is provided by the seller
insuring clear title to the property. Lender's policy is required by the
lender to protect the lender from loss.
Underwriting Formal verification that documentation and
loan characteristics meet loan and lender guidelines for loan approval.
VA Financing Government insured financing available only to
service veterans. This financing doesn’t require a down payment or
ongoing monthly mortgage insurance. There is an upfront funding fee that
is added to the loan amount. Go to
Home Finance Frequently Asked
Questions and contact us for
more information.
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