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Glossary of Mortgage Terms

Glossary of Mortgage Loan Terms
Conventional/Conforming Loan: Fannie Mae & Freddie Mac, the quasi-governmental mortgage giants set the requirements for conforming loans which cannot exceed $484,350 in the Portland/Metro area.

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

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

Escrow Account:
An escrow account is a separate account that holds funds for the purpose of paying bills such as homeowner’s insurance and property taxes. The lender collects the funds to be deposited into the account each month along with your monthly payment and then pays the bills for you when they come due. You’ll pay a lump sum into the escrow account at closing (known as “prepaids”), and add to it further with each of your monthly mortgage payments.

For some loans, escrow accounts are a requirement. Your property taxes and insurance premiums can change from year to year—and with those changes, your escrow payment could also change.

Mortgage Insurance:
Private Mortgage Insurance is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. It is required if the loan amount is more than 80% of the home’s value. The cost of the mortgage insurance is typically added to the monthly mortgage payment. Without mortgage insurance, you would need a down payment of at least 20% of the loan amount.

Even if you have enough money for a large down payment, you may prefer to use it for other purposes. And if you don’t have a 20% down payment, it can take a long time to save it. While you’re saving, the price of your dream home is likely to rise – perhaps faster than you can save! Private Mortgage Insurance can be a big help if you’re like most borrowers in this type of situation.

Jumbo Loans:
Loans over $484,350 are called Jumbo loans. Typically, there are more stringent requirements for Jumbo loans with higher down payment requirements. However, you shouldn’t be scared of using a Jumbo loan. The key is simply to be educated on the options.

Installment Debt:
An installment debt is a loan that you make payments on, such as an auto loan, a student loan or a debt consolidation loan.

Note:
This is the document you sign to agree to repay your mortgage. The note will provide you with all of the details of your loan including the interest rate and length of time to repay the loan. It also explains the penalties that you may incur if you fall behind in making your payments.

Mortgage / Deed of Trust:
This document pledges a property to the lender as security for repayment of a debt. The Mortgage restates the basic information contained in the note, as well as details the responsibilities of the borrower. In some states, the document is called a Deed of Trust instead of a Mortgage.

Prepayment Penalty: 
A penalty that a lender may impose if a loan is paid off before it is due. This is something I highly discourage.

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

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

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

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