In Mortgage Lending Terms Explained Co-De, we detailed a number of key terms related to the mortgage lending and real estate industry. Understanding of these terms is critical in order for mortgage borrowers to be able to accurately comprehend the intricacies of their new home loans, construction loans and refinances. A better educated mortgage borrower is generally much more equipped to negotiate and secure the best loan type and rate possible, so careful study of mortgage industry terms and jargon is highly recommended.
Deed in Lieu of Foreclosure
In this process a homeowner that is generally under financial or other duress surrenders the deed of the property directly to the bank. This is done in order to avoid foreclosure or other complicated and lengthy legal proceedings, and in some cases borrowers that are “underwater” simply walk away from their mortgages by handing over the deed to the lender.
While this practice does alleviate the immediacy of many financial concerns, there are a number of serious consequences that could result, so borrowers are advised to take professional counsel prior to making such a decision.
When a borrower is unable or unwilling to pay their loan as agreed they are usually deemed to be in default. Default status depends on the type of loan and the individual circumstances of the case, but can be considered to occur as early as just a few payments delinquent. Going into default can have a significant adverse effect on the borrower’s credit and may cause other complications should the lender opt to pursue the case in court.
Nearly all types of mortgage loans require a down payment, usually between 10% and 20% of the total purchase value of the property. For example, the down payment on a $200,000 property will generally be 20% or $40,000. FHA mortgages often have much lower requirements than traditional mortgage loan types.
The equity you build up in your home is the difference between what you owe and what your property is currently worth. For instance, on a $200,000 mortgage that you’ve held for 10 years and paid down to $125,000 on a property currently worth $380,000, you’d technically have $255,000 in equity.
Many lenders allow homeowners to borrow against the equity in their home and there are a number of products that are designed to offer specific solutions in this regard, including revolving equity lines, reverse mortgages, equity cash outs and other types of mortgage loan products.
Escrow refers to the practice of two or more parties placing items of value – particularly cash or other liquid assets – with a third party for “safe keeping” and distribution. The idea behind this is that the third party will hold the funds until each of the other parties have completed their responsibilities under the escrow agreement, at which time the third party or escrow company will verify and distribute the escrow funds.
In the next installment of this series we’ll detail the next set of mortgage industry terms that you should know in order to get the best mortgage loan possible. But if you’re ready to tack action now, call the number at the top of your screen to get an immediate quote from our Pittsburgh mortgage company, or use our simple online application form to find out how close your new house or property really is.