A site worth visiting is Forbes’ Investopedia. I found valuable explanation of mortgage lingo and the more you know when shopping around for a mortgage or at the closing table the better. I have listed a few here but at fortlewisva.com we find it so important that our customers are informed that we will list more.
- Appraised Value
What Does Appraised Value Mean?
An evaluation of a property’s value based on a given point in time that is performed by a professional appraiser during the mortgage origination process. The appraiser is usually chosen by the lender, but the appraisal is paid for by the borrower.
Investopedia explains Appraised Value
The appraised value of a home is an important factor in the loan underwriting process and plays a role in determining how much money may be borrowed and under what terms. For example, the loan to value (LTV) ratio is based on the appraised value. In general, if the LTV is greater than 80%, the lender will require the borrower to buy private mortgage insurance. However, if the LTV drops to 78% upon a new appraisal, private mortgage insurance payments may be eliminated.
- Down Payment
What Does Down Payment Mean?
A type of payment made in cash during the onset of the purchase of an expensive good/service. The payment typically represents only a percentage of the full purchase price; in some cases it is not refundable if the deal falls through. Financing arrangements are made by the purchaser to cover the remaining amount owed to the seller.
Making a down payment and then paying the rest of the price through installments is a method that makes expensive assets more affordable for the typical person.
Investopedia explains Down Payment
For example, because houses are extremely expensive assets, home buyers typically pay down payments that equal 5-25% of the total value of a home. The remaining 75-95% of the price will be covered by a bank or other financial institutions through a mortgage loan.
- Dual Apper
What Does Dual Apper Mean?
A potential mortgage borrower who submits two mortgage applications (here, “apper” is slang for application) simultaneously with different lenders, who are typically mortgage brokers, without the two lenders’ knowledge.
A borrower will do this to try to protect themselves from a lender who plays games with loan fees and costs after the application has been taken.
Investopedia explains Dual Apper
While clearly some unscrupulous lenders try to play games with borrowers by raising interest rates, increasing fees, adding charges or delaying loan processing after the loan origination process has started, “Dual appers” raise the cost of borrowing for all borrowers, since lenders must charge enough to cover all their costs, including aborted loan applications.
A better approach for borrowers is to demand to know a lender’s fees for services and shop around before the loan application process begins.
- Good Faith Estimate
What Does Good Faith Estimate Mean?
An estimate of the fees due at closing for a mortgage loan that must be provided by a lender to a borrower within three days of the lender taking a borrower’s loan application. A good faith estimate is required by the Real Estate Settlement Procedures Act (RESPA). While the form of the estimate is standardized across the industry to allow borrowers to compare costs between lenders, it is key to note that it is only an estimate, and the true figure can sometimes be different.
Investopedia explains Good Faith Estimate Consumers should beware of unscrupulous lenders who add their own “junk” fees and/or charge excessive fees for items such as wire transfers. However, there are legitimate reasons for discrepancies between the good faith estimate and the actual cost. For example, the lender may not know all the costs of closing services provided by third parties.
A thorough comparison of mortgages between lenders by a consumer will include a comparison of items such as loan origination fees and loan discounts, which are generally a tradeoff for a higher or lower interest rate.
- Home-Equity Loan
What Does Home-Equity Loan Mean?
A consumer loan secured by a second mortgage, allowing home owners to borrow against their equity in the home. The loan is based on the difference between the homeowner’s equity and the home’s current market value. The mortgage also provides collateral for an asset-backed security issued by the lender and sometimes tax deductible interest payments for the borrower.
Also known as “equity loan” or “second mortgage”.
Investopedia explains Home-Equity Loan
A home-equity loan is basically a line of credit secured by your home. When the line of credit is drawn down, the financial institution providing it places a second mortgage loan on your home until the loan is paid off, after which the you can use the loan to finance other purchases. However, if the loan is not paid off, your home could be sold to pay off the remaining debt. Interest rates on such loans are usually adjustable rather than fixed and lower than standard second mortgages or credit cards.
- No-Cost Mortgage
What Does No-Cost Mortgage Mean?
A mortgage refinancing situation in which the lender pays the borrower’s loan settlement costs and then extends a new mortgage loan. A lender does this in exchange for charging the borrower a higher interest rate. When the lender then sells this mortgage into the secondary mortgage market, the price it will receive for the mortgage is based on the interest rate on the mortgage.
A mortgage broker would do the same based on the size of the rebate they might receive from a lender.
Investopedia explains No-Cost Mortgage Do not confuse a no-cost mortgage with a no-cash mortgage. This is a mistake borrowers frequently make. With a no-cash mortgage, the settlement costs are rolled into the loan’s principal balance, and will therefore be paid for over time, with compounded interest.
With a no-cost mortgage, the borrower pays financially in the form of higher interest charges on a lower principal balance. A borrower should perform a thorough analysis to determine the most suitable mortgage option.
- No-Fee Mortgage
What Does No-Fee Mortgage Mean?
A mortgage in which a mortgagee does not charge the mortgagor any fees for the applications, appraisals, underwriting, processing, private mortgage insurance and other third-party closing costs typically associated with mortgages. The total cost savings associated with the lack of fees is typically 3-5%
Investopedia explains No-Fee Mortgage
People seeking no-fee mortgages should be diligent when coming upon an offer for a no-fee mortgage, as many mortgagees tack origination and/or closing fees onto the mortgage’s interest rate.
Home buyers definitely gain from the prospect of free private mortgage insurance and other cost savings. The financial institutions that offer no-fee mortgages also reap benefits, because the amount of revenue lost in mortgage fees can be recovered when mortgage holders also sign up for bank accounts, credit cards and other higher margin services.
- Origination Points
What Does Origination Points Mean?
A type of fee borrowers pay to lenders or loan officers in order to compensate them for the role they play in evaluating, processing and approving mortgage loans. Credit history is one factor that plays a role in the amount of origination points a borrower needs to pay. Unlike the other types of points (for example, discount points), origination points are not tax deductible.
Investopedia explains Origination Points
Typically, each single origination point represents 1% of the mortgage loan. For example, if you are borrowing $150,000 and the bank is charging you 1.5 origination points, you will end up paying $2,250 (or 1.5% of $150,000).
Since the amount of origination points required to be paid is not set in stone, borrowers may be able to negotiate the amount of origination points that they pay.
- Relocation Mortgage – Relo
What Does Relocation Mortgage – Relo Mean?
A type of mortgage that is designed for relocating/transferring employees. Corporations sometime make special mortgages available for relocating employees in an effort to make the moving process easier and more economical. Oftentimes, there are bonuses for the employee, such as the company paying the closing costs. Some mortgage companies specialize in offering relo mortgages.
Investopedia explains Relocation Mortgage – Relo Historical data shows that employees who relocate for their jobs are likely to relocate repeatedly at predictable time intervals; therefore, relo mortgages have more predictable prepayment characteristics than non-relo mortgages. Because the prepayment characteristics of any mortgage-backed security (MBS) are very important to its valuation by traders, the more predictable prepayment characteristics of MBSs backed by relo mortgages allow relo MBSs to trade at a premium relative to other MBSs.
- Tax Service Fee
What Does Tax Service Fee Mean?
A legitimate closing cost used to ensure that mortgagors pay their property taxes. A tax service fee is typically paid by the buyer at the time the home is purchased, the lender then passes this sum on to a tax service agency. The role of a tax service agency is to look for delinquent property taxes and alert the mortgage company to prevent tax liens from existng against their mortgagors’ homes. Since tax liens have priority over lender liens, banks wants to ensure that they, not the state, become the owner of these properties.
Investopedia explains Tax Service Fee
For borrowers with impound accounts, property taxes are collected monthly with mortgage payments; in this case, the tax service agency’s job is to provide the lender with your property tax bills so that they will be paid on time. For borrowers without impound accounts, the mortgage company will often remit any unpaid property taxes on behalf of the homeowner and then bill him or her for the sum, plus penalties and fees.
Time is running out, emotions are running high, senators and govenors scramble to get the $8,000 tax credit extended or even increased. Now the National Association of Realtors sent out this statement to their Realtors (which has been forwarded to us by our Realtor-connection Ron Sower in Washington)
