 |
Mortgage Terms Mortgage Terms Below in alphabetical order... M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z Annual Percentage Rate (APR): Calculated by using a standard formula, the APR shows the cost of a loan; this is a yearly interest rate that includes the interest, points, mortgage insurance, and other fees associated with the loan. Application: The first step in the official loan approval process; this standard form is used to record important information about the potential borrower necessary to the underwriting process. Appraisal: A document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. Appraiser: A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate. ARM: Adjustable Rate Mortgage. A mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly payment amount, however, is usually subject to a Cap. Assessment: A state or local government's determination of a property's worth for tax purposes. Assessor: A government official who is responsible for determining the value of a property for the purpose of taxation. Assumable Mortgage: A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage. Balloon Mortgage: A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due (balloon payment) or is refinanced by the borrower. Bankruptcy: A legal proceeding that involves turning over a person's assets to a trustee and to be used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay. Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms. Buydown: The process of trading money for a lower mortgage rate. The borrower "buys down" the interest rate on a mortgage by paying discount points up front. Cap: A limit on how much a monthly payment or interest rate can increase or decrease during a single time period of an adjustable rate mortgage. Cash Reserves: A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender. Certificate of Occupancy: Authorization by a local government giving permission for someone to live in or use a building that has just been constructed or renovated. Certificate of Title: A document provided by a title company or attorney that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims. Closing: Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller. Closing Costs: Expenses incurred by buyers and sellers when transferring ownership of property. Closing costs include lender fees, title charges, government recording fees, escrow and pre-paid items. COFI: Cost-of-Funds-Index. A yield index based upon the cost of funds to savings & loan institutions in the San Francisco Federal Home Loan Bank District. It is one of the indexes commonly used to set the rate of adjustable rate mortgages. Commitment: An agreement, often written, in which a lender promises to lend money on certain terms for a specified period. Conventional Loan: A private sector loan, one that is not guaranteed or insured by the U.S. government. Many of these loans are secured by FHLMC or FNMA which are government regulated companies. Credit Report: A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history. Credit Score: A number representing the possibility a borrower may default on a loan; it is based upon credit history and is used to determine ability to qualify for a mortgage loan. Debt-to-Income Ratio: A comparison of gross income to housing and non-housing expenses, which typically include loans for obligations such as auto loans, student loans and credit card balances. Deed: The document that transfers ownership of a property. Deed of Trust: A legal agreement that allows the lender to ask a title or escrow company to begin foreclosure proceedings on a property if the borrower stops paying the loan. Default: The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms. Delinquency: Failure of a borrower to make timely mortgage payments under a loan agreement. Discount Point: A sum a borrower pays to a lender to decrease the interest rate of a mortgage. A point equals 1 percent of the loan amount. Down Payment: The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. Earnest Money: Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. Equity: An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan from the fair market value of the property. Escrow Account: A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc. Fair Credit Reporting Act: A federal law that governs what credit bureaus can report and for how long. It outlines procedures for correcting errors in credit reports; it requires credit bureaus to furnish copies of consumers' credit reports at their request. Fair Housing Act: A law that prohibits discrimination in housing on the basis of race, color, national origin, religion, sex, family status, or disability. Fair Market Value: The price an item would sell for, assuming the buyer and seller both have reasonable knowledge of the item's worth and are not under pressure to buy or sell. Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. FHA: Federal Housing Administration. Established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages. FHA Loan: A residential mortgage from an approved lender and insured by the Federal Housing Administration; the down payment on an FHA loan usually is less than that for a conventional mortgage; the FHA does not lend money, but nominates approved lenders. Fixed-Rate Mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change. Flood Insurance: Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan. Foreclosure: A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders. Good Faith Estimate: An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application. Hazard Insurance: Another term for homeowner’s insurance. Home Equity Line of Credit (HELOC): an open-ended loan, paid as revolving debt, that is backed by the portion of the home's value that the borrower owns outright; interest paid on a home equity line of credit is usually deductible. Home Inspection: An examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed. Home Warranty: Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure. Homeowner's Insurance: An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. HUD: The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws. HUD-1 Statement: Also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing. Index: A measurement used by lenders to determine changes to the interest rate charged on an adjustable rate mortgage. Interest: A fee charged for the use of money. Interest deduction: Interest expense on a home loan that governments allows homeowners to subtract from their income before computing their income tax. Interest Rate: The amount of interest charged on a monthly loan payment; usually expressed as a percentage. Interest Only Loan: A loan in which the installments pay only the interest that accumulates on the loan balance; the loan balance does not decrease with the payments; usually the interest-only payments last for a limited period, after which payments rise and the borrower begins paying principal in addition to interest. Insurance: Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium. Judgment: A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source. Jumbo Loan: A home loan that exceeds the limits set by Fannie Mae, Freddie Mac and Ginnie Mae, the agencies that purchase, bundle and re-sell mortgages to investors; a jumbo mortgage will carry a slightly higher interest rate than a conventional (conforming) mortgage. LIBOR Rate: London Interbank Offered Rate. The rate of interest at which banks offer to lend money to one another in the wholesale money markets in London; it is a standard financial index used in U.S. capital markets and can be found in the Wall Street Journal. Lien: A legal claim against property that must be satisfied when the property is sold. Loan: Money borrowed that is usually repaid with interest. Loan Fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties. Loan Term: The period specified in the promissory note for a borrower to pay a loan, such as a mortgage; most conventional mortgages have a loan term of 15 or 30 years. Loan-to-Value (LTV) Ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment. Lock: A lender's guarantee that the mortgage rate quoted will not change for a specific period. Lock-In: Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time. Margin: An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage. Maturity: The date on which the principal balance of a loan becomes due and payable. Mortgage: A legal agreement that uses property as collateral to secure payment of a debt; the legal agreement means that when a mortgage is on a house, the lender can take possession of the house if the borrower stops making payments. Mortgage Banker: A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac. Mortgage Broker: A company or individual who finds lenders for prospective borrowers who meet the lenders’ criteria; a mortgage broker does not make the loan, but receives payment for services. Mortgage Insurance: Also known as MI or PMI (for private mortgage insurance); a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is typically required for borrowers with a down payment of less than 20% of the home's purchase price. Mortgage Insurance Premium (MIP): A monthly payment -- usually part of the mortgage payment -- paid by a borrower for mortgage insurance. Negative Amortization: A gradual increase in mortgage debt that happens when the monthly payment does not cover the entire principal and interest due; the shortfall is added to the remaining balance to create "negative" amortization. No Documentation Loan: Also known as a No-doc loan; a loan in which the applicant provides a minimum of information - name, address, Social Security number, and contact information for an employer, if there is one; the underwriter decides on the loan based on the applicant's credit history, the appraised value of the house and size of down payment. Offer: Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing. Origination: The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal. Origination Fee: The charge for originating a loan usually calculated in the form of points and paid at closing; it usually includes the cost to prepare loan documents, check a borrower's credit history, inspect the property and sometimes conduct an appraisal. PITI: Principal, Interest, Taxes, and Insurance. The four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due. PMI: Private Mortgage Insurance. Privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price. Pre-Approve: Lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. Pre-Foreclosure Sale: allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure. Pre-Qualify: A lender informally determines the maximum amount an individual is eligible to borrow. Premium: An amount paid on a regular schedule by a policyholder that maintains insurance coverage. Prepayment: Payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty. Prepayment Penalty: A lender's charge to the borrower for paying off the loan before the end of the term; it is present in some mortgages, preventing borrowers from rapidly refinancing. Principal: The amount borrowed from a lender; doesn't include interest or additional fees. Promissory Note: A written promise to repay a loan by a specific time. Purchase Contract: A document in which a property's buyer and seller approve the price and other terms of the transfer of title; also known as an agreement of sale or a sale contract. Rate: Percentage a borrower pays for the use of money. Real Estate Agent: An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker. Realtor: A real estate agent or broker who is a member of the National Association of Realtors, and its local and state associations. Refinancing: Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate). RESPA: The Real Estate Settlement Procedures Act. A consumer protection law that requires lenders to give homebuyers advance notice of closing costs, which are payable at the closing or settlement meeting; it outlaws kickbacks and illegal markups in costs. Reverse Mortgage: A loan that allows an older homeowner to convert built-up equity into cash; the loan comes due when the owner dies, sells the house or moves out. Settlement: Another name for closing. Subprime Loan: A loan for a borrower with a less-than-perfect credit report; subprime borrowers have either missed payments on a debt or have been late with payments; lenders charge a higher interest rate to compensate for potential losses from customers who may run into trouble or default. Survey: A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Title: Ownership of real property to the exclusion of anyone else's right to claim the property. Title Insurance: Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. Title Search: A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property. Truth-in-Lending: A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan. U Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value and marketability. VA: Department of Veterans Affairs. A federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default. VA Loan: A mortgage made by an approved lender and guaranteed by the Department of Veterans Affairs, often with a low down payment. Anyone looking for speedy home financing can Contact Me with any additional questions. Of course, if you are a Real Estate Professional and you would be interested in learning how you can keep more of the profits originating from all your client's home loans, you are more than welcome to Become an Associate of My Team by visiting that page and filling out the form. Return Home for more valuable FREE information...! In order to find out what your best loan options are, you can start the process by visiting my Loan Helper page and when you submit your contact information in the form on that page, that will let me know you are interested in finding out how I can help you.
|
