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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