- 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 the
re-negotiable rate mortgage, the variable rate mortgage
or the Canadian 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 payment 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.)
- Is
a interest rate reflecting the cost of a mortgage as a yearly
rate. This rate is likely to be higher than the stated note
rate or advertised rate on the mortgage, because it takes
into account point and other credit cost. The APR allows
home buyers to compare different types of mortgages based
on the annual cost for each loan.
- 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 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 can usually save the buyer money since this
is an existing mortgage debt, unlike a new mortgage where
closing cost and new, probably higher, market-rate interest
charges will apply.
- 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.
- 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
- An
individual in the business of assisting in arranging funding
or negotiating contracts for a client buy who does not loan
the money himself. Brokers usually charge a fee or receive
a commission for their services.
- Buy-down
- When
the lender and/or the home builder subsidized 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 may 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, business, and mobile homes.
Certificates of eligibility may be obtained by sending 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.
- Commitment
- A
promise by a lender to make a loan on specific terms or
conditions to a borrower or builder. A promise by an investor
to purchase mortgages from a lender with specific terms
or conditions. An agreement, often in writing, between a
lender and a borrower to loan money at a future date subject
to the completion of paper work or compliance with stated
conditions.
- 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 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 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. Entitlement
for a VA guaranteed home loan. 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, color, religion, national origin, age, sex,
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 namefor the regulatory and supervisory agency forfederally
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 ($155,250 as of 1/1/96), they are
generous enough to 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 loan 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.
- 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.
- 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 (more than $322,700 as of 1/1/2003)
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.
- 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 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.
- MIP (Mortgage
Insurance Premium)
- It
is insurance from FHA to the lender against incurring a
loss on account of 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.
- Office
of Thrift Supervision (OTS)
- The
regulatory and supervisory agency for federally chartered
savings institutions. Formally known as Federal Home
Loan Bank Board.
- Origination
Fee
- The
fee charged by a lender to prepare loan documents, make
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 (e.g., 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 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)
- 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 payment loans,
however, borrowers are usually required to 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.
- Recision
- The
cancellation of a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a
contract in some cases once it is signed 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
form 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 loan 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 the mortgages
they make 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 know
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. 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 "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.
- USURY
- 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 the previous homeowner, who then forwards
the payments to the first lender after taking the additional
amount off the top.
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