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Acceleration (also: "acceleration clause")
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.
Alta Title Policy (buyers)
This is a policy that insures the lender's lien
position, in the event there are unrecorded mortgages, liens, etc.
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".
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.
Boot
Most commonly, the name given to "taxable income"
received by a party, originating from taking constructive receipt of an asset,
while participating in an Internal Revenue Code 1031 Tax Deferred Exchange.
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 moment where the property and funds legally
change hands. Also called settlement.
Closing Costs
The fees charged by an escrow company, title
company, and lender to close (complete) the tranfer of property. Common fees
charged usually include a loan origination fee, discount points, appraisal fee,
title search and insurance, survey, taxes, deed recording fee, credit report
charge and other costs assessed at settlement
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.
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.
Credit Report
A report documenting the credit history and
current status of a borrower's credit standing.
DD-214 (military)
The "DD-214" is a document verifying legal
separation from the US Armed Forces in good standing. It also indicates dates of
active duty.
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
Document Prep Fee
A fee charged by lenders for coordinating and
ultimately completing a loan package. In Las Vegas, for an escrow company to
charge a "doc-prep fee" is rare.
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 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."
Firm Commitment
A promise by FHA to insure a mortgage loam 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.
Flood Certification
This is a fee paid to a third party to search and
verify all records (usually for a lender), pertainting to the location of flood
zones in proximity to a property.
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.
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 (also see "Property Tax Impound
Account)
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 loam 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.
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.
Notary Fee
The fee charged by a state-licensed person to
authenticate the identity and signature of an individual(s), before any signing
of documents. A "seal" is imprinted on all notorized documents, along with the
notary's license number, the date if the witnessed signature, and the signature
of the notary.
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.
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.
Prepaid Interest
An amount paid up front by a borrower to cover
accrued interest on a mortgage which closes on any day other than the first day
of the month.
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.
Property Tax Impound (also "Impound
Account)
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.
REALTORŪ
A real estate broker or an associate holding
active membership in a local real estate board affiliated with the National
Association of REALTORSŪ.
Recission
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 as
Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage
loam 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.
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.
Tax Service Fee
A fee paid at the closing to a third party, that
will notify the lender when property taxes are due, how much they are, and
whether or not they are current.
Termite Report
Self-expanitory, except that after 10/01/99, a
termite inspection is now required by the FHA. The VA has required one since the
80's. Also, inspectors must be certified by the FHA and VA to do inspections.
The report must be filled out, signed, and approved before there is any
release-of-funds.
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 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.
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