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Junk Fees
A junk fee is a derogatory term defining extra fees tacked on by the lender, which are charged as a dollar figure rather than a percentage. It is important to know that you can often negotiate these fees or have them removed if they have not been properly disclosed to you. The lender is required to provide you with a Good Faith Estimate disclosing their fees within three days of your application.
Other fees that are NOT considered junk fees are the appraisal fee, credit report fee, escrow or attorney fee, title insurance fee, recording fee, notary fee and transfer taxes. These are legitimate fees that are paid to third parties and are necessary to complete the transaction.
Glossary of Terms
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre−selected index, also referred to as the renegotiable rate mortgage.
Amortization
Means of loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Annual Percentage Rate (APR)
The interest rate that reflects the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan, however all lenders do not calculate APR the same way.
Buydown
This is when the lender and/or home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they increase when the subsidy expires.
Construction Loan
This is a short−term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.
Discount Points
Prepaid interest assessed at closing by the lender. Each point is equal to one percent of the loan amount, i.e., two points on a $100,000 mortgage would cost $2,000.
Earnest Money
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 Mortgage Insurance
Requires a small fee or down payment (up to 3.5% of the loan amount) paid at closing or a portion of the fee added to each monthly payment of an FHA loan to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of 1.25% (MIP) and 1.75% Up Front Fee that is financed in your loan amount.
Impound/Escrow
That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one−year, three−year, and five−year US Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs−of−Funds incurred by savings and loans) which is then used to adjust the interest rate on an adjustable mortgage up or down.
Loan Originator
This person assists you in all your mortgage needs, helps you in the application, processing and funding of your loan, but does not loan the money himself. Loan originators usually charge a fee or receive a commission from the lender for their services.
Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
