Mortgage Terms To Know When Buying A Home

Accelerated Clause:
A provision that gives the lender the right to demand payment, of the entire loan balance, if the borrower violates any of the clauses in the note.

Annual Percent Rate:
Interest rate that reflects the cost of the mortgage as a yearly rate. This is usually higher than the stated rate because it accounts for points and other credit costs.

Appraisal:
The market value of the property, made by a licensed appraiser.
Cash reserve: Cash available to make the first two mortgage payments after closing.
Closing: When both seller and buyer sign final documents, usually at a title company and closing cost monies are delivered.

Commitment:
Promise by lender to make a loan on agreed terms to borrower

Contingency:
A condition that must be met before a contract is legally binding.

Deed:
The legal document which gives title to a property.

Delinquency:
Failure to make payments on time.

Depreciation:
A decline in the value of property.

Down Payment:
Money paid to make up the difference between the sales price and the mortgage loan.

Earnest Money:
Money given by buyer as part of the contract terms which shows good faith usually placed in escrow at the closing title company.

Escrow:
Money held in a non interest account, by mortgage lender to pay taxes and insurance when due.

Foreclosure: Legal process by which the lender or seller forces a sale of a property because borrower has not followed the terms of the loan.

Fixed rate mortgage:
A mortgage that carries a fix interest rate for the full term of the loan.
Hazard Insurance:
A form of insurance in which the insurance protects the Insured from specific losses such as fire.

Homeowner’s Insurance:
Insurance that covers liability and hazard on a property.

Homeowner’s warranty:
A warranty that covers specific types of repairs for a specific time on a property.

Interest:
A fee charged which is usually a percentage, by the lender for borrowing money.

Interim Financing:
In construction, usually the builder requests a loan to construct and or build the project this is also know as an interim loan.

Lien:
A legal claim again a property that must be resolved prior to the sale of said property.

Mortgage:
Legal document that ties the property to the lender as security for payment.

Mortgage Insurance:
Money paid to insure the mortgage when the down payment is less than 20 percent. This protects the lender in the event of default on the note.

Mortgagee:
The lender

Mortgagor:
The borrower

Origination Fee:
This is a fee charged by the lender to set up the loan, process the documents usually a percentage of the loan amount.

PITI:
Principal, interest, taxes and insurance
Points: Each point is equal to one percent of the loan. Loan discount points are prepaid interest assessed at closing by the lender.

Pre-Payment Penalty:
Fee charged for early payoff of a debt.

Principal:
The amount of debt owed not including interest.

Recording Fees:
Money paid to the lender for recording the property sale making it part of public records.

Title:
The document that gives evidence of ownership

Title Insurance:
Insurance policy issued by a title company insures against errors in title search. Fee is usually based on a rate based on the value of the property.

Underwriting:
The process in which the lender submits the loan package for full approval.