A Good Faith Estimate is a standardized document required by law, and presented to a property purchaser by a mortgage lender during the loan-application process. This form includes a standard set of information that is designed to help homebuyers compare the terms of different mortgages. The Good Faith Estimate must spell out all fees and costs associated with the mortgage, including loan charges, any fees charged by third parties, and other costs such as the expense of title searches and
title insurance policies required by the lender. For homebuyers who are purchasing through their mortgage lender, or looking for a comparison when getting multiple quotes, the Good Faith Estimate is where they should look to find the premium price for the policy and the cost of any associated service fees.
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act of 1974 was designed to provide clarity for consumers during the purchase of real estate, and prevent hidden fees and kickbacks in the transaction. This federal law also prohibits lenders from requiring that homebuyers use the services of a particular title insurance company. More recent regulations related to this law have continued to improve the transparency of the mortgage-buying process for homebuyers, including the development of the Good Faith Estimate.
Lien
A lien is any legal claim against a property that belongs to another person or entity, usually because the lien-holder has performed work on that property, or has lent money against that property as collateral. The most common type of lien is a mortgage loan, but other liens exist. An undisclosed lien is one type of title issue that can arise after a piece of real estate is purchased.
Mortgage
The term “mortgage” usually refers to a type of loan that is secured by a piece of real property. In most cases, the loan is made so that the borrower is able to finance the purchase of the property, but not always. Lenders such as banks usually issue mortgages for set periods of time with the borrower paying interest on the principal. In some cases, mortgages can be adjustable, with the interest rate or terms of the mortgage changing over time. If the borrower is unable to pay the mortgage loan according to the agreed-upon terms, the mortgage holder has the right to foreclose, or seize the property by which the loan is secured.
Deed
A deed is a legal document that grants a right to an individual or a party, such as a right of ownership. In a real estate transaction, the transfer of the deed from the seller to the buyer for the purchase price constitutes the transfer of ownership. When a piece of property is secured by a mortgage loan, the deed can either be held by the borrower, the lender, or a neutral third party acting as a trustee, depending on the state where the property is located.
Risk
The term “risk” can refer to two different things for insurance purposes. The first is uncertainty that can arise about certain events happening. Insurance companies try to measure this risk so they can calculate the premium they must charge to cover the possibility of adverse events. The other use of the term is to refer to the actual insured person or property that is covered by a particular insurance policy.
Exclusions
Exclusions are provisions of an insurance policy that refer to specific risks, hazards, perils or occurrences that are not covered by the policy. Exclusions are usually part of the insurance policy form, and spell out the details of what is not covered. In some cases, the exclusions can be extremely broad (like “war”) and apply to many different types of policies, while in other cases they can be specifically tailored to a certain type of policy.
Limits
The limit of an insurance policy is the total amount of losses that will be paid by the policy. In some cases, the limit is determined on a per-occurrence basis, which means that the limit can potentially be paid out for each claim that is filed, no matter how many are filed during the policy period.
Liability
A liability is any legally-enforceable obligation. For insurance purposes, a liability is the obligation that an individual or other entity has to pay money for an injury or damage caused by one’s actions. At its essence, most insurance is a way to protect against liabilities.
Premium
The premium is the amount of money that the purchaser of an insurance policy pays an insurance company in exchange for coverage through the policy. Premiums can be paid on an annual basis, monthly, or through some other plan. With a title insurance policy, premiums are paid in one lump sum. Premiums are determined through underwriting, in which the insurance company assesses the risk presented by a client’s liabilities, and determines how much money the insurance company must charge to adequately provide for taking a gamble by covering those risks.
Rider (Endorsement)
A rider, or endorsement, is a special form that is attached to an insurance policy that alters the policy in some way. One of the common uses for a rider or endorsement is to provide additional insurance coverage that is not provided in the body of the policy. This insurance could include coverage for additional risks, higher limits of insurance, or in other ways change the scope of the policy. Insurance policies’ endorsements can also be used to limit or restrict the insurance coverage in some way, to clarify the way the coverage applies to a specific exposure, or to add other parties or locations to the insurance policy. In general, any changes that a business owner or individual wants to make to the basic policy coverage form will be expressed through an endorsement to the policy. Depending on the details of the endorsement, it can either raise or decrease the premium costs of the policy for the insured.
