Are you clueless about the legal terms in your mortgage contract? Do you want to be an informed consumer?
You have chosen the home you want and are ready to close the deal. You look over the paperwork and it all looks like Greek to you. Here’s a simple list of mortgage terms and definitions that will help you feel at ease when you sign on the dotted line.
Application
Used to apply for a mortgage loan. This form details information about the borrower’s assets, debts, and other information.
Appraisal
A written accounting of a property’s value. Must be obtained from from an appraiser and is usually created by studying comparable homes in the area.
Bill of sale
A written document that transfers ownership of personal property.
Clear title
A title that has no leans or loans against it.
Closing costs
Closing costs include items such as one year’s worth, in advance, of payments for insurance and property taxes. It can also include the attorney’s fees for closing, any fees due the realtor and any origination fees.
Collateral
In a home loan, the value of the property is the collateral. The collateral is also what the homeowner may lose if the mortgage is defaulted.
Construction loan
A short-term, interim loan for financing the cost of construction. The borrower or lender may make payments to the builder as the building is being built.
Deposit
Money that is given to the realtor or finance company to hold the property and keep it from sale while the paperwork is completed. Also known as good faith money.
Depreciation
A drop in the value of property; the opposite of appreciation.
Discount points
In the mortgage business, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.
Down payment
A percentage of the total financed that is paid in cash and not financed.
Equity
The difference between the fair market value and the amount owed.
Origination fee
Typically known as points. Will total up to a percentage of the loan value.
Owner financing
Financing provided by the owner of a property instead of a bank. The owner will receive monthly payments that include interest just as though the mortgage was financed by the bank.
Points
A point is 1 percent of the amount of the mortgage.
Prepayment penalty
A fee that may be paid by the borrower for paying off a loan before it is due.
Principle
The amount that was borrowed that has not been repayed. Does not include interest or fees.
Repayment plan
An arrangement made to catch up a loan when it is in default.
Secured loan
A loan with collateral that can be taken if scheduled payments are not made.
Security
The property that will be given as security for the loan.
Survey
A drawing or map showing the legal boundaries of a property, improvements made to the property, easements, rights of way, encroachments, and other physical features.
Title
A legal document showing that a person has legal rights or ownership of a property.