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Adjustable Rate Mortgage (ARM) is a mortgage in which
the interest rate is adjusted periodically based on a pre-selected index and
terms.
Amortization means loan payment by equal periodic
payments calculated to pay off the debt at the end of a fixed period, including
accrued interest on the outstanding balance.
Annual Percentage Rate (APR) an 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 points and other credit costs. This APR allows homebuyers 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." If at all possible,
the appraisal should be made by a third party licensed appraiser. (Many
"Second Mortgage" or "Home Equity Loan" companies have
in-house appraisers that are employees of the lender.)
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 costs and new, possibly
higher market-rate interest charges will apply. In all loans closed after 1990,
the buyer must meet the same conditions that the original buyer qualified under,
and must notify the lender of the change in ownership.
Broker (Loan or Mortgage Broker) an
individual in the business of assisting in arranging funding or negotiating
contracts for a client but who does not loan the money himself. Loan or Mortgage
Brokers usually charge a fee or receive a commission for their services.
Closing the meeting between the buyer, seller and lender
or their agents where the property and funds legally change hands. Also called
settlement.
Closing Costs usually include an origination fee,
discount points, appraisal fee, title search and insurance, survey, taxes, deed
recording fee, credit report charge and other costs assessed at settlement. The
costs of closing usually are about 3 percent to 6 percent of the mortgage
amount.
Commitment 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 for
financing the cost of construction. The lender advances funds to the builder at
periodic intervals as the work progresses.
Conventional Loan a mortgage not insured by FHA or
guaranteed by the VA or Farmers Home Administration (FMHA).
Credit Report A report documenting the credit history
and current status of a borrowers credit standing.
Dept-To-Income Ratio the ratio, expressed as a
percentage, which results when a borrowers 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).
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.
Down Payment amount paid at closing in certified funds
not financed in the mortgage by the buyer. The buyer can put down as much as
they want if the loan does not fall below the lenders minimum loan amount.
Conventional Loans may have as little as 3% down (if the buyer qualifies). Most
Insured Conventional Loans will have a down payments of 5%, 10% or 15%. A
typical conventional loan has a minimum of 20% down or you will pay PMI. There
are other loan programs (FHA VA, BOND and others) with little or no down payment
if you are eligible.
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 typically it is the money given by the
buyer to a third party such as a Real Estate Company, Title Company, or Escrow
Agent (should be bonded) that is credited against the sales price to bind a
transaction or assure compliance on terms and conditions of the contract. Read
all items carefully regarding forfeiture of earnest deposit.
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 balance between the current market value and
the amount owed on the mortgage.
Escrow refers to a neutral third party that carries out
the instructions of both the buyer and seller to handle all the paperwork of
settlement or "closing." Escrow may also refer to an account held by
the lender into which the homebuyer pays money for tax or insurance payments.
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.
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, they are generous enough to handle moderate-priced homes
almost anywhere in the country.
FHA Mortgage Insurance requires a small fee (up to 2.25
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 9.5
percent $75,000 30-year fixed-rate FHA loan, this fee would amount to either
$2,850 at closing or an extra $31 a month for the life of the loan. In addition,
FHA mortgage insurance requires an annual fee of 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.
Fixed Rate Mortgage a mortgage on which the interest
rate is set for the term of the loan.
Foreclosure a legal procedure in which property securing
debt is sold by the lender to pay the defaulting borrowers debt.
Gross Monthly Income the total amount the borrower earns
per month, before any expenses are deducted.
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 a fire,
windstorm and the like.
HUD short for the U. S. Department of Housing and Urban
Development. HUD has properties for sale usually acquiring them through a bank
foreclosure (repossessed property). Questions about HUD are addressed on a web
page on our site. Go to HUD FAQ's for more information.
Lien a claim upon a piece of property for the payment or
satisfaction of a debt of obligation.
Loan-To-Value-Ratio the relationship between the amount
of the mortgage loan and the apprised 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.
Mortgage Insurance money paid to insure the mortgage
when the down payment is less than 20 percent. See private mortgage insurance,
FHA mortgage insurance.
Origination Fee the fee charged by the 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.
PITI principal, interest, taxes 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
(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 sellers existing escrow account. Can include taxes, hazard
insurance, private mortgage insurance and special assessments.
Prepayment a privilege in a mortgage permitting the
borrower to make in advance of their due date costs once after application and
once prior to or at settlement (closing). The law requires lenders to furnish
the information after application only.
Prepayment Penalty money charged for an early repayment
of debt.
Principal the amount of debt, not counting interest left
on a loan.
Private Mortgage Insurance in the event that you do not
have a 20 percent down payment, lenders will allow a smaller down payment as
low as 3 percent in some cases. With the smaller down payment loans, however,
borrowers are usually required to carry private mortgage insurance.
Realtorฎ a Real Estate Broker
or an associate holding active membership in a local Real Estate board
affiliated with the National Association of REALTORSฎ
and subscribes to its strict Code of Ethics.
Recision 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.
Settlement/Settlement Costs see closing costs.
Title a document that gives evidence of an
individuals ownership of property.
Title Insurance a policy, usually issued by a title
insurance company, which insures a homebuyer against errors in the title search.
The cost of the policy is usually based on the value of the property, and is
often born by the purchaser and/or seller.
Title Search an examination of municipal records to
determine the legal ownership of property which is usually 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.
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 of other entitlements.
VA Mortgage 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. Variable
Rate Mortgage (VRM)
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