Additional
Principal: Additional Principal
occurs when the monthly payments cover only part of the interest
then due. The interest cost that is not covered is added to the
unpaid principal balance. This additional amount is additional
principal. It may also be called "negative amortization."
Adjustable
Rate Mortgage (ARM):
A
mortgage that permits the lender to adjust its interest rate periodically
on the basis of changes in a specified index.
Agreement
of Sale: The legal
contract between buyer and seller of a property including the
sale price, settlement date, and all conditions and terms of the
sale.
Amortization Schedule:
A timetable for payment of a mortgage showing
the amount of each payment applied to interest and principal and
the balance remaining.
Annual Percentage
Rate (APR): The total yearly cost of
a mortgage stated as a percentage of the loan amount; includes
such items as the base interest rate, primary mortgage insurance,
and loan origination fee (points).
Appraisal:
A professional opinion of the market value
of a property.
Appreciation:
An increase in the value of a
property due to changes in market conditions or other causes.
Assessed value:
The valuation placed upon property by a
public tax assessor for purposes of taxation. Assumable mortgage
A mortgage that can be taken over by the buyer when a home is
sold.
Balloon
Mortgage: Type of mortgage loan
where monthly payments are made until a certain date when the
remaining balance becomes payable in full.
Binder: A
preliminary agreement, secured by the payment of earnest money,
under which a buyer offers to purchase real estate.
Buy-Down: A
procedure which the seller or builder of a property permanently
or temporarily reduces the amount of interest the buyer will have
to pay by paying points to the mortgage lender at closing.
Cap:
A provision of an ARM limiting how much
the interest rate or mortgage payments may increase or decrease.
Cash reserve:
A requirement of some lenders that buyers
have sufficient cash remaining after closing to make the first
two monthly mortgage payments.
Certificate of
Occupancy: A certificate issued by
a local building department to a builder to a builder or renovator,
stating that the building is in proper condition to be occupied
and stating the legally permissible use.
Closing: The
meeting during which the title to property actually changes hands,
documents are executed and the sale of the property and/or the
loan is completed. It is usually attended by the buyer, the seller,
a bank representative, each party's attorney and the title company
representative.
Closing Costs:
Costs associated with securing a mortgage
and the sale and purchase of property. These expenses are usually
paid on the day the title to the property is formally transferred
from the seller to the buyer.
Commitment
letter: Written
agreement detailing the terms and conditions by which the bank
will lend and the borrower will borrow funds to finance a home.
Condominium:
A structure of two or more units, the interior
space of which are individually owned.
Conforming Loan:
Amount A Fannie Mae (FNMA)established maximum
loan amount based on the property's legal number of units ( 1
family, 2 family, etc. ) Loan amounts up to this maximum dollar
amount are considered "conforming loans."
Contract of Sale:
Written contract signed by both parties
in which the seller agrees to sell and the buyer agrees to buy
under certain specific terms and conditions.
Convertible ARM:
An adjustable-rate mortgage that can be
converted to a fixed-rate mortgage under specified conditions.
Cooperatives (Co-ops):
A structure of two or more units in which
the right to occupy a unit is obtained by the purchase of stock
in the corporation which owns the building.
Counteroffer:
An offer to extend credit on
different terms than the applicant originally requested.
Covenant:
Generally, almost any promise
set forth in a written agreement. Most commonly, assurances set
forth in a deed by the grantor or implied by law.
Deed:
A legal document conveying title (ownership)
to real property from one individual to another.
Easement:
The right to enter or use a portion of
the land of another for a specific purpose.
Encroachment:
Construction, such as a wall, fence, building,
etc., on the property of another.
Equity: A
homeowner's financial interest in a property. Equity is the difference
between the fair market value of a property and the amount still
owed on the mortgage.
Escrow: Funds
held by the lender, wet aside for payment of taxes and possible
property and mortgage insurance and other recurring charges against
real property. (Monthly mortgage payments usually included principal,
interest and escrow amounts.)
FHLMC
(Freddie Mac) Federal Home Loan Mortgage Corporation:
A federal agency purchasing first mortgages,
both conventional and federally insured, from members of the Federal
Reserve System and the Federal Loan Bank System.
Federal Housing
Authority (FHA): A part of the U.S.
Dept. of Housing and Urban Development which offers mortgage loan
insurance programs to buyers of qualifying properties.
FHA mortgage:
A mortgage that is insured by the Federal
Housing Administration. First Mortgage A mortgage that has first
claim in the event of default.
FNMA (Fannie Mae):
A quasi-government agency, now publicly
owned, which purchases mortgages from the original mortgage lenders.
Finance Charge:
The total dollar amount your loan will
cost you. It includes all interest payments during the term of
the loan, any interim interest paid at closing, your origination
fee and any other charges paid to the lender or to a third party
or an incident or a condition of the extension of credit. Certain
charges like the appraisal, credit report and the title search
charges are not included in the finance charge calculation.
Fixed Rate Mortgage:
A mortgage having a rate of interest which
remains the same for the life of the mortgage.
Flood Insurance:
Insurance indemnifying against loss by
flood damage, required by lenders in areas designated (federally)
as potential flood areas.
Foreclosure:
The legal remedy used by a mortgage lender
to assume ownership of a property when the required loan payments
are not made.
Good
Faith Estimate: An estimate
of charges which a borrower is likely to incur in connection with
a settlement.
Hazard
Insurance: Insurance protecting
against loss to real estate caused by fire, some natural causes,
vandalism, etc., depending upon the terms of the policy.
Housing Ratio:
The ratio of the monthly housing payment
(PITI) to total gross monthly income. Also called Payment-to-Income
Ratio or Front-End-Ratio.
HUD: The
U.S. Department of Housing and Urban Development.
Index:
A published interest rate not controlled
by the lender to which the interest rate on an Adjustable Rate
Mortgage (ARM) is tied. The index and the interest rate linked
to it may increase or decrease.
Interest: A
share or right in some property. Also, money charged for the use
of money (principal).
Lien:
An encumbrance against property for money
due, either voluntary or involuntary.
Life of Loan Cap:
The maximum interest rate that can be charged
during the life of the loan. Also called Life Cap of Life Rate.
Lifetime Cap:
A provision of an ARM that limits the highest
rate that can occur over the life of the loan.
Loan-to-Value (LTV):
The ratio of the amount of your loan to
the value of the home.
Lock-in: A
written agreement guaranteeing the home buyer a specified interest
rate provided the loan is closed within a set period of time.
The lock-in also usually specifies the number of points to be
paid at closing.
Margin:
The number of percentage points a lender
adds to the index value to calculate the ARM interest rate at
each adjustment period.
Mortgage: A
legal document that pledges a property to the lender as security
for payment of a debt.
Mortgage Disability
Insurance: A disability insurance policy
which will pay the monthly mortgage payment in the event of a
covered disability of an insured borrower for a specified period
of time.
Mortgage Insurance:
Insurance written by an independent mortgage
insurance company (MIC) protecting the mortgage lender against
loss incurred by a mortgage default.
Mortgage Life Insurance:
A term life insurance policy that covers
the declining balance of a loan secured by a mortgage, and is
payable upon death of a covered borrower.
Mortgagee:
The person or company who receives the
mortgage as a pledge for repayment of the loan. The mortgage lender.
Mortgagor:
The mortgage borrower who gives the mortgage
as a pledge to repay.
Non-Conforming
Loan: Conventional home mortgages
not eligible for sale and delivery to either Fannie Mae (FNMA)
or Freddie Mac(FHLMC) because of various reasons, including loan
amount, loan characteristics or underwriting guidelines. Non-conforming
loans usually incur a rate and origination fee premium.
Note: A
written agreement containing a promise of the signer to pay to
a named person, or order, or bearer, a definite sum of money at
a specified date or on demand.
Origination
Fee: A fee imposed by a lender
to cover certain processing expenses in connection with making
a real estate loan. Usually a percentage of the amount loaned,
such as one percent.
Owner financing:
A property purchase transaction in which
the property seller provides all or part of the financing.
Planned
Unit Developments (PUD): A subdivision
of five or more individually owned lots with one or more other
parcels owned in common or with reciprocal rights in one or more
other parcels.
PITI:
Principal, interest, taxes
and insurance-the components of a monthly mortgage payment.
Points:
Charges levied by the mortgage
lender and usually payable at closing. One point represents 1%
of the face value of the mortgage loan.
Prepaids: Those
expenses of property which are paid in advance of their due date
and will usually be prorated upon sale, such as taxes, insurance,
rent, etc.
Prepayment Penalty:
A charge imposed by a mortgage lender on
a borrower who wants to pay off part or all of a mortgage loan
in advance of schedule.
Principal:
Amount of debt, not including
interest. The face value of a note or mortgage.
Private mortgage
insurance (PMI): Insurance provided
by non-government insures that protects lenders against loss if
a borrower defaults. Fannie Mae generally requires private mortgage
insurance for loans with loan-to-value (LTV) percentages greater
than 80%
Qualifying
Ratios: The ratio of your fixed
monthly expenses to your gross monthly income, used to determine
how much you can afford to borrow.
Rate
Cap: A limit on how much the
interest rate can change, either at each adjustment period or
over the life of the loan.
Rate Lock-in:
A written agreement in which the lender
guarantees the borrower a specified interest rate, provided the
loan closes within a set period of time.
Refinancing:
The process of paying off one loan with
the proceeds from a new loan using the same property as security.
Residential Mortgage
Credit Report: A report requested by
your lender that utilizes information from at least two of the
three national credit bureaus and information provided on your
loan application.
Seller-take-back:
An agreement in which the owner of
a property provides financing, often in combination with an assumed
mortgage.
Survey: A
print showing the measurements of the boundaries of a parcel of
land, together with the location of all improvements on the land
and sometimes its area and topography.
Tenants-by-Entirety:
A form of ownership in which husband and
wife are co-owners with rights of survivorship.
Tenants-in-Common:
An undivided interest in property taken
by two or more persons. The interest need not be equal. Upon death
of one or more persons, there is no right of survivorship.
Title: The
evidence one has of right to possession of land.
Title Insurance:
Insurance against loss resulting from defects
of title to a specifically described parcel of real property.
Title Search:
An investigation into the history of ownership
of a property to check for liens, unpaid claims, restrictions
or problems, to prove that the seller can transfer free and clear
ownership.
Total Debt Ratio:
Monthly debt and housing payments divided
by gross monthly income. Also known as Obligations-to-Income Ratio
or Back-End Ratio.
Truth-in-Lending
Act: A federal law requiring a disclosure
of credit terms using a standard format. This is intended to facilitate
comparisons between the lending terms of different financial institutions.
Veterans
Administration (VA):
A government agency guaranteeing mortgage
loans with no down payment to qualified veterans.
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