- 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.
- Government National
Mortgage Association (GNMA)
-
- 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 $214,600 as of 1/1/97) 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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