TERM DEFINITION

APRAnnual 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.
AppraisalA report made by a qualified appraiser setting forth an estimate of value on a property based on factual analysis.
Closing CostsFees 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 SaleAn agreement by one person to buy and another person to sell a specified parcel of land at a specified price.
Conventional LoanA loan that is neither insured by FHA nor guaranteed by VA.
DepositThe 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 PaymentThe difference between the sales price of property and the amount of the mortgage loan.
Escrow AccountThe 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 EstimateAn estimate of anticipated settlement charges paid by the borrower at closing.
Interest – Adjustable RatesRate 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 RatesRate is fixed for the life of the loan, principal and interest payment does not change.
Mortgage Insurance PremiumRequired on all FHA loans to meet operating expenses and provide loss reserved.
Origination FeeA 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).
PITIThe total monthly mortgage payment consisting of Principal, Interest, Taxes, and Insurance.
PointsEach point equals 1% of the principal amount of the loan and is considered to be prepaid interest. A one-time charge the lender assesses at closing that increases the yield on a mortgage loan to a competitive position with other types of investments.
Pre-approvalA firm commitment by the lender of credit approval; given prior to finding a property.
Pre-qualifyingProvides 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 InsuranceInsures 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.