Terms you must know and understand
Before You Sign Off on your Mortgage.

Buying a home is a major achievement in most everyone’s life. Pride of ownership, tax breaks and equity are just a few of the many benefits you’ll enjoy with your new home. Your home purchase may also be one of the largest you will ever make.

During the emotional excitement of buying a home, you may encounter terms with which you are unfamiliar. For some, it can be bit embarrassing to ask what they consider too many questions. Others may make a note of their questions but simply forget to revisit those points. To ensure that you have complete confidence during your home loan process, invest a moment to read this report and become familiar with the concepts and terms you’ll encounter. Knowledge is power and the more you know the more successful will be your decisions and the more soundly will you sleep at night having made them.


Adjustable Rate Mortgage (ARM) 
Also referred to as a Variable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.
Annual Percentage Rate (APR)
An interest rate that reflects the cost of a mortgage as a yearly rate. This rate takes into account any points and fees and is based on the loan going to it’s full-term.
Assumption
An agreement between buyer and seller in which the buyer assumes responsibility for the seller’s existing mortgage. This agreement usually saves the buyer money because closing costs and the current interest rate, possibly higher, do not apply.
Buy down
A method of lowering the buyer’s monthly payment for a short period of time. The lender or homebuilder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.
Caps
A limit in the amount the interest rate or monthly payments for an adjustable rate mortgage that may change.
Closing 
Also referred to as settlement. The meeting at the conclusion of a real estate sale in which the property and funds are exchanged between the two parties involved.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results from dividing a borrower’s monthly payment obligation on long-term debts by the borrower’s gross monthly income.
Discount Points
Prepaid interest assessed at closing by the lender. A point is equal to 1 percent of the loan amount.
Down Payment 
The buyer’s portion of the purchase which is required at the time of settlement; the balance due usually comes from a mortgage.

Earnest Money

Money given by a buyer to a seller as a deposit to commit the buyer to the future transaction. Earnest money is subtracted from closing costs.
Equity                                                                                       The fair market value of a home minus any loans against it equals the amount of equity in a home.

Escrow

Funds given to a third party which will be held to cover payments such as tax or insurance payments and earnest money deposits.
Fixed Rate Mortgage
A mortgage in which the interest rate remains constant throughout the life of the loan.
Loan to Value Ratio                              
The ratio between the amount of the mortgage loan and the appraised value of the property.
Foreclosure

The legal process by which the mortgage holder (usually the bank) goes through the courts to regain possession of the property owned by someone behind on their payments. This process will have negative effects on the homeowner’s credit.
Lease Option – (to sell)
The process when you rent your home to a tenant/buyer, giving them the option to buy the home anytime during the lease period. The lease period can be any number of years and is negotiable. (This process is a very quick way to debt relief, chosen by many).
Loan-to-Value Ratio

The ratio between the amount of the mortgage loan and the appraised value of the property.
Market Value

The price that a property could possibly bring in the marketplace.
Mechanics lien

A debt encumbrance placed against a property’s title to satisfy a debt owed by a homeowner who has hired someone to do work on the house, but did not fully satisfy what is owed.

Mortgage Insurance

Insurance that protects lenders against loss if a borrower defaults. This is required when the loan-to-value ratio is greater than 80 percent.
Origination Fee

A fee charged by a lender for processing a loan application; usually computed as a percentage of the loan.

Owner Financing

When a homeowner, who has equity, is willing to hold some or all of that equity and loans it to a qualified buyer. It is usually secured by a first or second mortgage and recorded at the county courthouse.
PITI

Refers to Principal, Interest, Taxes, and Insurance.

Second mortgage

A loan placed against a property behind the primary mortgage on the property.

Sheriff sale

The legal process used by the banks to take title to a property in foreclosure.
Short Sale

This is when a bank sells a property in the foreclosure process, before it goes to sheriff’s sale. (Mine Sold Today prefers this method when the amount owed on the property is more than the value of the home. We have dealt with many banks using this method and it usually has positive effects for the homeowner, by avoiding an actual foreclosure).
Tax lien

When a homeowner does not pay property, school, or other taxes, a debt encumbrance is placed against the property’s title and will eventually trigger a sheriff’s sale to satisfy the amount owed.
Underwriting
The decision-making process of granting a loan to a potential homebuyer.
Variable Rate Mortgage
Also referred to as Adjustable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.


We sincerely hope this information will help you in gaining a better understanding of the mortgage process. If we may be of any further service please contact our office. We will consider it a privilege to be of service to you!
If you would like a free consultation,

call our office at:(215) 533 8423.