This is the Cool Branch home buyer’s glossary of financial terms. Home buyers and new investors may use this glossary to look up home loan and financial words. You may refer to this list when you are financing your next home.There are a variety of available financing options for manufactured home buyers.
Also be sure and see our Loan Payment Calculator available on each listing’s individual page, fill out the form and get pre-qualified today for a new home or simply contact us with your home buying questions.
AGREEMENT FOR SALE – A document in which the purchaser agrees to buy certain property and the seller agrees to sell under stated terms and conditions. Also called sales contract, binder or earnest money contract.
AMORTIZATION – Gradual debt reduction. Typically, the reduction is made according to a pre-determined schedule for installment payments.
ANNUAL PERCENTAGE RATE (APR) – A term used in the Truth in Lending Act to represent the full cost of a loan including interest and loan fees.
APPRAISAL – A written report by a qualified appraiser estimating the value of a property.
APPRAISED VALUE – An opinion of a property’s fair market value, based on an appraiser’s inspection and analysis of the property.
APPRECIATION – An increase in value of the property (the opposite of depreciation)
ASSESSED VALUATION – The value that a taxing authority places upon personal property for the purposes of taxation.
BORROWER – Someone who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.
BROKER – One who receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of contracts between them.
BUY-DOWN – A method of lowering the buyer’s monthly payment for a short period of time. The borrower or home builder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.
CASH-OUT – Cashing out means refinancing a loan where the borrower will take out money on their own home. If a home is appraised at $100,000 and the borrower’s outstanding mortgage loan is $70,000, it is possible to enter into an 80% cash-out refinance transaction for a loan of $80,000 (80% of $100,000). The new mortgage of $80,000 will pay off the $70,000 loan and leave $10,000 cash-out to the borrowers.
CERTIFICATE OF OCCUPANCY – Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be inhabited.
CLOSING – The conclusion of a transaction.
CLOSING COSTS – All of the costs to the buyer and seller individually that are associated with the purchase, sale or financing of real property.
CLOSING STATEMENT – A financial disclosure giving an account of all funds received and expected at the closing.
COLLATERAL – Property pledged as security for a debt, such as real estate as security for a mortgage.
CONTINGENCY – A condition that must be met before a contract is binding.
CONTRACT OF SALE – Contract between a purchaser and a seller of real property to convey a title after certain conditions have been met and payments have been made.
CREDIT RATING – A rating given to a person to establish willingness to pay obligations based upon one’s past history of timely payment.
CREDIT REPORT – A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.
DEPT-TO-INCOME RATIO – Long-term debt expenses as a percentage of monthly income. Lenders use this ratio to qualify borrowers for mortgage loans, typically setting a maximum debt-to-income ratio of 36%.
DEPARTMENT OF VETERAN AFFAIRS (VA) – An independent agency of the federal government created in 1930. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low down payment mortgages to eligible veterans by guaranteeing the lender against loss.
DOWN PAYMENT – When you borrow money for a home, any lender will ask you to contribute some of your own money to the purchase of the house.
EQUITY – The homeowner’s interest in a property; the difference between fair market value and the current amount the owner owes on the property.
ESCROW – Funds given to a third party that will be held to cover payments such as tax or insurance payments and earnest money deposits.
FAIR MARKET VALUE – The price at which property is transferred between a willing buyer and a willing seller, each of whom has reasonable knowledge of all pertinent facts and neither being under and compulsion to buy or sell.
F.H.A. (Federal Housing Administration) – A division of the Department of Housing and Urban Development. It’s main activity is the insuring of residential mortgage loans made by private lenders.
FHA LOAN – A loan insured by the Federal Housing Administration open to all qualified home purchasers.
F.H.L.M.C. (Federal Home Loan Mortgage Corporation) – A private corporation created by Congress to support the secondary mortgage market. It sells participation certificates secured by pools of conventional mortgage loans, their principle and interest guaranteed by the federal government through the FHLMC. Popularly known as the FREDDIE MAC.
F.N.M.A. (Federal National Mortgage Association) – A private corporation created by congress to support the secondary mortgage market. FNMA sells mortgage-backed securities backed by pools of conventional loans. The US Government backs payment of principle and interest on these securities. Popularly known as FANNIE MAE.
GOOD FAITH ESTIMATE – An estimate of all the costs associated with a purchase, or refinance.
GROSS MONTHLY INCOME – The amount of consistent and stable income that an individual receives each month, averaged over a period of time.
HAZARD INSURANCE – A contract that pays for loss on a home from certain hazards, such as fire.
HOMEOWNERS ASSOCIATION – An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.
INDEX – The measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time.
INTEREST – Money paid for use of money – that is, money paid for a loan.
INVESTER – A money source for a lender.
LENDER – Any person or institution that provides money to a borrower.
LIEN – A claim on the property of another as security against the payment of a just debt.
LOAN – An amount of money a borrower will take out from a lender to pay for a purchase.
LOAN-TO-VALUE RATIO (LTV) – The relationship between the amount of a home loan and the total value of the property. For example, if you receive a loan of $90,000 on a home that costs $100,000, the loan-to-value ratio is 90%.
LOCK-IN RATE – A commitment from a lender to make a loan at a pre-set interest rate at some future date.
MARGIN – number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
MARKET VALUE – The highest price that a willing buyer would pay and the lowest a willing seller would accept.
MORTGAGE – An interest in real property given as security for the payment of an obligation.
MORTGAGE INSURANCE – A policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to full re-pay a loan. Mortgage insurance makes it possible to buy a home with as little as 5% down.
MORTGAGE LIFE INSURANCE – A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
MORTGAGEE – A lender to whom property is conveyed as security for a loan.
MORTGAGOR – One who borrows money, giving as security a mortgage or deed of trust on real property.
ORIGINATION FEE – The fee charged by a lender to prepare loan documents, process, underwrite, make credit checks, inspect and sometimes appraise a property (lenders profit is also included).
P.I.T.I. – Principal, Interest, Taxes and Insurance are the components of a mortgage payment.
POINT – A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount. Also called discount points.
POWER OF ATTORNEY – A legal document authorizing one person to act on behalf of another.
PREPAIDS – Necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
PREPAYMENT – A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
PREPAYMENT PENALTY – Money charged for an early repayment of debt.
PRE-QUALIFICATION – Qualifying a borrower for a loan amount before looking for a home.
PRIME RATE – The interest charged by banks to their most credit-worthy customers.
PRINCIPLE – The original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.
PURCHASING – Obtaining a mortgage loan for the acquisition of a property, usually a home.
RATE -A percentage of the monthly mortgage payment paid to the lender.
REALTOR – A member of THE NATIONAL ASSOCIATION OF REALTORS.
REFINANCE – Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
R.E.S.P.A. – Real Estate Settlement Procedures Act. RESPA is a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.
RETAIL SALES INDEX – A government index that measures the total receipts of retail stores. The changes in retail sales are widely followed as the timeliest indicator of broad consumer spending patterns. Retail sales are often viewed ex-autos, as auto sales can move sharply from month-to-month. It is also important to keep an eye on the gas and food components, where changes in sales are often a result of price changes rather than shifting consumer demand.
SERVICER – After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance, and manages delinquent payments.
SETTLEMENT – The closing of a mortgage loan.
TEASER RATE – Your initial interest rate. It is an attractive, low interest rate that most adjustable mortgage rates start with.
TITLE – The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed. Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.
TITLE INSURANCE – A policy that insures a home buyer against errors in the title search (Owners Title Insurance.) The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender’s interests (Lenders Title Insurance).
UNDERWRITER – Someone who performs the analysis of the risk involved in making a loan to a potential home buyer based on credit, employment, assets, and other factors; and the matching of this risk to an appropriate rate and term loan amount.
UNSECURED NOTE – A loan that is not backed by collateral (property).
VERIFICATION OF EMPLOYMENT – A document signed by the borrower’s employer verifying his/her position and salary.
WRAPAROUND MORTGAGE – Resulting when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking their share.
YIELD – The yield on a given investment based on its current price. A stock that pays a $1 in dividends per quarter, or $4 per year, and that trades at $100, has a current yield of 4%. If the stock goes to $133 and the dividend remains unchanged, the current yield would be 3%.
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