1. What is an appraisal?
An appraisal is a statement of property value made by an independent, licensed appraiser. It is done to insure that the value of the property is sufficient to secure the loan in the event that the borrower fails to repay the loan in accordance with the provisions of the mortgage contract. The value is set based on the home itself and on recent comparable sales of homes close to the subject property. The appraisal does not necessarily detects any defects in the property or on the title.
5. What is private mortgage insurance (PMI)?
Private mortgage insurance protects the lender from loss due to payment default by the borrower. It is used on conventional financing only. It may be paid in a lump sum at the time of settlement or in monthly installments as part of the mortgage payment. PMI is typically required when the amount of your loan exceeds 80% of the subject property’s value. This type of insurance should not be confused with mortgage life, credit life, or disability insurance which is designed to pay off a mortgage in the event of the borrower’s disability or death.
6. What is title insurance?
Title insurance protects the lender against loss due to problems or defects related to the title on the property being mortgaged. These problems would typically involve ownership claims against the property which were not identified by the title search. It is paid for with a one-time premium at the time of settlement.
7. What are escrows?
Escrows are funds collected with the borrower’s monthly payment and accumulated to pay for items such as property taxes or hazard insurance as they come due. Escrows are also collected at settlement to start the escrow account. Es-crowed funds can also be referred to as hold backs, reserves, or impounds.
10. What is the underwriting fee?
This fee covers the lender’s administrative costs in processing/underwriting the loan.
11. What is a flood certification/flood insurance?
A flood certification will identify a specific property as being within or not within a flood hazard area as defined by FEMA, a federal government agency. If the property is within a flood zone, you will be required to carry flood insurance, protecting you and the lender from loss due to flood damage.
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