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A B C D E F G H I J K L M N O P Q R S T U
V W X Y Z
Acceleration
The right of the mortgagee (lender) to demand the immediate repayment
of the mortgage loan balance upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale Clause.
Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically
based on a preselected index. Also sometimes known as a renegotiable
rate mortgage, variable rate mortgage or as a rollover mortgage.
Adjustment interval
On an adjustable rate mortgage, the time between changes in the
interest rate and/or monthly payment, typically one, three or five
years depending on the index.
Amortization
Means loan payment by equal periodic payments calculated to pay
off the debt at the end of a fixed period, including accrued interest
on the outstanding balance.
Annual Percentage Rate (A.P.R.)
APR is a measurement of the full cost of a loan including interest
and loan fees expressed as a yearly percentage rate. Because all
lenders apply the same rules in calculating the annual percentage
rate, it provides consumers with a basis for comparing the cost
of loans.
Appraisal
An estimate of the value of property, made by a qualified professional
called an "appraiser".
Assessment
A local tax levied against a property for a specific purpose, such
as for a sewer or street lights.
Assumption
The agreement between buyer and seller where the buyer takes over
the payments on an existing mortgage from the seller. Assuming a
loan may save the buyer money since assuming an existing mortgage
debt forgoes new mortgage closing costs and new market-rate interest
charges.
Balloon Mortgage
A loan which is amortized for a longer period than the term of the
loan. Usually this refers to a thirty-year amortization and a five
year term. At the end of the term of the loan, the remaining outstanding
principal on the loan is due. This final payment is known as a balloon
payment.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security
for the same mortgage.
Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage
with the intention of repaying the loan in full.
Broker
Brokers assist in arranging funding and negotiating contracts for
a client. Brokers charge a fee or receive a commission for their
services.
Buy-down
When the lender and/or the home builder subsidize 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.
Cash Flow
The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough
to pay the expenses of the income producing property (mortgage payment,
maintenance, utilities, etc.)
Caps (interest)
Consumer safeguards which limit the amount the interest rate on
an adjustable rate mortgage can change per year and/or the life
of the loan.
Caps (payment)
Consumer safeguards which limit the amount monthly payments on an
adjustable rate mortgage may change.
Certificate of Eligibility
The document given to qualified veterans which entitles them to
VA guaranteed loans for homes, businesses and/or mobile homes. Certificates
of eligibility may be obtained by sending form DD-214 (Separation
Paper) to the local VA office with VA form 1880 (request for Certificate
of Eligibility)
Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's
current market value
Certificate of veteran status
The document given to veterans or reservists who have served 90
days of continuous active duty (including training time) It may
be obtained by sending DD 214 to the local VA office with form 26-8261a
(request for certificate of veteran status. This document enables
veterans to obtain lower down payments on certain FHA insured loans).
Closing
The meeting between the buyer, seller and lender or their agents
where the property and funds legally change hands. Also called settlement.
closing costs usually include an origination fee, discount points,
appraisal fee, title search and insurance, survey, taxes, deed recording
fee, credit report charge and other costs assessed at settlement.
The cost of closing usually are about 3 percent to 6 percent of
the mortgage amount.
COFI
Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds
index, often the 11th District Cost of Funds.
Construction Loan
A short term interim loan to pay for the construction of buildings
or homes. These are usually designed to provide periodic disbursements
to the builder as he or she progresses.
Contract sale or deed
A contract between purchaser and a seller of real estate to convey
title after certain conditions have been met. It is a form of an
installment sale.
Conventional Loan
A mortgage not insured by FHA or guaranteed by the VA.
Credit Report
A report documenting the credit history and current status of a
borrower's credit standing.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by his
or her gross monthly income. See housing expenses-to-income ratio.
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
When a mortgage is written with a monthly payment that is less than
required to satisfy the note rate, the unpaid interest is deferred
by adding it to the loan balance. 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.
Discount Point
See point
Down Payment
Money paid to make up the difference between the purchase price
and the mortgage amount.
Due-on-Sale-Clause
A provision in a mortgage or deed of trust that allows the lender
to demand immediate payment of the balance of the mortgage if the
mortgage holder sells the home.
Earnest Money
Money given by a buyer to a seller as part of the purchase price
to bind a transaction or assure payment.
Entitlement
The VA home loan benefit is called entitlement. This is also known
as eligibility.
Equal Credit Opportunity Act (ECOA)
Is a federal law that requires lenders and other creditors to make
credit equally available without discrimination based on race, sex,
religion, national origin, age, marital status or receipt of income
from public assistance programs.
Equity
The difference between the fair market value and current indebtedness,
also referred to as the owner's interest. The value an owner has
in real estate over and above the obligation against the property.
Escrow
An account held by the lender into which the home buyer pays money
for tax or insurance payments. Also earnest deposits held pending
loan closing.
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 Bank Board (FHLBB)
The former name for the regulatory and supervisory agency for federally
chartered savings institutions. Agency is now called the Office
of Thrift Supervision
Federal Home Loan Mortgage Corporation (FHLMC)
Also called "Freddie Mac", is a quasi-governmental agency that purchases
conventional mortgage 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)
Also know as "Fannie Mae" A tax-paying corporation created by Congress
that purchases and sells conventional residential mortgages as well
as those insured by FHA or guaranteed by VA. This institution, which
provides funds for one in seven mortgages, makes mortgage money
more available and more affordable.
FHA Loan
A loan insured by the Federal Housing Administration open to all
qualified home purchasers. While there are limits to the size of
FHA loans , they can handle moderately-priced homes almost anywhere
in the country.
FHA mortgage insurance
Requires a fee (up to 2.25 percent of the loan amount) paid at closing
to insure the loan with FHA. In addition, FHA mortgage insurance
requires an annual fee of up to 0.5 percent of the current loan
amount, paid in monthly installments. The lower the down payment,
the more years the fee must be paid.
FHLMC
The Federal Home Loan Mortgage Corporation provides a secondary
market for savings and loans by purchasing their conventional loans.
Also known as "Freddie Mac."
Firm Commitment
A promise by FHA to insure a mortgage loam for a specified property
and borrower. A promise from a lender to make a mortgage loan.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages
throughout the term of the mortgage for the original borrower.
FNMA
The Federal National Mortgage Association is a secondary mortgage
institution which is the largest single holder of home mortgages
in the United States. FNMA buys VA, FHA, and conventional mortgages
from primary lenders. Also known as "Fannie Mae."
Foreclosure
A legal process by which the lender or the seller forces a sale
of a mortgaged property because the borrower has not met the terms
of the mortgage. Also known as a repossession of property.
Freddie Mac
See Federal Home Loan Mortgage Corporation
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 (GPM)
A type of flexible-payment mortgage where the payments increase
for a specified period of time and then level off. This type of
mortgage has negative amortization built into it.
Guaranty
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.
Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by his/her gross monthly income. See
debt-to-income ratio.
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 published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage
and that earned by other investments (such as one- three-, and five-year
U.S. Treasury security yields, the monthly average interest rate
on loans closed by savings and loan institutions, and the monthly
average costs-of-funds incurred by savings and loans), which is
then used to adjust the interest rate on an adjustable mortgage
up or down.
Indexed rate
The sum of the published index plus the margin. For example if the
index were 9% and the margin 2.75%, the indexed rate would be 11.75%.
Often, lenders charge less than the indexed rate the first year
of an adjustable-rate mortgage.
Interim Financing
A construction loan made during completion of a building or a project.
A permanent loan usually replaces this loan after completion.
Investor
A money source for a lender.
Jumbo Loan
A loan which is larger 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 claim upon a piece of property for the payment or satisfaction
of a debt or obligation.
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the
appraised value of the property expressed as a percentage.
Lock
Lender's guarantee that the mortgage rate quoted will be good for
a specific number of days from day of application. Once a rate is
locked, it cannot be decreased, even if market rates decrease.
Margin
The amount a lender adds to the index on an adjustable rate mortgage
to establish the adjusted interest rate.
Market Value
The highest price that a buyer would pay for a property. Market
value may be different from the price a property could actually
be sold for at a given time.
MIP (Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss
due to the borrower's default.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is less
than 20 percent. See private mortgage insurance, FHA mortgage insurance.
Mortgagee
The lender.
Mortgagor
The borrower or homeowner.
Negative Amortization
Occurs when your monthly payments are not large enough to pay all
the interest due on the loan. This unpaid interest is added to the
unpaid balance of the loan. The danger of negative amortization
is that the home buyer ends up owing more than the original amount
of the loan.
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
signed obligation to pay a debt, as a mortgage note.
Nonconforming Mortgage Loan
Mortgage loan not guaranteed to the lender by FNMA or FHLMC. Therefore,
the loan program is not required to abide by the strict guidelines
of FNMA/FHLMC. Nonconforming loans are much easier for borrowers
to qualify for.
Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board
One-year adjustable
Mortgage whose annual rate changes yearly. The rate is usually based
on movements of a published index plus a specified margin, chosen
by the lender.
Origination Fee
The fee charged by a lender to prepare loan documents, perform credit
checks, inspect and sometimes appraise a property; usually computed
as a percentage of the face value of the loan.
Permanent Loan
A long term mortgage, usually ten years or more. Also called an
"end loan."
PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing
expense.
Pledged Account Mortgage (PAM):
Money is placed in a pledged savings account and this fund, plus
earned interest, is gradually used to reduce mortgage payments.
Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point is
equal to 1 percent of the loan amount (i.e. two points on a $100,000
mortgage would cost $2,000).
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Prepaid 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 agreement permitting the borrower to make
payments in advance of their due date.
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties
are allowed in some form (but not necessarily imposed) in many states.
Primary Mortgage Market
Lenders making mortgage loans directly to borrower's such as savings
and loan associations, commercial banks, and mortgage companies.
These lenders sometimes sell their mortgages into the secondary
mortgage markets such as to FNMA or GNMA, etc.
Principal
The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI)
Lenders will sometimes allow a small down payment if borrowers carry
private mortgage insurance. Private mortgage insurance will usually
require an initial premium payment and may require an additional
monthly fee depending on you loan's structure.
Realtor
A real estate broker or an associate holding active membership in
a local real estate board affiliated with the National Association
of Realtors. Keep in mind that Realtors are Real Estate specialists
and not Mortgage specialists.
Recision
The cancellation of a contract. With respect to mortgage refinancing,
the law gives a homeowner three days to cancel a contract if the
transaction uses equity in the home as security.
Recording Fees
Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records.
Refinance
Obtaining a new mortgage loan on a property already owned. Often
to replace existing loans on the property.
Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. See
adjustable rate mortgage.
RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a
federal law that allows consumers to review information on known
or estimated settlement cost once after application and once prior
to or at a settlement. The law requires lenders to furnish the information
after application only.
Reverse Annuity Mortgage (RAM)
A type of mortgage in which the lender makes periodic payments to
the borrower using the borrower's equity in the home as Satisfaction
of Mortgage: The document issued by the mortgagee when the mortgage
loam is paid in full. Also called a "release of mortgage."
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to
the first one.
Secondary Mortgage Market
The place where primary mortgage lenders sell mortgages to obtain
more funds to originate more new loans. It provides liquidity for
the lenders' security.
Servicing
All the steps and operations a lender performs to keep a loan in
good standing, such as collection of payments, payment of taxes,
insurance, property inspections and the like.
Settlement/Settlement Costs
See closing/closing costs
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest
rate in return for which the 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 mortgage
where the borrowers shares the monthly principal and interest payments
with another party in exchange for part of the appreciation.
Simple Interest
Interest which is computed only on the principle balance.
Survey
A measurement of land, prepared by a registered land surveyor, showing
the location of the land with reference to known points, its dimensions,
and the location and dimensions of any buildings.
Sweat Equity
Equity created by a purchaser performing work on a property being
purchased.
Title
A document that gives evidence of an individual's ownership of property.
Title Insurance
A policy, usually issued by a title insurance company, which insures
a home buyer against errors in the title search. The cost of the
policy is usually a function of the value of the property, and is
often borne by the purchaser and/or seller. Policies are also available
to protect the lender's interests.
Title Search
An examination of municipal records to determine the legal ownership
of property. This usually is performed by a title company.
Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage Rate
to home buyers shortly after they apply for the loan. Also known
as Regulation Z.
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), 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 with 30 days notice at the end of seven
or 10 years. Also called "SuperSeven" or "Premier" mortgage.
Underwriting
The decision whether to make a loan to a potential home buyer based
on credit, employment, assets, and other factors. The matching of
this risk to an appropriate interest rate, term and loan amount.
Usery
Interest charged in excess of the legal rate established by law.
VA Loan
A long-term, low, or no down payment loan guaranteed by the Department
of Veterans Affairs. Restricted to individuals qualified by military
service or other entitlements.
VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the size of the down
payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage
with no down payment, this would amount to $1,406 either paid at
closing or added to the amount financed.
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 (VOE)
A document signed by the borrower's employer verifying his/her position
and salary.
Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order
to originate loans which are to be sold later in the secondary mortgage
market (or to investors). When the prime rate of interest is higher
on short term loans than on mortgage loans, the mortgage firm has
an economic loss which is offset by charging a warehouse fee.
Wraparound Mortgage
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 previous homeowner, who then forwards the payments to the first
lender after taking the additional amount off the top.
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