| A |
 |
| Adjustable Rate Mortgage (ARM) |
A mortgage in which the rate of interest
is adjusted based on a standard rate index. Most ARMs have
caps on how much the interest rate may increase or decrease.
|
| Annual Percentage Rate (APR) |
An interest rate that expresses the
cost of a mortgage as a yearly rate. This is not the note rate.
The APR assumes the loan is held for the full term. |
| Appraisal |
A written estimate of a property's present
market value, completed by a qualified appraiser of real estate.
|
| B |
|
| C |
|
| Cap |
The maximum amount the interest rate can
change annually or cumulatively over the life of an adjustable
rate mortgage. Most adjustable rate mortgages have a periodic
cap of 2% per year and 6% over the life of the loan.
|
| Cash Out |
Money received when you get a new loan that
is a larger amount than the remaining balance of your current
mortgage, based upon the equity you have in the property.
The cash out total is computed by subtracting the sum of the
old loan and fees from the new mortgage loan. (Cash-out loans
may not be available for all types of property.)
|
| Closing |
The meeting at which the sale of a property
is finalized. The buyer and seller sign documents to transfer
ownership of the property and funds are transferred. Also
known as the settlement.
|
| Closing Costs |
Expenses for services (such as title fees,
recording fees, appraisal fees, credit report fees and attorneys
fees) incurred by buyers and sellers in transferring ownership
of a property.
|
| Commitment Letter |
A written offer by a lender stating the terms
for which a lender agrees to lend money to a home buyer.
|
| Convertible ARM |
An adjustable rate mortgage (ARM) that can
be converted to a fixed-rate mortgage within a specified time.
|
| Credit Report |
A report of an individual’s open and
repaid debts. A credit history is used to determine borrower
eligibility.
|
| D |
|
| Debt-to-income Ratio |
Lenders use two ratios. The first is called
a housing ratio. The calculation is principal, interest, property
taxes, insurance (PITI) divided into gross monthly income.
The second is called an expense to income ratio. The calculation
is PITI plus all other debts (installment loans, revolving
debt, child support, etc.) divided into gross monthly income.
|
| Deed of Trust |
A legal document that conveys title of real
property to a third party (lender), until the owner has repaid
the full amount of the debt.
|
| Discount Points |
A fee the borrower pays a lender to get a
lower interest rate on a loan. One point equals one percent
of the loan amount.
|
| Down Payment |
The difference between the purchase price
and loan amount. When the down payment is 20% of the purchase
price, private mortgage insurance is generally not required.
|
| E |
|
| Earnest Money Deposit |
Deposit money a buyer gives a seller on an
offer to purchase a property.
|
| Escrow Account |
An account in which escrow funds are held
by the lender.
|
| Escrow Payment |
The portion of the mortgage payment that
is used to pay for taxes, homeowner's insurance and mortgage
insurance. The lender disburses these funds on behalf of the
borrower when they become due.
|
| Equal Credit Opportunity Act |
A federal law that requires lenders and other
creditors to make credit equally available without discrimination
based on race, national origin, religion, age, sex, martial
status or because the applicant receives income from public
assistance programs.
|
| F |
|
| Fair Market Value |
A price the buyer is willing to pay and the
seller is willing to accept.
|
| Federal Housing Administration (FHA) |
A federal agency within the U.S. Department
of Housing and Urban Development (HUD). FHA's main activity
is the insuring of residential mortgage loans made by private
lenders.
|
| Fee Simple |
Complete ownership of real property. The
maximum interest a person can have in a piece of real estate.
|
| FHA Loans |
FHA loans are fixed or adjustable rate loans
insured by the U.S. Department of Housing and Urban Development.
These loans permit qualified buyers to purchase a home with
a down payment as little as 3% of the appraised value or the
purchase price, whichever is lower.
|
| First Mortgage |
A mortgage with a primary lien against a
property.
|
| Fixed-rate Mortgage |
A mortgage in which the interest rate does
not change during the entire term of the loan, most often
10-30 years.
|
| Flood Insurance |
Insurance that compensates for damage to
the physical property resulting from rising water. It is required
for properties located in federally designated flood areas.
|
| G |
|
| Good Faith Estimate Mortgage |
A written estimate from a lender describing
the costs the borrower will probably have to pay at closing.
The Real Estate Settlement Procedures Act (RESPA) requires
the lender to provide this disclosure to the borrower within
three days of receiving a loan application. Some of the costs
are points, attorney fees, appraisal, credit report, recording
and flood certification.
|
| Gross Income |
Income before taxes, benefits, or expenses
are deducted.
|
| H |
|
| Hazard Insurance |
Insurance coverage that compensates for physical
risk to a property from natural disasters such as fire or
other hazards.
|
| Home Inspection |
An inspection by a building professional
who evaluates the structural and mechanical condition of a
property, prior to purchase.
|
| Home owner’s Insurance |
An insurance policy that combines personal
liability insurance and hazard insurance coverage for a home
and its contents.
|
| HUD-1 Statement |
A document with an itemized listing of closing
costs payable at the closing or settlement meeting when buying
property or refinancing. It is signed by both buyer and seller,
who may be paying some of the closing costs.
|
| I |
|
| Index |
A published measure that lenders use to calculate
the rate on an adjustable rate mortgage.
|
| Initial Interest Rate |
The rate charged during the first period
of an adjustable rate mortgage loan, before an adjustment
occurs.
|
| J |
|
| Joint Tenancy |
A form of ownership by two or more people
which gives each person equal interest and equal rights in
a piece of property, including rights of survivorship.
|
| Jumbo Mortgages |
A mortgage loan larger than the limits set
by Fannie Mae and Freddie Mac.
|
| K |
|
| L |
|
| Late Charge |
A fee paid by a borrower when a payment is
made 15 days after the due date.
|
| Lien |
A legal hold or claim from one person
on the property of another. |
| Loan-to-value (LTV) ratio |
The ratio between the mortgage loan amount
and the property’s appraised value or selling price,
whichever is less. For example, if a home is sold for $100,000
and the mortgage amount is $80,000 the LTV equals 80 percent.
|
| Lock or Lock-In |
A lender’s guarantee of an interest
rate for a specific time period, usually between loan application
approval and loan closing. The lock-in protects against rate
increases during that time. The lock-in usually specifies
the points to be paid at closing and the term of the loan.
|
| M |
|
| Margin |
A percentage added to an index to determine
the new interest rate at the time of adjustment for adjustable
rate mortgage loans.
|
| N |
|
| Note |
A legal document which obligates a borrower
to repay a loan at a stated interest rate during a set period
of time.
|
| O |
|
| P |
|
| Per Diem Interest |
Interest calculated daily based on the note
rate. Depending on the day of the month the closing takes
place, you will pay interest from the date of closing to the
end of the month.
|
| PITI |
Stands for principal, interest, taxes and
insurance, which are the basic components of a monthly mortgage
payment.
|
| Power of Attorney |
A legal document giving authority to one
person to act on behalf of someone else.
|
| Pre-approval |
This process goes a step further than pre-qualification.
It means the lender has verified with the borrower’s
employer and bank for earnings and assets.
|
| Prepayment |
Full or partial repayment of the principal
in advance of the due date on the note.
|
| Pre-qualification |
Prior to loan application, pre-qualification
is an estimate of how much money a home buyer will be eligible
to borrow for a loan.
|
| Prime Rate |
The Prime Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). The rate is almost always the same amongst major banks. Adjustments to the prime rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. |
| Private Mortgage Insurance (PMI) |
A form of insurance to partially protect
the lender in case you default on your loan. This is generally
required when the down payment or home equity percentage is
less than 20% of the home value.
|
| Purchase and Sales Agreement |
A contract stating the purchase price, terms
and conditions under which a property will be sold. This is
signed by both buyer and seller.
|
| Q |
|
| R |
|
| Rate Lock |
A commitment issued by a lender to a borrower
guaranteeing a specific interest rate for a specified amount
of time.
|
| Recording Fee |
A fee for recording the sale of property
into the public records.
|
| Refinancing |
Securing a new loan in order to pay off the
existing mortgage(s) or to gain cash when accessing the existing
equity in the home.
|
| Right to Rescission |
Under the provisions of the Truth-in-Lending
Act, the borrower has the right to cancel the loan within
three business days of signing a mortgage, on loans secured
by a primary residence.
|
| S |
|
| Second Mortgage |
A second loan secured by a mortgage on property
that has a lien position behind the first mortgage.
|
| Settlement Cost (HUD guide) |
A book given to borrowers prior to or at
loan application that gives an overview of the lending process.
|
| T |
|
| Title Insurance |
An insurance policy which protects the insured
(lender and/or buyer) against a loss stemming from disputes
over ownership of a property.
|
| Title Search |
The process of checking the public records
to ensure that the seller is the legal owner of the property
and to determine if there are any title defects. Any and all
liens against the property would be reported in the Title
Search.
|
| Transfer Tax |
A state tax charged when title passes from
one owner to another.
|
| Treasury Index |
An index used to determine the interest rate
change for adjustable rate mortgages.
|
| Truth-in-Lending |
A federal law that requires lenders to disclose,
in writing, the annual percentage rate, finance charge, amount
financed, total of payments and payment schedule.
|
| U |
|
| Underwriting |
The process in which the lender evaluates
a borrower’s risk and sets appropriate conditions for
the loan.
|
| V |
|
| Verification of Deposit (VOD) |
Part of the loan process in which a written
verification of the borrower’s account balance and history
is provided by the borrower’s financial institution.
|
| Verification of Employment (VOE) |
Part of the loan process in which a written
verification of the borrower’s position and salary is
provided by the borrower’s employer.
|
| W |
|
| Walk-through |
A final inspection of a home, before closing,
to determine if the conditions in the purchase and sales agreement
have been satisfied and to identify if any new problems exist
that may need to be fixed.
|
| X |
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| Y |
|
| Z |
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