As is common with most areas of expertise, mortgage industry is also full of jargons and terms that may seem confusing. These play significant roles in deciding the amount you eventually end up paying for your property. Let's try and explore some of the most commonly used terms in the mortgage industry.
Application Fee:
An application fee is the amount that the mortgage lender will charge in order to process your applications. This processing may include charges for appraising the property or generating credit report.
Appraised Value:
The appraised value is the value of the property when appraised by a lender or a certified property evaluator. An appraised value is generally different from the Sale value of the property.
Borrower:
Borrower is the one who mortgages the property to the lender and takes the loan. A mortgage can have multiple borrowers.
Interest Rate:
This is the periodic charge on the borrower's monthly installment towards payment of the loan amount. Interest rate is expressed in percentage and is dependent on the market condition. A lender generally assures the borrower a particular rate of interest which is referred to as a 'lock in' rate. This rate is valid for a certain time period and provides security to your interest amount against market fluctuations.
Loan Amount:
This is the amount that the mortgage lender lends to the borrower against the mortgage of the property. This amount could be as high as 95 of the property price. A borrower with higher disposable income can make more payment if they desire so.
Mortgage Lender:
In mortgage, a lender is generally a financial institute a bank or a broker firm that has the necessary disposable amount to pay for the property. A mortgage banker originates mortgage loans, loans the borrower funds and closes the loan in their name. Mortgage brokers do not fund the loan by themselves but work in behalf of bankers to do the brokerage of the loan.
Mortgage Points:
Mortgage points refer to certain charges that need to be paid in order to obtain a mortgage on a property. As a borrower remember that there are two different kinds of mortgage points. These are discount points and origination points. The lenders do not all charge the same amount for these different types of points.
Refinance:
This applies to the borrowers who are taking a second mortgage on their property. Often people take out a second mortgage in order to refinance because they plan to pay off the first mortgage. A refinance is essentially financing the property again.
Sale Value:
This is the value at which the borrower buys the property. It is part of the Sale Value that the borrower pays as down payment to the seller and borrows the rest from a mortgage lender in the form of a loan.
To be able to fully understand the concepts of residential real estate appraisal, here is a list of important terms with meaning. Appraisal becomes important in times of selling the property, buying a property, divorcing the partner, settling the estate, and relocating an employee. In some point of our lifetime, we are going to encounter appraisals at least once.
Fair Market Value
It is the median price between the highest price acceptable to buyer and lowest price acceptable to seller.
Market Value
It is the most likely price at which the property would sell. The property must sell at a right price in which the price is not too high and low. Thus, an overprice property will sell a little longer. In most cases, an overprice property sells when the market value catch up with the selling price.
Price
It is often confuse with Market Value. Price differs slightly from Market Value. Although the Market Value gives the seller an idea how much to sell the property, the price may be higher or lower than the Market Value. For example, a buyer is willing to pay $20,000 more than the Market Value. This happens when there are many potential buyers for the property.
Value in Use
This relates to the net present value (NPV) of the property use. The NPV is the difference between present value of cash inflow and outflow. For example, a home buyer wants to purchase a property. He estimates the future cash flow that the property would generate. Then, he discounts the cash flow into a lump sum value amount. Let us say $450,000. If the home owner sells less than $450,000, the home buyer considers in purchasing the property.
Investment Value
It is the amount that the investor would pay to acquire the property. The Investment Value may be higher or lower than the fair Market value.
Insurable Value
The Insurance Policy covers the value of the property which is the Insurable Value.
Subject Property
It is the property which the appraiser evaluates or analyzes. The Appraiser analyzes the location, amenities, and condition of the subject property to arrive to the fair market value.
Comparables or Comps
Appraiser compares the subject property to another local property. The other local property is called Comparables or Comps. With the information from Comparables or Comps, the Appraiser calculates the fair market value of the subject property.
Real Estate Appraisal covers a huge scope. It is impossible to include all appraisal terms. For any missing key terms, you may consider online mortgage dictionary. A dictionary awaits your command. In an instant, it searches for possible definition.
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