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Mortgages Definitions

Terms in this set (41)

Mortgage
A loan for the purpose of buying property, usually paid in monthly payments of principal (amount borrowed) and interest over a period of from 15 to 30 years
Equity
The difference between what a house (or property) is worth, and what is owed on the mortgage
Capital Gain
An increase in the value of a property when selling (taxes may have to be paid on the gains)
Appraised value
The approximate value (selling price) of a house as determined by an independent agent
Point
A one-time charge that is paid at the time of mortgage closing, equal to 1% of the value of the mortgage (the total amount financed)
Closing costs
The charges and fees associated with the transfer of ownership of a home to a new buyer (or to the same owner in a mortgage refinance)
Private Mortgage Insurance
PMI
Private Mortgage Insurance
You must purchase if your down payment is less than 20%; can cancel when your loan-to-value ratio reaches 80%; lenders required to cancel when L-to-V ratio reaches 78% (Lenders can legally require PMI down to 50% if you are a "risky" borrower); annual charges vary, but typically amount to .5% fo the loan and are not tax-deductible
Adjustable Rate Mortgage
ARM
Adjustable Rate Mortgage
Transfer part of the interest rate risk from the lender to the borrower; can potentially lead to negative amortization, when the mortgage balance increases because the monthly payments are not enough to pay the interest owed
Fixed Rate Mortgage
FRM
Multiple Listing Service
MLS
Federal Housing Administration
FHA
Federal Housing Administration
Federal government insured mortgages that have typically allowed lower income families to afford to borrow money for a home; originated during the 1930s; contrast to a conventional mortgage
Mortgage Insurance Premium
Required to obtain an FHA loan, 1% of the loan required at closing, financed into the mortgage, and paid to the FHA on the borrower's behalf
Dept. Of Veterans Affairs
VA
Dept. Of Veterans Affairs
Helps service members and families buy homes through home loan guaranty benefit
Realtor or Real Estate Agent
Individual licensed by the state to help people find housing
Rent
Money paid to a landlord, usually by the month, for the use of an apartment house
Lease
A written rental agreement between renter and landlord for a specified period of time
Sublet
An arrangement where a renter agrees to rent his or her apartment again to another person; usually prohibited without the landlord's consent
Security Deposit
Money, often equal to one month's rent, given to the landlord when the lease is signed; refunded when the renter leaves the property in good condition
Condominium
A living space in which individual units are privately owned, and common spaces are jointly owned
Down Payment
The amount of purchase made in cash before borrowing the remainder
Utilities
Suppliers of water, electricity, and heating fuels to household; customers pay monthly bills for these services
Default
Failure to make required debt payments on a timely basis
Foreclosure
Legal process by which an owner's right to a property is terminated, usually due to default
Escrow Account
A temporary pass-through account held by a third party during the process of a transaction between two parties
Ad Valorem
Tax according to the value
Escrow
An account held by a mortgage company that hold money until it is needed to pay out
Considerations when buying a house
Price
Location
Value
Size
Type
New or Used
HOA required
Land/Outbuildings
Responsibilities
Time
Steady Personal Income
Credit Rating good
Saved anything for down payment
homeowner's insurance costs
costs of property taxes
mortgage interest is tax-deductible
real estate is an asset
15 or 30 year mortgage
How much house can you afford?
2.5 times your annual income
Less than 25% of monthly take-home pay
Closing Costs for Buyer
Title Search
Mortgage Preparation
Appraisal Fee
Recording Fees
Credit Report
Legal Fees
Closing Costs for Seller
Realtor's Commission
Deed Preparation
Payment of any accrued real estate taxes
Advantages of Home Ownership
Generally Good Investment
Home values often appreciate
Interest paid on a mortgage is currently tax deductible
Homeowner Association
HOA
Disadvantages of Home Ownership
Money invested is not liquid
Responsibilities
Difficult to move
Larger monthly payments
Total Finance Price
TFP
Total Finance Price
The total amount you end up paying at the end of the mortgage
Mortgage Insurance Premium
MIP
Return on Investment
ROI
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