In Mortgage Lending Terms Explained Fa – Fo we discussed a number of key terms related to the mortgage industry and real estate. This included an explanation of terms like Fannie Mae, FHA Mortgage, FICO, First Mortgage, Fixed Rate Mortgage and Foreclosure. In this installment of the series we’ll detail several more terms in an effort to help better educate and empower first time home buyers, people looking to refinance and all other types of mortgage borrowers.
Good Faith Estimate
This document is a list of the fees a buyer is scheduled to pay at closing. In general this document will itemize all items such as fees and other closing costs, and must be provided to the buyer within three days of making an application.
A grace period is a span of time after a payment due date where the monthly payment amount can still be made without incurring late fees or additional penalties. Many other types of loans have a grace periods on payments, including credit card accounts and auto loans. However, it’s generally not advised to utilize a grace period unless you absolutely have to.
Graduated Payment / Interval
A graduated payment refers to a mortgage where the payments increase gradually over a specified period of time, usually in percentage-based intervals. Generally a graduated payment structure will cause the payment amount to increase until a set time where it levels off and becomes consistent for the remainder of the loan. This is especially useful for small business owners and others who can expect regular increases in wages or income.
Homeowners insurance protects both the borrower and the lender by mitigating risks presented to the property or real estate in question. This type of insurance provides protection and benefits in the event of damage or other loss to the property such as that caused by flood, fire, vandalism, etc. In almost all cases lenders require home owners insurance as a condition of the mortgage loan.
Home Equity Line of Credit
Also known as a HELOC, a home equity line of credit allows a borrower to open an account based upon the equity in their home or property. The borrower can utilize money from this account for virtually any purpose and pay the HELOC back according to set terms. As long as there is a balance available to borrow against, the line of credit can be used repeatedly and indefinitely.
Interest Only Mortgage
With this type of mortgage monthly payments are allocated entirely to interest for a set period of time. This type of mortgage may provide lending opportunities that would otherwise be difficult to obtain for some people.
Understanding mortgage lending terms and jargon is important because a better educated borrower is one who is generally more responsible and therefore more appealing to banks, as well as being more deal-savvy and capable of obtaining the best terms possible. In the next installment in this series we’ll discuss a number of other important terms related to mortgage borrowing and real estate lending. However, if you’re ready to take action on a property or refinance opportunity now, call the number at the top of your screen for an immediate, free consultation with one of Pennsylvania’s leading mortgage lenders.