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Mortgage Glossary cont. | Home Loan Terms

Mortgage Loan Terms Defined

mortgage glossaryFloating Rate

The interest rate on a loan waiting to close may float up down until five days before closing at which time it is locked.

Loan Estimate

Mortgage lenders must provide a Loan Estimate of your closing cost within three days of your loan application. This document shows an estimate of all loan costs. It is useful for comparing mortgage loan offers from different lenders and for verifying costs at closing.

HUD Settlement Statement

A government form that is issued at the closing and indicates all of the costs of the real estate transaction. The closing disclosure matches the final closing statement so you can compare what was disclosed to you and what you are actually being charged.


Homeowners Insurance

Protects the buyer and the lender against hazards and losses caused by fire, vandalism and some natural causes. Homeowner insurance does not cover damage caused by rising water which requires separate flood insurance. Insurance policies may have deductibles such as a 2% deductible for hurricane damage. That means if your $300,000 house is damaged by a hurricane you must pay the the first $6,000 yourself.

Index

A published interest rate, such as the prime rate, LIBOR, T-Bill rate, or the 11th District COFI. Mortgage lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. When ARM loans adjust, a predetermined margin is added to the index to determine the new rate. The index used is indicated in the mortgage loan note.

Inspections

Depending upon the property's location or condition, some mortgage lenders may require an additional inspection of the property. In southern climates, for example, pest or termite inspections are commonly required. If the mortgage lender suspects building code violations, it may require a certificate of compliance from local authorities for a particular property. Of course, all inspection reports must be carefully reviewed.

Home inspections are always a good idea for the homeowner and generally your Realtor will recommend a good home inspector. These inspections can find problems in the house and you can renegotiate the price or demand the problems be fixed if there are extensive repairs needed.


Junk Fees

Miscellaneous fees that mortgage lenders charge for processing mortgage loans. For example, these fees may be called underwriting, processing, courier, loan origination fees, and document preparation or service fees. Junk fees are highly negotiable so be sure to question the fees when they are disclosed to you on the Loan Estimate.

Lien

A legal claim or attachment against real property for money owed. A mortgage represents a lien on your property. Trades people who have worked on your house may file a lien if they are not paid.

Loan to Value Ratio

The loan to value of a loan is the amount of the loan divided by the value of the property being loaned on. The purchase price or appraisal determines the value, whichever is less. Thus, a house with a $300,000 value and a $60,000 down payment has a loan to value of 80%. (Loan of $240,000 divided by $300,000 = 80%.


mortgage terms continued

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