Mortgage Glossary
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Glossary (A-D) | Glossary (E-Z)
earnest money deposit
The money deposited by a buyer under the terms of a contract,
that is to be forfeited if the buyer defaults but applied
on the purchase price if the sale is closed.
equity
Equity is the monetary difference between the fair market
value of the property and the amount still owed on its mortgage
and other liens. It is the market value of a property minus
the amount of any existing loans or liens.
escrow account
A separate account for accumulating the portion of
your monthly payments that will pay future taxes, insurance,
fees, assessments and so forth.
escrow agent
A disinterested third party appointed to act as custodian
for documents and funds during the transfer of property from
seller to buyer.
estate
The ownership interest of an individual in real property.
This is the sum total of all the real property and personal
property owned by an individual at the time of death.
eviction
Eviction is the lawful expulsion of an occupant from real
property.
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.
FHA financing
A loan insured by the Federal Housing Administration (FHA)
and made by an approved lender in accordance with the FHA's
regulations. Often referred to as a government loan.
financial index
An agreed upon basis for making interest rate changes on an
adjustable rate mortgage. One example of a financial index
could be the cost of U.S. Treasury Bonds.
fixed-rate mortgage
A mortgage loan in which the interest rate does not shift
up or down during the entire term of the loan.
flood insurance
Insurance that compensates for physical property damages resulting
from flooding. It is required for properties located in federally
designated flood areas.
foreclosure
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.
initial interest rate
The interest rate charged for the first six or 12
months of an adjustable rate mortgage (before the first interest
rate adjustment).
interest rate cap
Limit on the amount an adjustable rate mortgage may increase
or decrease during specific intervals and over the term of
the loan.
loan commitment
This is a written guarantee made by a lender to make a loan
under certain terms and conditions. These include interest
rate, length of the loan, lender fees, annual percentage rate,
mortgage and hazard insurance and other special requirements.
LTV (loan to value ratio)
The ratio of the mortgage loan principal (amount borrowed)
to the property's appraised value. On a $ 100,000 home, with
a mortgage loan of $ 80,000, the loan to value ratio is 80%
mortgage broker
The mortgage broker, either an individual or company, hired
to act as an intermediary between borrowers and lenders.
mortgage pre-approval service
A service offered by many lenders that allows the borrower
to pre-qualify for financing before finding a property to
buy.
note
A written promise to pay a certain amount of money at a certain
time at a certain interest rate.
origination fee
The fee charged by the lender for making a real estate loan.
The amount is typically a percentage of the amount loaned,
such as one percent. This is different from the application
fee.
PITI (Principal, Interest, Taxes, Insurance)
Stands for principal, interest, taxes, and insurance.
prepayment privilege
The right given to a buyer to pay all or part of a debt prior
to its maturity. The mortgage cannot be compelled to accept
any payment other than those originally agreed to.
pre qualification
The process of determining how much money a prospective home
buyer will be eligible to borrow before a loan is applied
for. Also see mortgage pre-approval service.
rate guarantee
The lender's guarantee, usually for a specified period of
time, that the interest rate in effect the date you apply
for a loan (or at the time of approval) will be the final
rate on your loan when closed.
refinance
When refinancing, the borrower replaces an existing loan with
a new one to get a lower rate, switch from one loan type to
another, or convert equity to cash.
term
The number of years before a loan is paid in full; 15- to
30-year terms are most common for home mortgages.
title
A legal document evidencing a person's right to ownership
of a property.
title insurance
Insurance secured to protect the lender (lender's policy)
or the buyer (owner's policy) against loss arising from disputes
over ownership of property.
underwriting
The process of evaluating a loan application to determine
the risk involved for the lender. It involves an analysis
of the borrower's credit worthiness and the quality of the
property itself.
VA financing
A loan guaranteed by the Veterans Administration (VA) to a
qualified veteran and made by an authorized lender on an approved
property. Fixed and adjustable rates are available with VA
loans.
warranty deed
A legal document used to convey title.
Glossary (A-D) | Glossary (E-Z)