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.
Closing Costs (Settlement Costs)
The costs and fees
associated with the official change in ownership of the property and
with obtaining your mortgage that are assessed at the closing or
settlement. Closing costs include required certifications,
insurance, taxes, and other fees, and typically total between 3 and
6 percent of the mortgage amount.
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 (Loans 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.
Pre-Paids
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.
