Mortgage Terms

In the early years of an amortized loan, almost all of the payment goes toward interest, but in the later years, almost all of the payment goes toward principal reduction.

Clos­ing Costs & Pre­paids
Costs incurred in addition to the down payment on the day of closing. Attorney fees, loan origination fees, loan discount points, application fees, appraisal fees, credit reports, document preparation, escrow fees, survey and recording fees, tax escrow, hazard insurance, flood zone certification, two months of private mortgage insurance (if down payment is less than 20%), and sometimes the entire first year's private mortgage insurance premium are all examples of closing costs. The appraisal and credit report fees are typically paid at the time of application.

Clos­ing Dis­clo­sure
This new form com­bines and replaces the HUD‑1 and final Truth in Lending (TIL) dis­clo­sure. A lender is required to pro­vide the Clos­ing Dis­clo­sure to the bor­row­er no lat­er than three busi­ness days before loan clos­ing. This form is a state­ment of final loan terms, pro­ject­ed pay­ments and clos­ing costs. Com­pare this doc­u­ment with your Loan Estimate.

Down Pay­ment
The dif­fer­ence between the mort­gage and the low­er of the pur­chase price or appraisal. The min­i­mum down pay­ment is three and a half (3.5%) per­cent on most loans. Pri­vate mort­gage insur­ance is required for a down pay­ment less than 20 percent.

Earnest Mon­ey
Deposit mon­ey giv­en to the sell­er by the poten­tial buy­er to show that he is seri­ous about buy­ing the house. If the deal goes through, the earnest mon­ey is applied to the down pay­ment. If the deal does not go through, it may be forfeited.

The dif­fer­ence between a home’s fair mar­ket val­ue and the loan amount, and/​or encum­brances (such as liens or claims) against it.

Loan Esti­mate
This new form com­bines and replaces the Good Faith Estimate (GFE) and the ini­tial Truth in Lending (TIL) dis­clo­sure. It must con­tain a good faith esti­mate of cred­it costs (loan costs and oth­er costs) and trans­ac­tions terms. 

Loan Costs

Costs paid by the con­sumer to the lender and third-par­ty providers of ser­vices the lender requires to be obtained by the bor­row­er dur­ing the orig­i­na­tion of the loan. 

Oth­er Costs

Include tax­es, gov­ern­men­tal record­ing fees, and cer­tain oth­er pay­ments includ­ed in the real estate clos­ing trans­ac­tion. A Cal­cu­lat­ing Cash to Close table shows the bor­row­er how the amount of cash need­ed at clos­ing is cal­cu­lat­ed. The lender is required to pro­vide the Loan Esti­mate with­in three days of receipt of the bor­row­ers loan application.

Mar­ket Rate
An esti­mate of the aver­age inter­est rate being charged by lenders for con­ven­tion­al (Fan­nie Mae/​Freddie Mac) or FHA/VA loans.

Orig­i­na­tion Fee
The orig­i­na­tion fee is what the lender charges for estab­lish­ing the loan. It is includ­ed in the clos­ing costs and may be financed.

Points or Dis­count Points
A point or dis­count point is one per­cent of the loan amount and is charged by the lender to issue a loan at below mar­ket rates.

Pri­vate Mort­gage Insur­ance
On con­ven­tion­al financ­ing, lenders require that the bor­row­er pur­chase Pri­vate Mort­gage Insurance (PMI) to pro­tect the lender against default on loans with less than 20 per­cent down pay­ment. PMI has noth­ing to do with home­own­ers insur­ance or cred­it life insur­ance. PMI should cost the same at all lenders.

A buy­er must qual­i­fy for a loan. Typ­i­cal­ly, the month­ly pay­ment can­not be more than 25 per­cent to 28 per­cent of the buyer’s gross month­ly income, and all the buyer’s month­ly debt can­not total more than 33 per­cent to 36 per­cent of his/​her month­ly income. Some lee­way may be grant­ed based upon pri­or cred­it his­to­ry, down pay­ment, job his­to­ry, etc.

An instru­ment that shows the buy­er has a clear own­er­ship of the prop­er­ty. A loan does not usu­al­ly close until the title com­pa­ny has assured the lender that there are no hid­den prob­lems with a title to a piece of property.

Title Insur­ance
A pol­i­cy required by the lender and paid for by the bor­row­er that insures the lender clear title against future claims. Bor­row­ers may also pur­chase title insur­ance to pro­tect their equity.