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 Acceleration Clause: allows the lender to speed up
the rate at which your loan comes due or even to demand immediate payment
of the entire outstanding balance of the loan should you default on your
loan.
Adjustable Rate Mortgage
(ARM): is a mortgage in
which the interest rate is adjusted periodically based on a preselected
index. Also known as the renegotiable rate mortgage, the variable rate
mortgage or the Canadian rollover mortgage.
Adjustment Interval:
on an adjustable rate, 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: an interest rate
reflecting the cost of a mortgage as a yearly rate. This rate is likely to
be higher than the stated note rate. This rate or advertised rate on the
mortgage, because it takes into account points and other credit costs.
This (APR) allows homebuyers 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 a "appraiser".
Assumption:
the agreement between the buyer and the seller where the buyer takes over
the payments on a existing mortgage from the seller. Assuming a loan can
save the buyer money since this is a existing mortgage debt, unlike a new
mortgage where closing cost and new possibly 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.
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.
Buy-Down: when the lender and/ or the
homebuilder 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 sudsidy expire.
C
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 can
change.
Closing:
the meeting between the buyer, seller and lender or their agents where the
property and funds change hands. Also called settlement.
Closing Cost:
usually include an origination fee, discount points, appraisal fee, title
search and insurance, survey, taxes, deeds recording fee, credit report
charge and other cost assessed at settlement. The cost of closing usually
are about 3-6% of the mortgage amount.
Commitment: an agreement, often in
writing, between a lender and a borrower to loan money at a future date
subject to the completion of paperwork or compliance with stated
conditions.
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.
Conventional Loan: a mortgage not insured by FHA
or guaranteed by the VA or Farmers Home Administration (FMHA).
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 result 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 Loan ) . 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
obligation 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 or
low or no down payment mortgages to eligible veterans.
Discount Points : see Points.
Down Payment : money paid to make up the
difference between the purchase price and the mortgage amount. Down
payment usually are 10 to 20 % of sales price on conventional loans, and
no money down up to 5 % on FHA / VA loans.
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 holder sells the home.
Earnest Money: money given by the buyer to a
seller as part of purchase price to bind a transaction or assure payment.
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.
Escrow: refers to a neutral third
party who carries out the instructions of both the buyer and seller to
handle all the paper work of settlement or "closing ". Escrow may also
refer to an account held by the lender into which the homebuyer pays money
for tax or insurance payments.
 Fannie Mae : see Federal National Mortgage.
Farmers Home Administration
(FHMA): provides
financing to farmers and other qualified borrowers who unable to obtain
loans elsewhere.
Federal Home Loan Bank
Board (FHLBB): a
regulatory and supervisory agency for federally chartered savings
institution.
Federal Home Loan Mortgage
Corporation (FHLMC):
also called "Fannie Mac" is a quasi- govern-mental 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 insuring of residential mortgage loan made by private lenders.
FHA also sets standards for underwriting mortgages.
Federal National Mortgage
Association (FNMA):
also known as Fannie Mac. 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 limit to size of FHA loans, they are generous enough to handle
moderate priced homes almost anywhere in the country.
FHA Mortgage Insurance: requires a small fee (
up to 3.8%of the amount ) paid at closing or a portion of this fee added
to each monthly payment of an FHA loan.
Fixed Rate Mortgage: a mortgage on which the
interest rate is set for the term of the loan.
Foreclosure: a legal procedure in which
property securing debt is sold by the lender to pay the defaulting
borrower's debt.
Freddie Mac:
see Federal Home loan Mortgage Corporation
Ginnie Mae: see Government National
Mortgage.
Government National
Mortgage Association (GNMA):
Also known as Ginnie Mae, provides sources of funds for residential
mortgages, 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.
Gross Monthly Income: the total amount the
borrower earns per month, before any expenses are deducted.Guaranty:
a promise by one party to pay a debt or perform an obligation contracted
by another if 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, wind storm and
the like.
Housing Expenses to
Income Ratio:
the ratio, expressed as a percentage, which result
when a borrower's housing expenses are divided by his or her net effective
income (FHA/VA Loans) or gross monthly income (Conventional Loans) . 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 yield, the monthly average
interest rate on loans closed by saving loans institutions, and the
monthly average cost-of-funds incurred by savings and loans), which is
then used to adjust the interest rate on an adjustable mortgage up or
down.
Investor: a money source for a lenders.
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 piece of property for the payment or
satisfaction of debt or obligation.
Loan to Value Ratio: the relationship between the amount of the
mortgage loan and 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.
Mortgage Insurance : money paid to insure the mortgage when the
down payment is less than 20 % . See private mortgage insurance, FHA
mortgage insurance.
Mortgagee: the lender.
Mortgagor : the borrower or the homeowner.
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Negative Amortization: occurs when your monthly payments are not
large enough to pay all the interest due on the loan. The danger of
negative amortization is that the homeowner 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.
Origination Fee: the fee charged by the 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.
PITI: principal, interest, taxes and insurance.
Also called monthly housing expense.
Points (Loan Discount
Points):
prepaid interest assessed at closing by the lender.
Each point is equal to 1% of the loan amount (2) 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.
Pre-paid : expenses necessary to create an escrow
account or adjust the seller's existing escrow account. Can include taxes,
hazard insurance, private mortgage insurance and special assessment.
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 36 states and the District of Columbia.
Realtor: a real estate broker or an associate holding
active membership in a local authorities, thereby making it part of the
public records.
Recession: 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 lender for recording a home sale with
the local authorities, thereby making it part of public record.
Renegotiable Rate
Mortgage(RRM): 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 settlements cost once after application
and once prior to or at 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's equity in the home as security.
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Servicing : all the steps and operation 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 Cost
: see closing /closing
cost.
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 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 registered land surveyor, showing the
location of land with reference to known points, its dimensions, and the
location and dimensions of any buildings.
Term Mortgage : See balloon payment mortgage.
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
homebuyer against errors in the title search. The cost of the policy is
usually based on the value of the property, and is often borne by the
purchaser and / or seller.
Title Search : an examination of municipal
records usually performed by a title company.
Truth In Lending :
a federal law requiring disclosure of the Annual Percentage Rate to
homebuyers shortly after they apply for a loan.
Two step Mortgage: a mortgage in which the
borrower receives a below market interest rate for a specified number of
years ( most often 7-10 ) and then receives a new interest rate adjusted (
with in 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 7-10 years. Also called Super Seven or Premier Mortgage
Underwriting :
the decision to make a loan to a potential homebuyer based on credit,
employment, assets and other factors and the matching of this risk to an
appropriate rate and term or loan amount.
V
VA Loan :
a long term, low or no down payment loan guaranteed by the Department of
Veterans Affairs. Restricted to individuals qualified by military services
or other entitlements.
VA Mortgage Funding Fee:
a premium of up to 1 7/8 % (depending on the size of the down payment)
paid on a VA backed loan.
Variable Rate Mortgage
(VRM): a document
signed by the borrower's financial institution verifying the status and
balance of his /or her financial accounts.
Wraparound: results when an existing
assumable loan is combined with a new loan , resulting in an interest rate
somewhere between the old one 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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