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- 7/23 and 5/25 Mortgages
- Mortgages with a one time rate adjustment after seven years and five
years respectively.
- 3/1, 5/1, 7/1 and 10/1 ARMs
- Adjustable-rate mortgages in which rate is fixed for three-year,
five-year, seven-year and ten-year periods, respectively, but may adjust
annually after that.
- Acceleration
- The right of the mortgagee (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 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 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.)
- APR is a measurement of the full cost of a loan including interest
and loan fees expressed as a yearly percentage rate. Because all lenders
apply the same rules in calculating the annual percentage rate, it provides
consumers with a good basis for comparing the cost of loans.
- Appraisal
- An estimate of the value of property, made by a qualified professional
called an "appraiser".
- 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 Mortgage
- A loan which is amortized for a longer period than the term of the
loan. Usually this refers to a thirty-year amortization and a five year
term. At the end of the term of the loan, the remaining outstanding
principal on the loan is due. This final payment is known as a balloon
payment.
- 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.
- 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.
- 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 which 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 form 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
- 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 3 percent to 6 percent of the mortgage
amount.
- COFI
- Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds
index, often the 11th District Cost of Funds.
- 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.
- 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
- 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
- seeFederal 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 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."
- Firm Commitment
- A promise by FHA to insure a mortgage loam 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)
- 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.
- 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.
- 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
servicer to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they be
- Jumbo Loan
- A loan which is larger (more than $240,000 as of 1/1/99) than the
limits set by the Federal National Mortgage Association and
the
Federal Home Loan Mortgage Co
- Mortgage Insurance
- Money paid to insure the mortgage when the down payment is less than
20 percent. See private mortgage insurance, 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
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
- One-year adjustable
- Mortgage whose annual rate changes yearly. The rate is usually based
on movements of a published index plus a specified margin, chosen by
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 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.
- 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 3 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.
- Recission
- 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.
- 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 collateral for
and repayment of the loan.
- Satisfaction of Mortgage
- The document issued by the mortgagee 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.
- 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.
- 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
- 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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