Glossary

Glossary of Terms

Adjustable-Rate Mortgage (ARM) - A mortgage with an interest rate that changes with market conditions on pre-determined dates.

Annual Percentage Rate (APR) - A term used to represent the percentage relationship of the total finance charge to the amount of the loan, over the term of the loan. Do not confuse the APR with your quoted interest rate, which is used to determine your monthly principal and interest payment. The APR reflects the cost of your mortgage loan as a yearly rate. It will be higher than the interest rates stated on the note because it includes (in addition to the interest rate) loan discount points, fees and mortgage insurance.

Appraisal- A report written by a qualified expert that states an opinion on the value of a property based on its characteristics and the selling prices of similar properties or comparable properties in the area.

Bridge Loan- A loan which enable homebuyers to get financing to make a down payment and pay closing costs on a new home before selling the home they currently own.

Closing- The final step after the lender approved an application. The homebuyer and lender sign the security note for the mortgage loan, which states all the terms and conditions of the loan, and the funds for the loan are turned over to the homebuyer’s closing agent.

Closing Costs- The costs paid by the mortgage borrower (and sometimes the seller) in addition to the purchase price of the property. These fees include the lenders fees, title fees, and appraisal costs.

Conventional Loan- A fixed rate, fixed-term mortgage not insured or guaranteed by a government agency such as FHA or VA.

Credit Report- A report issued by an independent agency which contains certain information concerning a mortgage applicant’s credit history and current credit standing.

Equity- Your ownership interest, or that portion of the value of the property that exceeds the current amount of your home loan.

Escrow Account- A holding account for the amount a mortgage borrower pays each month and which the lender uses to pay borrower’s taxes, property insurance and, if applicable, mortgage insurance.

FICO Score- A numerical rating developed and maintained by Fair Issac and Company that indicates a borrower’s credit worthiness on a number of criteria.

Funding Fee- The amount charged on a VA mortgage to cover administrative costs

Good Faith Estimate- A document that tells mortgage borrowers the approximate costs they will pay at or before closing, based on common practice.

Homeowners Insurance or Hazard Insurance- A real estate insurance policy required of the buyer protecting the property against loss caused by fire, vandalism, or natural causes. Policies may have added coverage such a personal liability and theft.

HUD-1 Settlement Statement- A standard form used to disclose costs at closing.

Index- Interest rate adjustments on adjustable rate mortgages (ARM) are based on a specific ‘index’ or treasury issue (bond) which is selected because it is a reliable indicator. Your monthly interest rate payment will be adjusted up or down in relation to this market indicator, plus the margin as specified in your note.

Interest Rate- A percentage of the mortgage amount that is paid to the lender for the use of the money, usually expressed as an annual percentage.

Interim Interest- The interest that accrues, on a per-diem basis, from the day of closing until the end of the month..

Loan-to-Value (LTV)- The ration of the amount borrowed to the appraised value or sales price of real property expressed as a percentage.

Margin- The number of percentage points added to the index to calculate the interest rate for an adjustable-rate mortgage at each adjustment period.

Mortgage Insurance (MI)- An insurance policy which will repay a portion of the loan if the borrower does not make payments as agreed upon in the note. Mortgage insurance may be required in cases where the borrower makes less than a 20% down payment on the home loan.

Note- The agreement which states the home mortgage amount to be borrowed and the terms and conditions of the loan. It also includes a complete description of how the loan should be repaid and the time frame for the repayment.

Origination Fee- The amount collected by the lender for making a loan. It is generally equal to a percentage of the principal amount borrowed.

Pre-approval- A written commitment from a lender, subject to a property appraisal and other stated conditions, that lets you know exactly how much home you can afford.

Pre-Paids- The portion of your loan closing costs which must be collected at closing to cover taxes, interest, and insurance.

Rate Cap- The limit of how much the interest rate may change on an ARM at each adjustment and over the life of the loan.

Rate Lock- The borrower and the lender agree to protect the interest rate, points and term of the loan while it is processed.

Truth-in-Lending Statement- Required by federal regulations, this statement tells purchasers the costs of financing their loan expressed as the annual percentage rate (APR). Do not confuse the APR with your interest rate, which is used to determine your monthly principal and interest payment.

Underwriting- The process of a lender reviewing the application, documentation, and property appraisal prior to rendering a loan decision.

Jennifer Clark • 10200 Hickman Rd., Ste. 100 • Clive, Iowa 50325
(515) 208-2255 • FAX (515) 331-4301
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