Annual Percentage Rate: Also referred to as APR, this is the cost of credit expressed as a yearly rate. It is a technical calculation that incorporates the costs of obtaining your loan. Therefore, it is often slightly higher than the interest rate on your note. You will see it expressed on the Truth-in-Lending Disclosure Statement.
Attorney Fees: The law firm that conducts the closing on behalf of the lender charges a fee for their services, listed on the Settlement Statement.
Escrow Account: To protect its interest in your property, your lender will establish an escrow account to collect for your annual tax bill and your annual hazard insurance premium. Each month you will write one check to your lender in an amount equal to the principal and interest on your note, one-twelfth (1/12th) of your estimated annual taxes and one-twelfth (1/12th) of your insurance premium. The tax and insurance payments are set aside in an escrow account that builds over the year. When your taxes are due, the lender issues a check to the taxing authority and when your hazard insurance is due, the lender issues a check to the insurance company out of that escrow account. Under certain circumstances and for a fee, a lender may waive escrow requirements if requested at the time you apply for your loan.
Foreclosure: If you fail to pay your mortgage, state law provides a procedure for the sale of the property securing the note, thereby satisfying the obligation. In Georgia, foreclosure is a non-judicial process. That is, the lender does not have to sue the borrower in court and obtain a judgment against the borrower. Rather, Georgia permits the lender to provide legal notice to the borrower, then sell the property at public auction. (See O.C.G.A. §7-1-1014)
Good Faith Estimate: Your lender will provide to you a Good Faith Estimate disclosing all the estimated amounts and types of costs you should expect to pay in order to consummate the loan. It generally reflects the same format as the final Settlement Statement. Please remember, although the estimate must bear a reasonable relation to the actual costs, it is only an estimate. Be prepared for the final figures to vary somewhat.
Hazard Insurance: Hazard insurance is the homeowner's insurance that covers the real property from fire and other casualties. It is a requirement on all real estate purchases that involve improved property. The premium for the first year is usually charged to the buyer on the Settlement Statement, collected at the closing, and paid to the insurance company. The lender then collects one-twelfth (1/12th)) of the annual premium amount each month, accumulates these funds in your escrow account and renews that policy the following year.
HUD-1 (Settlement Statement:): The Real Estate Settlement Procedures Act (RESPA) requires the use of the HUD-1. It is a uniform settlement statement setting forth the accounting of funds from a real estate sale, made to both the seller and the buyer separately. All charges imposed on the borrowers and the sellers are itemized on the form.
Intangible Tax: You must pay to the state this tax for recording the security instrument. You must pay $3.00 per $1000 based on the amount of money you are borrowing. It will be included on the Settlement Statement.
Mortgage Insurance: Frequently called private mortgage insurance, or PMI, this insurance protects the lender against nonpayment or default on the loan. It is often a condition of the loan if you are borrowing more than 80% of the property value to purchase the home. Under certain loan programs and conditions, you have the right to request cancellation of PMI once the principal balance of your loan reaches 80% of the property value.
Note: The written instrument that acknowledges a debt and a promise to pay is commonly known as a note. It contains your loan amount, interest rate, first payment date, maturity date, principal and interest amount due monthly and any penalties for late payments. It can be a fixed or adjustable rate, the terms of which are disclosed in the note.
Planned Unit Development (PUD): A PUD is a property wherein a parcel of land is improved with a dwelling, together with other such parcels, common areas and facilities recorded in the county plat book. Most neighborhoods are PUDs and require that you agree to be bound by the neighborhood covenants, conditions and restrictions. The PUD Rider is signed at closing and recorded with the Security Deed.
Prepaid interest to the lender: The interest on your note is always paid in arrears. In other words, the current month's payment includes last month's interest. On the date of closing, you will pay the interest from the date of closing through the end of that month, known as prepaid interest.
Post Closing and Handling Fee: Our firm charges this fee to cover several expenses, such as handling fees and in some instances, reimburses the law firm for certain out-of-pocket fees and additional expenses incurred to deliver and record documents and assignments. This fee is part of the firms overall compensation for conducting the closing.
Pro-ration of Taxes: Most counties in the Atlanta area collect the annual property tax in the fall. Whoever owns the property on the due date must pay for the entire twelve months. Therefore, the annual taxes are prorated between the buyer and the seller as of the closing date. Your portion will show as a credit or a debit depending on several factors including whether you close before or after the taxes are due.
Security Deed: This legal instrument pledges your house as collateral for the loan you obtained to purchase the house. It is recorded in the county records where the property is located and effectively puts a lien on your house for the loan amount. The security deed allows the property to be sold utilizing Georgia's foreclosure proceeding if you fail to pay your mortgage.
Termite Letter: In Georgia, like many states, termites are a problem. Sales contracts usually require that a termite letter indicate that the property is free and clear of termites or that a termite bond is provided at the closing. In fact, the lender may require a termite letter as a condition of the loan regardless of the terms of the contract. The failure to obtain the termite letter or a termite letter indicating termite damage, will likely halt or significantly delay the closing. The termite letter should be obtained early so that any infestations can be corrected prior to closing.
Title Examination: A title examiner will conduct a search of the county property records to determine its ownership. Title exams may reveal defects in the title such as breaks in the chain of title, errors in prior recorded deeds, name variances, unsatisfied or unreleased liens, mechanic's liens, judgment liens, or tax liens, to mention a few.
Title Insurance: A title exam is only as good as the examiner's ability. Furthermore, some problems are simply not discernable to a title examiner, such as forged signatures, missing heirs to property, wills not yet probated, deeds executed by minors, indexing mistakes, and confusion due to similar names. Title insurance insures against loss caused by these types of defects. Your lender generally requires lender's title insurance as a condition of the loan and it protects the loan amount. However, as the owner, your interest is insured only through a separate policy called owners title insurance. In Georgia, owner's title insurance is optional, but highly recommended. It is a one-time fee at closing.
Transfer Tax: Transfer tax is not a property tax. Rather, it is an excise tax on the privilege of selling property. The security deed cannot be recorded until the transfer tax is paid. It is paid at a rate of $1.00 per $1000 of the purchase price. Although customarily paid by the seller, either the buyer or the seller may pay the tax as set forth in the sales agreement. It will appear on the Settlement Statement.
Truth-in-Lending: Federal law requires that lenders provide consumers with information for their use of credit. Lenders must disclose to the borrower the true costs of a loan which is shown on the Federal Truth-in-Lending Disclosure Statement, a document you will sign at closing.
Waiver of Borrower's Rights: This document is signed at the closing and is an acknowledgement by the borrower that the lender has the right to accelerate the debt and initiate a foreclosure proceeding upon default by the borrower without taking the borrower to court.
Warranty Deed: The warranty deed is the written document that transfers ownership of the property from the seller to the buyer. It assures good title to the property, freedom from encumbrances, and quiet enjoyment.
MORTGAGE TERMS YOU SHOULD KNOW
ADJUSTABLE RATE MORTGAGE (ARM), is a mortgage which adjusts its interest rate periodically. The period between adjustment can be as short as 1 month or as long as 1 year. There are mortgage loan programs that have an initial fixed rate periods of 3, 5 or 7 years. Then they becomes ARM after the initial fixed rate periods. APPRAISALS are a professional person’s opinion of the value of the home to determine the fair market value for many purposes, especially for lending. All lenders usually require a current appraisal from a licensed reputable appraiser prior to granting a loan.
AMORTIZATION is the calculation of the amount of your monthly payment in such a way that you will pay off the principal and interest of your mortgage loan in an exact number of payments. Most mortgage loans are typically amortized in 10-30 years. That means that they are paid off in exact amount of years requested. Some mortgage loans have a short fixed rate period such as 3, 5 or 7 years but they could be amortized over 30 years to keep the payments low. That means that the monthly payment is calculated as if it was a 30-year mortgage loan, but the mortgage loan could be ended in 3, 5 or 7 years. When the mortgage loan ends, the borrower may have the option to convert it to some other terms as defined in the mortgage loan documents, or just pay off the balance, this is called a balloon payment
(APR) ANNUAL PERCENTAGE RATE is the actual rate of a mortgage loan taking the lender’s fees into consideration. The idea is for comparing the real per dollar cost of the mortgage loan. For mortgage loans that have no lender fees, the note rate is the same as the APR. For mortgage loans that have lender fees, we subtract these fees from the principal amount of the loan and calculate your payment rate against the adjusted amount, which we call the APR.
Another factor that affects the APR is the year term of the mortgage loan. The shorter the year term of a mortgage loan, the higher the APR will be. All lenders may not calculate the APR exactly the same way, even though they are required to do so. Using our Web site, you may obtain year to year comparisons of different mortgage loans. We even calculate the year to year APR's for you to compare. This is more exact than using a single APR figure based on the year term of a mortgage loan. If you compare APR's from other lenders, make sure that you know what assumptions are made for the calculations. (SEE "GOOD FAITH ESTIMATE")
CLOSING COSTS are the initial expenses you paid to obtain your mortgage loan. In our calculation, we consider only the mortgage loan origination fee and other closing fees as your closing cost. Pre-paid interest (discount points) and other recurring fees are not considered closing costs even though you pay them at the time you obtain your mortgage loan.
CURRENT MARKET VALUE is the value of your house if sold today. Usually the price you purchased at, adding 4% per year to the sales price would be a good start. The exception is, if you made capital improvements to the home, such as add on, or if the neighborhood has changed for the better or worse. However, your house's current market value is the appraised value, and this is usually determined by a State Licensed Appraiser.
DEFAULT VALUE requires the web site visitor to answer questions as requested, there are often supplied answers to the questions. The visitor may accept these "default values" as their own or if the answers do not apply to the situation, they may change them accordingly.
DISCOUNT POINTS (one discount point equals one percent of the loan amount) are fees charged to reduce the interest rate below the current interest rate market price, or may be additional fees charged by the Investor because of a risk factor.
FIXED RATE MORTGAGES, Besides fixed rate mortgages that pay off in 15 or 30 years, there are mortgages that amortized in 30 years with an initial fixed rate period of only 3, 5 or 7 years. After the fixed rate period, the mortgage needs to be paid off or become adjustable rate.
GOOD FAITH ESTIMATE (GFE) is a written document that is to be provided to you as required by law, the GFE sets out all of the charges you will incur in obtaining your loan. Always review your Good Faith Estimate prior to signing any type of agreement with any Lender.
LOAN ORIGINATION FEE is the Lender’s charge for their services as a percentage of the loan amount. One point equals one percent of the loan amount. The loan origination fee is a part of the closing costs. The closings costs consist of additional fees and the loan origination fee is one of those fees. (Please see Closing Costs)
NO CLOSING COSTS NO DISCOUNT FEES: The lender is willing to pay for all the closing expense of your mortgage loan in exchange for a higher interest rate.
Alisa L. Smith