GlossaryAAdjustable Rate Mortgage Also called an ARM or variable rate note, this is a note that generally offers a lower initial APR for the first year and then can change periodically based on the terms and conditions of your note. Check to see if your ARM has a periodic and lifetime rate caps so that if rates increase, your change cannot exceed a certain pre-defined limit. Annual Percentage Rate (APR) This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan. Application The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more. Appraisal A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby. Appraised value An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price. Asset Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others. BNo Terms CCap Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps." Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap. Cash-out refinance When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a "cash out refinance." Chain of title An analysis of the transfers of title to a piece of property over the years. Clear title A title that is free of liens or legal questions as to ownership of the property. Closing costs Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application. Closing statement See Settlement Statement. Comparable sales Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps." Construction loan A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses. Contingency A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector. Contract An oral or written agreement to do or not to do a certain thing. Conventional mortgage Refers to home loans other than government loans (VA and FHA). Convertible ARM An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time. Credit history A record of an individual's repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk. Credit report A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. Credit repository An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit. DNo Terms EEquity If the value of your property increases as you pay down your mortgage, you build equity that can be used to finance other major purchases, or as a down payment on a future home. FNo Terms GNo Terms HHome equity line of credit A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount. Home inspection A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Homeowners' association A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements. Homeowner's insurance An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents. HUD-1 settlement statement A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet." IInterest Deductions You may be able to deduct the interest on your home loan, as well as the federal (and sometimes, state) real estate taxes you pay annually, and monthly mortgage insurance. Consult your tax advisor for details. Because of this tax advantage, it may actually be cheaper to own than rent. JJoint Tenancy A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety. Judgment A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor. Jumbo loan A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits, currently at $417,000. This may also referred a non-conforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans. KNo Terms LLeasehold Estate A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it. Legal Description A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony. Lender A term which can refer to the institution making the loan or to the individual representing the firm. Life-time Cap For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage. Line of credit An agreement by a financial institution to extend credit up to a certain amount for a certain time to a specified borrower. Liquid asset A cash asset or an asset that is easily converted into cash. Loan A sum of borrowed money (principal) that is generally repaid with interest. Loan Origination How a lender refers to the process of obtaining new loans. Loan Servicing After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services. Loan-To-Value (LTV) The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower). Lock-In An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost. Lock-In Period The time period during which the lender has guaranteed an interest rate to a borrower. MMargin The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down. Maturity The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable. Merged credit report A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report. Mortgage A legal document that pledges a property to the lender as security for payment of a debt. NNegative Amortization The increase in the balance of a loan caused by interest payments being larger than the re-payments made on the loan. On adjustable-rate mortgages, if the monthly payments are not enough to cover both the interest and principal payments on the loan, the shortage is added to the principal. This situation occurs when the mortgage payments reach the maximum (as defined by the loan agreement) while the interest rate on the loan is increasing. OOption Arm Adjustable-rate mortgage (ARM) that enabled the borrower to select from various loan payment options every month. These mortgages are typically structured with a low introductory interest rate and as many as four major types of payment options: a fully amortizing 30-year payment, a fully amortizing 15-year payment, an interest-only payment, and a minimum payment option that adjusts after first 12 months. Option ARMs are suitable for borrowers who want maximum payment flexibility or who expect to own their property for a short time period. Also called flexible payment ARM Original Principal Balance The total amount of principal owed on a mortgage before any payments are made. Origination Fee One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays. PPeriodic Payment Cap For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period. Periodic Rate Cap For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be. Personal Property Any property that is not real property. PITI This stands for principal, interest, taxes and insurance. Points If your loan requires you to pay points or if you want to buy “down” the interest rate using points, understand that one point equals 1% of the loan amount. Private Mortgage Insurance (PMI) Lenders generally require PMI if you’re putting down less than 20% of the purchase price to secure the loan. This insurance reduces the financial exposure of the institution allowing them to offer lower down payment products. Protection against Inflation Home ownership could help you counteract rising inflation. While past performance cannot guarantee future trends, real estate has historically appreciated at a higher rate than inflation in most regions. QQualifying Ratios Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The "top" or "front" ratio is a calculation of the borrower’s monthly housing costs (principal, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as will as all other monthly debt. Quit Claim Deed A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made RRate Lock A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost. Real Estate Agent A person licensed to negotiate and transact the sale of real estate. Real Estate Settlement Procedures Act (RESPA) A consumer protection law that requires lenders to give borrowers advance notice of closing costs. Real Property Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof. Refinance Transaction The process of paying off one loan with the proceeds from a new loan using the same property as security. Remaining Balance The amount of principal that has not yet been repaid. See principal balance. Remaining Term The original amortization term minus the number of payments that have been applied. Rent Loss Insurance Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent. Reverse Mortgage A special type of loan used to convert the equity in a home into cash. The money obtained through a reverse mortgage is usually used to provide seniors with financial security in their retirement years. The reverse mortgage is aptly named because the payment stream is reversed. Instead of the borrower making monthly payments to a lender, as with a regular mortgage, a lender makes payments to the borrower. While a reverse mortgage is outstanding, the borrower owns the home and holds title to it, without having to make any monthly mortgage payments. Right of Survivorship In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant. SSecond Mortgage A mortgage that has a lien position subordinate to the first mortgage. Settlement Statement See HUD1 Settlement Statement Subdivision A housing development that is created by dividing a tract of land into individual lots for sale or lease. Subordinate Financing Any mortgage or other lien that has a priority that is lower than that of the first mortgage. Survey A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features. TTenancy In Common As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death. Term Term refers to the length of the loan in years. Third-Party Origination A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market. Title A legal document evidencing a person's right to or ownership of a property. Title Company A company that specializes in examining and insuring titles to real estate. Title Insurance Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
Title Search A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Transfer of Ownership Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.
Transfer Tax State or local tax payable when title passes from one owner to another.
Treasury Index An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
Truth-in-Lending A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Two- to Four-Family Property A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed. UNo Terms V
Vested Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn. WNo Terms XNo Terms YNo Terms ZNo Terms |