Comprehensive Mortgage
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- 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 preselected 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 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 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."
- 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.
- 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.
- 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 costs of closing usually are about 3 percent to 6 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 paperwork or compliance with stated
conditions.
- Conforming loan
- A New Home loan with a set of
standards that must be met for the loan amount and the down
payment amount. The maximum you can borrow with a conforming
loan is $240,000 for a single-family house in the continental
U.S. The benefit to applying for a conforming loan is
that you will qualify for lower interest rates and better financing
options. If you need to borrow more than the conforming
loan standard allows you to, you should apply for a non-conforming
or jumbo loan.
- 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 a purchaser and a
seller of real estate to convey title after certain conditions
have been met. It is a form of installment sale.
- 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
- The written document conveying real property. Once recorded
at the Courthouse, the original piece of paper is not needed
to convey title in the future.
- Deed of Trust
- A voluntary lien to secure a debt deeding the property to
Trustees who foreclose, sell the property at public auction,
in the event of default on the Note the Deed of Trust secures.
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
- 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 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"
- 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 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 ($208,800 maximum,
depending on location), 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
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 this type of mortgage 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 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 $240,000)
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.
- 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.
- Non Conforming Loan
- New Home loans that allows you
to borrow over a certain amount set by the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation.
- 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, run 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 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 your 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.
- 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.
- 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 asSatisfaction of Mortgage: The document
issued by the mortgagee when the mortgage loan is paid in full.
Also called a "release of mortgage."
- Rural Housing Service (RHS)
- An agency within the Department of Agriculture,
which operates principally under the Consolidated Farm and Rural
Development Act of 1921 and Title V of the Housing Act of 1949.
This agency provides financing to farmers and other qualified
borrowers buying property in rural areas who are unable to obtain
loans elsewhere. Funds are borrowed from the U.S. Treasury.
- 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.
- 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.
TAKE
ME BACK
Compiled from several
sources including the Mortgage Bankers Association
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