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B, C, D, E, F, G, H, I, J, L, M, N, O, P, R, S, T, U, V, W
Acceleration Clause-
Allows the lender to demand immediate payment of the balance
of the loan should you default on your payments.
Adjustable Rate Mortgage (ARM)-
A mortgage in which the interest rate is adjusted periodically
based on a designated financial index. Also known as
variable rate mortgage.
Adjustment Interval-
On an adjustable rate mortgage, the time between changes is
the interest rate and/or monthly payment.
Amortization-
Equal periodic payments calculated to pay off the loan at the
end of a fixed period, typically 15 to 30 years.
Annual Percentage Rate (APR)-
An interest rate reflecting the cost of a loan as a yearly
rate. This rate is likely to be higher than the stated
note rate on the mortgage, as it takes into account points
and other credit costs. The APR allows borrowers to
compare different types of mortgages based on the annual
cost for each loan.
Appraisal-
Estimate of the value of property by the qualified professional
called an “appraiser.’
Assumption-
Agreement between buyer and lender where the buyer takes over
the payments on an existing mortgage.
Balloon Payment Mortgage-
Usually a short term loan involving small payments for a
set period of time and one large payment for the remaining
principal balance at a specified time.
Broker-
An individual in the business of assisting, arranging, funding,
or negotiating loans for a client but does not loan the money
himself.
Buy Down-
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.
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CAPS (Interest)-
Consumer safeguards that limit the amount that the interest
rate on an ARM loan may change per year and/or life of the
loan.
CAPS (Payment)-
Consumer safeguards which limit the amount monthly payments
on an adjustable rate mortgage may change.
Closing-
Meeting between the buyer, seller, and lender escrow officer
where the property and funds legally change hands. Also
called settlement.
Closing costs-
Usually include an origination fee, appraisal fee, title
search and insurance, taxes, deed recording fee, credit report
charge and other costs assessed at settlement.
Commitment-
An agreement, often in writing, between the lender and a
borrower to loan money at a future date subject to the completion
of paperwork or compliance with stated conditions.
Construction Loan-
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 loan not insured by FHA, VA, or Farmers Home Administration.
Credit Report-
Report listing borrower's consumer credit use, including
past and current debts, payment ratings and terms.
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 Expense-to-Income Ratio,
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Deed of Trust-
Documents used in many states that secure the payment of
a note.
Default-
Failure to make the required payments on a loan. Often
results in foreclosure.
Deferred Interest-
See Negative Amortization.
Delinquency-
Failure to make loan payments on time. This could lead
to default or foreclosure.
Department of Veterans Affairs-
Independent agency of the federal government which guarantees
long-term, low or no-down payment loans to eligible veterans.
Discount Points-
See Points.
Down Payment-
Money paid to make up the difference between the purchase
price and loan amount. Down Payments usually are 10
to 20 percent of the sales price on conventional 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 as part of the purchase price to bind
a transaction or assure payment. Also called Deposit.
Equal Credit Opportunity Act (ECOA)-
Federal law requiring 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 market value and current loan, also
known as owner’s interest.
Escrow-
Neutral third party that carries out the instructions of
both the borrower and the lender to handle settlement or “closing.” Escrow
may also refer to an account held by the lender into which
the borrower pays for tax or insurance payments.
Fannie Mae-
Federal National Mortgage Association.
Farmers Home Administration-
Provides financing to farmers and other qualified borrowers
who are unable to obtain loans elsewhere.
FHA (Federal Housing Administration-
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.
FHA Loan-
Loan insured by the Federal Housing Administration open to
qualified home purchasers. While limited in size, they
are generous enough to handle moderate-priced home almost
anywhere in the country.
FHA Mortgage Insurance-
Requires a small fee (usually 1.5 to 3.0 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 97%, $100,000 30-year fixed-rate FHA loan,
this fee would amount to either $2,250 at closing or an extra
$31 a month for the first five to seven years of the mortgage. In
addition, FHA mortgage insurance requires a monthly premium
payment equal to 7.5% of the monthly payment.
FNMA (Federal National Mortgage Association)-
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.
Fixed Rate Mortgage-
Loan in which the interest rate is constant for the term
of the loan. Neither the rate or the terms of the mortgage
change over the life of the loan.
Foreclosure-
A legal procedure in which property securing debt is sold
by the lender to pay the defaulting borrowers debt.
Freddie Mac-
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.
GNMA- Ginnie Mae-
Government National Mortgage Association. 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 leveled off. This
type of mortgage has negative amortization built into it.
Gross Monthly Income-
The total amount the borrower(s) earn each month, before
any taxes 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-
Insurance which protects the borrower and home from specified
losses, such as fire, windstorm, etc.
Housing Expense-to-Income Ratio-
The ratio, expressed as a percentage, obtained by dividing
borrower’s housing expenses by his/her gross monthly
income. See Debt-to-Income Ratio.
Impound-
Portion of the borrowers monthly payment collected by the
lender to pay taxes, hazard insurance, mortgage insurance,
and other items as they become due. Also known as reserves.
Index-
The rate against which lenders measure the difference between
the current rate on adjustable rate loans and that earned
by other investments, (U.S. Treasury security yields, monthly
average interest rate on loans closed by savings and loans,
and monthly average costs-of-funds incurred by savings and
loans), which is then used to adjust the interest rate up
or down.
Investor-
Money source for a lender.
Jumbo Loan-
Loan which is larger than the limits ($214,600) set by FNMA
and FHLMC. Because jumbo loans can not be funded by
these 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 loan and the appraised
value of the property expressed as a percentage.
Margin-
Rate expressed as a percentage that a lender adds to the
index on an adjustable rate loan to establish the adjusted
interest rate.
Market Value-
The highest price that the buyer would pay and the lowest
price the 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-
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.
Net Effective Income-
The borrower’s gross income minus federal income tax.
Non-Assumption Clause-
Statement in loan contract forbidding the assumption of the
loan without the prior approval of the lender.
Origination Fee-
Fee charged by lender to prepare loan documents, credit checks,
etc.; usually computed as a percentage of face value off
the loan.
PITI-
Principal, interest, tax, and insurance. Also called
monthly housing expense.
Points (Loan Discount Points)-
Prepaid interest assessed at closing by the lender. Each
point is equal to 1 percent of the loan amount.
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
an existing account. Can include taxes, hazard insurance,
private mortgage insurance, and special assessments.
Prepayment Penalty-
Fee charged for early repayment of some types of loans. Usually
6 months interest on 80 percent of current balance.
Principal-
The balance, not including interest, left on a loan.
Private Mortgage Insurance (PMI)-
For loans over 80 percent loan-to-value. Lenders will
loan up to 95 percent in some cases. With the higher
LTV loans, borrowers are required to carry private mortgage
insurance, which requires an initial premium and may require
an additional monthly fee depending on your loan’s
structure.
Realtor-
Real estate broker or agent belonging to the National Association
of Realtors.
Recision-
Law that gives the borrower 3 days after signing to cancel
a contract in some cases, if the transaction uses home equity
as security. Not applicable to purchases, 2nd mortgages and
properties other than the borrowers primary residence, or
on commercial loans.
Recording Fees-
Paid to the county for recording a home sale, 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.
RESPA Real Estate Settlement Procedures Act-
Federal law allowing consumers to receive and review information
on known or estimated settlement costs after application
and again at settlement. Requires lenders to furnish
information after application only.
Reverse Annuity Mortgage (RAM)-
A mortgage in which the lender makes periodic payments to
the borrower using the borrowers equity in the home as security.
Servicing-
All steps and operations a lender performs to keep a loan
in good standing, such as a collection of payments, payment
of taxes, insurance, and property inspections.
Settlement Costs/Settlement Closing 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 location of the land with reference to known points,
dimensions, and the location of any buildings.
Term Mortgage-
See Balloon Payment Mortgage.
Title-
A document that gives evidence of an individual’s ownership
of a property.
Title Insurance-
A policy usually issued by a title insurance company, which
insures a homebuyer against errors in the title search.
Title Search-
An examination of public 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-
Mortgage in which the borrower receives a below-market interest
rate for a specified number of years (usually 5 or 7 years),
and then a new interest rate adjusted (within limits) to
market conditions at the time.
Underwriting-
The decision to make a loan based on credit, employment,
assets, and other factors, and matching the risk to an appropriate
rate, term, and loan amount.
VA Loan-
Long-term, low-or-no-down payment loan guaranteed y the department
of Veterans Affairs. Borrowers qualified by military
services or other entitlements.
VA Mortgage Funding Fee-
Premium of up to 17/9 percent (depending on the size of the
down payment) paid on a VA loan.
Variable Rate Mortgage (VRM)-
See Adjustable Rate Mortgage.
Verification of Deposit-
Form signed by the borrower’s bank or lender verifying
the status and balance of the financial accounts.
Verification of Employment-
Form signed by the borrower’s employers verifying his/her
position and salary.
Wraparound-
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 homeowners, who then forwards
the payments to the first lender after taking the additional
amount off the top
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