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Mortgage Glossary of Tems
Whether buying a house in the near future, the distant future, or thinking about refinancing an existing home, every person should understand the terms used in the mortgage world. This will put you in a position of being educated and knowledgeable, thus giving you an advantage when it comes to getting the best deals and understanding things that do not seem quite right. While not all the terms will be heard, listed are some of the more commonly used terms that you would probably find beneficial.
  • Abstract - This is a summary of the public record in relation to a specific piece of property. The title insurance company or an attorney will review this file to determine if the property has any defects that would need to be taken care of before the home can be sold.

  • Agreement of Sale - This is also referred to as the Contract of Purchase, Sales Agreement, or Purchase Agreement. This is the contract the buyer and seller agree to.

  • Amortization - This is a payment plan that allows the homebuyer to lower the debt slowly and over time through monthly payments made toward the principal.

  • Appraisal - This is when a professional appraiser does a complete inspection of the home to determine its current value.

  • Binder - Also known as the Offer to Purchase, which is a preliminary agreement that is held by earnest money from the buyer to the seller. The binder secures the right to purchase the property based on the agreed terms and will stay in effect for a specified amount of time. If the buyer decides not to buy the property, usually the earnest money is surrendered.

  • Certificate of Title - This certificate is issued by the title company and is a guarantee that the seller has clear title to the property for sale.

  • Closing Costs - These are various expenses required to complete the sale of the home. Some of the expenses would include settlement costs, appraisal, credit check, administration fees, attorney fees, and so on.

  • Conventional Loan - This is a loan insured by the Housing of Urban Development, or HUD. To qualify for a conventional loan, you will have to meet certain criterion.

  • Deed - This is a formal document that is the title to the property when the seller transfers from the seller to the buyer. The deed will include the property description and is given to the buyer on the closing day.

  • Deprecation Decline - This is a value of the property based on wear and tear or negative changes in the community.

  • Easement Rights - This is the “right of way” that is granted to the individual or company giving authorization to the property. This might include the utility company needing to get into the home to do work.

  • Encroachment - This is a building, obstruction, or some part of a building that lies beyond the property’s legal boundary.

  • Equity - This is the value built up during the time the home is owned that is above the value of the home. This figure can be calculated by subtracting the fair market value for the home the total of an unpaid mortgage and any outstanding liens such as a second mortgage.

  • Escrow Funds - This is money paid from one party to another with the purpose of holding until a specific time or event. At that time, the money is released to a specified person.

  • Foreclosure - This is a term used of enforcing payment of the mortgage by taking the property or selling it and then paying the mortgage debt.

  • Hazard Insurance - This is a type of insurance that gives you protection on the property in case of wind, fire, or other common hazards.

  • HUD - This is the acronym for the Housing of Urban Development. This government organization insures mortgage loans made to buyers and establishes minimum standards.

  • Interest - This is money paid by the homebuyer on the amount of money being lent.

  • Lien - This refers to one person on the property making a claim of another person as security for money due.

  • Mortgage - A mortgage is a claim or lien against a specific property that is given to the homebuyer through the services of a lender.

  • Plat - This is a chart or map of the property and/or community.

  • Points - These are also referred to as Discount Points and equal 1% of the amount of the mortgage loan.

  • Prepayment - Meaning to pay all or part of a payment to the mortgage company. On a 30-year loan, paying additional money equal to one month’s payment paid in one lump sum or spread out in increments will lower the length of the loan to 18 years.

  • Principal - The primary element of the loan, or the amount of the loan that the interest is calculated on.

  • Special Assessments - This is a special tax required on the property for improvements such as sidewalks, street lights, sewers, and so on.

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