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.
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 (LOAN 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.
PREPAIDS
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 non-payment 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.
