Glossary of Mortgage Loan Terms

Adjustable rate loan (ARM): A loan that permits the lender to adjust its interest rate periodically on the basis of changes in an index.

Amortization: The gradual repayment of a loan by equal installments.

Annual percentage rate (APR): The actual cost of a loan stated as a yearly rate; including such items as interest payments, principal payments, loan insurance, processing, credit reports, appraisals and loan origination fee (points).

Appraised value: An opinion of a property’s fair market value based on the appraiser’s analysis of the property and recent sales in the area.

Assessed Value: The valuation placed on real estate by a public tax assessor for purposes of taxation.

Balloon payment: The final lump sum payment that is made at the maturity of a balloon loan.

Buy-down loan: A temporary buy-down is a loan on which one time payment is made to reduce a borrower’s interest rate during the first year or years of a loan. A permanent buy-down would be a one time payment to reduce the interest rate over the course of the entire loan term.

Closing: The time at which a transaction is final.

Closing cost: An amount that a borrower incurs for a service. All these fees should be included on the HUD-1(closing statement).

Conventional/Conforming Loan: Fannie Mae & Freddie Mac, the quasi-governmental mortgage giants set the requirements for conforming loans which cannot exceed $417,000 in the Portland/Metro area.

Fixed-rate loan: A loan in which the interest rate or payment does not change during the course of the loan.

Deed: The document conveying title to real estate.

Deed of trust: The document used in some states instead of a mortgage.

Down payment: The part of the purchase price of real estate that the buyer pays in cash and does not finance.

Due-on-sale clause: A provision in a loan that allows the lender to demand repayment in full if the borrower sells the real estate.

Earnest money deposit: A deposit made by a potential home buyer to show that he or she is in earnest about buying the house.

Easement: A right of way giving someone, other than the owner, access to or over a property.

Equity: Financial interest in real estate. Equity is the difference between the value of the property and the amount owed.

Fannie Mae: A privately-shareholder-owned corporation that is the nation’s largest supplier of home loans.

Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential loans made by lenders. The FHA sets standards for construction and underwriting but does not lend money.

FHA loan: FHA loans are insured by the Federal Government and designed for first-time buyers and others who would not normally qualify for conventional/conforming financing. There is more flexibility with challenged credit and work history. FHA loans are a very important financing option and have helped millions of people buy their first home. While there are no income restrictions, there are maximum loan amounts set for every county in the country.

Flood insurance: Insurance that compensates damage from flooding. In designated flood areas this insurance is required.

Hazard insurance: Insurance that covers for fire and certain physical damage to real estate.

Jumbo loans: Loans over $417,000 are called Jumbo loans. Typically, there are more stringent requirements for Jumbo loans with higher down payment requirements and also higher interest rates.

Note: A document that obligates a borrower to repay a loan. Minimally stated are, interest rate, payment schedule and due date for a specified period of time.

Note rate: The interest rate stated on a real estate loan note.

Point: A one time charge by a broker or lender for originating a loan. 1% of the loan amount = 1 point.

Prepayment penalty: A penalty that a lender may impose if a loan is paid off before it is due.

Rate lock: A lenders commitment to a borrower or borrower’s broker guaranteeing a specified interest rate for a specified period of time for a specified fee or price.

Real Estate Settlement Procedures Act (RESPA): Consumer protection law that requires lenders to give borrowers advance notice of all closing costs.

Recession: The required waiting period, 3 days for a refinance.

Recording: The notice published in the public records of legal documents that affect specific real estate.

Right of survivorship: An aspect of joint tenancy passing on from a deceased joint tenant’s ownership to the surviving joint tenants.

Tenancy in common: Title to property by two or more co-owners without the right of survivorship.

Title:A document evidencing one’s right to ownership of real estate.

Title company: a company that specializes in examining the guaranteeing title (ownership) to real estate.

Title insurance: Insurance that protects the lender or buyer from loss from disputes over ownership of real estate.

Title search: An examination of the public records to ensure that the seller is the legal owner of the real estate and that there are no hidden liens or claims against the property.

Truth in Lending: A Federal law that requires lenders and brokers to fully disclose, in writing, the terms and conditions of a loan, including the annual percentage rate and charges.

Underwriting: The process by which the lender determines the risk involved in a loan.

VA Loan: The US Dept of Veteran Affairs guarantees loans for eligible service members. With $0 down payment required and no monthly mortgage insurance required, VA financing is truly one of the best options available. If you are eligible, I highly recommend pursuing a VA Loan.


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