Lending Terms & Definitions | Ken Berg | RE/MAX Alliance
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Ken Berg
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Lending Terms & Definitions

ABSTRACT OF TITLE: A history and compilation of legal documents pertaining to a parcel of real estate.

ADJUSTMENT INTERVAL: On adjustable rate mortgages, the period of time between changes in either the interest rate or monthly payment (for example, one year). Intervals vary depending on the type of loan and lending institution.

AMORTIZATION: Schedule for repayment of a loan, including interest and principal, by a series of regular installment payments. Home loans are typically amortized over 15 to 30 years.

ANNUAL PERCENTAGE RATE (APR): The cost of a loan expressed as a yearly rate, after it has been adjusted for certain fees. Use the APR to compare various loan programs, as all lenders are required to use the same guidelines in determining APR.

APPLICATION FEE: Often non-refundable, this is the fee charged by the lender to cover a portion of the costs of processing a loan application.

APPRAISAL: An expert, written estimate of the current value of a home. Sometimes, an appraised value may be dependent upon certain improvements or repairs being made.

ASSESSED VALUE: Value placed on a property by the tax assessor for property tax purposes.

ASSUMPTION:
A loan feature that permits transfer of a mortgage to a new buyer under certain circumstances.

BALLOON LOAN: A Balloon Mortgage has periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of the term.

CLOSING:
Usually the last step in buying a home. Documents are signed, the balance of the loan costs are calculated, funds are disbursed and the transaction is completed.

CLOSING COSTS:
One-time costs such as loan fees, title fees, appraisal fees, etc., that must be paid before a loan can be closed. Closing costs may be paid by the buyer, the seller or shared by both, depending on the terms of the purchase agreement. Your lender will give you an estimate of closing costs prior to closing. In some cases, all or a portion of these costs may be included in the financing amount, but check with your lender.

CONDOMINIUM: A structure in which interior living spaces are individually owned and the balance of the property (both land and all structures) is owned in common by all the owners of the individual units.

CONVERTIBLE ARM LOAN: For a fee and after an initial waiting period, you can convert your ARM to a fixed rate loan. Conversion details and availability of this loan vary.

DISCOUNT POINT(S): Amount paid to the lender when a loan is originated to allow the borrower to obtain a lower rate than would otherwise be applicable. Points may be paid by either the buyer or seller, depending on the written agreement between them. Each point is equal to one percent of the original loan amount.

EARNEST MONEY: A deposit of money accompanying an offer to buy a property to show good faith; generally credited to the buyer at closing.

EQUITY: The market value of a property minus the amount of existing home loans or liens.

ESCROW ACCOUNT: A separate account for accumulating the portion of your monthly payments that will pay future taxes, insurance, fees, assessments and so forth. Depending on your lender and the financing you select, an escrow account may be required.

ESCROW AGENT:
A neutral third party appointed to act as custodian for documents and funds during the transfer from seller to buyer.

FINANCIAL INDEX: An agreed upon basis for making interest rate changes on an adjustable rate mortgage. One example of financial index could be the change in cost of U.S. Treasury Bonds.

INITIAL INTEREST RATE: The interest rate charged for the first 6 or 12 months of an adjustable rate mortgage (before the first interest rate adjustment).

INTEREST RATE CAP: Limit on 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.·

JUMBO LOAN: A loan that exceeds the statutory size limit eligible for purchase or securitization by quasi-federal agencies. At the time this was written it refers to loan amounts of $207,000 and above. This amount is subject to change each year.

ORIGINATION FEE: A fee charged by the lender for making a real estate loan-usually a percentage of the amount loaned, such as one percent. Not to be confused with an application fee.

PITI: The total amount of your monthly home loan payment including Principal, Interest, Taxes and Insurance.

PRE-APPROVAL: The lender has reviewed the borrower's credit history and verified income and has given a borrower a commitment to finance a loan up to a specific amount-based on the information at hand, contingent upon home appraisal and title search, information not changing, etc. Not to be confused with pre-qualification.

PRE-QUALIFICATION: The lender has reviewed the borrower's income and debt and has calculated the income-to-debt ratio. It is based on very basic information, but can give home buyers an idea of what price range they could afford. It is not a commitment to make a loan.

PRIVATE MORTGAGE INSURANCE (PMI): Insured repayment of the loan balance to the lender in the event of default by the borrower. The insurance is similar to insurance issued by a government agency (such as FHA) except it is issued by a private company. Usually required for homes financed with less than a 20 percent down payment.

RATE GUARANTEE: The lender's guarantee that the interest rate in effect the date you lock-in an interest rate will be the final rate on your loan when closed, if your loan closes within a specified period of time.

REFINANCE: To replace an existing loan with a new one to get a lower rate, switch from one loan type to another or convert equity to cash. As with any other mortgage, a refinance loan will involve various loan fees.

TERM: The number of years before a loan is paid in full; 15-to 30-year terms are most common for home mortgages.

TITLE: The evidence of ownership of a property.

TITLE INSURANCE: An insurance policy that insures the quality of the title. It will take exception to the mortgage itself and ocher things such as future taxes due but not yet payable, utility easements, etc. The lender will generally obtain such a policy to protect its interests. Borrowers would be advised to obtain such a policy to protect their interests.

TITLE OPINION:
An attorney's opinion of a title, based on an Abstract of Title.

UNDERWRITING: The process by which credit and economic factors are used to determine whether a borrower qualifies for a loan.

WARRANTY DEED: A legal document used to convey title.

Ken Berg

Office: 303-489-0604

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