What terms should I know?
Below are some terms that you will need to be familiar with during the home buying process:
A lender is someone, or some financial institution, that lends money, known as a loan, to a borrower. Lending and borrowing money is central to the U.S. economy; people and businesses do it all the time. People often borrow money from a lender to buy a house or a condominium. See also Bank, Credit Union, Mortgage, Mortgagee, and Savings and Loan Associations (S & Ls).
An odd word, but if you buy or sell real estate you will almost certainly encounter it. Here is an example of escrow: Say you have a bet with your brother. The bet is for $10, but you think he might not pay you if you win, and he probably thinks the same about you. So you both agree to each give $10 to your sister. If you win the bet, you collect the money from your sister, and if your brother wins, he collects the money. Your sister is acting as an escrow agent - a neutral person who is holding the money "in escrow" until the resolution of the bet. When you are trying to buy a house and you put up earnest money, that money gets put in escrow - in other words, a neutral place ( escrow account) that favors neither you nor the seller. It's a practical and sensible solution to a common situation.
Good Faith Estimate
An estimate made in good faith is not guaranteed to be accurate, but represents a party’s honest, best effort. When you are buying a home, your mortgage lender will provide a good faith estimate of the costs associated with the purchase. This will include an itemized list of all costs and fees associated with the loan.
This is a mortgage term that refers to a fee the mortgagee (the lender) charges the mortgagor (the borrower) for lending the money. One point is one percent of the loan amount, so three points on a loan of $100,000 means a fee of $3,000. Sometimes lenders give different loan options such as offering a higher interest rate with no points, or a lower interest rate but with more points.
Private Mortgage Insurance
When you obtain a mortgage, the lender might require you to provide at least 20 percent of the price of the house as a down payment. For example, if the house costs $100,000, the required down payment might be at least $20,000. If you can't afford that much money, the lender will probably require you to buy private mortgage insurance. PMI does not protect you; it protects the lender in the event you default on the loan. When that happens, the lender usually first has to obtain the title to the property and then sell the property. If the proceeds from the sale are not enough to cover the amount loaned, the private mortgage insurance company will typically make up the shortfall, plus reimburse additional costs incurred by the lender during the foreclosure process. When you have paid down the original mortgage to 78% of the purchase price, the lender is typically required to cancel the mortgage insurance. This provision was part of the federal government's Homeowners Protection Act that came into effect in 1999. The act also allows the homeowner, in certain circumstances, to request cancellation of the insurance. If you are forced into buying PMI, it's a good idea to look into the cancellation provisions before you proceed with the loan. Instead of making you buy PMI, your lender might agree to increase your interest rate a little - say, a quarter of a percent. Your monthly repayments will then go up, but overall, you may be saving money by not paying for the PMI. Alternatively, you could try to get a second mortgage - which means borrowing even more money - to reduce the size of the down payment. The federal government also provides insurance for lenders through the Federal Housing Authority, although then it is just called mortgage insurance because it is not being provided by the private (nongovernmental) sector. See also Loan-to-Value Ratio and Piggyback Loan.
When you buy property, there is a possibility that the person selling it to you might not be legally entitled to sell it. For example, it may be jointly owned by a relative or an ex-spouse, and can't be sold without this person's agreement. Or the owner may have had a dispute with someone and that person has put a lien on the property that stops the owner from selling it. There may also be right-of-way issues such as easements that were concluded in the past but still apply; restrictions like these are known as encumbrances. To help protect against these situations, you buy title insurance, which is provided by the title company. The title company basically does two things: first, it conducts a title search to see if any encumbrances exist that might hold up the sale, and second, in case it misses something in the title search, it sells you an insurance policy, called a title insurance policy, that will provide money to help sort out any title dispute that may emerge later. Title insurance is important, and the lender for your mortgage will usually require that you have it. In some states, sellers may be required to buy their own title insurance policy. You will probably also have to buy title insurance if you refinance your mortgage. While this might seem an unnecessary expense when you are not selling to anyone else, the lender needs to confirm that your title is still clear and unencumbered before the lender will complete the new loan. [see refinancing (mortgage)] The premium for title insurance is paid just once, at the closing, and then coverage typically lasts until you sell the property.
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