Acceleration
The right of the mortgage (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 pre selected
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".
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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.
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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
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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 2 percent to 5
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.
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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.
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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.
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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 name for the regulatory
and supervisory agency
for federally 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."
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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.
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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 service 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.
Mortgage
The lender.
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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.
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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.
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 the lender for recording
a home sale with the
local authorities, thereby
making it part of the
public records.
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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 mortgage 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.
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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.
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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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