Glossary of Mortgage Terminology
The Documents:
• Loan application standard residential loan application form to apply for a loan
Credit report credit bureaus report information about your existing and previous debts and rate how you have repaid the obligations
Appraisal independent appraisal to determine the market value of the home
Survey verifies property boundaries and confirms that the legal description of the property as stated in the sales contract is correct
HUD-1 settlement statement itemizes the services provided and lists all charges to the buyer and seller
Truth-in-lending statement a statement which discloses the annual percentage rate, finance charges, the amount of the loan and the total payments required
Mortgage or deed of trust pledges the property you are buying as security for the loan
Promissory note when you sign this note, you are promising to repay the loan
Types of Mortgages:
Conventional mortgages the standard product of lending institutions which are usually sold to investors in mortgages. Down payment assistance programs can be linked with these mortgages to reduce the up-front costs. Available with both fixed and adjustable rate mortgages with many loan terms.
Federal Housing Administration (FHA) insures lenders against default by borrowers. Available with both fixed and adjustable rate mortgages with maximum loan amounts which are established for various geographic locations.
Veterans Administration (VA) the VA guarantees mortgages for veterans of the armed services, those currently in the service, and their spouses. 100% financing may be available.
Financing Options:
- Fixed rate mortgages interest rate does not change over the life of the loan
- Adjustable rate mortgages (ARM) interest rate varies with a lower rate in the beginning which may increase by certain amounts and within certain set time frames, over the term of the loan.
- Convertible mortgages combines features of the fixed rate and the adjustable rate mortgages. It allow the borrower to start out with an ARM with the capability of switching to a fixed rate at a later date.
- Buy-down the lender is paid a lump sum to temporarily buy down the interest rate. The buy-down rate may be in effect for 3-5 years, during which time the rate gradually increases to the contract rate.
Mortgage Comparison Terms:
- Interest rate these are constantly changing and different rates are applied to different programs.
- Interest rate lock-ins you will want to know if the lender will hold, or lock-in the initial rate quoted until closing. There may be fees associated with the lock-ins.
- Origination fee a lenders charge for originating and processing the loan. Typically 1% or more of the loan amount.
- Application fee covers the costs of credit reports, appraisal fees, and other miscellaneous expenses related to determining whether the borrower qualifies for the requested loan.
- Points - a point represents 1% of the loan amount. Borrowers may decide to pay points to keep the interest rate lower and, thereby lower their monthly payments. Points are normally paid at closing.
- Annual Percentage Rate (APR) total yearly cost of a loan. It includes the interest rate, mortgage insurance, and points.
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