Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is
adjusted periodically according to a pre-selected index.
Amortization
Payment of a debt in
regular, periodic installments of principal and interest as opposed to
interest only payments.
Annual Percentage Rate (APR)
A
term used in the Truth-in-Lending Act to represent the percentage
relationship of the total finance charge to the amount of the loan. The
APR reflects the cost of your mortgage loan as a yearly rate. It will be
higher than the interest rate stated on the note because it includes, in
addition to the interest rate, loan discount points, fees and mortgage
insurance.
Application
A printed form used
by a mortgage lender to record necessary information concerning a
prospective mortgage.
Application Fee
A sum of money
paid towards estimated initial mortgage processing expenses such as
appraisal and credit report.
Appraisal
A report made by a
qualified person setting forth an opinion or estimate of property value.
The term also refers to the process by which this estimate is
obtained.
As Separate Property
Ownership in
real property which is to be specifically excluded from community
property.
Assessed Valuation
The value that
a taxing authority places on real or personal property for the purpose of
taxation.
Assessment
A charge against a
property for purpose of taxation. This may take the form of a levy for a
special purpose or a tax in which the property owner pays a share of the
cost of community improvements according to the valuation of his or her
property.
Borrower
A person (also known as
mortgagor) who receives funds in the form of a loan with an obligation to
repay principal with interest.
Buydown
Money advanced by an
individual (builder, seller, etc.) to reduce the monthly payments for a
home mortgage either during the entire term or for an initial period of
years.
Cash to Close
Liquid assets that
are readily available to be used to pay the closing costs involved in a
closing of a mortgage transaction.
Closing
The consummation of a
real estate transaction. The closing includes the delivery of a deed,
financial adjustments, the signing of notes, and the disbursement of funds
necessary to complete the sale and loan transaction.
Closing Costs
Money paid by the
borrower in connection with the closing of a mortgage loan. This generally
involves an origination fee, discount points, appraisal, credit report,
title insurance, attorney's fees, survey, and pre-paid items such as tax
and insurance escrow payments.
Closing Statement
A form used at
closing that gives an account of the funds received and paid at the
closing, including the escrow deposits for taxes, hazard insurance, and
mortgage insurance.
Co-Borrower
Additional
borrower(s) whose income contributes to qualifying for a loan and whose
name(s) appears on documents with equal legal obligations.
Collateral
Property pledged as
security for a debt, such as the real estate pledged as security for a
mortgage.
Commitment (Loan)
A binding
pledge made by the lender to the borrower to make a loan, usually at a
stated interest rate within a given period of time for a given purpose,
subject to the compliance of the borrower to stated conditions.
Commitment Fee (Loan)
Any fee
paid by a potential borrower to a lender for the lender's promise to lend
money at a specified rate and within a given time period.
Commitment Letter
A formal offer
by a lender stating the terms under which it agrees to loan money to a
home buyer.
Conforming Loan
Conventional home
mortgages eligible for sale and delivery to either the Federal National
Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation
(FHLMC). These agencies generally purchase first mortgages up to loan
amounts mandated by Congressional directive.
Conventional Mortgage
A mortgage
not obtained under a government insured program (such as FHA or VA).
Credit Report
A report detailing
an individual's credit history.
Deed of Trust
An instrument used
in many states in place of a mortgage. Property is transferred to a
trustee by the borrower (trustor), in favor of the lender (beneficiary)
and reconveyed upon payment in full.
Default
The failure to perform an
obligation as agreed in a contract.
Delinquency
A loan payment that
is overdue but within the period allowed before actual default is
declared.
DeMinimus PUD
A PUD in which the
common property has less than a 2% influence upon the value of the
premises. The 2% rule of thumb is calculated by dividing the dollar amount
of amenities by the total number of units. Also see PUD.
Deposit
A sum of money given to
bind a sale of real estate. Also known as earnest money.
Depreciation
A loss of value in
real property brought about by age, physical deterioration, functional or
economic obsolescence.
Discount Point
Amount payable to
the lender institution by the borrower or seller to increase the lender's
effective yield. One point is equal to one percent on the loan amount.
Discounted Loan
When the note
rate on a loan is less than the market rate, the lender requires
additional points to raise the yield on the loan to the market rate.
Earnest Money
A portion of the
downpayment delivered with a purchase offer by the purchaser of real
estate to the seller or an escrow agency by the purchaser of real estate
with a purchase offer as evidence of good faith. Also known as a
deposit.
Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit
equally available without discrimination based on race, color, religion,
national origin, sex, age, marital status, receipt of income from public
assistance programs or past exercising of rights under the Consumer Credit
Protection Act.
Equity
The ownership interest;
i.e. portion of a property's value over and above the liens against
it.
Escrow
A procedure whereby a
disinterested third party handles legal documents and funds on behalf of a
seller and buyer.
Fair Credit Reporting Act (FCRA)
A federal law which requires a lender who is rejecting a loan request
because of adverse credit information to inform the borrower of the source
of such information. This law also requires consumer reporting agencies to
exercise fairness, confidentiality and accuracy in preparing and
disclosing credit information.
Federal Home Loan Mortgage Corporation - FHLMC
(FREDDIE MAC)
A quasi-governmental agency that purchases
conventional mortgages in the secondary mortgage market from insured
depository institutions and HUD-approved mortgage bankers. It sells
participation sales certificates secured by pools of conventional mortgage
loans, their principal, and interest guaranteed by the federal government
through the FHLMC. It also sells Government National Mortgage Association
bonds to raise funds to finance the purchase of mortgages. Popularly know
as Freddie Mac.
Federal National Mortgage Association - FNMA
(FANNIE MAE)
A taxpaying corporation created by Congress to
support the secondary mortgage market. It purchases and sells residential
mortgages insured by the Federal Housing Administration (FHA) or
guaranteed by the Veterans Administration (VA) as well as conventional
home mortgages.
First Mortgage
A real estate loan
that has priority over any subsequently recorded mortgages.
Fixed Interest Rate
An interest
rate which does not change during the loan term.
Foreclosure
A legal procedure in
which property mortgaged as security for a loan is sold to pay the
defaulting borrower's debt.
Gift Letter
A written explanation
signed by the individual giving the gift stating, "This is a bona fide
gift and there is no obligation expressed or implied to repay this sum at
any time."
Gross Monthly Income
Total
monthly income earned before tax and other deductions.
Hazard Insurance
A contract
whereby an insurer, for a premium, undertakes to compensate the insured
for loss on a specific property due to certain hazards (i.e. fire).
High-Ratio Loan
Mortgage loans in
excess of 80 percent of the loan amount divided by the lower of the sales
price or appraised value.
Homeowners' Association Dues
The
fees imposed by a condominium or homeowners' association for maintenance
of common areas.
Insured Loans
A loan insured by
HUD-FHA or a private mortgage insurance company.
Interest
Consideration in the
form of money paid for the use of money. Also a right, share or title in
property.
Interest rate
The percentage of
an amount of money which is paid for its use for a specified time.
Investment Property Real estate owned with the intent of supplementing
income and not intended for owner occupancy.
Lien
A legal claim or attachment
against property as security for payment of an obligation.
Loan-To-Value Ratio
The ratio
between the amount of a given mortgage loan and the lower of sales price
of appraised value.
Market Value
The most probable
price which a ready, willing and able buyer would pay and a willing seller
will accept, both being fully informed under no pressure to act. The
market value may be different from the price a property can actually be
sold for at a given time (market price).
Maturity
The termination or due
date on which final payment on a loan must be paid in full.
Monthly Payment
Usually, the
amount of PITI (principal, interest, taxes, and insurance) paid each month
on a mortgage loan.
Mortgage
The conveyance of an
interest in real property given as security for the payment of a loan.
Mortgagee
The lender on a
mortgage transaction.
Mortgage Insurance Premium (MIP)
The consideration paid by a mortgagor
(borrower) for mortgage insurance - either to the FHA or to a private
mortgage insurer.
Mortgage Note
A written promise
to pay a sum of money at a stated interest rate during a specified term.
The note contains a complete description of the conditions under which the
loan is to be repaid and when it is due.
Mortgagor
The borrower in a
mortgage transaction who pledges property as security for a debt.
Non-Conforming Loan
Conventional
home mortgages not eligible for sale and delivery to either FNMA or FHLMC
because of various reasons, including loan amount, loan characteristics or
underwriting guidelines.
Occupancy
The use of a property
as a full-time residence, either by the title holder (owner-occupancy) or
by another party through a formal agreement (rental).
Origination Fee
The amount
charged for services performed by the company handling the initial
application and processing of the loan.
Percentage Point
One percent of
the loan or a measure of the interest rate.
PITI (Principal, Interest, Taxes, and
Insurance)
The most common components of a monthly mortgage
payment.
Preliminary Title Report
The
results of a title search by a title company prior to issuing a title
binder or commitment to insure clear title.
Primary Residence
A residence
which the borrower intends to occupy as the principal residence.
Principal Balance
The remaining
balance due on a debt, exclusive of accrued interest.
Private Mortgage Insurance
Insurance written by a private company protecting the mortgage lender
against loss resulting from a mortgage default.
Processing
The preparation of a
mortgage loan application and supporting documentation for consideration
by a lender or insurer.
PUD (Planned Unit Development)
A
planned combination of diverse land uses, such as housing, recreation, and
shopping in one contained development or subdivision. A major feature of a
PUD includes areas of common land for use by the housing unit owners; the
association of unit owners generally owns, pays fees, and maintains the
common areas. Also see DiMinimus PUD.
Purchase Contract (Agreement/Offer)
An agreement between a buyer and seller of real property, setting
forth the price and terms of the sale. Also known as a sales contract.
Rate Lock Option
An agreement
guaranteeing an individual a specified interest rate on a loan provided
the loan is closed within a set period of time.
Real Assets
Real estate or real
property owned by an individual of business.
Real Estate Settlement Procedures Act
(RESPA)
A federal law requiring lenders to provide home
mortgage borrowers with information on known or estimated settlement
costs. It also establishes guidelines for escrow account balances.
Real Property
Land and that which
is affixed to it.
Refinancing
The repayment of a
debt from the proceeds of a new loan using the same property as
security.
Satisfaction of Mortgage
The
recordable instrument issued by the lender verifying full payment of a
mortgage debt.
Second Home (Vacation Home, Weekend
Home)
A residence other than the borrower's primary
residence which the borrower intends to occupy for a portion of each year.
Must be suitable for year-round occupancy.
Secondary Mortgage Market
A
market where existing mortgages are bought and sold. It contrasts with the
primary mortgage market where mortgages are originated.
Security
In lending, the
collateral given, deposited, or pledged to secure the payment of a
debt.
Settlement Services
Services
provided by the lender at the closing of a loan.
Survey
The measurement and
description of land by a registered surveyor.
Term
The time limit within which
a loan must be repaid.
Title
The legal evidence of
ownership rights to real property.
Title Insurance Policy
A contract
in which an insurer, usually a title insurance company, agrees to pay the
insured party a specific amount for any loss caused by defects of title on
real estate in which the insured has an interest as purchaser, mortgagee,
or otherwise.
Title Search
An examination of
public records to disclose the past and current facts regarding the
ownership of a given piece of real estate.
Truth-in-Lending Act
A Federal
law requiring full disclosure of credit terms using a standard format.
This is intended to facilitate comparisons between the lending terms and
financial institutions.
Underwriting
Analysis of risk and
setting of an appropriate rate and terms for a mortgage on a given
property for given borrowers.
Zero Point Option
An option which
allows the borrower to opt to pay a slightly higher loan interest rate in
lieu of paying the loan origination points generally charged for the
particular loan product.
