Dearborn Michigan Home Buying Terms & Definitions Learn Home Buying Terminology - Dearborn Michigan Homes & Real Estate
During 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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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%.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
A return on an investment which includes the interest rate charged, discount points paid and any other charges collected.
You'll find tons of valuable tips and advice in Steve's "Home Buyer Survival Kit" Get your FREE Home Buyer Survival Kit now! click here
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Whether you are buying a home or selling your existing home, please allow me the opportunity to assist you with your real estate transaction. I am prepared to exceed your highest expectations through exceptional service, reliable communication and knowledge of the local real estate market.
Steve Hatfield Realtor®, ABR, CRS, SFR, e-PRO
REALTOR® ABR, CRS, e-PRO Certified
CENTURY 21 Curran & Christie
25636 Ford Road
Dearborn Heights, MI 48127
Office: (313) 274-7200 Contact Steve Now
Michigan Real Estate Salesperson #6501221773
Licensed Realtor® Since 1987
Steve Hatfield, Realtor® provides real estate / home buying and selling services in Dearborn Michigan, Dearborn Heights Michigan, the Wayne County MI (Southeast Michigan) communities of Redford, Westland, Garden City, Livonia, Canton, Plymouth, Northville and the Oakland County cities of Farmington / Farmington Hills and Novi Michigan.
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During 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.
