Adjustable Rate Mortgage – A mortgage where the interest
rate is not fixed, but changes during the life of the loan in
line with movements in an index rate. You may also see ARMs
referred to as AMLs (adjustable mortgage loans) or VRMs
(variable-rate mortgages).
Annual Percentage Rate (APR) – The cost of credit
expressed as a yearly rate. The APR takes into account not only
the interest rate but also any points, broker/lender fees, and
certain other credit charges that may apply.
Conventional Loans – Mortgage loans other than those
insured or guaranteed by a government agency such as the Federal
Housing Administration (FHA) or Veterans Administration (VA).
Debt Ratio – The percentage of monthly debt payments
(house, car, credit cards, etc.) divided by your monthly gross
income.
Escrow – A neutral third party that holds the money
and/or the documents of a mortgage transaction. It can also be
an account held by the lender or servicer into which a homeowner
pays money for property taxes and insurance. In this instance,
the lender is responsible for making the property tax and
homeowner’s insurance payment, when due.
Good Faith Estimate – A list of the expected costs or
fees for a mortgage loan.
Index – The index is the measure of interest rate changes
that the lender uses to decide how much the interest rate on an
ARM will change over time. No one can be sure when an index rate
will go up or down. You should ask your lender how the index for
any ARM you are considering has changed in recent years, and
where it is reported.
Loan Origination Fees – Fees charged by a lender for
processing the loan and are often expressed as a percentage of
the loan amount.
Loan-To-Value (LTV) - The loan amount divided by the
value of the home in percentage form.
Lock-In - Refers to a written agreement guaranteeing a
home buyer a specific interest rate on a home loan provided that
the loan is funded and closed within a certain period of time.
The lock periods vary from lender to lender.
Points - Points are fees paid to the lender or broker for
the loan and are based on the loan amount. For example: One
point on a $100,000 loan is 1% of $100,000, or $1,000. Points
are linked to the interest rate – usually the more points you
pay, the lower your interest rate will be. Points are usually
paid at closing.
Private Mortgage Insurance (PMI) - Insurance that
protects the lender in case the home buyer fails to pay, or
defaults on the loan. Usually PMI is required on loan amounts
greater than 80% of the LTV (loan to value). However, recent
legislation declared that lenders must automatically remove PMI
when the loan balance reaches 75% of the original appraised
value.
Term - The length of the mortgage loan. Terms will vary
between institutions, and depending on the type of loan.
Generally the repayment terms are 15, 20 or 30 years.
Deed of Trust/Mortgage - The security document signed by the
borrower when a home loan is made that gives the lender the
right to take possession of the property if the borrower fails
to pay off the loan.
There’s more to buying a home than the cost of the home.
Consider these costs to avoid being unpleasantly surprised:
Title Insurance – This insurance is required on any mortgage
loan.
Appraisal Fee – The cost of the appraisal, usually
$300 to $400
Interest – If the loan closes before the end of the
month, you may need to pay
interest for the additional days.
Credit Report, Flood Hazard, Wire Fees, Tax Service,
Recording Fees and Reconveyance Fees are other
mortgage-related costs that might apply to your loan.
You will be given a Good Faith Estimate of Settlement Costs when
you apply for a mortgage loan. It is an estimate only. As you
become nearer to closing on your home purchase, it is a good
idea to revisit Settlement Costs with your lender or escrow
company to avoid unpleasant surprises.
Although we do not require a Home Inspection, it is another
great way to avoid an unpleasant surprise. A licensed inspector
ensures you are buying a safe home, much like taking a used car
you’re considering buying to a trusted mechanic to have it
checked out.
Frequently, a seller will provide a home warranty to the buyer.
A home warranty will protect the major appliances in the home
for the first year after purchase. A water heater, air
conditioner, pool and the like can be included in the warranty.
This request would be made at the time you place an offer on a
home.
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