Mortgage Terms You Need To Know
Adjustable Rate Mortgage (ARM)
A type of mortgage rate loan whose interest rate changes periodically up or down, usually
once or twice a year.
Annual Percentage Rate (APR)
Everything financed in your mortgage loan package (interest, loan fees, points or other
charges) expressed as a percentage of the loan amount (usually slightly above the actual
interest rate alone.)
A loan in which the lender is willing to "transfer" from the previous owner of
the home to the new owner, sometimes at the same interest rate, sometimes at a new rate.
An assumable loan can make your home more attractive to buyers when you want to sell.
Costs the buyer must pay at the time of closing in addition to the down payment:
including points, mortgage insurance premium, homeowners insurance, prepayments for
property taxes, etc. Closing costs average 3%-4% of the loan amount. If you're buying a
HUD Home, you can request they be paid by HUD.
A condition put on an offer to buy a home; such as the prespective buyer making an offer
contingent on his or her sale of a present home.
A type of mortgage not insured by either the Federal Housing Administration (FHA) or the
Department of Veterans Affairs (VA), and thus usually requiring a 10%-20% down payment.
(HUD Homes may be purchased with a conventional mortgage.)
Funds submitted with an offer to show "good faith" to follow through
with the purchase. Earnest money is placed by the broker in an escrow/trust account until
closing, when it becomes part of the down payment of closing costs. (HUD generally
requires an earnest money deposit of $500-$2,000.)
A procedure in which documents or transfers of cash and property are put in the care of a
third party, other than the buyer or seller.
Financing for a loan which will be insured against loss by the Federal Housing
Administration--a part of the U.S. Department of Housing and Urban Development (HUD). Such
financing only requires a 3%-5% down payment.
Insurance that protects the homeowner from "casualty" (losses or damage to the
home or personal property) and from "liability" (damages to other people or
property). Required by the lender and usually included in the monthly mortgage payment.
Loan Origination Fee
A fee charged by the lender for evaluating, preparing, and submitting a proposed mortgage
Mortgage Insurance premium (MIP)
A charge paid by the borrower (usually as part of the closing costs) to obtain financing,
especially when making a down payment of less than 20% of the purchase price, for example
on an FHA-insured loan.
An amount equal to 1% of the principal amount being borrowed. The lender may charge the
borrower several "points" in order to provide the loan.
Taxes (based on the assessed value of the home) paid by the homeowner for community
services such as schools, public works, and other costs of local government. Paid as a
part of the monthly mortgage payment.
Protects lenders and homeowners against loss of their interest in property due to legal
defects in the title.
A loan guaranteed by the Department of Veterans Affairs against loss to the lender, and
made through a private lender. (HUD Homes may be purchased with a VA loan.)