Mortgage Terms Defined

adjustable rate
an interest rate mortgage that changes according to the index.

agreement of sale
a written document that the purchaser agrees to buy the property, and the seller agrees to the terms

amortization
a monthly payment schedule to repay the loan in fixed monthly payments

annual percentage rate (APR)
the yearly cost of a loan. APR uses account interest, discount points, lender fees and mortgage insurance, so it will be higher than the interest rate on the loan

application
statement of personal and financial information required to approve your loan

appraisal
estimate of property’s current market value

asset
anything of monetary value a person owns

bankruptcy
court proclamation of individuals inability to pay debts

bill of sale
document that transfers ownership from one person to another

borrower
the person that receives a loan in the form of a mortgage

ceiling
maximum allowable interest rate of an adjustable-rate mortgage

closing
meeting with buyer, seller and lender when property and funds change hands

closing costs
fees incurred in transaction and paid by buyer/seller during the closing

contingency
a condition that must be satisfied before contract is legally binding and mortgage can be closed

contract of sale
agreement between buyer and seller disclosing the purchase price, term and conditions of the sale

conventional loan
a mortgage not funded by FHA or the VA

credit report
report run by mortgage company to show credit history of borrower determining their creditworthiness

debt-to-income level
the ratio (percentage) that shows the borrower’s monthly payments on debts divided by monthly income

deed
legal document that transfers property from one person to another. Delivered to the buyer at closing

default
failure to meet legal obligations in a contract. A loan is usually considered in default when more than 30 days past due.

delinquency
failure to make payments on time

deposit
cash paid when a contract is signed, usually held by a third party until the sale is closed

discount points (POINTS)
money paid to the lender at closing in exchange for lower interest rates

down payment
money paid for your house from one’s own funds at closing. This amount is deducted from the purchase cost and the resulting balance is the mortgage amount

earnest money
deposit made by buyer to show good faith when the agreement is signed

equity
percentage of property value the owner has. This is the difference in current market value and the remaining mortgage balance

fixed rate mortgage
mortgage with an interest rate that doesn’t change for the life of the loan guaranteeing fixed payment amounts

grace period
amount of time when a loan payment can be made after its due date without getting a penalty

interest
charge paid for borrowing money, is a percentage of the amount borrowed

lender
bank or mortgage company that offers the loan

lien
claim on the property for a payment of a debt

lock or lock-in
lenders guarantee of interest rate usually between loan application and closing. Protects borrower from rate increases.

mortgage
document that creates a lien on the property as security for the payment of the debt

origination fee
fee lenders charge for evaluating and processing the loan

per diem interest
interest calculated per day. Depending on your closing date you may have to pay interest from that date until the end of the month

prequalification
process of determining how much a buyer can borrow, prior to applying for the loan

principal
the amount of debt, not counting interest, that is left on the loan

private mortgage insurance (PMI)
insurance purchased by the buyer on a conventional loan when downpayment is less than 20 percent of the purchase price. Protects the lender against default.

property tax
government tax paid each year based on the value of the property

purchase agreement
contract signed by buyer and seller that contains the terms and conditions of sale

title search
checking municipal records to make sure the seller is the legal owner and doesn’t have any liens against the property

underwriting
the process of verifying data and evaluating the loan application. The underwriter gives final approval on the loan

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