Home loan dictionary
Cut through the jargon and get definitions to tricky terms commonly used in the home mortgage process.
Adjustable rate mortgage: Adjustable Rate Mortgages, ARMs, offer a lower starting interest rate and therefore, a lower monthly payment. Your rate and your payment may increase, though, as time goes on. ARMs are useful loans for a variety of circumstances.
Agent: Person authorized to act on behalf of another in dealings with third parties.
Assets: Assets include real property, personal property, bank accounts, stocks and mutual funds.
Bankruptcy: A court action to restructure debt.
Closing: Conclusion of a real estate sale, where the title of the property is transferred to the new owners and funds are transferred to the appropriate parties including but not limited to: seller, previous lender, real estate broker/agents.
Closing costs: Expenses incurred by the buyer/borrower and the seller in a real estate or mortgage transaction. These may include, but are not limited to: points, taxes, settlement fees, vendor fees, such as appraisal, title and escrow, and various kinds of applicable insurance including flood or hazard insurance.
Credit history: A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit report: A report of an individual's credit history prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.
Covenant: A clause in a mortgage that obligates or restricts that borrower and which, if violated, can result in foreclosure.
Default: To fail to make mortgage payments on a timely basis or to comply with other mortgage conditions.
Deposit: Cash the buyer pays to the seller when both sign a formal sales contract.
Down payment: The part of the purchase price of a home, which the buyer pays in cash up front; not included in the loan.
Earnest money: Deposit given to the seller by the buyer when submitting an offer to show serious intent about buying a property.
Escrow: The holding of documents and money (such as a deposit) by a neutral third party prior to closing. Also an account held by the lender into which a homeowner pays money for taxes and insurance.
Fixed rate mortgage: Fixed rate mortgages are the simplest type. Your payment will not change over the life of your loan because your interest rate cannot change. These are among the most popular loans for those reasons.
Gift: Money given to borrowers to assist in the purchase of a home, usually from a relative, that does not require repayment.
Home equity loan: Home Equity loans let you borrow against the equity in your home.
Homeowners insurance: Homeowner's insurance covers fire, theft, certain natural disasters and personal liability if someone is injured on your property. It protects the lender against the loss of the property securing your mortgage. Proof of adequate homeowner's coverage is required to obtain a mortgage.
Interest: The cost of borrowing money.
Jumbo loan: loan for an amount that exceeds conforming loan limits established by regulation. The jumbo loan limit is $417,000 in most of the United States. The limit on jumbo loans is $625,500 in the highest-cost areas.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.
Point: A point is a fee equal to 1% of the loan amount.
Refinancing: The process of obtaining a new mortgage, usually at a lower rate, to repay and replace an existing mortgage.
Title insurance: Title insurance provides protection against financial loss in case a defect in the title turns up at some future date.
Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's ability and willingness to repay the debt, and the value of the property.