Thinking about buying a home? Know your terminology - Are you considering buying a home in California? If you are, it's important to familiarize yourself with key terminology
Thinking about buying a home? Know your terminology
By James
Feb 10, 2012 - 8:10:14 AM
Are you considering buying a home in California?
If you are, it’s important to familiarize yourself with key terminology
commonly used within the mortgage loan industry to help understand all the ins and
out’s about what the application and approval process entails, what it means to
have your future home appraised, its’ market value, how you benefit from having
an FHA loan, and what PITI actually stands for.
To help you take the first step onto an exciting new path, here are some
basic and highly popular phrases used by all professional mortgage affiliates
(A-Z):
Amortization | a schedule of payments for the course of the
loan which includes regular and consistent payments of principal and interest.
Annual Percentage Rate (APR) | an interest rate’s expressed
cost for a mortgage within a yearly rate. Includes a buyer’s account points and
credit costs while allowing for comparison over different types of mortgages
available based off of the annual cost each loan requires.
Appraisal | a valued estimate for property, performed,
assessed, and stated by a professionally licensed “appraiser.”
Broker | a professionally licensed individual who assists
in arranging, funding and or negotiating contracts on behalf of a borrower, but
who does not loan the money himself.
Closing | also known as a Settlement, is an agreement
between the buyer, seller and lender or their agents to allow the property and
funds to legally change ownership.
Closing Costs | all applicable fees associated with a real
estate transaction, excluding the purchase price of the home.
Commitment | a contractual agreement between a lender and
approved borrower to loan money on a stated date subject to the completion and
compliance for all outstanding paperwork and stated conditions.
Debt-to-Income Ratio | a percentage indicating a borrower’s
monthly income used to repay debts. Ratio aids lenders in determining how large
of a mortgage a borrower can afford.
Down Payment | an amount of money a borrower contributes
upfront on a real estate purchase.
Escrow | a neutral third party who carries out all the
instructions of both the buyer and seller to handle all the paperwork of
settlement or “closing.” Escrow may also refer to an account held by the lender
into which the homebuyer pays money for tax or insurance payments.
Federal Housing Administration (FHA) Loan | a loan insured
by the Federal Housing Administration open to all qualified home purchasers.
FHA Loan’s primary role is to insure residential mortgage loans made by private
lenders.
Gross Monthly Income | the total amount a borrower earns
each month before any expenses/debt payments are deducted.
Loan-to-Value Ratio | relationship between the amount of a
mortgage loan and the appraised value of the property expressed as a
percentage.
Market Value | the estimated highest price a buyer would
pay and the lowest price a seller would accept on a property. Market value may
not reflect the price a property was actually sold for at a given time.
Mortgage Insurance | money paid to insure the mortgage when
the down payment is less than 20 percent.
Mortgagee | the lender providing the financial loan for
purchasing of a property.
Mortgagor | the homeowner approved by the lender and
responsible for total amount stated in the loan. Also known as the Borrower.
Origination Fee | a standard fee charged by a lender to
prepare loan documents, make credit checks, inspect and sometimes appraise a
property; usually stated as a percentage of the face value of the loan.
PITI | an acronym for Principal, Interest, Taxes, and
Insurance. Also known as the Monthly Housing Expense.
Principal | the amount of debt, not counting interest, left
on a loan.
Private Mortgage Insurance (PMI) | if a borrower is does
not have a 20 percent down payment, lenders will may also allow a smaller down
payment. With the smaller down payment, borrowers are often required to carry
Private Mortgage Insurance (PMI), an insurer provided by a non-government
affiliate that protects the lender against the loss of a borrower in default.
PMI will require an initial premium payment of 1.0 percent to 5.0 percent of
your mortgage amount and may require an additional monthly fee depending on
your loan’s arrangement.
Realtor | a real estate broker or an associate holding an
active membership within a local real estate board affiliated with the National
Board of Realtors.
Truth-in-Lending | a federal law requiring disclosure of
the Annual Percentage Rate to homebuyers shortly after they apply for the loan.
Underwriting | the decision process on whether to approve a
loan to a potential homebuyer based on credit, employment, assets, and other
factors while matching this risk to an appropriate rate and term or approved
loan amount.
Verification of Deposit (VOD) | a document signed by the
borrower’s financial institution verifying the status and balance of his/her
financial accounts.
Verification of Employment (VOE) | a document signed by the
borrower’s employer verifying his/her position and salary.
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