Adjustable Rate Mortgage (ARM):
A mortgage that permits the lender to adjust its
interest rate periodically on the basis of changes in a specified index.
Agreement of Sale:
The legal contract between buyer and seller of a property
including the sale price, settlement date, and all conditions and terms of
the sale.
Amortization Schedule:
A timetable
for payment of a mortgage showing the amount of each payment applied to
interest and principal and the balance remaining.
Annual Percentage Rate (APR):
The
total yearly cost of a mortgage stated as a percentage of the loan amount;
includes such items as the base interest rate, primary mortgage insurance,
and loan origination fee (points).
Appraisal:
A professional opinion
of the market value of a property.
Appreciation:
An increase in the value of a property due to changes in
market conditions or other causes.
Assessed value:
The valuation
placed upon property by a public tax assessor for purposes of taxation.
Assumable mortgage A mortgage that can be taken over by the buyer when a
home is sold.
Balloon Mortgage:
Type of mortgage
loan where monthly payments are made until a certain date when the
remaining balance becomes payable in full.
Binder:
A preliminary agreement,
secured by the payment of earnest money, under which a buyer offers to
purchase real estate.
Buy-Down:
A procedure which the
seller or builder of a property permanently or temporarily reduces the
amount of interest the buyer will have to pay by paying points to the
mortgage lender at closing.
Cap:
A provision of an ARM limiting how much the interest rate or mortgage
payments may increase or decrease.
Cash reserve: A requirement of
some lenders that buyers have sufficient cash remaining after closing to
make the first two monthly mortgage payments.
Certificate of Occupancy: A
certificate issued by a local building department to a builder to a
builder or renovator, stating that the building is in proper condition to
be occupied and stating the legally permissible use.
Closing: The meeting during which
the title to property actually changes hands, documents are executed and
the sale of the property and/or the loan is completed. It is usually
attended by the buyer, the seller, a bank representative, each party's
attorney and the title company representative.
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 letter:
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.
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."
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.
Convertible ARM: An
adjustable-rate mortgage that can be converted to a fixed-rate mortgage
under specified conditions.
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.
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.
Deed: A legal document conveying title
(ownership) to real property from one individual to another.
Easement: The right to enter or
use a portion of the land of another for a specific purpose.
Encroachment: Construction, such
as a wall, fence, building, etc., on the property of another.
Equity: A homeowner's financial
interest in a property. Equity is the difference between the fair market
value of a property and the amount still owed on the mortgage.
Escrow: Funds held by the lender,
wet aside for payment of taxes and possible property and mortgage
insurance and other recurring charges against real property. (Monthly
mortgage payments usually included principal, interest and escrow
amounts.)
FHLMC (Freddie Mac) Federal Home Loan
Mortgage Corporation: A federal agency purchasing first mortgages,
both conventional and federally insured, from members of the Federal
Reserve System and the Federal Loan Bank System.
Federal Housing Authority (FHA): A
part of the U.S. Dept. of Housing and Urban Development which offers
mortgage loan insurance programs to buyers of qualifying properties.
FHA mortgage: A mortgage that is
insured by the Federal Housing Administration. First Mortgage A mortgage
that has first claim in the event of default.
FNMA (Fannie Mae): A
quasi-government agency, now publicly owned, which purchases mortgages
from the original mortgage lenders.
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
having a rate of interest which remains the same for the life of the
mortgage.
Flood Insurance: Insurance
indemnifying against loss by flood damage, required by lenders in areas
designated (federally) as potential flood areas.
Foreclosure: The legal remedy used
by a mortgage lender to assume ownership of a property when the required
loan payments are not made.
Good Faith Estimate: An estimate
of charges which a borrower is likely to incur in connection with a
settlement.
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.
HUD: The U.S. Department of
Housing and Urban Development.
Index: A published interest rate
not controlled by the lender to which the interest rate on an Adjustable
Rate Mortgage (ARM) is tied. The index and the interest rate linked to it
may increase or decrease.
Interest: A share or right in some
property. Also, money charged for the use of money (principal).
Lien: An 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 of Life Rate.
Lifetime Cap: A provision of an
ARM that limits the highest rate that can occur over the life of the loan.
Loan-to-Value (LTV): The ratio of
the amount of your loan to the value of the home.
Lock-in: A written agreement
guaranteeing the home buyer a specified interest rate provided the loan is
closed within a set period of time. The lock-in also usually specifies the
number of points to be paid at closing.
Margin: The number of percentage
points a lender adds to the index value to calculate the ARM interest rate
at each adjustment period.
Mortgage: A legal document that
pledges a property to the lender as security for payment of a debt.
Mortgage Disability Insurance: A
disability insurance policy which will pay the monthly mortgage payment in
the event of a covered disability of an insured borrower for a specified
period of time.
Mortgage Insurance: Insurance
written by an independent mortgage insurance company (MIC) protecting the
mortgage lender against loss incurred by a mortgage default.
Mortgage Life Insurance: A term
life insurance policy that covers the declining balance of a loan secured
by a mortgage, and is payable upon death of a covered borrower.
Mortgagee: The person or company
who receives the mortgage as a pledge for repayment of the loan. The
mortgage lender.
Mortgagor: The mortgage borrower
who gives the mortgage as a pledge to repay.
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.
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.
Owner financing: A property
purchase transaction in which the property seller provides all or part of
the financing.
Planned Unit Developments (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.
PITI:
Principal, interest, taxes and insurance-the components of a monthly
mortgage payment.
Points:
Charges levied by the mortgage lender and usually payable
at closing. One point represents 1% of the face value of the mortgage
loan.
Prepaids: 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.
Prepayment Penalty: A charge
imposed by a mortgage lender on a borrower who wants to pay off part or
all of a mortgage loan in advance of schedule.
Principal:
Amount of debt, not including interest. The face value of a
note or mortgage.
Private mortgage insurance (PMI):
Insurance provided by non-government insures that protects lenders against
loss if a borrower defaults. Fannie Mae generally requires private
mortgage insurance for loans with loan-to-value (LTV) percentages greater
than 80%
Qualifying Ratios: The ratio of
your fixed monthly expenses to your gross monthly income, used to
determine how much you can afford 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.
Refinancing: The process of paying
off one loan with the proceeds from a new loan using the same property as
security.
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.
Seller-take-back: An agreement in
which the owner of a property provides financing, often in combination
with an assumed mortgage.
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.
Tenants-by-Entirety: A form of
ownership in which husband and wife are co-owners with rights of
survivorship.
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: Insurance against
loss resulting from defects of title to a specifically described parcel of
real property.
Title Search: An investigation
into the history of ownership of a property to check for liens, unpaid
claims, restrictions or problems, to prove that the seller can transfer
free and clear ownership.
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.
Veterans
Administration (VA): A government agency guaranteeing mortgage loans
with no down payment to qualified veterans.
