|
Acceleration Clause
|
Allows the lender to speed
up the rate at which your loan comes due or even to demand
immediate payment of the entire outstanding balance of
the loan should you default on you loan. |
|
Adjustable Rate Mortgage (ARM)
|
A mortgage in which the interest
rate is adjusted periodically, based on a pre-selected
index. Also sometimes known as the renegotiable 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 payments calculated to pay off the debt at the
end of a fixed period, including accrued interest on the
outstanding balance. |
|
Annual Percentage Rate (APR)
|
An 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 points
and other credit costs. The APR allows homebuyers 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."
|
|
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 costs
and new, possibly higher, market-rate interest charge
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.
|
|
Broker
|
An individual in
the business of assisting in arranging funding or negotiating
contracts for a client, but who does not loan the money
himself. Brokers usually charge a fee or receive a commission
for their services. |
|
Buydown
|
When the lender and/or the
home builder subsidizes 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. |
|
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. |
|
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 costs
of closing are usually about 3 percent to 6 percent of
the mortgage amount. |
|
Commitment
|
An agreement, often in writing,
between a lender and a borrower to loan money at a future
date subject to the completion of paperwork or compliance
with stated conditions. |
|
Construction Loan
|
A short term interim loan for
financing the cost of construction. The lender advances
funds to the builder at periodic intervals as the work
progresses. |
|
Conventional Loan
|
A mortgage not insured by FHA
or guaranteed by the VA or Farmers Home Administration
(FmHA). |
|
Credit 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 net effective
income (FHA/VA loans) or gross monthly income (Conventional
loans). 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
|
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 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). |
|
Down Payment
|
Money paid to make up the difference
between the purchase price and mortgage amount. Down payments
usually are 10 percent to 20 percent of the sales price
on Conventional loans, and no money down up to 5 percent
on FHA and VA loans. |
|
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. |
|
Equal Credit Opportunity Act (ECOA)
|
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. |
|
Escrow
|
Refers to a neutral third party
who carries out the instructions of both the buyer and
seller to handle all the paperwork of settlement or "closing."
Escrow may also refer to an account held by the lender
into which the homebuyers pays money for tax or insurance
payments. |
|
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 Mortgage Corporation
(FHLMC)
|
Also called Freddie Mac, is
a quasi-governmental agency that purchases conventional
mortgages 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 known 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, they
are generous enough to handle moderate-priced homes almost
anywhere in the country. |
|
FHA Mortgage Insurance
|
Requires a small fee (up to
3 percent of the loan amount) paid at closing or a portion
of this fee added to each monthly payment of an FHA loan
to insure the loan with FHA. On a 9.5 percent $75,000
30-year fixed-rate FHA loan, this fee would amount to
either $2,250 at closing or an extra $31 a month for the
life of the loan. In addition, FHA mortgage insurance
requires an annual fee of 0.5 percent of the current loan
amount, the more years the fee must be paid. |
|
Fixed-Rate Mortgage
|
A mortgage on which the interest
rate is set for the term of the loan. |
|
Foreclosure
|
A legal procedure in which
property securing debt is sold by the lender to pay a
defaulting borrower's debt . |
|
Freddie Mac
|
See Federal Home Loan Mortgage
Corporation. |
|
Ginnie Mae
|
See Government National Mortgage
Association. |
|
Government National Mortgage Association
(GNMA)
|
Also known as Ginnie Mae, provides
sources of funds for residential mortgages, insured or
guaranteed by FHA or VA. |
|
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. |
|
Gross Monthly Income
|
The total amount the borrower
earns per month, before any taxes or expenses are deducted.
|
|
Guarantee
|
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 net effective income (FHA/VA loans) or gross
monthly income (Conventional loans). |
|
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. |
|
Investor
|
Money source for a lender.
|
|
Jumbo Loan
|
A loan which is larger 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 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. |
|
Mortgage Insurance
|
Money paid to insure the mortgage
when the down payment is less than 20 percent. See Private
Mortgage Insurance or 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 homebuyers 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. |
|
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 face value of the loan. |
|
PITI
|
Principal, interest, taxes,
and insurance. Also called monthly housing expense. |
|
Points
|
See Discount Points |
|
Power of Attorney
|
A legal document authorizing
one person to act on behalf of another. |
|
Prepaids
|
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 36 states and
the District of Columbia. |
|
Principal
|
The amount of debt, not counting
interest. |
|
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 payments loans, however, borrowers are usually
required to carry private mortgage insurance. Private
mortgage insurance will require an initial premium payment
of 1.0 percent to 5.0 percent of your mortgage amount
and may require an additional monthly fee depending on
your loan's structure. On a $75,000 house with a 10 percent
down payments, this would mean either an initial premium
payment of $2,025 to $3,375, or an initial premium of
$675 to $1,130 combined with a monthly payment of $25
to $30. |
|
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. |
|
Renegotiable Rate Mortgage (RRM)
|
A loan in which the interest
rate is adjusted periodically. See Adjustable Rate Mortgage.
|
|
Real Estate Settlement Procedures
Act (RESPA)
|
RESPA is a federal law that
allows consumers to review information on known or estimated
settlement costs once after application and once prior
to or at settlement. The law requires lenders to furnish
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 security. |
|
Servicing
|
All the steps and operations
a lender perform to keep a loan in good standing, such
as collection of payments, payment of taxes, insurance,
property inspections and the like. |
|
Settlement
|
See Closing. |
|
Settlement Costs
|
See Closing Costs. |
|
Shared Appreciation Mortgage (SAM)
|
A mortgage in which a borrower
receives a below-market interest rate in return for which
a 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 mortgages
where the borrower shares the monthly principal and interest
payments with another party in exchange for a part of
the appreciation. |
|
Survey
|
A measurement of land, prepared
by a registered land surveyor, showing the location of
the land with reference to known points, its dimensions,
and the location and dimensions of any building. |
|
Term Mortgage
|
See Balloon Payment Mortgage.
|
|
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 homebuyer against
errors in the title search. The cost of the policy is
usually a fraction of the value of the property, and is
often borne by the purchaser and/or seller. |
|
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 homebuyers shortly after
they apply for the loan. |
|
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 years), 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 within
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 homebuyers based on credit, employment,
assets, and other factors and the matching of this risk
to an appropriate rate and term or loan amount. |
|
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 2 percent
(depending on the size of the down payment) paid on a
VA-backed loan. On a $75,000 30-year 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. |
|
Wraparound
|
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. |
