Understanding real estate and mortgage terminology is of utmost importance when buying a home. The vocabulary will become second nature the more you are involved in real estate transactions. For the pros and loan officers, its daily language. This is a quick reference of mortgage dictionary words. Sit down and read each description and become familiar with the words. Then, in a few weeks, you can talk the talk and be familiar with the meaning of each word. Escrow Account: A financial account, separate from an operating account, maintained by a title company for the benefit of the parties to a real estate transaction. Federal National Mortgage Association (FNMA): Also know as Fannie Mae, a tax-paying corporation created by Congress that purchases and sells conventional residential mortgages, as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes money more available and more affordable. Fixed Rate Mortgage: Interest rate is constant for the entire term of the loan. Floating Rate: An interest rate that is not guaranteed. One that can change as the market changes. You can choose to float your rate, instead of lock your rate. Foreclosure: A legal procedure in which property securing the debt is sold by the lender to pay the defaulting borrowers debt. Housing Expenses-To-Income Ratio: The ratio, expressed as a percentage, which results when a borrowers housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans). Index: the interest rate to which changes in an adjustable-rate mortgage are pegged. Impound: The portion of a borrowers monthly payments held by the lender to pay taxes, hazard insurance and mortgage insurance. Interest Rate: The percentage a borrower pays to borrow money. On adjustable-rate loans, index plus margin equals adjusted interest rate. Lien: A monetary claim against a property, which usually needs to be settled before the buyer can take title. Loan Application Fee: A lenders fee, usually ranging from $75 to $300, which the buyer must pay when applying for a mortgage. Lock-In: A lenders promise to guarantee an interest rate or points for a set period during the qualifying process. Margin: The amount added to an index to determine future interest rates on adjustable-rate mortgages. Market Rate: The average rate charged by lenders for conventional, fixed-rate loans. Mortgage: A legal document that pledges a property to the lender as security for payment of debt. Mortgage Insurance: Money paid to insure the mortgage when the down payment is less than 20 percent. Negative amortization: An increase in the outstanding balance of a loan created when the payment isnt large enough to cover the interest charged. Note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The mortgage note is secured by a mortgage. Owners Title Insurance Policy: Insurance to protect the buyer against loss arising from dispute over ownership of property. The owners guarantee that the property is free and clear of any unknown defects. You will receive a copy of this policy before closing, and again at closing. Pre-Qualification: A determination of how much money a prospective home buyer will be eligible to borrow before a loan application is made. Many real estate professionals will ask buyers for a pre-qualification or pre-approval letter to accompany an offer. Understanding these terms will give you an advantage when applying for a loan. Just study them and youll understand the lingo. |
