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Financing Vocabulary
The Financing Industry has its
own vocabulary. Knowing what the
different terms mean can go a long way towards helping you understand
what is happening when you are getting a real estate loan. Many borrowers will pay “points,”
but don’t understand what they are doing.
Below is a list of financing vocabulary that will help you get
through this process with a greater awareness of what is occurring.
Deed of Trust
A document used to pledge a property as security for a loan. More commonly used in Maryland in place of a mortgage. A deed of trust is a three-party instrument. The third party is a trustee, who holds onto legal title on behalf of a lender.
Discount Fee
Also called the Loan Discount or Discount Points. The most common type of point(s). Used to allow the lender to charge a lower
interest rate without lowering the amount of profit they make on the loan.
While it may require the buyer to pay more cash up front, it will
allow the buyer to qualify for a larger loan (and therefore buy a more
expensive house), and over the life of the loan will save the buyer money.
See also “Point.”
Fannie Mae
The common nickname for what was originally called the Federal
National Mortgage Association (FNMA). This is the oldest and largest secondary
market institution. Most
lenders will try to follow Fannie Mae guidelines, as these are the most
stringent guidelines out of all the secondary market institutions. Following these guidelines will generally
allow the loan to be sold to any of the other institutions.
Ginnie Mae
Another secondary market
institution. Originally called
the Government National Mortgage Association (GNMA). As an agency of the U.S. Department of Housing and Urban Development
(HUD), they only purchase government backed loans (FHA and VA loans).
A document used to pledge a property as security for a loan.
Although in common usage, the term is used interchangeably with
the term “loan,” it is actually only one part of the loan agreement, and
is what the borrower gives the lender in exchange for the loan.
The borrower in a mortgage is referred to as the mortgagor and
the lender is referred to as the mortgagee.
Equivalent to one percent of the actual loan amount (not
the sale price). A fee used by
the lender to cover their costs of preparing the loan, or to make the
loan as profitable as it would be if they charged a higher interest rate. The two most common types of point to the
average borrower are the origination fee (loan origination) and the discount
fee (discount point, loan discount).
The “market” where existing loans are bought and sold.
Many loans are sold by the original lender, either to another lender,
or to institutions that are set up specifically to buy loans from lending
institutions.
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