A
Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate.
Amortization
Repayment of a debt through regular, installment payments which are applied to both the principal and interest.
Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the APR, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.
Application
A printed form used by a mortgage lender to record necessary information concerning a prospective mortgage.
Appraisal
A report made by a qualified appraiser, using pertinent market data, to determine the fair and reasonable value of a specific property.
Approval 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 to the borrower's application.
Return To Top
B
Balloon mortgage
A mortgage that is not fully amortized. As a result, the borrower must pay off the principal with a lump-sum payment at the end of the mortgage term, or refinance.
Buydown
The buyer or seller pays an amount to the lender so the lender can give you a lower rate and lower payments, usually for an early period in an ARM.
Return To Top
C
Cap
A limit on how much the interest rate or the monthly payment can change, either at each adjustment or during the life of the mortgage.
Cash to Close
Liquid assets that are readily available to be used to pay the downpayment, closing costs, and prepaid items of a mortgage transaction.
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.
Closing
The completion of a real estate transaction that transfers rights of ownership to the buyer.
Closing Costs
Any fees paid by the borrowers or sellers to effect the closing of the mortgage loan. (i.e., points, attorneys' fees, title insurance, etc.)
Closing Statement/HUD I Settlement Statement
A form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.
Co-Borrower
Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations. Credit Report: A report detailing an individual's credit history.
Conventional mortgage loan
A mortgage loan which is not insured by FHA or guaranteed by VA.
Return To Top
D
Deed
A legal document conveying title (ownership) to real property from one individual to another.
Deed of Trust
An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.
DeMinimus PUD
A Planned Unit Development (PUD) in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units. Also see PUD.
Down payment
The difference between the sales price and the loan amount.
Return To Top
E
Earnest Money
A portion of the downpayment delivered to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith. 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
Improvements, such as a wall, fence, building, etc., on the property of another.
Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.
Equity
The market value of property minus any outstanding mortgage or cooperative loan balance or other encumbrance on the property.
Escrow account
In mortgage servicing, an account established to hold the borrower’s monthly payments for property taxes and homeowner’s insurance. The servicer pays the tax and insurance bills from this account.
Return To Top
F
FHA mortgage loan
A mortgage loan insured by the Federal Housing Administration of the Department of Housing and Urban Development.
FHLMC
Commonly known as Freddie Mac. A government-sponsored stockholder-owned corporation authorized to purchase government-backed and conventional loans
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 as 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.
First Mortgage
A real estate loan that has priority over any subsequently recorded mortgages. Flood Insurance: Insurance protecting against loss by flood damage, required by lenders in areas designated (federally) as potential flood areas.
Fixed rate mortgage
A mortgage loan in which the interest rate is fixed for the life of the loan.
FNMA
Commonly known as Fannie Mae. FNMA purchases and sells FHA, VA and conventional mortgages.
Foreclosure
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.
Return To Top
G
Gift Letter
A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."
Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a settlement.
Gross Monthly Income
Total monthly income earned before tax and other deductions.
Return To Top
H
Hazard Insurance
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Homeowners' Association Dues
The fees imposed by a condominium or homeowners' association for maintenance of common areas.
Return To Top
I
Index
The index is the measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. (i.e. 1-Year Treasury Bill, 3-Year Treasury Bill, LIBOR, etc.)
Interest
A share or right in some property. Also, money charged for the use of money (principal).
Interest Rate Cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan. Also called the Life Cap or Life Rate.
Investment Property
Real estate owned with the intent of earning income and not intended for owner occupancy.
Return To Top
J
Joint Tenancy
A type of ownership by two or more parties who share equal rights and control of the property, with the survivor or survivors continuing to hold all such rights on the death of one or more of the joint tenants.
Return To Top
L
Lien
An encumbrance against property for money due, either voluntary or involuntary.
Loan-to-value ratio (LTV)
A ratio determined by dividing the loan amount by the lesser of the sales price or the appraised value, expressed as a percentage.
Return To Top
M
Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Maturity
The termination or due date on which final payment on a loan must be paid in full.
Monthly Payment
Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.
Mortgage
The instrument securing a mortgage loan which creates a first lien on the property.
Mortgage Insurance
Insurance protecting the mortgage lender against loss incurred by a mortgage default.
Mortgage Insurance Premium (MIP)
The consideration paid by a mortgagor (borrower) for mortgage insurance - either to the FHA or to a private mortgage insurer.
Mortgage Note
A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.
Mortgagee
The party lending the money and receiving the mortgage.
Mortgagor
The party who borrows the money and gives the mortgage.
Return To Top
N
Negative Amortization
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.
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 higher rate and origination fee.
Note
The promissory note evidencing the obligation to repay the mortgage loan.
Return To Top
O
Origination Fee
The amount charged for services performed by the company handling the initial application and processing of the loan. Usually a percentage of the loan amount.
Return To Top
P
PITI (Principal, Interest, Taxes, and Insurance)
The most common components of a monthly mortgage payment.
Points
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $65,000, one point means you pay $650 to the lender. Points may be used by the lender to buydown the interest rate. (Also known as origination fee or discount points.)
Pre-paids
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.
Primary Residence
A residence which the borrower intends to occupy as a principal residence.
Principal
Amount of debt, not including interest. The face value of a note or mortgage.
Principal, Interest, Taxes and Insurance (PITI)
The components that make up the total monthly loan payment on your mortgage loan.
Private mortgage insurance (PMI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. This insurance is commonly required on conventional mortgages with less than a 20% down payment.
Processing
The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.
PUD (Planned Unit Development)
A planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners. The association of unit owners generally owns, pays fees, and maintains the common areas. Also see DeMinimus PUD.
Purchase Contract
An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.
Return To Top
Q
Qualifying Ratios
The ratio of fixed monthly expenses to gross monthly income. Used to determine how much the homebuyer can afford to borrow.
Return To Top
R
Rate lock
An agreement that guarantees a certain interest rate for a specific amount of time.
Real Estate Settlement Procedures Act (RESPA)
A Federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and servicing disclosure.
Real Property
Land and that which is affixed to it.
Refinance
To pay off an existing first mortgage and other liens by using funds acquired from a new first mortgage that is secured by the same property.
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.
Return To Top
S
Second Home (Vacation Home, Weekend Home)
A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year.
Secondary Mortgage Market
A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.
Servicer
Company that controls the necessary duties of a mortgagee, such as collecting payments, managing the escrow accounts, dealing with delinquencies, and overseeing foreclosures and payoffs.
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.
Return To Top
T
Tenancy in common
A type of ownership in which two or more parties own property. However, each owns a separate interest and when one tenant dies, his or her share passes to his or her heirs.
Title insurance
A type of insurance which insures against defects in the title of property. Title insurance normally covers only the lender. The buyer to protect their interest can purchase owners title insurance. In some areas of the United States owners title insurance is standard.
Title Search
An examination of public records to disclose the past and current facts regarding the ownership and lien priority of a given piece of real estate.
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
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.
Return To Top
U
Underwriting
The analysis of risk, the determination of the appropriate loan amount, and the setting of the interest rate and other terms and conditions, based on the underwriter's judgment of both the borrower's credit-worthiness and the value of the property that will secure the loan.
Return To Top
V
VA mortgage loan
A mortgage loan guaranteed by the Veterans Administration.
Return To Top
|
