| Loan Talk
When your lender says ... Accelerated Payment
Schedule
What they mean is ... An option you have to pay back a loan quicker
than the time your lender has given you; by committing to an accelerated
payment schedule, you can cut down the amount you pay in total interest
charges over the time of your loan pay-back.
When your lender says ... Adjustable Rate Mortgage
(ARM)
What they mean is ... A loan with an interest rate that increases or
decreases periodically during the time it takes you to pay it back. The
"adjustments" to the interest rate of an adjustable rate mortgage (ARM)
usually happen once a year, and affect the amount of your monthly payments
until the next adjustment. These changes are based on how much the average
interest rate rises and falls in the marketplace during that time.
Usually, ARMs come with safety features called "caps" that prevent your
payments from changing too drastically, even if the average interest rates
rise or fall sharply in that period.
When your lender says ... Amortization
What they mean is ... The process of paying back, over a period of
time, an amount of money you've borrowed to buy a home. Payments like this
are usually made once a month, and continue for the number of years
indicated by the home loan you have.
When your lender says ... Annual Cap
What they mean is ... The limit on the amount an adjustable rate
mortgage's interest rate can change over a 12-month period. An annual cap
prevents your payments from changing too dramatically, even if the factors
that determine changes in an adjustable mortgage's rate rise or fall
sharply during that period.
When your lender says ... Buy Down
What they mean is ... The option you have to lower the overall interest
rate of a home loan by paying more money when you first get the loan. The
money you pay—referred to as "discount points"—can reduce the interest
rate for the entire life of the loan, or just part of it.
When your lender says ... Certificate of
Eligibility
What they mean is ... What you can use to prove your status as a
veteran of the armed services, when applying for a loan through a program
sponsored by the Veteran's Administration.
When your lender says ... Credit Report
What they mean is ... A document produced by an auditing firm that
provides your track record on how you've paid off loans in the past; it
helps a lender determine whether or not they will give you the money
you're asking to borrow.
When your lender says ... Discount Points
What they mean is ... The amount of money you can choose to pay when
you first get a loan to reduce its overall interest rate. Discount points
are usually a small fraction of the total amount of your loan—i.e., 1, 2,
or 3%—and can lower the interest rate for the entire life of the loan, or
just part of it.
When your lender says ... Down Payment
What they mean is ... The amount you pay in cash towards the total
sales price of the home you're buying. Your down payment accounts for the
part of the home's sales price not covered by the money you borrow from a
lender. The amount of money you have to put into a down payment plays a
big part in determining how much a lender will let you borrow to buy a
home; the more cash you can use as a down payment, the more likely a
lender will be to give you a larger loan. Making a larger down payment
also helps you avoid the necessity of purchasing a mortgage insurance
policy, which is required of buyers providing a down payment of less than
20% of the home's sales price.
When your lender says ... Fannie Mae
What they mean is ... A nickname for the Federal National Mortgage
Association, a corporation that specializes in buying loans from mortgage
bankers, in order to add cash to the mortgage market. Fannie Mae is run by
the United States government, with assistance from private sector
professionals.
When your lender says ... FHA Loan
What they mean is ... A loan offered by the Federal Housing Authority
(FHA). The FHA provides loans that aim to make housing affordable to those
who might otherwise be unable to purchase a home. For instance, one type
of FHA loan covers 97% of the cost of the home being bought; the borrower
must provide only 3% of the cost as a down payment.
When your lender says ... Fixed Rate
Mortgage What they mean is ... A loan with an interest rate that stays
the same throughout the time you're paying it back to the lender.
When your lender says ... Freddie Mac
What they mean is ... A nickname for the Federal Home Loan Mortgage
Corporation, an organization that specializes in purchasing mortgage
loans, primarily from savings and loans associations. Freddie Mac is run
by the United States government, with assistance from private sector
professionals.
When your lender says ... Home Equity Loan
What they mean is ... A loan that lets you borrow back money against
the difference of what you own on your current home loan and the home's
estimated sales price. People generally use home equity loans to get cash
for large expenses like education, home improvement, or health care.
When your lender says ... Interest
What they mean is ... The amount of money a lender charges you to
borrow money to buy a home. The interest you pay is a percentage of your
total loan, and is paid over time.
When your lender says ... Loan Application
What they mean is ... The formal document you fill out when you
approach a lender to borrow money to buy a home. It includes your name and
personal information, the amount of money and other terms of the loan you
need, as well as a detailed description of the home you're going to buy
with the loan.
When your lender says ... Loan Term
What they mean is ... The total amount of time you are given by a
lender to pay off your home loan. Loan terms vary, but are generally set
at 15 or 30 years.
When your lender says ... Loan-to-Value Ratio
(LTV)
What they mean is ... A mathematical equation mortgage experts use to
describe the amount you've borrowed from a lender to buy a home, in
relation to the total cost of the home. For instance, if you've borrowed
$80,000 to buy a $100,000 home, the LTV for your loan is 80%.
When your lender says ... Lender
What they mean is ... A financial institution, like a bank, that loans
you money to buy a home, and expects you to pay the money back to them in
a stated period of time, usually with interest.
When your lender says ... Monthly Housing
Allowance
What they mean is ... The percentage of a person's income they can
comfortably use each month to pay for where they live—with enough left
over to spend on food, clothing, and other luxuries. As the result of a
series of mind-numbing calculations, mortgage experts have determined that
most folks can spend approximately 28% of their total income on
housing.
When your lender says ... Mortgage
What they mean is ... The legal document outlining your
responsibilities as a borrower, including the amount of the loan you've
taken and the details and schedule of your re-payment. It states that if
you don't make payments on your loan in a timely fashion, you may lose
your right to ownership of the home.
When your lender says ... Mortgagee
What they mean is ... The lender that provides a borrower with a home
loan.
When your lender says ... Mortgage Insurance
What they mean is ... An insurance policy you are required to get if
the amount of your down payment is less than 20% of the total cost of the
home. Mortgage insurance serves as a safeguard for the lender, in the
event you can't continue to pay off your loan.
When your lender says ... Maturity Date
What they mean is ... The scheduled date for your final payment on a
loan. After making the payment on a loan's maturity date, you assume
complete ownership of your home from the lender.
When your lender says ... No Doc Loan
What they mean is ... A loan requiring no documentation of income. This
type of loan is ideal for self-employed individuals with good credit.
When your lender says ... Obligations
What they mean is ... The things you have to pay for consistently each
month, excluding housing costs. Obligations include things like car loans,
credit card bills, student loans, and alimony or child support.
When your lender says ... Origination Fees
What they mean is ... The charges you must pay when first buying a home
to cover credit checks, property appraisals, title searches, and other
expenses not directly linked to the cost of the home.
When a lender says... Per-diem Interest
What they mean is...Interest charges that cover the period of
time—usually a matter of days, or a few weeks—between when you close on
your home, and the first day of the first month of your regular loan
payments.
When your lender says ... PITI
What they mean is ... An acronym that refers to the elements of a
common type of total monthly loan payment: "Principal, Interest, Taxes and
Insurance." The principal and interest are part of your loan pay-back; the
taxes and insurance are deposits you make each month to an escrow account
to cover those expenses.
When your lender says ... Principal
What they mean is ... The money a lender lets you borrow to buy a home.
When you buy a home, the principal of your loan, combined with your down
payment, covers the total sales price. When you make payments to the
lender each month, you pay back a portion of the principal as well as
additional fees in the form of interest charges.
When your lender says ... Pre-Approval
What they mean is ... A way you can establish your ability to get a
home loan worth a certain amount of money, even before you've found the
home you want to buy. The pre-approval process is done in conjunction with
a specific lender; the results are based on the total income of your
household, the amount of your monthly debt, as well as other
factors—depending on your situation as a home buyer.
When your lender says ... Rate Lock
What they mean is ... A way you can establish that the interest rate on
your loan remains the same between the time of your application, and when
you qualify for the loan. When applying for a loan, you can lock the
interest rate for a specific amount of time; depending on the length of
the lock, this feature may cost as much as 1% of the total value of the
loan, although often it is offered free of charge by the lender.
When your lender says ... Refinancing
What they mean is ... The way you can replace your current home loan
with a new loan to get an interest rate lower than the one you have, or to
borrow cash from the amount you've paid back on your current loan.
When your lender says ... Retire a Debt
What they mean is ... When you pay off your home loan completely,
thereby fulfilling your obligation under the loan contract.
When your lender says ... Self-Amortizing
Loan
What they mean is ... A loan that gets paid back through regular
monthly installments, each of which is a combination of a pay-backs to the
principal of the loan, and its interest charges.
When your lender says ... Up-Front Costs
What they mean is ... The total amount of cash you need to pay when you
buy a home, minus the amount of your loan. Up front costs include your
down payment, any closing fees you must pay—like broker's commissions or
insurance charges—and the discount points you can use to lower your
overall interest rate.
When your lender says ... VA Loan
What they mean is ... A way that veterans of the armed services can
borrow money to buy a home without having to pay additional mortgage
insurance. The VA (Veteran's Administration) guarantees to pay back the
lender in case the borrower can no longer make payments on the loan.
Property Jargon
When your lender says ... Appraisal
What they mean is ... The process of figuring out how much a home is
really worth, given current market conditions. An appraisal, which is done
by a qualified expert, is an important part of getting a mortgage; it
helps determine the amount of money a broker will loan you to buy a house.
When your lender says ... Assessment
What they mean is ... The amount of property taxes you must pay to the
city or town in which you own your home.
When your lender says ... Assessed Valuation
What they mean is ... The determination, for tax purposes, of how much
a home and the property it occupies is worth.
When your lender says ... Closing
What they mean is ... When you actually become the owner of the
property you're buying. Closing occurs when you and the seller agree to
the terms of a sales contract, and the full sales price for the home is
paid to the seller.
When your lender says ... Closing Costs
What they mean is ... The fees and charges a buyer and seller must pay
at the time of closing on a home sale. These can include, among other
things, broker commissions, lender discount points, insurance premiums,
and attorney's fees.
When your lender says ... Easement
What they mean is ... The legal rights the general public has with
regard to using portions of private property. For instance, if a county
road cuts through privately owned land, a legal access easement lets the
public use that road without fear of trespassing on the private
property.
When your lender says ... Equity
What they mean is ... How much of your home you actually own. When you
first buy a home, your ownership equals your down payment; your mortgage
lender owns the rest. To figure out your equity, subtract the amount you
owe on your loan from your home's current market value.
When your lender says ... Fair Market Value
What they mean is ... A term that refers how much a home or property is
worth, given the current conditions of the local real estate market. The
fair market value of a home is usually used in conjunction with the amount
of tax its owner must be charged.
When your lender says ... Flood Insurance
What they mean is ... An insurance policy that covers damage your home
may receive due to flooding. If the home you're buying is in an area prone
to flooding, then you may be required by your home loan provider to get
flood insurance. To establish whether or not your home is in such an area,
a land survey must be done—at the expense of the person selling the
home—at least fifteen days before the date you close on the home
purchase.
When your lender says ... Hazard Insurance
What they mean is ... An insurance policy many lenders require a home
buyer to have to cover damages due to occurrences like fires or
storms.
When your lender says ... Parcel
What they mean is ... A piece of land or property under one ownership.
Parcels are created when a single large property is sub-divided into many
smaller pieces of property.
When your lender says ... Reassessment
What they mean is ... The process of updating the understood value of a
property for tax purposes.
When your lender says ... Site Assessment
What they mean is ... A mandatory environmental inspection that checks
for the existence of hazardous waste on the premises of a home that's
being sold.
When your lender says ... Survey
What they mean is ... The process of measuring a piece of land to
establish its legal boundaries. This is performed by a trained
professional called a surveyor, and occurs before a home sale is
finalized.
When your lender says ... Zoning
What they mean is ... The way cities and towns define how areas within
their borders are to be used as real property. Zoning determines which
areas of a city or town can contain stores and other businesses, which
should be used as residential areas, and which can mix both types of
property.
Legal Matters
When your lender says ... Chattel
What they mean is ... Property you own aside from real estate. Chattel
includes furniture, cars, jewelry, stocks, and any other asset that
contributes to your total financial standing.
When your lender says ... Contract of Sale
What they mean is ... The written agreement between you, as the buyer,
and the person selling the home. The contract outlines the terms of your
purchase, including the price of the home, and must be agreed upon before
closing can occur on the sale.
When your lender says ... Escrow Account
What they mean is ... A bank account where you deposit money that will
be used to pay charges that come with your purchase of a house. An escrow
account is sort of a neutral area between you and your mortgage lender
that stores money you've deposited until you need it to pay for certain
aspects of your loan, like closing costs, taxes or insurance fees.
When your lender says ... Executed Sales Contract
What they mean is ... A contract where all the terms have been
successfully completed by the buyer and the seller.
When your lender says ... Full Disclosure
What they mean is ... A legal requirement that says a person selling a
home must inform a potential buyer of everything they know about the
home's physical and economic condition.
When your lender says ... Gift Letter
What they mean is ... The form stating that a relative is giving you
money to help you buy a home, and that they will not ask you to it pay
back. The letter also provides proof, by referring to bank statements and
other records, that the relative does, in fact, have enough money to cover
the amount of the gift, and that the money has been transferred to your
possession.
When your lender says ... Note
What they mean is ... The formal, written acknowledgment that you've
borrowed money from a lender, and agree to pay it back under the
conditions of the loan.
When your lender says ... Owner of Record
What they mean is ... The actual owner of a property, according to
public records.
When your lender says ... Pre-payment Clause
What they mean is ... A condition written into a mortgage that gives a
borrower the privilege of paying off a loan in full before the final
scheduled payment date. The borrower usually must agree to pay a
pre-determined fee to do so.
When your lender says ... Pre-payment Penalty
What they mean is ... A fee that you are charged by the lender when you
pay off the principal of your loan before the scheduled final payment
date. The penalty is intended to recover some of the money they would've
gotten from you in the form of interest payments, had you taken the full
term of the loan to pay it off.
When your lender says ... Public Records
What they mean is ... The documents that are evidence of real estate
transactions, which are usually stored at the county courthouse and are
accessible, by law, to the general public.
When your lender says ... Punch List
What they mean is ... A written inventory of things that need to be
done to a home in order to meet the requirements of a sales contract.
When your lender says ... Purchase Capital
What they mean is ... The total amount of money a person uses to buy a
home, regardless of the source.
When your lender says ... Title
What they mean is ... The legal, written evidence that identifies the
owner of a home or piece of property, and outlines that person's rights as
owner. At the time of a home sale, the title passes from the seller to the
buyer and the lender who is providing the buyer's home loan. The buyer
gets the title when their home loan is paid back in full.
When your lender says ... Title Insurance
What they mean is ... The insurance policy you must purchase to protect
yourself and the lender against any possible problems of the home you're
buying. These problems may include unresolved legal claims, or an
interruption of the deed transferal process between previous owners of the
property.
When your lender says ... Title Search
What they mean is ... A legal examination of public records to identify
the actual owner of a home. |
