Glossary of Most Commonly Used Mortgage Terms
The mortgage owner should familiarize himself with the most commonly-used mortage terms:
Abstract of Title - A document 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 the lender will provide a loan or if the new home owner will take title to the property.
Cap - The limit placed on the interest rate the lender may charge the homeowner.
Credit Report - A report providing the lender with the credit history of the home buyer. The report is usually prepared by a large credit reporting company which frequently states if the prospective home buyer has any bankruptcies, foreclosures, delinquent credit payments, or has failed to pay a credit loan.
Escrow Agent - An independent third party who handles various aspects of the related purchase and loan transaction. The escrow agent will often keep 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 title company if there is a deed of trust, and make certain 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.
FHA Loan - A home buyer's loan the Federal Housing Association insures for the lender. Usually, there is a fee for providing this insurance.
Point - 1% of a loan amount. For instance, if your loan is for $100,000 and you pay 2 1/2 % points, your cost will be $2,500.
VA Loan - 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.