Important Mortgage Terms You Should Know (Part 2 of 5)

As Your Mortgage Experts we feel it's important for our clients to familiarize themselves with terminology that is used throughout the loan process. Reading over your loan documents or speaking to someone who works in the mortgage industry might make you feel like you're in a foreign country, but getting to know these terms will help you feel more comfortable.

Discount Points
Prepaid interest assessed at closing by the lender. Each point is equal to 1% of the loan amount, i.e., two points on a $100,000 mortgage would equal $2,000. Discount points are charged to reduce the interest rate, or can be assessed as additional risk based loan level price adjustments (LLPAs).

Down Payment Assistance Program (DPA)
Payment Assistance Programs are funds given to buyers to assist with the purchase of a home. Buyers do not have to repay these funds. To learn what type of DPA Programs are available, ask your lender about local program options in your area.

Earnest Money or Escrow Deposit
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately-priced homes almost anywhere in the country. FHA loans offer a low down payment and more flexibility than many other types of financing.

FHA Mortgage Insurance (MIP)
All types of Mortgage Insurance protect the lender in the event of default. There are two types of FHA Mortgage Insurance that must be paid on all FHA loans . an Up Front Mortgage Insurance Premium (UFMIP), which is generally financed into the loan, and an additional monthly mortgage insurance premium, paid as a part of your normal monthly mortgage payment. Currently, the upfront premium is 1.75% of the loan amount and monthly premiums are generally 1.25% divided over each monthly payment for a 30 year fixed rate loan with minimum down-payment, and vary based on the term of the loan and the loan to value.

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