Stearns Glossary

Mortgage Terms

Buy-down – This is a buyer incentive in which the lender subsidizes your mortgage by lowering the interest rate. During the first few years, the loan payments will be lower. Buy-downs generally last from one to five years.

Annual Percentage Rate – The Annual Percentage Rate, or APR, is the cost of your credit expressed in terms of an annual rate. Because you may be paying points and other closing costs, the APR can be compared to other loans for which you may have applied and give you a fair method of comparing price.

Down Payment – This is a sum paid up-front to make up the difference between the purchase price and the mortgage amount. Down payments usually are 5-20% of the sales price on conventional loans. Lower down payment requirements may apply for FHA, VA and USDA loans.

Equity – Equity is calculated by the amount of principal you have repaid on your mortgage, plus any appreciation in your home’s value. Any other existing liens will be subtracted, lowering the total equity figure.

Foreclosure – Also known as a repossession of property, this occurs when the lender or the seller legally forces a sale of a property because the borrower has not met the terms of the mortgage.

Good Faith Estimate – A list that estimates your loan’s closing costs, any fees you will pay before closing, and any escrow costs you will encounter when purchasing a home. You will receive your Good Faith Estimate within three days after you apply for a loan. It’s designed to present your loan’s costs in an easy to read format, and help you make sound decisions when shopping for a loan.

Mortgage Insurance – Insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan. MI typically is required if your down payment is less than 20% of the purchase price.

Closing Costs – Closing costs include the loan origination fee, discount points, appraisal costs, and any other charges associated with the legal transfer of property.