DearbornHomes.com - Home buying terms and definitions!  If you plan to buy a home, you need to know the these commonly used terms! Home buyer tips and information
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Dearborn Michigan Home Buying Terms & Definitions
Learn Home Buying Terminology - Dearborn Michigan Homes & Real Estate


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Buying GuideBuying GuideBuying Guide
Terms and Definitions

FactDuring your home search and purchase you will undoubtedly encounter terminology which is specifically related to your home buying and mortgage process. To understand options which may be presented to you or that you may be interested in as well as the process in general, the first place to start is to understand the terminology that will be used by your Realtor® and/or Mortgage Lender.

For example, you may have the option to choose from a fixed rate mortgage, adjustable rate, and/or balloon mortgage. Knowing the difference between these can aid you in your short and long term financial planning.

The following is a detailed list of the most commonly used words and terms that you will encounter. Click on a term below to view its definition:

A
Acceleration
The right of the lender (mortgagee) to demand immediate repayment of the mortgage loan balance upon default of the borrower (mortgagor).

Adjustable Rate Mortgage
Where the rate can change at specific intervals as stated by the note. The payment is subject to change throughout the term of the loan.

Amortization
A periodic reduction of a mortgage by making specific payments over a stated period of time.

Appraisal
An estimate of value on a piece of real estate by an appraiser who is considered to be an expert in real estate property evaluations. The appraisal usually determines how much money the lender will loan on that property.

Assumption
The act of taking over a mortgage obligation incurred by the original borrower. The new owner assumes the mortgage obligations and assumes title to the property.

B
Balloon Payment
A mortgage obligation which has a balance due and payable at the end of the mortgage term which is greater than one installment payment. The final balloon payment wipes out the amount owed.

Banked Owned Homes
When a bank (mortgage lender) took back (repossessed) on the property because the homeowner did not pay their mortgage payments. Foreclosures, foreclosed homes, bank owned homes, and Real Estate Owned (REO) are also homes that have been taken back by the bank/mortgage lender due to non-payment.

Basis Point
Lenders use basis points to measure interest rates in yield calculations. One basis point equals 1/100th of 1% in interest. 100 basis points equals 1% interest.

Buydown
An artificial subsidy paid to provide a lower mortgage interest rate.

Bridge Loan
A temporary mortgage loan to help a borrower obtain the necessary cash funds to purchase another home prior to the sale of their currently owned home.

C
Cash Flow
The amount of cash derived over a certain period of time from an income producing property such as a rental house. Theoretically, the cash flow should be large enough to pay all property expenses including mortgage payments, maintenance, taxes, etc.

Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes and businesses. This certificate may be obtained by sending the veteran's separation papers (DD-214) to the local VA office with a request form (VA 1880) completed by the veteran.

Closing
The act of concluding the sale of real estate by exchange of a deed in return for other considerations. The signing of legal documents is necessary to convey the property.

Commitment
A promise by a lender to make a loan with specific terms or conditions to a borrower. Also a promise by an investor to purchase mortgages from a lender with specific terms or conditions.

Commitment Fee
An up-front charge paid to bind an agreement to lend an amount of money at a specific interest rate.

Conventional Loan
A mortgage loan made by an institutional lender without government guarantees such as VA or FHA loans.

Conversion Option
The conversion of an adjustable rate mortgage into a fixed rate mortgage. Generally, the borrower must hold the adjustable rate mortgage for a specified amount of time. A fee is usually charged for this conversion.

Current Index
The current value of a recognized index as calculated and published nationally or regionally. The current index changes periodically and is used in calculating the new note rate at each adjustment period.

D
Debt Ratio
An allowable percentage of monthly gross income which includes the proposed mortgage payment and any recurring debt.

Default
The failure of a duty or obligation, such as the failure to make the required payments called for in a mortgage note. Loan default may cause foreclosure.

Discount Buydown
The paying of discount points to reduce the interest rate temporarily or permanently for a home purchaser.

Discount Points
A device used to equalize interest rate yields for lenders and investors. Each discount point is equal to one percent of the loan amount. Each discount point paid on a 30 year fixed rate mortgage increases the lender's yield by approximately one fifth of a percent in interest.

E
Equity
The value a property owner has in real estate once the obligations and costs of selling are deducted.

Escrow Account
Funds which are set aside and held in trust by a third party, usually to pay taxes and insurance on real estate.

F
FHA
Federal Housing Administration. A department of Housing and Urban Development which insures FHA mortgage loans.

Firm Commitment
A promise from a lender to make a mortgage loan with specific terms. A promise by FHA to insure a mortgage for a specific property and purchaser.

Fixed Rate Mortgage
A mortgage loan which would have a fixed interest rate and a fixed principal and interest payment amount for the entire term of the loan.

Foreclosure
A legal process by which the lender or seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Click here for detailed info.

G-H
Gross Margin
The lenders profit margin on adjustable rate mortgages. This profit margin is usually in the 2-3% range and when added to the index rate, the sum equals the full note rate. For example, if the gross margin is 2% and the index rate is 10%, the note rate would be 12%.

Hazard Insurance
Also called homeowners insurance, it is insurance to cover losses due to fire, wind, vandalism, theft, etc.


HUD Homes
A HUD home is a residential property (maximum 4 units) acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage (the homeowner had purchased the home using an FHA mortgage). HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.

   I
Income Ratio
An allowable percentage of monthly gross income which the proposed mortgage payment cannot exceed.

Index
The measuring device used to determine if interest rates have gone up or down over time. A wide variety of indexes may be used with adjustable rate mortgages.

Interest Cap
A consumer protection which limits the amount of interest that a loan may be increased or decreased. Yearly interest caps and life of loan caps are available with many loans today.

Interest Rate Buydown
The payment of money to a lender to reduce the borrower's interest rate either temporarily or permanently. This would help reduce the buyer's payments and help him/her qualify for the mortgage.

L
Lien
A charge against a property similar to a mortgage. A security instrument for repayment of a debt owed.

Loan To Value (LTV)
The relationship between the mortgage loan and the appraised value of the property which is expressed by a percentage. A 90% conventional loan (10% down) has a 90% loan to value ratio.

M
Market Value
The value of a property determined by comparable sales, or the actual sale price.

Mortgage Insurance Premium
Mortgage insurance premium is required on FHA loans. The M.I.P. (as is commonly referred to as) is paid by the borrower and insures the lender against foreclosure losses.

Mortgagee
The mortgagee is the lender of money for the purchase of real estate. One who holds a mortgage on real estate.

Mortgagor
The borrower of money to purchase real estate.

N-O
Negative Amortization
The opposite of amortization. In a negative amortization, the loan balance goes up instead of down, until the payments reach a fully amortizing level. Also referred to as deferred interest.

Note
The signed obligation to repay a debt such as a mortgage note.

Origination Fee
The fee charged by a lender for processing a loan application. It usually amounts to 1% of the loan applied for.

Overall Interest Cap
A stated amount limiting increases or decreases in interest over the life of the loan.

P
Payment Adjustment Period
The time frame between payment adjustments made on adjustable rate mortgages.

Points
A charge equal to 1% of the loan amount which increases or equalizes the lenders yield or rate of return. Each discount point is worth approximately one fifth of a percent in interest on a 30 year fixed loan.

Prepayment Privilege
The right of a borrower to pay off a loan before the maturity date without incurring penalty.

Principal
The amount of the mortgage debt which is presently owed.

Private Mortgage Insurance
Similar to FHA mortgage insurance premium, but it is provided by private mortgage insurance companies to lenders making conventional loans with less than 20% down. It protects the lenders against foreclosure losses.

Q-R
Quit Claim Deed
The deeding or giving up of one's interest in a property to another party.

Refinance
Obtaining a new mortgage loan on property already owned and replacing the existing loan with a new one. This is often done when the existing loan interest rate is high and a new loan can be obtained at a much better interest rate.

REO Homes
REO is short for "Real Estate Owned" and refers to properties that were foreclosed on by the bank or mortgage lender due to non-payment.

S
Satisfaction of Mortgage
Also called a "release of mortgage". A document issued by the lender when the mortgage is paid in full.

Second Mortgage
A mortgage which is recorded after a first mortgage is already recorded. The second mortgage is subordinate to the first mortgage.

Short Sale
When a homeowner is trying to sell their home / property for less than what they owe on it. Most short sale homes are put on the market in advance of the homeowner being approved by their bank(s) for the short sale process because the homeowner's bank(s) will not examine the situation or make a ruling on it until an offer to purchase from a buyer is submitted. At that time the homeowner also presents all of their financial documentation to their bank(s) and the process begins.

The homeowner will have to prove a hardship to their bank/banks...the reason they cannot continue to keep and pay for the home. When you submit an offer to purchase on a short sale home you should expect to wait several months to find out if you really have bought the home.
Click here for detailed short sale information

T-Y
Title Insurance
Insurance issued to the new owner of real estate to protect them against claims arising by reason of defects in the title to the property.

VA Loan
A mortgage loan made to a qualified veteran and guaranteed by the Veterans Administration. The "loan guarantee" is to the private lender making the loan to protect them against foreclosure losses.

Warehouse Fee
Many mortgage firms borrow funds on a short term basis in order to originate loans which will later be sold in the secondary mortgage market. When the rate of interest is higher on short term loans than on long term mortgage loans, the lender has an economic loss. This loss is offset by charging a warehouse fee.

Yield
A return on an investment which includes the interest rate charged, discount points paid and any other charges collected.

 



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CENTURY 21 Curran & Christie.
25636 Ford Road
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