cfm - mortgages

mortage

a type of loan for a residence or property paid over a term

typically 15 or 30 years

borrower (mortgagor)

the person taking out the mortgage

lender (mortgagee)

usually a bank or other financial institution

fixed rate mortgage

interest remains the same “fixed” for the life of the loan

life of loan = term

adjustable rate mortgage “arm”

interest rate is generally fixed for a period of time

after that, it will periodically adjust up or down

• adjusted annually or monthly

• example: 5/1 ARM

principal

the amount of money that is borrowed for the mortgage

interest

a financial charge for the use of the lenders money, calculated by using an interest rate (similar to a credit card)

closing costs

costs incurred by the buyer during the mortgage process

down payment

the amount of the purchase price that the buyer is paying upfront

• price of home - down payment = mortgage amount

equity

the difference between the value of the home and what you owe on the mortgage loan

• every payment = equity increases

• borrow equity from your own house

• improvements

• freedom to do what you want with your property

pay stubs - recent

• document an employee receives attached to the paycheck

• provides current salary, tax, benefit information

W2 forms

• reports an employees annual wages and the withheld from his or her paycheck

no doc mortgage

• program in which income and assets aren’t disclosed on the loan application and employment isn’t verified

home appraisal

• estimation of a home’s market value by a licensed appraiser

• based on comparable recent sales of homes in the neighborhood

home title

document that gives evidence of legal ownership of property

• title search

  • examination of public records to determine and confirm a property’s legal ownership

property liens

legal claim on real estate granting the holder a specified amount of money upon the sale of the property

loan origination fee

one time fee charged by lenders for the services involved in setting up and processing a loan

point

it is interest that you prepay at closing

• also called prepaid interest

• reduces your apr

• the amount of reduction in apr varies daily depending on market conditions

• cost of 1 pt = 1% of mortgage

term

the length of the loan

escrow

a financial agreement where a neutral third party (escrow agent) holds funds or assets on behalf of two parties until specific conditions are met, ensuring a secure transaction

pmi - private mortgage insurance

insurance policy designed to protect the lender from any default by the borrower

• pay if you don’t put 20% down

  • loan to value ratio (mortgage/home value)

ends once 20% is covered

• added to mortgage payment

• try to avoid paying PMI

closing costs are ____% of costs of the house

2-5

buying contingent

a condition that must be satisfied before a contract is binding

• home inspection passes

• appraisal is correct

• mortgage approval

mortgage payment p.i.t.i.

mortgage payment typically consists of:

• principal

• interest

• taxes

• insurance

bank puts taxes and insurance in escrow account and pays it for you

money goes into account until bill needs to be paid

recommended conservative formula

3x’s your family income with 20% down

if someone makes $100,000

• 300,000

foreclosure

process of taking possession of a mortgaged property as a result of the mortgagors failure to pay

bank will take over the house

short sale

sells house “short” of what you owe but better than bank owing

lease

a legally binding contract that explains the obligations and rights of both the tenant and landlord

defines:

• term (length)

• deposits

• monthly rental amount

• responsibilities (landlord & tenant)

• fines, fees, charges

renters insurance

inexpensive policy vs. the benefits you receive

• covers your stuff inside the apartment

  • fire, theft, vandalism

    covers alternate living arrangements if apartment becomes uninhabitable (i.e. fire, flood, etc.)

    may protect if someone gets hurt in your apartment

  • known as liability

    $50,000 coverage about $25 a month