Loan Terms to Become Familiar With
Once you have chosen and met with your Bennington lender, you will need to become familiar with new terminology relating to your loan.
- Adjustable Rate Mortgage (ARM)
A mortgage loan in which the interest rate can go up or down, usually in relation to an index, and payments may go up and down accordingly. ARM loans typically have a cap or a limit on how much the interest rate can increase.
- Annual Percentage Rate (APR)
An APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
A report created by a qualified and licensed appraiser that is an estimate of the current market value of the property being financed using comparable homes that have recently sold.
An assigned value given to property by the Town Lister or Assessor which is used solely for determining property taxes, and may or may not have any direct relationship to current market value.
- Biweekly Mortgage
A mortgage loan in which payments are due every two weeks, totaling 26 (or possibly 27) payments each year.
- Closing Costs
The costs that you will pay at the closing which usually include a mortgage origination fee, appraisal fee, title search, attorney’s costs, heating fuel pro-ration and property tax pro-ration. You may also be required to pay a certain amount of insurance and property taxes in advance into an escrow account. Closing costs are in addition to the purchase price, and should be estimated as closely as possible prior to closing so you know how much cash will be required above your down-payment amount.
- Contract Deposit
A contract deposit is integral to your Purchase and Sale contract, with the initial deposit included with your offer. Once under contract, an additional amount is often paid within a certain number of days. This deposit is held “in escrow” for the seller by the listing agency. The contingencies in the contract are in place for the buyer to have the option of pulling out of the contract if those contingent requirements are not satisfied by their deadlines. The buyer can then ask to have the deposit returned. In the event a buyer has gone past their contingent deadlines and does not close by the designated date, the deposit is what the buyer forfeits to the seller for defaulting on the contract.
There are two situations where escrow will affect you. The first is when you put a deposit down on the offer that you make on a property. That deposit is held in a special trust account, or escrow account, where it will stay until the closing, after which it will be returned to you in the form of a check.
The second type of escrow account is associated with your mortgage, in which a portion of your monthly mortgage payment is deposited to cover annual charges, homeowners insurance, mortgage insurance if applicable, and property taxes. When the insurance and property tax bills come due, your mortgage lender will pay those bills. This enables you to have a fixed monthly payment, and not have to worry about coming up with large sums of money when these bills come due.
- Good Faith Estimate (GFE)
The GFE is a form designed to encourage you to shop for a mortgage loan. It shows the loan terms and closing charges and explains which charges can change before your closing and which must remain the same. It contains a chart that allows you to easily compare multiple mortgage loan costs, making it easier for you to shop for the best loan.
Until you let a loan originator know that you wish to proceed with a loan, you should only be charged for the cost of a credit report.
- Homeowners Insurance
All lenders require that you have insurance on a home in order to lend you money. If anything happens to the home, they will get repaid, and you have protection against damage, theft and liability in the event someone should get injured on your property.
- Origination Fee
A fee that the lender may charge the homebuyer for the service of creating the mortgage loan. This fee is usually stated as a percentage of the total loan and is often paid at closing.
- Points (Or Discount Points)
This is an optional and additional finance charge paid to the lender as part of the closing costs. Each point equals 1% of the total loan, is negotiable and usually tied to your interest rate. Some buyers pay points up front to lower their interest rate for the term of the loan.
- Private Mortgage Insurance (PMI)
In many cases where a buyer has a down-payment of less than 20% the lender will require private mortgage insurance to guarantee that the loan will be paid if the buyer defaults (fails to pay). The exact amount of the insurance depends on the size of the loan, and is usually incorporated into your monthly mortgage payments.
- Title Insurance: Lender Policy
Insurance that protects the lender against any claims that arise from disagreements about ownership of the property.
- Title Insurance: Owner Policy
Optional insurance that protects the buyer (owner) against any claims that arise from disagreements about ownership of the property.