Real Estate Mortgage Loans

Real Estate Mortgage Terms

Amortization - The repayment of a loan with equal periodic payments combining interest and principal. The loan payment is calculated so that the loan is paid off at the end of a predetermined period of time.

Annual Percentage Rate (APR) - A measure of the total cost of your mortgage expressed as a yearly interest rate.

Appraisal - An estimate of the current market value of a property used by the lender in approving your mortgage loan.

Assessment - A value given to the home and property to determine property taxes.

Asset - Anything that has a monetary value including cash, cars, household items, stocks and bonds, and real estate.

Balloon Mortgage - A fixed rate mortgage with a 20 to 30 year amortization, that comes due with a lump sum (balloon) payment 3 to 7 years after closing.

Closing - A meeting set up with the buyer, seller, and lender after acceptance of the property's purchase price. At this time, the buyer receives the mortgage loan amount needed to purchase the property and pledges the same as collateral for repayment of the debt. The mortgage documents are signed, and the title to the property passes from the seller to the buyer.

Closing Costs - A percentage of the mortgage amount (usually 3 to 6 percent) paid at closing. This amount can include the following costs: appraisal fees, taxes, document preparation, realtor and attorney fees.

Collateral - Property and/or other assets pledged as security to the lender for repayment of a debt.

Conventional Loan - A term describing a mortgage loan where the debt is not insured by a government agency such as the FHA or VA.

Debt Ratio - This ratio helps you and the loan officer determine if a mortgage loan is within your income range. It compares all of your monthly debt payments to your monthly gross (pre-tax) income. Usually, total debt payments should not exceed 36% of your monthly income.

Escrow Account - The lender may have the borrower set up a "savings account" which is earmarked to pay for taxes and insurance.

Equity - The difference between the market value (appraisal) of the home and your remaining mortgage balance. As the mortgage balance is reduced, your equity in the home increases.

FHA Loan - A mortgage made by an approved lender in which the borrower's ability to repay is insured by the Federal Housing Administration.

Good Faith Estimate - A disclosure of estimated settlement costs. Federal regulations require that you receive this disclosure of estimated fees and other costs to close a mortgage within three days of your initial loan application.

Housing Ratio - This ratio helps you and the loan officer determine whether a mortgage loan is within your income range. It compares all your monthly housing expenses to your monthly gross (pre-tax) income. Usually, housing expenses should not exceed 28% of your monthly income.

Liability - Any outstanding debt such as a credit card balance or car loan. You are required to list all your debts when applying for a mortgage loan.

Mortgage - A conditional transfer of property as security for a loan. The property remains in the possession of the borrower but may be repossessed by the lender if the loan and interest are not paid according to the terms of the loan.

Mortgage Insurance - Insurance which is required if your down payment is less than 20%. You would be required to pay a fee for this insurance which protects the lender should you default on your house payments.

Mortgage Note - A promissory note that you sign at closing which states your pledge to pay a specified amount of money at the established interest rate within a fixed period of time.

Mortgagee - A creditor (the lender) who receives the mortgage.

Mortgagor - A debtor (the borrower) who pledges his/her property in a mortgage.

Origination - The completion of a loan application which details your financial position and begins the mortgage loan process.

Points - A one-time charge paid by the borrower and used by the lender to reduce the interest rate charged for the mortgage loan. One point is equal to 1% of the amount borrowed on the property.

Principal - The outstanding balance owed on a loan, excluding interest. Interest is charged on this outstanding balance.

Private Mortgage Insurance - If your down payment is less than 20%, you may be required to pay PMI, a fee for mortgage insurance. This insurance provided by a private mortgage insurance company protects the lender should you default on your house payments.

Processing - Following origination, processing is the verification of all information provided on your loan application. This also includes ordering appraisals, credit reports and other documentation.

Recording - The fees charged by the lender for officially recording the signed mortgage documents which makes them a public record.

Title - Often called the deed, this document contains the evidence of someone's legal ownership of a specific property.

Title Insurance - A policy which insures the borrower against any errors in the title search. This fee is part of the closing costs.

Title Search - A necessary part of obtaining a mortgage, this is an official examination of public records to determine legal ownership of the property in question.

Truth-in-Lending Disclosure - This requires creditors to provide information to consumers about the conditions, terms, and other costs of a loan. The intent of this act is to help you make an informed decision when comparing loans offered by different financial institutions through the use of common terminology such as APR and finance charge.

Underwriting - After processing, the documents in your loan file are evaluated to determine if the requested loan should be approved, denied, or approved with conditions.

VA Loan - A long term, low or no down payment mortgage loan in which the veteran's ability to repay is guaranteed by the Department of Veteran's Affairs.

If you are interested in applying for a loan from the Farmers & Merchants Bank & Trust, please stop in, telephone, or e-mail us a request using our Contact Us page.