Mortgage
Loan Terminology
Annual
Percentage Rate (APR)
A stated interest rate that reflects all the financing costs of
a Mortgage. The APR includes points, origination fees, and other
finance charges in addition to the interest on the Mortgage, and
includes them all in a yearly interest rate. As a result, the
APR is usually higher than the interest rate alone It also provides
a benchmark for comparing different types of Mortgages based on
the annual cost for each loan.
Appraisal
An estimate of the value of a property, made by a State Licensed
professional appraiser
Closing
The meeting between the buyer, seller, and lender (or their agents)
where the property and funds legally change hands. Also called
settlement.
Closing
Costs (Settlement Costs)
The costs and fees associated with the official change in ownership
of the property and with obtaining your Mortgage that are assessed
at the closing or settlement. Closing costs include required certifications,
insurance, taxes, and other fees, and typically total between
3 and 6 percent of the Mortgage amount.
Credit
Report
A report that documents a borrower's credit history and current
status. Borrowers can examine their own credit reports, although
most credit reporting companies charge a fee to provide a report.
Equity
The value of your home after the outstanding balance of any loans
are subtracted.
Escrow
A special account set up by the lender in which money is held
to pay for taxes and insurance. "Escrow" can also refer
to a third party who carries out the instructions of both the
buyer and seller to handle the paperwork at the settlement.
Interest
The sum paid for borrowing money, which pays the lender's costs
of doing business.
Loan Origination
Fee
The fee charged by a lender to prepare all the documents associated
with your Mortgage.
Points
(Loans Discount Points)
Points are prepaid interest on your Mortgage, charged by the lender
at the time of the closing. Each point is one percent of the loan
amount that is, 2 points on a $100,000 Mortgage would be $2,000.
Pre-Paids
The expenses that are put into escrow at closing, usually including
real estate taxes, insurance, and interest.
Principal
The amount of debt, not including interest, left on a loan; also
the face amount of the Mortgage.
Private
Mortgage Insurance (PMI)
An insurance policy the borrower buys to protect the lender from
nonpayment of the loan. Private Mortgage insurance policies are
usually required if you make a down payment that is below 20%
of the appraised value of the home.
Survey
A measurement of land, prepared by a registered land surveyor,
showing the location of the land with reference to known points,
its dimensions, and the location and dimensions of any buildings.
Title Insurance
An insurance policy which insures you against errors in the title
search (to determine legal ownership), essentially guaranteeing
your and your lender's financial interest in the property.
Underwriting
The process of deciding whether to make a loan based on credit,
employment, assets, and other factors.