Purchasing a home is a life-changing investment. A big decision like buying a first home, combined with confusion about the process, can lead to a detrimental financial mistake. Take the time to understand some of the key lending industry jargon.
Mortgage Loan Underwriting: The underwriting process is used by lenders to determine the amount of risk a mortgage would be. Before approving a loan, an underwriter will evaluate your credit score and history, credit score of a spouse or partner in the purchase, bank accounts, employment history, current income, and current and projected debts and assets.
Loan Points: A point is equal to one percent of the amount borrowed, or principal, of your mortgage. Lenders charge points in both fixed-rate and variable-rate mortgages in order to increase the returns to the lender on the mortgage and to cover loan closing costs. Points are usually collected at closing and may be paid by the borrower, lender or or may be split between them. There are two types:
- Discount Points are paid to reduce the interest rate on a loan and are normally paid at closing.
- Origination Points are paid at closing. On a conventional loan, a loan that is not insured against mortgage default, the loan origination fee is the number of points a borrower pays to typically to a mortgage broker for arranging a mortgage.
Assumable mortgage: A home mortgage that allows the buyer to take over the seller’s mortgage. The buyer makes mortgage payments and complies with other terms of the original seller’s existing loan.
Balloon mortgage:A mortgage that is not fully paid off over the term of the loan, leaving a balance at the end. The borrower must either pay off the remaining mortgage or refinance the loan.
PITI: Abbreviation for the major expenses that make up a mortgage payment: principal, interest, property taxes and homeowners’ insurance.
Prepayment penalty: A charge imposed on a borrower who pays off a mortgage loan before its due date. Lenders impose prepayment penalties to encourage borrowers to hold a debt, and keep paying interest on it for the whole term of the mortgage.
Title report: The written examination of a real estate title search, including a property description, names of titleholders and how the title is held (joint tenancy, for example), mortgages and other charges, and liens. A title report is needed before a lender will agree to finance the purchase of the property. The report is typically prepared by a Lawyer.
Contingency: A provision in a contract stating which terms of the contract will be altered or voided if a specific event occurs before the closing of the property. For example, a contingency in your home purchase contract might state that, if the buyer does not approve the inspection report of the physical condition of the property, the buyer does not have to complete the purchase, or an included contingency that the buyer be allowed a certain number of days to obtain his financing or to sell his house.
Mortgage Default insurance: Insurance that reimburses a mortgage lender if the buyer (borrower) defaults on the loan and the foreclosure sale price is less than the amount owed to the lender (the mortgage plus the costs of the sale). A home buyer who makes less than a 20 percent down payment will most likely have to purchase mortgage default insurance if dealing with a bank or first tier lender.
Closing costs: Closing costs are fees, charged by your lawyer, lenders, government and third parties, related to the purchase of the home. An estimated one and a half to five percent of the purchase price of the home. You will usually pay closing costs at the time you close on a mortgage. The cost can include a loan origination fee, processing fees, discount points, appraisal fee, title insurance and legal fees, Land Transfer Tax, and HST/GST
Deposit (Earnest) money: This is in the form of a deposit and tells the seller that you’re committed to your offer. Once the seller accepts your offer, the deposit money will go towards your down payment and closing costs.
Take this glossary with you to your lender meeting and you will feel much more comfortable throughout the home buying process.
No comments:
Post a Comment