Glossary

 

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Amortization - The number of years a loan will take to completely pay off.

Appraisal Fee - Cost of the home appraisal. Appraisals are usually required to obtain any sort of Real Estate Financing with a few exceptions. Appraisal Fees are typically paid to the appraiser at the time of appraisal but are included with the costs of the loan so that they are disclosed. Appraisals start at $300 and go higher with high value homes and rental homes or units costing more.

ARM (Adjustable Rate Mortgage) - Type of home loan where the interest rate is calculated by combining a predetermined margin and a major public index such as LIBOR (London Inter-bank Offered Rate) or the 11th District Cost of Funds (COFI). Remaining loan term and monthly payments are recalculated periodically in accordance with the type of loan obtained. ARMs offer a lower starting interest rate and payment as well as enabling the borrower to qualify for a higher loan amount.

Cash Out Rules - For any conforming loan when taking cash out over $2000 the maximum Loan to Value allowed before "Cash Out Hits" are applied is 70%. From 70% - 80% LTV the fee charged is a 1/2 point and from 80% - 90% the fee is 3/4 point. This fee can be financed through a higher interest rate.

Conforming Loan - A loan that conforms to the FNMA (Fannie Mae) or FHMLC (Freddie Mac) Guidelines. There are many guidelines with these loans but the one that most people are familiar with is the maximum loan amount which is currently $333,700 for a Single Family Residence, $413,100 for a Duplex, 499,300 for a Tri-plex and $620,000 for 4 Units. These types of loans generally carry the best interest rates.

Credit Report Fee - We do not charge a fee to run your credit but many lenders do charge you when they run your credit before approving or funding your loan. This fee can cost anywhere from $15 - $30.

Document Preparation Fee - Fee charged by the lender to prepare the documents associated with your loan. Not all lenders charge this fee, however, when it is charged it is usually offset by a lower Underwriting Fee.

Escrow Accounts or Impounds - Property taxes, Homeowner's Insurance and Mortgage Insurance or some combination thereof typically comprise the escrow/impound account. Escrow accounts enable you to pay these costs monthly and not to worry about hefty payments several times a year. These accounts can be set up at the will of the borrower or sometimes must be set up at the discretion of the lender depending upon the down payment.

In order to start up an impound account there must be a monetary buffer established. The amount of the buffer needed to start the impound account is determined by a formula that dictates the number of months for each impounded item and how much can be held by the lender after the payment of liabilities. Lenders have a fiduciary responsibility to manage your escrow account and pay items in a timely manner. This service is free.

Escrow Fee - Fee charged by the escrow company handling the transaction. Escrow companies perform vital functions such as collecting and dispersing funds to all interested parties. On a refinance this fee usually includes the cost of a Mobile Notary.

Flood Certification - Fee required to determine whether the subject property is located in a flood zone and whether Flood Insurance is required. If Flood Insurance is required it must be purchased at the expense of the borrower. We will notify you if this is the case.

Full Documentation Loan - Loan requiring all borrowers to provide current paystubs, W-2's, tax returns and bank statements. Self Employed Borrowers may also have to provide business licenses and insurance as well as Profit and Loss Statements. These loans have the best rates and are considered "Conventional Loans".

HUD-1 Settlement Statement - Estimated closing statement that is provided shortly before closing or when signing loan documents. It establishes the full disclosure of closing costs and specifies what monies must be brought in to close the loan.

Impound Accounts or Escrow Accounts - Property taxes, Homeowner's Insurance and Mortgage Insurance or some combination thereof typically comprise the escrow/impound account. Escrow accounts enable you to pay these costs monthly and not to worry about hefty payments several times a year. These accounts can be set up at the will of the borrower or sometimes must be set up at the discretion of the lender depending upon the down payment.

In order to start up an impound account there must be a monetary buffer established. The amount of the buffer needed to start the impound account is determined by a formula that dictates the number of months for each impounded item and how much can be held by the lender after the payment of liabilities. Lenders have a fiduciary responsibility to manage your escrow account and pay items in a timely manner. This service is free.

Jumbo Loan - Any loan amount over $333,701.

Lock (AKA Rate Lock) - This is when the borrower identifies the program and rate they want and then commits to the lender to borrow a certain amount at a specified rate while the lender commits to honor that rate and term for a specified period of time (upon full loan approval). Sometimes the lender may charge for a broken lock, we typically do not.

Notary Fee - Fee covering the cost of having a notary come and meet you to sign loan documents. Typically charged separately on purchase transactions.

Points (AKA Discount Points) - Fees charged by the lender in exchange for a lower rate expressed as a percentage of the loan amount (1 point = 1% of the loan amount). They can also be viewed as pre-paid interest and are tax deductible when purchasing a primary residence. On a Refinance, points are typically tax deductible only over the life of the loan.

It should be your choice whether to pay points. It usually makes sense if:

  • You are going to be in your house more than 3 - 4 years
  • You want the lowest rate possible
  • You want to lower your monthly payment
  • You have the extra money
  • You need or want a tax deduction

Prepaid Interest - Prepaid interest can be looked at as your mortgage payment for the month included in the settlement costs of the loan. This is because whether the loan is a purchase or a refinance, most borrowers skip the next calendar payment. Please call me and I will walk you through how and why this cost is added to the loan.

Prepayment Penalty - A fee charged by the lender to discourage the re-financing of the property or the selling of the property within a certain period of time. Pre-pay penalties are typically six months worth of interest and are designed to protect the lender for a specified amount of time and provide the borrower with a lower rate in exchange.

Processing Fee - Fee to cover the time and expense required to place, oversee and coordinate the entire loan. There is a tremendous amount of work required to process a loan from start to finish. This fee covers the coordination of efforts between your appraiser, your title company, your escrow company and your lender. It also covers any credit report, faxes, postage, messengers, overnight mail charges, etc. There is no Processing Fee for a "No Cost Home Equity Line of Credit" or for a Second Mortgage obtained in conjunction with a First Mortgage.

Recording Fee - Fee charged by the county to record your real estate transaction and make it official and legal.

Tax Service Fee - Fee covering the cost of an outside agency to monitor the payment of your property taxes for the life of your loan. If your taxes are ever delinquent your lender is notified so that they may take appropriate measures to protect their lien position.

Title Insurance - Covers the cost of Title Insurance that protects you and the lender from any unknown claims on title including undisclosed easements. Also includes the cost of the search establishing chain of title. The search includes unpaid claims and liens associated with the property.

Underwriting Fee - Fee charged by your lender to underwrite and approve the loan. You are not charged if your loan is declined. Underwriting includes evaluating your application and your credit and employment histories. It also involves researching the property value as well as the risks associated with your loan.

 

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