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Term                                                                                                Definition

APR Annual Percentage Rate (APR) is the effective rate paid by borrowers for the financing. It is higher than the actual interest rate because it includes points, mortgage insurance, and other costs of financing. APR is disclosed on the Truth in Lending statement.
Appraisal A report made by a qualified appraiser setting forth an estimate of value on a property based on factual analysis.
Closing Costs Fees paid to effect the closing of a real estate transaction. This normally includes costs of loan origination, title insurance, survey, recording, attorney, and such prepaid items as taxes and insurance escrows.
Contract of Sale An agreement by one person to buy and another person to sell a specified parcel of land at a specified price.
Conventional Loan A loan that is neither insured by FHA nor guaranteed by VA.
Deposit The sum of money that is placed in good faith with the seller or his agent to bind a sales contract for the purchase of real estate (also called earnest money).
Down Payment The difference between the sales price of property and the amount of the mortgage loan.
Escrow Account The portion of a mortgagor's funds held in trust by the lender to pay future taxes, hazard insurance, mortgage insurance and other items as they become due. One twelfth of total cost if collected monthly as part of your mortgage payment.
Federal Housing Administration (FHA) A division of Housing and Urban Development. Its main purpose is the insuring of residential mortgage loans made by private lenders. It sets standards for construction and underwriting, but does not lend money, plan or construct housing.

Good Faith Estimate

An estimate of anticipated settlement charges paid by the borrower at closing.
Interest - Adjustable Rates Rate changes at some specified period. Usually based upon some index like the prime rate. Rates can go up or down. Some adjustable rate plans allow the borrower to fix the rate during the term of the loan. Risky if income does not match the increase.

Interest - Fixed Rates

Rate is fixed for the life of the loan, principal and interest payment does not change.
Mortgage Insurance Premium Required on all FHA loans to meet operating expenses and provide loss reserved.
Origination Fee A fee or charge for the work involved in the evaluation, preparation, and submission of a proposed mortgage loan. This fee is usually paid by the buyer and should not exceed 1% (one point).
PITI The total monthly mortgage payment consisting of Principal, Interest, Taxes, and Insurance.
Points Each point equals 1% of the principal amount of the loan and is considered to be prepaid interest. A one-time charge the lender assess at closing that increases the yield on a mortgage loan to a competitive position with other types of investments.
Pre-approval A firm commitment by the lender of credit approval; given prior to finding a property.
Pre-qualifying Provides a statement of how much house you can afford prior to finding a property. This is based on information received from you and does not necessarily involve a credit review.

Private Mortgage Insurance

Insures a portion of the loan enabling the lender to make a larger conventional loan with a lesser down payment.
Veterans Administration (VA) The VA is designed to encourage lenders to offer long term, low down payment mortgages to eligible veterans by guaranteeing the lender against loss.