Key Mortgage Phrases Every New Homebuyer Should Know: Part 1

keys to new home on top of mortgage paperworkWe at Cornhusker Bank think that each homebuyer should be equipped with the proper tools needed when purchasing a home, and that starts with knowing the lingo. The mortgage and home buying process is filled with a lot of unfamiliar jargon and we hope to fix that. Whether you’re a first time homebuyer, or you are a home buying guru, here are some key terms we think every homebuyer should know:

Adjustable Rate Mortgage

An adjustable rate mortgage, commonly referred to as an ARM, is a loan type that allows the lender to adjust the interest rate during the term of the loan. Generally, these changes are determined by a margin and an index so that the interest rate changes, up or down, are based on market conditions at the time of the change. Most often these interest rate changes are limited by a rate change cap and a lifetime cap. If you apply for an adjustable rate mortgage, the lender is required to provide you with an ARM Program Disclosure which spells out the terms of the loan.

Appraisal

An analysis performed by a qualified individual to determine the estimated value of a home.

Assumable Mortgage

A loan that does not have to be paid in full if the home is sold. Instead, the new owner can take over payments on the existing loan and pay the seller the difference between the sales price and the balance on the loan.

Closing

A meeting of the parties involved in a real estate transaction to finalize the process. In the case of a purchase, a closing usually involves the seller, the buyer, the real estate broker and the lender. In the case of a refinance, the closing involves the borrower and the lender. Sometimes referred to as the settlement or the close of escrow.

Closing Costs

The total of all the items that must be paid at closing related to your new mortgage.

Credit History

A record of a person’s debt history, including all open and fully repaid obligations. A credit history helps a lender to determine whether a potential borrower has satisfactory history of repaying debts in a timely fashion.

Deed

The written instrument that conveys a property from the seller to the buyer. The deed is recorded at the local courthouse so that the transfer of ownership is part of the public record.

Escrow

Funds paid by one party to another to hold until a specific date when the funds are released to a designated individual. Generally, an escrow account refers to the funds a mortgagor pays to the lender along with their monthly principal and interest payments for the payment of real estate taxes and hazard insurance. This is also referred to as impounds. The money is held by the lender to make payments when they are due. An escrow can also refer to funds that are held by a third party to ensure the completion of repairs or improvements that must be completed on the property but that cannot be done prior to closing.

FICO® Score

A scoring model developed by the Fair Isaac Corporation generally used by lenders. This scoring system is based completely on information available in credit reports.

This will be a continuous series to keep you up to date on important mortgage phrases so continue to check back! For a more complete list of terms, check out our Glossary.