Not sure about the difference between points and scores? Rate and price? Follow our Mortgage Terms for help.
Appraisal
An expert opinion on the value of a property.
Annual Percentage Rate
This is a government mandated formula that shows the cost of the loan in a yearly rate by using the interest rate specified in the mortgage note plus certain other up front costs.
ARM Loan
Adjustable Rate Mortgage. Mortgage with an interest rate that can adjust up or down at certain intervals based on a current index (commonly the 1 year LIBOR or T-Bill) plus a preset margin.
Balloon Mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Capital Gains Tax
The tax paid upon the profits from the sale of real estate or investments.
Cash to Close
The amount needed from the borrower at closing. Consists of down payment, closing costs and prepaid items. This amount needs to be in the form of a cashier check made payable to the buyer.
Closing Date
Date stated on the purchase agreement that buyer and seller agree to finalize or close the transaction.
Closing Costs
Various costs of setting up and funding the transaction - including closing fee, title insurance, appraisal fees, underwriting fee, etc.
Condo/Town Home
Property types that usually have the following characteristics: they are attached, have a homeowners association and dues, the outside maintenance is taken care of by the association, and common areas and amenities available to all owners in the association.
Conventional Financing
Standard, non-government financing.
Credit Bureaus
Agencies that provide compilations of your credit history. The three main credit bureaus are Experian, Trans Union, and Equifax.
Credit Report
Report provided by the credit bureaus which shows the history, current status, and profile of an individual.
Credit Scores
The number generated by the credit bureaus which is a numerical representation of the subject's credit profile, range is from 300 on the low side to 900 being the highest score possible.
Debt to Income Ratio
Ratio of debt to pretax income, often expressed as a front (housing payment only) or a back (all debt, including proposed house payment) ratio. Lenders look at this ratio to determine the mortgage amount you qualify for.
Discount Points
Fees paid by the borrower to the lender. One point equals one percent of the loan amount. Points are used to lower the interest rate. One point does not equate into lowering the interest rate one percent. Generally lowering the interest rate 1/8 will cost about 1/2 point. This can vary based on daily pricing and is typically is tax deductible.
Down Payment
Difference between loan amount and purchase price.
Earnest Money
Deposit toward down payment submitted with a purchase agreement as evidence of the buyer's commitment.
Escrows
The portion of the monthly payment that is not applied to principal or interest, but rather is used to pay mortgage insurance, homeowners insurance and property taxes.
Fannie Mae
Common name for the Federal National Mortgage Association. One of the main congressionally chartered, shareholder-owned company that buy mortgages from lenders and resells mortgage-backed bonds to investors. They are the ultimate source of the money that we lend. Fannie Mae protects its investors by issuing underwriting guidelines that are to be followed to ensure quality lending.
Freddie Mac
Common name for the Federal Home Loan Mortgage Corporation, a congressionally chartered institution that buys mortgages from lenders and resells them as securities on the secondary mortgage market.
Fixed Loan
Most common type of financing. Terms ranging from 10 to 30 years. Interest rate and Principal & Interest payment remains constant throughout the life of the loan.
Floating
Not locking in a rate, but rather choosing to float the interest rate as the market moves up or down.
Flood Certification
Required document on all loans. Confirms if the property is in or out of a FEMA designated flood zone.
Funds held in Escrow
Generally only applies to new construction. Monies held from the seller to provide payment for repairs or non completed items.
Good Faith Estimate
Document prepared by lender which estimates and lists the various fees and closing costs associated with the home financing.
Government Financing
Financing provided from government agencies such as FHA, VA, etc.
HELOC
Home Equity Line of Credit. Second mortgage product, generally characterized by interest-only payments and the ability to draw, pay back, and redraw.
Home Inspection
Not required by lender. This is a private inspection done by the buyers choice to confirm that the property is in acceptable condition.
Homeowners' Association Dues
Amount paid by owner of a townhome or condo to cover various amenities or services provided by the homeowners association for common areas, hazard insurance, garbage, mowing, snow removal.
Homeowners' Insurance
Insurance which covers damage or loss to the property. The premium is usually paid into an escrow account held by the mortgage company, which then pays the insurance company once a year
HUD-I Uniform Settlement Statement
Document prepared by title company at closing which shows where all of the money in the transaction was coming from and going to.
Jumbo Loan
Loan with an initial balance greater than $417,000.00.
Jumbo Pricing
Refers to the fact that rates are generally slightly higher on jumbo loans.
Loan Disbursement Date
The date on which money is given to the borrower following the closing of the home loan. On a refinance loan or home equity loan on a principal residence, disbursement of funds occurs on the fourth business day after closing, once rescission period has expired. If it is a purchase loan, or refinance/home equity loan on vacation of 2nd home, the disbursement date is the same as the closing date.
LIBOR-Index
An index used to determine interest rate changes for certain ARM plans, based on the average interest rate at which international banks lend to or borrow funds from the London Interbank Market. Typically 1 year LIBOR.
Loan-to-Value (LTV)
Ratio of liens (amounts owed to lenders) versus value of property or sales price. Ex. $80,000 owed on a property worth $100,000 equals an 80% LTV.
Lock-in Period
Time period that a rate is protected for during the loan process.
Locking-in
Choosing to protect a particular rate and program for a specific period of time.
Mortgage Broker
A mortgage company that brings a borrower and lender together to obtain a mortgage loan. A mortgage broker has access to a variety of lenders and often offers the most choice in loan programs.
Mortgage Insurance (MI)
Insurance which protects the LENDER against default. Generally the higher the loan-to-value the higher the monthly premium.
Mortgage
This document signed at closing specifies a certain amount of money to purchase a home at a certain interest rate, using the property as collateral.
Note
A legal document signed at closing that is the promise by the borrower to repay a mortgage at a certain interest rate over a certain period of time.
Origination Fee
A fee charged by most lenders for processing a loan. Also called Points, which are defined as 1% of the loan amount. Can be avoided by paying a higher interest rate. Fee is typically tax deductible.
Paying Points
Money paid up front to lower the interest rate. Rule of thumb - break even point is (where monthly savings meets/exceeds money paid up front) usually around 60 payments or 5 years. This means that in many cases paying points will pay off as long as you do not sell or refinance your loan before the break even point.
Per Diem Interest
Interest charged or accrued daily.
Piggy Back
A second mortgage closed at the same time as a first mortgage, usually to avoid mortgage insurance, jumbo pricing, or for future needs.
PITI
Monthly payment. Stands for Principal, Interest, Tax escrow, Insurance (both hazard and mortgage) escrow.
Pre-Approval
A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant's credit history and may involve the review and verification of income and assets to close.
Pre-paids
Group of items paid at closing including monies to set up the escrow account and to pay prepaid or odd days interest.
Pre-Qualification
A preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.
Pre-Payment Penalty
An option on certain loan types. A benefit in that the rate is lower on these products compared to other similar products.
Property Taxes
Amount of tax due on a property. Usually is collected as part of the escrow portion of the monthly payment, with the lender being responsible to forward the escrowed money as the bills come due.
Purchase Agreement
Contract between buyer and seller outlining the terms of the agreement.
Rate vs. Price
Rate refers to the interest rate. Price refers to points. It is easy to become confused as both rate and points are usually referred to in 1/8 percent increments. A good rule of thumb is that often a 1/8% change in interest rate reflects a 1/2% change in points.
Right of Rescission
A provision of the Truth in Lending Act that gives you a right to cancel certain real estate loans within three business days without penalty. You can rescind the transaction for any reason, but you can only rescind a refinance loan or home equity loan secured by principal residence - not a vacation or second home.
Single Family Residence
Standard, one unit home, as opposed to a Condo/Town Home with a homeowners' association.
Title
The actual legal document conferring ownership of a piece of real estate.
Title Company
A company that specializes in examining and insuring titles to real estate.
Title Insurance
Title insurance policies typically insure a homeowner against any title-search errors or mistakes, and against loss due to disputes over property ownership. Title insurance can additionally offer protection to the lender under similar circumstances. The cost of title insurance is usually a set value per thousand dollars of the total loan amount.
Treasury Index
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions by the U.S. Treasury of Treasury bills and securities. Typically 1 year Treasury Bill.
Underwriting
Act of approving a loan application. Underwriters are bound by guidelines set forth by Fannie Mae, Freddie Mac, FHA or VA as applicable
Still have questions? Contact The Cauley Team today at 248-642-4600. Email Perri Cauley at perri@mrploan.com or email Michael Cauley at advisor@mrploan.com.
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