Getting a loan can be confusing, below are some common terms that you may hear from your lender. Hope this helps!
Acceleration Clause: Provision in a mortgage that gives the lender the right to demand full payment of the entire principal balance if a payment is missed or the mortgage contains a “due on sale” clause.
Amortization: Repayment of a loan in installments of principal and interest,
usually on a monthly basis.
Annual Percentage Rate (APR): The cost of credit, expressed as a yearly rate. The APR includes points and any loan fees, in addition to the stated note rate.
Appraisal: An estimate of value of a home, made by a professional appraiser. The maximum amount of a mortgage is based on the appraisal or the sales price, whichever is less.
Assessed Value: The valuation placed on a property by the public tax assessor for the purposes of determining property taxes.
Assignment: The transfer of a mortgage to another party.
Assumable Mortgage: A mortgage that can be taken over by the buyer when a house is sold. Usually, the lender reserves the right to approve the buyer.
Ballon Payment: A principal payment due all at once at the end of a specified period. It is considerably larger that the other payments.
Binder or Offer to Purchase: An agreement, including the transfer of earnest money, to purchase real estate for agreed terms within a certain time period.
Bridge Loan: A loan that is collateralized by the borrowers present home. The proceeds are used for closing on a new home before the present home is sold. Also knows as a “swing loan.”
Buydown: Money paid at the closing to reduce a borrower’s interest rate. It may be either temporary or for the life of the loan.
Cap: A limit on the amount of adjustment in the interest rate on an ARM mortgage. Caps may be applied to each adjustment period and/or over the life of the loan.
Closing Costs: Costs associated with obtaining a mortgage. They may be paid by the Buyer or the Seller and include fees such as origination,
legal fees, appraisal, credit report, title insurance, state taxes, underwriting and recording fees. Prepaid items such as interest, insurance and property taxes are not considered closing costs.
Condominium: Individual ownership of a dwelling unit and an undivided interest in the common areas and facilities which serve a multi-unit structure.
Conventional Mortgage: A mortgage loan which meets the underwriting guidelines of Fannie Mae or Freddie Mac. It is subject to conditions by the lending institutions and state statues.
Credit Score: A process where a lender evaluates the credit worthiness of a potential borrower. Credit scores are provided by the credit bureaus and take into account how much you owe, how long you have had credit accounts, you past payment history and the number of recent credit inquiries.
Debt Ratio: The total of all the borrower’s monthly payments, including their proposed new house payment divided by their gross monthly
Deed: A formal written document by which title to real property is transferred from one owner to another.
Default: Failure to pay a debt when due or otherwise failing to comply with an essential term of a loan agreement.
Discount Points: A one-time charge to obtain a lower interest rate. Each point equals one percent of the loan amount.