The Grand Junction Daily Sentinel
Published: October 27, 2019
Buying a home is simultaneously exciting and stressful. Owning a home is still a dream for many people, but first-time buyers often find that their unfamiliarity with the home buying process is a source of stress. Part of that stress stems from the terminology associated with home mortgages. Many terms may raise an eyebrow among first-time buyers, so the following are a few mortgage terms buyers can familiarize themselves with to facilitate the process of buying their own homes.
AMORTIZATION
Amortization means paying off a loan with regular payments, so that the amount you owe goes down with each payment.
Negative amortization means that even when you pay, the amount you owe will still go up because you are not paying enough to cover the interest. Your lender may offer you the choice to make a minimum payment that doesn’t cover the interest you owe. The unpaid interest gets added to the amount you borrowed, and the amount you owe increases.
Usually, after a period of time, you will have to start making payments to cover principal and interest. These payments will be higher. A negative amortization loan can be risky because you can end up owing more on your mortgage than your home is worth. That makes it harder to sell your house because the sales price won’t be enough to pay what you owe. This can put you at risk of foreclosure if you run into trouble making your mortgage payments.
Amount financed It means the amount of money you are borrowing from the lender, minus most of the upfront fees the lender is charging you.
APPRAISAL
An appraisal is a written document that shows an opinion of how much a property is worth.
CLOSING DISCLOSURE
A Closing Disclosure is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs).
CONSTRUCTION LOAN
A construction loan is usually a short-term loan that provides funds to cover the cost of building or rehabilitating a home.
CONVENTIONAL LOAN
A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs).
DEMAND FEATURE
The Closing Disclosure has a statement that reads “Your loan has a demand feature,” which is checked “yes” or “no.” A demand feature permits the lender to require early repayment of the loan.
ESCROW
Escrow is a bond, deed, document or money kept in the custody of a third party until a real estate transaction has been completed. In addition, escrow accounts are used to hold the property tax and insurance fees that are collected via your monthly mortgage payment.
FHA LOAN
FHA loans are loans from private lenders that are regulated and insured by the Federal Housing Administration (FHA), a government agency. The FHA doesn’t lend the money directly to borrowers, private lenders do that. FHA loans are different from conventional loans in a few ways:
-FHA loans allow for down payments as low as 3.5 percent of the total loan amount.
-They allow lower credit scores than most conventional loans.
-They have a maximum loan amount that varies by county.
RIGHT OF RESCISSION
The right of rescission refers to the right of a consumer to cancel certain types of loans. If you are buying a home with a mortgage, you do not have a right to cancel the loan once the closing documents are signed. However, if you are refinancing a mortgage, you have until midnight of the third business day after the transaction to rescind (cancel) the mortgage contract. The three-day clock does not start until you sign the credit contract (usually called the promissory note), you receive a Truth in Lending disclosure form, and you receive two copies of a notice explaining your right to rescind.
TOTAL OF PAYMENTS
This number tells you the total amount of money you will have paid over the life of your mortgage.
—Metro Creative Services & Consumer Financial Protection Bureau
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