Your Ultimate Guide to Mortgage Terms
Are you thinking about buying a home? We understand that when it comes to the mortgage process education is key. We work hard to provide each of our clients the knowledge and education they need to help guide them through the home-buying process. Check out your ultimate guide to mortgage terms to help you decipher through the jargon.
Adjustable Rate Mortgage (ARM) –Typically a lower, initial interest rate that changes over the life of the loan. For the homebuyer who is not expecting to live in their home long, this might be the right solution because of the lower initial monthly payments. Eventually, the loan will adjust to a fixed rate after the initial ARM period, adjusting the monthly payment higher based on the current index and loan margin.
Appraised Value – An opinion of a property’s fair market value based on an appraiser’s knowledge, experience, and analysis of the property. Appraisal is based primarily on comparable sales.
Buyer’s Market – Low prices resulting from a market which has more sellers than buyers. Buyers have a wide range of choices and tend to have an advantage over sellers.
Cash Out -A refinancing option that pays off your existing first mortgage to get a new mortgage and new payment plus extra cash at closing. Cash out allows for clients to pay off debt, renovate property, pay for college, etc.
Closing – This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents are recorded at the local recorder’s office. In others, the “closing” is a meeting where all of the documents are signed and the money changes hands.
Closing Disclosure – A five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to associated with your mortgage (closing costs/prepaids).
Construction Perm Loan – This loan can be used to purchase land and finance the construction of a new home. In addition to long-term rate locks, TowneBank Mortgage can offer a one-time close that helps clients save money by not paying two sets of closing costs.
Contingency – A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Conventional Loan – Perfect solution for excellent credit and larger down payment. From as little as 3% down Conventional mortgage loans offer choices that best fit a client’s financial profile. Lower monthly mortgage insurance and zero monthly mortgage insurance options. Save thousands over the life of the loan.
Credit Report – A confidential report detailing the credit history of a prospective borrower.
Equity – A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
FHA Loan – An affordable solution with a low down payment requirement offered by the Federal Housing Authority. With at least a 3.5% down payment and more flexible lending requirements, FHA is a very popular mortgage solution for clients.
Flood Insurance – Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Foreclosure – If you choose to default on your mortgage payments, the bank or lender has the legal right to take back your house and sell it. This process is called a foreclosure.
Grantor – The person conveying an interest in real property.
Home Inspection – A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
Homeowner’s Insurance – An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
Interest Rate – The rate at which interest is paid by borrowers for the use of money that they borrow from lenders.
Loan Estimate – A Loan Estimate is a three-page form that you receive after applying for a mortgage. The Loan Estimate tells you important details about the loan you have requested; such as your estimated interest rate, APR (annual percentage rate), loan terms, taxes, insurance, monthly payment and total closing costs for the loan.
Refinance – Replacing an original mortgage with a new mortgage. Refinancing allows a borrower to obtain a new mortgage with a better interest term and rate.
Renovation/Repair Loan – This is similar to our construction offering, but is for the renovation or repair of an existing home. It features a “subject to” appraisal so that the value includes the proposed improvements. Draws are handled by TowneBank Mortgage directly to your builder.
Right of First Refusal – A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
USDA Loan – 100% financing solution for rural housing provided by the United State Department of Agriculture. Up to 100% financing, low monthly mortgage insurance based on loan balances, income limits and flexible credit requirements. Property must be in USDA approved rural area.
VA Loan –100% financing solution for active and retired members of the armed forces guaranteed by the U.S. department of Veterans Affairs. With low down payment requirements for loans over the VA loan limit, this is an ideal solution for Military families.
VHDA – Virginia residents with low interest rates and flexible down payment options. Virginia Housing Development Authority has compiled several unique loan options for borrowers who need down payment assistance, have good credit, and fit the parameters of the loan products available.
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