Glossary of Banking Terms | |
- Amortization: Gradual reduction of the mortgage debt through periodic payments scheduled over the mortgage term.
- Appraisal: A professional opinion of the market value of a property.
- Closing Cost: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement cost."
- Conventional Mortgage: Any mortgage that is not insured or guaranteed by the federal government.
- Credit Report: A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
- Delinquency: A loan in which a payment is overdue but not yet in default.
- Earnest Money: A deposit made by the potential home buyer to show that he or she is serious about buying the house.
- Escrow: The holding of documents and money 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.
- FHA: Federal Housing Administration, part of HUD. It insures mortgages made by private lenders.
- Fixed Rate Mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.
- Good Faith Estimate: A breakdown of cost to originate a mortgage loan.
- Hazard Insurance: Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
- Interest: The fee charged for borrowing money.
- Lien: A legal claim against a property that must be paid off when the property is sold.
- Loan Servicing: The collection of mortgage payments from borrowers and other related responsibilities of a loan servicer.
- Loan-To-Value: (LTV) The relationship between the principal balance of the mortgage and the property's appraised value (or sales price if it is lower)
- Lock-in: A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
- Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.
- Mortgage Insurance-Premium: (MIP) The fee paid by a borrower to FHA or a private insurer for mortgage insurance.
- Mortgagee: The lender in a mortgage agreement.
- Mortgagor: The borrower in a mortgage agreement.
- Origination Fee: The fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.
- PITI: Stands for principal, interest, taxes and insurance-the components of a monthly mortgage payment.
- Points: A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.
- Prequalification: The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.
- Principal: The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
- Private Mortgage Insurance: (PMI) Insurance provided by non government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater that 80 percent.
- Qualifying ratios: Guidelines applied by the lenders to determine how large a loan to grant a home buyer.
- Real Estate Settlement Procedures Act: (RESPA) A consumer protection law that requires lenders to give borrowers advance notice of closing cost.
- Refinancing: The process of paying off one loan with proceeds from a new loan using the same property as security.
- Secondary Mortgage Market: The buying and selling of existing mortgages.
- Survey: A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
- Truth-in-Lending: A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.
- Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's credit worthiness and the quality of the property itself.
- VA Loan: A loan that is guaranteed by the Department of Veterans Affairs. Also referred to as a "government" mortgage.
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