|
Glossary
3/1, 5/1, 7/1 and 10/1 ARMs
Adjustable-rate mortgages in which rate is fixed for three-year,
five-year, seven-year and 10-year periods, respectively, but may adjust
annually after that.
7/23 and 5/25 Mortgages
Mortgages with a one time rate adjustment after seven
years and five years respectively.
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.
Additional Principal
Additional Principal occurs when the monthly payments
cover only part of the interest then due. The interest cost that is not
covered is added to the unpaid principal balance. This additional amount is
additional principal. It may also be called "negative
amortization."
Adjustable Rate Mortgage (ARM)
A mortgage for which the interest rate changes based upon
a predetermined time interval--usually in relation to an index--and payments
may go up or down accordingly.
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
Payment of debt in regular installments of principal and
interest, thereby reducing the mortgage principal owed.
Annual percentage rate (APR)
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
A determination of property value based on recent,
verifiable information of sales (and rentals as needed) in the vicinity of
the home. Value estimate is prepared based on legally permissible use at the
time.
Assessment
A local tax levied against a property for a specific
purpose, such as a sewer or streetlights.
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 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
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 or company in the business of assisting in the
arrangement of funding or negotiation of contracts for a client but 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 homebuilder 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.
Cap (Interest)
A limitation on the interest rates on an adjustable rate mortgage,
which may change per year and/or the life of the loan.
Cap (Payment)
A limitation on the amount monthly payments on an
adjustable rate mortgage may change.
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.).
Certificate of Eligibility
The document given to qualified veterans which entitles
them to VA guaranteed loans for homes, business and mobile homes.
Certificate of Occupancy
A certificate issued by a local building department to a
builder or renovator, stating that the building is in proper condition to be
occupied and stating the legally permissible use.
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). This
document enables veterans to obtain lower down payments on certain FHA
insured loans.
Closing
The formal completion of the financing / purchase
transaction signified by the recording of legal documents in the County in which
the subject property is located.
Closing Costs
Costs associated with securing a mortgage and the sale and
purchase of property. These expenses are usually paid on the day the title to
the property is formally transferred from the seller to the buyer.
Commitment
Written agreement detailing the terms and conditions by
which the bank will lend and the borrower will borrow funds to finance a
home.
Condominium
A structure of two or more units, the interior space of
which are individually owned. The balance of the property is owned in common
by the owners of the individual units.
Conforming Loan Amount
A Fannie Mae (FNMA) established, maximum loan amount based
on the property's legal number of units (1-family, 2-family, etc.). Loan
amounts up to this maximum dollar amount are considered "conforming
loans."
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 over the course of construction.
Contract of Sale
Written contract signed by both parties in which the
seller agrees to sell and the buyer agrees to buy under certain specific
terms and conditions.
Conventional loan
A mortgage not insured by a governmental agency.
Cooperatives (Co-ops)
A structure of two or more units in which the right to
occupy a unit is obtained by the purchase of stock in the corporation which
owns the building.
Cost of Funds Index (COFI)
An index, which provides the basis for interest rate
adjustments on adjustable-rate mortgages. This index is also referred to as
11th District Cost of Funds.
Counteroffer
An offer to extend credit on different terms than the
applicant originally requested.
Covenant
Generally, almost any promise set forth in a written agreement.
Most commonly, assurances set forth in a deed by the grantor or implied by
law.
Credit Report
A report documenting the credit history and current status
of a borrower's credit.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a
borrower's monthly payment obligations are divided by his or her gross
monthly income.
Deed
A legal document conveying title (ownership) to real
property from one individual to another.
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.
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.
Delinquency
Failure to make payments on time.
Department of Veterans Affairs (VA)
An agency of the federal government which guarantees
mortgages for eligible veterans.
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 upon sale of
the home.
Earnest Money
Money given by a buyer to a seller as part of the purchase
price to bind a transaction.
Easement
A right created by grant, reservation, agreement,
prescription or necessary implication which one has on another's land (such
as a public utility easement).
Encroachment
Construction, such as a wall, fence, building, etc., on
the property of another.
Equal Credit Opportunity Act (ECOA)
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.
Escrow
An account held by the lender into which the homebuyer
pays money for property taxes or insurance.
Escrow
Funds held by the lender, set aside for payment of
property taxes, hazard and/or mortgage insurance and other recurring charges
against real property. (Monthly mortgage payments usually include principal,
interest and escrow amounts.)
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
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. Insures residential mortgage loans made by private lenders. FHA
also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA or Fannie Mae)
A quasi-governmental entity that purchases and sells
conventional residential mortgages.
Finance Charge
The total dollar amount your loan will cost you. It
includes all interest payments during the term of the loan, any interim
interest paid at closing, your origination fee and any other charges paid to
the lender or to a third party or an incident or a condition of the extension
of credit. Certain charges like the appraisal, credit report and the title
search charges are not included in the finance charge calculation.
Fixed Rate Mortgage
A mortgage with an interest rate that remains unchanged
throughout the term of the mortgage.
Flood Insurance
Insurance indemnifying against loss by flood damage, required
by lenders in areas designated (federally) as potential flood areas.
Foreclosure
A legal process by which the lender forces a sale of a
mortgaged property because the borrower has not met the terms of the
mortgage.
Good Faith Estimate
An estimate of charges, which a borrower is likely to
incur in connection with a settlement.
Government National Mortgage Association (GNMA or Ginnie Mae)
Provides sources of governmental funds for residential
mortgages.
Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments
increase for a specified period of time and then level off.
Guaranty
A promise by one party to pay a debt or perform an
obligation on behalf of another if the original party fails to pay or perform
according to a contract.
Hazard Insurance
Insurance protecting against loss to real estate caused by
fire, some natural causes, vandalism, etc., depending upon the terms of the
policy.
Housing Ratio
The ratio of the monthly housing payment (PITI) to total gross
monthly income. Also called Payment-to-Income Ratio or front-end Ratio.
Impound
That portion of a borrower's monthly payments held by the
lender or servicer to pay for property taxes, hazard insurance or mortgage
insurance.
Index
A published statistic based on yields of various
securities. An index is used as a basis for interest rate adjustments on many
adjustable rate mortgages.
Indexed rate
The sum of the published index plus a margin. For example
if the index were 5% and the margin 2.75%, the indexed rate would be 7.75%.
Interest
A share or right in some property. Also, money charged for
the use of money (principal).
Joint Tenants
A form of ownership in which husband and wife are
co-owners with rights of survivorship.
Jumbo Loan
A loan, which is greater than the loan limit set by the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation.
Lien
A claim or encumbrance against property for money due,
either voluntary or involuntary.
Life of Loan Cap
The maximum interest rate that can be charged during the
life of the loan. Also called Life Cap or Life Rate.
Loan-to-Value Ratio (LTV)
The relationship between the amount of the mortgage loan
and the appraised value of the property, expressed as a percentage.
Margin
The number of percentage points a lender adds to the index
value to calculate the ARM interest rate at each adjustment period.
MIP (Mortgage Insurance Premium)
The cost of insurance which covers a portion of a mortgage
loan for the lender’s benefit.
Mortgage
To pledge without delivery of title or possession as
security real property for the payment of a debt. The borrower retains
possession of the property as long as the mortgage is paid according to its
terms.
Mortgage Insurance
Insurance written by an independent mortgage insurance
company (MIC) protecting the mortgage lender against loss incurred by
mortgage default.
Mortgagee
The lender
Mortgagor
The borrower
Negative Amortization
This unpaid interest on some adjustable rate mortgage loans,
which is added to the balance of the loan.
Non-Conforming Loan
Conventional home mortgages not eligible for sale and
delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of
various reasons, including loan amount, loan characteristics or underwriting
guidelines. Non-conforming loans usually incur a rate and origination fee
premium.
Note
A written agreement containing a promise of the signer to
pay to a named person, or order, or bearer, a definite sum of money at a
specified date or on demand.
One-year Adjustable
Mortgage loan with an interest rate that changes yearly.
Origination Fee
A fee imposed by a lender to cover certain processing
expenses in connection with making a real estate loan. Usually a percentage
of the amount loaned, such as one percent.
Planned Unit Development (PUD)
A subdivision of five or more individually owned lots with
one or more other parcels owned in common or with reciprocal rights in one or
more other parcels.
Point
One percent of the amount of the loan.
Power of Attorney
A legal document authorizing one person to act on behalf
of another.
Prepaid Expenses
Expenses that are required to be paid in advance of their
due date and usually prorated at closing.
Prepayment
A payment made in advance of its due date.
Prepayment Penalty
Money charged for an early repayment of debt.
Principal
The unpaid balance of a loan.
Principal, Interest, Taxes and Insurance (PITI)
The components that make up the total monthly loan payment
on your mortgage loan.
Qualifying Ratios
The ratio of your fixed monthly expenses to your gross
monthly income, used to determine how much you are qualified to borrow.
Rate Cap
A limit on how much the interest rate can change, either
at each adjustment period or over the life of the loan.
Rate Lock-In
A written agreement in which the lender guarantees the
borrower a specified interest rate, provided the loan closes within a set
period of time.
Reconveyance
The document provided by the mortgagee when the mortgage
loan is paid in full.
Recording Fees
Fee assessed by county governments for recording legal
documents.
Refinance
Obtaining a new mortgage loan on a property previously
purchased.
Rescission
The cancellation of a contract.
Residential Mortgage Credit Report
A report requested by your lender that utilizes
information from at least two of the three national credit bureaus and
information provided on your loan application.
RESPA (Real Estate Settlement Procedures Act)
RESPA is a federal law that permits consumers to review
information about settlement costs.
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
collateral for and repayment of the loan.
Second Mortgage
A mortgage made subsequent and subordinate to a previously
recorded mortgage.
Servicing
The process of collecting payments and maintaining payment
records.
Survey
A print showing the measurements of the boundaries of a
parcel of land, together with the location of all improvements on the land
and sometimes its area and topography.
Sweat Equity
Equity that results from the performance of work on a
property thereby increasing its value.
Tenants-in-Common
An undivided interest in property taken by two or more
persons. The interest need not be equal. Upon death of one or more persons,
there is no right of survivorship.
Title
The evidence one has of right to possession of land.
Title Insurance
An insurance policy that insures a property owner against
claims of ownership by others.
Title Search
An examination of public records to determine the
ownership rights of and claims against a property.
Total Debt Ratio
Monthly debt and housing payments divided by gross monthly
income. Also known as Obligations-to-Income Ratio or Back-End Ratio.
Truth-In-Lending Act (Regulation-Z)
A federal law requiring disclosure of credit terms.
Underwriting
Formal review and evaluation of a proposed loan by a
lender.
Verification of Deposit (VOD)
A document completed by a financial institution verifying
financial accounts.
Verification of Employment (VOE)
A document completed by an employer verifying employment
and compensation.
Wraparound Mortgage (All-Inclusive Trust Deed)
A new mortgage loans which combined with an existing loan.
The payments are made to the new lender, which, in turn, makes payments to
the existing lender.
|
