Glossary Of Common Terms Used During The Mortgage Process – Whether you’re ready to buy your first home or need a quick upgrade, find this glossary handy.
You don’t need a real estate license to find your dream home, but it helps to familiarize yourself with the real estate market you’ll encounter in the process. When looking for a home or applying for a mortgage, you may hear a real estate agent or lender use the following terms or acronyms.
Glossary Of Common Terms Used During The Mortgage Process
Keep this five-part guide handy—you’ll be fluent in the language of home buying before you know it.
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Affordability or home affordability refers to the money you can comfortably spend on a home. Home prices take into account your income, down payment and monthly payments. Try our calculator to find out how much you can afford.
The solid point of buying a home makes more financial sense than renting. Learn more about Bi-Rent Breakeven Horizon here.
There are more homes for sale than buyers in the market. A home can sit on the market for a long time, and prices tend to drop.
An in-depth analysis prepared by a real estate agent determines the estimated value of a home based on sold homes of similar condition, size, features and age located in the same area.
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Or comparable sales, the number of homes in a particular area that real estate agents use to determine a home’s value over the past several months.
A market condition exists when there are more buyers than homes for sale. Bidding wars are common. Prices are often above average.
A homeowner has a lot of value for a home to sell. The homeowner’s bank must approve the low list price before selling the home. Learn more about short sales here.
@ Short Sale = Seller owes more than the home is worth. (The funny thing is, it takes a while to buy one) ## Buying a house
Glossary Of Loan Terminology
A home loan guaranteed by a government agency such as the FHA or VA. Read more about conventional loans here.
A portion of the home purchase price must be paid by the buyer. The minimum requirement is determined by the type of loan. Learn more about prepaid fees here.
The government-sponsored enterprise was chartered in 1938 to ensure a reliable and affordable supply of mortgage financing nationwide.
A government agency created by the National Housing Act of 1934 insures loans made by private lenders. The Federal Housing Administration is part of the US Department of Housing and Urban Development.
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Federally-backed rehabilitation loans allow homebuyers to borrow against their mortgage to repair, improve or renovate their home.
Loans from private lenders regulated and insured by the Federal Housing Administration (FHA). FHA loans are different from conventional loans because they can be approved for borrowers with low credit scores and have a down payment of 3.5% of the total loan amount. The maximum loan amount may vary by county. Read more about FHA loans here.
Because the interest rate doesn’t change, a mortgage pays the same principal and interest over the life of the loan.
A property that is foreclosed on by a bank when a homeowner defaults on a mortgage. Learn more about mortgages here.
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A government agency chartered by the National Assembly in 1970 to provide fixed mortgage financing to the nation’s housing market.
Originates, sells and services mortgage loans and resells them to subprime mortgage lenders such as Fannie Mae or Freddie Mac.
Secure financing through a licensed professional bank or other lending institution acting on behalf of the buyer.
Private mortgage insurance, or PMI, is the monthly mortgage insurance premium that borrowers pay for their mortgage insurance policies. A mortgage loan protects the lender if the borrower defaults on the mortgage. A down payment is usually required on a conventional mortgage, with a down payment of less than 20% of the sales price. Read more about mortgage insurance.
Most Common Credit Card Terms And Definitions
The cost of borrowing money. The base interest rate is set by the Federal Reserve, which then lowers the interest rate based on each borrower’s credit score, down payment, property type and buyer’s credit score.
Avoid personal mortgage insurance by combining tied loans. One loan pays 80% of the home’s value, the other 10% to 15% of the home’s price, and the buyer contributes the rest.
Prepayment penalties Some lenders charge you a fee if you pay back all or all of your mortgage early. All mortgages have no prepayment penalty. Be sure to read the fine print carefully.
A prime rate is a rate that a lender offers to customers who are less likely to default on their loans. For the most credit-worthy customers (mainly large companies), the lender will receive the best or lowest interest rates offered to any customer. Each lending institution sets its own interest rate. Generally, most consumer mortgage rates are higher than the prime rate.
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Borrowers are charged a down payment of less than 20% of the home price. The loan amount ranges from 0.3% to 1.5% of the annual loan amount, and can be waived in some cases when the borrower reaches 20% equity. Read more about PMI here.
Prepaid interest at closing, one point is 1% of the loan. Tax-deductible payment points lower your monthly mortgage payment.
The initial interest rate of an adjustable rate mortgage, or ARM, runs for a fixed period of time and adjusts every six months for the remainder of the loan term. After a fixed term, your interest rate will change, and so will your monthly payment. Learn more about adjustable rate mortgages here.
One of the two types of debt-to-income ratio lenders analyze to determine home loan eligibility. This ratio compares the borrower’s gross income to monthly loan payments. Read more about background rates here.
Glossary Of Common Credit & Credit Card Terms
This is a statement that the borrower receives from the lender at least three days before closing on the home. The line items should be the same as what the borrower saw on the loan estimate when they first applied – there is a limit to how much any fee can change between application and closing, so borrowers should closely review and request closing announcements. Any lender.
Banks, Savings and Loans and Credit Unions. These agencies determine the home loan price along with the home purchase.
A ratio that compares a homebuyer’s expenses to total income. Try our Debt to Income Calculator to learn more.
One of the two types of debt-to-income ratio lenders analyze to determine home loan eligibility. This ratio compares total housing costs (principal, homeowner’s insurance, taxes, and personal mortgage insurance) to gross income.
Mortgage Glossary Of Terms
Three days after applying for a home loan, a three-page document is sent to the applicant. This document includes the term of the loan, monthly payments and closing costs. Loan estimates can help borrowers shop around and compare loan costs with lenders. Just because you get a loan estimate, you don’t necessarily have to accept the loan. Smart mortgage shoppers apply for at least two loans and use loan estimates to determine which lender to use.
Fees for writing and processing home loan applications from brokers or lenders. Origination fees are not fees. This is a set of lender-specific fees that are part of your mortgage closing costs. Read more about origination fees here.
A thorough assessment of the borrower’s income, assets and other data is required. A real estate agent requires a pre-approval or qualification letter before showing a home to a home buyer. Learn more about pre-approval here.
A basic assessment of income, assets and credit score, if any, will determine whether the borrower is eligible for the loan program. A real estate agent requires a pre-approval or qualification letter before showing a home to a home buyer. Read more about pre-qualification here.
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Lenders use a process to assess the home loan applicant’s income, assets and credit and the applicant’s mortgage risk.
Real Estate Terms You’ll Hear When Your Offer Is Accepted 42. American Society of Home Inspectors (ASHI)
A non-profit professional association that sets and promotes property inspection standards. Look for this certification or something similar when shopping for a home inspector.
Fees associated with the purchase of a home that become apparent at the closing of the sale transaction. Fees include appraisals, home inspections, title searches, pest inspections, and more. Buyers should budget 2% to 5% of the home purchase price. Read more about closing costs here.
What Is A Loan Estimate? How To Read And What To Look For
Terms written into the home purchase agreement protect the buyer in the event of issues such as financing, home inspections, etc.
A security deposit paid by the buyer
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