Get to know the terms you may hear during the home-buying process
Words to Know
During your home-buying experience, you may come across terms that you’re not that familiar with. It’s a good idea to have a basic knowledge of these words because it could help your understanding of the process and make you feel less intimidated.
Payment of debt in regular, periodic installments of principal and interest, opposed to interest-only payments.
This is the fee charged by the lender to cover a portion of the costs of processing a loan application.
An opinion of real estate value based upon a factual analysis. An estimation of value by a disinterested person of suitable qualifications.
The process of one buyer assuming another's mortgage. In some loss mitigation situations, a qualified buyer may be allowed to assume a mortgage, even if the mortgage states that it is non-assumable.
Usually the last step in buying a home. Documents are signed, the balance of the loan costs is calculated, funds are disbursed, and the transaction is completed.
Expenses incidental to a purchase of real estate, such as loan fees, title fees, appraisal fees, etc.
A mortgage that finances the construction of a home and converts to permanent, amortizing financing when the home is completed. It allows buyers to deal with only one lender, file only one credit application, and pay only one set of closing costs.
If the property has been listed for a period of time with no activity, a lender may accept the deed to the property as full or partial settlement for the debt, to avoid foreclosure proceedings. A deed in lieu may not be an option for borrowers who can still make their mortgage payments.
Amount paid to the lender when the loan is originated to account for the difference between the current market-determined cost of interest and the actual lower interest rate of the loan. Points may be paid by either the buyer or seller. Each point is equal to one percent of the original loan amount.
A deposit of money accompanying an offer to buy property to show good faith, generally credited to the buyer at closing.
A basis for making interest rate changes on an Adjustable Rate Mortgage.* One example of a financial index could be the change in cost of U.S. Treasury Bonds.
The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.
The legal process where a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.
A loan modification process through which borrowers who are in default, at risk of imminent default, or in foreclosure can have their loans modified to a more affordable monthly payment equal to a target 31% of their monthly gross income.
A government program developed to help homeowners who either did not have enough equity for a traditional refinance or who were having problems making payments on their current mortgages.
A government program providing assistance to homeowners making a good faith effort to stay current on their home mortgage payments, preserving their home as well as protecting their credit.
The interest rate charged for the initial period of an Adjustable Rate Mortgage* (before the first interest rate adjustment).
Limits the amount an Adjustable Rate Mortgage* may increase or decrease during specific intervals and over the term of the loan. This safeguard protects the buyer from dramatic changes in monthly payments.
The loan amount as a percentage of the purchase price or, in the case of a refinance, appraised value. For example, a 95% LTV is the same as putting 5% down, or having 5% equity.
A loan modification is a permanent change in one or more of the terms of a mortgagor's loan. The lender may be able to modify the terms of the borrower's original loan by reducing the interest rate, extending the term of the loan, deferring past due interest, or adding the delinquent interest amount to the principal balance to make the payments more affordable.
A service offered by many lenders that allows you to get a preliminary approval for financing before finding a house to buy. Requires credit check and verification of employment, income, and assets.
A service offered by many lenders that allows you to pre-qualify for financing before finding a house to buy. This is based on a credit check and customer providing information and does not include a verification of employment, income, and assets.
A fee charged by the lender for making a real estate loan—usually a percentage of the amount loaned, such as 1%. Not to be confused with an application fee.
If the borrowers’ mortgage is insured, they may qualify for an interest-free loan from their mortgage guarantor in order to make their account current.
The total amount of your monthly home loan payment including principal, interest, taxes, and insurance(s).
Insures repayment of the loan balance to the lender in the event of default by the borrower. Usually required for homes financed with less than a 20% down payment.
Replacing an existing loan with a new one to get a lower rate, switch from one loan type to another, or convert equity to cash. A refinance loan will involve various loan fees, just as with any other mortgage.
An agreement between the borrower and lender where the borrower resumes regular monthly payments, in addition to paying a portion of the past due payments.
An approved sale of a property for less than full payoff of the loan, usually to avoid foreclosure. This method is generally used when a borrower can no longer afford to maintain the payments and has not been successful in selling the property for the full indebtedness. Typically, the borrower is still obligated to pay the remaining deficiency balance of the loan.
The number of years before a loan is paid in full; 15-, 20-, 25-, and 30-year terms are the most common for home mortgages.
The evidence of ownership of a property.
An insurance policy that insures the quality of the title and insures the lien priority of the mortgage.
A review of all recorded documents affecting a specific piece of property to determine the present condition of the title.
The process by which credit and economic factors are used to determine whether a borrower qualifies for a loan.
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