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Glossary of most commonly used mortgage terms
A few of the mortgage terms typically faced by a homeowner:
(1) "Abstract of Title" is a document that a title insurance company or, in some states, an attorney, will prepare giving the history of the home. The document usually lists who owned the property all the way back to its first original owner. The document will also disclose any liens or encumbrances on the title which may affect whether lenders will provide a loan or whether the new homeowner will want to take title to the property.
(2) "Cap" is a limit placed on how high an interest rate the lender may charge the homeowner.
(3) "Credit Report" is a report that provides the lender with the credit history of the home buyer. The report is usually prepared by a large credit reporting company. The credit report will usually state whether the prospective home buyer has any bankruptcies, foreclosures, delinquent credit payments, or has failed to pay a credit loan.
(4) "Escrow Agent" is an independent third party who takes care of aspects of the purchase and related loan transaction. The escrow agent will often hold the down payment until the closing, receive the amount of the loan from the lender, transfer the down payment and mortgage money to the seller, transfer and record the deed of title to the buyer (or if there is a "deed of trust", the title company) and make sure the lender is protected by filing and recording the mortgage with the local county recorder of deeds. In some states the escrow functions are handled by a licensed title insurance company, or an escrow company, while in other states an attorney handles the transaction.
(5) "FHA Loan" is a loan that the Federal Housing Association insures. The FHA insures the home buyer's loan to the lender. Usually, there is a fee for this insurance.
(6) "Point" is equal to 1% of a loan amount. Therefore, if your loan is for $100,000 and you pay 2 1/2% points, your cost will be $2,500.
(7) "VA Loan" is a loan guaranteed by the Veteran's Administration. A lender usually provides the homeowner with a loan while the VA guarantees that the loan will be repaid to the lender. |
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