| A |
Addendum
A supplemental document for borrowers
to advise them of the characteristics of the mortgage loan they are
applying for. This document is often required when applying for a
government loan program. |
Adjustable Rate Mortgage (ARM)
A type of mortgage rate loan whose interest rate changes periodically
up or down, usually once or twice a year. |
Adjustment period
The time between changes in your interest rate and/or monthly payment
with a variable rate loan. These intervals will vary depending on
the type of loan. |
Amortization
The means by which a home loan is scheduled to be paid off, including
interest and principal, by a series of regular installment payments.
Loans are typically amortized over 30 years. |
Application Fee
A fee charged used to cover the lender's out of pocket costs of processing
your loan. |
Appraisal
A formal, written estimation by a qualified appraiser of the current
value of a home. |
Appraiser
A licensed professional who determines the market value for property
values. They offer an unbiased opinion based on current market data
and the replacement value of the property. |
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Annual Percentage Rate (APR)
The cost of your credit expressed as a yearly rate. It takes into
account interest, points, and origination fees. Since all lenders
are required to use the same guidelines in determining APR, this
is a good basis for comparing the cost of various loan programs.
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Assumability/Assumption
A feature of the loan that permits you to transfer your mortgage
and its specified terms to the person(s) purchasing your home. Having
an assumable loan could make it easier for you to sell your home,
since assumption of a loan usually involves lower fees and/or qualifying
standards for the new borrower than a new loan. |
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| B |
Balloon
A short-term loan that has a fixed rate and smaller payments for
short-term period which is followed by one large payment for the balance
of the principal. |
Bankruptcy
A debtor surrenders his assets to the Bankruptcy Court and is not
required to repay unsecured debts under a federal law provision. Unsecured
creditors may not pursue collection, and secured creditors are entitled
only to the security the subject property holds for them. They may
not pursue further collection. |
Broker
An individual or company who does not fund loans himself, but facilitates
the processing or approval procedures for a customer. A broker uses
a lender to approve and close loans for customers. |
Buy-downs
Some mortgage programs can be qualified and obtained at lower initial
rates by paying a higher fee to obtain the mortgage. Fixed rate and
some ARM programs can offer mortgage rate buydowns. |
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| C |
Caps (interest)
A limit to the rise and fall of the interest rate on an adjustable
rate mortgage (ARM). A consumer safeguard. |
Caps (payment)
A limit to the amount the monthly payment can grow on an adjustable
rate mortgage (ARM). A consumer safeguard. |
Certificate
of Eligibility
A document that verifies the eligibility of veterans for a VA
guaranteed loan. This certificate is obtained through a local VA
office. |
Certificate of
Title
A legal document that declares the status of a given property as
shown on public records. This document does not guarantee matters
not of record, unless negligence is involved. |
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Closing costs
One-time costs that must be paid before the loan can be "closed"
or funded. These costs may include such things as property taxes,
insurance, broker's fees, escrow fees, title
insurance premium, deed recording fee, title transfer tax, etc.
Escrow instructions will stipulate which portion
of the fees are to be paid by buyer or seller. An estimate of closing
costs will be given to you by the lender within a few days after
receiving your loan application and is called a Good
Faith Estimate. All or a portion of your closing costs may be
financed with some loan programs.
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Co-operative
Cooperative Housing is an apartment building or a group of dwellings
owned by a corporation, the stockholders of which are the residents
of the dwellings. It is operated for their benefit by their elected
board of directors. In a cooperative, the corporation or association
owns title to the real estate. A resident purchases stock in the corporation
that entitles him to occupy a unit in the building or property owned
by the cooperative. While the resident does not own his unit, he has
an absolute right to occupy his unit for as long as he owns the stock. |
Collateral
The property used to secure the loan. |
Condominium
Units in a multi-unit structure that may be bought, sold, and encumbered
individually with joint ownership of common areas. |
Conforming
The loan program guidelines meet Fannie Mae and or Freddie Mac underwriting
requirements. This means the income, credit, and property requirements
must meet nationally standardized guidelines. |
Contributions
This is the amount other parties may contribute towards allowable
closing costs, repairs, and prepaid items far a borrower. Other lender
restrictions may apply. |
Conventional
financing
Home loans made by a lender without government backing provided on
FHA and VA loans. |
Covenant
A written agreement that defines or restricts the use of a given
property. This may include, architectural restrictions or maintenance
requirements. |
Credit report
A report made by a private agency that states a borrower's credit
history, current accounts, and account balances. |
Creditors
Companies or individuals who loan money. Typically they report payment
histories and terms credit bureaus to report provide an archive source. |
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| D |
Deed
A written document recorded with the state or local government office
that conveys real property. |
Default
Failure to legal obligations in a contract. In mortgage terms this
generally means to fail to make the required monthly payments. |
Disclosure
A document that discloses to the customer either all or one of the following:
terms, costs, adjustment period, and/or
other characteristics of the mortgage. |
Down payment
Usually between 10 and 20 percent, the down payment often demonstrates
the borrower's commitment to the property and to "make good" on the
mortgage. It is the difference between the sales price and the amount
of the mortgage or lender guidelines. |
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| E |
Earnest money
The buyer gives "earnest money" to the seller as part of the purchase
price to secure the transaction. This amount is credited towards the
down payment and closing costs at closing or settlement. |
Escrow
In the sale of property, a neutral third party-the escrow agent-is
appointed to act as custodian for documents and funds during the transfer
from seller to buyer. The funds can include taxes and mortgage insurance.
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| F |
Fannie Mae or FNMA (Federal
National Mortgage Association)
A secondary mortgage institution which holds the majority of home
mortgage in the U.S. FNMA buys conventional mortgages from lenders
when they meet conforming guidelines. |
Federal Housing Administration
(FHA)
A government agency that insures repayment of a loan to the lender. This
provides the borrower the ability to obtain a home loan with a smaller
down payment and more flexible guidelines. |
Fixed Rate Mortgage
(FRM)
A loan where the rate of interest is fixed over the life of the loan.
Payments on a fully amortized fixed rate loan will not change. |
Foreclosure
Repossession of the Property
The forced sale of a mortgaged property because mortgage terms are
unmet. |
Federal Home Loan Mortgage
Corporation (Freddie Mac or FHLMC)
A secondary market (source of funds) for lenders to sell conventional
loans. These agencies set national guidelines for lenders to follow. |
Free and Clear
This is a term used for a property that does not have any liens or
debts recorded on title. That means the owner does not have a mortgage.
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| G |
Government National Mortgage
Association (Ginnie Mae or GNMA)
The source of funds for FHA or VA
residential mortgages. |
Good Faith Estimate (GFE)
A written estimate of closing costs associated with the financing
transaction that is to be provided by the lender within three days
of application. |
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| H |
Hazard Insurance
A form of insurance in which the insurance company protects the insured
form specified losses, for example fire, flood, or windstorm damage.
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| I |
Impound/Escrow Account
This is an account set up by the lender to collect moneys monthly
for property tax, hazard insurance, mortgage insurance, and paid not
he borrowers behalf when the applicable change becomes due. Any unused
funds are returned to the borrower upon the payoff of the loan. |
Index
Used by lenders to calculate the interest adjustments on variable
rate loans. Most programs use either the 11th District Cost of Funds
or the 1-year Treasury Rate as the index. Some indexes are more volatile
than others; this can affect the adjustments in your interest rate
and subsequently your monthly payment. |
Initial rate
A fixed interest rate charged for the first six or twelve months of
a variable rate loan. Normally this rate will be lower than prevailing
market rates. |
Interest rate cap
A safeguard built into a variable rate loan to protect the consumer
against dramatic increases in the rate of interest and, consequently,
in the monthly payment. For example, a variable rate loan may have
a two percentage point limit per year on the amount of increase or
decrease, as well as a five percentage point limit (increase or decrease)
over the life of the loan. |
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| J |
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| K |
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| L |
Loan to Value (LTV)
This is expressed as a percentage figure of the lower of the sales
price or appraisal divided by the loan amount. If a purchase loan
reflects 80% LTV that means the borrower requires a 20% down payment. |
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| M |
Margin (spread)
An amount expressed as a percentage that is added to an index to
determine the interest rate on a variable rate loan (e.g. index rate
+ 2% margin). Different loan programs may use different margins and
indexes. With a variable rate loan, this margin (spread) generally
does not change once it is established in your documents. At settlement
the borrowers lender charges (800 series items) should not exceed
the amount stated on the Good Faith
Estimate. |
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| N |
Negative Amortization
A situation may occur on variable rate loans that have the "payment
cap" features. Because your monthly payment is capped, your adjusted
payment amount may, at times, be insufficient to pay the actual amount
of interest due. The unpaid (deferred) interest would be added
to your loan balance. This increase in your loan balance is known
as "negative amortization." A borrower usually has the option of increasing
the monthly payment in any given month to avoid negative amortization
or making a lump sum payment to pay off any accrued negative amortization.
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| O |
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| P |
Payment cap
This limited amount by which the payment on a variable rate loan can
increase or decrease at each payment adjustment interval (typically
one year). A payment cap ensures that the payment changes occur at
a gradual pace. |
Principal
The amount borrowed or the remaining unpaid balance. It may also be
used to describe the part of a monthly payment that reduces the remaining
balance of a mortgage. |
Principal-Interest-Taxes-Insurance
(PITI)
The total of your monthly home payment, including taxes and insurance.
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Private Mortgage Insurance (PMI)
Insurance that guarantees the lender payment of the balance of the
loan not covered by the sale of the property in the event of foreclosure.
PMI is normally required on conventional loans where the LTV is greater than 80%
and will be included as part of your monthly payment. |
Points and Fees
A point is a loan charge equal to one percent of the principal amount
of the loan. Points are payable at the close of escrow and may be
paid by the buyer or seller, or split between them. (E.g. Two points
charged on a $100,000 loan would equal $2,000.) In addition, a flat
dollar amount fee may also be charged. Under some lending programs,
a buyer may be allowed to include these points and fees as part of
the total amount financed. |
Prepayment Penalty
A fee for paying off the principal amount of the loan prior to
the pre-agreed term. This term is typically 2 to 5 years. The maximum
prepayment charge is 6 months interest based upon 80% of the principal
balance. |
Planned Unit Development (PUD)
A community with a mandatory association which provides guidelines
for homeowners to follow and typically charges an association fee
for maintaining common areas. |
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| Q |
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| R |
Rate Lock
Assures that the rate in effect on the date you submit your loan application,
during loan processing, or at the time of final approval will be the
final rate on your loan when funded. This assurance usually expires
after a specified period of time. |
Ratios
A ratio used as an underwriting guideline to determine the amount
of debt a borrower may have compared to their income (e.g. Borrower's
house payment divided by gross income). A ratio may be used to calculate
the total allowable debt or the monthly housing portion. It is expressed
as a percent. |
Refinance
Negotiation of a new loan in order to pay off an existing loan. Homes
are usually refinanced in order to (a) take advantage of lower interest
rates, (b) switch from one loan type to another (e.g. from variable
to fixed), or (c) to generate cash from built-up equity. Since refinancing
generally involves new loans costs, these costs must be weighed against
the benefits to be gained. |
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Reserves
This is the amount of liquid assets that the lender needs to
verify in the borrowers account above and beyond the funds required
to close the transaction. This amount is expressed as a multiple
of the total monthly payment (i.e. if PITI is
$1200 per month, 2 months reserves would be $2400.) Reserves remain
in the borrowers account.
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| S |
Self Employed
A borrower is typically considered self employed if they own 25%
or more of the company they are employed by. |
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| T |
Term
The number of years before your loan is scheduled to be paid off.
15-year and 30-year terms are most common |
Title Insurance
An insurance policy issued by a title insurance company ensuring that
the title will reflect only liens allowed by the lender at closing.
Liens that need to be cleared prior to closing may include other mortgages,
tax liens, and judgments. |
Truth and Lending
Disclosure
A federal law that requires lenders to fully disclose, in writing,
the terms and conditions of a mortgage, including the annual
percentage rate (APR) and other charges. |
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| U |
Underwriting
Standards established by a lender to determine whether a borrower
qualifies for a loan. |
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| V |
Veterans Administration (VA)
A government agency providing guarantees for lenders on approved loans
to qualifying veterans. |
Verification
of documents
Most loan programs require the mortgage company to verify information
on loan applications such as the borrowers employment, bank account
balances, and credit references. Often these verifications are referred
to as VOE's (verification of employment), VOD's (verification of deposits)
and VOM's (verification of mortgage). |
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