Escrow
These are funds put into an account controlled by a neutral
third party. Once pre-determined conditions are met, the
funds are released. An escrow officer holds the funds
and documents required for the mortgage closing. it is
up to the escrow officer to ensure the appropriate parties
are paid according to the terms. |
PMI (Private Mortgage Insurance)
This is insurance a buyer must carry if they are considered
high-risk (meaning they put down less than 20 percent
for the down payment). PMI is also called default insurance.
A high-risk buyer must also carry homeowners insurance
in addition to PMI. |
FHA (Federal Housing Administration)
This organization is run by the Federal government and
insures the loan for the lender. FHA loans are available
to buyers with as little as a three percent down payment.
A low percentage down payment requires the buyer to carry
mortgage insurance issued by the FHA. |
Contract for Deed (Land Contract)
In this situation the owner/seller keeps the title in
his/her name and receives payment installments from the
buyer. The buyer receives the title when all payments
are complete. |
Balloon Mortgage
These mortgages typically have a term of 5 to 7 years
and begin with payments similar to those of a 30-year
mortgage. At the end of the term, the buyer must payoff
the remainder of the loan. This is usually a large sum
and the reason for the term "balloon payment". |
Fixed Rate Mortgage
The interest rate and principal payments do not change
over the course of the loan. |
Assumption Mortgage
With this arrangement, the buyer agrees to "take-over"
payments on the seller's existing mortgage. It can save
money on closing costs but tends to leave the seller vulnerable
because it is ultimately their responsibility to ensure
that the mortgage is paid (unless the lender agrees to
a release.) |
VA (Veterans Administration) Mortgage
This federal agency guarantees mortgages obtained by qualified
individuals in the armed forces, active personnel, veterans
and their widows. |
Points
These are finance charges paid to the lender as part of
the closing costs. One point is equal to one percent of
the total mortgage loan amount. Buyers should ask their
lender how they can secure a lower interest rate by paying
more points. |
ARM (Adjustable Rate Mortgage)
These mortgages have interest rates that are adjusted
in accordance with the market. If the market interest
rates rise, so do the payments. If the rates drop, the
the payments are lowered. |
Conventional Mortgage
This is a contract between the lender and the borrower.
It is done at the risk of the lender. The borrower uses
an existing property they own as collateral. Federal insurance
programs do not insurance conventional mortgages but private
mortgage insurance companies can individually insure them. |
Jumbo Mortgage
These mortgage have special terms determined by the lender
when the property is of very high value. |
Seller Financing
The seller agrees to finance all or part of the loan for
the buyer. |
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