Acceleration
Clause
- Allows the lender to speed up the rate at which your loan comes
due or demand immediate payment of the entire outstanding balance
of the loan should you default on your loan.
Adjustable
Rate Mortgage (ARM) - A mortgage loan in which the interest
rate varies in accordance with changes in a specified index, and
may result in changed monthly payments.
Adjustment
Period - The length of time between interest rate changes
on an ARM. For example: a loan with an adjustment period of one
year is called a one year ARM, which means that the interest rate
can change once a year.
Adverse
Action - A denial of a loan in an amount and on terms acceptable
to the borrower.
Amortization
- Repayment of a loan in equal installments of principal and interest,
rather than interest only payments.
Annual
Percentage Rate (APR) - The actual cost of credit to the borrower,
including interest and certain other charges, expressed as a yearly
rate and calculated over the life of the loan. A guide to compare
the cost of loans. Back
to Top Application
- A verbal or written request for an extension of credit. Usually
a printed form on which the lender collects credit, income and
debt information about a prospective borrower, plus facts about
the property being used to secure the loan. A fee may be charged
at the time of application.
Appraisal
- An inspection of the property to assure that its market value
exceeds the amount of the loan. A fee may be charged for the appraisal.
Assumption
of mortgage - A buyer's agreement to assume the liability
under an existing note that is secured by a mortgage of deed of
trust. The lender must approve the buyer in order for the loan
to be assumed.
Balloon
(Payment) Mortgage - Usually a short-term fixed-rate loan
which involves small payments for a certain period of time and
one large payment for the remaining amount of the principal at
a time specified in the contract.
Borrower
- The person, sometimes referred to as the mortgagor, who obtains
a mortgage loan.
Broker
- An individual in the business of assisting in arranging funding
or negotiating contracts for a client but who does not loan the
money himself. Brokers usually charge a fee or receive a commission
for their services.
Back
to Top Buydown
- When the lender and/or the 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 will increase
when the subsidy expires.
CC&R'S
(Covenants, Conditions, and Restrictions) - A document the
controls the use, requirements, and restrictions of a property.
CAP
- The limit of how much an interest rate or monthly payment
can change, either at each adjustment or over the life of the
mortgage.
Certificate
of reasonable value (CRV) - A document that establishes the
maximum value and loan amount for a VA guaranteed loan.
Closing
- The time and date set for the transfer of the property from
seller to buyer and/or for the signing of the loan documents.
Closing
or Settlement Costs - Fees, plus the purchase price of the property,
charged at closing which include but are not limited to lawyer's
fees, title search and insurance, survey charges and fees to record
the deed, mortgage and other documents. Back
to Top Closing
Statement - The financial disclosure statement that account
for all of the funds received and disbursed at the closing including
deposits for taxes, hazard insurance, and mortgage insurance.
Commitment
Letter - A lender's written offer to grant a mortgage loan
outlining the terms, the amount of the loan, the interest rate
and any other conditions. It can also serve as a communication
of the lender's decision on the borrower's application.
Construction
Loan - A short term loan for financing the cost of construction.
The lender advances funds to the builder at periodic intervals
as the work progresses.
Contingency
Clause - A provision in some ARM's to convert to a fixed rate
loan, usually after the first adjustment period.The new fixed
rate is generally set at the prevailing interest rate for fixed
rate mortgages. This conversion feature may be an extra cost.
Counter-Offer
- an offer made by the lender to grant credit other than in the
amount or terms requested by the applicant.
Conventional
Loan - A mortgage not insured by FHA or guarantee by the VA
or Farmers Home Administration (FmHA). Back
to Top Credit
Report - The ratio, expresses as a percentage, which results
when a borrower's monthly payment obligation on long-term debts
is divided by his or her net effective income (FHA/VA loans)or
gross monthly income (Conventional loans).
Deed
of Trust - In many states, this document is used in place
of a mortgage to secure the payment of a note.
Default
- Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mortgage.
Deferred
Interest - See Negative Amortization.
Delinquency
- Failure to make payments on time. This can lead to foreclosure.
Department
of Veterans Affairs (VA) - An independent agency of the Federal
Government which guarantees long-term, low-or-no-down payment mortgages
to eligible veterans.
Back
to Top Discount
Points - Prepaid interest assessed at closing by the lender.
Each point is equal to 1 percent of the loan amount(e.g. two points
on a $100,000 mortgage would cost $2,000).
Down
Payment - Money paid to make up the difference between the
purchase price and mortgage amount. Down payments usually are
10 percent to 20 percent of the sales price on Conventional loans,
and no money down up to 5 percent on FHA and VA loans.
Due
on sale clause - An acceleration clause that requires full
payment of a mortgage or deed of trust when the secured property
changes ownership.
Earnest
Money - Money given by a buyer to a seller as part of the
purchase price to bind a transaction or assure payment.
Equal
Credit Opportunity Act - Federal and state laws that prohibit
discrimination in the granting of credit based on race, color,
religion, national origin, sex, marital status, age, or whether
a person is receiving public assistance or alimony.
Escrow
Account - Money held in trust by a third party to be turned
over to the grantee only upon fulfillment of a condition. Or collected
in advance by the lender, usually on a monthly basis, for the payment
of real estate taxes, betterment's and/or insurance. Back
to Top Fannie
Mae - See Federal National Mortgage Association.
Farmers
Home Administration (FmHA) - Provides financing to farmers
and other qualified borrowers who are unable to obtain loans elsewhere.
Federal
Home Loan Mortgage Corporation (FHLMC) - Also called Freddie
Mac, is a quasi-governmental agency that purchases conventional
mortgages from insured depository institutions and HUD-approved
mortgage bankers.
Federal
Housing Administration (FHA) - A division of the Department
of Housing and Urban Development. Its main activity is the insuring
of residential mortgage loans made by private lenders. FHA also
sets standards for underwriting mortgages
Federal
National Mortgage Association (FNMA) - A.K.A. Fannie Mae.
A privately owned corporation created by Congress to support the
secondary mortgage market. It purchases and sells residential
mortgages insured by the FHA or guaranteed by VA, as well as conventional
home mortgages.
Fee
Simple - An estate in which the owner has unrestricted power
to dispose of the property as he/she wishes including leaving by
will or inheritance. It is the greatest interest a person can have
in real estate. Back
to Top FHA
Loans - A loan insured by the insuring office of the Department
of Housing and Urban Development; The Federal Housing Administration.
FHA
Mortgage Insurance - Requires a small fee (up to 3 percent
of the loan amount) paid at closing or a portion of this fee added
to each monthly payment of an FHA loan to insure the loan with
FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this
fee would amount to either $2,250 at closing or an extra $31 a
month for the life of the loan. In addition, FHA mortgage insurance
requires an annual fee of 0.5 percent of the current loan amount,
the more years the fee must be paid.
Finance
charge - The total cost a borrower must pay, directly or indirectly,
to obtain credit according to regulation"Z".
Fixed
Rate Mortgage - a conventional mortgage loan with a set interest
rate and equal monthly payments for the entire term of the loan.
Lender - the entity or person, sometimes referred to as the mortgagee,
who offers the mortgage loan.
Foreclosure
- A legal procedure in which property securing debt is sold
by the lender to pay a defaulting borrower's debt.
Freddie
Mac - See Federal Home Loan Mortgage Corporation Back
to Top Ginnie
Mae - See Government National Mortgage Association.
Government
National Mortgage Association (GNMA) - Also known as Ginnie
Mae, provides sources of funds for residential mortgages, insured
or guaranteed by FHA or VA.
Graduated
Payment Mortgage - A residential mortgage with monthly payments
that is stated at a low level and increased at a predetermined
rate.
Gross
Monthly Income - The total
amount the borrower earns per month, before any expenses are deducted.
Guarantee
- A promise by one party to pay a debt or perform an obligation
contracted by another if the original party fails to pay or perform
according to a contract.
Hazard
Insurance - A form of insurance in which the insurance company
protects the insured from specified losses, such as fire, windstorm
and the like.
Back
to Top Housing
Expenses-to-Income Ratio - The ratio, expressed as a percentage,
which results when a borrower's housing expenses are divided by
his/her net effective income (FHA/VA loans) or gross monthly income
(Conventional loans).
Home
inspection report - A qualified inspector's report on a property's
overall condition. The report usually includes an evaluation of
both the structure and mechanical systems.
Home
warranty plan - Protection against failure of mechanical systems
with the property. Frequently includes plumbing, electrical, heating
systems, and installed appliances.
Impound
- 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 measure of interest rate fluctuations used to determine changes
in an ARM's interest rate over the term of the loan.
Investor
- Money source for a lender
Back
to Top Joint
tenancy - An equal, undivided ownership of property by two
or more persons. Upon death of any owner, the survivors take the
descedent's interest on the property.
Jumbo
Loan - A loan which is larger (more than $203,150)than the
limits set by the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. Because jumbo loans cannot
be funded by these two agencies, they usually carry a higher interest
rate.
Lien
- a legal claim, granted by contract or by a court, against
property. A mortgage is one kind of lien.
Loan
commitment - A written promise to make a loan for a specified
amount with specific terms.
Loan-to-Value
Ratio - the percentage comparison between the unpaid principal
balance of the mortgage and the sales price or the appraised value
of the property, whichever is lower.
Margin
- The number of percentage points the lender adds to the index
rate to calculate the ARM interest rate at each adjustment. Back
to Top Market
Value - The highest price that a buyer would pay and the
lowest price a seller would accept on a property. Market value
may be different from the price a property could actually be sold
for at a given time.
Mortgage
- a lien placed by the lender on the borrower's property
and removed when the note has been paid in full. If the borrower
defaults on the note, the lender can sell the property to satisfy
the debt.
Mortgage
Insurance - Money paid to insure the mortgage when the down
payment is less than 20 percent. See Private Mortgage Insurance
or FHA Mortgage Insurance.
Mortgagee
- The lender.
Mortgagor
- The borrower or homeowner.
Mortgage
Review Board - A voluntary board consisting of an equal number
of lenders and community representatives who will review the residential
mortgage loans denied by participating lenders where the applicants
believe the denial was based on the location of the property. Back
to Top Negative
Amortization - Negative amortization occurs when your monthly
payments are not large enough to pay all the interest due on the
loan. The interest that is not covered is added to the unpaid
principal balance, which means that even after several payments
you could owe more than you did at the beginning of the loan.
Negative amortization can occur when an ARM has a payment cap
that results in monthly payments that are not high enough to cover
the interest.
Net
Effective Income - The borrower's gross income minus federal
income tax.
Non-Assumption
Clause - A statement in a mortgage contract forbidding the
assumption of the mortgage without the prior approval of the lender.
Note
- The borrower's legally binding written promise to repay
a debt to a lender on a specified date.
Origination
Fee - A fee or charge for establishing a new loan. PITI Principal,
interest, taxes and insurance.
PITI
- Principal, interest, taxes, and insurance. Also called monthly
housing expense. Back
to Top Power
of Attorney - A legal document authorizing one person to
act on behalf of another.
Prepaids
- Expenses necessary to create an escrow account or to adjust
the seller's existing escrow account. Can include taxes, hazard
insurance, private mortgage insurance and special assessments.
Prepayment
- A privilege in a mortgage permitting the borrower to make
payments in advance of their due
Prepayment
penalty - A fee charged to a mortgagor who pays a loan before
it is due.
Principal
- The amount of debt, not counting interest, left on a loan.
Private
Mortgage Insurance (PMI) - In the event that you do not have
a 20 percent down payment, lenders will allow a smaller down payment-as
low as 5 percent in some cases. With the smaller down payments loans,
however, borrowers are usually required to carry private mortgage
insurance. Private mortgage insurance willrequire an initial premium
payment of 1.0 percent to 5.0 percent of your mortgage amount and
may require an additional monthly fee depending on your loan's structure.
On a $75,000 house with a 10 percent down payments, this would mean
either an initial premium payment of $2,025 to $3,375, or an initial
premium of$675 to $1,130 combined with a monthly payment of $25
to $30.
Back
to Top Point
- A non-refundable sum of money, equal to one percent of the principal
amount of a mortgage, charged by the lender to cover certain costs
of making a loan. The number of points that may be charged is
limited by law.
Purchase
Agreement - A written document in which the purchaser agrees
to by certain real estate and the seller agrees to sell certain
real estate under stated terms and conditions. Also called a sales
contract, earnest money contract, or agreement for sale.
Rate
- Lock Agreement/interest Rate Commitment - a written agreement
by which a lender will hold an interest rate on a mortgage for
a specified period of time. The terms and conditions of a rate
lock agreement vary from lender to lender.
Realtor
- A real estate broker or associate active in a local real estate
board affiliated with the National Association of Realtors.
Real
Estate Settlement Procedures Act (RESPA) - A federal law that
requires a good faith estimate of closing costs required to be
given on certain first mortgages.
Recording
Fees - Money paid to the lender for recording a home sale with
the local authorities, there by making it part of the public records.
Back
to Top Renegotiable
Rate Mortgage (RRM) - A loan in which the interest rate is
adjusted periodically. See Adjustable Rate Mortgage
Reverse
Annuity Mortgage (RAM) - A form of mortgage in which the lender
makes periodic payments to the borrower using the borrower's equity
in the home as security.
Right
of Rescission - State and federal laws that allow consumers
who refinance first mortgages and certain second mortgages to
cancel their contract and receive a full refund. This must take
place within three business days following the closing, or following
the delivery of the required information and rescission forms
and disclosures, whichever occurs last.
Secondary
Mortgage Market - Investors who purchase residential mortgages
originated by lenders.
Servicing
- All the steps and operations a lender perform to keep a
loan in good standing, such as collection of payments, payment
of taxes, insurance, property inspections and the like.
Settlement
- See Closing. Back
to Top Settlement
Costs - See Closing Costs.
Shared
Appreciation Mortgage (SAM) - A mortgage in which a borrower
receives a below-market interest rate in return for which a lender
(or another investor such as a family member or other partner)
receives a portion of the future appreciation in the value of
the property. May also apply to mortgages where the borrower shares
the monthly principal and interest payments with another party
in exchange for a part of the appreciation.
Survey
- A measurement of land, prepared by a registers land surveyor,
showing the location of the land with reference to known points,
its dimensions, and the location and dimensions of any building.
Tenancy
in common - A type of joint ownership of property by two or
more persons with no right of survivorship.
Term
Mortgage - See Balloon Payment Mortgage.
Title
- A document that gives evidence of an individual's ownership
of property.
Back
to Top Title
Insurance - Protection against loss due to defects in the
title that were not uncovered in the title search and not listed
in the title report. Both the lender and the borrower may purchase
title insurance to protect their own interests.
Title
Search - An examination of legal records to check the validity
and completeness of the title to the property. The title search
should uncover any liens, overdue assessments or other claims
against the property.
Truth-in-Lending
- Federal and state laws that require lenders to provide borrowers
with full disclosure of the true cost of a loan and easy-to-understand
information about the annual percentage rate and terms of the
loan.
Two-Step
Mortgage - A mortgage in which the borrower receives a below-market
interest rate for a specified number of years (most often seven
or 10 years), and then receives a new interest rate adjusted (within
certain limits) to market conditions at that time. The lender
sometimes has the option to call the loan, due within 30 days
notice at the end of seven or 10 years. Also called"Super
Seven" or "Premier" mortgage.
Underwriting
- The decision whether to make a loan to a potential home
buyer based on credit, employment, assets, and other factors and
the matching of this risk to an appropriate rate and term or loan
amount.
Urea
Formaldehyde Foam Insulation (UFFI) Notice - A state law requiring
a borrower or seller to disclose to a lender the absence or presence
of UFFI and the formaldehyde level in a dwelling Back
to Top VA
Loan - A loan that is guaranteed by the Veterans Administration
and made by a private lender.
VA
Mortgage Funding Fee - A premium of up to 2 percent (depending
on the size of the down payment) paid on a VA-backed loan.
Variable
Rate Mortgage (VRM) - See Adjustable Rate Mortgage.
Verification
of Deposit (VOD) - A document signed by the borrower's financial
institution verifying the status and balance of his/her financial
accounts.
Verification
of Employment - A document signed by the borrower's employer
verifying his/her position and salary.
Wraparound
- Results when an existing assumable loan is combined with
a new loan, resulting in an interest rate somewhere between the
old rate and the current market rate. The payments are made to
a second lender or the previous homeowner, who then forwards the
payments to the first lender after taking the additional amount
off the top. |