Understanding The Language of Mortgage Financing

First Atlantic Mortgage L.L.C. understands our customers and their need to understand the information that they receive. As part of our continuing service we have provided definitions for many of the words that you may read or hear during the loan process.

Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is adjusted during a predetermined period based on the change of a financial index.

Amortization - Paying the loan off by installment. The debt is reduced as the payments are made so that the loan is paid off at the end of the term of the loan.

Annual Percentage Rate (APR) - This is the rate that is actually the total cost of the loan, factored as a yearly rate.

Application Fee - A part of closing costs, prepaid to the finance company to cover initial costs.

Appraisal - A report made by a qualified person as to the value of a property as of a given date.

Assessed Value - The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.

Assumption of Mortgage - The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable

Balloon Mortgage - A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term.

Bridge Loan - A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or until the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.

Broker - The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Cap (interest rate) - The maximum interest rate increase allowable on an adjustable rate mortgage. Does not result in negative amortization.

Cap (payment rate) - The maximum payment amount increase allowable on an adjustable rate mortgage. May result in negative amortization.

Certificate Of Title - A statement that shows ownership of property, stating that the seller has clear legal title.

Closing - The concluding day of the real estate transaction, when title and deed pass from seller to buyer, the buyer signs the mortgage and pays the purchase price and closing costs.

Closing Costs - Expenses over and above the purchase price, incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."

Closing Statement - A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account.

Commission - An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.

Comparables - Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.

Contingency - A condition that must be met for a contract or a commitment to remain binding.

Conventional Mortgage - Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded by a government authorized bond sale or grant.

Credit Report - The report to a prospective lender on the credit standing of a prospective borrower.

Deed - A legal written document by which title to property is transferred.

Default - Failure to fulfill the terms as agreed to in the mortgage of note.

Down Payment - The difference between the sale price of a property and the mortgage amount.

Due-On-Sale - A clause in a mortgage, which gives the lender the right to require immediate repayment of a mortgage balance if the property changes hands.

Earnest Money - The deposit money given to seller or his agent by the potential buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment.

Easement - A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone's property.

Encumbrance - Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid back taxes.

Equity - The value in which the owner has in real estate over and above the mortgages against it. When the mortgage and all other debts against the property are paid in full, the owner has 100% equity in his property.

Escrow - Funds and/ or deed left in trust to a third party. Generally, a portion of the monthly mortgage payment is held in escrow by the lender to pay for taxes, hazard insurance and yearly mortgage insurance premiums.

First Mortgage - A mortgage that has a primary lien against a property.

Fixed-Rates Mortgage - A mortgage with an interest rate and monthly payments that remains constant over the life of the loan.

Flood Certification - An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy.

Foreclosure - A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

Graduated Payment Mortgage - A fixed rate loan with monthly payments that starts low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan.

Gross Income - Normal income, including overtime, prior to any payroll deductions, which is regular and dependable. This income may come from more than one source.

Hazard Insurance - Insurance protection against damage to a property from fire, windstorms, and other common hazards.

Homeowner's Insurance - An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability

Income Property - Real estate that is owned for investment purposes and not used as the owner's residence.

Interest - A charge paid for the use of money.

Land Contract - When the buyer agrees to make payments directly to the seller at pre-negotiated terms. The seller agrees to deed the property to the buyer upon completion of the agreement. The buyer becomes the owner of equity in this type of sale. (Also see Owner Financing)

Lien - A legal claim on a property used as security for a debt.

Loan-To-Value Ratio - The relationship between the amount of the mortgage and property value, usually shown as a percentage.

Market Value - The price at which a property will sell, assuming a knowledgeable buyer and seller, both operating without undue pressure.

Mortgage - A contract in which a borrower's property is pledged as security for a loan, which is to be repaid on an installment basis.

Mortgage Note - A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.

Mortgagee - The lender in a mortgage contract.

Mortgagor - The borrower in a mortgage contract.

Negative Amortization - A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.

Offer to Purchase - A written proposal to buy a piece of real estate that becomes binding when accepted by the seller. Also called a sales contract.

Origination Fee - A fee charged for the work involved in the evaluation preparation and submission of a proposed mortgage loan

Owner Financing - A purchase in which the seller provides all or part of the
financing.

PITI - An acronym for payments to lender that cover principal, interest, taxes and insurance on a property.

Plat - A map of a piece of land showing boundary lines, streets, actual measurements and easements.

Point - A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point

Prepayment Penalty - A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.

Pre-Approval - A commitment by a lender to extend credit provided that specific conditions are met.

Pre-Qualification - A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.

Prime Rate - The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short term interest rates.

Principal - The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

PMI (Private Mortgage Insurance) - Insurance written by a private company to protect the lender against loss caused by mortgage default.

Qualifying Ratios - Guidelines applied by lenders to determine how large a loan to grant a homebuyer.

Real Estate Settlement Statement - Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing.

Realtor - A real estate broker or sales associate affiliated with the National Association of Realtors.

Recording Fee - The charges made by the register of deeds to record the legal documents.

Refinancing - Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.

Second Mortgage - A loan on property, which already has an existing mortgage (the first mortgage). The second mortgage is subordinate to the first.

Survey - A map prepared by an engineer or surveyor charting a particular piece of real estate.

Title - Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances, which could impair the title.

Title Insurance Policy - Protection against financial loss arising from defects in the title occurring before purchase.
Title Search - A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.

Transfer Tax - In some areas city, county or state taxes imposed when property passes from one person to another.

Truth-In-Lending - A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

Underwriting - The process of evaluating a loan application to determine the risk involved for the lender

First Atlantic Mortgage LLC of Georgia